Sales Outline

Sales Outline Fall 2020

1. Scope

Article 2: Limits to certain types of transactions

2-102 Transactions in goods

“Transactions” no definition in the UCC, but synonymous with “Sale”

2-106(1) “Sale” passing title from seller to buyer for a price (some consideration) (“passing title” not in UCC, think bundle of sticks)

2-103(1)(d) Seller:

Sells or contracts to sell

2-103(1)(a) Buyer:

Buys or contracts to buy

2-304(1) Price:

Payable in money or otherwise (trade, barter)

1-201(b)(24) Money: Any medium of exchange authorized by a sovereign (any government entity with power to issue currency)

2-105(1) Good

All things including specially manufactured goods which are moveable at time of identifications of contract

EXCEPT:

1. Money solely as a medium of exchange, money is not a good unless purchasing collectable money or trading currency

2. Investment Securities (Article 8, don’t need to know)

3. Things or Choses in Action

Something that derives its value SOLELY from your ability to enforce it in court, like insurance policy, abstract concept, the piece of paper does not have any value, but bought the right to enforce it in court, think hunting license

Specially Manufactured: to avoid any combination with service

Movable: Not in the code, but must be capable of physical movement

Meant to exclude abstracts:

Services

Real Property Transactions

At time of Identification of Contract: moment that thing is identified to contract (identified to contract once specific to contract)

1: Unique item identified at the time of contract formation, like a contract for a specific painting

2. For fungible goods that are interchangeable (500k blue pens) become IDENTIFIED when specific to contract- when you address them for shipping they are identified.

3. Car any Volvo Xc… choose which Volvo off the lot and then assess the moveability, if a VIN is assigned at contract then it is identified

2 Hybrid Types of Transactions

1. Hybrid Mixture of Goods and Services: (not foreseen by code drafters)

Court crafted rule to find if service or code agreement

Hair Cut and Color- the price is for the service of the cut and the good of the color

Predominant Purpose Test (is it more like code or common law) (factors test, consider all factors and weigh them, they do not all need to be present)

1. Language of the contract, what have parties said

a. “provider” usually indicates service

“buyer/ Seller” usually indicates goods

2. Nature of business/ supplier- whoever performing services (salon- primary goal to get service) or selling goods (advanced auto parts, primary goods, but they will put wipers on for you)

3. Allocation of value, is the value in the purchase attached to the goods portion or the services portion (hospital bill- there are medications on there (good) but the primary expense is the doctor (service)

2. Hybrid Mixture of Goods and Real Property (foreseen by code drafters as 2-107 (1) & (2))

1 and 2 together decide whether more real property or goods, if severance would cause material harm to real property then transaction is NOT goods UNLESS seller is going to sever (remove the thing from property)

Hypo 1: Sell a loose diamond- goods- code

Hypo 2: I’ll sell you all the diamonds that can be found on blackacre and I’ll do all the severing, so bag of diamonds- goods- code

Hypo 3: I’ll sell you all the diamonds on blackacre, but you have to do severing (have to figure out access restrictions to property, ect) not a good-

EXCEPTION: Standing Timber is ALWAYS a goods transaction

2. Formation and Terms

1. Proof of Terms

Parole Evidence Rule

First under the common law, then under the code, code only changes two things from common law

Common Law PER:

Protect the terms of an INTEGRATED agreement

Rule of Evidence under certain circumstances will prohibit admission of extrinsic evidence for certain purposes

Can never make it admissible, but can make it inadmissible, if violates PER, cannot be admitted

Certain circumstances: for integrated agreements (reduced to a writing), cannot apply to purely oral agreement

Extrinsic Evidence: outside the 4 corners of the writing

Certain Purposes: never prohibits effect, prohibits types of purposes, what are you trying to prove with it

Completely Integrated: Writing was intended to be a final expression of parties agreement

If completely integrated, legal effect of decision is parties are prohibited from introducing extrinsic evidence for the purpose of contradicting or supplementing

Terms of integration are not what we agreed to, can introduce if has effect of contradicting but NOT if that’s the sole purpose

Partially Integrated: not intended to be a final expression of parties agreement

Not prohibited for introducing extrinsic evidence for purpose of supplementing but they

are prohibited for purposes of contradicting

Will ALWAYS be judge who decides level of integration

At Common Law Never prohibited these for PER:

Condition Precedent

Rights in Equity

Explain: Not add or subtract, just explain integration, attempting to achieve what’s already there

@ common law first have to demonstrate ambiguity

Modify

Invalidity

Collateral Agreements

Parole Evidence Rule under the Code 2-202

Only 2 changes to common law, and can ONLY apply to Big 3 Evidence

If Big 3:

Exception 1: Not prohibited from admitting Extrinsic Big 3 Evidence for the purpose of supplemented even IF Completely Integrated agreement

Exception 2: Not Prohibited from admitted extrinsic evidence for purpose of explaining EVEN in the absence of an ambiguity

1-303 Also Known as Big 3 Evidence: (need repetition)

1. Course of performance: some behavior or conduct repetitiously adopted within THIS (the same) contract

2. Course of dealings: course of conduct or behavior parties have adopted in previous, independent agreements

3. Trade Usage Evidence: some conduct that is so readily observable in the location, vocation, or trade such that the parties SHOULD HAVE known it was part of the agreement (this is how we do it)

Has to be readily observable, vast majority, everybody knows or should know

Everyone in the locale does it this way

If fighting about contract for pens, can introduce contract for books to prove behavior in Charleston, irrespective of type of contract

Vocation: position itself (professor), Trade: whole industry (legal education)

1-303 Hierarchy

1. Course of performance

2. Course of dealings

3. Trade usage

Use if multiple types of inconsistent Big 3 evidence

2. Formation

Code sits on top of common law, there is not a code provision for everything, code speaks, common law fills gaps

At common Law:

Mutual Assent, offer and acceptance

Offer: Manifestation of intent to enter into a bargain so made as to justify a reasonable offeror to believe acceptance is invited and included

Manifestation: Party can make an offer through ANY medium, indicate to a reasonable person intent to enter into a bargain

Subjective intent: to make an offer, any manner

No further levels of approval or confirmation needed (finality), I will sell you this car for 60k (no other requirements needed)

Acceptance: Manifestation of assent to the terms of offer communicated to offeror in the manner invited (medium neutral, but has to be manner accepted if one is specified)

Consideration: reasonable something of value given by both parties that induces them to enter the agreement

o Must demonstrate compliance with two tests:

Benefit/detriment test – both parties must sustain a benefit and detriment

Bargain for exchanged test – whatever benefit the parties received must be what induced them into the transaction

-2-204 (Formation)

1. Existence of a contract by ANY means, meant to codify common law - Agreement can exist irrespective of medium or manner in which it was generated, medium neutral

2. Consistent with modern common law/ inconsistent with classical common law—contract can exist even if exact moment of its making cannot be determined (does not matter when contract “popped”

3. Consistent with modern common law/ inconsistent with classical common law

Classical: four terms needed for contract formation, parties, subject matter, price, and time for performance

Classic price is finite or subject to calculation, no filler for price term

Modern: Set of logical assumptions for price being a “reasonable price” look at market value

Won’t fail simply because some terms are omitted, still need minimum of PARTIES, SUBJECT MATTER, QUANTITY

-2-205 (Firm Offer)

At common law offeror is the “master” of the offer and could freely revoke at any point prior to acceptance

Exception was option contract, needed mutual existence and consideration (bought time) (hold contract open)

Code: Achieve result of option contract without consideration

Encumbers offerors right to revoke even without consideration

1. Offer *not defined in the Code. *1-103 = look to common law

*manifestation of intent to enter into a bargain so made as to justify a reasonable offeree in believing that acceptance is invited and will conclude it. *can be made by a buyer or a seller

2. Signed – any symbol 1-201(37)

3. Writing- any intentional reduction to tangible form 1-201 (43)

4. Merchant broad- in business and acting in business capacity

5. Gives assurances it will be held open for a reasonable time (any language)

- If a finite time period for it to be held open and that period does not EXCEED 3 months than that is the time it will be open

- If a finite time is OVER 3 months, it will be firm for 3 months, then converts to Common Law Offer (can be revoked prior to acceptance)

-If no finite time, will remain open for a reasonable time (no more than 3 months)

-Firm offer that appears on a form supplied by OFFEREE- firm offer is UNENFORCABLE unless separately signed by offeror

No surprises, must use my form- have to acknowledge that provision

Nancy, a merchant, offers to sell Allyson 500 pens. Allyson alerts Nancy that, because of the business protocol her company observes, Allyson can only accept offers on a company form. Allyson then hands Nancy a copy of the form. The form requires that any offer completed on the form be “held open for fifteen (15) business days.”

***Nancy is the offeror. Allyson is the offeree. The language generating the firm offer is INEFFECTIVE, unless Nancy separately signs that provision.

-2-206 (Acceptance)

(1) Introductory clause for subparts a & b unless unambiguously indicate otherwise by language or circumstances (apply unless parties have changed these specifically)

(a) provides that an offer will be construed as inviting acceptance as in ANY manner & through any medium as long as it is reasonable (unless otherwise explained)

(b) Provides narrow rule to above only in 1 factual circumstance

Order or other offer for prompt or current shipment a seller can accept by either promising to ship or instead by shipment

- if they ship non-conforming goods in response the action of shipping is an acceptance AND breech at the same time

- if want to avoid breech:

Ship with accommodation: notify of shipping an alternative good and if they don’t want it, they can return it, SEASONABLY NOTIFY buyer of accommodation

(2) Lapse Provision: if performance is a reasonable means of acceptance and the seller has attempted to accept by performance seller MUST seasonably notify buyer of acceptance or buyer can assume lapse (communicate acceptance within reasonable time)

-2-207 (Battle of the Forms)

Destroy Common Law Rules

Mirror Image Rule: Offer and acceptance have to be the same, or it is a rejection and counteroffer

Last Shot Rule: Dialog of offers and counteroffers, whoever sends the last offer, those will be the terms of contract if performance thereafter occurs

2-207 Get rid of the common law rule

Has formation occurred GO TO SUBPART 2:

1. Definite and Seasonable expression of assent will constitute acceptance even if different or additional terms (won’t stop formation) UNLESS (d) and (e)

   1. Forms: Each party has its own boilerplate forms and the terms do not match

   2. Oral Agreement: Parties have achieved an oral agreement with a confirmatory memorandum and the terms of the memorandum diverge from the oral agreement

      1. My way or highway language in Confirmatory Memo will never prevent formation, oral contract already formed, not in acceptance

   3. Additional (for bar): Additional Dickered term appearing in an acceptance

GO TO SUBPART 2

Formation has not occurred: GO TO SUBPART 3 UNLESS explicitly and specifically assents to terms

4. Proviso: statement that appears in a purported ACCEPTANCE, that makes assent conditional on agreement with its terms prevents formation (my way or highway in acceptance=no formation)

5. Different Dickered Terms: Negotiated to THIS transaction, no agreement if could not agree with basic contract terms

GO TO SUBPART 3

2. Formation DID Occur:

   1. If different terms, apply knockout rule (phrase of art), offer and acceptance speak to same subject matter BUT speak inconsistently, apply knockout rule, both terms knocked out

   2. If additional terms appear in ACCEPTANCE regarding subject matter not discussed in offer, does NOT prevent formation, if between merchants in the broad sense UNLESS (term does not enter contract)

      1. Offer limits acceptance to the terms of the offer, not a proviso, but prevents addition of terms

      2. Adding terms is MATERIAL Alteration that would cause a hardship AND surprise (subjective and objective for BOTH)

      3. Notice of objection to additional terms within a REASONABLE time after receives acceptance

   3. IF NOT between merchants, additional terms are merely proposals for addition to the contract that will NEVER become more unless EXPLICITLY and SPECIFICALLY assented to

3. Formation DID NOT Occur, but parties commenced performance

   1. No agreement exists, court has to construct one, begin blank sheet of paper, look at both offers, pull out SAME terms into contract

   2. Terms that are missing use code Gap fillers (2-305, 2-309)

Terms

Warranties

Affirmative Warranties

2-313 Express Warranty

1. Elements

1. Internally disjunctive-- buyer can prove by affirmation of fact (can at some point be proven at time statement is made) or promise or a description (physical) or a sample (pulled from bulk) or a model (representation of good, usually smaller scale)

AND

2. Related to goods- relationship with goods that are target of the transaction

AND

3. Forms the basis of the bargain- presumption that what happened in (a) formed basis of bargain so long as it occurred before OR contemporaneous with full performance

• Assume buyers decision was based on (a), seller can attempt to rebut, has to prove that buyer would’ve bought anyways without (a)

2. Ancillary matters- seller need not have any intention to give express warranty, seller intent is irrelevant, no specific words needed to give rise to express warranty

Implied Warranties (seller does not have to give rise to it)

2-312 Implied Warranty of Title (married to 2-403 (read these together))

• Automatic unless removed, protects buyer against false title

1. Facets of warranty and what you get

1. Seller will warrant title is good and transfer is rightful (these goods aren’t stolen and I have the right to transfer)

2. No leans, security interests or encumbrances of which buyer has no knowledge at the time of contract (collateral of goods against a debt, loan on a car)

2. How it can be removed- only way to remove warranty (cannot use 2-316)- if seller wants to remove an Implied Warranty of Title, must be true that language of contract or circumstances of the transaction give reason to know seller isn’t claiming title to (seller is transferring as much title as they have, language to indicate buyer knows they are not getting total rights, if seller attempts to limit liability, it will not remove the warranty)

3. Two Purposes- add facet to warranty and in certain circumstances provide for warranty from buyer to seller

1. When and if another facet is added- if seller is a merchant who deals in goods of the kind, then seller will also warrant against infringement (patents and copyrights)

“deals in goods of the kind” narrow merchant- regularly sells the type of product that is the TARGET of THIS transactions, charging seller with info about products only broad not fair

2. Buyer warrant to seller- goods are being produced to buyers specifications, buyer will hold seller harmless against claims for infringement (If I make to your specs, you can’t hold me accountable for Intellectual property violations)

2-403 Power to Transfer (go here if 2-312 breeched) (4 subs need to know 1-3)

• Transferor can transfer good clean title- seller comply

1. Basic power to transfer- transferor will transfer as much as he or she has- code creates line between chain of title issues

Voidable v. Void

Voidable- allege defense and prove defense unenforceable at election of party who is “victim”- underlying transaction is subject to some defect (fraud in factum- misrepresented subject or transaction, fraud in inducement- misrepresented a facet of transaction)

Void- no transfer at all, illegal transfer of goods, no rights to title

Voidable- seller has to power to transfer good, clean title to a good faith purchaser for value (buyer has to be in good faith)

“good faith purchaser for value”

1-201(b)(20)- good faith- honest in fact and observed reasonable commercial standards of fair dealing (subjective and objective test) (not involved in wrongdoing, what are you aware of

1-201 (b)(30) purchaser- someone who purchases

1-201 (b)(29) purchase- purchase is a voluntary transaction that creates an interest in property- sale

1-204(4) for value- purchaser will take for value if purchaser has transferred any consideration sufficient to support a contract

VOIDABLE can only go against initial seller, not subsequent purchaser

2. If goods are entrusted to merchant who deals in goods of the kind- merchant has power to transfer perfect title to a buyer in the ordinary course

Ex: drop watch off for repair, come back for it, watch dealer sells watch, he will take perfect title even though seller went BEYOND actual authority to sell watch, no claim against subsequent purchaser only watch guy.

1-201(b)(9) Buyer in the Ordinary Course- must be true that buyer is in good faith without knowledge that transfer violates rights of another and in the ordinary course from seller who deals in goods of the kind (no reason to know the goods weren’t free title, they cannot come after you)

3. Entrustment is any delivery of acquiescence in retention of possession (borrow something, I have entrusted it to you)

2-314 Implied Warranty of Merchantability

1. How to invoke- seller deals in goods of the kind, narrow, seller has to know specific trade information

2. Facets of warranty- at least warrant (A-F Facets, Minimum of Warrants)

1. Seller will warrant goods will pass without objection in the trade- a reasonable buyer would not object to these goods in this trade

(C) Seller will warrant goods are fit for ordinary purpose- protect ordinary use of goods that buyer would use

(F) part of UCC but not SC- seller will warrant goods conform to affirmations on packaging (overlap with express warranties)

(3) Relationship with Big 3 creates additional facets- prove seller in industry warrants more by using Big 3 Evidence

2-315 Implied Warranty of Fitness for Particular Purpose (protection for specific purpose goods)

At the time of Contract:

1. Seller has reason to know of the particular purpose for which buyer intends to use the goods

AND

2. Seller has reason to know buyer is relying upon sellers skill or judgement for selection of goods

   • I buy what you tell me to buy, I rely on your recommendation

3. Buyer actually relies

   • Damaged occur from this= breech

“reason to know” objective standard- buyer usually with state the purpose

“particular purpose” need not be bizarre, just your intent, has to have a purpose

2-316 Abrogation of Warranties

1. Attempt to abrogate express warranty is repugnant and abrogation fails

   1. BUT still subject to Parole Evidence Rule- if express warranty- plead and prove elements of 2-313, if allege that was extrinsic then do PER analysis to see if actually existed

2. Individual abrogation (fitness for particular purpose or merchantability)- attack one or another by not both-

• IF seller wants to individually attack implied warranty of machinability- for it to be effective it MUST use the word merchantability AND if it is in writing it MUST be conspicuous (question for court, not jury)

  • does not have to be in writing, but if it is, it much be conspicuous- REASONABLE buyer would have seen it

• Seller wants to attack fitness for a particular purpose, no magical language required- MUST be in WRITING and MUST be conspicuous (cannot be oral)

3. Aggregate abrogation- both implied warranties are knocked out

1. Language- seller can use language such as “as is” or “with all faults” MUST be in writing and MUST be conspicuous- sufficient to abrogate all warranties

2. Conduct- buyers examination (subjective to THIS buyers skill) at sellers demand over whatever conduct alleged occurred before formation

• Buyer before formation examined goods to buyers satisfaction THEN buyer is precluded from asserting claims for defects that could have been found

• Seller demands inspection and buyer refuses then buyer precluded from bringing claims for defects that buyer could have found if inspected

3. Big 3- RARE AF, could abrogate through big 3- this trade, this type of warranty never there, or we have never had it between us

4. Relationship between 2-316 and 2-719

2-719 Tries to limit the remedies if breeched

2-316 is the warranty breeched, 2-719 what to do if the warranty is breeched, have to analyze 2-316 first

Seller May:

1. Introductory Clause

1. Seller permitted to set up an alternative remedial system- usually exclusive to repair or replace

2. If seller attempts to set up alternate remedial system it is OPTIONAL to buyer unless terms of contract expressly make it exclusive

2. Seller has alternate remedial system- system fails of its essential purpose- buyer gets back the other code remedies they are entitled to under 2-711 through 2-717

Fail of essential purpose

1. Seller unwilling to effect its own remedial system

2. Seller unable to effect its own remedial system

3. Leaves a buyer functionally remediless

If these fail, buyer gets all other remedies back

3. Consequential damages (special or unforeseeable damages)- sit in contract with general damages (not in most cases) (eligibility test below)

1. Injury to person

2. Injury to other property (replace sheetrock for defective windows)

3. Breech of collateral agreements

• Sellers are permitted to limit or eliminate consequential damages so long as it is not unconscionable

• If a limitation or abrogation would operate against personal injuries in consumer goods then it is prima facia unconscionable

  • 2-302 Unconscionability: if a court finds a word, phrase, clause or contract to be unconscionable- then the court can nonenforced however much they think is right

  • Assessed at the time of contract formation, intent is to prevent oppression and surprise, up to court to decide

  • If demonstrated unconscionable, both procedural and substantive (trial judge decides this)

    • Procedural- unfairness in bargaining process

    • Substantive- unfairness in resulting contract terms (terms are one sided)

• Attempt to abrogate= unconscionable and will fail

• Not acceptable against personal injury for “consumer goods” always unconscionable

• “consumer good” 9-103(b)(23) goods that are bough or used primary for personal, family or household purposes (subjective to buyer)

-Sub parts 2 and 3 operate independently if seller elects alternate remedy under sub part 1

Assess subparts 2 and 3 independently

Risk of Loss Provisions

More than just risk of loss sometimes payment and performance terms, when something bad happens to goods, who eats the loss

At any point someone must bear the risk, who bears it at fractional moment in time

1. What is the delivery term? (might tell type of contract)

2. What type of contract is it?

3. Was there a proper tender? (once you know this will know when ROL passes)

4. Was there a breech?

WHAT IS THE DELIVERY TERM???

2-319 FOB, Free on Board and FAS, Free alongside

-Fob, can be either shipment or destination contract

-Shipment Contract- contract where buyer will carry risk of loss while goods are in transit (seller not required to load if vessel is not named, required to load if vessel named)(risk of loss transferred when delivered to vessel or port)

-Destination contract- seller carries risk of loss while goods are in transit (ROL passes when delivered to port)(seller has to load if vessel named)

-FAS- free alongside, ALWAYS A Shipment contract, has to get goods alongside ship, not required to load

- cannot perform until goods are alongside SS Minnow at port 1 OBX, cannot pass ROL until they get there, includes costs to get to that port, NOT required to load goods

2-320 CIF and CF contracts

-CIF- Cost Insurance Freight- buyers purchase includes insurance on the goods with PAYOUT being the buyer

-ALWAYS shipment contracts

-ALWAYS seller required to load

-CF- Cost Freight Contracts-

- ALWAYS shipment contract, SELLER must load

- Usually when buyer has broad insurance policy that covers all goods

2-322 Ex-Ship Contracts- ALWAYS destination contracts AND seller is always required to unload the goods

WHAT IS TYPE OF CONTRACT? – tells tender obligation and if the seller complied with it

1. Shipment

2. Destination

3. Bailee Contract

4. True no movement contract

2-504 IF SHIPMENT Contract- then Seller has 4 tender obligations

1. Seller has to get goods to point of shipment AND put them in possession of carrier

2. Seller must engage a reasonable contract of carriage (select method that conforms to the needs of the goods) (puppies, lettuce)

3. Seller must tender any necessary documentation- if title for goods is in possession it is like the goods being in actual possession

4. Seller must provide notice- if I tender to carrier, unless I tell you, you don’t know I tendered

IF a seller FAILS to provide notice or enter into reasonable contract for carriage AND delay or loss ensues buyer CAN reject

2-503 ANY other kind of contract- sellers tender obligation

1. seller has to get goods to the point of tender

2. everything has to be reasonable to the tender- time, place, etc,

3. any necessary documentation must be tendered

4. seller must provide notice

Once you know the tender obligations, can know if they comply- if tendered ROL will pass under 2-509, if breach occurred tender might shift back under 2-510

2-509

(1)(a) ROL for shipment contracts will pass to buyer once goods are duly tendered, once seller complied with 2-504

(1)(b) destination contracts- goods are duly tendered under 2-503, ROL passes to buyer

(2) passage in “bailee contracts” goods are tended without movement but tendered in the hands of a non-employee agent of seller (third party has goods in warehouse, third party is agent)

If bailee contract, tender occurs on site with 3rd party- goods aren’t shipped, tender and ROL occur when buyer takes receipt of document of title OR agents attorns (attornment agent changes allegiances if agent notifies buyer that they have attorned then ROL has passed)

(3) true no movement contracts- good tendered without movement AND are in the possession of seller, IF true no movement, determine if ROL has passed

1. Is seller a broad merchant, ROL will not pass until buyer TAKE RECIEPT of goods

2. IF NOT BROAD MERCHANT- ROL will pass with proper tender

(4) Safe Harbor default provisions- parties can craft their own risk of loss system, but if they say nothing or its ambiguous then the above apply

2-510 push back goods for x

1. buyer in specific circumstance, circumstance is if buyer has the right to reject then buyer can treat risk of loss as never having left the seller, such as if non-conforming goods

2. protect buyer in the event they rightfully revoked --- before loss occurs if rightfully revoke before loss then risk of loss remains with buyer to the extent of deficiency in buyers insurance coverage, buyer can transfer that % of loss to seller

3. Protect seller- buyer has wrongfully rejected or repudiated, goods conformed and were identified before loss AND risk of loss has not yet passed to the buyer, risk of loss remains with...

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