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The Uniform Commercial Code

A uniform / model law that governs commercial transactions, including contracts for the sale of goods, leases and secured transactions.

UCC Article 2

Applies to contracts for the sale of goods

Sale

the passing of title from seller to buyer for a price

Goods

tangible things that can be moved

Mixed goods and services contracts

contracts that include both goods and service. UCC Article 2 applies to contract if good are "predominant part" of transaction.

Merchants

buyers or sellers who: deal in goods of the kind involved in the contract, by occupation or employ a merchant

UCC Article 2(A)

Applies to contracts for the lease of goods

Lease

transfer of right to possession and use of goods for a term, in return for consideration

Lessor

person who transfers right to possession and use of goods under lease

lessee

person who acquires right to possession and use of goods under lease

Formation of contracts

more lenient than common law regarding contract formations; courts evaluate intent of parties to sales or lease contract

Price

"Reasonable Price" at time of delivery

Payment

When buyer receives good

delivery

seller's place of business

time for performance

"reasonable time"

duration of contract

"reasonable" period of time, with termination allowed in good faith and upon notice

quantity

contract fails for lack of definiteness

UCC Statute of Frauds

Contracts for sale of goods must be in writing if goods valued at 500 or more; lease contracts that require payments of 1,000 or more must also be in writing.

unconscionability

in context of UCC contract for sale of goods or lease, an agreement that is so unfair or "one-sided" that court refuses to enforce it

Contracts for the International Sale of Goods

treaty governing international "business-to-business" sale contracts

Advantage of CISG

provides clarity, predictability, and uniformity for global businesses

Good title

Acquired from someone who already owns the goods "free and clear"

Void Title

not true title

Voidable title

occurs in certain situations in which contract between original parties would be void, but goods have already been sold to a third party

Acquiring good title

if "third party purchaser" makes "good-faith" purchase for value, he/ she gets good title

Ownership

transfer of title

encumbrance

goods used as collateral for debt

loss

refers to which party has "risk of loss" when goods damaged/ destroyed

insurable interest

right to insure goods against any risk exposure

simple delivery

buyer and seller contract, buyer leaves with goods

common carrier delivery

buyer and seller contract, seller then places goods with common carrier

shipment contract

title transfers to buyer at time and place of shipment; buyer bears risk of loss while goods in transit

destination contract

seller bears risk of loss until seller delivers good to stipulated destination

FOB (Free on Board)

selling price includes transportation costs and seller has risk of loss to either place or shipment or place of destination

FAS (Free Alongside)

Seller, at seller's expense, delivers goods alongside ship before risk transferred to buyer

CIF ( Cost, Insurance and Freight)

Seller places goods in possession of carrier before risk passes to buyer

Deliver "Ex Ship"

risk of loss passes to buyer when goods leave ship

goods-in-bailment

identifies goods in storage

Sale on approval

title and risk of loss with seller until buyer notifies seller of approval

Sale or return

buyer has insurable interest once goods identified in contract; title and risk of loss transfer depend on whether goods in bailment, delivered by common carrier, or delivered by seller.

Seller in breach

buyer may accept goods as is or rejects, risk of loss will remain with seller until buyer accepts goods

buyer in breach

risk of loss depends of type of contract between buyer and
seller

UCC Performance Obligation

-Sellers and lessors are obligated to transfer and deliver conforming goods.
-Buyers and lessees are obligated to accept and pay for conforming goods in accordance with terms of contract.
- "good fait" required in performance and enforcement of every contract

Good faith

honesty in fact

Perfect Tender rule

States that if goods or tender of delivery fail in any respect to conform to contract, buyer/lessee has right to: 1) accept the goods 2) reject entire shipment 3) accept part and reject part

Exceptions to perfect tender rule

industry standards, prior dealings between parties, exceptions outlined in parties' agreement, seller/lessor's right to cure, destroyed goods, substantial impairment, commercial impracticability

Commercial Impracticability Doctrine

Delay in delivery or non-delivery may not, in court's discretion, constitute breach if performance made impracticable because contingency has occurred that was not contemplated when parties reached agreement

Warranty

seller's promise regarding certain characteristics of goods sold

express warranty

explicitly stated contract

implied warranty

automatically (by operation of law) applied to contract

Warranties of Title

- passage of good title
- implied promise of no liens/ judgments against title
- implied promise that title not subject to claims of intellectual property infringement

Express Warranties

-Description of good's physical nature or its use.
-May be found in advertisements or brochures
-May be material term of contract
-Salesperson's oral promise concerning good can give rise to express warranty
-Buyer's reliance on seller's representations generally means those representations become express warranties, and party of contract.

Implied Warranty of Merchantability

warranty based on reasonable expectation of product performance

implied warranty of fitness for particular purpose

warranty that arises when seller knows purpose for which buyer purchasing goods, and buyer relies on seller's judgment to recommend/ select certain product. Seller does NOT have to be a merchant.

implied warranty of trade usage

warranty that arises as result of generally accepted trade practices

Seller's warranties may extend to:

-Buyer's household members and guests.
- An "reasonable and foreseeable" user
-Anyone injured by good

Methods of Disclaiming/Waiving Warranties

-Seller does not make express warranties
-Seller disclaims implied warranties in clear, unambiguous, conspicuous language
- Buyer fails/ refuses to examine goods
-Buyer fails to file suit within applicable statute of limitations period

Liquidated Damages

damages identified before contract breach occurs

Liquidated Damages general rule

-Parties are free to negotiate a liquidated damages contract clause.
- Courts will enforce liquidated damages provisions, so long as they are non-punitive.

Modifications to Remedies otherwise provided by the UCC

parties to sales and lease contracts are allowed to modify results

negotiable instrument

substitute for cash; written document, containing signature of creator, that makes unconditional promise or order to pay sum certain in money, either on demand or at a definite time.

Note

promise by maker to pay a payee ex. certificate of deposit

Draft

order by drawer to drawee to pay a payee ex. check

Demand instrument

payee can demand actual payment at any time

Time instrument

payment made only at specific designated time in future

Cashier's check

draft with respect to which drawer and drawee are same bank

Traveler's check

-payable on demand
- drawn on or payable through a bank
- requires as condition of payment, countersignature by person whose signature appears on instrument

certified check

check accepted by bank on which it is drawn

Requirement for Negotiability

- in writing
- signed by creator
- unconditional promise
- certain sum in money
- payable on demand or time
-payable to order

order paper

specific payee named on instrument ex. pay to the order of john smith

bearer paper

instrument payable to possessor, treated like cash

negotiation

transfer of possession to third party, who becomes holder of negotiable instrument

holder

party who possesses negotiable instrument payable to the party, or to bearer

Negotiation Requirements- bearer paper

requires payee's delivery of instrument to holder

Negotiation Requirements- order paper

requires endorsement and delivery

blank endorsement

payee's signature

special endorsement

endorser's signature plus named endorsee

qualified endorsement

endorser's signature plus use of language "without recourse"

restrictive endorsement

endorser's signature plus restrictions on future negotiation of instrument

misspelled name

holder may endorse document with misspelled name, holder's actual name or both

Alternative payees

"Pay to the order of John Smith or Jane Smith" endorsement by any one of listed payees sufficient

Joint payees

"Pay to order of John Smith and Jane Smith" endorsement by all listed payees required

drawer

party who gives order to pay draft

drawee

party that must obey drawer's order to pay draft

payee

party who receives benefit of drawer's order; party who receives money from draft

check

special draft that orders drawee to pay a fixed amount of money on demand

Money Order

instrument stating that certain amount of money is to be paid to a particular person

depository bank

first bank that receives check for payment

payor bank

bank on which check drawn; bank ultimately responsible from granting funds for check

intermediary bank

any bank to which check transferred

electronic check presentment

check transmitted electronically from bank to bank; check processed on day on which deposited

21st century act

allows banks to forgo sending original checks as part of collection or return process, and send a truncated version instead

Truth-in-Savings Act

-minimum balance required to open account and be paid interest
-manner in which balance of account will be calculated
- annual percentage yield of interest
-manner in which interest will be calculated
- notification of fees
-notification of any limitations on withdrawals/ deposits

Properly Payable RUle

bank may pay instrument only when authorized by drawer, and payment does not violate agreement between bank and customer

Wrongful Dishonor

bank refuses to pay properly payable check, bank incurs liability upon wrongful dishonor

Stop-Payment order

drawer orders bank to not pay check drawn on customer's account

Post-dated check

customer can post-date check, but must give bank notice of post-date

Stale check

check not presented to bank within 6 mos

Check bearing forged signature

generally drawer not liable for forged check, unless drawer substantially contributed to forgery

check bearing forged endorsement

neither drawer no drawer's bank liable for forged endorsement

altered check

if unauthorized change modifies obligation of party to instrument, drawer generally not liable for altered amount, unless he/she negligently contributed to alteration

If customer's ATM is lost customer must notify bank within 2 day...

-If notification met, customer only liable for first $50 stolen.
-If notification not me, customer liable for up to $500 stolen.

Digital Cash

money stored electronically

Stored-Value Cards

plastic cards with magnetic strips containing data regarding card value

Holder in due course doctrine

provides incentive for financial intermediaries to engage in transactions, because they receive greater legal protection by virtue of holder in due course status

Requirement for HIDC

-be holder of complete and authentic negotiable instrument
-take instrument for value
- take instrument in good faith
- take instrument without notice that it is overdue or dishonored

HIDC is free from the following personal defenses

-lack of consideration
-breach of contract
-fraud in the inducement
-incapacity
-illegality
-duress
- unauthorized completion
-unauthorized acquisition of instrument

HIDC is subject to the following real defenses

-fraud in essence
-discharge of the party liable through bankruptcy
-forgery
-material alteration of completed instrument
-infancy

Shelter principle

if holder cannot attain holder in due course status, holder can acquire rights and privileges of holder in due corse, if item transferred from a holder in due course.

Federal trade commission rule

negotiation of consumer notes may not be subject to holder in due course status, if consumer credit contract or purchase money loan contains the following : Any holder...

maker

person promising to pay set sum to holder of promissory note/ CD, promises to pay money

acceptor

person who accepts and signs draft to agree to pay draft when it is presented. pays money when it is requested

drawer

person ordering drawee to pay

endorser

person who signs instrument to restrict payment of it, negotiate it or incur liability

Primary liability of makers and acceptors

must pay stated amount on instrument when it is presented for payment

secondary liability of drawers and endorsers

must pay amount on instrument if following conditions met: presentment, dishonor, notice of dishonor

proper presentment of negotiable instrument

presented proper party, presented in proper way, presented in timely manner

accommodation party

party who signs instrument to provide credit for another party who has also signed instrument

unauthorized signature

if signature to negotiable instrument unauthorized, signature will not impose liability on named party

transfer warranty

when party transfers instrument to another party for consideration, party makes certain guarantees regarding instrument and transfer

presentment warranty

when party properly presents instrument for acceptance, party makes certain guarantees regarding instrument and transfer itself

real defenses

infancy, duress, lack of legal capacity, illegality of transaction, fraud in factum, discharge through isolvency proceedings, forgery, material alteration

personal defenses

breach of contract, lack of consideration, fraud in inducement, illegality, mental incapacity

discharge of liability

payment/ tender of payment, cancellation, reaquisition, impairment of recourse, impairment of collateral

secured interest

interest in personal property which secures payment of obligation

secured party

person that holds interest in secured property

debtor

person that has obligation to secured party

security agreement

agreement in which debtor gives secured interest to secured party

collateral

property that is subject to security interest

collateral under UCC

goods, indispensable paper, intangibles, proceeds

creation of security interest requires

written agreement, value and debtor rights in collateral

purchase money security interest

interest formed when debtor uses borrowed money from secured party to buy collateral

perfected security interest

security interest in which creditor has legally protected his claim to collateral

perfection by filling

perfection of interest by filing financing statement with state agency

place and duration of filing

generally, financial statement for consumer goods must be filed with county clerk; statement valid for 5 years

perfection by possession

perfection of interest by holding collateral of debtor until loan is paid in full

automatic perfection

perfection that automatically occurs when retailer sells a consumer good

perfection of movable collateral

collateral that moves to another state must be "re-perfected" after four months

perfection of security interests in automobiles and boats

note interest on certificate of title

after-acquired property

creditor has security interest in property acquired by debtor after security agreement made, if clause to this effect included in agreement

proceeds

creditor automatically has rights to proceeds from sale of collateral for 10 days

termination statement

an amendment to a financing statement stating debtor has no further obligation to secured party

secured vs. unsecured

secured interest prevails

secured vs. secured

individual who perfected his/ her interest first prevails

purchase money security interest

if party with perfected purchase money security interest disputes another party, pmsi party will almost always have right to collateral, regardless of when agreement perfected

secured party vs. buyer

if debtor sells his collateral, creditor may dispute with buyer over collateral

buyer in "ordinary course of business"

if person buys collateral in ordinary course of business without realizing that it is collateral he has right to good

buyers of consumer goods

if consumer does not know product secured, buyer's new product is free from security interest

buyers in chattel paper and instruments

if buyer purchases chattel paper and instruments, he/she is free from security interest

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