ADVANCED SALES - Amazon Simple Storage Services3.amazonaws.com/mythm-vids-prod/MEE.Geis.Sales.pdf · The sale of goods is governed by Article 2 of the Uniform Commercial Code

ADVANCED SALES PROFESSOR GEORGE S. GEIS

UNIVERSITY OF VIRGINIA SCHOOL OF LAW

CHAPTER 1: INTRODUCTION

A. UCC Article 2

The sale of goods is governed by Article 2 of the Uniform Commercial Code.

B. My Goal

• Get sales law into your DNA • This means two things:

o You know the basic structure of the law and are comfortable going with a “common sense” answer when it is correct.

o You have a “DNA twitch” when a rule is triggered that defies common sense.

Don’t fall for the tricks!

C. Three Basic Questions

• Has an enforceable contract been ____________________________________? • Has the contract been ___________________________________________________ (or is the

performance __________________________________)? • What are the __________________________________ for ____________________________?

D. Gateway Question – How do you know if you are dealing with a sales question?

1. Two Universes

The law of contracts and sales spans two ______________________________________________________:

a. Universe One

The _________________________________________________ We are in this universe whenever a contract deals with real estate or

__________________________________.

Example 1: You hire me to paint your house. Is this contract governed by the UCC? _______________________________________________________

b. Universe Two

Article 2 of the _________________________________ We are in this universe whenever a contract deals with ________________________.

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Article 2 of the UCC applies to all parties who enter into a goods contract, not just merchants.

A merchant is someone who ______________________________________________ in the type of goods at issue.

• In other words, a ______________________________________________________

Example 2: You agree to buy 5 gallons of paint from Lowe's. Is this contract governed by the UCC? _____________________________

Example 3: Same facts as Example 2. Is Lowe's a merchant? _____________

Example 4: You contract with Lowe's to buy an old delivery truck that they no longer need. Is Lowe's a merchant? __________________________________________________________________________________________________________________________________

Always start any contracts question by asking which universe we are in.

2. A Few Tricks – “Close Calls”

Example 5: You contract to sell your home for $100,000. Is this governed by the UCC? _________________________, real estate is not a good.

Example 6: You contract to sell your ice fishing hut for $100,000. Is this governed by the UCC? ___________________, if the structure will be severed from the land by the seller.

Example 7: You contract to sell 100 trees for timber and 100 tons of potatoes growing underground. Are these deals governed by the UCC? _________________, and it doesn’t matter who will sever the timber/crops from the land.

Example 8: Nokia contracts to sell a patent to Apple. Is this governed by the UCC? ____________, intellectual property and other intangible assets are not goods.

Example 9: You contract to buy a share of Nokia stock. Is this governed by the UCC? __________________________________________________, the sale of investment securities is governed by Article 8, not Article 2, and outside our scope here.

3. Mixed Contracts

Contracts that have elements of both _________________________________________ and _____________________________

Example 10: I agree to paint your house for $1,000 and I will supply the paint. Is our contract governed by the UCC? ____________________________

Advanced Sales | © 2016 Themis Bar Review, LLC | 3

a. Rule #1: The “all or nothing” rule

Mixed contracts must fall into one universe or the other.

Limited exception: If an agreement is divided into two mini-contracts, called a ____________________________________________ contract, then each of those mini-contracts can be in a separate universe.

Example 11: I agree to paint your home for $950. As part of the deal, I promise to leave an extra 3 gallons of paint for an additional $50. Is the latter part of this deal governed by the UCC? _______________________

b. Rule #2: The “predominant purpose” rule

In order to figure out which universe you are in for a mixed contract, look at the main reason for entering into the contract.

Ask: Does a good or service play a bigger role in the overall nature of the contract?

Example 12: You commission the famous artist Andy Warhol to paint your portrait for $1 million. Does the UCC apply? ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Example 13: You commission my mother-in-law, Mickey, to paint your portrait for $10. Does the UCC apply? _________________________________________________________________

4. Revised Article 2 of the UCC

We DO NOT care about Revised Article 2 – it has not been enacted as the law in any state.

CHAPTER 2: FORMATION OF CONTRACTS: OFFER, ACCEPTANCE, COUNTEROFFER, UCC 2-207, AND AUCTION CONTRACTS

A. Formation of Contracts

Four main topics:

• Agreement • ______________________________________________________ • ______________________________________ to contract formation • Statute of Frauds

Mnemonic: “All Contracts Don’t Stink.” (ACDS)


B. Offer

1. How Specific Must an Offer Be?

o At common law, all ____________________________________________________ must be covered in the agreement.

Typically means: parties, subject, price, and quantity

o The UCC is ________________________________________________.

The law is more willing to “plug the gaps” with reasonable terms and find a contract even though the agreement leaves out some key terms.

Generally, you only need to identify the _____________________________________, the ___________________________________________________, and the ___________________________________ under the UCC.

Important: The _____________________________ DOES NOT need to be stated.

Example 14: Bob offers to buy 500 windshield wiper blades next week from Sue for $5 each. Is it a valid offer? ____________________________.

Example 15: Bob offers to buy 500 windshield wiper blades next week from Sue for a “fair price.” Is this a valid offer? _______________________________________________________________. What is the price? ________________________________________________.

Example 16: Bob offers to buy windshield wiper blades from Sue for a “fair price.” Is this a valid offer? ________________________________________________________________.

Example 17: Sue offers to sell Bob “all the wiper blades that I make this week.” Is this a valid offer? _______________________________________________.

Both output and requirement contracts are specific enough under the UCC, even though they don’t state an exact quantity term—they provide a formula for calculation.

2. Irrevocable Offers and the Merchant’s Firm Offer

Example 18: I offer to sell you my car for $5,000, and I promise, promise, promise not to revoke this offer for a week. Five minutes later, I say, “Never mind…I revoke the offer.” Can you still accept? _____________________.

o A ________________________________________ in the UCC universe can make a ______________________________________ to buy or sell goods.

Binding free option

o Requirements for a firm offer:

_______________________________________;


Contain an _____________________________________________________ not to revoke the offer; and

_________________________ by the offeror.

o A firm offer lasts for either as long as stated in the firm offer or for a reasonable time period not to exceed ____________________________.

Example 19: I offer to sell you my car for $5,000, and I promise via a signed writing not to revoke this offer for a week. Five minutes later, I say, “Never mind…I revoke the offer.” Can you still accept? ____________________________________________________________.

Example 20: Cars.com offers to sell you a car for $5,000, and it promises via a signed writing not to revoke this offer for a week. Five minutes later, it says, “Never mind…I revoke the offer.” Can you still accept? ________________________________________________________________.

Example 21: Cars.com offers to sell you a car for $5,000. Five minutes later, it says, “Never mind…I revoke the offer.” Can you still accept? _________________________________________________________________________________________________________________________________.

Example 22: Cars.com offers to sell you a car for $5,000, and it promises via a signed writing not to revoke this offer for a week. Ten days later, you write back to accept the offer. Can you still accept? _________________________________________________________________________________________________________________________________.

C. Acceptance

• Remember, the offeror is ____________________________________ of the offer.

o The offeree must accept the offer according to the rules of the offeror.

• If nothing is specified in the offer, the UCC permits acceptance to take place by _______________________________________________________ or by ______________________________________ (typically the shipping of the goods).

Example 23: Bob sends a letter to Sue, reading “please ship me 500 windshield wiper blades next week for $5 each.” Sue mails back a letter: “I accept.” Is there a contract? ________________________________________________________________.

Example 24: Bob sends a letter to Sue, reading “please ship me 500 windshield wiper blades next week for $5 each.” Sue ships 500 wiper blades the next day. Is there a contract? _______________________.

• What if the seller tries to accept by shipping the wrong goods?


o Important: The UCC generally treats this as an _____________________________________ plus a _______________________________.

Example 25: Bob sends a letter to Sue, reading, “please ship me 500 Bosch windshield wiper blades next week for $5 each.” Sue ships 500 Sloshed wiper blades the next day. Is there a contract? ________________________________________________________________.

o Exception: If the seller seasonably notifies the buyer that the wrong goods are being shipped as an ________________________________________________, then no acceptance occurs and you have a __________________________________________.

Example 26: Bob sends a letter to Sue, reading “please ship me 500 Bosch windshield wiper blades next week for $5 each.” Sue ships 500 Sloshed wiper blades the next day, along with a short note: “I don’t have any Bosch blades; how about these Sloshed ones?” Is there a contract? _________________________________________________________________________________________________________________________________.

D. Counteroffer and UCC 2-207

1. Common Law

o The common law universe uses the ______________________________________________ rule.

o The terms in the acceptance must match the terms of the offer _______________________________________, or it is not an acceptance; it is a __________________________________________.

2. UCC 2-207

o The UCC is more forgiving for acceptances that do no match the terms of the offer exactly. o Replaces mirror image rule with ___________________________________

Main intuition: A purported acceptance that does not match the terms of the offer exactly can still count as a legal acceptance in many circumstances.

Just because there is a contract, however, DO NOT assume that all of the terms in the purported acceptance are going to govern.

It does not matter whether the parties are _____________________________________ for 2-207(1).

o Just because a slightly different acceptance makes a contract, it does not mean that that the new term in the acceptance will control. It might control but must look at 2-207(2).

The new term will only come in if the following are all true:

• Both parties are _______________________________________________;


• The new term does not _________________________________________________ the deal;

• The initial offer did not _________________________________________________ acceptance to its terms; and

• The offeror does not ______________________________ within a reasonable time to the new term.

Very difficult for these new terms to govern the contractual relationship.

o What happens if there is not a real contract but the parties still act as if there is an agreement?

In that case, 2-207(3) gives parties a _____________________________: All the terms are going to drop out except for those the parties have agreed to in writing. The court will look to the “gap-filling” provisions of the UCC for the other terms.

E. Auction Contracts

• Each individual bid should be understood as ______________________________________. • Acceptance occurs with the

_________________________________________________________. • What happens if someone bids exactly when the hammer falls?

o Under the UCC, an auctioneer has discretion to either (1) _______________________________________________________________ or (2) _______________________________________________________________________.

• ________________________________ auction: The seller cannot __________________________________________________ after a bid has been received.

• Can bidders retract their offers? ____________________, as long as the auction is not finished.

o This DOES NOT revive the prior bid.

CHAPTER 3: CONSIDERATION, DEFENSES TO CONTRACT FORMATION, AND THE STATUTE OF FRAUDS

A. Consideration

1. In General

o Nothing special here for a sales contract o Look for bargained-for consideration, reliance, or quasi contract.

2. Contract Modification and the Preexisting Duty Rule

o The UCC ____________________________ the preexisting duty rule. o Ask if the modification has been made in _________________________________________.


If so, it is binding even without ______________________________________________________.

Example 27: Mickey contracts with Pabst to buy her weekly keg of beer for $75. Later in the week, Pabst calls back to say there is a worker shortage that week, and it can’t get her the beer unless she pays $100 so Pabst can outsource delivery. Mickey says, “OK charge what you must, I need my beer.” Is the price modification binding? ________________________________________________________________.

Example 28: Same facts as Example 27 but Pabst knows that Mickey will do anything for her beer. On Friday morning, Pabst calls to say, “You better pay us $1,000 or we won’t deliver your keg.” Mickey says, “OK charge what you must.” Is the price modification binding? ________________________________________________________________.

B. Defenses to Contract Formation

1. Seven Defenses

1. ___________________________________________________________

2. Incapacity

3. _______________________________________

4. _________________________________, Misrepresentation, and Nondisclosure

5. Duress

6. _____________________________________________

7. Unconscionability

2. Unconscionability

o The UCC states a contract or term is unconscionable when no ______________________________________________________ in the position of the party would have agreed to it.

o Two parts:

_____________________________________ unconscionability

• Fundamental flaw in the way the contract has been negotiated • Look for a hidden term or an absence of

______________________________________________________.

________________________________________________ unconscionability

• Is the contract/term a “rip-off”?


Note 1: Some jurisdictions require both procedural and substantive unconscionability before a deal will be struck down; some only require one or the other.

C. Statute of Frauds (SOF)

1. In General

o It is a barrier that some contracts must meet in order to become legally binding contracts.

Exam Tip 1: The Bar Examiners love to test on the Statute of Frauds.

o The goal of the SOF is to prevent false assertions about a contract that was never really created.

Example 29: I walk up to you one day and say, “I’m so glad that you agreed to sell me your car for just $1,000.” You stare at me puzzled and reply, “Who are you? We’ve never met.” I laugh and say, “See you in court.” Will I win the lawsuit? _________________________________________________________________________________________________________________________________.

o Always ask two questions:

1. Does the SOF apply to this transaction?

2. If so, has the SOF been _____________________________________________?

o Typically, the SOF requires a ____________________________________ signed by the ______________________________________, or some performance made on the purported deal.

2. Is the Contract in “SOF World”?

The UCC will put parties in “SOF World” for goods contract with a price of ____________________ or more.

Example 30: Mickey buys beer on credit from Pabst, promising to pay $499 at the end of the month for her 5 kegs. Pabst sues her at the end of the month for failure to pay. Are we in SOF world? ________________________________________________________________. If the contract was for $500 exactly, are we in SOF world? _____________________.

3. Has the SOF been Satisfied?

o Two ways to satisfy the SOF: (1) by _______________________________________ or (2) by ___________________________________________.

o A _________________________________________________ will satisfy the SOF but the requirements differ from common law.


No need to mention the _____________________________________ Must mention the ________________________________________ of the goods sold

• What if you make a mistake and list the wrong quantity?

o Contract is only enforceable under the SOF for the quantity mentioned in the signed writing.

Example 31: Mickey verbally contracts with Pabst to buy 100 kegs of beer for $75 each. Later, Pabst sends her a signed confirmation order stating that the parties agree to contract for 50 kegs of beer (no price is listed). Even later, Pabst asserts a SOF defense and refuses to sell Mickey any beer. Can Mickey satisfy the SOF? ________________________________________________________________.

o _____________________________________________________ on a goods contract will satisfy the SOF, but only for the quantity that has been ____________________________________ and _________________________________.

Example 32: Same facts as Example 31 except there is no confirming memo. Mickey changes her mind and decides to order some kegs of Fat Tire beer. Later, Pabst delivers 25 kegs to Mickey, and she eagerly stores the kegs in her basement. Can Pabst satisfy the SOF? _________________________________________________________________________________________________________________________________. Is Mickey contractually obligated to buy the other 75 kegs? ________________________________________________________________.

o Custom-made or specially manufactured goods

Exempted from the SOF A maker can satisfy the SOF as soon as it

__________________________________________________________ to perform the manufacturing of the goods.

Example 33: I contract verbally with Brooks Brothers to buy 100 white dress shirts with a GSG monogrammed on the pocket for $10,000. Brooks Brothers sends me the shirts but I change my mind and send the shirts back. Can I assert a SOF defense if Brooks Brothers sues for the $10,000? ________________________________________________________________.

o A _____________________________________________________, such as a statement in a pleading or during testimony, satisfies the SOF under the UCC.

o The failure to object to a confirming memo within _________________________ will satisfy the SOF, but only if both parties are ___________________________________.


Example 34: Mickey verbally contracts with Pabst to buy 100 kegs of beer for $7,500. Later, Pabst sends her a signed confirmation memo with all material terms. Mickey has changed her mind, crumples up the memo and throws it in the corner. Ten days later, does Pabst satisfy the SOF? ________________________________________________________________.

Example 35: Same facts as Example 34 except the buyer is now Whole Foods. Ten days later, after the memo arrives at Whole Foods, does Pabst satisfy the SOF? ______________________. Even though there is no signed writing by Whole Foods? ________________________.

4. SOF and Modification

o Suppose you have a deal that is in SOF world and the SOF requirements are met. Now the parties want to modify that deal.

o Must the modification also satisfy the SOF requirements? ________________________________________________________.

Ask whether the deal with the alleged modification would be in SOF world.

• If so, you ______________________________________ the SOF requirements. • If not, there is no SOF requirement, even though the initial deal was in the SOF

world.

Example 36: Mickey contracts with Pabst to buy 5 kegs of beer for $500. Are we in SOF world? _____________________. Pabst sends her a signed confirmation memo with all material terms. Mickey alleges that they later modified the deal to 3 kegs only for $300. Does she need to supply written proof of this alleged modification? _____________________

CHAPTER 4: PERFORMANCE OF THE CONTRACT: PAROL EVIDENCE RULE AND WARRANTIES

A. Performance of the Contract

Five main topics:

• ________________________________________________________________ • ________________________________________________ • Seller’s performance obligations • Buyer’s performance obligations • ___________________________________ of performance obligations


B. Parol Evidence Rule (PER)

1. In General

o The first step in deciding whether a party has performed under the contract is figuring out what the agreement entails.

o Rationale for PER: If the parties have reduced their agreement to a comprehensive writing, then earlier statements or writings about that transaction are not going to be part of that agreement.

The PER will bar those earlier pieces of evidence from coming in.

o If you see a written contract that the court finds is the final agreement and earlier verbal or written statements about the same deal, think PER.

o Does the PER apply to later written or verbal statements about the deal? ________________________________________________________________.

o Does the PER apply to earlier written documents? __________________.

2. Integrated Writing

o Gateway inquiry: Have the parties created an integrated writing?

This is a comprehensive writing – full and final expression of the parties’ agreement.

o A court may decide that the writing is completely integrated, partially integrated, or not integrated.

Complete integration – the contract expresses ______________________________ of the agreement.

Partial integration – there is a written and final writing, but some terms may not have been included.

o Distinguishing between an agreement that is not integrated from one that is fully or partially integrated:

One powerful piece of evidence is whether that writing contains a _________________________________________________.

The presumption under the UCC is that a writing is, at most, only a ___________________________________ integration, unless the parties would have “certainly” included the disputed term in the writing.

3. PER vs. SOF

o If the question does not have a signed writing, think _________________________. o If the question does have a signed writing, along with an earlier discussion of the deal, think

_______________________.


C. Warranties

1. In General

A warranty is a ________________________________ about a term in the contract that ___________________________________________________ to the party making the promise.

Example 37: I agree to sell you my Jeep for $5,000 but we don’t discuss any other terms. If the wheel falls off as you drive away, can you get out of the deal? _______________________________________________________________________________________________________________________________. What if I include a warranty that the Jeep will run fine for the next 1,000 miles? ______________________________.

2. UCC – Four Warranty Issues

a. Warranty of _____________________________

All sellers warrant that title is ______________________________ and that the transfer is ______________________________________________.

Example 38: I contract with Mickey to buy an antique chair. It turns out that Mickey stole the chair last weekend. Has she breached the contract? _________________________________________________________________________________________________________________________________.

b. Express Warranty

A promise that affirms or describes the good that is a part of the __________________________________________________________ is an express warranty, unless it is merely the seller’s ____________________________________.

The use of a ______________________________ or ____________________________ creates an express warranty that the goods sold will be like the sample.

Example 39: You walk into an AutoZone store to buy some hubcaps. The clerk shows you some floor samples that are bright gold and says, “These are our best model.” You buy that model of hubcaps, but find they are an ugly yellow when you pull them out of the box. AutoZone has breached an ______________________________________________________.

c. Implied Warranty of Merchantability

Only triggered when the seller is a ________________________________, dealing in the goods at issue

The merchant makes an implied warranty, unless disclaimed, that the goods are going to be fit for ________________________________________________________________ at the time of the __________________________.


Example 40: You walk into an AutoZone store to buy some polish for your hubcaps. The clerk waves you over to aisle 12 where you pick up a can of hubcap polish. When you spray it on your hubcaps, they turn an ugly yellow color. AutoZone has breached an ________________________________________________________________.

Example 41: You walk into an AutoZone store and the clerk tells you that their delivery van is for sale. You buy it, but it breaks down right away. Has AutoZone breached the implied warranty of merchantability? ________________________________________________________________.

Can a merchant disclaim this warranty? __________________________________________________________.

• Look for very ______________________________________ language.

d. Implied Warranty of Fitness for a Particular Purpose

Triggered whenever the buyer relies on the seller’s __________________________________ to select a particular good that is going to be used for a _____________________________________________

The seller makes an implied warranty, unless disclaimed, that the goods will satisfy the special purpose.

Example 42: Same facts as Example 40 except you can’t decide between three different types of hubcap polish. You ask the clerk which one is right for your aluminum alloy hubcaps, and he picks up a can and says, “THIS is the brand you want.” When you spray it on your hubcaps, they turn an ugly yellow color. AutoZone has breached an ________________________________________________________________.

Can a non-merchant extend this warranty by implication? _______________________________________________________________________________________________________________________________________________.

Can the warranty be disclaimed? _______________________________________________________________________________________________________________________________________________.

CHAPTER 5: SELLER’S PERFORMANCE OBLIGATIONS, RISK OF LOSS, AND INSURABLE INTEREST

A. Perfect Tender

• The UCC requires ________________________________________________________. • Two main obligations: _____________________________________________ and

________________________________________________


1. Perfect Goods

Example 43: Mickey contracts for 500 pints of Fireball whiskey for $5,000. Fireball only sends Mickey 495 pints. Is this perfect tender? _______________. Mickey can reject all of the whiskey.

o In order to properly reject the goods, a buyer must:

_____________________________ the seller of the rejection within a reasonable time; Notify the seller of the _________________________________________________; and ___________________ the goods for a reasonable time so the seller can get them back.

o If the goods are rightfully rejected and the buyer has paid some or all of the price, then she will have a ________________________________________________ in the rejected goods.

o What if the seller fails to give reasonable instructions as to what the buyer should be doing once the bad goods have been delivered? Buyer has three options:

Continue to store the goods on the seller’s account; __________________________________________________________; or _____________________________ the goods for the seller.

o A buyer may _________________________________________________________ of the goods.

Goods seem OK at delivery; defect is difficult to detect. Buyer discovers defect within a _____________________________________________.

Example 44: Same facts as Example 43 but Fireball delivers all 500 pints of the whiskey, and Mickey stores the bottles in her cellar. A month later, she cracks a bottle to find it is cola (not whiskey). She can revoke her acceptance and send the bottles back.

Example 45: Same facts as Example 44, except Mickey decides to use 50 bottles of the cola as a mixer. Can she still revoke her acceptance? _________________________________________________________________________________________________________________________________.

o A buyer must notify the seller of any breach within a reasonable time or be ____________________________ from recovering any remedy.

o Seller’s right __________________________________

If a seller fails to tender perfect goods and there is time left on the contract or the seller had reasonable grounds to believe that the buyer would accept, then the buyer must give the seller __________________________________________________________.

Example 46: Same facts as Example 44. When Mickey notifies Fireball of the “cola problem,” Fireball apologizes and sends over 500 bottles of whiskey before the contract deadline. Does Mickey have to pay? _______________________.


Example 47: Same facts as Example 44 but Fireball delivered 500 bottles of scotch on the last day of the contract instead of whiskey, figuring this would be good enough for Mickey. If Mickey rejects the scotch, can Fireball still cure? _________________________________________________________________________________________________________________________________.

2. Perfect Delivery

o The default method of delivery is ___________________________________________ of the goods.

o The UCC allows for ________________________________________________________:

Agreement authorizes or requires delivery in separate lots The buyer can reject a specific delivery that is not perfect only when there is

______________________________________________________ in that installment that cannot be cured.

Example 48: Same facts as Example 44 except Mickey contracts for 1 pint of Fireball whiskey to be delivered each day at 5:00 pm for 500 days. Delivery #345 comes at 5:15pm. Can Mickey reject that delivery? ________________________________________________________________.

o Method of tender/delivery in a goods contract:

Seller’s place of business - If the goods are tendered at the seller’s place of business, then the seller just needs to give the goods to the buyer.

Shipment contract - The seller must take three actions (this is the presumption in the UCC):

• Get the goods to a _________________________________________________; • Make arrangements for delivery; and • ____________________________ the buyer.

Destination contract - Usually identified by “F.O.B. buyer’s business” - the seller must get the goods to the buyer’s business and notify the buyer.

Example 49: I contract with Brooks Brothers to buy “100 white dress shirts for $10,000 F.O.B. Charlottesville.” Has Brooks satisfied its delivery obligation when it gives the shirts to FedEx and sends me an email saying they are coming? ________________________________________________________________.

B. Risk of Loss

Exam Tip 2: Bar Examiners like to test on this issue. This will arise when there is a goods contract followed by damage or destruction of the goods before the buyer receives them.

• First, check whether the parties have already dealt with the risk of loss in their contract.


o If so, their agreement will control. o If not, then determine whether either party has ______________________________.

If so, the __________________________________________________ bears the risk of loss.

Is this true even though the breach is unrelated to the delivery damages? ______________.

• If no breach and the goods are being shipped, then ask what type of delivery contract is present.

o Shipment contract – risk of loss during delivery rests with ______________________________.

o Delivery (destination) contract – risk of loss during delivery rests with _________________________________.

• If none of the above rules apply, ask if the seller is a __________________________________.

o If so, the risk of loss stays with the seller until the buyer _____________________________________________.

o If not, the risk of loss moves over to the buyer once the seller ________________________________________________.

Example 50: I contract with Brooks Brothers to buy “100 white dress shirts for $10,000.” Brooks calls to tell me that the shirts are ready, and I can pick them up at the store when I like. That night, the store burns down, and my shirts are destroyed. Do I have to pay for them? ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________.

Example 51: I contract with the law school bookstore to sell 10 used copies of my book for $10 each. I tell the bookstore manager that I’ve left the books outside my office, so she can get them whenever. That night, a pack of law review editors steal and burn all the books. Does the bookstore have to pay for them? _____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________.


C. Insurable Interest

• A seller has an insurable interest as long as she has __________________________ or a ______________________________________________.

• A buyer has an insurable interest when the goods are _________________________________________________________.

Example 52: I contract to sell you my Jeep for $5,000. Do you have an insurable interest? ________________________________________________________________.

Example 53: I contract to sell you all of the potatoes that I harvest in my garden for $500. Do you have an insurable interest? ________________________________________________________________.

CHAPTER 6: BUYER’S PERFORMANCE OBLIGATIONS, EXCUSES, AND ANTICIPATORY REPUDIATION

A. Buyer’s Performance Obligations

• Payment is due at the ___________________________________________ at which the buyer is to receive the goods.

• The tender of payment is a ___________________________________ to the seller’s duty to complete its obligation.

• A seller may ship under _______________________________________ - it is entitled to hold the goods until the buyer pays.

• Tender of payment may be made in any reasonable manner but a seller can demand ________________________________________ if she gives any extension of time necessary to procure the cash.

• For installment sales, payment may be made or demanded with each installment. • The buyer enjoys a right to _______________________________________________ prior to

payment.

o Look for a contract that requires payment on delivery (“COD”) – buyer does not have the right to inspect.

• ___________________________________ pays for any expenses associated with buyer inspection, unless the goods do not conform and are rejected.

B. Excuses

1. Impracticability

o Can only be performed with great difficulty o Common fact patterns:

Performance becomes ________________________________ after contract is formed Failure of a particular ______________________________________________________


BUT, something that just makes the performance more __________________________________ than was anticipated will not normally excuse performance.

• Look for something that hinders the _________________________________________________ at all, not just the cost of performance.

o ___________________________ inability to perform due to supply deficiency ___________________________ fully excuse the seller from performing.

Seller must allocate the available supply among customers in a fair and reasonable manner.

o Method of delivery: If the agreed-upon method of delivery becomes ____________________________________________________________, without the fault of either party, then any commercially reasonable method of delivery must be tendered and accepted.

2. Destruction of Identified Goods

o First, ask whether the risk of loss has passed to the ________________________________. o Second, ask whether there has been ____________________________________________.

If so, the contract is _______________________________. Neither side must perform or pay.

o If the goods are damaged but not destroyed, the contract is avoided unless the buyer wishes to take the damaged goods at a ________________________________________.

If so, buyer has no claim against seller.

C. Remedies

1. Three Issues

o Anticipatory Repudiation o Money Damages o Other remedies (specific performance, liquidated damages, etc.)

2. Anticipatory Repudiation

o Issue: What are your remedy options when the other side says they are not going to perform on the contract (repudiates) before performance is due? Do you still have to perform and see if they really do breach?

Example 54: I agree on Jan. 1 to buy 100 white shirts from Crooks Brothers for $1,000. Shortly thereafter, I let it slip that I’m broke and never going to pay this money. Does Crooks have to keep making the shirts?


_________________________________________________________________________________________________________________________________.

o The non-breaching party has two options:

1. Treat the repudiation as a breach and sue immediately for damages; or

• Note: If you have completed the entire performance and are only waiting for the other side to pay you and the time of the contract has not come due, you cannot sue early.

2. Ignore the repudiation, demand performance, and see what happens.

o A party can ___________________________ its repudiation as long as the other side has not commenced a lawsuit for breach or acted in __________________________________ on that repudiation by changing its position.

o What if you are unsure if the other side has repudiated?

UCC – reasonable grounds for _________________________________________ about the other side’s performance allows a party to demand an _______________________________________________________________________.

• If the questionable party fails to respond within a __________________________________________, the other party can treat it as a repudiation.

Example 55: I agree on Jan. 1 to buy 100 white shirts from Crooks Brothers for $1000. Half the money is due on Feb. 1; the balance and the shirts are due Mar. 1. In the middle of January, I see a news exposé about financial trouble at Crooks Brothers and they fail to return my phone calls. I send a letter demanding adequate assurance of performance on Jan. 15. If they say, “Don’t worry, we’re almost done with the shirts,” must I make the $500 Feb. 1 payment? _______________________. What if Crooks Brothers does not respond? _______________________________________________________________.

CHAPTER 7: EXPECTATION DAMAGES

A. In General

• Normal way to calculate damages • Goal: Put the party that has been breached against in the exact same economic position they

would be in if the contract ____________________________________________________ as promised.

• UCC universe – work through this basic formula to determine any expectation damages question.


Example 56: Buyer breach. Mickey contracts with Pabst to buy a keg of beer for $100. Mickey repudiates the contract, and Pabst sells the keg to a liquor store for $80. What are Pabst’s expectation damages? ___________________.

Example 57: Same facts as Example 56 but no one else wants to buy this beer and Pabst cannot resell the keg at any price. What are Pabst’s expectation damages? __________________.

Example 58: Buyer refusal to pay. Mickey contracts with Pabst to buy a keg of beer for $100. Mickey gets the keg but breaches the contract by refusing to pay. The current price for a keg of Pabst has risen to $110. What are Pabst’s expectation damages? ________________________.

Example 59: Seller breach. Mickey contracts with Pabst to buy a keg of beer for $100. Pabst fails to deliver the keg, and Mickey has to buy her keg from Blatz for $120. What are Mickey’s expectation damages? _________________. When Pabst refuses to deliver, can Mickey buy a keg of Utopia Beer for $25,000 and sue Pabst for $24,900? ________________________________________________________________.

Example 60: Seller breach. Mickey contracts with Pabst to buy a keg of beer for $100 (paid up front). When Pabst delivers the keg, it is only half full but Mickey is desperate to have her beer and keeps the half keg. It can be shown that a half keg of Pabst costs $60 at the corner liquor store. What are Mickey’s expectation damages? ________________________.

Example 61: Same facts as Example 60. Can Mickey send the keg back instead? ________________________________________________________________.

B. Limitations on Expectation Damages

Three major limits on the calculation of expectation damages:

1. Expectation damages

Must be proven with _____________________________________________________

o Common fact patterns involve brand new or unproven business ventures which have difficulty proving what their lost profits would be.

2. Unforeseeable consequential damages

Are ________________________________________________ unless the breaching party had some reason to know about these damages

o Distinguish two types of damages:


___________________________________ damages are the types of losses almost anyone would suffer if there was a breach.

• Include _____________________________________ damages, such as the cost of storing rejected goods, finding a new buyer, or finding a replacement vendor.

__________________________________________ damages are losses that are unique or special to this plaintiff.

• Only recoverable if reasonably foreseeable or if the non-breaching party notified the other party at the time of contract about the special damages if a breach was to occur.

Example 62: I hire FedEx to deliver Super Bowl tickets to a buyer on eBay for $20. FedEx refuses to honor the contract, and I have to pay UPS $50 for rapid delivery to get the tickets there in time. I also use up $5 in gas driving over to UPS. What are my expectation damages against FedEx? _______________________________________________________________

Example 63: Same facts as Example 62 except I cannot get another carrier to deliver the tickets in time and as a result the buyer doesn’t pay me the $2,000 ticket price. Since I bought the tickets for $200, can I sue FedEx for my lost profits of $1,800? _______________________________________________________________.

Example 64: Same facts as Example 63 except I also provide FedEx with the exact details of my transaction. Can I now recover my lost profits? _________________________________.

o Consequential damages can be ____________________________________ or ________________________________ entirely unless this would be __________________________________________.

Limiting consequential damages for personal injury is _____________________________________ unconscionable.

Limiting consequential damages for commercial loss is ____________________.

3. The Mitigation Principle

Must take reasonable steps to mitigate damages

C. A Special Problem Involving Expectation Damages

_______________________________________________ profits

• Arises when the paying party breaches • The selling party needs to mitigate against that breach by selling the goods to another.


• If the seller is a __________________________________ who is in the business of selling this type of product all the time and they have lots of the product available, then if they take the good from the breach and sell it to someone else, it is not fair to treat that resale as a mitigation because they would have tried to make that incremental sale anyway.

o The lost volume profits rule states that the seller should be awarded the full lost volume profits from the first sale and not treat that second (incremental) sale as mitigation.

Example 65: Outrigger contracts to sell Mickey a speedboat for $15,000 which cost Outrigger $10,000 to buy from the manufacturer. The following week Mickey repudiates the sale. The very next day, Tronald Dump walks in to buy the same boat for $15,000. Mickey argues that Outrigger’s damages are zero because it fully mitigated her breach with the sale to Dump. Is she right? _________________________________________________________________________________________________________________________________. If Outrigger does get LVP, how should these be calculated? _______________________________________________________________.

CHAPTER 8: OTHER REMEDIES, MISCELLANEOUS, AND FINAL REVIEW

A. Other Remedies

• ________________________________________ damages - OK as long as the amount is not a _________________________________ because it is unreasonably large

• A buyer may request _____________________________________________________ if the goods are unique or in other proper circumstances.

• ________________________________________ - remedy where the buyer can recover specifically identified goods when she cannot cover a breach by the seller after making ______________________________________________________

Example 66: Mickey contracts for 500 pints of Fireball whiskey for $5,000. The whiskey is specifically identified from a special month of production. Fireball breaches and Mickey cannot locate similar whiskey elsewhere. Can Mickey get her whiskey? ________________________________________________________________.

o A buyer can also assert replevin where partial payment has been made and the seller goes insolvent within _____________________________ of the payment.

Example 67: Mickey contracts for 500 pints of Fireball whiskey for $5,000 with $1,000 down. The whiskey is specifically identified from a special month of production. Fireball becomes insolvent one week later. Can Mickey get her whiskey? __________________. Does she have to pay the other $4,000? _________________________.


• Right of ___________________________________________ - equitable right of an unpaid seller to reclaim the goods when the buyer goes insolvent

o Requirements:

Buyer is insolvent at the ___________________________________________________; The seller must demand return of the goods within _________________________ of

receipt, or within a _____________________________________________ if the buyer misrepresented his solvency to the seller; and

The buyer must still have the goods.

Example 68: Mickey is broke, but she contracts for 500 pints of Fireball whiskey for $5,000. Fireball sends all 500 pints but learns of her financial situation and asks for the whiskey back five days later. Must Mickey return the whiskey? __________________.

• Goods in transit - The seller may also stop goods that are in transit if it learns that the buyer is insolvent or if the buyer fails to make a payment that is due.

o The goods may not be stopped once the buyer (or its bailee) receives the goods.

B. Miscellaneous

• The UCC governs whether a buyer or seller can sue a third party for damage to the contract goods.

o The seller can sue if she retains _______________________________ or has a ______________________________________________________.

o The buyer can sue if the goods are specifically identified.

• Statute of limitations is normally ______________________________ after the cause of action occurs.

o This can be modified down by the contract, but not to less than ______________________. o It cannot be increased.

• Third-party rights - look for problems relating to title:

o A buyer who obtains title unlawfully possesses a ___________________________________ title.

A person with voidable title can transfer good title to a ____________________________________________ for value.

This is true even when:

• The seller was deceived by the buyer’s identity; • The buyer’s check bounced; and • Delivery was procured through fraud.


o Title cannot be obtained by _______________________________.

Even a good-faith purchase by a subsequent buyer cannot normally cut off rights from the true owner if there has been theft.

There are two exceptions:

• The buyer has made _____________________________________ to the goods; or • The true owner indicates, by words or conduct, that the thief had good title.

C. Final Review

1. WHICH UNIVERSE? COMMON LAW OR UCC ARTICLE 2?

2. THE BIG THREE QUESTIONS IN CONTRACT LAW

a. Has an enforceable contract been formed? [All Contracts Don’t Stink]

b. Has the contract been performed? [PER, warranties, seller’s performance, buyer’s performance, excuse]

c. What are the remedies for breach? [Anticipatory repudiation, $$$, specific performance]

GOOD LUCK ON THE EXAM!!!

[END OF HANDOUT]


Documents

ADVANCED SALES - Amazon Simple Storage Services3.amazonaws.com/mythm-vids-prod/MEE.Geis.Sales.pdf · The sale of goods is governed by Article 2 of the Uniform Commercial Code