Student Guide LAW/421 Version 1

Week Four Student Guide

This week of the course begins the study of components of the Uniform Commercial Code (UCC) as part of the business law curriculum. This week addresses the law of sale of goods, including a review of the different types of sales covered and their implications, the laws relating to transfer of title under these sales, and the responsibilities of buyers and sellers as participants in the sales. Significant emphasis is placed on demonstrating the fact that the sales must be relating to merchants, and the implications thereof. The materials describe in depth the UCC coverage of the sale of goods, clarifying its coverage of specified goods as opposed to services, real property, or other property outside of the UCC definition. Additionally, inasmuch as sales are done under contract, coverage of the elements necessary for a contract under the UCC is examined, as well as what constitutes breach of these sales contracts and the remedies under the UCC for breach thereof. The weeks materials also address the area of product liability under the UCC. The materials cover not only the contract provisions of the sales, but also the liability perspectives. In the process of addressing the contract components together with liability issues, the materials cover warranties under the UCC, including those provided by express warranties, implied warranties of merchantability, and implied warranties of fitness for particular purposes. Because the codification of the UCC intended to bring uniformity to many laws relating to commercial transactions, it differs in some of its components from preexisting common law in the area of contract and related laws. This weeks materials demonstrate many of the differences between common law and UCC principles applicable to different circumstances, compare and distinguish what law applies to the different business situations, and provide direction to assist in the proper application thereof. Learn when to apply common law contract principles and when to apply those from the UCC, and the implications of each. Because the sales that are subject to the provisions of the UCC involve routine business procedures, all business laws are applicable to them as well. Therefore, the topics and concepts of several other weeks of the course relate significantly to those covered this week, such as agency law, business organizations, and so on. Finally, the readings include three chapters that cover business entities and specifically an overview of sole proprietorships, partnerships, limited liability partnerships, limited liability companies, corporations, and the distinctions of each.

Uniform Commercial Code Sales

OBJECTIVE: Compare and contrast common law contracts and the UCC Article 2. Resources: Ch. 8 of The Legal Environment of Business

Ch. 8: Contracts for the Sale of Goods of The Legal Environment of Business

o Introduction to Article 2 of the UCC: UCC applies only to state contracts for agreements on sale of goods. Merchants are people who sell items regularly. - Article 2 of the UCC acts to fill in only missing or open terms (where the parties have not expressly agreed otherwise) in a contract for the sale of goods.

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Agreement in a Sales Contract: Offer: Recall that the UCC generally aims to promote a sales transaction to be completed rather than shelter a party who doesnt complete the transaction. -Therefore, the UCC allows a contract to be enforced based on a larger picture that consists of (1) past commercial conduct, (2) correspondence or verbal exchanges between the parties, and (3) industry standards and norms. - Sometimes merchants wish to engage in a sales transaction, but the parties overlook or are unsure about some key element of the contract such as quantity, delivery, payment terms, or even price of the goods. The missing provisions, known as open terms, are entirely acceptable under the UCC so long as there is evidence that the parties intended to enter into a contract and the other terms are sufficiently articulated to provide a basis for some appropriate remedy in case of breach. This is where the UCC provides gap filling. The UCC provides a variety of answers based on what term(s) is/are missing. -Open terms include quantity, delivery, payment and price Firm offer: A firm offer is created when a merchant offers to buy or sell goods with an explicit promise, in writing, that the offer will be held open for a certain time period. In general, the UCC provides that the offer can be irrevocable for a maximum period of three months. This obligation is binding on the offeror even though the offeree has paid no consideration. Agreement in Sales Contracts: Acceptance: If one of the parties in a sales contract is not a merchant, the contract is formed as originally offered. That is, the contract is considered accepted but the additional terms are not part of the contract. If both parties are merchants, in a sales contract acceptance with additional terms , the additional terms automatically become part of the enforceable contract unless (1) the offeror has expressly and clearly limited acceptance to the original terms such as The terms of this Purchase Order may not be altered or changed and any alteration of the original terms are expressly rejected (this is common language on a purchase order); or (2) the additional term was a material change that diverges significantly from those contained in the offer (i.e., one that changed the value of the contract or affected the parties obligation to perform in a significant way); 10 or (3) the offeror raises an objection to the additional terms within a reasonable time period according to industry standards. o Statute of Frauds: certain contracts must be in writing in order to be enforceable. Any sales contract for goots with a totalvalue of$500 or more must be in writing. P.187 A. A merchant who receives a signed confirmation memorandum from the other
she

Title and a shipping contract title is transferred from seller to buyer when the goods are given to the courier, while in a destination contract title passes when the goods are tendered to the buyer.Any risk provision in the UCC does not control if the contract lays out terms for risk allocation or title transfer. Neither party can hold title to the goods until

merchant will be bound by the memorandum just as if she had signed it, unless promptly objects. Allocation of Risk: depends on shipment and destination contracts. In

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they have been in physical existence and have been identified. Risk of loss is borne to the party who holds title. o Performance of Sales Contracts: Goodfaith obligation to be honest in fact in the conduct of the transaction concerned. The buyer can accept the goods or reject them with seasonable notice, but if he accepts, his obligation to pay is then triggered. o Breach and Remedies in Sales Agreements: Contracting parties have the right to cancel the contract even before any performance is due if tit becomes clear that one party does not intend to perform as agreed. - The UCC seeks to remedy breach by placing the nonbreaching party in the same situation as she would have been in had the contract been executed as written. Faced with anticipatory repudiation by the other party, a party under the UCC can either withdraw and sue for damages or halt performance until the repudiation is retracted. If a buyer breaches before delivery by rejection of or nonpayment for conforming goods, then the seller may stop further performance, resell the goods, or if unable to resell, seek damages. If the buyers breach occurs after delivery, the seller may sue for full contract price or reclaim the goods and collect incidental damages. o Contracts for International Sales of Goods The UNCISG, the international counterpart to the UCC, is a treaty that governs sales contracts between businesses located in U.N. signatory countries. Four major differences between the UNCISG and the UCC are (1) it does not apply to nonmerchants, (2) it has no statute of frauds, (3) offers can be withdrawn at any point prior to the offeror receiving the acceptance, and (4) the right to cure exists even after the performance period is over. INCO terms are standardized contractual terms and designations used in international sales contracts to avoid confusion due to language barriers and differing legal systems. Chapter 13: sole proprietorships and partnerships p.352 Chapter 14: LLC: An LLC is formed by filing articles of organization (also called certificates of organization) with the state public filing official in the secretary of states corporation bureau. -A limited liability company is an entity whose primary characteristics are that it offers its principals the same amount of liability protection afforded to principals of a corporate form of entity, and it offers pass-through tax treatment for its principals without the restrictions on ownership and scope required for other pass-through entities. LLP and other business arguments

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Chapter 15: Corporations OBJECTIVE: Differentiate between implied and express warranties under the UCC Article 2. Resources: Ch. 21 of The Legal Environment of Business Content Ch. 21: Consumer Protection Law of The Legal Environment of Business o Product Quality and Functionality Express Warranty: When the seller makes a representation of fact about a product. Implied Warranties: if the seller has not made a specific representation about this product, the buyer may still be protected by a UCC-imposed implied warranty. Warranty Disclaimers and Limitations: The UCC allows a seller to disclaim both implied and express warranties under certain conditions. In order to disclaim a warranty, the seller must do so in a conspicuous writing such as capitalletters, bold print, or a larger font. - Sellers may also, under certain circumstances, limit the remedies of a buyer who has suffered damages because of a sellers breach of warranty. This limitation of remedies is primarily used where the only harm suffered by the buyer was the loss of the use of the product. Magnussonn-Moss WarrantyFederal Trade Commission Improvement Act - The Magnuson-Moss Act is a federal statute that regulates warranties given by a seller
or lessor to a consumer. If the seller/lessor offers a written warranty, the transaction is subject to the provisions of the statute. If an express warranty is given, the seller may not disclaim implied warranties. Under the Magnuson-Moss Act, if the product being warranted costs $10 or more, the act requires that warranties be written conspicuously and in plain and clear language and be specific to the parts, products, characteristics, or functionality covered by the warranty.

Note. The information above is intended to help you complete your assignments. Read chapters in their entirety, as indicated in the syllabus. Additional information from sections not outlined above may be needed for classroom discussions.