UCC Flashcards
UCC
UCC governs the sale of goods.
Article 2
Contract formation.
Goods
Moveable, tangible items at time of contract formation.
Contract Formation
Mutual assent, intent (express or implied) to enter into contract.
Terms
Contract must identify parties, quantity, sale terms, price, and subject matter.
Unconscionability
Unreasonably unfair terms cannot be enforced.
Merchant
One who has expertise in the area or regularly deals with goods of the kind sold.
Battle of Forms
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
Gap Fillers
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
Statute of Frauds
2-201. Contract for sales of goods of $500 or more must be in writing, signed by party charged, to be enforceable.
Exceptions
Detrimental reliance, judicial admission, part performance, merchants’ confirmatory memo (doesn’t need to be signed by party charged)
Parol Evidence
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
Merchant’s Conf Memo
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.
Warranties
Implied or express, to ensure some basic quality standards are met when goods are sold.
Express Warranty
Written or verbal representations about product at the time of sale must be upheld.
Implied: Merchantability
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.
Implied: Particular Purpose
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.
Performance
No breach - delivery of conforming goods to agreed location and receiving payment.
Closing Sale
Perfect tender, no breach; nonconforming goods may be accepted, rejected, or acceptance revoked.
Perfect Tender / Rejection
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.
Revocation of Acceptance
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.
Breach by Seller
Seller provides non-conforming goods to buyer under contract - material breach.
Right of Seller to Cure
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.
Breach by Buyer
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.
Remedies for Seller
If buyer breaches contract, seller entitled to recover damages. Cannot collect consequential damages, only incidental.
Risk of Loss
Depending on type of contract, either seller or buyer responsible for loss if goods lost/destroyed.
Shipment Contract
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.
Revocation of Acceptance
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.
Destination Contract
FOB place of delivery - seller’s obligation to deliver is complete and at this point all risk of loss passes to buyer.
Seller Remedies: General
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
1) Price
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.
2) Resale
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.
3) Contract-Market Diff
Repudiate/wrongfully fail to accept; KP-MP+ID-ES.
4) Lost Profits
If buyer didn’t breach, seller would have sold to other buyers for additional profit.
Remedies for Buyer:
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.
General
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)
Incidental
Incidental - for buyer, expenses incurred inspecting, receipt, transport, care, custody; for seller, commercially reasonable charges, expenses, commissions, stop-delivery, transport, care, custody
Consequential
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.
Checking Accts
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.
Letters of Credit
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.
Reimbursement
If bene makes appropriate draft on LoC and confirming bankonors draft, bank has statutory right to immediate reimbursement from issuing bank.
Negotiable Instruments
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.
Negotiability Requirements
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
Holder in Due Course
Third party (not original seller); financier, seller, factor; seller sells negotiable instrument to third party who becomes holder in due course.
3-part Test for HIDC
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)
Transfer
Requires delivery of instrument and signature by transferor; verification of chain of title. “Holder” - bearer of the instrument / possession.
Enforcement/Collection
Holder has absolute right to enforce (even if unlawful); presentment - demand for payment
4 Defenses to Enforcement
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.
Security Interest
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.
Attachment / Perfection
A security interest attaches to collateral when it becomes enforceable against the debtor (unless expressly postponed by the agreement).
Enforceability
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.
Language in Instrument
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
Interpretation
PE will come in to interpret/clarify sec agrmts, if needed; binds debtor against creditor, and creditor against third party.
Collateral
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)
Recourse/Non-Recourse
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.
Priority
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.
