Business Law Ch 21-25

Lease

"Transfer of a right to posses and use Goods for a term in return for consideration (payment of money) NO TITLE PASSES - ONLY POSSESSION AND USE

trade fixtures

"things" attached to real estate that are treated as "goods" under the UCC.................. (1) Seen in contracts between landlord and tenants (2) examples of trade fixtures - Shelving, cabinets, Cooking equipment counter tops etc....................... (3) presumption is - that they are owned by TENANT....... Unless there are explicit terms in the rental/lease agreement to the contrary

who bares risk of loss

-*Simple Deliver Contract*: In SDC when neither party is at fault for the loss and seller is a merchant- Risk of Loss remains with seller until the goods are actually delivered to the buyer. b. Seller NOT a merchant?? Risk of Loss remains with the buyer as soon as the goods are tendered to the buyer -*Common-Carrier Delivery Contract*: Buyer bears risk of loss while goods are in transit -*Goods-in-Bailment Contract*:risk of loss attach to the buyer when the document is tendered to the buyer either by direct delivery -*Negotiable Document of title*: risk of loss also transfers from the seller to the buyer

CISG

1980 United Nations held a convention to draft a treaty that the nations could follow to govern International business sales agreement. Provides uniformity, clarity and predictability in international dealings and sales.

bailment

A bailment occurs when there is delivery of goods or personal property, by one person to another, IN TRUST for the execution of a contract for bailee (custodian of the storage facility) to deliver the goods to buyer or re-deliver ( return) goods back to bailor ( owner of the goods)

Express Warranty

A description of goods physical nature or fitness for use that become part of the contract. It is a MATERIAL term in a sales contract.

Parole Evidence Rule

A rule of evidence - as applied to the UCC it aims To protect sales or lease contracts - the final writing is intended to be final expression of their agreement. Under the UCC neither party can provide additional evidence that alters or contradicts the expression of the terms of the written agreement

Puffing

A sales persons "opinion" are NOT considered promises and do NOT = an express warranty! Ex: Sales person says this is the best luggage Ive ever seen (opinion)

Implied

Are implied by law. An implied warranty is a promise that the goods will have the characteristics or uses that the manufacture or distributer or seller do not expressly state. (Chapter 25 page 2)

REJECT

Buyer can REJECT NONCONFORMING GOODS - (UCC 2-601 and then: a. Buyer can then cancel the contract and/or "cover" and sue for resulting damages.

REVOKE

Buyer can REVOKE ACCEPTANCE OF NONCONFORMING GOODS UCC 2-608/2A-517 ( that is what happened in case 24-1 USA coil v Hodess)

Mitigate

Buyer has a duty to allow a seller to mitigate the damage especially if the time to perform has not yet expired. a seller can repair or replace defective goods but the seller must give prompt notice to the buyer of his intent to cure within the contract time for performance

waiving warranty rights

Buyers may also waive both Express or Implied Warranties by: 1. Failing to examine goods where an express warranty was created By a sample or exemplar, or; 2. Failure to comply with sellers request to inspect goods, or; Dejesus vs Cat Auto from last chapter??? 3. Failure to sue within Statute of Limitations of four (4) years.............. a seller can negotiate a shorter statute of limitations but not less than one year under the UCC

mixed goods

Case 21-1 - where a contract combines both goods AND services it is called a "mixed sale" contract.

service contract

Case 21-1 - where a contract combines both goods AND services it is called a "mixed sale" contract. Predominant Purpose test - used by courts to resolve conflicts of sales of goods or services. (1) Courts FIRST determine if contract is predominantly For a sale of goods or services..................... then the UCC will apply. if the predominant....common law See case 21-1 Novamedix v. NDM

Deweldon Ltd v. McKean

Case 21-2

warranties

Chapter 25 Types of Warranties - "Warranty" - a promise or statement of fact made by a Seller/Lessor, that goods sold have a certain quality. The statement is made to Induce a sale and is relied upon by the buyer/lessee. Two types: Express and Implied warranties.

UCC sale of goods

Contract for sale of goods of $500 or more or a lease contract that Requires payments of $1,000 or more must be in writing to be Enforced.

Uniform commercial code

Deals with sales and leases within the US And has been adopted by all states (Louisiana has a similar civil code) Whereas when dealing in International sales or commercial transactions are Governed by a treaty - The Convention on Contracts for the sale of Goods -CISG Developed by the United Nations in 1980.

buyer in ordinary course

Entrustment- When an owner transfers possession of goods to a MERCHANT Who deals in goods of the type. and who may in turn transfer Such goods and all rights therein to a PURCHASER IN THE ORDINARY COURSE OF BUSINESS -exp: DeWeldon v. McKean From chapter 21 ( the transfer of the art)

statute of limitations

Failure to sue within Statute of Limitations of four (4) years.............. a seller can negotiate a shorter statute of limitations but not less than one year under the UCC

Goods in Bailment

Goods that are in some kind of storage Facility so the seller cannot transfer physical possession of them - seller Instead possess' one of three types of documents representing ownership Of the goods

Declaratory Judgment action

In NYS CPLR 3001 - where a party institutes a legal action when there is an ACTUAL issue ( dispute) in controversy that is ripe for settlement - It is a STATUTORY REMEDY not an equitable remedy - a DJ action resolves "uncertainty" where one of the parties involved in a legal dispute asks a court to intercede to settle the dispute once and for all. A result of a "DJ" action will be a court ruling - with a legally binding order - that will resolve the issue in controversy and will affirm the rights, duties and obligations of one or all parties in a CIVIL dispute. In "Figgie" they sued under a DJ action to have a court rule that they fully complied with the terms of their contract with Serrales. It is a proactive legal action!

Finance Lease

Involves three (3) parties - the lessee, the lessor and the equipment supplier the lessor purchases the selected equipment from the supplier and leases it to the leasee. Amelia H Boss has said "lease financing is possibly the most important single source of funds to support business expenditures for capital equipment"

Tangible

Items are ___ if they physically exist - "all tangible things which are Moveable at the time of identification to the contract of sale

Mineral crops

Items taken from the earth - could be considered "goods" Also. - Minerals, soil, sand, gravel, etc WHERE OWNER REMOVES THEM FROM THE GROUND and sells them. (1) BUT - where BUYER is given right to remove........ covered by common law (a) But, crops growing in a field are considered "goods". Why?? Simply statutory!

modification limiting clause

Modification or Limitation to Remedies found under the UCC (UCC 2-719) - Parties to a contract can contract to LIMIT DAMAGE REMEDIES - see example in case 24-3 Figgie International v. Destileria Serrales, Inc. Courts will uphold Modification agreements or limiting remedies UNLESS they fail in its essential purpose...... in other words - where the terms of an agreement do not accomplish what they were intended to accomplish.

Six (6) exceptions to the Perfect Tender Rule (6 point question)

Rules that Limit the sellers obligations To deliver perfectly conforming goods and limit the buyers power to reject Non Conforming goods. Those exceptions soften the rigid terms of the PTR PTR on applies to sales of goods!!!! 1. Norms in the industry & past dealings 2. Exceptions outlined in a written agreement 3. Seller or Lessor right to cure 4. Destroyed goods 5. Substantial Impairment 6. Commercial impracticability

Benefit of the Bargain

Seller can sue for the "benefit of the bargain" - to "make the seller whole again". In other words, to place the seller in the position he would have been in had the buyer not repudiated the contract. (but again, remember, the courts favor "mitigating the damages"! So... if the costs of the goods was $1000 and seller was selling them to the buyer for $1500 he "benefit of the bargain" would be $500. BUT.... What if the goods were perishable and could not be resold because they spoiled.... Then the seller is permitted to sue for $1500.

buyer breaches goods of contract

Sellers remedy for the buyers breach of the contract WHERE THE GOODS HAVE BEEN DELIVERED TO THE BUYER/LESSEE a. The seller can sue to reclaim the goods and his lost profits

merchants standard of care

Specific obligations of Seller/Lessor under Uniform Commercial Code - The UCC imposes HIGHER standards on MERCHANTS..Remember sales = art 2...Leases = art 2A

Specific Performance

The buyer can sue for specific performance! UCC 2-711 (2) (b) 2-716(1) where a seller pertuiates a contract or fails to deliver goods that are unique and difficult to get in the market place. Is an equitable remedy. Court will give in fairness, where money damages are not adequate to make the person whole. Again, Specific performance is an equitable remedy that, when money damages are inadequate, a court of equity will order the contract to be specifically performed. a. In order to obtain Specific Performance the goods must be (1) UNIQUE and difficult to require in the market place Example: Case 24-2: Almetals, Inc. vs. Wickeder, et. al. -relates to specific performance (2) Note also, Under the UCC an order of Specific Performance can also include other terms in the order such as the method of payment of the required price and damages if they were suffered and provable, PLUS any other remedy that will serve, in fairness, to make a Plaintiff whole again. See Case 24-2!

profits

The seller can sue to reclaim the goods and his lost profits

risk of loss

Title itself does not always result in an Equitable solution to a problem of who has best title! Types of Sales Contracts that affect "Risk of Loss" 1. Simple Deliver Contract 2. Common-Carrier Delivery Contract 3. Goods-in-Bailment Contract

firm offer

UCC 2-205 an offer made by a merchant is FIRM if: a. in writing, and b. provides assurances that offer will be irrevocable for up to three (3) months. (1) If the Offer is silent on time, the ucc assumes a 3 month irrevocable period Common Law - contrasts sharply with UCC "Firm Offer" under common law an offer is revocable at any time before acceptance unless a period of irrevocability, supported by consideration, has been made

Perfect Tender Rule

Uniform commercial code, only applies to sales of goods. . The PTR requires PERFECT tender of goods to the buyer! - if the goods fail To conform to the contract to any degree the buyer has the right to: a. Accept the goods b. Reject entire shipment (1) Where goods fail to conform to contract a buyer may reject The entire contract (a) rejection must be within a reasonable time after Delivery - UCC 2- 601 (b) buyer must "seasonably" = quickly notify seller

disclaiming warranties

Warranty Disclaimers and Waivers - Implied Warranties may be Disclaimed Or waived. ( disclaimers relate to sellers, waivers relate to buyers) A. Disclaimer?? a seller can disclaim implied warranties! Sellers are permitted to disclaim implied warranties. HOWEVER, a seller must do so in clear, un...and conspicuous language.

Good Faith

When a buyer who purchases the goods in GOOD FAITH for a REASONABLE PRICE that third person gets GOOD TITLE

Title

When someone or some entity possess' goods or Property free from someone else's claim. It is title free from reasonable doubt about Legal ownership or possession, where the goods or property could be sold to a buyer Free from litigation.

Magnuson - Moss Act of 1975

Where a seller decides to issue a written warranty for a consumer good, the seller MUST indicate whether it is a full or limited warranty - covers goods valued at $10.00 0r more: .. NOTE This is not a UCC Law this is a federal Law that supplants the UCC as it is adopted by the states. Purpose of the law...To prevent consumers from being confused or mislead about what a warranty covers. It is a disclosure act that

Merchant

a business person who regularly buys goods for resale or who sells goods at wholesale to a ___ for resale. Held to a higher standard of behavior under the UCC because they are considered to have special skill and knowledge

Commercial Impracticability

a delay in delivery or non delivery is NOT a breach of contract where the performance has been mad impracticable because of a contingency NOT contemplated when the parties reached the agreement......... EX: a change in a government regulation makes it illegal to import or export goods—could find this where a business has contracted

good title

a person who owns goods free and clear without any qualification!

Entrustment

a rightful owner may be estopped by his own actions from asserting his title. when an owner transfers possession of goods to a merchant who deals in goods of the type and who may in turn transfer such goods and all rights therein to a purchaser in the ordinary course of business EX: DeWelden v. Mckean

Cure

allows sellers the right to Fix or correct the problem with the non conforming goods Even where the contract is silent on "cure" the UCC provides flexibility a. Buyer has a duty to allow a seller to mitigate the damage especially if the time to perform has not yet expired. a seller can repair or replace defective goods but the seller must give prompt notice to the buyer of his intent to cure within the contract time for performance b. Time to perform has expired?? Seller has reasonable grounds to believe that a non conforming tender would be accepted?? Seller can cure. See case 23-2 - DeJesus v Cat Auto Tech Corp.

Principles of Estopple

appears in an entrustment - a rightful owner may be estopped by his own actions from asserting his title—if he gives those goods to another person who has the apparent authority to dispose of it, he will be allowed to make a claim against an innocent purchaser dealing on the faith of such apparent authority or ownership

Common Law

contrasts sharply with UCC "firm offer." Under ___ an offer is revocable at any time before acceptance unless a period of irrevocability, supported by consideration, has been made. also called opinion contract

Article 2A

deals with LEASES of goods

Insurable Interest

exists where the insured derives pecuniary benefit or advantage by preservation and continued existence of property or would sustain loss from its destruction. Another example: Life insurance - Can anyone take out a life insurance policy on any other person?????? Can you simply be allowed to "gamble" on someone living or dying???

Article 2

focuses on the SALE of GOODS

in transit

in shipment contracts, Buyer bears risk of loss while goods are in transit

Incidental damages

include any commercially reasonable costs incurred such as lost commissions, costs of stopping delivery, costs of caring for the goods rightfully withheld, storage

substantial performance document

is a common Law doctrine. Does not apply to sales of goods. rule which says........... that when all the material elements of a contract are satisfied—even if some non material requirements are not met

applied warranty

is a contract law term for certain assurances that are presumed to be made in the sale of products or real property, due to the circumstances of the sale.

Bailor

owner of the goods

statute of frauds

refers to the requirement that certain kinds of contracts be memorialized in a writing, signed by the party to be charged, with sufficient content to evidence the contract.

FOB (destination)

similar to FOB (shipping)—the sellers obligation is to transport the goods to the destination in the contract and to tender delivery there with pick-up instructions to the buyer—risk remains with the seller until delivery to the specific destination

Negotiable Document of title

the document must contain words like "deliver to order of buyer." When the document is endorsed over to a buyer both title and risk of loss also transfers from the seller to the buyer. Remember—the goods are in a warehouse—not in the physical

measure of sellers damages

the measure of damages for the seller = contract price - resale price + incidental damages + provable loss profits Court will not award speculative damages. (a) Note: The resale MUST BE MADE IN GOOD FAITH AND IN A COMMERCIALLY REASONABLE MANNER AND THE SELLER MUST GIV E THE BUYER WHO REPUDIATED THE CONTRACT NOTICE OF THE SALE AND THE TIME AND PLACE OF THE SALE.

Mirror Image Rule

under common law does not apply. recall when we studied contracts that the acceptance must mirror the offer. if it doesn't--then it is a counter offer. under UCC 2-207 (1) additional terms will not negate acceptance

Predominant Purpose Test

used by courts to resolve conflicts of sales of goods or services.

Simple Delivery Contract

when purchased goods are transferred to a buyer At time of sale or some time later by sellers delivery. a. In SDC when neither party is at fault for the loss and seller is a merchant- Risk of Loss remains with seller until the goods are actually delivered to the buyer. b. Seller NOT a merchant?? Risk of Loss remains with the buyer as soon as the goods are tendered to the buyer

shipping contract

where a seller ships goods to buyer via a common carrier. It requires the shipper (the seller) to make proper shipping arrangements and to deliver the goods to the common carrier. Title transfers to the buyer at the time and place of shipment. When they are delivered to the shipper (common carrier) therefore: (1) Buyer bears risk of loss while goods are in transit!!

Liquidated Damages

where a specific sum of money has been expressly (in writing) agreed to in a contract in the even that either side breaches it (1) Purpose of a liquidated damages clause is to encourage each party to preform obligations under a contract. Cant be punitive in nature (cant be a punishment) (a) the liquidated damages should be a good faith estimate

Void Title

where no title exists from the outset - example - where someone Purchased goods that were stolen, knowingly or unknowingly Never has good title!

Destination Contracts

where seller obligation is to see to it that the goods are actually delivered to the destination stipulated in the sales contract. The SELLER bears risk of loss until that time!!

Cover

where the goods were accepted and paid for. (remember the goods must first be non conforming) the remedy is to seek what buyer paid for the goods or if not paid for... to recover the cost of obtaining conforming goods from another supplier COVER - the buyer may obtain "cover" which is the obtaining of substitute goods, but the buyer/lessee must: See case 24-1 USA COIL v. Hodess—represents a buyers ability to cover. a. has to use good faith in obtaining substitute goods b. must pay a reasonable amount for substitute goods c. Purchase the goods without unreasonable delay - why this clause in the UCC? Because the longer the delay the more likely the costs of goods will increase and so the measure of buyers damages - which is why the UCC always stresses GOOD FAITH!, and; d. Purchase goods that are a REASONABLE SUBSTITUTE. NOTE: COVER is the preferred remedy for the non breaching buyer/lessee and permits an easy way to calculate damages-----Cost of cover - cost of K + Incidental

voidable title

where the seller has the right to cancel the contract and reclaim the goods (or if one of the parties is a minor) where a seller transfers goods to a buyer, GENERALLY, the Buyer gets good title, ECEPT WHEN: a. The buyer has deceive the seller regarding the buyers true identity b. The buyer has paid for the goods with a bad check. Why?? Because the deal lacks good and sufficient consideration c. the buyer has committed a criminal fraud in securing the goods d. The buyer & seller agreed that title would not pass until some later time e. The buyer is a minor. A seller who discovered any of the 5 exceptions above has the right to cancel the contract and reclaim the goods—even if they were already delivered to the buyer. This is why it is called voidable title. Sellers right, not the buyers right.

Consumer lease

where value is $25,000 or less where goods leased primarily for personal use.