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 What Is A Contract?

In legal terms, a contract is a legally binding agreement between two or more parties that provides details of what each of the parties agree to perform or exchange. Contracts are considered to be the foundation of all business transactions. As such, contracts may be simple or considerably complex.

Examples of common contracts include:

  • Employment contracts;
  • Sale of goods contracts;
  • Real estate purchase contracts; and
  • Insurance contracts.

In addition to the above list, contracts may be utilized at any time in which the parties involved wish to document an agreement, in order to ensure that all parties’ rights are protected.

Contracts are formed through the act of drafting a contract. Drafting a contract refers to the process of compiling the terms and details of a contract into a written document. Within the contract, the legal obligations of all parties to the contract will be outlined. Thus, contracts allow each party to have a clear understanding of their duties and legal obligations to one another.

Although a contract can be drafted by anyone, it is in the best interest of all parties involved to have an attorney draft a contract, especially if the contract is required to be in writing, such as contracts involving the sale of goods valued over $500.

What Are The Elements Of A Valid Contract?

In order for a contract to be binding on both parties in a court of law, the contract must contain the following legal elements:

  • Mutual Assent: Mutual assent occurs when each party has a shared understanding regarding what the subject matter of the contract is;
  • Offer and Acceptance: Offer and acceptance occurs when one party, referred to as the offeror, makes an offer to a second party, referred to as the offeree. The offeree must then accept that offer.
    • When accepting an offer parties will exchange something of value, which is known as consideration. For example, an item that has a for sale sign would constitute an offer that an offeree could accept by paying the offeror consideration in the form of cash. For larger purchases, a purchase contract may be used;
  • Consideration: Both parties must mutually exchange something of value in order to make a contract binding. Consideration may be a simple formality, such as giving $1 or something else of value;
  • Capacity: Capacity occurs when all parties have the ability to knowingly enter into the contract. Common examples of parties that lack capacity include:
    • Minors under the age of 18;
    • Individuals under the influence of drugs or alcohol; and
    • Individuals with a disability.
  • Legal Purpose: Binding contracts must be created for a legal purpose. WThis means that contracts to sell illegal drugs, contracts to commit fraud, or contracts to perform other crimes will not be recognized or enforced.

What Is a Sale of Goods Contract?

In simple terms, something is considered to be a sale if the ownership of goods is passed from a seller to a buyer for a price. Therefore, obtaining a loan would not be considered a sale due to the fact that nothing actually passes from the seller to buyer. In legal terms, a “good” is an item that is both tangible and movable. Common examples of goods include:

  • Natural resources, such as lumber;
  • Commercial items, such as electronics; and/or
  • Other man-made goods, such as clothing.

A sale of goods contract is a written legal document that specifies the agreement between two parties when purchasing or selling goods. A sale of goods contract is legally formed when one party offers to sell or buy goods, and the other party accepts that offer. Sale of goods contracts are often drafted utilizing a standard form (i.e. with no negotiation of terms) or are drafted from scratch (i.e. where both parties may negotiate each and every term of the contract).

What Is “Sufficient Performance” for a Sale of Goods Contract?

Once again, in a sale of goods contract, both the seller and the buyer have certain duties that they must fulfill before a sale of goods contract is considered adequately performed. Additionally, both parties may agree to create additional conditions that must be fulfilled before the contract is considered adequately performed.

For example, the parties may choose to add in a condition that the item purchased must be delivered by “x” date at “y” location. Then, if the seller fails to deliver the item on “x” date at “y” location the contract will likely not be considered adequately performed.

However, if the item that was purchased was a custom item created specifically for the buyer, the seller creates the custom item at their own expense, and then provides the buyer a good reason for not being able to deliver the item by “x” date at “y” location, the seller’s performance may still be deemed sufficient.

What Is Required of a Seller in a Sale of Goods Contract?

Once again, both the buyer and seller in a sale of goods contract have certain duties to fulfill before a sale of goods contract is considered adequately performed. Common duties of sellers of goods in a sale of goods contract include:

  • Tender of Delivery: In a sale of goods contract, the seller must deliver the contracted goods. Additionally, the delivery must be done in a reasonable time, place, and manner;
  • Perfect Tender Rule: A sale of goods contract will often include a detailed description of the goods that are to be tendered to the buyer;
    • For example, a sale of goods contract involving fruity would likely include the name of the fruit, the size of the fruit, the color of the fruit, the ripeness of the fruit, etc. If the seller agrees to the sale of goods contract and description, the seller must then provide goods in the exact manner that the buyer wishes to purchase them. If the sellers do not perfectly tender the goods, then buyers have the right to reject the delivery of the goods; and
  • Assurance and Cooperation: There are many instances in which the buyer may question or dispute whether the seller will be able to deliver the goods as promised. If the buyer raises such questions to the seller, the seller has an obligation to “assure” the buyer that the delivery will be completed. If the seller does not provide assurance, the buyer may be able cancel the contract or sue the seller for breach of contract.

What Is Required of the Buyer in a Sale of Goods Contract?

Similar to a seller, a buyer of goods also has certain duties to fulfill in order to adequately perform a sale of goods contract. The most important duty of a buyer in a sale of goods contract is to provide consideration for the goods. In other words, the buyer must make timely payment to the seller.

Unless otherwise specified in the contract, buyers must make payment once the seller makes good on the delivery of goods. It is important to note that the buyer does not have to make payment if the goods do not satisfy the buyer’s conditions that were specified in the contract. For example, if the buyer agreed to buy 100 apples, and the seller delivered 100 oranges, the buyer does not have to make payment for the oranges.

What Is the Uniform Commercial Code?

The Uniform Commercial Code, or “UCC,” is the model federal statute that has been adopted by every state in its entirety with the exception of Louisiana, which has not adopted Article 2. The UCC is the body of law governing contract disputes that involve the sale of goods. Specifically, only Article Two of the UCC governs a sale of goods dispute. Every other article contained within the UCC governs a different type of transaction.

Once again, the UCC maintains provisions which state that some sale of goods contracts are required to be in writing. Specifically, any sale of goods contract involving the sale of goods exceeding $500 in value must be in writing. The provisions in the UCC that require contracts be in writing are known as the Statute of Frauds.

The purpose of the statute of frauds is to prevent fraudulent acts that are commonly associated with sale of goods contracts. It is important to note that statute of frauds laws vary from state to state. However, many state statutes closely follow the UCC standards.

Do I Need an Attorney for Help With Sale of Goods?

If you are involved in a contract for the sale of goods, or are involved in a dispute regarding a sale of goods contract, you should contact an experienced contract attorney in your area.

An experienced contract attorney will be able to provide you guidance regarding UCC and your state’s specific statutes regarding sale of goods. Additionally, an attorney will also be able to represent you in court, should a legal dispute arise that requires a civil lawsuit.

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