Sales Law

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; sales 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

What is an output contract?

Answer 12

An output contract is where the buyer agrees to buy (and the seller agrees to sell) all of the output or production. While it is true that it is unclear what the ultimate performance will be, the U.C.C. allows this type of contract despite the quantity being missing. As to the pricing, it is also not uncommon and is allowed by the U.C.C. for the price to be omitted—the court will “determine a reasonable price at the time for delivery” (U.C.C. Section 2-305(1)).

Question 13

Under the Sales Article of the U.C.C., which of the following rights are available to the buyer when a seller commits an anticipatory breach of contract?

Answer 13

The Uniform Commercial Code indicates what remedies are available to a buyer in the event of an anticipatory breach by the seller (an anticipatory breach is a repudiation of “the contract with respect to a performance not yet due” (U.C.C. 2-610)). These remedies are described in U.C.C. 2-703 and U.C.C. 2-711. Remedies available to the buyer include the right to demand an adequate assurance of performance or to cancel the contract. Punitive damages are not recoverable under the U.C.C.

Question 14

Under the Sales Article of the Uniform Commercial Code (U.C.C.), the remedies available to a seller when a buyer breaches a contract for the sale of goods may include:

Answer 14

When the buyer breaches the contract, the seller has a variety of remedies. These remedies include, among others:
•withholding delivery of additional goods,
•stopping delivery of goods in the hands of a common carrier or a warehouse, and
•reselling the goods and recovering damages.

Question 15

What is an express warranty?

Answer 15

a. Express warranties by the seller are created as follows: 1.Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
2. Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
3. Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.
b. It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.

Question 16

What’s an insurable interest?

Answer 16

The “insurable interest” doctrine has been developed to prevent individuals from purchasing insurance in the hopes that the insured property be damaged or destroyed. Although in most instances the insurable interest requirement is satisfied by “ownership,” this is not always the case (for example, a long-term lessee may have an insurable interest). The common law requires that the insurable interest in property exist at the time the loss occurs.

Question 17

What are liquidated damages?

Answer 17

U.C.C. 2-718 provides that “damages for breach of either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach…” (U.C.C. 2-718). Thus, it is not correct to state that any amount of damages may be collected if provided for in the contract. This same article stipulates that the seller may retain a deposit of up to 20% of the value of total performance or $500, whichever is smaller.

Question 18

Under the Sales Article of the U.C.C., which events will result in the risk of loss passing from a merchant seller to a buyer?

Answer 18

When the seller is a merchant, the risk of loss passes from the merchant seller to the buyer upon the buyer’s actual receipt of the goods. (If the seller had been a nonmerchant, risk of loss would have passed upon “tender of delivery.”) Although in a “shipment” contract risk of loss passes to the buyer as soon as the seller delivers the goods to a carrier, this rule would not be applicable in this case since the seller delivered the goods in his own truck.

In a noncarrier case, risk of losses passes from a merchant seller on actual delivery of the goods into the buyer’s possession. Mere tender at the seller’s place of business does not pass the risk. Neither does the seller using its truck to deliver the goods. (Note that since the seller is using its own truck, this is a noncarrier case—no common carrier was involved.)

Since the seller is a merchant, risk of loss passes when the buyer takes actual physical possession of the goods. Therefore, neither the tender of the goods at the seller’s place of business nor use of the seller’s truck to deliver the goods is an event that transfers risk of loss to the buyer, as the merchant seller still retains possession of the goods.

Question 19

Under the Sales Article of the U.C.C., which circumstances will relieve a buyer from the obligation of accepting a tender or delivery of goods?

Answer 19

Probably the most important obligation of the seller is to tender conforming goods to the buyer! Tender of Delivery requires that the seller (1) have and hold conforming goods at the disposal of the buyer, and (2) give the buyer reasonable notice to enable the buyer to take delivery. Unless the parties have agreed otherwise, (1) the goods must be tendered for delivery at a reasonable hour and kept available for a reasonable period of time for the buyer to take possession; and (2) all goods called for by the contract must be tendered in a single delivery, unless the circumstances are such that either party can rightfully request delivery in lots.

Further, the question involves the Perfect Tender Rule: If the goods delivered or the tender of delivery fail in any respect to conform with the terms of the contract, the buyer has the right to (i) accept the goods, (ii) reject the entire shipment, or (iii) accept part and reject part.

Exceptions to the Perfect Tender Rule: Agreement of the Parties: Exceptions can be agreed to by the parties in their contract. Right to Cure: When any tender of delivery is rejected because of nonconforming goods, and the time for performance has not yet expired, the seller can (i) notify the buyer of the seller’s intention to cure and then (ii) repair, adjust, or replace the nonconforming goods within the time for performance specified in the contract.