BLAW 444 Exam 2

course of performance

The conduct that occurs under the terms of a particular agreement; such conduct indicates what the parties to an agreement intended it to mean.

disclaimer of implied warranty of fitness

-disclaimer must be in writing and conspicuous -does NOT have to mention fitness

what is a check

-draft drawn by drawer ordering the drawee bank to pay certain amount to holder on demand -on cashier checks bank is drawer and drawee -most commonly used type of draft -demand instruments because payable on demand

what terms would an instrument contain to make it a bearer instrument

"payable to order of bearer" "payable to John Smith or bearer" "payable to bearer" "pay cash" "pay to the order of cash"

sight draft=

-demand draft; payable on sight (when it is presented to drawee) -could be payable on acceptance -acceptance: drawee's signed agreement to pay a draft when presented -usually accepted by writing "accepted" with the date and signature

order

-directs a third party to pay instrument as drawn -command such as pay is mandatory in an order -generally, language must indicate a command or order has been given (kindly pay/please pay fulfills requirement, i wish you would pay does not) -can be addressed to one or more people

warranty disclaimers

-UCC permits warranties to be disclaimed or limited if it is done to protect buyer from surprise

extension clause

-a clause in a time instrument that allows the instrument's date of maturity to be extended into the future -to keep the instrument negotiable the interval of the extension must be specified if the right to extend the time of payment is given to the maker or the drawer of the instrument -if however the holder of the instrument can extend the time of payment the extended maturity date need not be specified

acceleration clause

-a clause in an installment contract that provides for all future payments to become due immediately on the failure to tender timely payments or on the occurrence of a specified event -allows a payee or other holder of a time instrument to demand payment of the entire amount due with interest if a specified event occurs -instruments that include acceleration clauses are negotiable because the exact value of the instrument can be ascertained

what is a certificates of deposit

-a note of a bank in which the bank acknowledges a receipt of money from a party and promises to repay the money with interest on specified date -they are time deposits so payee usually cannot withdraw funds before date of maturity -if they want to do this they would sell the CD to a third party

what is a banker's acceptance

-a promised future payment/time draft that is accepted and guaranteed by a bank and drawn on a deposit at bank -banker's acceptance specifies amount of money, date. and person to whom payment is due -usually used in international trade

conspicuous

-a reasonable person would notice it -words in capital letters, larger font, or different color

what is an indorsement

-a signature placed on an instrument for the purpose of transferring ownership rights in the instrument -usually written on back of instrument; if no room it can be written on seperate piece of paper attatched to instrument

implied warranty of merchantability

-a warranty that goods being sold or leased are reasonably fit for the ordinary purpose for which they are sold or leased, are properly packaged and labeled, and are of fair quality -the warranty automatically arises in every sale or lease of goods made by a merchant who deals in goods of the kind sold or leased

what is a promissory note

-a written promise made by maker to pay a fixed sum of money to another person (payee/holder) on demand or a different date -maker: one who promises to pay a certain sum to holder of promissory note or CD -can be made payable at certain time or on demand -can name a specific payee or not -commonly assigned from one person to another -not a debt, only evidence of debt

what is assignment

-an assignment is a transfer of rights under a contract; a transfer by assignment to an assignee gives the assignee only those rights that the assignor had prior to the assignment

what is a special indorsement

-an indorsement on an instrument that indicates the specific person to whom the indorses intends to make the instrument payable (names the indorsee) -holder can ]

what is a draft and who are the parties

-any instrument (like a check) drawn on a drawee like a bank that orders the drawee to pay a certain sum of money usually to third party/payee on demand or future time -drawer: party that initiates draft ordering drawee to pay -drawee: party ordered to pay draft (with a check it is always a financial institution) -payee: person who instrument is made payable

bearer instruments

-any instrument that is not payable to a specific person, including instruments payable to the bearer or to cash -if the instrument indicates that it is not payable to an identified person

holder

-any person in the possession of an instrument drawn, issued, or endorsed to him or her or to his or her order to bearer or in blank -the instrument will be payable on a specified date if the event allowing acceleration does not occur

no infringements

-arises automatically when seller/lessor is a merchant -warrants that the buyer/lessor takes goods free of infringements (copyrights, trademark, or patent right)

demand vs time instruments

-can also be classified in this way -demand instrument: payable on demand/immeadiately after it is issued and a reasonable period after (checks) -issue: the first transfer of instrument to holder -time instrument is payable at future date

what must car owner do to remedy

-car's owner must notify dealer of defect and give them usually 4 opportunities to remedy it

what factors do not affect negotiability

-certain ambiguities/omissions will not affect negotiability such as: 1. not having a date on instrument (unless it is needed for payment) 2. antedating/postdating an instrument, 3. handwritten>typewritten and printed and typewritten>printed

disclaimers on implied warranties

-disclaimed by "as is" or "with all faults" -both parties must understand from these expressions there are no implied warranties

what is trade acceptance

-draft drawn by seller of goods ordering buyer to pay a specified sum to seller usually at time in future -buyer accepts draft by signing the face where he is creating an enforceable obligation to pay draft when it comes due -seller is both drawer and payee

4. State a fixed amount of money

-ensures value of instrument can be determined with clarity and certainty -fixed amount=sum certain=amount must be ascertainable from the face of instrument; interest can be fixed or variable -payable in money

why is arbitration usually required in lemon law disputes

-even if seller could not cure buyer cannot always take case to court; the owner must submit complaint to arbitration program in manufacturers warranty

payable to order or to bearer

-freedom to transfer is essential because one of the functions of negotiable instrument is to serve as substitute for cash -to ensure a proper transfer the instrument must be "payable to order or to bearer" -not negotiable if it does not meet this requirement

what is notice like in sales contracts

-if buyer sued they must notify seller in reasonable time to let seller decide if they want to defend lawsuit and pay for it -buyer would have to turn over litigation or they would not be able to pursue remedies

buyers/lessees examination or refusal to inspect

-if buyer/lessee examines goods/sample/model as fully desired, there is no implied warranty with respect to defects that are/could be found on reasonable examination -if buyer/lessee refuses to examine goods on seller/lessors request there is no implied warranty for reasonably evident defects

when warranties are consistent

-if express and implied warranties are consistent they are construed as cumulative (in agreement with each other) -if they are inconsistent court will determine which is dominate -if one doesnt hold, court can look for breach on another

payable at a definite time

-if its not payable on demand, to still be negotiable it needs to be payable at a definite time -payable at definite time if payable on specified date, within a definite period of time, or payable on a date/time readily ascertainable at time promise/order issued -maker/drawee is under no obligation to pay until date -when instrument is payable. by maker/drawer on or before stated date, it is clearly payable at a definite time -hen an instrument is undated and made payable "one month after date" the date is uncertain and its not payable at a definite time

what factors are relevant to issues of unconscionability

-lack of bargaining position -"take it or leave it" choices -a buyer/lessees failure to understand or know of a warranty disclaimer -unconscionability=terms that are too unfair to uphold

1. Be in writing

-must be in written form but could be electronic -has have portability and be on matierial that lends itself to permanance

2. Be signed by the maker or the drawer

-must be signed by maker if note or CD; drawer if draft or check -if authorized agent signed, the maker or drawer has effectively signed the instrument -a signature can be made be a device like a stamp and consist of any name/mark/symbol -location does not matter but usually lower right corner

promise

-must contain express promise or order to pay -I owe you is not sufficient under UCC, but if you add due on demand/to be paid on demand an express promise is satisfied -a CD is exceptional in this respect because no express promise required

order instrument

-negotiable instrument that is payable "to the order of an identified person" or "to an identified person or order" -an identified person is the person to whom the instrument is initially payable as determined by the maker's or drawer's intent -the identified person may transfer the instrument to whomever he or she wishes

what does negotiating bearer instruments

-negotiated by delivery (transfer into another person's possession) -indorsement not required

unconditionality of the promise or order

-only unconditional promises/orders can be negotiable -conditional and not negotiable if there is an express condition to payment, the promise/order is subject to another writing, or the rights with respect to the promise are stated in another writing -a reference to another writing does not make it conditional

payable on demand

-say "payable at sight" or "payable upon presentment" -the nature of an instrument may indicate that its payable on demand ( a check ) -if no time for payment specified and person responsible for payment must pay on the instruments presentment, the instrument is payable on demand

disclaimers on express warranties

-seller can disclaim all oral express warranties by including in contract with written disclaimer (language must be clear and brought to buyers attention) -allows seller to avoid false allegations or being held to unauthorized individuals claims -buyer must be made aware at time contract is form (disclaimers cannot be made without consent of buyer)

how does one create an express warranty

-seller doesnt have to use formal words like warrant or guarantee -only necessary that a reasonable buyer would regard the representation as being part of basis of bargain

3. Unconditional promise or order to pay

-terms of promise must be included in writing on face of negotiable instrument and unconditional (cannot be conditioned on some other event)

what is negotiation

-the transfer of an instrument in such a way that the transferee (person to whom instrument is transferred) becomes holder -the holder can receive more rights in the instrument than prior possessor

5. Payable on demand or at a definite time

-to determine value of negotiable instrument you need to know when maker/drawee/acceptor is required to pay, when obligations of secondary parties (endorsers) will arise, and the exact interval during which interest will accrue -also need to know when its due for statute of limitations purposes

disclaimer of the implied warranty of merchantability

-to disclaim implied warranty of merchantability, the seller must mention "merchantability" -it does not have to be in writting but if it is it must be conspicious

are decisions made by arbitration panels binding

-usually binding by manufacturer but not the purchaser -this means decision cannot be appealed by manufacturer -a lot of auto companies have their own boards

merchantable goods

-when goods nonmerchantable or defective buyer can sue for breach of warranty of merchantability

how do you determine if you use assignment or negotiation to transfer

-whether it is an order or bearer instrument

what is the statue of limitations for breach of warranty

-within four years unless agreed to be shorter -starts when seller delivers goods, even if buyer does not realize at the time -the non breaching party has to notify breaching party in reasonable time so they can pursue remedies

can a draft be a time and sight draft

-yes if it is is payable at a stated time after sight

what are the requirements for negotiability

1. be in writing 2. be signed by the maker/drawer 3. be an unconditional promise or order to pay 4. state a fixed amount of money 5. be payable on demand or at a definite time 6. be payable to order or to bearer

how do courts determine order of importance in conflicting warranties

1. express warranties displace inconsistent implied warranties, EXCEPT when implied for fitness of a particular purpose 2. samples take precedence over inconsistent general descriptions 3. exact or technical specifications displace inconsistent samples or general descriptions

what can a negotiable instrument function as

1. substitute for cash 2. extension of credit -to operate as either it is important it is easily transferrable without danger of being uncollectible

what factors do not affect negotiability continued

4. words outweigh figures unless words are ambiguous (important when numerical and written amount on check differ) 5. when an instrument states with interest and does not say rate, it becomes the judgement rate (rate fixed by statute that applies to court judgements) 6. a check negotiable even if not stating non negotiable or not governed by article 3 (other instruments can be non negotiable by doing this however)

course of dealing

Prior conduct between parties to a contract that establishes a common basis for their understanding.

usage of trade

Any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question.

what is a blank indorsement

an indorsement that specifies no particular indorsee and can consist of a mere signature; an order instrument indorsed in blank becomes bearer instrument

antedate and postdate

antedate: party puts date that precedes actual date postdate: party puts date that is after the actual date

bearer

a person in possession of an instrument payable to bearer or endorsed in blank

what is an indorsee

a person to whom a negotiable instrument is transferred by indorsement

express warranties

a seller/lessor's written promise as to quality, description or performance of goods sold

what is a negotiable instrument

a signed writing containing an unconditional promise to pay an exact sum of money

implied warranty

a warranty that the law derives from an implication or inference from nature of transaction or relative situation or circumstances of the parties

once issued, how can be a negotiable instrument be transferred

assignment or negotiation

what are the main categories of indorsements

blank, special, qualified, restrictive

what does negotiating order instruments require

both delivery and endorsement -if it fails to meet one of the requirments of negotiation it is treated as an assignment

if creditor legally repossesses goods from a buyer who had no actual knowledge...

buyer can recover from the seller for breach of warranty

what can an implied warranty arise from

course of dealing or usage of trade

what are the four types of negotiable instruments

drafts, checks, notes, and certificates of deposit

basis of bargain

generally means buyer must have relied on representation at time of entering into agreement -court has to determine if seller induced buyer through such representation

what three types of title can automatically arise

good title, no liens, no infringements

particular vs ordinary purpose

goods can be fit for an ordinary purpose (merchantability) but not particular

what is a holder that receives greater rights through transfer called

holder in due course

reasonable reliance

how much a buyer relied on statements is often controlling criterion on if it constitutes an express warranty -the context in which the statement was made also important (written vs oral etc)

when can an opinion create an express warranty

if an expert gives an opinion as an expert to a layperson

when must warranty be labeled full or limited

if seller chooses to make express written warranty for goods more than $25

good title

in most sales, sellers warrant that they have good and valid title to the goods sold and that the transfer of the title is rightful

buyer =

lessee

seller=

lessor

magnuson-moss warranty act

modifies UCC for consumer transactions - only applies when written warranties are made by seller -no seller is required to give a written warranty for consumer goods sold

can a third party claim interfere with a lease

no third party claim can interfere with lessees

does a seller/lessor need to have knowledge of a buyers particular purpose

no, they just need "reason to know" that the buyer is relying on their judgement or skill (implied warranty created)

overlapping warranties

occurs when two or more warranties are made in a single transaction -an implied warranty of merchantability and particular purpose or both can both exist in addition to express warranty

if seller fails to cure problem what is buyer entitled to (lemon laws)

one of the following: a new car, replacement of defective parts, return of all consideration paid -could also get attorneys fees if they win

how can a seller/lessor disclaim or modify these title warranties

only by including specific language in the contract

what type of statements create express warranties

only statements of fact can -statements of opinion and value do not create express warranties -ex) if a seller recommends something or says something like this is worth a fortune

what are the two classifications of negotiable instruments

orders to pay (drafts and checks) and promises to pay (promissory notes and CDs)

what is an indorser

person who transfer an instrument by signing and delivering it to another person

lemon laws

provide remedies to consumers who buy automobiles that repeatedly fail to meet standards of quality and performance -do not necessarily cover used or leased cars

full warranty

requires free repair or replacement of any defective part; if cannot be completed buyer subject to choice of refund or replacement

what is notice like in lease contracts

same notice of infringement litigation if lessor agrees to pay all expenses they can demand lessee turns over control litigation

what disclosures does magnuson moss act require

seller must make certain disclosures: name and address of warrantor, specifically what is warranted, procedures for enforcing the warranty, clarify the buyer has legal rights, explain limitations on warranty relief

if buyer learns seller did not have valid title they can...

sue for breach of warranty there is no warranty of good title in lease contracts

what do merchants impliedly warrant

that goods they sell are merchantable and fit for a particular purpose

presentment

the act of presenting an instrument to the party liable on the instrument to collect payment; the act of presenting an instrument to a drawee for acceptance

limited warranty

the buyer's recourse is limited in some fashion, such as to replacement of an item

how does an order instrument retain transferability

the maker/drawer is agreeing to pay either the person specified on the instrument or whomever that person might designate -the person specified must be identified with certainty because the transfer of an instrument requires the endorsement/signature of payee

acceptor

the person (the drawee) who accepts a draft and agrees to be primarily responsible for its payment

no liens

the warranty protects buyer who, for instance, unknowingly purchases goods that are subject to a creditor's security interests -usually claims, charges, liabilities called liens

implied warranty of fitness for a particular purpose

warranty that goods sold or leased are fit for a particular purpose

merchantable food

what is fit to eat; decided on basis of consumer expectations

what statements create express warranty

when seller indicates 1. goods conform to any quality standards they make (of certain quality) 2. goods conform to description 3. goods conform to sample/model shown -can be found in ad, brochure, or promos -OR made orally or in express warranty provision in contract

when does implied warranty of fitness for a particular purpose arise

when seller or lessor knows the purpose of what buyer will use the goods and that buyer is relying on skill and judgement of seller to select suitable goods

when can warranty of merchantability be breached

when warrantor has unsuccessfully attempted to repair or replace defective parts -can still be breached even if merchant did not know they were in breach