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CHAPTER 20
THE FORMATION OF
SALES AND LEASE CONTRACTS
ANSWER TO CRITICAL THINKING QUESTION
IN THE FEATURE
DIGITAL UPDATE—CRITICAL THINKING
Some argue that if online retailers are required to collect and pay sales taxes in
jurisdictions in which they have no physical presence, they have no democratic way to
fight high taxes in those places. Is this an instance of taxation without representation?
Discuss. If federal law requires all online retailers to collect and pay sales taxes even where
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 20.1—CRITICAL THINKING
LEGAL
What is Mahendra’s best argument that the forum-selection clause was, in fact, binding
on National? Discuss. One of Mahendra’s best arguments that the forum-selection clause
2 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
CASE 20.2—CRITICAL THINKING
SOCIAL
Why would the seller’s knowledge of the buyers’ limited resources support a finding of
unconscionability? It may be that the court viewed the sellers’ knowledge of the buyers’ limited
CASE 20.3—LEGAL REASONING QUESTIONS
1. How did the CISG’s rules in regard to the formation of contracts affect the lower
court’s holding in this case? The rules of the United Nations Convention for the International
Sale of Goods (CISG) in regard to the formation of contracts formed the framework for the lower
court’s holding in this case.
2. Did the appellate court agree with the lower court’s analysis and application of the
CISG’s rules? Why or why not? In the VLM case, the appellate court—the U.S. Court of
Appeals for the Seventh Circuit—agreed with the lower court’s analysis and application of the
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 3
3. What would have been the result if the court had applied the UCC instead of the CISG?
If the court had applied the UCC instead of the CISG to the facts of the VLM case the result might have
been a decision to incorporate attorney’s fees provision into the parties’ contracts, which is the outcome
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Scope
The key factor is whether the transaction between Holcomb and TCG was for a good or a
service, because the UCC covers only goods. Most goods require some related service—their
4 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
design, assembly, installation, or manufacture—but the effort and expertise to make a good
does not mean that the buyer is buying the service instead of the good. The focus is on the
buyer’s objective. Does the buyer want a good or a service? To fall under the UCC, the service
2A. Merchant status
Under the UCC, a merchant is a person who deals in goods of the kind involved in the sales
contract. A merchant for one type of goods is not necessarily a merchant for another type. Here,
3A. Valid contract
The contract between TCG and Holcomb is a valid contract. It sets out all of the essential
4A. Oral agreement
This oral agreement would not be enforceable, because its amount, which is over $500, would
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
The UCC should require the same degree of definiteness of terms, especially with
respect to price and quantity, as contract law does. Contract law requires definiteness
sufficient for the parties to ascertain the contract’s essential terms when it is accepted. The
UCC, in its quest to encourage more commerce, went overboard by removing this definiteness
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 5
ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. E-Design, Inc., orders 150 computer desks. Fav-O-Rite Supplies, Inc., ships 150
printer stands. Is this an acceptance of the offer or a counteroffer? If it is an acceptance,
is it a breach of the contract? Why or why not? What if Fav-O-Rite told E-Design it was
sending the printer stands as “an accommodation”? A shipment of nonconforming goods
constitutes an acceptance and a breach, unless the seller seasonably notifies the buyer that the
2A. Truck Parts, Inc. (TPI), often sells supplies to United Fix-It Company (UFC), which
services trucks. Over the phone, they negotiate for the sale of eighty-four sets of tires.
TPI sends a letter to UFC detailing the terms and two weeks later ships the tires. Is there
an enforceable contract between them? Why or why not? Yes. In a transaction between
merchants, the requirement of a writing is satisfied if one of them sends to the other a signed
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
20–1A. Merchant’s firm offer
Yes. Under UCC 2–205, a merchant offeror, who in a signed writing gives assurance that an
20-2A. Additional terms
The answer falls under UCC 2–207. Bailey is incorrect in claiming that the modification of
carriers is sufficient reason to claim an acceptance was not made. The law states that if the
offeree (Bailey) makes a definite expression of acceptance, a contract is formed even if the
6 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
20–3A . SPOTLIGHT ON GOODS AND SERVICES—The Statute of Frauds
Yes. The contract was valid because the UCC’s Statute of Frauds did not apply. Although the
20–4A . BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Additional terms
No. Under the common law, variations in terms between the offer and the offeree’s acceptance
violate the mirror image rule, which requires that the terms of an acceptance exactly mirror the
terms of the offer. The UCC dispenses with this rule. Under the UCC, a contract is formed if the
offeree makes a definite expression of acceptance even though the terms of the acceptance
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 7
20–5A. Partial performance and the Statute of Frauds
Florida Statutes Section 672.103(3)(c) states that a contract that does not satisfy the Statute of
Frauds may nonetheless be enforceable “with respect to goods for which payment has been
20–6A. The Statute of Frauds
Yes, Gardner and B&C Shavings had a contract enforceable under the Statute of Frauds. The
Statute of Frauds applies to contracts for the sales of goods for more than $500. Those
contracts must be in writing to be enforceable. A writing satisfies the Statute of Frauds as long
as it indicates that the parties intended to form a contract and is signed by the party against
20–7A. Goods and services combined
A court applies common law principles to a dispute over contract that involves both goods and
services when the court finds the services to be the dominant feature of the agreement. An
appellate court, or any court, would rule that the UCC should be applied instead of the common
8 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
20–8A. Acceptance
The UCC’s rules with respect to acceptance support the decision of Simply Surgical to refuse
deliveries, and those principles undercut the decision of NEPG to withhold payment. Under the
UCC, acceptance of an offer to buy or sell goods may be made in any reasonable manner and
by any reasonable means. The UCC permits acceptance of an offer to buy goods “either by a
20-9A. A QUESTION OF ETHICS—Contract terms
(a) Under the UCC’s Statute of Frauds, a contract for a sale of goods priced at $500
or more must be in writing. A writing is sufficient if it indicates a contract between the parties and
is signed by the party against whom enforcement is sought. A contract is not enforceable
beyond the quantity of goods stated in the writing. Among other exceptions to these
CHAPTER 20: THE FORMATION OF SALES AND LEASE CONTRACTS 9
the goods.”
(b) In Craftsmen’s appeal from the judgment against it, an Ohio state intermediate
appellate court disagreed with Craftsmen’s contention that the “predominant factor” of its
agreement with Fox was a lease for the Hussongs’ building. The court found nothing to indicate
that the parties intended to enter into a contract for a lease. “In fact, none of the writings even
mention a lease agreement.” Besides, the “predominant factor” test concerns whether a contract
ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
20–10A. Parol evidence
(a) Parol evidence is admissible to explain the terms of this contract. The exceptions
that could apply to allow for the admission of outside evidence are those for usage of trade,
course of dealing, and course of performance. Under the UCC, the meaning of an agreement is
10 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
(b) In the facts of this problem, the trade usage at the time of the contract indicated
(c) To avoid the possibility that a court will interpret contract terms in accordance with
