R6.2 – Sales (UCC Article 2) Flashcards
Some parts of UCC depends on whether one or more of the parties on merchants
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
UCC Article 2 (Sales) applies only to the sale of goods
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
Offer
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)
Acceptance
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
Shipment of Non-Conforming Goods
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
Auctions
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Auction without reserve = sell to highest bidder; goods can only be withdrawn if no bid made within reasonable time.
Consideration
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
Defenses
- Fraud
- Statute of frauds
- Impossibility and impracticality
Defenses – Fraud
Party defrauded can received and sue for damages
Defenses – Statute of Frauds
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
Defenses – Statute of Frauds: Exceptions = SWAP
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.
Defenses – Impossibility and Impracticality
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
Delivery and Risk of Loss
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
Delivery and Risk of Loss – Noncarrier Cases
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)
Delivery and Risk of Loss – Carrier Cases
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
Common Shipment Terms
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
Final vs. Non-final Sales
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
Insurance Interest in Goods
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
Transfer of Title
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
Perfect Tender = 4 Warranties
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
- Express warranties
- Implied warranty of title
- Implied warranty of merchantability
- Implied warranty of fitness for a particular purpose
Express Warranties
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
Implied Warranty of Title
Warranty that
- Seller has good title and rights to transfer title
- There are no unstated encumbrances
- 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
Implied Warranty of Merchantability
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
Implied Warranty of Fitness for a Particular Purpose
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
Warranty. Of Fitness vs. Warranty of Merchantability
Fitness = Specific Purpose; All Sellers
Merchantability = Ordinary Purpose; Merchant Sellers only
Warranty Liability
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
Tort Liabiliy
Tort liability of sellers of defective products
1) Negligence theory
2) Strict product liability theory
Tort liability – Negligence
Negligence = failure to use reasonable care
The plaintiff must prove:
- Seller owed duty of care
- Seller failed to use due care
- Plaintiff suffered damages
- Damages caused by seller’s negligence
Tort liability – Strict Product Liability
Focus is on product not seller’s conduct
The plaintiff must prove:
- Product was defective when it left the seller’s hands
- Defect caused the plaintiff’s injury
- Defect made product unreasonably dangerous
- Seller is in the business of selling this type of good
- 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
Remedies – Remedies Available to Buyer or Seller
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
Remedies – Remedies Available to Seller Only
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
Remedies – Remedies Available to Buyer Only
Remember: per UCC seller must make perfect tender
If goods do not conform to contract, buyer can
- Reject all or some of nonconforming goods within a reasonable time
- Accept all goods
- Sue for damages, even if accept nonconforming goods
- Sue for specific performance if goods are unique
- 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.
Entrusting and Voidable Title
A seller cannot transfer a better title than he has
Exceptions
- Entrusting
- Voidable title
Entrusting
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
Voidable Title
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.
