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37 Cards in this Set
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UCC Article 2 - Contracts and Sales - start essay with
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SC common law applies to all sales of service contracts and the UCC Art. 2 applies to sale of goods. When a contract involves both the sale of goods and services, the predominant nature of the contract prevails
Most tested issues: - Applicable law (common / art 2) - Formation - Terms - Performance - Excuse of performance - Breach remedies - Third-party problems Warranties of quality law is unique in SC |
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Valid contract requires
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Offer
Acceptance of the offer Consideration from each party No defenses to formation |
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Warranties of Quality - creation - approach
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1) Must be a sale of goods for art 2 to apply
- predominant factor 2) Seller must be a merchant - merchant - seller who deals in goods of that kind or one who holds himself as having special knowledge or skill w/ respect to those goods 3) Merchantability - determined at time of sale - merchantable - fit for ordinary purposes and pass without objection in the trade 4) Liability does NOT require fault - no state of the art defense - No buyer beware defense in SC |
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Warranties of Quality - creation - Express warranties
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An affirmation of fact or a promise relating to the goods sold that becomes part of the basis of the bargain.
>> creates an express warranty that goods will conform to the affirmation Descriptions / samples / and models can create Basis of bargain - buyer need not establish particular reliance Statements made after the sale are not a basis, but may be modifications |
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Warranties of Quality - creation - implied warranty of merchantability
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If seller is a merchant in goods of the kind sold, the seller impliedly warrants that the goods will be fit for the ordinary purpose for which they are sold.
Merchantable goods must be: - fit for ordinary purposes - pass without objection in the trade Not applicable for blood or tissue |
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Warranties of Quality - creation - implied warranty of fitness for a particular purpose
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Seller warrants that the goods sold are fit for the purpose for which the buyer purchased them
Seller must: - have reason to know the particular purpose for which the goods are required AND - know the buyer is relying on seller's skill or judgment AND Buyer must actually rely on the seller's skill to select or furnish such goods Problems - goods may be merchantable but not fit for buyer's purpose - establishing Seller reason to know - proof of reliance |
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Warranties of Quality - Disclaimer - Express warranties
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If an Express warranty is created any words disclaiming are inoperative.
Parole evidence rule - if oral statments made by Seller act as Express warranty, but final agreement signed by Buyer expressly disclaims Express Ws - oral statements as a matter of law are not allowed to vary terms of contract But if the writing is not the final embodiment > oral statements may be allowed |
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WArranties of quality - Disclaimer - Implied Warranties
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Implied warranty of merchantability- disclaim must
- mention "merchantability" - be CONSPICUOUS (not necessarily in writing) - be clear Fitness for a Particular Purpose - - be in writing - be CONSPICUOUS - "reasonable person ought to have noticed it" Disclaimers must be part of the contract |
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Warranties of Quality - Disclaimer - Failure to inspect
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Failure to inspect goods BEFORE the contract can disclaim warranties IF the defect should have been found in inspection
The right to inspect on delivery is NOT adequate to disclaim |
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Buyer's Remedies for Breach of Warranty - Rejection
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General Rule = "Perfect Tender Rule" - buyer may reject and cancel the contract if the tender fails in any respect to conform to the contract
Buyer must - - reject goods within a reasonable time (time to inspect) - Notify seller of rejection - Should put rejection in writing Installment Contracts - buyer may reject installment ONLY if the nonconformity SUBSTANTIALLY impairs the installment - may reject entire K if substantially impairs entire k |
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B remedy - rejection - consequences
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Consequences of Effective and Rightful Rejection
1) buyer may cancel the contract, avoid liability for K price and recover purchase price paid 2) buyer retains a security interest in goods to secure seller's obligation to refund price 3) also gets expenses reasonably incurred in the inspection, receipt and transportation of the nonconforming goods |
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B Remedy - rejection - limits - seller right to cure
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Seller has a right to cure if "seasonably" notifies buyer of intent to cure
Time for performance has not passed - seller may tender conforming goods w/in period Time has passed - seller has reasonable time to cure IF had reason to believe that nonconforming tender would be acceptable |
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B Remedy - rejection - limits - acceptance
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Acceptance of the goods precludes rejection
- goods accepted if not rejected w/in reasonable time - buyer accepts despite nonconformity - buyer does any act inconsistent with seller's ownership Even if buyer accepts - may still recover consequential, incidental, direct damages |
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B remedy - rejection - duty to rejected goods
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IF buyer has a security interest in goods
- B does not have to return goods until seller pays NO security interest in goods - non-merchant B - hold them with reasonable care for seller - Merchant B - follow seller's instructions > duty to sell if goods are perishable > no instructions - store or sell |
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Buyer Remedies - Revocation of Acceptance
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Buyer typically precluded from rejecting accepted goods BUT
B may revoke goods whose "nonconformity substantially impairs value TO HIM" If B knew of nonconformity at acceptance may revoke only if under reasonable assumption seller would cure and seller has not If B did not know of nonconformity - can only revoke if latent defect or seller assurances |
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B remedy - revocation - method
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Within reasonable time buyer discovers or should have discovered defect
Before any substantial change in goods Notify seller |
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B remedy - revocation - once revoked
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After rightful revocation - buyer's duties are same as with rejected goods
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Buyer Damages after Revocation or Rejection
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Direct damages - choose
1) cover costs = cost to cover - k price - covers in good faith and w/o unreasonable delay 2) market measure = market price - K price - market price at time B learned of breach + Incidental damages - inspection, receipt, transportation, custody + Consequential damages - any damages resulting from breach which seller had reason to know and which could not be prevented by cover - buyer must mitigate + Punitive - breach accompanied by fraudulent act |
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Buyer damages when Accepts nonconforming goods
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Notice
- buyer must provide notice to seller of problems Direct damages + incidental + consequential |
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Contract limits on buyer damages
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Must be part of agreement / not unconscionable
If limited - the remedies in contract are exclusive Limits may be shown by prior course of dealing / usage of trade Economic loss rule - no tort actions for purely economic loss, need injury |
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Formation issue - Firm Offers (2-205)
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No consideration necessary in UCC
(common law - yes) Firm offer must be: - made by a merchant - in writing - signed by the offeror - give assurances it will be held open - no longer 3mo |
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Formation - battle of the forms 2-207
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Mirror image rule NOT applicable - common law rule
Acceptance that contains different or additional terms does not operate as rejection/counteroffer > treated as mere proposals UNLESS acceptance expressly conditioned on new terms Between merchants- new terms part of K unless - offer expressly limits - material alteration - offeror notifies of object w/in reasonable time IN SC - 2-207 does not apply where parties fully negotiate each provision of K |
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Formation - modifications
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NEED NO CONSIDERATION but must be in good faith
Good faith - legitimate commercial reason Mods must satisfy statute of fraud or operate as waiver |
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Formation - statute of frauds
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Sale of goods over $500 - needs to be in writing and signed by person against whom enforcement is sought
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Formation - statute of frauds - exceptions
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Merchants
- K between merchants - M seeking enforcement sends written confirmation of oral K - other party does not object within 10 days of receipt Specially manufactured goods (not suitable for sale to others) - party must have started manufacture - show evidence of underlying K Estoppel - Proof of oral K - Definite, substantial, and detrimental change of position in reliance - no remedy except enforcement is sufficient |
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Performance issues - Risk of loss - NO breach
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Shipment K - seller must ship, but not required to deliver to particular destination
- ROL passes when delivered to CARRIER Destination K - delivery to particular location - ROL passes when goods tendered to B at location FOB sellers place of businss - ROL in transit on B FOB buyers place of biz - ROL on CARRIER CIF / C&F - ROL on buyer during transit Buyer picks up from Seller - Merchant - ROL on B when takes possession - Nonmerchant - ROL on B when S holds goods for B |
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Performance - ROL on Nonconforming Tender (breach)
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When the seller's tender so fails to conform to the contract that the Buyer has a right of rejection, the risk of loss remains on the seller until cure or acceptance
Revocation - Seller ROL Repudiation - Buyer ROL |
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Performance - Adequate Assurance
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When one party has reasonable grounds for insecurity he may make a written demand for adequate assurance, and suspend performance
Failure to provide AA within 30 days > may treat K as repudiated Suspension of performance is NOT breach or repudiation |
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Performance - Anticipatory Repudiation
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Overt communication of intention not to perform
Other party is substantially impaired - may suspend performance and either wait until time due under K or act within commercially reasonable time |
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Performance - Anticipatory Repudiation - Retraction
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Limited right - retraction must:
- have CLEAR intent to comply with K and willingness to provide AA - before performance is due AND - before innocent party cancels K or materially changes position |
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Performance - Installment Sales K
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Perfect tender does not apply
- if seller gives AA to cure, B must accept installation B may cancel K as whole only if nonconformity substantial impairs the value of the whole K S can only cancel the K if buyer breaches as to whole K |
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Entrustment
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owner gives goods to merchant of that kind, merchant may transfer owner's rights to buyer in ordinary course
*not for pawnbrokers A BIOC is one who buys goods - in good faith - w/o knowledge sale violates rights or security interest of 3P and - from a person in business of selling goods of that kind |
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Seller Self-help remedies
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Buyer repudiates or breaches
- seller may withhold delivery Buyer insolvent - Seller may refuse to deliver except for cash and/or - stop delivery of goods in transit |
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Seller Remedies - action for price
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Seller may recover the purchase price when:
- buyer accepted goods - goods conform to K and have been destroyed when B had ROL - Goods were identified in the K and seller could not resell (unique) |
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Seller Remedies - Measure of damages
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K - Resale
- sale must be in good faith - give notice to buyer K - Market - seller does not resell or resale fails because of lack of notice, good faith, or commercial reasonableness |
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Seller Remedies - Lost Profits - FREQUENTLY TESTED
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LOST VOLUME SELLER
K price minus Market price is not adequate, S may recover profit (including overhead) he would have realized had B performed. Seller must be able to show that it would have enough supply/inventory to perform on both the original contract and the resell |
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Seller incidentals
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Seller may recover incidental damages caused by buyer breach
- commercially reasonable expenses incurred in the custody of goods following breach and effecting the resale |
