Sales Flashcards
What is bailment?
Transferring the possession of property, but not ownership
What is the difference between a sale and a gift?
Sales require consideration but not delivery, while gifts require delivery but not consideration
What counts as a good?
Anything movable at the time of the contract, including things connected to property which can be removed without harm
Besides immovable items, what does not count as a good?
Money to pay the purchase price
Investment securities
Intangible personal property (e.g. accounts receivable, commercial paper)
Is it possible to have a present sale of future goods?
No, any such agreements are treated as contracts to sell in the future
What are fungible goods?
Interchangeable commodities (e.g. crops)
How long are firm offers irrevocable?
If there is no stated time, for a reasonable time – but three months maximum
What is identification?
When the buyer acquires special property rights (including a right to have insurance on it) for the goods of a contract
If there is no explicit agreement, when does identification occur?
(1) If the goods exist and the contract refers to them, when the contract is written
(2) If the contract is for a sale of future goods besides crops or unborn animals, when the goods are designated for the buyer (e.g. shipped)
(3) If the contract is for a sale of future crops or unborn animals, when the crops are planted or the animals are conceived
What is cover?
The right of a buyer, in case of the seller’s breach, to purchase substitute goods
If a place of delivery is not named in a contract for the sale of goods, where is delivery presumed to go?
Where the seller does business, or (if he has no place of business) where the seller resides
But if the identified goods are known to be elsewhere, then that is the place of delivery
If there is no specified payment or credit in a contract for the sale of goods, when is payment presumed to be paid?
Payment is required when and where the buyer receives the goods
What occurs if the acceptance for a contract for the sale of goods includes additional terms?
The acceptance is still effective (i.e. it doesn’t count as a new offer) unless the acceptance is stated to be conditional upon the other party’s assent to the new terms
If an acceptance includes additional terms, when are such terms included within the contract?
They are automatically included unless:
(1) the offer explicitly restricts acceptance to the terms of the offer
(2) the new terms materially change the offer
(3) the other party objects to the new terms within a reasonable time
What occurs if a contract for a sale of goods is within the Statute of Frauds, but the written evidence incorrectly states a term?
The contract is still enforceable, but only with respect to the quantity of goods stated in the writing
What is the first of four reasons why a contract within the Statute of Frauds would still be enforceable if not in writing?
If the goods are unique for the buyer and the seller has substantially committed to producing them
What is the second of four reasons why a contract within the Statute of Frauds would still be enforceable if not in writing?
If the contract is partially complete, in which case the contract is enforceable only for the goods delivered or paid for
What is the third of four reasons why a contract within the Statute of Frauds would still be enforceable if not in writing?
If it is admitted in court that the contract was made
What is the last of four reasons why a contract within the Statute of Frauds would still be enforceable if not in writing?
If, between merchants, a merchant’s confirming letter is sent and understood – though the receiving party has ten days to object in writing
What is F.O.B.?
“Free on board” – specifies the responsibilities of buyer and seller in shipping and when the title to the goods changes hands
What are two kinds of F.O.B.?
F.O.B. shipment – goods transfer at place of shipment, so buyer is responsible for shipping
F.O.B. destination – goods transfer at destination, so seller is responsible for shipping
What is F.A.S.?
“Free alongside” – seller must deliver goods alongside a ship or dock, at which point the goods change hands
Buyer is thus responsible for loading and transporting
What is C.I.F.?
“Cost, insurance, and freight” – means that the lump sum paid by the buyer includes not merely the cost of the goods, but insurance and freight expenses
Seller is therefore responsible for paying the insurance and freight expenses from the lump sum
In a C.I.F. arrangement, when is the buyer obligated to pay the lump sum?
If the contract doesn’t specify, he must pay when the various documents proving the delivery (e.g. bill of lading) are given to him, even if he has not yet inspected the goods
What is C. & F.?
“Cost and freight” – same as C.I.F. but the lump sum does not pay for insurance
What is C.O.D.?
“Collect on delivery” – buyer must pay before carrier can transfer the goods
Unless the contract allows, the buyer is forbidden from inspecting the goods before payment
What is a conditional sale?
A contract where the buyer can return the goods even if they fulfill the contract
What are two types of conditional sales?
Sale on approval = sale is complete once the buyer approves the goods (through notice or through action); and approval of some goods counts as approval of all
Sale or return = buyer purchases goods to resell them, so the sale is complete but voidable
Who bears the risk of loss in different conditional sales contracts?
In sales on approval, seller bears it until the buyer approves the goods
In sale or return contracts, buyer bears it while he possesses the goods (and while he returns them)
How is a sale or return contract different from consignment?
In consignment, the seller still owns the inventory in the possession of the buyer, while in a sale or return contract, the buyer owns it but has the right to return it
This affects whether the buyer’s creditors can claim the inventory
Can a title for goods pass before they are identified in the contract?
No
When does a title pass if goods are not to be moved and there isn’t any document of title?
As soon as there is a contract with the goods identified
When does a buyer have a voidable title to goods purchased?
If fraud or deception caused the sale or delivery, or if there was no good payment (e.g. a bounced check)
Who has risk of loss when there is a breach of contract?
Generally, the breaching party retains risk of loss
This can only be to the extent of any deficiencies in the insurance coverage, however
What is warranty of infringement?
Assurance that the goods will be given without anyone else’s rightful claim of patent- or trademark-infringement
Does the seller always provide warranty of infringement?
Yes, except when the buyer requests specifications of the seller
What counts as an express warranty?
Not simply specific language of “warranty,” but also any promise, description, or sample which is a basis of the bargain
What is an implied warrant of merchantability?
Any sales of goods by a merchant implies that the goods are merchantable – that they can perform their ordinary function, they are labeled correctly, etc.
Does the sale of food have an implied warranty of merchantability?
Yes – such sales count as a sale of goods in this case
What is privity?
The relationship formed by two parties in a contract
Usually, a party suing for warranty liability has to be in privity, but there are exceptions
Under what circumstances does a party not need to be in privity in order to sue for warranty liability?
When the warranty extends to persons who would still be injured or affected by the breach of warranty
Sellers are not permitted to restrict this warranty-extension in a contract
How can a seller exclude express warranties, warranties of title, and warranties of infringement?
Only with specific language (or circumstances) in the contract
How can a seller exclude implied warranties?
With language like “with all faults” or “as is”
Exceptions:
- disclaimer of a good’s merchantibility must have the word “merchantibility” overtly presented
- disclaimer of a warranty of fitness for a particular use also requires overt writing
Besides language in the contract, what else can exclude an implied warranty?
Ordinary trade practices
What is a general distinction between express warranties and implied warranties?
Express = promises made by the seller to the buyer as a basis for their agreement
Implied = general quality standards established by law
How is the buyer’s right to inspect goods ordinarily understood?
Buyer may inspect before accepting and giving payment
This can be altered in the agreement
How is the buyer’s duty to pay the seller ordinarily understood?
Buyer must tender (i.e. offer) payment before the seller must tender delivery
This can be altered in the agreement
What happens if the delivery (for which the seller is responsible) is delayed or cancelled due to a contingency?
It does not count as a breach on the seller’s part
What happens if goods are damaged (without fault to the seller) before risk of loss passes to the buyer?
If the goods are fully lost, the contract is voided
If only partially, the buyer can either void the contract or accept the goods at a lower price
What may a buyer do if he is informed of a delayed or reduced delivery?
He can either void the remaining part of the contract or modify it by agreeing to the change
If he does not modify it within a reasonable time (no longer than 30 days), the contract automatically lapses
What happens if a seller’s ability to perform is reduced by a contingency?
He must apportion deliveries among different customers and notify each one
What are the total damages due the buyer if the seller fails to deliver and the buyer does not cover?
The difference between the contract price and the market price when buyer learned of breach
+ incidental and consequential damages
- expenses saved
If a seller breaches contract, is a buyer obligated to cover (i.e. purchase substitute goods)?
No, but if he does, he must do so in good faith
If a buyer is insolvent and the seller reclaims the goods, what other remedies are available for those goods?
None – reclamation, if successful, bars all other remedies
What are the total damages due the buyer if the seller fails to deliver and the buyer covers?
The same as if the buyer does not cover, except that the actual price paid to cover the goods is substituted for the market price
If a buyer is insolvent, how long does the seller have to demand reclamation of the goods?
10 days – but this limit does not apply if the buyer falsely represented his solvency within three months before the delivery date
The seller’s right of reclamation is subject to what other rights?
The rights of persons purchasing the goods from the buyer in good faith
If a seller resells the goods to recover damages, what must he do when reselling?
Identify the resale as due to the breached contract
Moreover, the resale must be done in a commercially reasonable way
If the buyer wrongly rejects goods, fails to pay, or repudiates the contract, what are the seller’s remedies?
(a) withhold delivery
(b) stop delivery in transit
(c) resell and recover damages
(d) recover damages apart from resale
(e) void the contract
What if either buyer or seller believes (reasonably) that the other party will not perform?
He can request assurance of performance in writing, and suspend any performance until such assurance is received
If the seller seeks to recover damages apart from resale, what is the general goal?
To put the seller in the same position which the buyer’s performance would have placed him (rather than his original pre-contract position)
What is anticipatory repudiation?
When a party demonstrates that he doesn’t intend to perform his duty
What occurs if assurance to perform is demanded but not received?
If not received within a reasonable time (max 30 days), should be treated as a repudiation of the contract
What is the statute of limitations for breach of warranty?
Four years from when the breach occurs (which is not necessarily when the breach is made known)
Parties can agree to reduce this period to one year, but no agreements to increase the period are enforceable
In the event of a party’s anticipatory repudiation, what can the other party do?
The other party can await performance for a reasonable time, or he can find a remedy for breach of contract – even if he’s told the other party he will await performance
What is the FCPWA?
Federal Consumer Product Warranty Act
Governs written express warranties made by manufacturers and sellers of consumer products
How can consequential damages for breach of warranty be limited in a contract?
Consequential damages can be contractually limited unless doing so is unconscionable
Limiting damages for physical injury would be (prima facie) unconscionable, while limiting damages for commercial loss would not
Are negligence lawsuits limited to negligence in a product’s manufacturing?
No, they also can extend to design, packaging, or any other step of the process
If suing for negligence regarding a product, does the plaintiff need to be in privity with the party being sued?
No, any party injured by negligence regarding the product can sue in tort
What various defenses might a defendant have if sued for product negligence?
Clear warning labels (sometimes) – though disclaimers do not avoid liability
Contributory negligence (i.e. plaintiff was also negligent)
Assumption of risk (i.e. plaintiff was aware of risk but still used product anyway)
What sort of damages can be sued for in negligence cases?
Personal or property damages, but not economic losses
What is a strict liability lawsuit?
A suit based on harm caused by a product’s being defective or dangerous
Negligence does not need to be proven at all for this suit to work – all that matters is whether the product was bad before departing from the manufacturer, seller, or whoever
To sue for strict liability, does the plaintiff need to be in privity with the defendant?
No – the rule here is the same as for negligence
What various defenses might a defendant have if sued for strict liability?
Clear warning labels (sometimes) – though disclaimers do not avoid liability
Contributory negligence usually is NOT a good defense
Assumption of risk can be a good defense
What sort of damages can be sued for in strict liability cases?
The same as for negligence: personal or property damages, but not economic losses
