REG 14 - Sales

Question 1

Uniform Commercial Code - Article 2

Sale of Goods

Answer 1

Article 2 of the UCC deals with contracts for the sale of goods (tangible property), derived from Statutory Law, NOT real property or services. Special considerations:

• Under the UCC, only the type & quantity of goods involved needs to be explicit.
• Price, delivery date, & other terms can be established by prior dealings.
• Even quantity need NOT be identified as long as there is a reasonable way to determine such as:
  
  • Output Contract - buyer agrees to purchase as much as the seller can produce.
  • Requirements Contract - seller agrees to supply all the needs of the buyer for a specified period of time

Question 2

What are the three requirements for a valid Sales Contract?

Answer 2

To have a binding sales contract, as with common law, we still need: (Offer, Acceptance, & Consideration)

• Offer
  
  • Terms can be vague.
  • Intent
  • Communicated
• Acceptance
  
  • Can have minor variations (mirror img rule NOT req’d)
  • NO Major changes to contract like:
    
    • Price
    • Quanity
    • Delivery Date
  • Early Acceptance rule (when dispatched)
• Consideration
  
  • Additional consideration is NOT required

Question 3

Offer (3)

Answer 3

The offeror expresses a willingness to enter into a contract with the offeree. Must include:

• Terms can be vague. May be based on:
  
  • Standard trade practice
  • Past Experience (like previous contracts)
    
    • NOTE: need not be definite as in Common Law
• Intent to make offer or contract
  
  • NOTE: Advertisement is NOT intent.
• Communicated to Offeree
  
  • constructively received when available to offeree

NOTE: Correct! Under the UCC, only the type and quantity of goods involved needs to be explicit to create an enforceable contract for a sale of goods.

Question 4

Firm Offer

(SUM)

Answer 4

An offer that may NOT be revoked, despite a lack of consideration from the offeree. A firm offer exists when all three of the following conditions are satisfied (SUM):

• Signed - the promise to keep the offer open must be in writing, & the offeror must specifically sign their name on the offer.
• Up to 3 months - promise is enforceable for the time specified in the writing, or a reasonable period, which is 3 months
• Merchant - the promise must have been made by a merchant

Question 5

Acceptance

Answer 5

Acceptance of an offer creates a contract. Under UCC, acceptance may have minor variations from original offer unless prohibited in the offer. Ex: Payment terms or Change a warranty.

Major Change, NOT okay such as:

• Material Price Increase
• Quantity
• Delivery Date

NOTE: Merchants are bount by silence, has 10 days to object.

Question 6

Consideration (2)

Answer 6

Consideration is required in order to form a sales contract.

• For sale of goods, additional consideration is NOT required to make changes to a contract if it is a good faith price increase.
• An output or requirement contract (i’ll buy everything you produce) - does satisfy the consideration requirement even though the quantity is uncertain.

Question 7

Output Contract

vs.

Requirements Contract

Answer 7

Under the UCC, only the type & quantity of goods involved need to be explicit to be enforceable. Even the quantity need not be identified as a number as long as there is a reasonable way to determine what is inteded. Two typical examples are:

• Output Contract - The buyer agrees to purchase as much as the seller is able to produce for a specific period of time, & the seller agrees to sell that entier output to the buyer
• Requirement Contract - The seller agrees to supply all the needs of the buyer for a specified product for a specific period of time & the buyer agrees to purchase whatever they need entirely from that seller.

Question 8

Statute of Frauds

(GROSS)

Answer 8

Statute of frauds says that certain contracts need to be in writing in order to be enforceable by a court of law. (GROSS):

• Sale of Goods worth >$500
  
  • If below $500, an oral agreement is binding
• Real Estate Sales (does not apply to $$ limit, even if it is $1)
• Over 1 yr required to perform contract
• Suretyship (being a co-signor)
  
  • Correct! Under the statute of frauds, a guaranty must be in writing in order to be enforceable.
• Statements in Consideration of Marriage

Question 9

Exception to Statute of Frauds

(SPAM)

Answer 9

Exceptions to Statute of Frauds, where a contract is still enforceable even if there is NO written contract (SPAM):

• Specifically manufactured goods at request of buyer
• Performance of contract already has occured
• Admitted in court by defendant
• Merchants bound by Silence, merchant in sale of goods not objecting to written confirmation within 10 days, is treated as if they had signed it

Question 10

Parol Evidence Rule

Answer 10

Parol Evidence Rule - this rule bars from court testimony, any prior or contemporaneous oral or written contracts that contradicts the final written contract.

• When a written contract exists, it bars from court:
  
  • Prior written or oral contracts on the same subject
  • Concurrent oral contracts (contemporaneous)
• Rule doesn’t bar (still admissible):
  
  • Subsequent oral modifications
  • Evidence to prove fraud, duress, mistakes
  • Subjects not addressed or ambiguous in written contract

Question 11

Passage of Title and Risk of Loss are based upon? (3)

(Contract, Shipping, Buyer Pickup)

TESTED

Answer 11

Title & Risk of loss transfer are based upon:

1. Contract Terms
2. Shipping Terms, if there are NO contract terms:

• Shipment Contracts - title & risk of loss transfers when “placed with the common carrier”
  
  • FOB shipping point
• Destination Contracts - title & risk of loss transfers when “tendered” to buyer
  
  • FOB destination

3. Buyer Pickup, if there are NO Contract or Shipping terms:

• Title passes when contract is formed.
• Risk of Loss passes when:
  
  • Merchant - goods received by the buyer
  • Non-merchant - goods tendered to buyer

Question 12

Passage of Title & Risk of Loss if the buyer rejects goods?

Answer 12

• Title - Reverts back to seller.

​

• Risk of Loss - (Stays w/ party in breach)
  
  • Rightful rejection
    
    • ​non-conforming goods - seller breaches
    • seller has risk of loss
  • Wrongful rejection
    
    • conforming goods - buyer breaches
    • buyer has risk of loss

Question 13

Seller’s Remedies for Breach by Buyer (4)

Answer 13

When the buyer breaches the contract the seller may:

• Right to resell goods
• Right to stop the carrier from delivering the goods
• Right to cancel the contract
• Recover damages
  
  • Incidental damages
  • Consequential damages
  • NOT Punitive damages

Question 14

Buyer’s Remedies for Breach by Seller (4)

Answer 14

When the seller breaches the contract the buyer may:

1. Cure - seller has the right to correct the contract
2. Accept all, some, or none of the goods
3. Cover - purchase substitue goods & recover the excess paid from the seller
4. Specific Performance - very unique goods

Other remedies for the buyer:

• Recover damanges
  
  • Incidental
  • Consequential
    
    • NOT Punitive
• Rescission of contract

Question 15

Bailement

Answer 15

Correct! A bailment exists when the owner of personal property delivers it to the possession of another party, who is entrusted with the item with the obligation to return or dispose of it according to the owner’s directions.

• If goods are damaged, bailee is responsible
• If bailee sells goods/property as a result of negligence
  
  • Purchaser not required to return goods
  • Bailor will not be able to retrieve goods
  • But, Bailor will be entitled to damages from Bailee

Question 16

Conditional Sales (2)

Answer 16

Conditional Sales - the buyer is given the option to cancel the deal & return the goods. There are two possible situations:

• Sale on Approval - contract permits the buyer to obtain the goods for use & make a decision as to wether or not to purchase them later (like a subscription). Normally 30 days.
  
  • Title/Risk transfers to the buyer when approved.
• Sale or Return - contract in which the buyer is acquiring the goods for resale & is given the right to cancel the sale if the are unable to resell them to others.
  
  • Title/Risk transfers to the buyer until returned to seller.

Question 17

Warranties (3)

(Title,Express,Implied)

Answer 17

Warranties - An expectation the buyer has that the seller is legally obligated to fulfil. Three different types of warranty:

1. Automatic Warranty of Title (exists on all sales) - title of the good is clean, no liens or encumbrances.
   
   • Can be Disclaimed.
2. Express/Stated Warranty - any statements or claims that become a “basis of the bargin”,for the contract. This would include a description, sample, or model.
   
   • CANNOT be Disclaimed (deny by seller)
3. Implied Warranties of:
   
   1. Merchantability - When seller is a merchant, seller warrants that the goods are in fair condition for their ordinary purpose & conforms to all package claims.
   2. Fitness - When buyer is relying on the seller’s judgment in selection of the product, seller warrants the goods will fulfill the specific needs of the buyer.

• Can be Disclaimed

Question 18

Product Liability Law

The injured party must prove? (4)

Answer 18

If a defective product injures someone, the manufacturer & seller may be liable (can’t use privity defense) under the theory of Strict Liability in tort (liable without fault). The injured party must prove:

• Suffered an injury
• Seller was in the business of selling that product
• Product was sold in a defective condition
• The defect made the product unreasonably dangerous

NOTE: Seller is liable regardless of:

• Unaware of the defect
• Even if injured party didn’t excercise due care
• NOT in Privity with the injured party

Question 19

Negligence Law (3)

Answer 19

A common law theory of liability is negligence law, which holds a person responsible for careless acts causing harm to others. In a product liability case, the plaintiff must prove all of the following:

• An absence of due care by defendent in connection with the product
• A defect in the product caused by carelessness
• Damages to the plaintiff resulting from the defect

Question 20

Strict Liability Law (3)

Answer 20

A liability that makes te defendant liable, even in circumstances where the defendant did not apply care in the use of the product & was not in privity of the contract with the defendant. In such cases, the plaintiff must prove:

• A defect or unreasonable danger in the product
• Damages caused by this danger
• The danger existed when the product left the defendant’s control
• The defendant is in the business of selling the product

NOTE: Correct! Strict liability does not require proof that the defendant was negligent or otherwise at fault.

Question 21

Auction

Answer 21

• When goods are put up for auction, they may be put up “with reserve”, indicating that the seller has reserved certain rights, which includes the right to withdraw the item from auction at any time until the auctioneer announces completion of the sale.
• When goods are put up “without reserve”, the seller may only withdraw the item if no bids are received within a reasonable time.

Question 22

Andicipatory Breach of Contract

Answer 22

Correct! Once a seller has indicated an intention to breach a contract, the buyer has the right to demand assurance of performance. Also, buyer also has the right to cancel the contract. The UCC Sales Article does not provide for punitive damages, but only permits recovery of actual damages suffered as a result of the breach.

Question 23

What are two main sources of Contract Law?

Answer 23

1. Common Law - derived from courts, based on real estate & services.
2. Uniform Commercial Code - derived from statutory law, based on sales of goods.