UCC

Question 1

UCC

Answer 1

UCC governs the sale of goods.

Question 2

Article 2

Answer 2

Contract formation.

Question 3

Goods

Answer 3

Moveable, tangible items at time of contract formation.

Question 4

Contract Formation

Answer 4

Mutual assent, intent (express or implied) to enter into contract.

Question 5

Terms

Answer 5

Contract must identify parties, quantity, sale terms, price, and subject matter.

Question 6

Unconscionability

Answer 6

Unreasonably unfair terms cannot be enforced.

Question 7

Merchant

Answer 7

One who has expertise in the area or regularly deals with goods of the kind sold.

Question 8

Battle of Forms

Answer 8

2-207. If a party’s acceptance of an offer contains new terms not included in the original offer, a sales contract is still created as long as the acceptance is not expressly conditioned on assent to the proposed new terms. In UCC, mirror image acceptance not necessary. Timely additions/modifications still valid unless expressly conditional upon assent (counter). Conduct/perf establishes contract.
Belden v Amer Elec - Battle of forms, new terms become part of contract

Question 9

Gap Fillers

Answer 9

UCC fills gaps for items that are left out or contradictory: knock-out; Price: (UCC) FMV at time/place delivered; Place: seller’s business; Shipment: reasonable; Payment: when buyer receives; Time/Duration: Reasonable

Question 10

Statute of Frauds

Answer 10

2-201. Contract for sales of goods of $500 or more must be in writing, signed by party charged, to be enforceable.

Question 11

Exceptions

Answer 11

Detrimental reliance, judicial admission, part performance, merchants’ confirmatory memo (doesn’t need to be signed by party charged)

Question 12

Parol Evidence

Answer 12

2-202. If a writing is intended to be a full/complete integration of parties’ intent, it may not be contradicted by prior/contemporaneous oral agreements unless: naturally omitted terms, ambiguous, condition precedent. If need to clarify, then can supplement. Relevency always trumps PE Rule. Usage of trade can be shown by supplementing contract.
Morgan Bldgs v Humane Soc - Merger/integration clause alone does not bar PE; entire contract must be considered integrated; Humane ordered carport but it came in wrong color

Question 13

Merchant’s Conf Memo

Answer 13

May be explained/supplementedby course of dealing, or usage of trade, or course of performance; or by evid of consistent additional terms.
Gen’l Trading v Walmart - Merchant’s confirmatory memo must have specifics to suffice for SOF.

Question 14

Warranties

Answer 14

Implied or express, to ensure some basic quality standards are met when goods are sold.

Question 15

Express Warranty

Answer 15

Written or verbal representations about product at the time of sale must be upheld.

Question 16

Implied: Merchantability

Answer 16

Products must be of average, acceptable quality, or fit for the general purpose for which they are intended.
Phillips v Cricket Lighter - Implied warranty of merchantability not breached if good used for improper purpose and not ordinary use; 2-yr old child took lighter and caused fire killing self/family.

Question 17

Implied: Particular Purpose

Answer 17

If seller knew about the buyer’s particular intended purpose for the product, and buyer relied on seller’s expertise when selecting the product for purchase, product must conform to that purpose.
Leal v Holtvogt - Lame horse; sold 1/2 interest in stallion, didn’t disclose lameness; constituted implied warranty of fitness for particular purpose. Buyers were inexperienced and relied on representations.

Question 18

Performance

Answer 18

No breach - delivery of conforming goods to agreed location and receiving payment.

Question 19

Closing Sale

Answer 19

Perfect tender, no breach; nonconforming goods may be accepted, rejected, or acceptance revoked.

Question 20

Perfect Tender / Rejection

Answer 20

If delivered goods do not conform to contract, buyer may reject all or portion or accept; buyer must have had reasonable time to inspect, inform seller if accepts; if does not inform seller of rejection or acts inconsistent with seller’s ownership, forfeits right to reject.
N. Am Lighting v Hopkins - Machine needed for audit, Hopkins sold system; informed H of inadequacy of system, but accepted so could not reject, but may revoke acceptance.

Question 21

Revocation of Acceptance

Answer 21

After accepting, buyer may revoke acceptance if 1) goods have defect substantially impairing value, 2) accepted on reasonable belief defect would be cured but it wasn’t, 3) buyer accepted either because didn’t discover defects or seller’s assurance goods would conform. Must be done within reasonable time.
If revocation timely, risk of loss remains on seller.

Question 22

Breach by Seller

Answer 22

Seller provides non-conforming goods to buyer under contract - material breach.

Question 23

Right of Seller to Cure

Answer 23

Under UCC, seller may cure a material breach by promptly providing conforming goods, and non-breaching party must continue performance under contract.
Sinco v Metro North - Material breach, but seller has opp to cure by tendering conforming goods; Sinco offered to cure, but did not cure.

Question 24

Breach by Buyer

Answer 24

1) Wrongfully reject conforming goods, 2) accept conforming goods, but wrongfully revoke acceptance, 3) fail to pay when payment due, 4) anticipatory repudiation, telling merchant will not perform under contract.

Question 25

Remedies for Seller

Answer 25

If buyer breaches contract, seller entitled to recover damages. Cannot collect consequential damages, only incidental.

Question 26

Risk of Loss

Answer 26

Depending on type of contract, either seller or buyer responsible for loss if goods lost/destroyed.

Question 27

Shipment Contract

Answer 27

FOB place of shipment (default if none specified) - seller must place goods in manner provided by 2-504 and bear expense and risk of putting them into possession of the carrier. Risk of loss shifts to buyer when goods delivered to carrier.
Cook Specialty v Schrlock - Cook bought machine from D, destroyed in transit; seller must make adequate valuation of shipment so buyer can have opp to recover from carrier - here, they did, so P couldn’t recover.

Question 28

Revocation of Acceptance

Answer 28

If timely, risk of loss remains on seller.
Design Data v Maryland - P (seller) sought damages for product destroyed in transit; D’s revocation of acceptance was timely, so risk of loss was on P.

Question 29

Destination Contract

Answer 29

FOB place of delivery - seller’s obligation to deliver is complete and at this point all risk of loss passes to buyer.

Question 30

Seller Remedies: General

Answer 30

2-703 - buyer wrongfully reject/revoke acceptance, fails to make pmt/repudiates, seller can 1) withhold delivery, 2) stop delivery, 3) proceed, 4) resell to recover damages, 5) recover damage for non-acceptance or price (for proper cases), 6) cancel

Question 31

1) Price

Answer 31

Consequential damages not allowed. Can sue for the price of item sold if buyer fails to pay and 1) buyer accepted goods, 2) conforming goods lost/damaged reasonable time after risk passed to buyer, or 3) seller identified goods to contract and no reasonable prospect reselling to third party for reasonable price.
Sack v Lawton - D agreed to buy Rafael painting for $12M but didn’t pay and P couldn’t resell; no reasonable prospect/price, so seller can recover price.

Question 32

2) Resale

Answer 32

Can sue for the price of item sold if 1) buyer breaches, 2) seller identifies goods being resold referring to broken contract, 3) seller gives buyer notice of resale, 4) seller resells goods at public/private resale. K price - Resale price + Incidental damages - Expenses saved as result of breach.
Firwood v General Tire - GT (D) contracted to purchases inflators from F (P) but breached, and P sold and sued for difference; lost use money is consequential damage and not allowed.

Question 33

3) Contract-Market Diff

Answer 33

Repudiate/wrongfully fail to accept; KP-MP+ID-ES.

Question 34

4) Lost Profits

Answer 34

If buyer didn’t breach, seller would have sold to other buyers for additional profit.

Question 35

Remedies for Buyer:

Answer 35

GT (D) contracted to purchases inflators from F (P) but breached, and P sold and sued for difference; lost use money is consequential damage and not allowed.

Question 36

General

Answer 36

Seller fails to deliver/repudiates, or buyer rightfully rejects or timely revokes acceptance, buyer may “cover” by trying to purchase substitution goods, and “recover” damages for nondelivery diff btwn cost of cover and contract price, plus incidental or consequential damages (failure to cover ok)

Question 37

Incidental

Answer 37

Incidental - for buyer, expenses incurred inspecting, receipt, transport, care, custody; for seller, commercially reasonable charges, expenses, commissions, stop-delivery, transport, care, custody

Question 38

Consequential

Answer 38

Consequential damages for buyer include loss resulting from general / specific requirements/needs seller at time of contract had reason to know (foreseeable) and could be prevented, and injury to person/property proximately resulting from breach of warranty.
Seller breaches warranty, VCG - VNCG + ID + CD; if accept goods and too late to revoke acceptance, can sue for breach of warranty;
In re Beeche Systems - If suspension of contract performance is based on other’s anticipatory repudiation, must have reasonable basis to believe they are unable / unwilling to perform obligations. May send written demand of other party’s assurances. Eliaclaimed Beeche repudiated contract bc failed to provide adequate assurance, but performed obligation and delivered equipment, didn’t signal repudiation, so unwarrantedand BK court decision affirmed to uphold buy-back provision.

Question 39

Checking Accts

Answer 39

Purchaser/Issuer/Drawee - opens chkg acct at Payor Bank, issues check to Payee/Seller, who deposits in Depositarywhoc collects from Payor Bank
Properly payable if customer has authorized payment. Can put stop payment. Payor can pay or dishonor, if overdraft caused.
McGuire v Bank One - Bank can pay check even if OD caused, and customer responsible to pay back; bank must show good faith.
McIntyre v Harris - To prevent unjust enrichment, bank pays check, may be subrogated.

Question 40

Letters of Credit

Answer 40

Letter from financial institution promising to pay stated sum of money upon receipt of specified documents.
Payment guaranteed by independent third party; ease concern of timeliness of payment to seller; typically btwn merchants; benefits: bank advances commitment and payor cannot cancel payment
Rappaport FP v Meridian - Death of person in letter of credit doesn’t cause ambiguity in provisions, but renders performance of letter of credit impossible.

Question 41

Reimbursement

Answer 41

If bene makes appropriate draft on LoC and confirming bankonors draft, bank has statutory right to immediate reimbursement from issuing bank.

Question 42

Negotiable Instruments

Answer 42

Document guaranteeing payment / contract; promise to pay granting interest to someone. (Either promise or order.) No conditions, must be valid on its face (DBA Ent v Findlay). Device for enhancing liquidity (ease with which asset can be sold at value); many businesses prefer immediate case, even if sell oblig at discount. Examples: checks, promissory notes, letter of credit – payment in full; sometimes, there is financing
Makes it easier to verify party’spower to transfer enforceable interests. Purchaser becomes holder in due course, free from personal defenses, can force to repay neg inst issued.

Question 43

Negotiability Requirements

Answer 43

1) in writing, 2) unconditional not subject to other requirement, 3) identifiable currency (not commodity), 4) fixed amount required, int rate, dollar, 5) language payable to bearer or order of bearer (Sirius v Erickson), 6) definite time period, terms of repayment, 7) no extraneous undertaking to be performed to take benefit of instrument

Question 44

Holder in Due Course

Answer 44

Third party (not original seller); financier, seller, factor; seller sells negotiable instrument to third party who becomes holder in due course.

Question 45

3-part Test for HIDC

Answer 45

1) monetary value, 2) in good faith: arms-length transaction, fair value, not gift, negotiated, 3) without notice of certain problems (underage, defrauded, mistake, error, etc); makes you HIDC/bonafide purchaser, free of personal defenses, recoupment, can enforce, go after for judgment for balance of what owed. Seller needs cash more than negotiable instrument so sold to third party. Protects other buyers afterwards.
Notice - forgery/alteration, overdue/dishonored, third-party claim, limit or bar enforcement; have actual knowledge,received notification, based on facts known at time in question has reason to know (state st v strawser)

Question 46

Transfer

Answer 46

Requires delivery of instrument and signature by transferor; verification of chain of title. “Holder” - bearer of the instrument / possession.

Question 47

Enforcement/Collection

Answer 47

Holder has absolute right to enforce (even if unlawful); presentment - demand for payment

Question 48

4 Defenses to Enforcement

Answer 48

p 681 1) Infancy - cannot be issued by minor; 2) incapacity - includes duress, illegality; cannot be issued by someone with lack of legal capacity; 3) fraud - cannot have induced issuance by fraud; 4) insolvency - can’t discharge obligor in insolvency proceedings.
Truman v Ward’s Home Imp - Same defenses can be raised against assignee (not holder in due course) as against payee. Assignment lacking indorsement is not valid negotiable instrument and assignee not status of holder in due course.

Question 49

Security Interest

Answer 49

A security interest is created when a bank or financing company lends money and, as a condition of the loan, requires that in the event of default, the debtor forfeit the asset (collateral) in which the security interest is held (typically the asset whose acquisition the loan was taken for). This provides security to the bank for lending funds because they can foreclose on the collateral and sell it to make up for the loaned amount that will not be paid back.

Question 50

Attachment / Perfection

Answer 50

A security interest attaches to collateral when it becomes enforceable against the debtor (unless expressly postponed by the agreement).

Question 51

Enforceability

Answer 51

A security interest is enforceable against the debtor if 1) value has been given, 2) the debtor has rights in the collateral or the power to transfer the rights, and either a) the debtor has authenticated the security agreement that provides a description of the collateral, b) is in possession of creditor (the collateral is not a certificated security and is in possession of the secured party pursuant to the debtor’s security agreement), or c) the collateral is deposit accounts, electronic paper, investment party or letter-of-credit rights and the secured party has control pursuant to the debtor’s security agreement.
In re Schwalb - Pawn ticket sufficient for authenticated security agrmt. Descibes vehicle, etc.
In re Giaimo - Title applic and docs sufficient for authenticated security agrmt, show intent exists to create sec interest.
In re Ace Lumber - Security agrmt must be in writing - no formal agrmt here.

Question 52

Language in Instrument

Answer 52

No magic words, but language in instrument must lead to logical conclusion that there as intent of parties that security interest be created. “Grant” / “Assign” safe words, but intent works; need writing

Question 53

Interpretation

Answer 53

PE will come in to interpret/clarify sec agrmts, if needed; binds debtor against creditor, and creditor against third party.

Question 54

Collateral

Answer 54

If debtor defaults on payments, (after time to cure) creditor has right to enforce lien against property they have security interest in (put for sale lto recover proceeds and satisfy loan; if above what owed, return to debtor). Must be specifically described, not general; ID collateral that is and isn’t included and what creditor could go after in event of default. Agreement between debtor/creditor (not unilateral)

Question 55

Recourse/Non-Recourse

Answer 55

Creditor can pursue assets of debtor other than collateral or is limited to collateral (if destroyed/depreciated, too bad)
In re Shirel - Collateral must be sufficiently described in order to create a security interest.

Question 56

Priority

Answer 56

If more than one lien against property, each has priority (1st, 2nd / senior, junior / prior, subordinate); in chronological order; must file to communicate existence of lien to new creditors and securing priority; use financing statement (UCC-1). Lenders then discover liens prior to providing financing to debtors.
Peerless v Malone - Priority in liens perfected under UCC may not be altered by equitable doctrines.