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Business law > Chapter 22 Nature and Forms of Sales > Flashcards

Chapter 22 Nature and Forms of Sales Flashcards

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1
Q

Sources of contract law

A

Common law: contracts regarding real estate or services

Article 2 of the uniform commercial code: contracts regarding sale of goods

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2
Q

Article 2

A

Section of the uniform commercial code the governs contracts for the sale of goods

Generally applies to both merchant and nonmerchant’s (though some sections apply only to merchants and hold them to special standards)

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3
Q

A sale of goods

A

Per article 2: transfer of title to tangible personal property for a price

(Price can be money, exchange of property, performance of services)

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4
Q

Parties to the sale of goods

A

Seller/ vendor: Person who owns the goods

Buyer/ vendee: person to whom the title is transferred

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5
Q

Goods

A

Per the UCC: all forms of tangible personal property

Includes commodities

Both existing and future foods

Not covered:

  • investment securities (Article 8 of the UCC)
  • insurance policies, commercial paper (checks) and promissory notes (articles 3 and 4)
  • real estate
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6
Q

Existing goods

A

Goods that physically exist and are owned by the seller at the time of a transaction

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7
Q

Future goods

A

Goods that exist physically but are not owned by the seller and goods that have not yet been produced (custom goods generally future goods)

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8
Q

Transactions not covered by article 2

A
  • bailment (only possession transfers, not title. Leases covered by section 2A of UCC)
  • gifts (theoretically no price. Article 2 only covers transfers with a price)
  • contracts for services (governed by common law)
  • contracts for goods and services are classified by the dominant element of the contract. May have to compare cost of physical goods to cost of services to determine. Whichever is more expensive “dominates”
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9
Q

Huzinec v. Six flags great adventure

A
  • huzinec hit by a cellphone dropped by another passenger on six flags roller coaster and sustained serious injuries
  • filed suit under UCC Article 2 for breach of implied warranty of merchantability
  • six flags moved for dismissal as amusement park ticket not covered under article 2
  • court agreed: Six flags ticket not a movable good but rather a contract to use of the rides/services of the employees
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10
Q

Necessary elements for formation of sales contracts

A

Less rigid than contract law

  • terms can be missing, as long as parties clearly intended to contract

Minimum terms:

  • subject matter
  • quantity (if not clearly just for a single item

Article 2 contains provisions covering the following if parties do not include them in their sale contract

  • price
  • delivery
  • time for performance
  • payment
  • details of performance
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11
Q

Merchants

A

Seller who deals in specific goods classified by the UCC

Some sections of Article 2 have different rules for merchants (who are expected to have special knowledge) and non-merchants

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12
Q

Sales contract: offer

A

First step in formation of a sales contract under article 2

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13
Q

Firm offer provision

A

Offer stated to be held open for a specified time, under the UCC, with respect to merchants

Merchant cannot revoke offer if:

  • offer expresses an intention that it will be kept open
  • offer is in writing
  • order is signed by the merchant

Period of irrevocability not to exceed 3 months. If not stated irrevocable only for reasonable time

If exceed three months there must be consideration (becomes an options contract under common law contracts)

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14
Q

Sales contract: acceptance of offer

A

Very flexible under UCC
“Any manner and by any medium that is reasonable under the circumstances”
(If offer specifies manner of acceptance that will hold)

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15
Q

Mailbox rule and sales contracts

A

Mailbox rule applies not just when is the same method as for communication of Offer but for any time it is a reasonable method

Acceptance effective from when mail sent

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16
Q

Mirror image rule

A

Common law contract rule on acceptance that requires language to be absolutely the same as the offer, unequivocal and unconditional

Under UCC acceptance may include terms that vary from the offer

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17
Q

Additional terms in acceptance: sales with nonmerchants

A

Offeree may accept and acceptance creates a contract on the original terms even if additional term is suggested

Additional term then may or may not be accepted by other party

(Vs common law where suggested change in terms terminates original offer and creates a new offer to be accepted or not)

If propose additional terms without specifically accepting offer then no contract yet

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18
Q

Additional terms in acceptance: sales with merchants

A

Additional terms sent back in an acceptance become part of the contract IF they do not materially alter the offer and the offeror does not object in a timely fashion

May add limitations “offer is limited to the terms”

If proposed term is material a contract is formed BUT the material addition does not automatically become part of the contract

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19
Q

Battle of the forms

A

Merchants’ exchanges of invoices and purchase orders with differing boilerplate terms (contract details)

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20
Q

Acceptance of additional terms

A

Offeror may expressly or by conduct agree to additional terms added by offeree. May agree orally or in writing. Or there may be acceptance in parties simply perform obligations under contract with knowledge term has been added

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21
Q

When conflicting terms are proposed

A

If clear parties intend to be bound by contract UCC recognizes formation of contract. The terms cancel each other and are ignored. Contract consists of only parts of offer and acceptance that agree (governed by the applicable part of article 2)

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22
Q

Defenses to formation of sales contracts

A

Same as common law defenses:

  • fraud
  • lack of capacity
  • intentional misrepresentation
  • undue influence/duress
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23
Q

Unconscionable

A

Unreasonable. Not guided or restrained by conscience and often referring to a contract grossly unfair to one party because of the superior bargaining power of the other party

Court can refuse to enforce sales contract (or portions of contract) found to be unconscionable

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24
Q

C9 ventures v. SVC-West LP

A
  • SVC ordered helium tanks from C9 (had previously ordered the same)
  • boilerplate text on C9 invoice that indemnifies C9 against any injuries/ damages beyond gross negligence
  • C9 delivered late when guests of SVC presentation were in attendance. SVC did not sign invoice
  • kid pulled over a tank and injured his hand
  • SVC and C9 settled with family
  • C9 filed cross complaint to enforce indemnification provision
  • trial court found for C9, SVC appealed

Not governed under UCC as rental, not purchase. Additional terms only valid if SVC agreed to terms and they had not (not even in course of performance)

Even if governed under UCC as a material provision so does not become part of the contract unless accepted

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25
Q

Cost plus

A

Method of determining the purchase price or contract price equal to the seller’s or contractor’s cost plus a stated percentage as profit

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26
Q

Price in a sale of goods contract

A

Price may not be fixed, instead indicated how to be determined. (Such as a cost plus formula)

In absence of any reference price will be “reasonable” price at the time of delivery of goods (market price)

Per UCC one party may determine price but must act in good faith

27
Q

Output contract

A

Contract of a producer to sell its entire production (output) to buyer

28
Q

Requirements contract

A

Contract in which the buyer buys all its needs (requirements) from seller

29
Q

Condition of requirements or options contracts

A

1) parties must act in good faith
2) quantity offered or demanded must not be unreasonably disproportionate to prior output or requirements or stated estimate

30
Q

Infinite duration term on sales contract

A

With a continuing contract (ex one for periodic delivery of a good) with no time set for the life of the contract the contract runs for a “reasonable time” and may be terminated by notice from either party

31
Q

Modification of terms of a sales contract

A

An agreement to modify a contract for the sale of goods is binding even though the modification is not supported by consideration.

Modification valid so long as agreement is voluntary

32
Q

Parole evidence rule

A

Rule that prohibits the introduction in evidence of oral or written statements made prior to or contemporaneously with the execution of a complete, final, and unambiguous contract documented by a writing or a record, unless there is a contract defense.

“Four corners of the record”

Requires everything parties want in the agreement is put in before they sign

Parole evidence may be admitted to interpret contract terms or show what the parties meant. Does not prohibit proof of fraud/misrepresentation/other defenses in formation

33
Q

Course of dealing

A

Pattern of performance between two parties to a contract

May be used to find what was intended by contract provisions/ to supply missing terms

34
Q

Usage of trade

A

Language or customs of an industry

May be used in the interpretation of contract terms

35
Q

Bulk transfer law

A

Was article 6 of UCC, now repealed

There is a revised version (alternative B)

Protections afforded under UCC Article 9, secured transactions

36
Q

Form of sales contract

A

May be oral or written

Some types must be evidence by record to be enforced

Sale of goods over $500 must be evidenced by a record to be enforceable per statute of frauds

37
Q

Statute of frauds

A

Statute that, to present fraud through the use of perjured testimony, requires that certain kinda of contracts be in writing to be binding or enforceable

38
Q

Nature of record required

A

When a record is required does not need to be complete common law contract. Cab be simple record with only details required under UCC Article 2

39
Q

Terms included in record

A

Must indicate

  • that a sale or contract to sell has been made
  • the quantity of goods involved

Anything further may be supplied by reference to UCC sections or shown by parole evidence

40
Q

Authentication

A

The sales contract record must be signed or authenticated by the person who is being held to the contact or by the authorized agent of that person. (many forms of authentication acceptable)

41
Q

Confirmation memorandum

A

A exception to statute of frauds signature requirement for the purpose of expediting transactions

A letter, memo, or electronic document signed or authenticated by one of two merchant parties to an oral contract. Can be used to enforce a contract. Binds the non-signing merchant as well.

If non-signing merchant does not object immediately the memo automatically takes effect in 10 days (must respond within ten days)

42
Q

Rosenfeld v. Basquiat

A

Rosenfeld purchased paintings from Basquiat

On receiving her deposit he wrote the contract in crayon that indicated the paintings, stated the price, the deposit received, and the date and they both signed it

She agreed to let him keep the paintings to show at exhibitions

After his death his estate claimed no contract under statute of frauds (said that contract must include delivery date, which it did not)

Original judgement for estate. Rosenfeld appealed. Appeal court judgment for Rosenfeld. The crayon written contract contained all the necessary information for the sale (date of delivery specification not necessary)

43
Q

Brooks peanut co v. Great southern peanut

A

Brooks peanuts set up contract with Great Southern Peanut via broker M&H without GSP knowing the buyer was brooks until after terms were accepted

Agent for GSP evinced displeasure on finding out other party was Brooks but did not raise any objections until four months after a confirmation memo was sent signed by M&H agent. No contract or purchase order was issued but parties continued to communicate about contract as if it was going forward

When GSP objected (four months later) they said that M&H was not authorized to confirm the sale or send the confirmation and that a condition precedent had not occured because GSP hadn’t written a contract

Trial court ruled GSP had a defense. Brooks appealed. Appeal judgment for Brooks

  • GSP and Brooks had previously done business confirmed solely by confirmations sent by M&H
  • confirmation memo contained all necessary information
  • Objection was not registered at the time the confirmation was received
  • parties continued to behave as if contract was in existence
  • so confirmation memo was sufficient evidence of a contract between the parties
44
Q

Purpose of writing/record

A

To indicate that there was an understanding or acknowledgement that there was a sale of goods

So a letter from buyer to seller to complain about lack of delivery may be sufficient proof of contract

45
Q

Form of writings

A
  • may be formal contract, bills of sale, letters, telegrams, emails, faxes, screen printed verifications

As long as meet minimum formation standards and specify quantity

May even be a group of separate communications if pieced together they have all information

46
Q

Effect of noncompliance with statute of frauds

A

Means contract cannot be enforced. Contract is still lawful and may be voluntarily performed by parties

47
Q

Specially manufactured goods exception

A

Sales contracts may be enforced without a written record if:

the goods are specially made for the buyer and are unusual such that they are not suitable for sale in the ordinary course of the seller’s business (nonresellable) manufacture or purchase must have progressed to the point beyond which materials could be otherwise used

48
Q

Receipt and acceptance exception

A

Sales contracts may be enforced without a written record if:

It can be shown that goods were delivered by the seller and both received and accepted by the buyer

Even for amounts over $500

If only partial receipt and acceptance contract may only be enforced for those goods accepted

49
Q

Payment exception to requirement for written record

A

Sales contracts may be enforced without a written record if:

The buyer has made full payment

If only partial payment a contract may be enforced for those goods for which the payment has been made and accepted (if for an indivisible good then partial payment may permit enforcement of entire oral contract)

50
Q

Admission exception for requirement of written record

A

Sales contracts may be enforced without a written record if:

May be enforced against a party if that party admints in pleadings, testimony, or otherwise in court that a contract for sale was made. Only enforceable for quantity of goods admitted

51
Q

Grandoe corporation v. Gander mountain company

A
  • Glove maker Grandoe and retailer Gander mountain had multi year relationship where gloves were purchase on the basis of an oral contract (per industry custom)
  • in 2007 Gander mountain tried to institute a vendor buying agreement saying oral contracts were for planning purposes only and they could not be bound to them. Sent to Grandoe VP but never acknowledged
  • series of meetings followed negotiating a deal for over 3million worth of gloves. Quantities orally approved by gander mountain rep. Some aspects of terms put forth in written records (Resource allowance contract) and signed
  • Grandoe manufactured most of the gloves but Gander mountain purchased less than $1 million with and said they wouldn’t honor the oral agreement.
  • Grandoe sued for breach of contract. Jury found oral contract valid and awarded damages. Gander mountain appealed. Appeals court affirmed trial court judgement
  • no single written document dealt with all the issues and lacked agreement
  • since parties had relied on oral agreements in the past that past practice controlled the relationship
52
Q

Contracts for international sale of goods (CISG)

A

United Nations convention

Uniform international contract code contracts for international sale of goods

Automatically applies if buyer and seller have places of business in different countries that have ratified the convention but parties can agree to opt out of the convention

Issues tend to be resolved through arbitration/alternative dispute resolution

53
Q

What CISG does not cover

A
  • goods bought for personal, family, or household use

- contracts where obligation of party supplying good predominantly consists of labor/servivde

54
Q

Article 2A of the UCC

A

Codifies law for leases of tangible movable goods

Applies to any action, regardless of form, that creates a lease for personal property or fixtures

55
Q

Lease

A

“a transfer of the right to possession and use of goods for a term in return for consideration”

Agreement between owner of property and a tenant by which the former agrees to give possession of the property to the latter for payment of rent

56
Q

Types of leases

A

Consumer vs commercial

Finance vs non finance

57
Q

Consumer lease

A

Lease of goods for personal, family, or household use

Made by merchant lessor regularly engaged in business of leasing /selling goods involved

Lease made to a natural person

States place individual caps on amount considered a consumer lease (must cover vehicles)

58
Q

Commercial lease

A

Aka nonconsumer lease

Lease that does not satisfy the definition of a consumer lease

59
Q

Finance lease

A

Three party lease agreement in which there is a lessor, a leasee, and a supplier

Customer (lessee) tells financier where to obtain what goods. Must approve terms of transaction between financier and supplier

Financier (lessor) acquires goods and leases/subleases to customer. Becomes a paper channel between supplier and customer-lessee

60
Q

Form of lease contract

A

Must be evidence by a record if total payments under lease will be $1000 or more

Record must be authenticated by the party against whom enforcement is sought

Record must:

  • describe leased goods
  • state lease terms
  • indicate that a lease contract has been formed
61
Q

Warranties on leases

A

Except in case of finance leases lessor makes all usual warranties that are made by a seller in the sale of goods

(Finance lease supplier makes warranties and they are passed from the lessor to the lesser who still has direct cause of action on them against the supplier regardless of lack of privity)

62
Q

Default on lease

A

Provisioned for in article 2A

  • if either lessor or lessee defaults other can seek enforcement by any available judicial or non-judicial procedure.
  • neither party entitled to notice of default or notice of enforcement
  • rights and remedies similar to seller in a sales contract. If lessee defaults lessor entitled to recover rent due, future rent, damages
63
Q

Wilson v. Huuuge inc

A
  • Wilson brought class action suit against gambling company huuuge
  • company said that it was in their terms of use that arbitration had to be used
  • because huuuge failed to build in something that forced the user to look at/agree to the terms before use and the terms were not immediately placed in front of the user the arbitration clause was not enforceable
  • court case went forward
64
Q

Paramount contracting vs DPS industries

A
  • In a bid for construction of runway improvements at an Airport Paramount included a quote from DPS for furnishing and delivering borrow dirt” at a price of 140/ truck load but exclusive of other necessary adjacent work
  • paramount awarded the project and contacts DPS about amount of dirt and number of trucks it would need
  • at this point DPS believed they had a contract and send a letter confirming the order
  • paramount did not respond to this or the next several letters
  • paramount eventually responded that they had not yet committed to the purchase and eventually purchased from another vendor
  • DPS sued for breach of contract
  • depends on if the $140/truck load is mostly for the dirt itself or mostly for the delivery
  • court ruled that it was primarily a sales contract for dirt (not services) and that there was a valid contract under UCC

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