MGMT 312- Exam 2

Formation of Sale of Goods Contracts

*The parties to a sales contract are free to establish whatever terms they wish -UCC plays when parties fail to provide certain terms or want to change the effect of the UCC's terms -Many UCC's start with, "Unless the parties agree otherwise..."

Exception of Agent Liability

- The check is payable from the account of the principal and the principal is identified on the check

Presentation

-A note must be presented tom the maker for payment -A check must be present ed to the drawee (bank) within 30 days of check date or endorsement

Statute of Frauds Between Merchants

-After oral agreement one merchant send signed, written memorandum with essential terms -Merchant receiving memorandum doesn't object in writing, within 10 days

Material Alteration (Universal)

-Complete defense against an ordinary holder -HDC can enforce up to the original amount

Merchant

-Deals in goods of the kind in the sale -Holds themselves as having special expertise -A person who employs a merchant as a broker, agent, or other intermediary

4 Types of Negotiable Instruments

-Drafts (Order) -Check (Order) -Notes (Promise) -CD (Promise)

Secondarily Liability

-Drawers (not liable until drawee fails to pay) -Endorser (not liable until maker or drawee fails to pay) 1. Instrument is presented to bank 2. The check "bounces" 3. The bank tells the holder it is NSF

Restrictive Endorsements

-Endorsement for deposit or collection (Ex "For deposit only") -Trust (Agency) Endorsement holds funds for the benefit of the endorser or third-party

Mental Incapacity (Universal)

-If previously declared NCM, not enforceable by any holder -If no prior NCM than not enforceable by holder, but enforceable by HDC

Consumer Lease

-Lessor must be one who regularly engages in the business of leasing or selling the goods in question -The lessee (except and organization) must lease the goods "primarily for a personal, family, or household purpose" -The total lease payments are less than $25,000

Assignment

-Nonnegotiable instrument transferred to third-party -Negotiable instrument transferred improperly to third-party (Ex. no endorsement)

Factors NOT affecting Negotiability

-Omission of date (unless note is due XX days from issuance) -Postdating or antedating -Handwritten terms outweigh typewritten and typewritten outweigh preprinted terms -Words outweigh figures unless words are ambiguous -If states "with interest" and no rate is given, state rate is used (Texas 8.25%) -A check (but only a check) is negotiable even if the word "nonnegotiable" is on it

Statute of Frauds UCC Exceptions

-Oral contracts for specially manufactured goods not suitable for resale -Admission by breaching part (doesn't have to be sworn) -Oral contract enforceable IF payment has been made and accepted OR goods have been received and accepted

Open Terms

-Parties must have intended to make a contract -There is a reasonably certain basis for the court to grant a remedy -Quantity of goods is NOT permissible and must be expressly stated (Exceptions- Requirement and Output Contracts) -Price can be set in "good faith" or a reasonable price is set at delivery (if terms are not set) -Payment is due at time and place of delivery (if terms are not set) -Delivery is set at the seller place of business (if terms are not set)

Extension Clause

-The time interval of the extension must be specified the right to extend the time of payment for the maker or drawer -The holder can extend the time without a specific time mentioned

Extreme Duress (Universal)

-Unenforceable by any holder -Ordinary duress enforceable by HDCs

Acceptance

-Unless parties specify otherwise, an acceptance can be made by any reasonable means -Offer to buy goods is accepted when the seller promises to ship or actually ships goods

Trade Acceptance

-Used in the sales of goods -Seller is both drawer and payee -Buyer is the drawee

6 Requirement for Negotiability

1. In writing 2. Signed by the maker or drawer 3. Unconditional promise to pay 4. Fixed amount of money (at the time it is payable) 5. Payable on demand or a definite time 6. Payable to order or bearer

3 HDC Requirements

1. Must take instrument for value (paid something for it, not future value) 2. In good faith (fair dealings) 3. Without notice that instrument is defective (NOT overdue, dishonored, visibly altered, or incomplete or irregular) -HAS notice if they know something is wrong with the instrument

Discharge

1. Payment 2. Cancellation 3. Impairment of Recourse

Liability of Agent

1. When agent signs only their name, HDC can hold agent liable 2. When agent signs both agent's name and principal's name, but doesn't indicate the relationship, HDC can hold agent liable 3. When agent indicates agency status, but fails to name principal, HDC can hold agent liable *Always disclose identity of principal and indicate agent is signing only as a representative

Agent

A person who agrees to represent or act for another called th principal -Must be authorized -Must clearly name principal in signature

Shelter Principle

A person who does not qualify to be an HDC but who derives her title through an HDC can acquire the rights of an HDC -Can't improve their status or backwards HDC

Negotiable Instrument

A signed writing containing an unconditional promise to pay an exact sum of money (commercial paper) -Governed by Article 3 of UCC

Illegality (Universal)

Absolute against any holder

Discharge in Bankruptcy (Universal)

Absolute defense regardless of the holder

Primarily Liable

Absolutely required to pay the instrument unless they have a defense (Maker of the promissory note)

Merchant Acceptance

Additional terms are automatically added unless -Original offer expressly limits additional terms -New terms materially change the contract -The offeror objects to new terms within a reasonable timeframe

Crops or Timber

Are considered severable regardless of who severs them

Signature Liability

Arises from signing the instrument, not the original contract -Generally every party that endorses is liable, unless signed "without recourse"

Certificate of Deposit (CD)

Bank is the Maker and the depositor is the payee

Nonconforming Goods

Constitutes both an acceptance and breach of contract

Prior Dealings between Merchants

Courts consider parties' prior dealings

Negotiating Order Instruments

Endorsement AND Delivery -Bearer instruments don't need endorsement -Endorsement can turn order instrument into bearer instrument and vice versa

Lack or Failure of Consideration (Personal)

Enforceable against ordinary holders, but HDC or holder through HDC can require payment

Minerals, gas, oil, or structure (house)

Fall under Article 2 IF they are severable

Impairment of Recourse

Holder collects amount from an endorser. The endorser who pays has the right to collect from subsequent endorsers, maker, or drawer

Holder in Due Course (HDC)

Holder who meets certain acquisition requirements and is free of most defenses

Predominant-Factor Test

If a contract combines goods and services, is it primarily a goods or services contract?

Cancellation

Intentional cancellation discharges all parties

Blank Endorsement

Just a signature -Becomes a bearer instrument

Article 2A of UCC

Lease of goods

Option Contract

Merchants are required to keep contract open, without consideration, if made is signed writing

Non Merchant Acceptance

NO additional terms are allowed

Promissory Note

Not debt, only evidence of a debt. -Commonly assigned

Fraud (Personal)

Not enforceable against ordinary holders, but HDC or holder through HDC can enforce

Bearer Instrument

One that does not designate a specific payee (Ex. Cash) -Can't be to a nonexistent organization

Lessee

One who acquires the right to possession

Accommodation party

One who signs an instrument for the purpose of lending their name as credit to another party on the instrument (Ex. co-signer) -Primarily liable

Lessor

One who transfers the right of possession

Minority (Universal)

Only to the extent of applicable state law

Draft

Order to pay on sight or a definite time in the future

Material Harm

Other items "attached" to the land that can be severed without material harm are considered severable

Article 2 General Rule 1

Parties are free to agree to terms different than those in the UCC

Drawer

Party creating the draft (person writing the check)

Time Instrument

Payable at a future date

Demand Instrument

Payable on demand Ex. Check

Acceleration Clause

Payee or holder can demand payment if a specified event takes place (Ex. failure to make payments on time)

Payee

Person being paid

Endorsee

Person instrument is endorsed to (now the holder)

Endorser

Person who signs and transfers to another person

Forgery (Universal)

Persons name that is forged is not liable to holder or HDC -Unless ratified by person being forged

Article 2 of UCC

Sales contracts of goods, not real property, services, or intangible property

Uniform Commercial Code (UCC)

Set up to make it easier for businesses in different states to do business with one another. Ex. Purchasing a car with a loan for financing

Qualified Endorsements

Signature and identifies endorsee, but "without recourse" -Endorser no longer liable to the instrument

Special Endorsement

Signature and identifies who the endorser intends to make the instrument payable to (endorsee) -Still order instrument

Consideration

Still needed for original agreement, but no consideration is need when modifying a contract -Must be in writing if stated in original contract -Modification brings matter under Statute of Frauds ($500 or more for goods and $1000 in total lease payments)

Finance Lease

The lessor buys or leases goods from one supplier and then leases or subleases them to the lessee

Breach of Contract (Personal)

The maker or drawer can refuse to pay, but an HDC or holder through HDC can still require payment

Drawee

The party that is paying the draft (bank)

Maker

The person promising to pay

Lease

Transfer of the right to use goods for a period of time in exchange for payment

Article 2 General Rule 2

UCC controls conflicts when there is both a common law and statutory law

Unilateral Contract

UCC requires notification of acceptance

The Offer

UCC states an agreement can be made even if the moment of its making is undetermined

Mirror Image Rule

Under UCC, a contract is formed even with the offeree communicates they intend to accept the offer and adds different or additional terms

Universal Defenses (Real Defenses)

Valid against all holders (including HDCs)

Personal Defenses (Limited Defenses)

Valid against ordinary holders (NOT HDCs)

Unauthorized Signatures

Wholly inoperative and non-binding -Except: Ratification and Negligence

Parole Evidence

Written contract can be explained or supplemented under UCC -Express terms -Course of Performance -Course of Dealing -Usage of Trade