Homework Help

Business Law Chapter 20 Homework Course Performance The Terms Can Also Explained

Page Count
13 pages
Word Count
9405 words
Book Title
Business Law: Text and Cases 14th Edition
Authors
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
1
Chapter 20
The Formation of Sales and Lease Contracts
INTRODUCTION
The Uniform Commercial Code (UCC) is probably the most important piece of commercial legislation in the
history of the United States. The drafters of the UCC comprised a sophisticated group of legal scholarsKarl
Llewellyn, Grant Gilmore, Homer Kripke, and Soia Mentschikoff. The UCC created a nearly uniform body of law in
each state, greatly facilitating interstate commerce.
Because of its nearly uniform applicability, your students may be confused about whether the UCC is a state
or federal law. As discussed in Chapter 1, the UCC was (and remains) a joint effort of the National Conference of
Commissioners on Uniform State Laws and the American Law Institute. All its articles have been adopted with few
changes by every state (except Louisiana, which has not adopted Articles 2 and 2A) and the District of Columbia.
Despite differences, the UCC contains many similarities to the common law contract principles discussed in the
previous chapters. Indeed, such similarities should be expected, because the UCC represents the codification of
much of the common law of contracts.
This chapter also briefly reviews the United Nations Convention on Contracts for the International Sale of
Goods (CISG) and special provisions in international contracts.
2 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
CHAPTER OUTLINE
I. The Uniform Commercial Code
A. COMPREHENSIVE COVERAGE OF THE UCC
The UCC covers all of the phases of an ordinary sale or lease of goods.
B. A SINGLE, INTEGRATED FRAMEWORK FOR COMMERCIAL TRANSACTIONS
The UCC covers the formation of a sales or lease contract (Article 2 or 2A), payment (Articles 3, 4, and
4A), title documents during storage (Article 7), and security for unpaid amounts (Article 9).
ADDITIONAL BACKGROUND
The Uniform Commercial Code
Of all the attempts in the United States to produce a uniform body of laws relating to commercial
transactions, none has been as comprehensive or successful as the Uniform Commercial Code (UCC).
The UCC was the brainchild of William Schnader, president of the National Conference of Commissioners on
Uniform State Laws (NCC).
When the drafting of the UCC began in 1945, its chief reporter was Karl Llewellyn of the Columbia
University Law School. Llewellyn was instrumental in shaping the final format of the UCC and was
responsible for reviewing and revising all of its provisions, as well as establishing its scope, objectives, and
style. According to Schnader, in a 1967 article discussing the preparation and enactment of the UCC,
Llewellyn was “the outstanding man in the United States to undertake this task” because he was “the type of
law professor who was never satisfied unless he knew exactly how commercial transactions were carried on
in the market place. He insisted that provisions of the Code should be drafted from the standpoint of what
actually takes place from day to day in the commercial world rather than from the standpoint of what
appeared in statutes and decisions.”a Yale scholar Grant Gilmore said of Llewellyn:
It was, I believe, Karl’s non-systematic, particularizing cast of mind and his case-law
orientation which gave to the statutes he drafted . . . their profound originality. His instinct
appeared to be to draft in a loose, opened-ended style; his preferred solutions turned on ques-
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 3
Soia Mentschikoffa legal scholar, a practicing attorney, the first woman partner at a major Wall Street
law firm, Harvard Law School’s first woman faculty member, dean of the University of Miami Law School, and
Llewellyn’s wife—was the Associate Chief Reporter for the UCC.
The first draft of the UCC was issued with the endorsement of the American Bar Association in 1952 and
was revised in 1957 and 1958 to incorporate a number of changes that had been recommended by the New
York Law Revision Commission. Between 1958 and 1964, the UCC was reviewed and substantially enacted
II. The Scope of Articles 2 (Sales) and 2A (Leases)
A. ARTICLE 2THE SALE OF GOODS
When the UCC speaks, its principles apply. When the UCC is silent, other state statutes and the
common law apply.
Article 2 deals with sales of goodsnot real property, services, or intangible property (stocks and
bonds).
1. What Is a Sale?
2. What Are Goods?
a. Tangible and Movable Property
Goods are tangible and movable.
With respect to goods associated with real estate, a contract for a sale of minerals, oil, or
b. Goods and Services Combined
When goods and services are combined, courts determine which is predominantthe good
or the service.
3. Who Is a Merchant?
In some cases, special standards apply to merchants. A merchant for one type of goods is not
necessarily a merchant for another type. A merchant is
4 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
B. ARTICLE 2ALEASES
Article 2A covers any transaction that creates a lease of goods, as well as subleases of goods [UCC 2A
102, 2A103(k)]. Article 2A echoes the principles of Article 2, but varies to reflect differences between
sale and lease transactions.
1. Definition of a Lease Agreement
A lease agreement is a lessor and a lessee’s bargain with respect to a lease of goods as found in
2. Consumer Leases
Some provisions of Article 2A apply only to consumer leases, which require
A lessor who regularly engages in the business of leasing or selling.
A lessee who lease goods “primarily for a personal, family, or household purpose.”
Total lease payments that are less than $25,000 [UCC 2A103(1)(e)].
C. FINANCE LEASES
Under Article 2A, unlike ordinary contract law, a lessee’s obligations under a commercial finance
lease are irrevocable and independent from the financer’s obligations [UCC 2A407].
ENHANCING YOUR LECTURE
  FINANCE LEASES AND
THE “HELL OR HIGH WATER PAYMENT TERM
 
As mentioned, in a finance lease, the lessee is obligated to pay the lessor, or financer, no matter what,
oras some say—come hell or high water. Typically, this “hell or high water” payment obligation is specified
in the lease agreement. For example, in one finance lease, a provision stated that the lessee could not
“withhold, set off, or reduce such payments for any reason.” Yet what if a lessee arranges to lease equipment
under a finance lease and the equipment turns out to be defective? Must the lessee still make the payments?
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 5
or performance of the leased equipment.”a
THE BOTTOM LINE
The fact that ATIC was obligated to make the lease payments regardless of the condition of the
equipment does not mean that ATIC was without a remedy. As the court noted in this case, “ATIC has raised
triable issues of fact [issues that could go to trial] as to its equipment problems, but . . . they are properly
brought only against the manufacturer,” not against the lessor (Siemens).
III. The Formation of Sales and Lease Contracts
The following sections summarize how the UCC changes the effect of the common law of contracts.
A. OFFER
1. Open Terms
A sales or lease contract will not fail for indefiniteness even if one or more terms are left open, as
long as
The parties intended to make a contract.
There is a reasonably certain basis for the court to grant an appropriate remedy [UCC 2
204(3), 2A204((3)].
a. Open Price Term
If the parties have not included a price term, a court will set a reasonable price at the time for
b. Open Payment Term
If the payment is not specified, payment is due at the time and place at which the buyer will
receive the goods [UCC 2310(a)].
c. Open Delivery Term
d. Duration of an Ongoing Contract
If unspecified successive performances are due, either party can terminate the relationship on
reasonable notice [UCC 2309(2), (3)].
e. Options and Cooperation with Regard to Performance
6 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
f. Open Quantity Terms
If the quantity term is left open, a court will have no basis for determining a remedy [UCC 2
306].
1) Requirements Contracts
Requirements contracts are exceptionsthe quantity is the amount that occurs during a
normal production year, and the actual quantity cannot be unreasonably disproportionate.
2) Output Contracts
Output contracts are also exceptions.
2. Merchant’s Firm Offer
a. When a Merchant’s Firm Offer Arises
This arises when a merchant gives assurances that an offer will remain open. The offer is
b. Requirements for Firm Offer
The offer must be written and be signed by the offeror.
B. ACCEPTANCE
Acceptance may be by a prompt shipment of goods or a promise to ship [UCC 2206(1)(b)]. A shipment
of nonconforming goods is both an acceptance and a breach, unless the seller seasonably notifies the
buyer that the nonconforming shipment does not constitute an acceptance and is offered only as an
accommodation.
1. Communication of Acceptance
2. Additional Terms
If an offeree’s response indicates a definite acceptance, a contract is formed, even if the ac-
ceptance includes terms in addition to or different from the offer [UCC 2207(1)].
a. Rules When One Party or Both Parties Are Nonmerchants
If the modifications are not conditional, and one of the parties is a merchant, the contract is
formed according to the terms of the original offer.
b. Rules When Both Parties Are Merchants
If the modifications are not conditional, and both parties are merchants, the additional terms
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 7
CASE SYNOPSIS
Case 20.1: C. Mahendra (N.Y.), LLC v. National Gold & Diamond Center, Inc.
C. Mahendra (N.Y.), LLC, is a New York wholesaler of loose diamonds. National Gold & Diamond Center,
Inc., is a California seller of jewelry. Over a ten-year period, National placed orders, totaling millions of dollars,
with Mahendra by phoning and negotiating the terms. Mahendra shipped diamonds “on memorandum” for
National to examine and decide whether to keep. Mahendra then sent invoices for the selected diamonds.
Both the memoranda and invoices stated, “You consent to the exclusive jurisdiction of the * * * courts
..................................................................................................................................................
Notes and Questions
In allowing a party to condition its acceptance on additional terms, does contract law make
negotiations more or less efficient? Explain your answer. Conditional acceptances make negotiations
more efficient because they allow the parties to reach an agreement more quickly. A conditional acceptance
acts as a counteroffer. Thus, to reach an agreement, the original offeror need only accept the terms of the
conditional acceptance. That requires one less step than making another offer and then waiting for it to be
accepted.
Why would a business like Mahendra want its purchase orders to include terms such as those at
issue in this case? Why would a business like National want to exclude such terms? A business would
want such terms included in a purchase order so that if the order were canceled, or unpaid, or any other
c. Prior Dealings between Merchants
Courts also consider the parties’ prior dealings in contracts between merchants.
d. Conditioned on Offeror’s Assent
A response is not an acceptance if the modifications are conditional on the offeror’s assent.
8 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
e. Additional Terms May Be Stricken
Also, if conduct by both parties recognizes the existence of a contract, this is sufficient to
C. CONSIDERATION
The UCC requires no consideration for an agreement modifying a contract [UCC 2209(1), 2A208(1)].
Of course, modification must be sought in good faith [UCC 1203].
D. THE STATUTE OF FRAUDS
The UCC requires a writing for a contract for a sale of goods to be enforceable when the price of the
goods is $500 or more [UCC 2201]a lease requires a writing for payments of $1,000 or more [UCC
2A201(1)]signed by the party against whom enforcement is sought
ADDITIONAL BACKGROUND
$500
Under the UCC’s statute of frauds [UCC 2201], a contract for a sale of goods for the price of $500 or
more is not enforceable unless it is in writing and signed by the party against whom enforcement is sought.
The price$500is the amount designated in all states that have adopted UCC 2201. For example, the
following is the text of Michigan Statutes Section 440.2201(1) (Mi. St. § 440.2201(1)):
440.2201 Formal requirements; statute of frauds
Sec. 2201. (1) Except as otherwise provided in this section a contract for the sale of goods for the
price of $500 or more is not enforceable by way of action or defense unless there is some writing
Five hundred dollars was the amount designated in UCC 2-201 when the UCC was issued in 1952. This
provision was based on Section 4 of the Uniform Sales Act (USA). The following is the text of USA 4(1), as it
appeared in Section 33-105(1) of the Indiana Statutes (Ind. St. § 33-105(1)):
Goods and Choses in ActionContract to sell or sale1) A contract to sell or a sale of any goods
or choses in action of the value of five hundred dollars ($500) or upwards shall not be enforceable by
To be enforceable under this statute, a contract for a sale of goods had to be in writing if the price of the
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 9
goods was, again, at least $500. The Uniform Sales Act was issued in 1896.
Will $500 buy today what it would buy in 1896? Will it buy today what it would buy in 1952?
Obviously, the answer to both questions is no. Between 1896 and 1980, the price level has increased five
times; between 1890 and today, the level has increased six times. Today, $500 is equivalent to one-sixth of
the value of goods transacted for at the time of the Uniform Sales Act. In other words, it would take $3,000
today to buy what $500 would buy in 1896.
1. Sufficiency of the Writing
A writing is sufficient if it indicates that a contract was intended and it is signed by the party against
whom enforcement is sought. A contract is not enforceable beyond the quantity of goods shown in
the writing. Other terms can be proved by oral testimony.
2. Special Rules for Contracts between Merchants
In a transaction between merchants, the requirement of a writing is satisfied if one of them sends a
signed, written confirmation to the other. If the recipient does not object in writing within ten days,
the confirmation will be enforceable against him or her.
ENHANCING YOUR LECTURE
  CAN AN EMPLOYEES E-MAIL
CONSTITUTE A WAIVER OF CONTRACT TERMS?  
Under UCC 2209, an agreement that excludes modification except by a signed writing cannot be
otherwise modified. If the written-modification requirement is contained in a form supplied by one merchant to
another, the other party must separately sign the form for it to be binding. This rule has an exception, though,
which can be significant in the online environment. Under the UCC, an attempt at modification that does not
meet the writing requirement may operate as a waiver [UCC 2209(4)]. In other words, the parties can waive,
or give up, the right to require that contract modifications be in a signed writing. Can an employee’s e-mail
communications form a waiver of a contract’s written modification requirement? This issue arose in Cloud
Corp. v. Hasbro, Inc.a
10 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
THE CONTRACT TERMS AND THE PARTIES RELATIONSHIP
Cloud Corporation contracted to supply packets of a special powder to Hasbro, Inc., for use in Hasbro’s
new “Wonder World Aquarium.” At the time of their initial agreement, Hasbro sent a letter to Cloud containing
a “terms and conditions” form, which stated that Cloud, the supplier, could not deviate from a purchase order
without Hasbro’s written consent. Cloud signed and returned that form to Hasbro as requested, and Hasbro
began placing orders. Each time Hasbro ordered packets, Cloud sent back an “order acknowledgmentform
confirming the quantity ordered.
WAS THE EMPLOYEES E-MAIL A WAIVER?
Ultimately, a federal appellate court held that because Hasbro’s employee had referred to the additional
packets in at least one e-mail, Hasbro must pay for them. According to the court, the employee’s e-mail alone
could be sufficient to satisfy the requirement of written consent to modify the contract. Even if it did not,
FOR CRITICAL ANALYSIS
How might the parties to a sales contract prevent their subsequent e-mail communications from
waiving the contract’s explicit modification requirements? (Hint: How can the parties prevent
contract disputes generally?)
3. Exceptions
A contract otherwise subject to the Statute of Frauds will be enforceable despite the absence of a
writing if
a. Specially Manufactured Goods
The contract is for
Specially manufactured goods for a particular buyer.
The goods are not suitable for resale to others in the ordinary course of the seller’s
business.
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 11
b. Admissions
The party against whom enforcement of a contract is sought admits in pleadings, testimony, or
other court proceedings that a contract for sale was made.
c. Partial Performance
E. PAROL EVIDENCE
Generally, if the parties to a contract set forth its terms in writing, the terms cannot be contradicted by
evidence of prior agreements or contemporaneous oral agreements. If the writing is not fully integrated
i.e., some terms are missingit can be explained or supplemented by consistent additional terms.
1. Course of Dealing and Usage of Trade
The terms can be explained or supplemented by course of dealing and usage of trade [UCC 2202,
2. Course of Performance
The terms can also be explained or supplemented by the parties’ course of performance [UCC 2
208(1), 2A207(1)].
3. Rules of Construction
If these factors contradict each other, the order of priority is
Express terms.
Course of performance.
F. UNCONSCIONABILITY
If a court finds a contract or clause to be unconscionable at the time it was made, it can
Refuse to enforce the contract.
Enforce the contract without the clause.
Limit the application of the clause to avoid an unconscionable result [UCC 2302, 2A108].
CASE SYNOPSIS
Case 20.2: Jones v. Star Credit Corp.
The Joneses, welfare recipients, agreed to buy a freezer for $900 as the result of a salesperson’s visit to
their home. Sales taxes and financing charges raised the total price to $1,234.80. The freezer’s retail value
was about $300. Through a novation, the parties replaced the seller with Star Credit Corp. After paying about
$620 on the contract, the Joneses filed a suit in a New York state court against Star to have the contract
declared unconscionable and reformed. Star claimed that about $820 remained due.
12 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
The court ruled in favor of the Joneses. The contract was reformed so that they were required to make no
further payments. The court considered the disparity between the purchase price and the retail value, the
credit charges that alone exceeded the retail value, and the sellers’ knowledge of the buyers’ limited
resources.
..................................................................................................................................................
Notes and Questions
This is one of the most frequently cited and quoted cases in consumer law. The case is unusual only
because the holding was contrary to older case law. What made the contract unconscionable? Under the
circumstances described here (the known economic condition of the buyers), selling an item for $1,200 that
retailed for $300. What is the remedy? Letting the buyer keep the refrigerator for the payments already
made (which also exceeded the retail price).
Why didn’t the court rule that the buyers, as adults, had made a decision of their own free will and
therefore were bound by the terms of the contract, regardless of the difference between the freezer’s
contract price and its retail value? The court’s decision in this case represents an exception to the rule that
IV. Contracts for the International Sale of Goods
The 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG) governs
contracts for the international sale of goods between firms or individuals located in different countries if
the countries of the parties to the contract have ratified the CISG (and if the parties have not agreed that
some other law will govern their contract).
Essentially, the CISG is to international sales contracts what Article 2 of the UCC is to domestic sales
contracts.
A. A COMPARISON OF CISG AND UCC PROVISIONS
Differences between the CISG and the UCC in regard to contract formation include
1. The Mirror Image Rule
The definition of “material alteration” covers virtually any differences in terms between an offer and
acceptance, in effect imposing a mirror-image rule.
CASE SYNOPSIS
Case 20.3: VLM Food Trading International, Inc. v. Illinois Trading Co.
VLM Food Trading International, Inc., a Canadian seller, sold frozen potatoes to Illinois Trading Co., a
U.S. buyer. For each transaction, Illinois Trading sent a purchase order setting out the terms, VLM responded
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 13
with a confirming e-mail, VLM shipped the order, Illinois Trading accepted it, and VLM followed up with a
“trailing” invoice. Only the trailing invoice included a provision that the buyer would be liable for attorney’s fees
if it breached the contract. When Illinois Trading did not pay for nine shipments, VLM filed a suit in a federal
district court to recover the unpaid amount plus attorney’s fees. Illinois Trading admitted that it owed the price
for the potatoes but contested liability for attorney’s fees. The court ruled in the defendant’s favor. VLM
appealed.
The U.S. Court of Appeals for the Seventh Circuit affirmed. “Because Illinois Trading never expressly
assented to the attorney’s fees provision in VLM’s trailing invoices, * * * that term did not become a part of
the parties’ contracts.” The details of the parties’ transactions, their negotiations and exchanged documents,
and the course of their dealing met the requirements for the formation of contracts under the CISG. As for the
attorney’s fees provision in the trailing invoices, “Illinois Trading never made any statements indicating its
acceptance of the proposed attorney’s fees modification” nor indicated its acceptance by conduct.
..................................................................................................................................................
Notes and Questions
If VLM had not sent confirming e-mails, what would have indicated its acceptance of Illinois
Trading’s offer? If there had been no e-mail confirmations of Illinois Trading’s purchase orders from VLM,
the delivery of the potatoes to the buyer would have constituted the seller’s acceptance of the offer.
Under the United Nations Convention for the International Sale of Goods (CISG)and at common law
and under the UCCacceptance of an offer to contract for a sale of goods can be made by words or conduct,
including a prompt shipment of conforming goods. As noted by the U.S. Court of Appeals for the Seventh
Circuit in this case, ““VLM had already bound itself to the contracts proposed by Illinois Trading when it
confirmed Illinois Trading’s purchase offer by e-mail.”
2. Irrevocable Offers
Under Article 16 of the CISG, an offer can be irrevocable without a signed writing if the offeror says
3. The Writing Requirement
4. Time of Contract Formation
An acceptance is effective only on the offeror’s receipt (not on its dispatch, as at common law and
under the UCC).
B. SPECIAL PROVISIONS IN INTERNATIONAL CONTRACTS
1. Choice-of-Language Clause
A choice-of-language clause designates the official language by which a contract will be inter-
preted, whether or not there is a disagreement.
2. Forum-Selection Clause
A forum-selection clause indicates what court will have jurisdiction over any dispute.
3. Choice-of-Law Clause
In a choice-of-law clause, the parties choose the law that will govern their contract (the law must be
4. Force Majeure Clause
Force majeure clauses stipulate that in addition to acts of God, other eventualities may excuse a
party from liability for nonperformance.
ADDITIONAL BACKGROUND
United Nations Convention on Contracts for the International Sale of Goods,
Article 19
The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an
authoritative source for some of the principles discussed in this chapter. The following is Article 19.
Article 19
(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other
modifications is a rejection of the offer and constitutes a counter-offer.
(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms
(3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the
goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are
considered to alter the terms of the offer materially.
TEACHING SUGGESTIONS
1. Discuss the need to modernize common law contract rules in commercial settings. It is this need that
2. Emphasize at the beginning of the discussion of sales contracts that students must know the definitions of
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 15
3. Students should be reminded that a contract for a sale of goods is governed by the same common law
that applies to other contracts. That is, the law that was studied in the previous unit also applies to contracts
Cyberlaw Link
Would the electronic delivery of software, in exchange for payment, be considered a sale of
goods?
Should a choice-of-law or a forum-selection clause be given the same consideration in a contract
entered into over the Internet as if it were part of a contract agreed to through more traditional
means?
DISCUSSION QUESTIONS
1. Is a contract in which a sale of services and goods combined subject to the UCC? Under some
interpretations, yes. Serving food or drink to be consumed either on or off restaurant premises involves a sale of
2. Who, for the purposes of UCC Article 2, is a merchant? A merchant is a person who acts in a mercantile
capacity, possessing or using an expertise specifically related to the goods being sold. That is, a merchant is: (1) a
person who deals in goods of the kind involved in the contract (a retailer, a wholesaler, a manufacturer); (2) a person
who, by occupation, holds himself or herself out as having knowledge and skill peculiar to the practices or goods in-
3. What conditions must be satisfied in order for a contract to be formed when certain terms are left
open? What terms (in addition to price) can be left open? The UCC states that a sales or lease contract will not
fail for indefiniteness even if one or more terms are left open as long as (1) the parties intended to make a contract,
and (2) there is a reasonably certain basis for the court to grant an appropriate remedy [UCC 2204(3), 2A204(3)].
Thus, if one party can prove that the parties intended a to make a contract (through e-mail messages,
correspondence, verbal exchanges, and the actions of the parties, for example), certain terms can be left open. If too
4. How do the common law and the UCC differ regarding an offeree’s acceptance that includes terms in
addition to or different from the offer? At common law, acceptance must exactly mirror the offerany difference in
5. How does the UCC’s obligation of good faith relate to the application of the principles concerning
additional terms? The parties to a contract have an obligation to perform in good faith [UCC 1203]. Similar to the
6. How do UCC provisions differ from the common law regarding modification of contracts? Unlike the
common law rule that contract modification must be supported by new consideration, the UCC requires no
consideration for an agreement modifying a contract. Modification must be sought in good faith (a shift in the market
7. Discuss, in the context of the parol evidence rule, “consistent additional terms,” “course of dealing,”
“usage of trade” and “course of performance.” The parol evidence states that if the parties to a contract set forth
its terms in a writing expressing offer and acceptance of the deal or in a writing intended as their final expression, the
terms cannot be contradicted by evidence of prior negotiations or agreements or contemporaneous oral agreements.
The terms can be explained or supplemented, however, by consistent additional terms, course of dealing, usage of
8. Discuss unconscionability under the UCC. Unconscionability was a pre-UCC doctrine codified by the
UCC. An unconscionable contract is one that is so unfair and one-sided that enforcing it would be unreasonable. If a
9. How do Article 2A’s provisions differ from Article 2’s? Article 2A applies to leases of goods. Article 2A
does not provide for acceptance by shipment of goods or for additional terms in an acceptance or confirmation.
Under Article 2A, an oral lease is enforceable if the lease payments are less than $1,000. Article 2A does not say
whether a lease as modified needs to satisfy the Statute of Frauds. Article 2A replaces Article 2’s implied warranty of
10. What is the United Nations Convention on Contracts for the International Sale of Goods (CISG)? The
CISG is the international version of Article 2 of the Uniform Commercial Code and governs international sales transac-
ACTIVITY AND RESEARCH ASSIGNMENTS
1. Have students research the differences between the UCC and the version of the UCC that their state has
adopted.
2. The UCC permits courts to find contracts or contract clauses unconscionable, but the term unconscionability
is not defined in the UCC. Its interpretation is left to the courts. Have students research how the courts of their state
have interpreted the term. What contracts have been held to be unconscionable in their state?
EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT
Footnote 2: Peter Amaya was a medical student at Indiana University School of Medicine (IUSM) in
Indianapolis when he was accused of cheating on an exam. Amaya denied the charge, but IUSM Dean Craig Brater
dismissed him from the school. Amaya filed a complaint in an Indiana state court against the dean and IUSM, alleging
18 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
breach of contract and breach of good faith and fair dealing. The court granted IUSM's motion for summary judgment.
Amaya appealed.
In Amaya v. Brater, a state intermediate appellate court affirmed. Amaya’s separate causes of action for
alleged breaches of contract and the duty of good faith and fair dealing were “inapposite.” On the sole claim for
breach of contract, Amaya failed to show that IUSM’s decision to dismiss him was not a “rational determination.”
The UCC’s duty of good faith and fair dealing may not apply to the contract that exists between a university
and its students, but the school cannot act in bad faith. How is “bad faith” defined? To whom else might a school
owe this duty? The duty of good faith and fair dealing may not serve as a basis for a separate cause of action with
respect to a contract between a student and a university because it is not a contract that falls under the UCC.
How is the duty of good faith and fair dealing defined? UCC Article 1, which is titled “General Provisions,”
sets forth definitions and general principles applicable to commercial transactions. Among those principles is an
obligation to perform in “good faith” all contracts falling under the UCC [UCC 1304]. Good faith means honesty in
fact. With regard to merchants, good faith means honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade.
To what type of contracts does the duty apply? The duty of good faith and fair dealing is a concept
created by the UCC. The obligation to perform in “good faith” applies to all contracts falling under the UCC [UCC 1
304]. As the basis for a separate cause of action, this duty is generally restricted to those contracts. In particular, and
in this case, the duty is focused on contracts for the sale (or lease) of goods.
What type of contract was at the center of this case? The contract at the center of the Amaya was not a
contract for a sale of goods. This case involved an implied contract for services. The contract involved the legal
What type of contract was at the center of this case? The contract at the center of the Amaya was not a
contract Did the court conclude that the duty of good faith and fair dealing applied in this case? Why or why
not? In this case, the court concluded that the duty of good faith and fair dealing did not serve as a basis for a
separate cause of action with respect to the contract between the student and the university at the center of the
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 19
Footnote 9: Firm offers for sales of goods by merchants may be irrevocable under the UCC. If a merchant
gives assurances in a signed writing that an offer will remain open, the merchant’s firm offer is irrevocable, without
consideration for the stated period of time or, if no time is specified, a reasonable period (neither to exceed three
months). The offer must be written and signed by the offeror. Signed includes any symbol executed or adopted by a

Trusted by Thousands of
Students

Here are what students say about us.

Copyright ©2022 All rights reserved. | CoursePaper is not sponsored or endorsed by any college or university.