LAW CH 11

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

-Arrive for shipment at a port -Arrive at the buyer's warehouse -Leave the seller's warehouse -Are halfway between buyer and seller

Articles of the UCC

-Art. 1: General Provisions --Purpose of the UCC: guidance and definitions -Art. 2: Sale of Goods (2A Leases) --Sale of goods (or lease of goods) -Art. 3: Negotiable Instruments --Use of checks, promissory notes, and other financial instruments -Art. 4: Bank Deposits and Collections (4A Fund Transfers) --Rights and duties of banks and their clients and money transfers between banks. -Art. 5: Letters of Credit --Guaranteed payment by a bank that extends credit on behalf of a client -Art. 6: Bulk Transfers and Bulk Sales --Auctions and sale of large part of a company's assets -Art. 7: Warehouse Receipts, Bills of Lading, and Other Documents of Title --Storage and bailment of goods -Art. 8: Investment Securities --Rights and Duties related to stock and financial assets -Art. 9: Secured Transactions --Sales in which seller holds a security interest in goods sold

Goods, Sales, and Titles under the UCC

-Article 2 --Applies to sale of goods. Goods must be moveable things. -All parties are bound to a standard of good-faith, or honest dealing. Sellers cannot pass good title to stolen goods. -Title must pass to be a sale. One can hold title if: 1) Goods exist 2) Goods identified to contract

Sellers' Remedies for Buyer's Breach

-Buyer repudiates 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 -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

Buyer's Rights and Obligations

-Buyer's duty is to accept conforming goods and pay for them. (§2-507) -Buyer has right of inspection before acceptance. (§2-513) -Buyer may reject nonconforming goods and withhold payment. (§§2-601; 2-602) -Buyer has duty to accept goods. If goods nonconforming but accepted, buyer may later revoke acceptance, if problem "substantially impairs" value of goods. (§§§ 2-606; 2-607; 2-608). (Parties can always negotiate a lower price.) -Buyer has obligation to pay (§2-507) when goods are received. Can inspect before payment is made.

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

Griffith v. Clear Lakes Trout Co.

-Clear Lakes, a fish hatchery, had a 6-year deal with Griffith, a trout grower. -Griffith would buy tiny trout from Clear Lakes and sell them back when they had grown to "market size" -After 3 years, Clear Lake's customers demanded fish larger than 12-16 oz. fish delivered by Griffith. -Clear Lakes began to take fewer fish; wanted larger fish. -Griffith was left with too many fish and deeply in debt; could not change operations easily. -Griffith sued Clear Lakes for breach of contract for not accepting the trout that Griffith had grown to "market size." -Clear Lakes claimed no contract existed because the parties differed as to what was "market size" -District court ruled in favor of Griffith. -Court held that parties knew that market size was 12-16 oz. -Clear Lakes appealed. -Affirmed. -Both parties understood the the industry meaning of "market size." -Parties intended to make a contract and the it will not fail for indefiniteness. -Course of performance between Griffith and Clear Lakes over three years with 12-16 ounce trout indicates an understanding of the "market size." -There is similar trade usage pre-dating their contract.

Forming a Sales Contract

-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

Sales Warranties: Express Warranties

-Created by seller's promise as to quality, safety, performance, or durability of goods. May be evidenced (§2-313): --From sample or model --By description of attributes --By seller's statements or promises

Seller delivers nonconforming goods, buyer accepts

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

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

Filling the Gaps

-Filling the Gaps - UCC fills parts of contract left open or unclear, i.e. price or delivery terms, so a contract can proceed. -UCC will look to trade usage and past business dealings of the parties in determining the outcome of unclear terms. -It will also apply "reasonableness" standard. -If the contract not clear about price, §2-305 tells courts to determine "a reasonable price" - fair market value, past dealings, etc. may be used. -Regarding quantity, §2-306 (1) recognizes requirements contracts and output contracts, where quantities unclear. -Regarding delivery term, §2-309 states delivery must be within "a reasonable time." -§2-311 states that seller has option to arrange shipment. - §2-308 presumes delivery at seller's place of business.

Buyers' Damages: Consequential damages

-Foreseeable damages that result from a seller's breach -May be with third parties, not necessarily seller

CISG Similarities to UCC

-Formality: Need not be formal, nor in writing; look at circumstances for interpretation -Offers: Advertisements are not offers; can fill in missing terms. Is sufficiently definite if indicates goods and expressly or implicitly fixes/makes provision for determining the quantity and price. -Acceptance: Must be made within time stated or reasonable time; sent by reasonable means -Battle of the Forms: If differences are material, then 2nd form is counter-offer, not contract -Duties of Parties: Seller must deliver goods with good title; buyer must notify seller of defects within a reasonable time -Remedies: Behave in reasonable manner and give opportunity to cure breach - Nachfrist notice (period of grace) - notice of the problem and a chance for nonconforming party to cure before lawsuit); Duty to mitigate damages

Uniform Commercial Code (UCC)

-Governs contracts for sale of goods (not services, real estate or professional services) -If contract is a "mix" of goods and services, --UCC applies if dominant value in goods; common law applies if dominant value in services -However parties can agree that either UCC or common law will apply to govern their contract -States adopt model UCC statute with some variations. -Purpose "simplify, clarify, and modernize the law governing commercial contracts" (§1-102)

Acceptance Under Article 2

-Greater flexibility in communication of acceptance -"Any reasonable manner" under the circumstances -May be valid even if add new terms or change existing terms -If there are "material alterations" in the acceptance, they become part of the contract only if the offeror accepts the new terms -Conflicting Terms - the "battle of the forms" --When offeree's form does not match offeror's form --There is an acceptance, but offeror's terms govern unless special action taken -Contract Modification --Need not provide new consideration, but must have "good faith dealing." Modification must usually be in writing.

Convention on Contracts for the International Sale of Goods (CISG)

-International sales covered by CISG - default rule of law for commercial sale of goods by parties in countries that have adopted CISG. -Parties can specify to exclude application of CISG and choose another law to govern the contract. -Covers only sales between merchants, not the public. -Sales excluded: --Auction sales --Consumer goods bought for household use --Contracts primarily for labor or other services --Electricity --Ships and aircraft --Securities such as stock, negotiable instruments, and money

QVC, inc v. MJC America, Ltd.

-QVC (TV shopping network) offered customers Soleus-brand electric heaters. Made in China for Soleus. QVC sold 19,100 heaters in 2007-2008. -Customers reported safety problems. --QVC stopped sales and had product evaluated. --Showed quality problems. -QVC ordered a recall; refunded money to customers who returned the product or returned electric cord to heater. -QVC's contract with Soleus contained strong warranty terms. --Held seller responsible for all costs related to defects, including recall costs. -Soleus disputed there were problems. -QVC sued. -Court: Soleus breached warranty so awarded damages to QVC. -Section 4 of Purchase Orders: Soleus agreed to indemnify QVC for any "direct, special, exemplary, and consequential damages and losses of any kind" including lost profits and attorneys' fees "based upon or resulting from . . . any alleged or actual defect" in Heaters . . . . -QVC sought damages for cost price of heaters, lost profits, refunded customer shipping costs, shipping costs and several other center processing and recall costs. -HELD: QVC receives such damages for $1,681,806.84. (See decision in text for details of different kinds of damages.)

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)

Buyers' Remedies for Seller Breach cont

-Seller repudiates before delivery of goods --Cancel contract --Obtain goods from another supplier --Sue seller -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

Acceptance Under Article 2 cont

-Statute of Frauds --Basic rule: sale of goods for $500 or more is not enforceable unless in writing and signed by the party against whom enforcement is sought --Sufficiency of writing under UCC is relaxed; not every material term needs to be specified, just enough writing to indicate intent. -Failure to Respond To A Writing --Section 2-201(2): 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. -Parol Evidence --More relaxed under the UCC than at common law. --Section 2-202 says 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 the terms.

Performance and Obligations

-UCC Section §2-601 deals with seller's delivery conforming to agreement: --If the goods fail in any respect to conform to the contract, the buyer may: ---Reject the whole, ---Accept the whole, or ---Accept any commercial unit or units or reject the rest -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 --"Perfect Tender Rule:" Seller must tender the quality, quantity & delivery method as specified in the contract --If no perfect tender, buyer has right to reject goods and rescind contract. -Seller's Right to Cure (UCC Section §2-508) holds if: --Time for seller's performance had not yet passed --Seller notifies buyer of intent to cure defect, and --Seller properly repairs/replaces defective goods within time allowed

History of Commercial Law: UCC

-Uniform Commercial Code -In 1950's, UCC presented to the states -All States have adopted except Louisiana has not adopted Article 2 -Article 2 Covers contracts for sale of goods -Most countries rely on Code Law to govern commercial transactions.

International Sales Disputes: The Dominance of Arbitration

-United Nations encourages use of arbitration dealings through Convention on the Recognition and Enforcement of Foreign Arbitrable Awards -If a country has adopted the Convention: --Courts bound to recognize and enforce arbitration decisions --If proper procedure was followed -Exception: if the procedure is in conflict with law of the nation of one of the parties or -Has gone beyond scope of the matter covered by arbitration -In U.S., parties to a contract written under the CISG who require arbitration have little reason to be in court -Duty of arbitrators to resolve dispute under CISG Rules

VLM Food International. 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 offer and acceptance is excluded. -AFFIRMED: Attorneys fees not included in contracts.

Venable v. Suntrust Bank

-Venable bought a car in March 2006 from Ford Dealer in Atlanta. SunTrust provided financing. Contract for 75 monthly payments. If Venable failed to pay, SunTrust could take the car. -Venable quit paying in November 2007. For no clear reason: SunTrust did not seize car for more than 4 years and then sold it at auction. Sale proceeds were applied to debt owed on car. -SunTrust sued Venable in October 2012 to collect remainder of debt owed. -Venable argued the SunTrust could not sue. The sale of the car was subject to 4-year statue of limitations under UCC Article 2. -SunTrust claimed the contract was subject to 6-year statute of limitation that applies to common law contracts. -District Court: Held summary judgment for SunTrust. -Venable appealed. -Reversed. SunTrust's suit is time barred. -If a contract contains a blend of sale and non-sale elements, look to dominant purpose behind the contract. -SunTrust had a security interest in vehicle, but it was not intended to operate only as a security transaction. -The financing provision was incidental to the sales contract. -Contract is not exempt from Article 2. -Therefore applicable statute of limitations is 4 years. -Statute of limitations began to run when breach occurred in November 2007 when Venable stopped making payments. -SunTrust did not file an action until October 2012 which was outside the 4-year statute of limitations.

Assuring Foreign Buyers of Product Quality

-When a firm is unknown, especially moving into foreign markets, it needs to demonstrate products are good quality. -Certification of private organization based in Switzerland that has global acceptance is a good mechanism. -International Organization for Standardization (ISO) often used: --Network of national standards bodies in 163 countries. --Coordinates the system and sets the standards. ISO certification is required by many firms before they will consider buying goods. --Firms apply for ISO certification. --Visited by a certified registrar. --Follow a complex procedure to document and organize production procedures. --Firms are audited for compliance. --Firms must demonstrate how they know and follow quality-assurance procedures.

A merchant:

1) Regularly deals in the goods in question 2) Presents himself as having knowledge or skill specialized to the transaction 3) Or has an agent who does the same

Buyers' Damages: Cover

Buy substitute goods and recover price difference

Sale Warranties: Warranty of Title

Good title must be transferred free of claims against it (§2-312)

Buyers' Damages: Incidental damages

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

Merchants Under Article 2

Merchants are held to a higher standard of conduct than others - "good faith and honest dealing" required.

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.

Lee v. R&K Marine, Inc.

-Lee bought new boat from R&K Marine. Agreement contained a disclaimer for all warranties, express or implied (including implied warranty of merchantability or fitness for particular purpose). -Three years later cracks and deterioration discovered in the hull. Appraiser determined manufacturing defects - boat was a complete loss. -Manufacturer was bankrupt; Lee sued R&K, claiming breach of warranties of merchantability and fitness for particular purpose. -Summary judgment for R&K; Lee appealed. -Affirmed. UCC 2-316(2) states to exclude these warranties, writing must be "conspicuous". -Here writing was in capital letters and buyer signed contract. -A reasonable person would have noticed it.

UCC Warranties

-Merchantability - For sales by merchants: --Goods must be of quality generally acceptable in trade --Must be able to do what is expected -Implied Warranty of Fitness for a Particular Purpose --Buyer communicates to seller, or seller "had reason to know" buyer's particular needs; buyer relies on seller's expertise; then may have warranty ---I.e. a salesperson's recommendation of a certain paint on a metal building that will not chip and peel. -Seller may make disclaimers; language may need to be specific and the disclaimer must be conspicuous.

Intent to Contract

-Offer & Acceptance rules relaxed --Only need agreement between parties -Indefinite Offer --OK to be missing major terms such as price, delivery, payment terms, if parties intended to be bound ---Usually need quantity, unless 1) output contract or 2) requirements contract -But courts require 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 -Merchants Firm Offers - Irrevocable --When signed in writing that offer will remain open for given period. --If not stated, period is "reasonable time."

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.