Review all of the section on Contract Formation in Ch. 14 (14-1b).

Sage Brushes is looking to buy materials for its brushes.

List and explain the eight principles of contract formation they will want to follow under UCC Article 2 (include (1) the three basic principles, (2) the three writing and enforceability requirements, and (3) what happens to added and different terms.Do not worry about the merchant exception here.

14-1b Contract Formation The common law expected the parties to form a contract in a fairly predictable and traditional way: The offeror made a clear offer that included all important terms, and the offeree agreed to all terms. Nothing was left open. The drafters of the UCC recognized that businesspeople frequently do not think or work that way and that the law should reflect business reality. Formation Basics: 2-204 UCC 2-204 provides three important rules that enable parties to make a contract quickly and informally: 1. Any manner that shows agreement. The parties may make a contract in any manner sufficient to show that they reached an agreement. They may show the Merchant Someone who routinely deals in the particular goods involved 04341_ch14_hr_261-277.indd 263 9/28/17 7:16 AM Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203264 Unit 3 Contracts and the UCC agreement with words, writings, or even their conduct. Lisa negotiates with Ed to buy 300 barbecue grills. The parties agree on a price, but other business prevents them from finishing the deal. Six months later, Lisa writes, "Remember our deal for 300 grills? I still want to do it if you do." Ed does not respond, but a week later, a truck shows up at Lisa's store with the 300 grills, and Lisa accepts them. The combination of their original discussion, Lisa's subsequent letter, Ed's delivery, and her acceptance all adds up to show that they reached an agreement. The court will enforce their deal, and Lisa must pay the agreed-upon price. 2. Moment of making is not critical. The UCC will enforce a deal even though it is difficult, in common law terms, to say exactly when it was formed. Was Lisa's deal formed when they orally agreed? When he delivered? She accepted? The Code's answer: It does not matter. The contract is enforceable. 3. One or more terms may be left open. The common law insisted that the parties clearly agree on all important terms. The Code changes that. Under the UCC, a court may enforce a bargain even though one or more terms were left open. Lisa's letter never said when she required delivery of the barbecue grills or when she would pay. Under the UCC, the omission is not fatal. As long as there is some certain basis for giving damages to the injured party, the court will do just that. If Lisa refused to pay, a court would rule that the parties assumed she would pay within a commercially reasonable time, such as 30 days.

Statute of Frauds UCC 2-201 requires a writing for any sale of goods priced $500 or more. However, under the UCC, the writing need not completely summarize the agreement. The Code only requires a writing sufficient to indicate that the parties made a contract. In other words, the writing need not be a contract. A simple memo is enough, or a letter or informal note, mentioning that the two sides reached an agreement. In general, the writing must be signed by the defendantthat is, whichever party is claiming there was no deal. Dick signs and sends to Shirley a letter saying, "This is to acknowledge your agreement to buy all 650 books in my rare book collection for $188,000." Shirley signs nothing. A day later, Louis offers Dick $250,000. Is Dick free to sell? No. He signed the memo, it indicates a contract, and Shirley can enforce it against him. Now reverse the problem. Suppose that after Shirley receives Dick's letter, she decides against rare books in favor of original scripts from the South Park television show. Dick sues. Shirley wins because she signed nothing. Enforceable Only to Quantity Stated. Because the writing only has to indicate that the parties agreed, it need not state every term of their deal. But one term is essential: quantity. The Code will enforce the contract only up to the quantity of goods stated in the writing. This is logical since a court can surmise other terms, such as price, based on market conditions. Buyer agrees to purchase pencils from Seller. The market value of the pencils is easy to determine, but a court would have no way of knowing whether Buyer meant to purchase 1,000 pencils or 100,000; the quantity must be stated. Merchant Exception. This is a major change from the common law. When two merchants make an oral contract, and one sends a confirming memo to the other within a reasonable time, and the memo is sufficiently definite that it could be enforced against the sender herself, then the memo is also valid against the merchant who receives it unless he objects within ten days. Laura, a tire wholesaler, signs and sends a memo to Scott, a retailer, saying, "Confm yr order today500 tires cat #886cat price." Scott realizes he can get the tires cheaper elsewhere and ignores the memo. Big mistake. Both parties are merchants, and Laura's memo is sufficient to bind her. So it also satisfies the Statute of Frauds against Scott unless he objects within ten days. UCC Statute of Frauds The UCC requires a writing for any sales of goods priced $500 or more. upon. However, if the essential terms are so uncertain that a court cannot decide whether the agreement has been broken, there is no contract. The essential terms were agreed upon. The purchase price was $150,000, and the parties specified all assets to be transferred. No essential terms remained to be agreed upon. The only action remaining was the performance of the contract, and the Naffzigers took possession and used all items as their own. Louann Naffziger could not recall making the oral agreement on any particular date, but parties may form a binding agreement even though the moment of its making is undetermined. Returning the goods at the end of the season was not a rejection of the Jannusches' offer to sell; it was a breach of contract. The parties agreed to a sale of Festival Foods for $150,000, and the Naffzigers violated the agreement. Reversed and remanded. EXAMStrategy Question: Marko, a sporting goods retailer, speaks on the phone with Wholesaler about buying 500 footballs. After the conversation, Marko writes this message by hand: "Confirming our discussionyou will deliver to us 'Pro Bowl' model 04341_ch14_hr_261-277.indd 265 9/28/17 7:16 AM Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203266 Unit 3 Contracts and the UCC Added Terms: 2-207 Under the common law's mirror image rule, when one party makes an offer, the offeree must accept those exact terms. If the offeree adds or alters any terms, the acceptance is ineffective, and the offeree's response becomes a counteroffer. In one of its most significant modifications of contract law, the UCC changes that outcome. Under 2-207, an acceptance that adds or alters terms will often create a contract. The Code has made this change in response to battles of the form. Every day, corporations buy and sell millions of dollars of goods using pre-printed forms. The vast majority of all contracts involve such documents. Typically, the buyer places an order by using a pre-printed form, and the seller acknowledges with its own pre-printed acceptance form. Because each form contains language favorable to the party sending it, the two documents rarely agree. The Code's drafters concluded that the law must cope with real practices. Intention. The parties must still intend to create a contract. Section 2-207 is full of exceptions, but there is no change in this basic requirement of contract law. If the differing forms indicate that the parties never reached an agreement, there is no contract. Additional or Different Terms. An offeree may include a new term in his acceptance and still create a binding deal. Suppose Breeder writes to Pet Shop, offering to sell 100 guinea pigs at $2 each. Pet Shop faxes a memo saying, "We agree to buy 100 g.p. We receive normal industry credit for any unhealthy pig." Pet Shop has added a new term, concerning unhealthy pigs, but the parties have created a binding contract because the writings show they intended an agreement. Now the court must decide what the terms of the contract are because there is some discrepancy. The first step is to decide whether the new language is an additional term or a different term. Additional terms are those that raise issues not covered in the offer. The "unhealthy pig" issue is an additional term because the offer said nothing about it. When both parties are merchants, additional terms generally become part of the bargain.1 Both Pet Shop and 1There are three circumstances in which additional terms do not become part of the agreement: when the original offer insisted on its own terms; when the additional term materially alters the offerthat is, makes a dramatic change in the proposal; and when the offeror promptly objects to the new terms. footballs$45 per unit arrival our store no later than July 20 this year." Marko signs and faxes the note to Wholesaler. Wholesaler reads the fax but then gets an order from Lana for the same model football at $51 per unit. Wholesaler never responds to Marko's fax and sells his entire supply to Lana. Two weeks later, Marko is forced to pay more from another seller and sues Wholesaler. Marko argues that under merchant exception, his fax was sufficient to satisfy the Statute of Frauds. Is he right? Strategy: These two parties are merchants, and the merchant exception applies. Under this exception, a memo that could be enforced against the sender himself may bind the merchant who receives it. Could this memo be enforced against Marko? Make sure that you know what terms must be included to make a writing binding. Result: The writing must indicate that the two parties reached an agreement. Marko's memo does so because he says he is confirming their discussion. Even if some terms are omitted, the writing may still suffice. However, the memo will be enforced only to the quantity of goods stated. Marko stated no quantitya fatal error. His writing fails to satisfy the Statute of Frauds, and he loses the suit. Additional terms Proposed contract terms that raise issues not included in the offer 04341_ch14_hr_261-277.indd 266 9/28/17 7:16 AM Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203Chapter 14 Sales 267 Breeder are merchants, and the additional term about credit for unhealthy animals does become part of their agreement. Different terms contradict those in the offer. Suppose Brilliant Corp. orders 1,500 cell phones from Makem Co., for use by Brilliant's sales force. Brilliant places the order by using a pre-printed form stating that the product is fully warranted for normal use and that seller is liable for compensatory and consequential damages. This means, for example, that Makem could be liable for lost profits if a salesperson's phone fails during a lucrative sales pitch. Makem responds with its own memo stating that in the event of defective phones, Makem is liable only to repair or replace and is not liable for consequential damages, lost profits, or any other damages. Makem's acceptance has included a different term because its language contradicts the offer. Different terms cancel each other out. The Code then supplies its own terms, called gap-fillers, which cover prices, delivery dates and places, warranties, and other subjects. The Code's gap-filler about warranties does permit recovery of compensatory and consequential damages. Therefore, Makem would be liable for lost profits.