R6.2 – Sales (UCC Article 2)

Question 0

Some parts of UCC depends on whether one or more of the parties on merchants

Answer 0

Merchant = One who deals in goods of the kind sold or who has special knowledge regarding goods being sold

Note: UCC is not limited to merchants

Question 1

UCC Article 2 (Sales) applies only to the sale of goods

Answer 1

Excluded from UCC Article 2 (but covered by common-law contract)
– Contracts for personal services and real estate
– Contracts for intangible personal property e.g. stock or patent rights
– Contracts for fixtures – things attached to the land

Question 2

Offer

Answer 2

Consideration needed to make an offer irrevocable

Exceptions = merchant’s firm offer
– Certain offers by merchants are irrevocable without consideration

Requirements for merchant’s from offer
– Seller must be merchant
– Offer in writing and signed by merchant
– Ofter gives us assurances it’ll be kept open for a certain time (maximum three months)

Question 3

Acceptance

Answer 3

Common-law = terms of acceptance must mirror terms of offer

UCC
– No mirror image rule
– New or different terms ignored unless contract is between merchants
– Contract between merchants: terms of acceptance control unless offeror objects or changes are material

Offer to buy goods for current or prompt shipment can be accepted by promise to ship shipment or prompt shipment unless offeror indicates otherwise

Question 4

Shipment of Non-Conforming Goods

Answer 4

Shipment of nonconforming goods = an acceptance + breach of contract

Exception: If seller reasonably notifies buyer that nonconforming goods are shipped early as an accommodation to the buyer, shipment is counteroffer not acceptance

Question 5

Auctions

Answer 5

Bid = offer

Fall of hammer = acceptance

Unless stated, auctions are “with reserve” i.e. seller does not have to sell unless adequate bid made

Auction without reserve = sell to highest bidder; goods can only be withdrawn if no bid made within reasonable time.

Question 6

Consideration

Answer 6

A contract for sale of goods is formed as long as the subject matter and quantity of goods is agreed on.

Modifications to existing terms
– Common-law: agreement to modify existing terms of the contract unenforceable without further consideration
– UCC: no additional concentration needed

Question 7

Defenses

Answer 7

1. Fraud
2. Statute of frauds
3. Impossibility and impracticality

Question 8

Defenses – Fraud

Answer 8

Party defrauded can received and sue for damages

Question 9

Defenses – Statute of Frauds

Answer 9

Contracts of sale of goods for $500+ must be in writing and signed by the party being used to be enforceable against hi,

Exceptions
1. Contracts for specially manufactured goods
Merchant confirmatory memo
Merchant sends written confirmation of contract that is sufficient to bind seller; binds recipient if doesn’t object within 10 days
Contracts that parties admitted in court
Contracts that have been performed, to the extent that the performance has been accepted

if a sales contract has been modified, it is the contract as it has been modified that determines whether a writing is needed.

Writing must include all essential terms
Some terms can be omitted under UCC
Must include output and signature terms

Question 10

Defenses – Statute of Frauds: Exceptions = SWAP

Answer 10

S = Specially manufactured goods

W = Written merchant confirmatory memo
– Merchant sends written confirmation of contract
– Sender bound immediately
– Recipient bound if doesn’t object within 10 days

A = Admitted in court
– Contracts that parties admitted in court

P = Performed
– Contracts that have been performed, to the extent that the performance has been accepted

Note: if a sales contract has been modified, it is the contract as it has been modified that determines whether a writing is needed.

Question 11

Defenses – Impossibility and Impracticality

Answer 11

Common-law – contract is discharged due to objective impossibility to perform
– Objective impossibility = No one can perform

UCC more lenient – Contract discharged for mere impracticality
– Impracticality = occurrence of unforeseen event makes performance extremely more burdensome than anticipated

If the method of transport specified in contract is unavailable or commercially unreasonable, seller can use alternative means of transport, and buyer must accept

Question 12

Delivery and Risk of Loss

Answer 12

Title and risk of loss cannot pass until the goods are first identified
– identified = marked, segregated, or in some manner identified as foods for a specific buyer

If parties designate when and where delivery will occur or risk of loss will pass, their agreement governs

If no agreement, depends on what kind of case
– Noncarrier case
– Carrier case

If seller sends nonconforming goods, risk remains with seller regardless of shipping terms unless buyer accepts nonconforming goods

Question 13

Delivery and Risk of Loss – Noncarrier Cases

Answer 13

Non-carrier case = buyer picks up goods at seller’s place of business

Risk of loss depends on seller’s status: merchant vs non-merchant seller

Seller = non-merchant
– Risk of loss transfers to buyer upon seller’s tender of delivery of goods to buyer

Seller = merchant
– Risk of loss passes upon actual delivery to the buyer (i.e. when buyer takes physical possession)

Question 14

Delivery and Risk of Loss – Carrier Cases

Answer 14

Carrier case = common carrier used to ship goods

Risk of loss depends on type of contract: shipment vs destination contract

Shipment contract
– Risk of loss passes to buyer when goods delivered to carrier

Destination contract
– Risk losses passes to buyer when goods reach destination and sell tenders delivery

Question 15

Common Shipment Terms

Answer 15

Free alongside (FAS) = seller must deliver goods alongside of specified vessel
– Risk of loss passes to buyer when seller gets goods alongside the vessel

Costs, Insurance, Freight (CIF) = contract price includes cost of goods, insurance and freight
– Risk of loss passes to buyer during shipment

Free Onboard (FOB)
1) FOB “seller’s place of business “= shipment contract
– Risk passes when goods arrive at carrier
2) FOB “buyer’s place of business” = destination contract
– Risk passes when goods are at destination and seller tenders delivery

Question 16

Final vs. Non-final Sales

Answer 16

All sales are final, under UCC, unless otherwise agreed

2 types of non-final sales

1) Sale on approval
2) Sale or return

Sale on approval = Sale not final until buyer gives approval (i.e. sale with trial period)
– Title and risk of loss on seller until buyer approves

Sale or return = Completed sale on delivery but buyer has right to return goods
– Risk of loss transfers to buyer when seller completes delivery requirements and remains with the buyer until goods are returned

Question 17

Insurance Interest in Goods

Answer 17

Buyer has insurable interest in goods once seller identifies the goods to contract

Seller has insurable interest as long as he has title and risk of loss

Both parties can have insurable interest in the same goods simultaneously

Question 18

Transfer of Title

Answer 18

Title passes as the parties agree

If they do not agree, title passes on delivery

If buyer rejects the goods - rightfully or wrongfully - tittle re-vests with the seller

Question 19

Perfect Tender = 4 Warranties

Answer 19

Sller must make perfect tender

Perfect tender = good and delivery must conform exactly to contract with no defect

Perfect tender requirement = Goods must conform to all warranties

1. Express warranties
2. Implied warranty of title
3. Implied warranty of merchantability
4. Implied warranty of fitness for a particular purpose

Question 20

Express Warranties

Answer 20

Express warranty = goods will conform to
– statements of fact or promise made made seller
– description of goos provided by seller, or
– sample or model shown by seller

Can be made by any seller i.e. not limited to merchants

Can be oral or written

Has to involve facts
– Statements of value or opinion do not create express warranty

Must be part of basis of bargain I.e. played a part in buyer’s decision to buy

Generally cannot be disclaimed

Question 21

Implied Warranty of Title

Answer 21

Warranty that

1. Seller has good title and rights to transfer title
2. There are no unstated encumbrances
3. Merchant seller only: goods do not infringe on any patent or trademark

Disclaimed by specific language or by circumstances that indicates the seller does not guarantee he has title

General disclaimer cannot disclaim title

Question 22

Implied Warranty of Merchantability

Answer 22

Warranty = Goods are fit for their ordinary purpose

Warrant made by merchant sellers only

Warranty is automatically implied
– No writing or oral promise required

Can be disclaimed by general disclaimer (e.g. “as is”) or with specific disclaimer
– Specific disclaimer must include the word merchantability
– Can disclaim as follows: “we hereby disclaims any and all warranties”

Disclaimer can be oral or in writing
– Must be conspicuous if in writing

Question 23

Implied Warranty of Fitness for a Particular Purpose

Answer 23

Warranty arises when buyer relies on the seller to select a good suitable for the buyer’s particular purpose

Seller doesn’t have to be merchant

Seller must know particular purpose and that buyer is relying on him to select goods

Implied warranty

Can be disclaimed by general warranty (“sold as is”) or written conspicuous disclaimer
– Written conspicuous disclaimer does not have to mention fitness

Question 24

Warranty. Of Fitness vs. Warranty of Merchantability

Answer 24

Fitness = Specific Purpose; All Sellers

Merchantability = Ordinary Purpose; Merchant Sellers only

Question 25

Warranty Liability

Answer 25

Common-law – warranty liability limited by privity
– Only parties to contract can sue for damages

UCC – warranty liability not limited by privity
– Extends to buyer’s household and those expected to use, consume, or be affected by product

Question 26

Tort Liabiliy

Answer 26

Tort liability of sellers of defective products

1) Negligence theory
2) Strict product liability theory

Question 27

Tort liability – Negligence

Answer 27

Negligence = failure to use reasonable care

The plaintiff must prove:

1. Seller owed duty of care
2. Seller failed to use due care
3. Plaintiff suffered damages
4. Damages caused by seller’s negligence

Question 28

Tort liability – Strict Product Liability

Answer 28

Focus is on product not seller’s conduct

The plaintiff must prove:

1. Product was defective when it left the seller’s hands
2. Defect caused the plaintiff’s injury
3. Defect made product unreasonably dangerous
4. Seller is in the business of selling this type of good
5. Product reached users without substantial change in condition

Privity not required
– Strict product liability is not a contract action, it is a tort action
– Plaintiff does not have to be buyer or user

Don’t have to prove negligence
– It is not a defense that defendant was not at fault or followed industry custom

Question 29

Remedies – Remedies Available to Buyer or Seller

Answer 29

Anticipatory repudiation = party notifies in advance that he will not perform

Nonbreaching party can
1. Sue immediately
2. Cancel contract
3. Demand written assurance that other party will perform
– If assurance not provided with reasonable time = Anticipatory repudiation
4. Wait then sue

Repudiating party has rights to withdraw repudiation until other party relies

No punitive damages awarded

Non-breaching party has duty to mitigate the extent of damages

Question 30

Remedies – Remedies Available to Seller Only

Answer 30

If the buyer breaches, seller can:
– Cancel and sue for damages
– Withhold delivery and stop goods in transit
– Resell and sue for damages
– Collect full contract price (if goods cannot be resold)

If seller discovers buyer is insolvent, seller can stop any delivery and demand cash. If buyer has already received goods, seller can reclaim goods for up to 10 days after receipt
10 day limit does not apply if buyer made misrepresentations of solvency

Liquidated damages if specified in contract will be valid if reasonable, and not a penalty

Question 31

Remedies – Remedies Available to Buyer Only

Answer 31

Remember: per UCC seller must make perfect tender

If goods do not conform to contract, buyer can

1. Reject all or some of nonconforming goods within a reasonable time
2. Accept all goods
3. Sue for damages, even if accept nonconforming goods
4. Sue for specific performance if goods are unique
5. Cancel contract

Buyer must notify seller and state reasons for rejection

Seller has right to cure defect if there is time remaining under the contract for seller’s performance
– Seller must notify buyer of intent to cure in a timely manner

Buyer has right to inspect before payment (unless COD sale)

Buyer can revoke acceptance for substantial defects a reasonable inspection would not have shown

If seller is insolvent and buyer has paid part or the entire purchase price, buyer may recover the goods from the seller if the goods are identified.

Question 32

Entrusting and Voidable Title

Answer 32

A seller cannot transfer a better title than he has

Exceptions

1. Entrusting
2. Voidable title

Question 33

Entrusting

Answer 33

Owner of goods entrust them to merchant who deals in those kinds of goods
– Seller must be a merchant

Merchant can sell goods to buyer and transfer good title to buyer even though merchant does not have good title

Goods must be sold in ordinary course of business I.e. not bulk sale

Question 34

Voidable Title

Answer 34

Owner is defrauded into giving a thief title

Owner can rescind contract and recover goods from thief i.e. thief’s title is voidable

If the thief has since sold the goods to a bona fide purchaser for value, the purchaser gets good title.
– The defrauded former owner can no longer recover the goods. A suit against the thief for damages is the only remedy.