Commercial Law

Predominant Purpose Test

what is the predominant purpose for entering into K

Gravaman Test

• looks to what the problem or issue that has risen from the K

• failure of service? failure of good?

• factors

  • language of K

  • relative value of the goods and service

  • type of business involved

  • reasons the parties entered into K

  • whether K contained separate pricing for goods and services

True Lease

security interest (SALE) created if the lessee cannot terminate lease and EITHER

1. original term of the lease is equal to or greater than remaining economic life of goods, OR

2. lessee required to renew lease for remaining economic life or required to become owner, OR

3. lessee can renew lease for remaining economic life for no or nominal consideration, OR

4. lessee has an option to become the owner for not or nominal consideration

Nominal

no reasonable person would refute the deal

Economic Realities Test

• if termination clause or does not have one of the prongs

• lease if the lessor maintained a meaningful reversionary interest IF

  • there is a reasonable likelihood that goods will return to lessor, AND

  • when it is returned, will it have meaningful economic value

Warranty of Title

• implied in every K

• goods sold to buyer come with good title free of any encumbrance

Express Warranty

• any affirmation of fact or promise made by seller to buyer relating to the item being sold

• puffery not part of basis for bargain

• elements

  • fact or promise

  • that relates to the good

  • must be part of the basis for the bargain

Implied Warranty of Merchantability

• bare minimum

• has to be fit for its ordinary purpose

• no less than average

• seller has to be merchant of that kind

Implied Warranty of Fitness for a Particular Purpose

• seller at time of contracting

• has reason to know of the particular purpose that buyer wants goods for, AND

• buyer relies in expertise and experience of seller

Warranty Exclusions

• cannot exclude or disclaim express warranties

• can modify IWH

  • can be written or oral

  • language must mention merchantability

  • must be conspicuous and specifically defined if there is a writing

  • “as is” may be enough

Alternative A

• natural person

• family member or household member/guest

• reasonably expected to use, consume or be affected by

• who is personally injured

• may not limit/exclude

Alternative B

• natural person

• reasonably expected to use, consume, or be affected by

• may not limit or exclude

Alternative C

• person

• reasonably expected to use, consume, or be affected by

• who is injured by

• may limit or exclude economic injury, but personal injury

Formation

• pretty flexible

• may be made in any manner sufficient to show agreement, including conduct by both parties to show recognition of K

  • even if terms left open k does not fail, as long as parties had intent to enter into K

Acceptance

• return promise to ship goods

• shipping goods (conforming or nonconforming)

  • shipping non conforming goods - acceptance + breach

  • accommodation + notification = proposal/counter

Firm Offer Rule

• offer

• by merchant

• to buy or sell

• goods

• signed

• in writing

• assurance that offer will be held open

• offer not revocable even if there was no consideration for the offer for the time stated

  • if no time stated = reasonable time

  • if no consideration = cannot exceed 3 months

Battle of the Forms

• step 1: is there a K?

• step 2: if there is a K, what do we do with additional terms?

• step 3: if there is not a K by writing, can we reach a K by conduct?

Battle of the Forms Step 1

is there a K?

• conditional offer is not a K; “magic words”

• can include additional terms; K cannot be made contingent on acceptance of different/additional terms

Battle of the Forms Step 2

if there is a K what do we do with additional/terms?

• if not between merchants, all additional/new terms are mere proposals

• if between merchants, additional terms become part of K UNLESS

  • terms materially alter K

  • offer expressly limits acceptance of offer, OR

  • notification of objection to them has already been given or is given w/in reasonable time after notice is received

Terms that Materially Alter

• result in unreasonable surprise or hardship to buyer

  • examples disclaimers of warranty

  • reserving rights to seller to cancel

  • requiring complaints in shorter than reasonably required

Battle of the Forms Different Terms

• Maj: get knocked out

• Min: says UCC meant different and additional terms

Gap Fillers

• price

• output

• delivery

• termination

• open time for payment

Battle of the Forms Step 3

• conduct by both parties which recognizes the existence of K is sufficient to establish K

• if there is K by conduct, additional terms are not included; only the original K agreed to

Title

• can only pass title you have

Voidable Title

• entrustment

• good faith purchaser for value

Statute of Frauds

• need writing for sale of goods $500 or more

Statute of Frauds Exceptions

• specially manufactured goods

• judicial admission under oath

• partial performance

• sufficient writing

• merchant confirmatory memo

Specially Manufactured Goods

• not suitable for sale in seller’s ordinary course of biz

• seller reasonably indicated that goods are for buyer, AND

• seller has either made sub beginning or commitments for their procurement

Partial Performance

• payment has been made, OR

• goods have been received and accepted

Sufficient Writing

• sufficient writing between the parties that indicate the intent to enter into agreement

• quantity term

• writing signed by party to be charged (D)

Merchant Confirmatory Memo

• 2 merchants

• sufficient writing between parties to indicate intent to K

• signed by P

• party received had reason to know of contents

• recipient did not object w/in 10 days

Parol Evidence Rule

• can provide supplemental terms to K if partially integrated

  • ucc presumes K partially integrated

  • if partially integrated cannot use contradictory terms

Big 3 Parol Evidence

• trade usage

• course of performance

• course of dealing

  • can use these in parol evidence as long as NOT contradictory

Performance Good Faith

• buyer can reject for minor imperfections

• assumption that rejection is in good faith

  • merchant: need objective and subjective gf

  • non merchant: split in juris for obj good faith

Buyer’s Rights on Improper Delivery

• accept

• reject

• accept some, reject some

Manner and Rightful Rejection

• reject in reasonable time

• state defect w/ particularity

• comply w/ duties after rejection

Buyer Duties After Rejection

• hold goods w/ reasonable care for seller to come get them

• after rejection by buyer, any exercise of ownership is wrongful

Acceptance

• buyer affirmatively tells seller they accept (conforming or nonconforming)

• buyer fails to reject, but reasonable opportunity to inspect

• buyer does any act inconsistent w/ seller ownership

• rejection, but then then takes wrongful act towards seller

Revocation

• harder to revoke

• buyer may revoke acceptance where nonconformity sub impairs its value if he has accepted if

  • on reasonable assumption that problem would be cured but hasn’t OR

  • without discovery of nonconformity if acceptance was reasonably induced either by difficulty of discovery before acceptance or seller’s assurances

    • still need to revoke w/in reasonable time buyer discovered or should have discovered defect, AND

    • before any sub change in condition of goods which is not caused by defect

Installment Contract Rejection

• delivery of goods in separate lots to be separately accepted

• may reject any defective installment IF

  • defect sub impairs value of that installment

  • cannot be cured, AND

  • seller gives adequate assurance of cure, the buyer must accept installment

• may cancel entire K if defect

  • sub impairs the value of entire K

Seller’s Right to Cure

• time of performance not expired = seller has automatic right to cure

  • must give notice of intent to cure

  • send conforming goods before time of performance expires

• time or performance expired

  • seller can cure IF

    • seller had reasonable grounds to believe goods were acceptable

    • seller gives notice, AND

    • seller cures w/in reasonable time if defects in some goods sub impair value of entire shipment and create doubt as to the quality of the shipment

Risk of Loss Seller Breach

risk of loss on seller until cured or accepted

Risk of Loss Shipment K

• FOB = free on board

• risk transfers when seller ships goods

• Buyer has RoL after seller gives goods to carrier

  • HOWEVER, if seller hires carrier known to be deficient in shipping goods, the RoL may stay with the seller

Risk of Loss Destination K

• RoL transfers when goods buyer’s location

• seller responsible until goods arrive at buyer doorstep

Seller Remedies Generally

• less complex bc usually buyer didn’t pay

• UCC does not allow for consequential damages

Incidental Damages

money used to mitigate breach

Seller Resale Damages

• allows seller to enter into new K with another buyer to resell goods if original buyer breached

• K price - resale price + incidental damages - expenses saved

• requirements

  • good faith

  • seller must give notice to buyer of resale

  • failure to act in gf, notify buyer, or act improperly will keep seller from recovering damages

Expenses Saved

money that was saved bc buyer breached

• example: shipping costs

Seller Contract Market Damages

• allows seller to collect the difference between market price at time and place of tender and K price

• K price - market price + incidental - expenses saved

  • FOB Shipment → MP at time of tender = place and city of seller

  • FOB Destination → MP at time of tender = time of breach at city of buyer

Seller Action for Price

• buyer accepted goods

  • if buyer rejects goods wrongfully, rejection cannot turn into acceptance without affirmative step

• seller sends conforming goods

• when seller cannot sell goods or shows under the circumstances, not able to resell at reasonable price

  • reasonable effort

  • price reasonable?

Buyer Remedies Generally

• buyer has self-help remedies like rejection or revocation

• after opportunity for rejection or revocation is gone, have to resort to breach

Consequential Damages

foreseeable damages from breach

Buyer Cover Damages

• occurs when buyer looks for substitute transaction after seller breach

• requirements

  • goods faith

  • w/o reasonable delay, AND

  • reasonable purchase

• K price - cover price + incidental + consequential + expenses saved

Buyer Contract Market Damages

• similar to sellers

• K price - Market Price + incidental + consequential - expenses saved

Breach of Accepted Goods

• buyer lost ability to reject or revoke acceptance now this is only remedy

• value of conforming - value of nonconforming + incidental + consequential

Article 9 Steps

1. scope

2. attachment

3. perfection

4. priority

5. proceeds

6. default and release

Article 9 Scope

• not real estate

• provides for security interests with personal property as collateral

Security Agreement

K that established a security interest

Debtor

person who has interest in collateral

Creditor

bank; entity lending money

Lien Creditor

established once state’s formalities are followed to allow collection of collateral; usually sherriff

Judgement Creditor

unsecured creditor bc didn’t follow formalities required to establish security interest

Collateral Categories

• tangible: moveable at time SI attaches

• intangible: generally, not moveable at time SI attaches

Consumer Goods

personal, family, household

Inventory

things on shelves that are for sale; also, things used by biz (pens, pencils)

Equipment

catch-all; usually expensive things

Farm Products

crops, livestock, etc.

Accounts

• rights to payment

  • receivable

  • credit cards

  • lottery

Attachment Requirements

1. value has been given

2. debtor has rights in collateral, AND

3. one of the following:

   1. debtor has authenticated security agreement