BUS 3350: U2- Ch 14- Sales and Lease Contracts

if the buyer/lessee breaches the contract before the goods have been delivered, the seller has the right to pursue these 5 remedies: the right to...

(1) cancel the contract, (2) withhold delivery, (3) resell or dispose of the goods, (4) recover damages for the buyer's nonacceptance, (5) stop delivery of the goods in transit

3 ways in which merchant status can arise:

(1) deals in goods of the kind involved in the sales contract, (2) by occupation, holds themself as having knowledge and skill unique to the practices or goods involved; (3) person who employs a merchant as a broker, agent, or other intermediary has the status of merchant in the transaction

under the UCC, if a court deems that the contract was unconscionable at the time it was made, they may do any of these 3 things:

(1) refuse to enforce, (2) enforce the remainder of the contract (without uncon. part), (3) limit the application of the unconscionable term to avoid an unconscionable result

if the contract does not indicate where the goods will be delivered, then the place for delivery will be one of the following (3):

(1) seller's place of business, (2) seller's residence if they have no business location, (3), location of the goods

express warranties arise when a seller/lesssor indicates any of these (3):

(1) that the goods conform to any affirmation of fact or promise the seller makes, (2) the goods conform to any description of them, (3) the goods conform to any sample or model shown

3 rules of identification of future goods (not in existence at the time of contracting): (1) if a sale or lease involves unborn animals to be born within 12 months, ID takes place when... (2) if a sale involves crops that are to be harvested within 12 months, ID takes place when...; if time of harvest in not mentioned, ID takes place when... (3) for any other future goods, ID occurs when...

(1) the animals are conceived, (2) the crops are planted; the crops begin to grow, (3) the seller/lessor ships, marks, or otherwise designated the goods as those to which the contract refers

when goods are held by a bailee, risk of loss passes to the buyer when one of the following occur (3 things):

(1) the buyer receives a negotiable document of title, (2) the bailee acknowledges the buyer's right to possess the goods, (3) the buyer receives a nonnegotiable document of title and the buyer has had a reasonable time to present the document to the bailee and demanded the goods (if the bailee refuses to honor the document, the risk of loss remains with the seller)

when the SELLER breaches and the goods are nonconforming, the risk of loss does not pass to the buyer until either:

(1) the defects are cured, (2) the buyer accepts the goods in spite of their defects

CISG provides that an offer will be irrevocable if (2 things):

(1) the offeror states orally that the offer is irrevocable, (2) the offeree reasonably relies on the offer as being irrevocable

an offer will be irrevocable if (2 things):

(1) the offeror states orally that the offer is irrevocable, (2) the offeree reasonably relies on the offer as being irrevocable

in contracts between merchants, additional terms become part of the contract unless (3 exceptions):

(1) the original offer expressly limited acceptance to its terms, (2) the new or changes terms materially alter the contract, (3) the offeror objects to the new or changed terms within a reasonable period of time

implied warranty of fitness for a particular purpose arises when the seller/lesssor knows BOTH of these things:

(1) the particular purpose for which a buyer/lessee will use the goods, (2) that the buyer/lessee is relying on the skill and judgment of the seller/lessor to select suitable goods

UCC states that a sales or lease contract will not fail for indefiniteness as long as both of the following are true:

(1) the parties intended to make a contract, (2) there is a reasonably certain basis for the court to grant an appropriate remedy

the UCC states that a sales or lease contract will not fail for indefiniteness even if one or more terms are left open as long as both of these are true:

(1) the parties intended to make a contract, (2) there is a reasonably certain basis for the court to grant an appropriate remedy

when the BUYER breaches, the risk of loss immediately shifts to the buyer. What are the 3 limitations (exceptions) to this rule?

(1) the seller must already have IDed the contract goods, (2) the buyer bears the risk for only a commercially reasonable time after the seller learned of the breach, (3) the buyer is liable only to the extent of any deficiency in the seller's insurance coverage

the buyer/lessee can demonstrate acceptance in any of the following 3 ways:

(1) they indicate to the seller that the goods are conforming or that they will retain them in spite of their nonconformity, (2) they fail to reject within a reasonable period of time, (3) in sales contract, accepted if they perform any act inconsistent with the seller's ownership

When anticipatory repudiation occurs, the nonbreaching party has a choice of two responses:

(1) treat repudiation as a final breach by pursuing a remedy, (2) wait to see if the repudiating party will decide to honor the contract despite the avowed intention to renege

a writing will be sufficient to satisfy the UCC's Statute of Frauds as long as it (2 things):

(1)indicated that the parties intended to form a contract, (2) is signed by the party (or agent) against whom enforcement is sought

examples of court open-term provisions: a) if the parties have not agreed on a price,... b) when the parties do not specify payment terms, payment is due... c) when no delivery terms are specified, the buyer normally takes delivery at...

(a) the court will determine a reasonable price at the time for delivery; (b) at the time and place at which the buyer is to receive the goods; (c) the seller's place of business

perfect tender rule

A common law rule under which a seller was required to deliver to the buyer goods that conformed perfectly to the requirements stipulated in the sales contract. A tender of nonconforming goods would automatically constitute a breach of contract. Under the Uniform Commercial Code, the rule has been greatly modified.

sales contracts

A contract for the sale of goods under which the ownership of goods is transferred from a seller to a buyer for a price.

destination contract

A contract in which the seller is required to ship the goods by carrier and deliver them at a particular destination. The seller assumes liability for any losses or damage to the goods until they are tendered at the destination specified in the contract.

shipment contract

A contract in which the seller is required to ship the goods by carrier. The buyer assumes liability for any losses or damage to the goods after they are delivered to the carrier.

merchant

A person who is engaged in the purchase and sale of goods. Under the Uniform Commercial Code, a person who deals in goods of the kind involved in the sales contract

express warranty

A seller's or lessor's oral or written promise, ancillary to an underlying sales or lease agreement, as to the quality, description, or performance of the goods being sold or leased.

bailment

A situation in which the personal property of one person (a bailor) is entrusted to another (a bailee), who is obligated to return the bailed property to the bailor or dispose of it as directed.

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.

implied warranty of fitness for a particular purpose

A warranty that goods sold or leased are fit for a particular purpose. The warranty arises when any seller or lessor knows the particular purpose for which a buyer or lessee will use the goods and knows that the buyer or lessee is relying on the skill and judgment of the seller or lessor to select suitable goods.

implied warranty

A warranty that the law derives by implication or inference from the nature of the transaction or the relative situation or circumstances of the parties.

document of title

A writing exchanged in the regular course of business that evidences the right to possession of goods (for example, a bill of lading or a warehouse receipt).

requirements contract

An agreement in which a buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer needs or requires.

output contract

An agreement in which a seller agrees to sell and a buyer agrees to buy all or up to a stated amount of what the seller produces.

firm offer

An offer (by a merchant) that is irrevocable without consideration for a period of time (not longer than three months); must be in writing and must be signed by the offeror.

insurable interest

Any party purchasing insurance, however, must have a sufficient interest in the insured item to obtain a valid policy

if CISG and UCC conflict, _____ applies

CISG

the _____ is the uniform international sales law of countries that account for more than 2/3 of all global trade.

Contracts for the International Sale of Goods (CISG)

t/f the CISG applies to consumer sales and contracts for services

F (it applies to neither)

fungible goods

Goods that are alike by physical nature, by agreement, or by trade usage (Examples are wheat, oil, and wine that are identical in type and quality)

identification

In a sale of goods, the express designation of the specific goods provided for in the contract.

sale

The passing of title (evidence of ownership rights) from a seller to a buyer for a price.

Whenever a conflict arises between a common law contract rule and the state statutory law based on the UCC, the _____ controls

UCC

tender of delivery

Under the Uniform Commercial Code, a seller's or lessor's act of placing conforming goods at the disposal of the buyer or lessee and giving the buyer or lessee whatever notification is reasonably necessary to enable the buyer or lessee to take delivery.

seasonably

Within a specified time period. If no period is specified, within a reasonable time.

predominant-factor test

a test that courts use to determine whether a contract is primarily for the sale of goods or for the sale of services

lease

a transfer of the right to possess and use goods for a period of time in exchange for payment

The prompt shipment of nonconforming goods constitutes both a(n) _____, which creates a contract, and a _____. This rule does not apply if the seller _____ notified the buyer that the nonconforming shipment is offered only as an accommodation.

acceptance, breach of that contract; seasonably

warranty

an assurance or guarantee by the seller/lessor about the quality and features of the goods being sold/leased

implied warranties of merchantability and fitness are disclaimed by an expression such as _____ or _____.

as is, with all faults

if one party has reasonable grounds to believe that the other party will not perform, the first party may IN WRITING "demand adequate _____ if due performance." Until such is received, the first party may _____ further performance without liability.

assurance; suspend

the fact that a merchant's acceptance frequently contains terms that add to or even conflict with those of the offer is often referred to as the...

battle of the forms

9 remedies available to the buyer when the seller/lessee breaches: right to...

cancel the contract, obtain goods upon insolvency, obtain specific performance, to cover, replevy goods, recover damages, reject the goods, revoke acceptance, recover damages for accepted goods

An opportunity for inspection is a _____ to the right of the seller or lessor to enforce payment

condition precedent

_____ goods accord with the contract's terms, while _____ goods do not

conforming, nonconforming

exceptions to the perfect tender rule

cure, substitution of carriers, commercial impracticability (unforeseen occurrences), destruction of identified goods (unexpected event), assurance and cooperation

under the UCC, a contract is formed if the offeree's response indicates a(n) _____ acceptance of the offer, even if the acceptance includes...

definite; terms additional to or different from those in the offer

in a shipment contract, risk of loss passes to the buyer/lessee when the goods are... In a destination contract, the risk of loss passes to the buyer/lessee when the goods are...

delivered to the carrier; tendered to the buyer at the specified destination

when a title document is required, title passes to the buyer when and where the...

document is delivered

in situations that do not call for the seller to ship/deliver the goods, the passage of title depends on whether the seller must deliver a _____

document of title

t/f the seller and buyer cannot have insurable interest in goods at the same time

f

t/f article 2 deals with the sale of goods as well as real estate and intangible property, like stocks/bonds

f (goods ONLY)

only statements of _____ can create express warranties

fact

the UCC imposes a _____ limitation on requirements and output contracts

good faith

obligations of _____ and _____ underlie every sales/lease contract

good faith, commercial reasonableness

3 types of title warranties

good title, no liens, no infringements

tender must occur at a reasonable _____ and in a reasonable _____

hour, manner

in most cases, the UCC has replaced the concept of title (the right of ownership) with 3 other concepts:

identification, risk of loss, insurable interest

a buyer has insurable interest in _____ goods

identified

title and risk of loss cannot pass to the buyer from the seller unless they are _____ to the contract

identified

when goods are nonmerchantable (defective), the buyer may sue fore breach of the _____

implied warranty of merchantability

identification is significant because it gives the buyer/lessee the right to _____ the goods and the right to recover from third parties who _____ the goods.

insure (have insurable interest in), damage

under the UCC, the aggrieved (wronged) party _____ (is/is not) limited to 1 exclusive remedy

is not

if a buyer/lessee breaches the contract and the seller chooses to resell the goods, the seller can hold the buyer liable for any _____

loss

unless otherwise agreed the buyer/lessee has an absolute right to inspect the goods before...

making payment

In shipment contracts, if the seller does not make a reasonable contract for transportation or notify the buyer of the shipment, the buyer can reject the goods, but only if a _____ or a _____ results.

material loss, significant delay

under the CISG, if acceptance contains additional terms, a contract can be formed as long as those additional terms do not...

materially alter the contract (terms cannot relate to payment, quality, quantity, price, time and place of deliver, extent of party's liability, settlement of disputes)

in regard to article 2, rules can vary depending on wether the buyer or seller is a _____

merchant

To specifically disclaim an implied warranty of merchantability, a seller or lessor must mention the word _____.

merchantability

application of the _____ rule is different in UCC and CISG

mirror image

if both parties are _____, the contract is formed according to the terms of the original offer.

nonmerchants

under the UCC, if the offeror is not _____ within a reasonable time that the offeree has accepted the contract by beginning performance, the offeror can treat the offer as having lapsed before acceptance

notified

anticipatory repudiation

occurs when one party clearly communicates to the other the intention not to before because the time for contract performance

without explicit agreement to the contrary, title passes to the buyer at the time and place the seller...

performs by delivering the goods

when contracts involve a combination of goods and services, courts generally use the ______ test

predominant-factor

the _____ of goods involved must usually be expressly stated in the contract

quantity

_____ is not a moveable item because it cannot be carried from place to place

real estate

merchantable

reasonably fit for the ordinary purposes for which such goods are used

a seller has insurable interest as long as they...

retain the title to the goods

Article 2 of the UCC sets fort requirements for _____ contracts, while 2A is for _____ contracts

sales, lease

breach of warranty is a breach of the ______ promise

seller/lessor's

contracts between merchants can satisfy the Statute of Frauds if after the parties have agreed orally, one of the merchants...

sends a signed written confirmation to the other merchant within a reasonable time

Generally, a contract is assumed to be a _____ contract if nothing to the contrary is stated in the contract.

shipment

credit period usually beings on the date of _____

shipment

buyer/lessee may make a partial acceptance if some of the goods do not conform to the contract, BUT they cannot accept less than a _____

single commercial unit

When the contract involves the movement of goods via a common carrier but does not specify when risk of loss passes, the courts first look for _____. If the contract does NOT include delivery terms, then the courts must decide whether the contract is a _____ or a _____ contract

specific delivery terms in the contract; shipment, destination

T/F Goods associated with real estate often fall within the scope of Article 2.

t

t/f A seller or lessor can disclaim all oral express warranties by including in the contract a written disclaimer

t

t/f Any party purchasing insurance, however, must have a sufficient interest in the insured item to obtain a valid policy

t

t/f Article 2A is essentially a repetition of Article 2 except it applies to leases of goods rather than sales

t

t/f To disclaim an implied warranty of fitness for a particular purpose, the disclaimer must be in a writing and must be conspicuous.

t

t/f common law requirements for a valid contract (agreement, consideration, capacity, legality) also apply to sales contracts

t

t/f the UCC does NOT require a contract modification to be supported by new consideration

t

t/f a seller or lessor who makes a statement about the value or worth of goods does NOT create an express warranty

t (unless the seller is an expert)

if the seller is a merchant, risk of loss to goods held by the seller passes to the buyer when the buyer actually...

takes physical possession of the goods

to be characterized as a good, an item of property must be _____ and _____

tangible, moveable

if the contract is made for the sale/lease of specific and determined goods that are already in existence (existing goods), identification takes place at the time _____

the contract is made

when no document of title is required AND goods are identified, title passes as the time and place...

the sales contract is made

To reject, the buyer or lessee must inform the seller or lessor of the particular defect. If the defect is not disclosed, the buyer or lessee cannot later assert the defect as a defense if the defect is one that...

the seller/lessor could have cured

Basic obligation of the seller/lessor is to... Basic obligation of the buyer/lessee is to...

transfer and deliver conforming goods; accept and pay for conforming goods

once goods exist are identified, the buyer and seller can reach an explicit agreement as to...

when the title will pass