Business Law II - Chapters 18 & 19

Battle of the Forms

A UCC rule stating that if both parties are merchants, then additional terms contained in the acceptance may become part of the sales contract if certain requirements are met.

Firm Offer Rule

A UCC rule that says that a merchant who (1) makes an offer to buy, sell, or lease goods and (2) assures the other party in a separate writing that the offer will be held open cannot revoke the offer for the time stated or, if no time is stated, for a reasonable time.

Right to Replevy (Recover) Goods

A buyer or lessee has the right to replevy (recover) goods from a seller or lessor who is wrongfully withholding the goods; the buyer or lessee must show that he or she was unable to cover or that attempts at cover will be unavailing (the goods must be scarce but not unique).

Revocation of Acceptance

A buyer or lessee who has accepted goods may subsequently revoke his or her acceptance if (1) the goods are nonconforming, (2) the nonconformity substantially impairs the value of the goods to the buyer or lessee, and (3) one of the following factors is shown: (a) the seller's or lessor's promise to timely cure of the nonconformity is not met, (b) the goods were accepted before the nonconformity was discovered and the nonconformity was difficult to discover, or (c) the goods were accepted before the nonconformity was discovered and the seller or lessor assure the buyer or lessee that the goods were conforming. Revocation of acceptance is not effective until the seller or lessor is so notified.

Buyer's or Lessee's Cancellation

A buyer's or lessee's right to cancel a sales or lease contract if the seller or lessor fails to deliver conforming goods or repudiates the contract or if the buyer or lessee rightfully rejects the goods or justifiably revokes acceptance of the goods.

Electronic Agent

A computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performance in whole or in part, without review or action by an individual.

Sale or Return Contract

A contract in which the seller delivers goods to a buyer with the understanding that the buyer may return the goods if they are not used or resold within a stated or reasonable period of time.

Installment Contracts

A contract that requires or authorizes goods to be delivered and accepted in separate lots; must contain a clause that states "each delivery in a separate lot" or equivalent language.

Destination Contract

A contract that requires the seller to deliver the goods either to the buyer's place of business or to another destination specified in the sales contract. (Title and Risk of loss remain with the seller until the goods reach the end destination) Ex. FOB place of destination, ex-ship, or no-arrival, no-sale contract

Shipment Contract

A contract that requires the seller to ship the goods to the buyer via a common carrier. (Title and Risk of loss remain with the seller until the goods reach the carrier) Ex. FOB point of shipment, FAS, CIF, or C&F

Letter of Credit

A document that is issued by a bank on behalf of a buyer who purchases goods on credit from a seller that guarantees that if the buyers does not pay for the goods, then the bank will pay the seller.

Bailee

A holder of hoods who is not a seller or a buyer (i.e. a warehouse). For goods held by a bailee, risk of loss passes to the buyers when the buyer receives a negotiable document of title, the bailee acknowledges the buyer's right to possession of the goods, or the buyer receives a nonnegotiable document of title or other written direction to deliver and has a reasonable time to present the document or direction to the bailee and demand the goods.

Uniform Commercial Code (UCC)

A model act that includes comprehensive laws that cover most aspects of commercial transactions. all the states have enacted all or part of the UCC as statutes.

Signature Liability (Contract Liability)

A person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on the instrument.

Good Faith Purchaser for Value

A person to whom good title can be transferred from a person with voidable title. The real owner cannot reclaim goods from a good faith purchaser for value.

Merchant

A person who (1) deals in the goods of the kind involved in a transaction or (2) by his occupation holds himself out as having the knowledge or skill peculiar to the goods involved in the transaction.

Lessee

A person who acquires the right to possession and use of goods under a lease.

Lessor

A person who transfers the right of possession and use of goods under a lease.

Buyer in the Ordinary Course of Business

A person who, in good faith and without knowledge that the sale violates the ownership or security interests of a third party, buys goods in the ordinary course of business from a person in the business of selling goods of that kind. A buyer in the ordinary course of business takes the goods free of any third-party interest in the goods.

Cost, Insurance, and Freight (CIF)

A pricing term that means that the price includes the cost of the goods and the costs of insurance and freight. The seller must, at his own expense and risk, put the goods into the possession of a carrier; buyer bears risk of loss during transportation.

Electronic Record (e-record)

A record created, generated, sent, communicated, received, or stored by electronic means.

UCC Statute of Frauds

A rule in the UCC that requires all contracts for the sale of goods and costing $500 or more and lease contracts involving payments of $1,000 or more to be in writing.

Written Confirmation Rule

A rule stating that, if both parties to an oral sales or lease contract are merchants, the Statute of Frauds writing requirement can be satisfied if (1) one of the parties to an oral agreement sends a written confirmation of the sale or lease within a reasonable time after contracting and (2) the other merchant does not give written note of an objection to the contract within 10 days after receiving the confirmation.

Entrustment Rule

A rule stating that, when an owner entrusts the possession of his goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all rights (including title) in the goods to a buyer in the ordinary course of business.

Gap-Filling Rule

A rule that says an open term can be "read into" a contract.

Parol Evidence Rule

A rule that says that if a written contract is a complete and final statement of the parties' agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract.

Mixed Sale

A sale that involves the provision of a service and a good in the same transaction. (Article 2 applies to mixed sales only if the goods are the predominant part of the transaction)

Right to Cancel a Contract

A seller or lessor has the right to cancel a contract if the buyer or lessee breaches the contract by rejecting or revoking acceptance of the goods, failing to pay for the goods, or repudiating all or any part of the contract.

Right to Stop Delivery of Goods in Transit

A seller or lessor has this right if, while the goods are in transit, (1) the buyer or lessee repudiates the contract, (2) the buyer or lessee fails to make a payment when due, or (3) the buyer or lessee otherwise gives the seller or lessor some other right to withhold or reclaim the goods (ex. seller or lessor learns of the buyer's or lessor's insolvency while the goods are in transit).

Right to Withhold Delivery

A seller or lessor may withhold delivery of goods in his or her possession when the buyer or lessee breaches the contract; available if the buyer or lessee wrongfully rejects or revoke acceptance of the goods, fails to make a payment when due, or repudiates the contract.

Warranty Against Infringements

A seller or lessor who is a merchant regularly dealing in goods of the kind sold or leased automatically warrants that the goods are delivered free of any third-party patent, trademark, or copyright claim.

Allonge

A separate piece of paper attached to an instrument on which an indorsement is written.

Accomodation

A shipment that is offered to a buyer as a replacement for the original shipment when the original shipment cannot be filled.

Trade Acceptance (Bill of Exchange)

A sight draft that arises when credit is extended (by a seller to a buyer) with the sale of goods. The seller is both the drawer and the payee, and the buyer is the drawee.

Void Title

A situation in which a thief acquires no title to good he or she steals. If stolen goods are resold, the title is void and the real owner can reclaim the goods from the purchaser or lessee.

Draft

A three-party instrument that is an unconditional written order by one party (drawer) that orders a second party (drawee) to pay money to a third party (payee).

Finance Lease

A three-party transaction consisting of a lessor, a lessee, and a supplier.

Voidable Title

A title that a purchaser has on goods obtained by fraud, a bounced check, or impersonation of another person. The title to these goods is voidable, and the real owner cannot reclaim goods from the purchaser or lessee, since he got the goods in good faith and for value.

Lease

A transfer of the right to the possession and use of named goods for a set term in return for certain consideration.

Sale on Approval

A type of sale in which there is no actual sale unless and until the buyer accepts the goods.

Primary Liability

Absolute liability to pay a negotiable instrument, subject to certain universal (real) defenses.

Article 5 (Letters of Credit)

An Article of the UCC that governs letters of credit.

UCC Statute of Limitations

An action for breach of any written or oral sales or lease contract must commence within four years after the legal claim accrues (the parties may agree to reduce the limitations period to one year).

Document of Title

An actual piece of paper such as a warehouse receipt or bill of lading that is required in some transactions of pickup and delivery.

Consignment

An arrangement in which a seller (the consignor) delivers goods to a buyer (the consignee) to sell on his or her behalf. Risk of loss passes to the consignee when the consignee takes possession of the goods.

Article 2 (Sales)

An article of he UCC that governs sale of goods.

Article 2A (Leases)

An article of the UCC that governs leases of goods.

Bearer Instrument (Bearer Paper)

An instrument that is not payable to a specific payee or indorsee; bearer paper is negotiated by delivery and indorsement is not necessary.

Order Instrument (Order Paper)

An instrument that is payable to a specific payee or indorsed to a specific indorsee; order paper is negotiated by delivery and indorsement.

Implied Warranty of Fitness for Human Consumption

Applied to food products (restaurants, grocery stores, fast-food outlets, coffee shops, bars, vending machines, etc. are subject to the warranty); states use one of two tests to determine if there's been a breach: (1) foreign substance test - a food product is unmerchantable if a foreign object in that product causes injury to a person, or (2) consumer expectation test - court asks what a consumer would expect to find or not find in food or drink that he or she consumes (adopted by most states)

Implied Warranty of Fitness for a Particular Purpose

Attaches to the sale or lease of goods if the seller or lessor has made statements that the goods will meet the buyer's or lessee's needs or purpose. This implied warranty is breached if the goods do not meet the buyer's or lessee's expressed needs.

Warranty of No Security Interests

Sellers of goods automatically warrant that the goods they sell are delivered free from any third-party security interest, liens, or encumbrances that are unknown to the buyer.

Implied Warranty of Merchantability

Contained in a sales or lease contract if the seller or lessor is a merchant with respect to goods of that kind; requires that the goods are fit for their ordinary purpose, adequately contained, packaged, and labeled, of an even kind, quality, and quantity within each unit, conform to promises made on the label, quality of the goods passes without objection in the trade, fungible goods must meet a fair average or middle range of quality.

Express Warranties

Created when a seller or lessor affirms that the goods he or she is selling or leasing meet certain standards of quality, description, performance, or condition; can be written, oral, or inferred from the seller's conduct.

Magnuson-Moss Warranty Act

Regulates written warranties on consumer products; if a warrantor chooses to make an express warranty, the act requires that the warranty be labeled as either "full" (warrantor guarantees that a defective product will be repaired or replaced free during the warranty period, must indicate if there is a time limit) or "limited" (warrantor limits the scope of the warranty in some way, such as covering the costs of parts but not the labor to fix a defective product).

Liquidated Damages

Damages established in advance in a contract that will be paid on a breach of contract; substitute for actual damages.

Identification of Goods

Distinguishing of the goods named in a contract from the seller's or lessor's other goods.

Secondary Liability

Drawers of checks and drafts and unqualified indorsers of negotiable instruments have secondary liability, which arises when the party primary liable on the instrument defaults and fails to pay the instrumetn when due.

Future Goods

Goods not yet in existence (i.e. ungrown crops, unborn stock animals).

Right to Recover the Goods from the Insolvent Seller or Lessor

If a buyer or lessee makes partial or full payment for goods before they are received and the seller or lessor becomes insolvent within 10 days after receiving the first payment, the buyer or lessee has the right to recover the goods; the buyer or lessee must tender the unpaid portion of the purchase price or rent due under the sales or lease contract.

Right to Recover Damages for Breach of Contract

If a buyer or lessee repudiates a sales or lease contract or wrongfully rejects tendered goods, the seller or lessor has the right to recover damages for breach of contract caused by the buyer's or lessee's breach; the amount of damages is calculated as the difference between the contract price (or rent) and the market price (or rent) of the goods at the time and place the goods were to be delivered to the buyer or lessee plus incidental damages.

Open Price Term

If a sales contract does not contain a specific price (open price term), a "reasonable price" is implied as the time of delivery.

Unfinished Goods

If a sales or lease contract is breaches or repudiated before the goods are finished, the seller or lessor may choose to either (1) stop manufacturing the goods and resell them for scrap or salvage value or (2) complete the manufacture of the goods and resell, release, or otherwise dispose of them to another party; the seller or lessor may recover damages from the breaching buyer or lessee.

Right to Obtain Specific Performance

If goods are unique or the remedy at law is inadequate, a buyer or lessee has the right to obtain specific performance, which orders the seller or lessor to perform the contract.

Adequate Assurance of Performance

If one party to a contract has reasonable grounds to believe that the other party either will not or cannot perform his or her contractual obligations, an adequate assurance of performance may be demanded in writing.

Open Assortment Term

If the assortment of goods to a sales contract is left open, the buyer is given the option of choosing those goods.

Perfect Tender Rule

If the goods or tender of a delivery fail in any respect to conform to the contract, the buyer may (1) opt to reject the whole shipment, (2) accept the whole shipment, or (3) reject part and accept part of the shipment.

Right to Recover Any Lost Profits

If the measure of damages from the Right to Recover Damages for Breach of Contract is not enough to put the seller or lessor in as good a position as performance of the contract would have, the seller or lessor has the right to recover any lost profits that would have resulted form the full performance of the contract plus an allowance for reasonable overhead and incidental damages.

Open Payment Term

If the parties to a sales contract do not agree to payment terms, payment is due at the time and place at which the buyer is to receive the goods.

Open Delivery Term

If the parties to a sales contract do not agree to the time, place, and manner of delivery of the goods, the place for delivery is the seller's place of business. If the seller doesn't have a place of business, delivery is to be made at the seller's residence.

Open Time Term

If the parties to a sales contract do not set a specific time of performance for any obligation under the contract, the contract must be performed within a reasonable time.

Additional Terms

In certain circumstances, the UCC permits an acceptance of a sales contract to contain additional terms and to act still as an acceptance rather than a counteroffer.

Title

Legal, tangible evidence of ownership of goods.

Implied Warranties

Not expressly stated in the sales or lease contract but instead implied by law; i.e. implied warranty of merchantability, implied warranty of fitness for human consumption, implied warranty of fitness for a particular purpose.

No-Arrival, No-Sale Contract

Requires the seller to bear the expense and risk of loss of the goods during transportation, but the seller does not have to deliver replacement goods to the buyer because there is no contractual stipulation that the goods will arrive at the appointed destination.

Free on Board (FOB) place of destination

Requires the seller to bear the expense and risk of loss until the goods are tendered to the buyer at the place of destination.

Ex-ship (from the carrying vessel)

Requires the seller to bear the expense and risk of loss until the goods are unloaded from the ship at its port of destination.

Free Alongside Ship (FAS) port of shipment

Requires the seller to deliver and tender the goods alongside the named vessel or on the dock designated and provided by the buyer (seller bears the expense and risk of loss until goods reach vessel/port; buyer bears risk of loss and shipping costs during transportation).

Right to Cure

The UCC gives the seller or lessor the right to cure the nonconformity (replace or repair defective or nonconforming goods).

Destruction of Goods

The UCC provides that if goods identified in a sales or lease contract are totally destroyed without the fault of either party before the risk of loss passes to the buyer or the lessee, the contract is void, and both parties are excused from performing the contract.

Notice of Dishonor

The formal act of letting the party with secondary liability to pya a negotiable instrument know that the instrument has been dishonored.

Right to Dispose of Goods

The right of a seller or lessor to dispose fo goods in a good faith and commercially reasonable manner. A seller or lessor who is in possession of goods at the time the buyer or lessee breaches or repudiates a contract may in good faith resell, release, or otherwise dispose of the goods in a commercially reasonable manner and recover damages, including incidental damages, from the buyer or lessee; this right also arises if the seller or lessor has reacquired the goods after stopping them in transit.

Right to Recover the Purchase Price or Rent

The right of a seller or lessor to recover the contracted-for purchase price or rent from the buyer or lessee if (1) the buyer or lessee fails to pay for accepted goods, (2) the buyer or lessee breaches the contract and the seller or lessor cannot dispose of the goods, or (3) if the goods are damaged or lost after the risk of loss passes to the buyer or lessee.

Right to Reclaim Goods

The seller or lessor has the right to reclaim goods in 2 situations: (1) the goods were delivered in a credit sale and the seller then discovers that the buyer was insolvent, the seller has 10 days to demand that the goods be returned, and (2) the buyer misrepresented his or her solvency in writing within three months before delivery or paid for goods in a cash sale with a check that bounces.

Assignment

The transfer of rights under a contract; it transfers the rights of the transferor (assignor) to the transferee (assignee); transfer of a nonnegotiable contract

Holder in Due Course (HDC)

To qualify as an HDC, a transferee must meet the following requirements: the person must be the holder of a negotiable instrument that was taken for value, in good faith, without notice that it is overdue, dishonored, or encumbered in any way, and bearing no apparent evidence of forgery, alterations, or irregularity.

Negotiation

Transfer of a negotiable instrument by a person other than the issuer; the person to whom the instrument is transferred becomes the holder; the holder receives greater rights than the transferor if he or she qualifies as a holder in due course

Conditional Sales

Type of sales where the seller entrusts possession of goods to a buyer on a trial basis.

Warranty of Good Title

Unless they properly disclaim warranties, sellers of goods warrant that they have valid title to the good they are selling and that the transfer of title is rightful.

Warranty of No Interference

When goods are leased, the lessor warrants that no person holds a claim or an interest in the goods that arose from an act or omission of the lessor that will interfere with the lessee's enjoyment of his or her leasehold interest.