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Contracts for the sale of goods are governed primarily by the Uniform Commercial Code. There are many consumer protection and regulatory statutes that apply to transactions in particular industries too. Sometimes a contract covers the sale of goods and services. Whether or not such a contract is governed by the Uniform Commercial Code or general contract law depends on whether the pre-eminent purpose of the transaction is the sale of goods or the sale of services. If the contract involves a price of $500 or more it must be in writing to be enforceable. The Code allows the writing requirement to be met by a written confirmation of an oral contract between merchants. The confirmation must only refer to the existence of a contract and does not have to recite all the terms. If the confirmation is sent within a reasonable time and is not objected to within a set period of time the writing requirement is satisfied. Under general contract law all the terms of a contract must be set forth for the contract to be enforceable. Under the Code the contract terms can be supplemented by terms set forth in the Code or by the course of dealing between the parties or by usage in the trade. Under general contract law a contract is formed by an offer and an acceptance of all the terms of the offer. Any new proposals coming with the acceptance prevents there from being a contract. The acceptance with additional or different terms is treated as a counter offer. Under the Code this is not so. As long as the terms of the original offer are accepted there is a contract even though the acceptance proposes new terms - so long as acceptance is not expressly conditioned on these new terms and the contract is not materially altered and the original offeror does not object. Even if the documents exchanged by the parties do not amount to a contract the Code provides that conduct by both (not one) of the parties which recognizes a contract is sufficient to establish a contract. The parties are free to set their own payment, shipment and delivery terms but if they do not the Code fills in the blanks. When title to the goods, and the risk of loss, passes to the buyer depends on the delivery terms. When the seller is required to deliver the goods to a carrier the risk of loss transfers to the buyer on delivery to the carrier. Common terms used in such deliveries are F.O.B. (free on board) seller's plant; F.A.S. (free alongside ship) seller's port; C.I.F. (cost, insurance and freight); or C.F. (cost and freight). When the seller is required to deliver to the buyer, then the risk of loss does not pass to the buyer until delivery is tendered to the buyer. Common terms used for delivery to the buyer are C.O.D. (cash on delivery) or F.O.B. (buyer's plant). The seller will want title and the risk of loss to pass to the buyer as soon as possible and the parties are free to say in their contract exactly when it passes. If the seller retains title to the goods after delivery to the buyer, however, there is a secured transaction and another article of the Code dealing with secured transactions must be complied with. There must be an agreement to give a '"security interest" and a financing statement must be filed with the Secretary of State to give notice to third persons of the seller's interest. The seller can provide for interest on late payments, but if the goods are sold to a consumer the Truth-In-Lending Act will apply. The Code defines what an express warranty is and it can be oral or by conduct. Because of this many contracts contain a clause that the written agreement is the entire agreement of the parties. They also contain statements that there are no express warranties unless contained in the writing. Nevertheless, the disclaimer is ineffective if it is inconsistent with words or conduct creating a warranty in the first place. For instance, a contract may warrant that material is fire-resistant for a certain period. If it also states there are no warranties, the disclaimer will be ineffective. The Code also implies certain warranties in the sale of goods. The seller warrants it has good title with the right to sell and that the goods are free of liens and encumbrances unknown to the buyer. Also a merchant who regularly deals in that type of goods warrants they do not infringe third party rights (for instance patent infringement) unless the buyer provided the specifications. There is an implied warranty of merchantability, i.e., that the goods are of good quality and fit for the ordinary purposes for which such goods are used. If the seller knows what the buyer is going to use the goods for and that the buyer is relying on the seller's skill and knowledge in selecting the goods there is an implied warranty of fitness for a particular purpose. All these warranties can be disclaimed or limited or expanded and the Code certain rules for doing so. The Code provides for remedies for breach of contract and provides its own statute of limitations. This is 4 years but the contract may reduce it to 1 year. || Back
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Donald M.
Thompson * Illinois Contract Attorneys - 55 W. Monroe #3950;
Chicago, IL 60603 |
