Advanced Sales Flashcards
Themis FO
Scope of Article 2
transactions in goods, regardless of whether seller or buyer is in business of buyer or selling
“Sale:”
contract (K) under which title to goods passes from seller to buyer for a price
“Goods:”
all things movable at time identified to be sold under the K between buyer and
seller
Goods Associated with real property
- Sale of structures to be removed from land, minerals—governed by Art. 2 if severance
is by seller - Sale of growing crops or timber, separate from sale of land—governed by Art. 2 regardless of who severs
- Fixtures that can be severed without material harm to land—governed by Art. 2
regardless of who severs
Merchant
Person who deals in kind of goods involved in transaction or holds himself
out as one with special knowledge or skill concerning practices or goods involved in
transaction
“Good faith”
any seller—behave in a way believed to be honest (subject standard);
merchant—observance of reasonable commercial standards of fair dealing (objective
standard)
“Insolvency”
when a party (i) cannot pay debts when due, (ii) has ceased to pay its
debts, or (iii) has liabilities that exceed assets
Choice of law & forum
law of forum state applies if transaction bears
appropriate relationship to law of the forum; parties may agree to applicable law as long as
choice of law bears relationship to the transaction
Contract Formation under Art 2: Offer
Merchant’s firm offer—
merchant’s offer irrevocable if (i) made with words of firmness, (ii) in writing, and (iii) authenticated (signed) by merchant; irrevocable for reasonable time not to exceed three months
Contract Formation under Art 2: Offer = Omitted Terms
“Gap-Filler” Provisions—parties must intend K; no K if too many
open terms
* Price—reasonable price at time of delivery; can be set by a party if other party at fault
for failure to fix price; if so, must be reasonable and set in good faith
* Quantity required—certain or capable of being made certain quantity term must be
specified or K fails; however, output and requirements contracts OK because
objectively determinable
Contract Formation under Art 2: Acceptance
Forms/methods of acceptance
1. Any reasonable manner or medium Offer to buy goods for immediate shipment—acceptance by prompt shipment or promise to ship
(i) Shipment of nonconforming goods—both acceptance and breach
(a) Exception: Seller seasonably notifies buyer that shipment is accommodation is counteroffer
(ii) Beginning of performance is reasonable mode of acceptance; offeree must notify offeror of performance
Contract Formation under Art 2: Counteroffers “battle of the forms”
Effect of additional and other terms on definite and seasonable acceptance or written confirmation of existing K
- At least one party non-merchant
- Additional or different terms are not part of K unless original offeror expressly assents to terms
- If original offeree conditions acceptance of K on offeror’s acceptance of other terms—offeree has made counteroffer - Both parties are merchants
- Additional term in acceptance—part of K unless (i) term materially alters K; (ii) offer expressly limits acceptance to terms of offer; or (iii) offeror objects to term within reasonable time
(a) If one of these conditions apply, K is formed but original terms control
- Different term in acceptance—most states apply “knock-out” rule (terms nullify each other)
Auction Contracts
- Goods offered in lots—each lot is a separate sale
- Completion of sale—fall of hammer; contemporaneous bid—auctioneer’s choice
- Reserve auction (default type)—goods may be withdrawn until auctioneer announces
completion of sale - No-reserve auction—goods cannot be withdrawn unless no bid received
- Bid by seller—winning bidder may avoid sale or take goods at price of last good-faith
bid
—-Exception—forced sale or seller specifically gave notice of reservation of right to bid
Defenses to K Formation: Statute of Frauds
A. Statute of Frauds
1. Writing requirement—need not be a single document nor use formal language
2. Signature of the “party to be charged”—any symbol adopted with intention to accept
writing (e.g., letterhead)
3. “$500 or more”—amount judged as modified if K modified above or below that amount
4. Quantity term issues—K not enforceable beyond written quantity term
5. Merchant’s confirmatory memo—merchant who fails to object within 10 days of receipt
of memo is bound
Defenses to K Formation: Statute of Frauds —Writing not required under Article 2
- Specially manufactured goods unsuitable to another buyer in ordinary course of seller’s
business and seller made substantial beginnings in manufacturing goods or
commitments for purchase of goods - Court admission
- Performance—to extent of goods received and accepted or paid for; partial payment
for indivisible item sufficient
Defenses to K Formation: Unconscionability
contract or term that is so unfair to one party at the time contract
entered into that no reasonable person in position of that party would have agreed to it; matter
of law for court to decide
Contract Modification & Excuse of Performance:
By agreement between parties
- Consideration not required
- Good faith required
- Statute of Frauds—can apply to K as modified
- Parties may prohibit oral modification of a written K—if one party is merchant and
prohibition is on form supplied by merchant, prohibition must be separately signed by
nonmerchant - Waiver—invalid oral modification can operate as waiver; waiver may be withdrawn if not
materially relied on
Contract Modification & Excuse of Performance — By operation of law:
Destruction or injury to identified goods without fault of either party
- Before risk of loss passes to buyer
o Total destruction—K avoided
o Partial destruction—K avoided or buyer can elect to take goods at reduced price - After risk of loss passes to buyer—seller may demand performance by buyer
Contract Modification & Excuse of Performance — By operation of law: Failure of agreed upon method of transportation without fault of either party
any commercially reasonable delivery method may be used and must be accepted
Contract Modification & Excuse of Performance: By operation of law
– Impracticability
—occurrence of circumstance that both parties impliedly assumed would
not occur, and that circumstance has material effect on seller’s ability to perform (unforeseen natural disaster, war, strike, embargo)
* Commercial impracticability—mere increase in cost is not sufficient
* Failure of particular source of supply specified in K—performance discharged
Contract Modification & Excuse of Performance: Anticipatory Repudiation
— party’s statement of unwillingness to perform or failure to give
performance assurance
1. Effect of repudiation that substantially impairs value of K—aggrieved party may
await performance for a commercially reasonable time or may seek Art. 2 remedies for
breach of K
2. Substantial impairment of K’s value—material inconvenience or injustice to aggrieved party
3. Retraction—until repudiating party’s next performance is due, repudiation may be
retracted unless aggrieved party has canceled the K, changed position, or otherwise
indicated belief that repudiation is final
Parol Evidence Rule: Definitions
If terms of K are set forth in a writing intended by parties to be final
expression of their agreement, terms in writing cannot be contradicted by extrinsic evidence of
prior or contemporaneous oral agreement
Parole Evidence: Complete Integration
Complete integration—admission of any prior conversations or writings barred
Performance – Buyer’s Obligation to Pay: Carrier Cases
- Buyer obligated to pay at the time and place where goods received by buyer
Performance: Sellers Obligation of Tender and Delivery – Non-carrier Cases
Seller must tender delivery at seller’s place of business (or residence)
* Or, where goods located at time of contract if both parties know location of goods
Performance: Sellers Obligation of Tender and Delivery – Carrier Case: Destination K
Seller is obligated to tender delivery at specified destination, promptly notify buyer of delivery, and provide necessary documents for buyer to obtain possession
Performance: Sellers Obligation of Tender and Delivery – Carrier Case: Shipment K
Default type of K
—Seller is obligated to put goods into hands of carrier, make reasonable K for shipment, promptly tender shipping documents to buyer, and promptly notify buyer
of shipment
—Buyer may reject goods if seller’s failure results in material loss of delay
Contract Modification & Excuse of Performance:
By operation of law –
Seller’s partial inability to perform due to deficiency in supply
seller must allocate
available supply between customers (can include regular customer not under contract) in
fair and reasonable manner
* Buyer can terminate K if prospective deficiency substantially impairs value of entire K
Performance: Sellers Obligation of Tender and Delivery – Carrier Case: Terms
- FOB (free on board), FAS (free alongside ship)—either may be shipment or destination K
- CIF (price=cost of goods, insurance, freight), C&F (price=cost of goods, freight)—shipment Ks
Parole Evidence: Subsequent Modifications
parol evidence admissible
Contract Modification & Excuse of Performance — Prospective Inability to Perform
- Written demand of assurance—when reasonable grounds for insecurity arise as to
other party’s performance - Performance begun—acceptance of improper delivery or payment does not prejudice
aggrieved party’s right to demand adequate assurance of future performance - Adequate assurance not provided within reasonable time (30 day max.)—repudiation of K
Parole Evidence: Partial Integration
Explanation or supplementation of terms—
by (i) course of dealings between parties,
(ii) use of trade or business, or
(iii) course of performance of contract in question, or
(iv) consistent additional terms if writing is not completely integrated
Performance: Buyer’s obligation to pay – Shipment under reservation
carrier holds goods until buyer pays
Performance: Buyers obligation to pay – Tender of payment
Condition of seller’s duty to tender goods and complete delivery
* Form of payment—any means and manner consistent with ordinary course of business
(i) Seller may demand payment in cash, but must give buyer reasonable time to procure cash
(ii) Buyer’s payment by check is conditional until check is paid or dishonored
Performance: Buyers obligation to pay –Installment Ks
Presumption against such a K and in favor of single delivery/payment of
goods
* If goods delivered in installments, payment may be made/demand for each, if price
can be apportioned
Performance: Buyers obligation to pay – Buyer’s Right to inspect
Condition to payment; may occur after arrival of goods
* Payment prior to inspection—COD (cash/collect on delivery), payment against
document of title
* Expenses of inspection borne by buyer, but recovered from seller if goods are
nonconforming and rejected
Insurable Interest & Risk of Loss
UCC Replaced Concept of Title
focus on which party is most likely insured in allocation risk
of loss
Insurable Interest & Risk of Loss: Insurance Interest
- Seller—title or security interest in goods
- Buyer—identification of goods under contract
- Time of identification
– At time contract formed if agreement calls for specific goods already in existence
– Otherwise, at time goods are designated by seller for delivery
– Unborn animals, crops—identification occurs upon conception, planting
Risk of Loss-
Passes from seller to buyer
Non-Carrier K
- Non-carrier K
—-Non-merchant seller—after seller tenders goods to buyer
—- Merchant seller—when buyer takes physical possession of goods
Risk of Loss-
Passes from seller to buyer
Carrier K (SHIPMENT)
when seller gives possession of goods to carrier, makes an appropriate contract for shipment, and notifies buyer that goods have been shipped
Risk of Loss-
Passes from seller to buyer
Carrier K (DESTINATION)
when seller tenders goods to buyer at destination point
Risk of loss - Passes from seller to buyer
* Goods held by bailee without being moved—
(i) buyer’s receipt of a negotiable
document of title; (ii) bailee’s acknowledgment of buyer’s right to possession; (iii)
buyer’s receipt of nonnegotiable document of title
UCC replaced concept of title - ROL - Exceptions
- Nonconforming goods—not until any defect is cured or buyer accepts goods despite
nonconformity - Justifiable revocation of acceptance—RoL remains on seller to extent buyer’s
insurance does not cover loss - Breach or repudiation by buyer—RoL on buyer for commercially reasonable time to
extent seller’s insurance does not cover loss
Insurable Interest & Risk of Loss - Provisions regarding passage of title: general
title passes when seller physically delivers goods
Insurable Interest & Risk of Loss - Provisions regarding passage of title:
Carrier Cases
- Destination K— title passes when goods are tendered at destination
- Other cases— title passes to buyer at place and time of shipment
Insurable Interest & Risk of Loss: Provisions regarding passage of title:
Non-Carrier Cases
- When seller must deliver a document of title to complete sale, delivery of document
passes title to buyer - When goods have been identified at the time of contracting and no document of title
need be delivered, passage of title occurs at time and place of contracting
Remedies for Buyers - Buyers Rejection of Goods: in General
Buyer may reject goods or tender of delivery that fails to conform to K
(perfect tender rule)
* Buyer may reject all nonconforming goods or accept some goods and reject rest without loss of remedies
Remedies for Buyers - Buyers Rejection of Goods:
Exceptions to perfect tender rule
- Shipment K, seller’s failure to contract with carrier or notify the buyers—rejection only
if material loss or delay results - Form of delivery commercially impracticable—rejection only if seller fails to use
commercially reasonable substitute - Installment K
o Non-conforming installment—rejection of installment only if nonconformity substantially impairs value of that installment and cannot be cured; rejection of K only if nonconformity substantially impairs value of K and cannot be cured - Course of dealing/performance or trade usage—failure not treated as rejection
- Agreement of parties
Remedies for Buyers: Rules for proper rejection
- Notification of seller of rejection within reasonable time
- Notification of seller as to defect if defect is ascertainable by reasonable inspection and
seller could have cured if seasonably notified
—-Between merchants, seller can make written request for full and final statement of all defects on which buyer proposes to rely; buyer cannot rely on defects not listed in statement - Hold goods for reasonable time for seller to retrieve or to make other arrangement for disposition
Remedies for Buyers: Buyer’s Responsibility after rejection
- Buyer with security interest in goods (payments made for goods)—may sell goods in
good faith and a commercially reasonable manner; must account to seller for excess
over amount of security interest - Buyer without security interest in goods
(a) May hold rejected goods with reasonable care for time sufficient to permit seller to remove them
(b) If seller fails to give instructions, buyer may :
(i) store the goods for seller’s account,
(ii) reship them to seller, or
(iii) resell them for seller’s account
* Buyer is entitled to usual sales commission or reasonable sum not to exceed 10% of gross proceeds
Remedies for buyers –Sellers right to cure
- In general—if, after rejection, time for performance has not expired, seller may notify
buyer of intent to cure and within time permitted by K to do so - Seller has reasonable grounds to believe that nonconforming tender would be
acceptable with or without a money allowance (course of dealing/performance)—
seller has additional reasonable time to cure - Installment contracts
* Nonconforming tender may be cured within installment period
Remedies for buyers – Acceptance of goods
- Buyer’s action that constitute acceptance
* Buyer signifies to seller that he will take or retain goods despite nonconformity
* After reasonable opportunity to inspect, buyer fails to reject goods
* Engages in conduct inconsistent with the seller’s ownership of the goods
Remedies for buyers – Consequences of Acceptance
- Buyer must pay contract price—but may seek damages for nonconformity or deduct
damages from price - Right to reject is extinguished
- Notification of breach within reasonable time after buyer discovers or should
have discovered breach; otherwise buyer barred from recovery of damages - Burden of proof—on buyer with respect to breach once goods accepted
Remedies for buyers – Revocation of Acceptance
In general
Buyer who revokes acceptance has same rights and duties as if he had
rejected them
Remedies for buyers – Revocation of Acceptance
When acceptance may be revoked
- Defect that substantially impairs value to buyer; and
(a) Buyer accepted goods on reasonable belief that seller would cure defect but seller
has failed to do so; or
(b) Buyer accepted goods without discovering defect and acceptance was reasonable
because induced by difficulty in discovering defect or seller gave assurances that
goods were conforming
Remedies for buyers – Revocation of Acceptance
Timely Revocation
buyer must notify within reasonable time after nonconformity was or
should have been discovered
Remedies for buyers – Revocation of Acceptance
Goods unchanged
acceptance cannot be revoked if there has been substantial change
in condition of goods
Remedies for buyers – Revocation of Acceptance
Buyer’s rights and duties
same for goods for which acceptance is justifiably revoked
as for goods that the buyer properly rejected
Buyer’s remedies for nondelivery, after rejection, or revocation of acceptance
- Cancel the K—installment Ks if breach goes to entire K
Buyer’s remedies for nondelivery, after rejection, or revocation of acceptance
- Recovery of payments—available regardless of whether K is cancelled
* Buyer has security interest in goods in his possession or control for any payments
made on their price and expenses reasonably incurred; may hold such goods to resell
Buyer’s remedies for nondelivery, after rejection, or revocation of acceptance
“benefit-of-the-bargain” damages
* Contract price versus market price
– Market price determined at place of tender and at time buyer learns of seller’s
failure of performance
* Contract price versus replacement cost (cover)
– Cover must be reasonable, in good faith, and without unreasonable delay
* Incidental (inspection, etc.) damages
* Consequential damages—foreseeable at time of contract
Buyer’s remedies for nondelivery, after rejection, or revocation of acceptance
- Buyer’s right to replevin
- Goods identified in contract
1. Cover unavailable
2. Goods undelivered, partial payment by buyer, seller becomes insolvent within 10 days of first payment
3. Consumer goods undelivered and partial payment made by buyer
Buyer’s remedies for nondelivery, after rejection, or revocation of acceptance
Specific performance—unique goods
Buyer’s damages as to accepted goods
- Measure
a. Nonconforming goods—amount of loss
b. Breach of warranty—repair or replacement cost - Notice to seller within reasonable time after discovery or should have
discovered breach - When buyer resells goods and is sued by subsequent buyer—buyer may give seller written notice and seller can defend action (“vouching in”); useful if seller cannot be
impleaded
- If seller does not defend, seller is bound by litigation
Remedies for Sellers - Seller’s right to withhold delivery
- Buyer’s failure to pay
- Discovery that buyer on credit is insolvent
Sellers right to recapture goods
Goods delivered to insolvent buyer on credit—seller may reclaim/recapture goods
following demand made within 10 days after buyer’s receipt of goods; subject to right of
good-faith purchaser
* Exception to 10-day limit: Written misrepresentation of solvency was made to seller
within three months prior to delivery of goods
Seller’s right to withhold delivery –Goods delivered to buyer who pays with dishonored check
subject to right of
good-faith purchaser
Seller’s right to withhold delivery –Stoppage in transit
Permitted by seller upon learning of buyer’s insolvency or breach, if carrier/baillee
given notice within reasonable time to stop delivery
Seller’s right to withhold delivery – When goods may not be stopped
(i) buyer has received goods;
(ii) bailee has acknowledged buyer’s right to goods;
(iii) document of title has been negotiated to buyer
Seller’s right to withhold delivery – Obligations of carrier or bailee
carrier/bailee must hold and deliver goods according
to seller’s directions, but seller is liable for any charges or damages to carrier/bailee
* Exception: goods subject to a non-negotiable bill of lading
Seller’s monetary damages—
not permitted if credit seller reclaims goods from insolvent
buyer
Seller’s monetary damages— full contract price
extraordinary remedy, permitted only if (i) buyer has accepted
goods; (ii) conforming goods lost or damaged after risk of loss passed to buyer, or (iii)
identified goods unable to be sold
Seller’s monetary damages—
Contract price v. market price
market price measured at time and place for delivery
Seller’s monetary damages— Contract price vs. Resale price
- Resale must be commercially reasonable
- Seller must give buyer reasonable notice of sale, unless (for public sale) goods
perishable or threaten to decline in value quickly - Buyer may purchase goods; if good faith purchaser at resale, original buyer does not
have rights in goods
Seller’s monetary damages—
Lost profits for lost volume sellers
- Seller needs to show only that it could have supplied both breaching purchaser and
resale purchaser - Measure: Contract price minus the cost to the dealer or manufacturer
Seller’s monetary damages—
Incidental damages
commercially reasonable charges, expenses, or commissions related to stopping delivery or return or resale of goods
Warranties - Warranty of title
includes freedom from security interest, liens, other encumbrances
Disclaimer—can be disclaimed or limited (selling on rights seller has)
Warranties -Warranty against infringement of copyright, etc.
given by merchant seller who
regularly deals in goods of kind warranted; does not apply if buyer furnishes specifications for
goods
Warranties - Express warranties
any affirmation of fact or promise made by seller to buyer that relates
to goods and becomes part of basis of bargain (sample, model)
1. Burden of proof—on seller to show express warranty was not basis of bargain (most
courts)
2. Timing—can be given after contract entered into; if so, constitutes modification
3. Parol evidence rule—may bar evidence of oral warranty or disclaimer of express
warranty
Warranties -Implied warranty of merchantability
fit for ordinary purposes, be of average quality
(fungible goods), conform to label, adequately packaged
1. Given by merchant seller who regularly deals in goods of kind contracted for
2. Serving food and drink for value—covered by warranty
3. Breach—at time of sale
4. Strict liability—seller need not be aware of breach
Warranties -Implied warranty of fitness for particular purpose
- Given by any seller with reason to know at time of contracting from any source of
purpose goods required - Buyer relies on seller’s skill or judgment to select or furnish goods
Warranties–Exclusion or modification of warranties
Express warranties
Negation or limitation is inoperative to the extent construction is
unreasonable
* Parol evidence rule may bar evidence of oral modification or exclusion
Exclusion or modification of warranties
* Implied warranty of merchantability
(i) Disclaimer generally must use the term “merchantability”
(ii) May be oral; if in writing, must be conspicuous
Exclusion or modification of warranties
* Implied warranty of fitness for particular purpose
(i) Disclaimer must be in writing; must be conspicuous
Exclusion or modification of warranties
Implied warranties
* Either implied warranty— (merchantability + particular purpose)
unless circumstances indicate otherwise, can be disclaimed with terms such as “as is,” “with all faults;” may be excluded or modified by course of dealing/performance or trade usage
Exclusion or modification of warranties
* Buyer’s inspection of goods—
if buyer has chance to examine goods/sample/model,
no implied warranties as to any defects exam ought to or would have revealed
Exclusion or modification of warranties
Unconscionability
may prevent exclusion or modification (some courts)
Exclusion or modification of warranties–
Limitations under federal law
certain written consumer-product warranties must fully
and conspicuously disclose terms and conditions of warranty, including whether warranty is
“full” or “limited”
* Full warranty—implied warranties cannot be disclaimed
* Limited warranty— implied warranties may not be disclaimed during warranty period
Exclusion or modification of warranties–Limitations of damages
- Consequential damages—may be limited or excluded unless unconscionable
* Consumer goods—limitation of damages for injury to person in re consumer goods is
prima facie unconscionable - Liquidated damages—permitted if reasonable; if not, void as penalty
Exclusion or modification of warranties– Third-party rights
claim against buyer’s immediate seller limited to buyer and immediate
family and guests
Exclusion or modification of warranties—Strict liability
manufacturers/distributors/retail sellers strictly liable for personal injuries or
property damage caused by defective products
Remedies available to both buyer and seller:
Right to proceed against third-party for destruction or damage to goods
- Seller—if has security interest in the goods or title
- Buyer—if goods have been identified to the contract
Remedies available to both buyer and seller:
Other remedies and limitations on remedies
parties may agree to remedy or
limitation that is not unconscionable
Typical buyer’s remedy— repair or replacement of nonconforming goods or parts; if seller unable to do so, remedy fails of essential purpose; buyer may resort to any
appropriate remedy
Remedies available to both buyer and seller:
Statute of limitations on breach of sales contract or warranty
four years after
cause of action accrues; may be reduced to not less than one year: may not be extended
* Accrual of cause of action—when breach occurs, even if aggrieved party not aware
of it
o Breach of warranty—generally accrues upon delivery of goods
o Breach of warranty of future performance—when breach is or should have been
discovered
Rights of Third Parties –
Voidable Title
buyer who unlawfully obtains title has voidable title
* Person with voidable title may transfer good title to good-faith purchaser for value
Rights of Third Parties: Entrustment—
entrusting possession of goods to merchant who deals in goods of that
kind gives merchant power to transfer all rights of the one who entrusted them to buyer in
the ordinary course of business
Rights of Third Parties: Theft
thief cannot pass good title even to good-faith purchaser unless (i) buyer has made
improvements to goods or (ii) true owner indicates thief had good title
