Chapter 11-Domestic and International Sales

Contract Modification

- need not provide new consideration, but must have good faith dealing - modification must usually be in writing

Consequential Damages

-Foreseeable damages that result from a party's breach of contract but are caused by special circumstances beyond the contract itself. -may be with third parties, not necessarily seller -ex.) ordering 10,000 shirts for clemson with the wrong college of orange; lose out on contract with the university; this is forseeable; you can collect for all damages and sue for loss profits

quantity

-requirement contracts: seller agrees to provide all of a certain good that a buyer needs. -output contracts: buyer agrees to take all output of seller -ex.) footlocker buys all Lebron James shoes from Nike

Absence of specified place for delivery

-the buyer has to pick up goods unless stated otherwise

villalabos vs atlanta motorsports

-villobos had mechanical problems costing more than truck was worth -buyer sued for fraud -no fraud, no breach of warranty BUT they did allow for revocation of acceptance -buyer may revoke acceptance if they accepted and the value of substantially impacted -acceptance must be reasonably induced: difficult to realize (it was) -must be within a reasonable time (it was; problem discovered the next day)

Sales Warranties

-warranty of title -express warranties

Articles of the UCC

1. General introductory provisions 2. Sales of goods 3. Negotiable Instruments 4. Bank deposits and collections 5. Letters of credit (financial instruments issued by banks and other institutions) 6. Bulk Transfers and Bulk Sales 7. Warehouse receipts, bills of lading, and other documents of title to goods 8. Transfers in investment securities 9. Secured Transactions 10. Technical matters

One can hold a title if:

1. goods exist 2. goods identified to contract

3 ways to be a merchant

1. regularly deals in the goods in question 2. Presents himself as having knowledge or skill specialized in the transaction -whether or not you actually are specialized, if you come across as specialized, your considered a merchant 3. Or has an agent who does the same -hiring someone who specializes in furniture sales to sell your furniture

output contract

An agreement in which a seller agrees to sell entire output to buyer -farmer promises to sell all wheat produced to buyer

Seller delivers nonconforming goods, buyer accepts

Deduct damages from price Sue seller for damages Sue for breach of warranty

conspicuous

Easily seen or noticed

When the price is not specified in contracts between merchants for the sale of goods,

If price is unclear when a contract is found to exist, § 2-305 directs the courts to determine "a reasonable price." Reasonable price may or may not be "fair market value," depending on the past dealings and conduct of the parties.

all states have adopted Article 2 UCC except

Louisiana

Merchants Under Article 2

Merchants are held to a higher standard of conduct than others - "good faith and honest dealing" required. -ex.) someone who works for a furniture store and is selling furniture through the store is considered a merchant because they regularly sell furniture on a daily basis

Indefinite Offer

OK to be missing major terms like price, delivery, payment terms, if parties intended to be bound

which state has a difference in article 2 regarding the statue of limitations?

South Carolina -6 years statue of limitation instead of typical 4 based on the model

filling in gaps

UCC fills parts of contract left open or unclear -ex.) price of delivery terms, so a contract can proceed

warranties may be disclaimed, but disclaimers must be specific to what?

UCC, the ability of goods to be sold as is, or with fewer warranty rights that would normally exist, based upon clear communication to the buyer that warranty rights are reduced or eliminated at the time of sale. -disclaimer is conspicuous- clear,visible

If no perfect tender

buyer has a right to reject the goods and rescind contract

duty of arbritrators to resolve dispute under _____ rules

cisg

most countries rely on ______ to govern commercial transactions

code law

UCC vs common law- change of existing terms

common law- change is a counteroffer, not a valid contract UCC- contract may be valid even w changes

united nations encourages use of arbritation dealings through

convention on the recognition and enforcement of foreign arbitrable awards

parties can specify to ____ application of CISG and choose another law to govern the contract

exclude

if there are "material alterations" in the acceptance, they become part of the contract only

if the offerer accepts the new terms

duties of parties CISG

seller must deliver goods with good title; buyer must notify seller of defects within a reasonable time

Sufficiency of the Writing

under UCC is relaxed; not every material term needs to be specified, just enough writing to indicate intent

sales excluded from the CISG

- Consumer goods bought for household use (ex. clock for home) - Auction. - Stocks. - Vessels, aircraft, ships. - Preponderant part for labor or services. - Death or personal injury. - Parties agree to "opt out."

Lee vs. R&K Marine, Inc.

- Lee bought boat from R&K Marine - agreement contained disclaimer for all warranties - 3 years later boat breaks - complete loss - problems from manufacturing defects - manufacturer was bankrupt - Lee sues R&K claiming breach of warranties of merchantability & fitness for particular purpose - Lee loses - writing was in caps & buyer signed contract - a reasonable person would have noticed it- it was conspicuous

Venable v. SunTrust Bank

- Venable bought a car - if Venable failed to pay, SunTrust could take the car - Venable quit paying in November 2007 - SunTrust seized car 4 year later & sold it at auction (sale proceeds were applied to debt owed on car) - SunTrust sued Venables in Oct 2012 to collect remainder of debt owed (that they didn't get from auctioning it) - Venables argues SunTrust can't sue bc sale of car was subject to 4-year Statute of Limitations (UCC) - SunTrust argues sale was subject to 6-year Statute of Limitations (Common Law) - applicable Statute of Limitations is 4 years -the financing provision was incidental to the sales contract - SunTrust did not file an action until Oct 2012 which was outside the 4-year statute of limitations - Venables wins

UCC says if not specified then title passes when:

- seller completes all obligations regarding delivery of goods - when seller delivers title documents (if goods did not need to be moved)

Conflicting Terms

-"battle of the forms" -If offeree's form doesn't match offeror's form there IS an acceptance, but use offeror's terms unless special action taken

Buyer's Rights and Obligations

-Buyer's Right of Inspection: Acceptance or Rejection, allows buyer to verify that the goods received are of the quality that the seller had agreed to deliver -After seller tenders delivery and buyer has accepted the goods, buyer must pay for them in accordance with the contract.

Buyer repudiates (breaches) before receiving goods

-Cancel contract -ID goods; minimize losses by completing or stopping manufacture -Withhold or stop delivery -Resell goods in commercially reasonably manner -Sue buyer for losses incurred

Erie vs amazon

-Cao bought an LED light through Amazon -$313,167 in damage -Amazon sells for dreamlight -Question: Is Amazon liable for the cost? -District ruled for Amazon -Fourth circuit looked at product liability law -Had to determine if Amazon was a seller -4th circuit said Amazon provided logistic services, was not a seller; only holds goods in warehouses and ships them when sold -

Griffith v clear lakes

-Clear Lakes, a fish hatchery, had a 6 yr deal with Griffth a trout grower -Griffth would buy tiny trout from Clear Lakes and sell them back when they grew to "market size" -contract said when they reach "market size" they will buy them back -didn't specify what "market size" meant -Clear Lakes customers started demanding largest fish and Griffth was left with too many fish and deeply in debt, and could not change operations -Griffth sued Clear lakes for not accepting the trout Griffth had grown to "market size" -Appellate court affirmed that the parties did intend to make a contract. And for 3 years of the 6 year contract, market size was 12-16oz. That is pretty good evidence that market size means 12-16 inches. Court ruled in favor of Griffth.

what governs a sale contract unless UCC definitions apply?

-Common law governs a contract unless the UCC definitions apply to a sale as specified in Article 2. -Mostly, the UCC reduces the formality required -Creates UCC based relationships

History of Commercial Law

-English courts looked to Lex Mercatoria ("the law merchant") for guidance -contract law could be more formal than how businesses actually interacted -In the early 20th century, each state had different laws for commercial transactions -made it difficult to do business in different states

Merchantability

-For sales by merchants: -Goods must be of quality generally acceptable in trade -Must be able to do what is expected

Buyer repudiates after receiving goods

-If buyer won't pay, sue for payment & damages -If buyer wrongfully rejects, can reclaim goods & remedy as above; If can't reclaim goods, sue for payment & damages

Crest Ridge Construction v. Newcourt, Inc.

-John & Joe Brower set up their own company, Crest Ridge. -Won a subcontract on job to provide wall panels. Wanted to use panels made by Newcourt. After discussions, price set at $760,000 "subject to credit department approval." -Because Crest Ridge was a new company, not much credit info. -Over the next 6 months, detailed discussions regarding panel specs and shipment was set. -Newcourt then demanded payment in full. --Industry practice is 45 days after shipment (so subcontractor can give goods to general contractor who would pay the bill). -Crest Ridge could not make the advanced payment. Newcourt cancelled the order. -Crest Ridge had to find another supplier at a higher price. -Crest Ridge sued Newcourt. -Jury awarded $70,214 in damages. -Newcourt appealed. -Affirmed. Breach of contract by Newcourt. -The phrase "subject to credit department approval" did not give Newcourt the right to cancel at the last minute. -UCC looks at "any manner sufficient to show agreement, including conduct by both parties . . ." to recognize that a contract existed. -Here. the parties exchanged price quotes, the purchase order, and documents usually binding in construction industry. -For 6 months, parties exchanged designs to clarify project. -Newcourt sent material samples; revisions of shop drawings; fastening details; stipulations about color; and final drawings concerning installation. -Parties left terms of payment blank. Payment was therefore due either on delivery or according to "general usage" in the industry. -To ask for full payment in advance, was a breach of the agreement by Newcourt under Article 2 standards.

Orkal Industries v. Array Connector Corp.

-Orkal (New York company) bought airplane-related products from Array (Florida company). -Orkal would send purchase order forms. -Array would confirm orders with "customer order acknowledgment" forms. -These forms contained a "forum selection clause." -Clause stated that in case of dispute, Array would have to bring suit in a Florida court. -Orkal did not object to the clause. -Later Orkal sued Array (defendant) in New York for breach of contract. -Array moved to dismiss due to forum selection clause. -Trial court agreed. Case was dismissed. Orkal would have to sue Array in Florida. Orkal appealed. -Additional terms become a part of a contract unless specifically objected to within a reasonable time or -Unless additional terms materially alter the contract -Party opposing inclusion of additional terms must prove that terms are material changes -Inclusion of forum selection clause constitutes a material alteration to initial contracts. Orkal never agreed to that term, so original terms held. No requirement to go to court in Florida. -HELD: Reversed.

VLM Food International v. Illinois Trading Co.

-VLM (Canadian company) sold frozen potatoes to IT. -9 transactions without problems. -IT ran into financial trouble; failed to pay VLM for shipments. -Each transaction handled the same way. -Invoice provision stated IT was liable for attorney's fees if it breach the contract. -VLM sued. IT admitted it owed money, but not responsible for attorney's fees. -District court: Agreed with IT; VLM appealed. -CISG defines "loss" from breach of contract and does not include attorneys fees although parties can agree to that by contract. -VLM must show the contract with IT expressly made IT liable for the attorney's fees. -Depends on when agreement became binding. Contract was created when IT received VLM's confirmation e-mails. -Attorneys fees provisions not part of the agreement described in purchase orders and e-mail confirmation. -Term first appeared in trailing invoices mailed to IT after VLM delivered the product. -VLM already bound itself to the contract. Any term not "mirrored" in the of

tender of delivery

-Valid and sufficient offer of performance under a contract -Seller obliged to tender goods at buyer's place of business -Buyer may contract to accept goods at point of production

Title can pass as parties see fit - for example when the goods:

-arrive for shipment at port -arrive at the buyer's warehouse -leave the seller's warehouse -are halfway between buyer and seller

Remedies - CISG

-behave in reasonable manner and give opportunity to cure breach -Nachfrist notice (period of grace) -notice of damage and chance for nonconforming party to cure befor lawsuit -mitigate damages

if a country has adopted the convention of arbritration

-courts bound to recognize and enforce arbritration decesions -if proper procedure was followed

express warranties may be evidenced

-from sample of model -by description of attributes -by seller's statements or promises

exception of arbritration

-if the procedure is in conflict with law of the nation of one of the parties or -has gone beyond the scope of the matter covered by arbritration

merchant firms offers

-irrevocable for lack of consideration (ex.) giving money to hold items for you) -you do not have to give the merchant consideration in order for it to be a contract, just has to be in writing -when signed in writing that offer will remain open for given period -if not states, period is "reasonable time" (ex. 3 months)

If goods fail to conform to a contract in any way, the buyer may:

-reject the whole -accept the whole -accept any commercial unit or units or reject the rest (keep 9,000 that were good and reject 3 that were bad)

if a clock is sold to a commercial store from a european country will CISG apply?

-yes both countries adopted CISG -is commercial sales of goods

can the seller specify in contract that if a defective good is delivered, the buyer still has accept?

-yes, as long as stated in contract

Seller fails to deliver

Cancel contract Obtain goods from another supplier Called cover: price paid for substitute goods or market price for measure of damages Sue seller

Seller repudiates before delivery of goods

Cancel contract Obtain goods from another supplier Sue seller

Seller delivers nonconforming goods, buyer rejects

Cancel contract Obtain goods from another supplier Sue seller Sell rejected goods to recover advance payments If no advance payments, store or reship goods

what applies for sale of services?

Common Law

CISG

Contracts for the International Sale of Goods adopted by thr United Nations

Incidental Damages: cover

Include: reasonable costs of inspecting, receiving, transporting and taking care of goods

if a contract is a "mix" of goods and services,

UCC applies if dominant value in goods; common law applies if dominant value in services -however, that in such a deal, the parties could specify in their contract that one law or the other governs the resolution of a dispute. That is, the common law of contracts would be the default rule applied in this case, but if the parties agreed in the contract that the UCC would govern it, then the court would apply the UCC.

Buyer's duty

accept goods and pay for them -can inspect before payment is made

contracts between merchants

additional terms become a part of the contract

addittional terms become apart of a contract unless...

addittional terms materially alter the contract -ex.) forum selection clause

Specially Manufactured Goods

an oral contract for specially manufactured goods is enforceable

express warranty

created by a seller's promise or guarantee as to the quality, safety, performance, and durability of goods being sold

sellers right to cure holds if:

cure means make it right -time left to perform (ex.) goods delivered before delivery date) -seller notifies buyer of intent to cure defect AND seller properly repairs/replaces defective goods within the time allowed

international sales covered by CISG

default rule of law for commercial sale of goods by parties in countries that have adopted CISG.

good faith dealing

do not allow one party to profit too much from the bad fortune of the other due to unexpected large changes in market conditions

how do you know what the dominant part of the contract is- the good or the service?

find the stand alone prices of both the goods and the service

warranty of title

good title must be transferred free of claims against it -for instance, if your selling a chair that is owned by clemson, you can be sued for warranty of title because you didn;t actually own the chair -This means that a seller is responsible to the buyer if the seller provides a good that does not have good title, such as a stolen property.

Uniform Commercial Code (UCC)

governs contracts for sale of goods (not services, real estate or professional service) -most be moveable, ex.) clothing and computers -However parties can agree that either UCC or common law will apply to govern contract -states adopt UCC statue with some variations

Acceptance under UCC

greater flexibility in communication of acceptance -"any reasonable manner" under the circumstances

failure to respond to a writing

if a writing in confirmation of a contract is received, it satisfies the writing requirements unless "written notice of objection" is within 10 days after writing was received

battle of forms CISG

if differences are material, then 2nd form is counter offer, there is no contract, more strict

reasonableness standard

if the contract is not clear about a price, 2-305 tells courts to determine a "reasonable price"- fair market value, past dealings, etc may be used -regarding quanity -regarding delicery term

Implied Warranty of Fitness for a Particular Purpose

implies goods are fit for a specific purpose -ex.) salesperson's recommendation of a certain on a metal building will not chip and peel

In US, parties to a contract written under the CISG who require arbritration have little reason to be

in court

what if the time for perform has expired for defective goods?

its up to the buyer -can reject, ask to replace, etc.

arties who make contracts for the sale of goods that cross national borders are generally free to choose the ____ they want to apply to their contract,

law -ex.) they can specify that the Uniform Commercial Code of Tennessee governs the contract and that disputes are to be resolved by the arbitration rules of the International Chamber of Commerce.

forum-selection clause

location or jurisdiction where disputes will be resolved

a warranty must be excluded from transfer of title if...

merchant who is dealing with goods doesn't claim title -ex.) for instance, you find a diamond ring on the floor and sell it to someone; if the true owner finds you with the ring, they cannot sue for warranty of title

______ are the only people who have to satisfy sufficiency of writing to satisfy the statue of frauds unless the other side obects within 10 days

merchants

CISG covers only sales between

merchants, not the public -the CISG applies to contracts for commercial sales of goods made by parties who have places of business in different countries that have ratified the CISG.

Parol Evidence Rule

more relaxed under UCC than common law -parol evidence cannot usually be used against the writing but it can explain customary trade dealings or the meaning of terms -however, if the intent is that the original writing is "a complete and exclusive statement of terms", parol evidence may not be used to change terms -cannot bring outside writing

Acceptance (CISG)

must be made within time stated or reasonable time, sent by reasonable means

CISG formality vs UCC

need not be formal, nor in writing; look at circumstances for interpretation **no statue of frauds

Nachfrist notice

notice of problem and chance for nonconforming party to cure before lawsuit -duty to mitigate damages

what can you use to supplement your writing if a contract is ambigous?

parol of evidence

cover

price paid for substiute goods or market price for measure of damages

what is the one thing UCC requires to be specified in contracts?

quantity -unless its an output contract or requirement contract

buyers may do what with nonconforming goods?

reject them, and withold payments

offer and acceptance rules - UCC

rules on offers and acceptances are relaxed -only need agreement between parties -UCC recognized sometimes parties are bound to an agreement without stating it all -ex.) making an agreement without stating a price- contract can be made even without settled price -price is reasonable price at time of delivery; determined by court -Gap fillers:

Statue of Frauds

sale of goods for more than $500 or more is not enforceable unless in writing and signed by the party against whom enforceable is sought -writing of confirmation of agreement

requirements contract

seller agrees to supply all of the needs of a particular buyer -ex.) An office supplies store agrees to buy all of its copy paper and toner cartridges from a specific supplier, satisfying its ongoing requirements.

offers CISG vs UCC

simalarities: advertisement are not offers ,can fill in missing terms. is sufficiently definite if indicates goods and expressly or implicitlyfixes/makes provision for determining the quantity and price

purpose of UCC

simplify, clarify, and modernize the law governing commercial contracts

delivery term

states delivery must be within a reasonable time

if goods are nonconforming but accepted, buyer may later revoke acceptance if problem _____ _____ value of goods

substantially impairs -Of course, if the buyer is willing to accept nonconforming goods, they must be paid for, although the price paid may be lower if the parties so agree.

If the goods do not conform to the standards created by the warranty,

the seller may be held liable for damages for breach of warranty

Perfect Tender Rule

the seller must tender the quality, quantity, and delivery method as specified in the contract or the buyer has the right to reject the goods

what must pass in order to be a sale?

title

UCC will look at _____ _____ and ______ ______ of the parties in determining the outcome of unclear terms

trade usage, and past business dealings