ACC 480 - Exam 2

voidable title

Ex: seller has this title when goods are obtained by fraud, paid for with a check that was later dishonored, purchased from a minor, or purchased on credit when the seller was insolvent.

insurance coverage

If the goods exist and are in the seller's warehouse, and are marked in the warehouse, buyer can purchase insurance coverage, so that if goods are destroyed before shipped, they can have some recovery from that. ****test question

Modification of an agreement

If there is a contract under common law, there has to be new consideration flowing both ways to modify this existing contract; Under UCC, however, an existing consideration is not required as well as additional consideration not being required to modify a contract.

The formation of sales and lease contracts

In general contract law, the moment a definite offer is met by an unqualified acceptance, a binding contract is formed; if a court is going to enforce a contract, the terms must be reasonably definite.

duty of good faith

UCC's good faith provision, which can never be disclaimed, reads as follows: "every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement; good faith means honesty in fact; UCC imposes duty of good faith under all transactions; one cannot waive the warranty of acting in good faith; If person is a merchant, duty of faith is a little higher because merchant has to observe reasonable commercial standards of fair dealing in the trade.

Warranties

Under UCC, warranties arise which can be disclaimed; some only arise in certain situations; if the seller breaches a warranty associated with the product, he or she has the same consequences as the buyer.

parol evidence

Under common law, they are extremely restrictive on what would be allowed, but under UCC it is allowed if the contract is not fully integrated.

check

a bearer instrument

Article 2A of the UCC

a lease of movable goods; covers any transaction that creates a lease of goods or a sublease of goods; defines a lease agreement as a lessor's and lessee's bargain with respect to the lease of goods, as found in their language and as implied by other circumstances.

merchant

a person who deals in goods of the kind involved in the sales contract; special rules apply to them if under the UCC; Ex: a person who sells forklifts is a merchant to forklifts.; must have expertise, hold themselves out as having knowledge, or they hire a merchant.

Express warranty

a seller or lessor can create an express warranty by making representations concerning the quality, condition, description, or performance potential of the goods; if the seller makes a promise about the goods (quality, description, performance) by saying these words, the seller has made an express warranty that the goods are going to conform to this promise; only arises when the seller has made this promise.

course of dealing

a sequence of actions and communications between the parties to a particular transaction that establishes a common basis for their understanding; restricted to the sequence of conduct between the parties in their transactions prior to the agreement.

what makes something a negotiable instrument?

a signed writing (or electronic record) that contains an unconditional promise or order to pay an exact amount, either on demand or at a specific future time; must be in writing, has to be signed by the maker or the drawer; must be an unconditional order to pay; must be a fixed amount of money, can be with or without interest; interest must be payable on demand, or at an exact future date; must be payable to a specific person, or to order, or to an instruments bearer.

Open terms

a term is missing; According to general contract law, an offer must be definite enough for the parties (and the courts) to ascertain its essential terms when it is accepted; in contrast, 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 the following are true: (1) the parties intended to make a contract, and (2) there is a reasonably certain basis for the court to grant an appropriate remedy; quantity of goods must be expressly stated or it will fail.

promissory note

a written promise made by one person (the maker of the promise) to pay another (usually a payee) a specified sum.

Acceptance

acceptance of an offer to buy, sell, or lease goods generally may be made in any reasonable manner and by any reasonable means; The UCC permits acceptance of an offer to buy goods "either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods; Ex: "I would like to buy a hundred widgets" - offeror could say "I promise to ship" or could just ship them.

acceleration clause

allows a payee or other holder of a time instrument to demand payment of the entire amount due, with interest, if a certain event occurs, such as a default in payment of an installment when due.

crops

always considered goods.

usage of trade

any practice or method of dealing that is so regularly observed in a place, vocation, or trade as to justify an expectation by the parties that it will be observed in their transaction; Ex: Baker's dozen = 13

Implied warranty of fitness for a particular purpose

arises only if the facts are met; arises in the sale or lease of goods when a seller or lessor knows both of the following: (1) the particular purpose for which a buyer or lessee will use the goods , (2) that the buyer or lessee is relying on the skill and judgment of the seller or lessor to select suitable goods.

merchant's firm offer

arises when a merchant-offeror gives assurances in a signed writing that the offer will remain open; the merchant's offer is irrevocable without the necessity of consideration for the stated period or, if no definite period is stated, a reasonable period (neither to exceed three months).; Ex: if the offeror makes the offer to sell for $20,000, if the merchant promises to sell the item (movable goods), he promises to hold the offer open for 10 days.

buyer remedies

buyer can cancel the contract, very unique goods can be reasoned for by specific performance; the main remedy sought is cover.

fob shipping point

buyer pays the shipping.

conditional sales

buyers and sellers sometimes form sales contracts that are conditioned either on the buyer's approval of the goods or on the buyer's resale of the goods.

Entrustment rule

entrusting goods to a merchant who deals in goods of that kind gives the merchant the power to transfer all rights to a buyer in the ordinary course of business; includes both turning over the goods to the merchant and leaving purchased goods with the merchant for later delivery or pickup; Ex: merchant sells brand new televisions and used televisions.

Implied warranty of merchantability

every sale or lease of goods made by a merchant who deals in goods of the kind sold or leased automatically gives rise to this; you can waive this; arises automatically.

Uniform Commercial Code (UCC)

facilitates commercial transactions by making the laws governing sales and lease contracts clearer, simpler, and more readily applicable to the numerous difficulties that can arise during such transactions.

when the buyer or lessee breaches the contract

if the buyer or lessee breaches the contract, the risk of loss to identified goods immediately shifts to the buyer or lessee. Limitations to this rule are as follows: (1) the seller or lessor must have already identified the contract goods, (2) the buyer or lessee bears the risk for only a commercially reasonable time after the seller or lessor has learned of the breach, (3) The buyer or lessee is liable only to the extent of any deficieny in the seller's or lessor's insurance coverage.

cover

in certain situations, buyers and lessees can protect themselves by obtaining cover - that is, by buying or leasing substitute goods for those that were due under the contract; this is the buyer's remedy; buyer has the right upon the breach to go somewhere else to buy conforming goods, and any extra price they had to pay, they can recover that.

finance lease

involves a lessor, a lessee, and a supplier. The lessor buys or leases goods from the supplier and leases or subleases them to the lessee; Ex: a business owner needs a certain piece of equipment, but does not have the capital to go out and buy it.

consumer lease

involves three elements: (1) a lessor who regularly engages in the business of leasing or selling, (2) a lessee (except an organization) who leases the goods "primarily for for a personal, family, or house-hold purpose.", (3) total lease payments that are less than $25,000.

Exceptions to perfect tender rule

may be established by agreement (ex: if defective goods can be repaired in a reasonable amount of time), cure (to replace/repair defective or nonconforming goods; substitution of carriers; installment contracts; commercial impractibility; an unforeseeable contingency; partial performance; destruction of identified goods.

what do we mean by negotiations?

means to transfer from one person to another; when a transfer is by negotiation, the transferee becomes the holder of that note.

tender of delivery

occurs when the seller places or holds conforming goods at the buyer's disposal, enabling the buyer to take possession.

Implied warranty

one that the law derives by inference from the nature of the transaction or the relative situations or circumstances of the parties; best way to disclaim all implied warranties: goods are being sold as-is

lessee

one who acquires the right to the possession and use of goods under a lease; in other words, the lessee is the party who is leasing the goods from the lessor.

good faith purchaser

one who buys without knowledge of circumstances that would make an ordinary person inquire about the validity of the seller's title to the goods; if the buyer is not a good faith purchaser for value, the actual owner can reclaim the goods from the buyer (or from the seller, if the goods are still in the seller's possession).

lessor

one who transfers the right to the possession and use of goods under a lease.

insurable interest

parties to sales and lease contracts often obtain insurance coverage to protect against damage, loss, or destruction of goods; any party purchasing insurance, however, must have a sufficient interest in the insured item to obtain a valid policy.

anticipatory repudiation

party clearly expresses intent not to perform; nonbreaching party can (1) treat the 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; UCC permits the breaching party to retract his or her repudiation.

allonge

separate piece of paper firmly attached to an instrument (no room to write).

How does the UCC deal with risk of loss when there is a breach (who bears risk of loss?)

shifts the risk of loss to the breaching party as soon as possible.

bailee

someone who has possession of the goods (temporary delivery of personal property without passing of title into the care of another).

Article 2 of the UCC

statutory contract law for the sale of movable goods; governs sale contracts, or contracts for the sale of movable goods; does not deal with real property (real estate), services, or intangible property such as stocks and bonds; follows common law (which is codified); UCC governs if it speaks to the matter.

holder in due course

takes an instrument free of most of the defenses and claims that could be asserted against the transferor.

Identification

takes place when specific goods are designated as the subject matter of a sales or lease contract; title and risk of loss cannot pass to the buyer from the seller unless the goods are identified in the contract.

statute of frauds

the UCC contains Statute of Frauds provisions covering sales and lease contracts; under these provisions sales contracts for goods priced at $500 or more and lease contracts requiring total payments of $1000 or more must be in writing to be enforceable.

Payment terms on credit

the buyer has to pay according to the terms.

course of performance

the conduct that occurs under the terms of a particular agreement.

sale

the passing of title [evidence of ownership rights] from the seller to the buyer for a price.

risk of loss

the person who suffers the financial loss if the goods are damaged, destroyed, or lost in transit; generally contract will say when this is passed from the seller to the buyer; if the goods are held by the seller, risk passes to buyer only by taking possession of the goods.; if the seller is nonmerchant, the risk passes only on tender of delivery (Ex: bike store).

caveat emptor

the principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made; let the buyer beware.

to be a negotiable instrument

there must be an unconditional promise to pay or an order to pay; IOU is not an unconditional promise to pay - it is not a negotiable instrument.

order instrument

this is for a particular payee, though one could write "bearer" on the check; these instruments are transferrable.

Right of inspection

this right allows the buyer or lessee to verify that the goods tendered or delivered conform to the contract; buyer always has the right to inspect the goods before they accept them.

open quantity term

this will kill the contract and make it fail.

Standing timber on property

trees go with land if the land is deeded to someone.

Assurance and cooperation

two other exceptions to the perfect tender rule: the right of assurance and the duty of cooperation.

tort

typically a negligence claim. Also includes libel/slander

Warranty of title

under UCC, a seller is deemed to be warranting good title; this means they lawfully own the good, and there are no liens against the good; if there is a security interest, then that inventory is subject to a lien; it is possible to disclaim the warranty of title.

sale on approval

under UCC, if the goods are for the buyer to use; when a seller offers to sell goods to a buyer and permits the buyer to take the goods on a trial basis, a sale on approval is made.

insolvency

under the UCC, occurs when a person ceases to pay debts in the ordinary course of business, cannot pay debts as they become due, or is insolvent under federal bankruptcy law.

Perfect tender rule

under the common law, the seller was obligated to deliver goods that conformed with the terms of the contract in every detail; if the goods are not perfectly conforming, the buyer can accept the nonconforming goods and reject some of it as well; if the goods conform in every respect, the buyer or lessee does not have a right to reject the goods.

additional terms

UCC dispenses with the mirror image rule; under the UCC, a contract is formed if the offeree's response indicates a definite acceptance of the offer, even if the acceptance includes terms additional to or different from those contained in the offer; whether the additional terms become part of the contract depends, in part, on whether the parties are non merchants or merchants.

Right of assurance

UCC provides that if one party has "reasonable grounds" to believe that the other party will not perform, the first party may in writing "demand adequate assurance of due performance" from the other party.

duty of care

have some sort of duty to provide care. breaching the duty (ex: texting and driving), there is causation (proximate cause) and damages may be awarded.

Delivery

if contract does not specify, title will pass when delivery is accomplished according to the delivery terms; Ex: Goods are being shipped by a carrier (either a shipment contract or a destination contract).

sale or return

if the goods are for the buyer to resell; sale is completed but the buyer has an option to return the goods and undo the sale; often arises when a merchant purchases goods primarily for resale.

when the seller breaches

if the goods are so noncomforming that the buyer has the right to reject them, the risk of loss does not pass to the buyer until either (1) the defects are cured (that is, the goods are repaired, replaced, or discounted in price by the seller, or (2) the buyer accepts the goods in spite of their defects (thus waiving the right to reject).

when the buyer breaches

when a buyer or lessee breaches a contract, the risk of loss immediately shifts to the buyer or lessee; three important limitations to this rule: (1) the seller or lessor must have already identified the contract goods, (2) the buyer or lessee bears the risk for only a commercially reasonable time after the seller or lessor has learned of the breach, (3) the buyer or lessee is liable only to the extent of any deficiency in the seller's or lessor's insurance coverage.

open delivery term

when no delivery terms are specified, the buyer normally takes delivery at the seller's place of business.

What are the obligations of the seller?

A seller is obligated to tender conforming goods; if goods aren't exactly conforming, the buyer does not have to accept these nonconforming goods.

void title

Ex: seller is not the owner of the goods; no title exists.

Lemon laws

automobiles that are sold under a warranty have problems; this is a seller's breach.

Big topics

big distinction is when a merchant is involved.

document of title

bill of lading or warehouse receipt; appropriate when there is delivery without the movement of the good; Ex: title passes when buyer picks up the goods from the warehouse.

potential buyer remedy

buyer buying with express warranty must have relied on these promises in the express warranty.

COD shipment

charge on delivery shipment; can accept by saying "I accept"; conduct can be deemed accepting

negotiable instruments

checks or drafts, promissory notes, and certificates of deposit; if it is a draft or a check, it is a three-party instrument.

blank indorsement

does not specify a particular indorsee and can consist of a mere signature.

three parties

drawer (the party creating the draft, ex: bank), drawee (another party ordered to pay the money to a third party (the payee).

when the seller or lessor breaches the contract

if the seller or lessor breaches by tendering noncomforming goods that the buyer or lessee has a right to reject, the risk of loss does not pass to the buyer or lessee until the defects are cured or the buyer accepts the goods (thus waiving the right to reject).

If both buyer and seller are merchants

if there is an offer to sell goods and the buyer tries to change the terms, this additional term automatically becomes part of the contract, unless the other party says no.

restrictive indorsement

indorser includes specific instructions regarding the funds involved or states a condition to the right of the indorsee to receive payment.

seller rights and conditions

seller has the immediate right to sell to someone else if the buyer has breached; if goods are in transit and the seller learns the buyer has just filed for bankruptcy (buyer is insolvent), they can claim their goods back.

shipment contract

seller is required or authorized to ship goods by carrier, such as trucking company; title passes at the time and place of shipment (when the seller has handed the goods to the carrier, title passes).

destination contract

seller is required to deliver the goods to particular destination, usually directly to the buyer, but sometimes to another party designated by the buyer; title does not pass until goods arrive at the specified destination.

fob destination

seller pays the shipping.

Uniform Commercial Code (UCC)

the most common model act; governs a number of commercial transactions, meant to direct rapid-fire of commercial transactions; has been adopted as law by all states, except for Louisiana, which still adopted a good bit of it.

title

the right of ownership; Ex: car title

The duty of cooperation

when the performance of one party depends on another; the UCC provides that when cooperation is not forthcoming, the other party can suspend performance without liability and hold the uncooperative party in breach or proceed to perform the contract in any reasonable manner.