Chapter 13Sales Law: Terms Formation Performance Title

I. Uniform Commercial Code

The UCC was created to recognize that commercial transactions in the United States are unique in nature and deserving of specialized treatment in the body of law

The UCC has now been adopted in all 50 states, the District of Columbia and the Virgin Islands

In California, the UCC is called the “Uniform Commercial Code,” the “California Commercial Code,” or simply the “Commercial Code”

A. California Commercial Code Divisions

Division 1 General ProvisionsDivision 2 SalesDivision 3 Negotiable InstrumentsDivision 4 Bank Deposits and CollectionsDivision 5 Letter of CreditDivision 6 Bulk SalesDivision 7 Warehouse Receipts, Bills of Lading, and Other

Documents of TitleDivision 8 Investment SecuritiesDivision 9 Secured Transactions; Sales of Accounts,

Contract Rights and Chattel PaperDivision 10 Personal Property LeasesDivision 11 Funds TransfersDivision 13 Effective Date and RepealerDivision 14 Effective Date and Transaction ProvisionsDivision 15 Effective Date and Transaction ProvisionsDivision 16 Effective Date and Transaction Provisions

B. The Purposes of the Commercial Code

The purposes of the Commercial Code are:

1. to simplify, clarify, and modernize the law governing commercial transactions;

2. to permit the continued expansion of commercial practices through custom, usage and agreement of the parties, and

3. to make uniform the law among the various jurisdictions [Com Code § 1103(a)(3)]

II. Terms

A. Transactions

TRANSACTIONS are interpreted broadly enough to include leases, bailments, and gifts. However, the majority of Division 2 provisions apply to contracts for the sale of goods.

B. Goods

GOODS are usually thought of as being movable, tangible personal property

The Commercial Code’s definition for goods is “all things which are movable at the time of identification to the contract for sale” [Com Code § 2105(1)]

Goods v. Non-Goods

Goods:1.1. Specially manufactured Specially manufactured

goodsgoods

2.2. The unborn young of The unborn young of animalsanimals

3.3. Timber to be cutTimber to be cut

4.4. Growing cropsGrowing crops

5.5. MineralsMinerals

Not included as goods:

1. The money in which the price is to be paid;

2. Investment securities;

3. Things in action;

4. Services

5. The sale of real estate/land

C. The Sale

A SALE consists of the passing of title from the seller to the buyer for a price

Present Sale of Goods Future Goods Contract to Sell

III. Formation

A. Good Faith

GOOD FAITH is honestly in fact in the conduct or transaction concerned

Merchants must observe reasonable commercial standards of fair dealing in trade in addition to acting in good faith

The Commercial Code imposes a higher standard upon merchants, due to their greater knowledge, than non-merchants

B. Merchants

A MERCHANT is a person who:

1. deals in goods of the kind or

2. otherwise, by his/her occupation, holds himself/herself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or

3. to whom such knowledge or skill may be attributed by his/her employment of an agent or broker or other intermediary who by his/her occupation holds himself/herself out as having such knowledge or skill [Com Code § 2104(1)]

C. Unconscionability

UNCONSCIONABILITY has generally been recognized to include an absence of meaningful choice on the part of one of the parties, together with contract terms that are unreasonably favorable to the other party

D. Manner of Agreement

Just as a contract can generally be formed by words or conduct, under the Commercial Code “a contract for sale of goods may be made in any manner sufficient to show agreement (MANNER OF AGREEMENT), including conduct by both parties, which recognizes the existence of such a contract” [Com Code § 2201(1)]

E. Open Terms

OPEN TERMS mean that even though one or more terms are left open, a contract for sales does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy [Com Code § 2204(3)]

1. Price2. Quantity3. Performance

F. Firm Offer to a Contractor

Commercial Code Section 2205(b) involves the offer Commercial Code Section 2205(b) involves the offer for a sale of goods to a licensed contractor:for a sale of goods to a licensed contractor:

1.1. Offer may be written or verbalOffer may be written or verbal

2.2. Merchant has actual or imputed knowledge that the contractor will Merchant has actual or imputed knowledge that the contractor will be relying on for his bidbe relying on for his bid

3.3. Offer is irrevocable for 10 days after the awarding of the contract Offer is irrevocable for 10 days after the awarding of the contract to a licensed contractor, but no event for more than 90 daysto a licensed contractor, but no event for more than 90 days

4.4. For offers of $2,500 or more, they must be confirmed in writing by For offers of $2,500 or more, they must be confirmed in writing by the licensed contractor within 48 hours after madethe licensed contractor within 48 hours after made

5.5. Merchant may provide that the offer will be held open for less Merchant may provide that the offer will be held open for less than the time provided for in this code sectionthan the time provided for in this code section

G. Statute of Frauds

According to the Statute of Frauds, a sales contract for less than $500 need NOT be in writing

When the contract is between merchants, a writing When the contract is between merchants, a writing sent by one merchant confirming the contract will bind sent by one merchant confirming the contract will bind the other party to the contract even though he has not the other party to the contract even though he has not signed the writingsigned the writing

If the goods are to be specifically manufactured for the If the goods are to be specifically manufactured for the buyer and are not suitable for other customers of the buyer and are not suitable for other customers of the seller, an oral contract will be enforceable seller, an oral contract will be enforceable [Civil Code § 2201(3)(a)][Civil Code § 2201(3)(a)]

H. Acceptance

Acceptance can be made in “any reasonable manner”

In a sale of goods, the offeree does not need to communicate his acceptance in the same manner in which the offer was communicated

Varying Acceptances

I. Auctions Under Section 2328(2) of the Commercial Code, a

sales by auction is complete when the auctioneer so announces by the fall of the hammer or in an other customary manner. Until then, the bid can be revoked, which, if accomplished, does not revive the previous bid.

With Reserve Auction Without Reserve Auction

Internet auctions, such as on eBay.com, are no different than traditional auctions

IV. Seller’s and Buyer’s Obligations

A. Seller Obligations

1. BASIC OBLIGATIONS - is to deliver conforming goods to the buyer [Com Code § 2301]

CONFORMING GOODS are goods that are in accordance with the obligations under the contract [Com Code § 2106(2)]

A COMMERCIAL UNIT is when commercial usage treats a unit of the good as being a single whole if any division materially impairs its character or value in the market [Com Code § 2105(6)]

2. TENDER refers to the present ability and willingness to perform the exact terms of the contract

3. CURE – allows a seller the right to “cure” the imperfect delivery if time remains for performance to occur

A. Seller Obligations (cont.)

4. TIME - the tender must be made at a reasonable hour and the goods must be kept available for a reasonable time period for the buyer to take possession

[Com Code § 2503(1)(a)]

A. Seller Obligations (cont.)

5. PLACE for deliverya. Non-Moving Goodsb. Moving Goods

Shipment contract Destination contract F.O.B.

a. Shipping Terms

F.O.B. Place of Destination F.A.S. Vessel F.A.S. Vessel at a Named Port C.I.F. C & F Bill of Lading

B. Buyer’s Obligations

1. BASIC OBLIGATION – is to accept and pay in accordance with the contract [Com Code § 2301]

2. INSPECTION – to verify that the goods are conforming, the buyer should inspect them

3. REJECTION OF GOODS – an indication by the buyer that he is unwilling to accept the goods tendered by the seller constitutes a rejection

4. ACCEPTANCE OF GOODS – when the buyer signifies to the seller that the goods are conforming or that the buyer will retain them in spite of the nonconformity, an acceptance has occurred [Com Code § 2606(1)(a)]

5. REVOCATION OF ACCEPTANCE – if a buyer accepts goods under a belief that the seller intends to cure the nonconformity, he has the same rights and duties to the goods as if the buyer has originally rejected them [Com Code § 2608]

V. Assurances

Assurances

When a party reasonably believes that the other party may not perform, he or she may demand, in writing, adequate assurance that the other party will perform according to the contract

VI. Breach

A. Anticipatory Repudiation When a party fails to provide assurances of

performance or otherwise repudiates the contract, the other party has three actions that he may take:

1. a nonbreaching party may give the breaching party a commercially reasonable time in which to tender conforming performance

2. a nonbreaching party can make use of any remedy provided for under sections 2703 or 3822 of the Commercial Code

3. finally, a nonbreaching party may:a. Suspend his performanceb. Identify the goods to the contract, orc. Salvage unfinished goods [Com Code § 2610(a)-(c)]

B. Seller’s Breach

Unless otherwise agreed, under the perfect tender rule, the seller breaches his obligation by not perfectly performing

One exception to this is an INSTALLMENT CONTRACT where the goods are required or authorized for delivery in separate lots that must be independently accepted [Com Code § 2612(1)]

C. Buyer’s Breach

The primary way that a buyer breaches the sales contract is by failing to make the payment as called for under the contract

VII. Remedies for Non-Payment

A. Seller’s Remedies If the buyer is unable to tender cash, the seller is under

no obligation to deliver the goods, and may stop the delivery of any goods already shipped to the buyer

B. Buyer’s Remedies

VIII. Title

A. Identification of Goods

Identification of the goods must take place prior to title passing from the seller to the buyer

[Com Code § 2401(1)]

Where the future goods are animals, identification occurs when the animals are conceived

[Com Code § 2501(1)(c)]

B. Passage of Title

Once the goods are in existence and identified, title may pass from the seller to the buyer[Com Code § 2401(1)]

Determining the time and place of delivery depends on whether the contract is a “shipment” contract or “destination” contract

Shipment contract Destination contract No Movement Required to Deliver Goods

C. Transferring Title A general rule is that a seller transfers no

greater title than what he has

1. Voidable Title

2. Entrustment

D. Document of Title A DOCUMENT OF TITLE is an instrument that

represents ownership of goods

The two most commonly used documents of title are the “bill of lading” and the “warehouse receipt”

The documents may be either negotiable or nonnegotiable

Chapter Summary Uniform Commercial Code

California Commercial Code Purpose of the Commercial Code

Terms Transactions Goods The Sale

Formation Good Faith Merchants Unconscionability Manner of Agreement Open Terms Firm Offer to a Contractor Statute of Frauds Acceptance Auctions

Seller’s and Buyer’s Obligations

AssurancesAssurances

Breach Anticipatory Breach Seller’s Breach Buyer’s Breach

Remedies for Nonpayment

Title Identification of Goods Passage of Title Transferring Title Documents of Title