Business Law II: UCC Article 2 Flashcards
UCC Article 2
Sale of Goods
UCC Terms of Agreement
Supplies terms in absence of agreement:
- Open price term (can be decided at delivery)
- Open payment term (due when buyer is to receive goods)
- Open place of delivery term (seller’s business/residence)
- Open time for contracted performance (reasonable time)
UCC Firm Offer
- Made by buyer/seller merchant
- Offeror gives assurance that offer will not be withdrawn (3 mo. limit w/o consideration)
- Signed writing (record)
- Acceptance by shipment of conforming goods
Battle of the forms (Common Law vs UCC formation)
- Common Law - Mirror Image acceptance or it is a counter offer
- UCC - definite expression of acceptance (if followed by additional terms, may/may not form a new contract)
Consideration (Common Law vs UCC)
- C. L. - Modification of existing terms is not enforceable unless supported by consideration.
- UCC - agreement modifying contract for sale of goods needs no consideration to be binding
UCC Statute of Frauds
Contracts for sale of goods > $500 must be in writing except:
- Between merchants (merchant confirmation memo)
- Special Orders
- Admission of oral contract under Oath
- Buyer’s performance (accepting/paying for goods)
UCC Title and Risk of Loss Misconception
Title/Risk of Loss pass at same time… incorrect b/c:
- parties can expressly determine when title/risk of loss pass. can differ.
- even in absence of agreement, they can pass at same time in one situation and different times in another
Identification
- Goods must be in existence and identified before title/risk of loss can pass
- For goods in existence at time contract entered into, identification occurs at time parties enter into contract
- Fungible (i.e. grains). Identified when shipped, marked, or otherwise designated for buyer.
- Future goods. Identified when shipped, marked, otherwise designated for buyer.
Shipment: F.O.B.
(free on board) place of shipment (seller’s city, business, or warehouse).
Title/risk of loss pass upon DELIVERY (possession) of conforming goods to carrier
Shipment: F.A.S.
(free alongside vessel) place of shipment.
Title/risk of loss pass upon seller’s delivery of conforming goods alongside vessel (port/dock)
Shipment: C.I.F.
(cost, insurance, freight).
Title/Risk of loss pass when:
- seller delivers (possession) identified conforming goods to carrier
- obtains negotiable bill of lading
- procures insurance policy
- forwards to buyer all documents.
Shipment: C & F
(cost and freight)
Same rules as C.I.F., but no insurance policy
Shipment: COD
(cash on delivery)
Affects timing of buyer’s right to inspection.
Passage of Title in non-delivery/non-shipment contracts
No Document of title - identification/passage of title happen at same time contract is made
Non-negotiable document of title - passes upon buyer’s receipt of document
Negotiable document of title - passes upon buyer’s receipt of the document
Passage of Title in delivery/shipment contracts
- FOB place of shipment = title passes when shipped/delivered to carrier
- FOB place of destination = title passes upon tender of conforming goods at place of destination
Tender
Goods have arrived, are available for buyer to pick up, and buyer has been notified
Passage of risk of loss in non-delivery contract
- If merchant seller - risk of loss does not pass until buyer actually gets possession
- If non-merchant seller - risk of loss passes upon seller’s tender of goods to the buyer
Passage of risk of loss in delivery/shipment contract
- FOB ship point - risk of loss passes at time goods delivered to carrier
- FOB destination - risk of loss passes at time of tender (same time as title)
Passage of risk of loss when there is a negotiable document of title and no delivery
Risk of loss passes to buyer upon buyer’s receipt of document
Passage of risk of loss when there is no delivery and a nonnegotiable document of title
Risk of loss passes to buyer after receipt of document and buyer has had reasonable time to present document, receive goods, or give directions to bailee
Passage of risk of loss when goods are held by third party and no document of title
Risk of loss passes to buyer when bailee acknowledges buyer’s right to possession of good (basically tender by the warehouseman)
Effects of Breach on Passage of title/risk of loss
- Nonconforming, seller’s breach - risk of loss does not pass to buyer until defects cured/buyer accepts anyway
- Accepted then revoked - risk of loss (over buyer’s insurance) back to seller
- Buyer’s breach - risk to buyer for reasonable period after seller learns of breach (over seller’s insurance)
- Breach does not affect title.
4 Types of Warranties
- Express Warranty
- Implied warranty of title
- Implied warranty of merchantability
- Implied warranty of fitness for particular purpose
Express Warranty
- Affirmation of fact/promise of performance (not huffing/puffing)
- Description of goods under Article 2 contract
- Samples/Models
- Any of the above must have been important in buyer’s decision to buy.
Nature of express warranties. Can be:
- oral/written
- in brochures, advertisements, etc of seller
- created w/o words like warranty/guaranty
- given by merchants and nonmerchants alike
*Impossible to disclaim
Implied warranty of title
- given in every sale of goods by merchants/nonmerchants unless disclaimed
- seller has good title/ transfer is rightful and free from third party infringement
- can be disclaimed
Implied warranty of merchantability
- can only be made by a merchant
- warranted to be fit for use, conform to label
- “restaurant food warranty”
- can be specifically disclaimed if conspicuous and mention word merchantability
Implied warranty of fitness for particular purpose
“salesperson’s warranty”
- seller must know purpose/buyer’s use of goods
- buyer must rely on seller recommendation in making purchase
- disclaimer must be conspicuous (“sold as is”)
Strict Tort Liability/Negligence
- Product defective in design, manufacture, lack of warnings) to a point of dangerous
- Seller in business of selling/manufacturing the defective product
- Product has not been tampered with in transit
- Negligence (seller knowing of defect) allows for punitive damages
Performance: Right of assurance
If party has “reasonable grounds” to believe other party will not perform, may demand in writing that other party give adequate assurance of due performance.
If not received within 30 days, may be treated as anticipatory breach.
Anticipatory repudiation/breach in advance of contract performance
Non-breaching party can:
- await performance for commercially reasonable period
- treat breach as final/resort to remedies
- suspend performance w/o liability for breach
Acceptance
- after opportunity to inspect, buyer either notifies seller goods are performing or that they will accept even if nonconforming
- buyer fails to reject after reasonable opportunity to do so
- buyer uses the nonconforming goods
Revoke Acceptance
- Buyer given reasonable assurance seller would cure, and cure has not happened
- Seller assures goods are conforming, but later find out they are not
- Nonconformity was difficult to detect
Seller’s Remedies: In possession of goods
- Identify goods to the contract (set aside)
- Withhold delivery
- Cancel/Rescind
- Resell Goods
- Sue for breach of contract
- Retain buyer’s deposit
Seller’s Remedies: Goods in Transit
- If buyer insolvent, seller can stop quantity shipped / recover goods from buyer w/in 10 days after delivery
- If buyer repudiation other than insolvent, seller can only stop if quantity shipped is carload/truckload etc
- Seller can stop shipment any time until buyer takes possession, buyer receives negotiable doc of title or 3rd party notifies goods are ready for pickup
Seller’s Remedies: Buyer has possession
- If buyer insolvend, seller may reclaim goods w/in 10 days
2. Seller can seek to recover damages of contract price plus damages b/c of buyers failure to pay
Buyer’s Remedies: Seller fails to deliver goods
- Cancel and rescind with notice
- Cover (substitute purchase)
- Sue for breach of contract
- Specific performance (when goods unique)
- Replevin (can require delivery from seller when cover is not possible)
Buyer’s Remedies: Accepting Nonconforming goods
- Recovery ordinary damages
- Recover for breach of warranty (difference of value)
- Deduction of damages from purchase price
- Liquidated damages (predetermined amount of damages in case of breach)
- Buyer can seek recovery of payment
