Sales and secured transactions

Question 1

What sales are covered under the Uniform Commercial Code (UCC)?

Answer 1

Only sales of goods are covered under the UCC.

Question 2

What elements are needed for a sale covered under the Uniform Commercial Code (UCC)?

Answer 2

Offer - You offer to sell something at a price
Acceptance - the other party accepts
Consideration - Something of value has been exchanged for the goods

Note: The UCC only covers sales of goods.

Question 3

What are the elements of a Firm Offer?

Answer 3

You offer to sell something at a price and keep that offer open for a set period of time 3 months max

Only merchants can make firm offers

Must be in writing and signed

Question 4

Under what situations are sales of goods covered by the Statute of Frauds? What are the exceptions?

Answer 4

If value of goods sold is > $500

Contract must be in writing

Exceptions: Merchants can enter into oral contracts for > $500 items.

Oral contracts are binding for special or uniquely-made items (i.e. custom cabinets or custom furniture that could not be sold if buyer reneged)

Question 5

When does title and risk of loss transfer on a sale of goods?

Answer 5

If terms are:
FOB shipping point: Title transfers at point of shipment (i.e. when loaded on truck)

FOB destination: Title and risk transfers once item is delivered

Question 6

What is a Warranty of Title?

Answer 6

The seller has the right to sell the good and no one else can stake claim to that good

Question 7

What is Warranty of Merchantability?

Answer 7

This good will do its intended purpose

Can be disclaimed

Question 8

What is Warranty of Fitness?

Answer 8

This good is the right choice for you based on the seller’s expert opinion

Can be disclaimed

Question 9

What is strict liability with respect to buyer protection?

Answer 9

Manufacturers of goods cannot disclaim that their products will be safe

Can be liable if negligent

Question 10

What are non-conforming goods with respect to buyer protection?

Answer 10

Buyer can reject some or all of the shipment if the seller didn’t perform as agreed and ship what was expected

Must give notice

Must give seller a chance to remedy the situation

Question 11

What is the statute of limitations with respect to buyer protection?

Answer 11

Buyer must sue to recover damages within 4 years.

Question 12

When does a security interest attach, or become legally enforceable?

Answer 12

Secured interest must be supported by consideration given.

Debtor must actually own the rights to the collateral or have possession.

Secured interest much be recorded

Question 13

What are the characteristics of perfection of interest in a secured transaction?

Answer 13

Gets higher priority over others claiming rights to collateral after the perfection takes place

Attachment must take place BEFORE perfection

Question 14

How does perfection occur in a secured transaction?

Answer 14

By filing a financing statement

By possessing the collateral

Question 15

When does automatic perfection occur in a secured transaction?

Answer 15

Store sells a consumer good on credit - Store retains security interest

A bank finances the purchase of a consumer good - Bank retains security interest

Question 16

What are the priority rules for payment in a secured transaction?

Answer 16

If two parties are perfected, then the first one to file wins

If neither party is perfected, then the first one to attach wins

Question 17

What are the advantages of a creditor holding a lien in a secured transaction?

Answer 17

Creditor holds priority over claims to collateral vs. unperfected security interests

Beats perfected security interests filed after lien attachment

Exceptions: Purchase money security interest, which has a 10 day grace period to be filed
Buyers purchasing in the ordinary course of business are immune from security interests held by merchants