Law of commercial transactions - Exam #2

Obligations of the seller/Lessor
Click the card to flip 👆
1 / 67
Terms in this set (67)
Obligations of the seller/Lessor
*Basic duty is to tender conforming goods.
-Tender of delivery
-place of delivery
-Delivery by carrier; shipping and destination K's
-perfect tender rule and exceptions.
Tender of delivery
must occur at a reasonable hour and kept available for a reasonable time to enable buyer to take possession.
[EX- Cant call at 2 am and say goods are ready get them in 20 minutes]
place of delivery
If not stated in the contract:
1) sellers place of business
2) sellers residence (if no place of business)
3) location of the goods, if both parties know at the time of contraction that the goods are located somewhere other than seller's business.
Delivery by carrier - shipment K
Seller must:
1) place goods into the hands of the carrier
2) Make a K for their transportation that is reasonable to the nature of the goods and their value.
(i.e. some goods need refrigeration)
3) obtain/deliver documents necessary for buyer to take possession.
4) promptly notify buyer shipment has been made.
Delivery by carrier- destination K
deliver goods to a certain destination
1) goods must be tendered at a reasonable hour and held at buyers disposal for a reasonable length of time.
2) give buyer appropriate notice and necessary documents to enable the buyer to obtain goods.
Perfect tender rule:
If goods, or tender of delivery, fail to conform in any respect to the contract, the Buyer has the right to:
Accept the goods
Reject the entire shipment
Accept part and reject part
*If goods conform in every respect buyer/lessee has no right to reject*
Exceptions to Perfect Tender Rule
-Agreement of the parties
-Cure
-substitution of carriers
-commercial impracticability (and partial performance)
-Destruction of identified goods
-Assurance and cooperation
Agreement of the parties
exceptions to the perfect tender rule may be established by agreement
Cure
The right of the seller to repair, adjust, or replace defective/nonconforming goods.
-can attempt to cure when:
1) delivery is rejected because the goods were nonconforming
2) the time for performance has not yet expired.
3) seller/lessor provides timely notice to the buyer/lessee of the intention to cure.
4) Cure can be made within the contract time for performance.
Reasonable grounds and the right to cure
Even if the K time for performance has expired, the seller can still cure if they had reasonable grounds to believe that the nonconforming tender would be acceptable to the buyer.
[Usually when nonconforming goods are offered with a discount]
Substitution of CarriersWhen the agreed manner of delivery proves impracticable or unavailable through no fault of either party 1) the seller/lessor may, at his own expense, use a commercially reasonable substitute 2) the use of which will constitute sufficient tender.Installment Contractswhen goods are shipped in 2 or more lots to be paid for and accepted separately. -buyer can reject an installment only if the nonconformity SUBSTANTIALLY impairs the value of the installment and cannot be cured. **Substantially is a high standard....4/5 units or 18/20 units.Commercial ImpracticabilityOccurrences UNFORSEEN by either party when a K was made that make performance commercially impracticable. -when this occurs, perfect tender rule no longer applies but seller must notify buyer asap about delay or non-delivery. **Increase in cost because of inflation would not qualify as unforeseen**Commercial impracticability and partial performanceunforeseen event only partially effects the sellers capacity to perform. -seller required to distribute any remaining goods or deliveries fairly among those whom they are contractually obligated to. *buyer must receive notice of this and can accept or reject.Destruction of GoodsIf goods IDENTIFIED in the K are destroyed through no fault of either party -totally destroyed: parties excused from performance [void] -partially destroyed: buyer can inspect the goods and either treat the K as void or accept damaged goods (with a reduction in price)Assurance and CooperationIf one party has "reasonable grounds" to believe that the other party will not perform, they may in writing demand adequate assurance of due performance. -until said assurance is received, may suspend performance w/out liability. **If performance of one party depends on the other: 1st party can proceed to perform in any reasonable manner or suspend performance w/out liability.Obligations of buyer/lessee-Payment -Right of Inspection -Acceptancepaymentin absence of specific agreements, buyer must pay at the time and place of delivery. -if sale is made on credit: pay according to specified credit terms (Not when goods are received) -payments can be made in any method generally accepted, but seller can demand cash (must allow time to obtain cash)Right of Inspectionunless otherwise agreed, buyer has absolute right to inspect the goods before payment. -if goods are nonconforming ~ no duty to pay. -inspection can take place at any reasonable time and in any reasonable manner -Buyer bears costs of inspection, but can recover if goods do not conform.AcceptanceCan demonstrate in these ways 1) indication by words or conduct that accept conforming goods or nonconforming goods in spite of their nonconformity. 2) buyer fails to reject in a reasonable amount of time. 3) inconsistent act with sellers ownership.Partial AcceptanceIf some goods do not conform and seller has failed to cure can make partial acceptance. -cannot accept less than a single commercial unit.Anticipatory Repudiationnotification to other party of intention to not perform (breach) -non-breaching party has 2 options 1) treat repudiation as final breach and pursue remedy 2) wait to see if repudiating party will decide to honor K.Retraction of RepudiationBreaching party can retract repudiation by any method that clearly indicates parties intent to perform. -cant retract if: other party has canceled or materially altered position OR indicated repudiation as final.Remedies of seller: when goods are in possession of the seller and buyer breaches-right to cancel -right to withhold delivery -right to resell and sue to recover damages -right to recover purchase price or lease payments due -right to sue to recover damages for buyers nonacceptance of goodsRight to CancelMust notify buyer of cancellation, then no more obligations. -Buyer can still owe remediesRight to withhold deliveryTrue whether buyer has wrongfully rejected/revoked acceptance, failed to make payment, or repudiated K.Right to resell the goodsmust give original buyer notice of resale unless goods are perishable. -seller can retain any profits and hold buyer liable for any loss. *Loss = K price - resale price*Right to resell the goods (when goods are unfinished)can either: 1) cease manufacturing and resell them for scrap/salvage 2) complete and resell goods and hold buyer liable for loss. *seller must try to mitigate loss/get max valueRight to recover purchase price or rentunpaid seller can sue to get purchase price plus incidental damages. -if unable to resell goods: goods must be held for buyer/lessee -If able to resell goods: net proceeds credited to buyerSue to recover damages for nonacceptanceif buyer wrongfully refuses to accept goods; seller can bring action to recover damages sustained. -remedy = (K price - market price) + incidental damages **Market price = Price @ place and time of tenderRemedies of seller/lessor: when goods are in transitSeller has delivered goods, but buyer has not yet received them. 1) effect of insolvency and breach 2) Requirements for stopping deliveryEffect of Insolvency and Breach-If seller learns of buyers insolvency: can stop delivery regardless of Q shipped -Buyer in breach but not insolvent: can stop goods in transit only if Q shipped is at least 1 carload, truckload, planeload, or larger shipment.Requirements for stopping deliveryto stop delivery, seller must timely notify carrier (bailee) that goods are to be returned. If sufficient time to do so goods must be held and delivered according to seller (seller liable for additional expenses) -Seller has right to stop delivery until: 1) buyer/lessee receives goods 2) carrier/bailee acknowledges right of buyer. 3) a negotiable doc. of title has been properly transferred. **Once goods are reclaimed, seller can pursue remedies allowed when goods are in their possession**Remedies of seller: when buyer has possessionbuyer breaches when they have goods -can sue to recover purchase price plus incidental damages.Remedies of Buyer/Lessee: when the seller refuses to deliver the goods-right to cancel the K -right to obtain goods upon insolvency -right to obtain specific performance -right to cover -right to replevy -right to recover damagesRight to cancel the Kwhen seller fails to make delivery or repudiates the K, buyer can cancel/rescind the K. -relieved of performance obligations but still entitled to remedies.Right to obtain goods upon insolvencyIf buyer has partially/fully paid for goods that are in possession of seller who becomes insolvent, buyer can obtain goods. -seller must've become insolvent within 10 days after receiving 1st payment and goods must be identified. *buyer must pay unpaid balance to get the goods.right to obtain specific performancecan obtain specific performance if the goods are unique or the remedy at law is inadequate. -common for "works of art": damages would be insufficientRight to CoverBuying/leasing substitute goods to those that were due under the K. -after obtaining substitute goods, buyer can recover: 1) difference between cost of cover and K price 2) incidental damages 3) consequential damages (less money saved) **Buyer not required to cover but risks collecting a lower amount of consequential damages. -(Court reduces consequential damages by amount that could have been avoided via substitute goods)**Right to replevyaction to recover identified goods in the hands of a party who is unlawfully holding them. -must show that you were unable to cover after making a reasonable effortRight to recover damagesif seller repudiates K or fails to deliver, -buyer entitled to: K price - market price (@ time buyer learned of breach and place where delivery should've occurred)Remedies of buyer/lessee: When seller delivers nonconforming goods-Right to reject goods -Right to revoke acceptance -Right to recover damagesRight to Reject GoodsIf goods/tender of goods fail to conform, buyer can reject all or a commercial unit of goods. -timeliness and reason for rejection must be given -if buyer is a merchant buyer: must follow reasonable instructions received from seller (entitled to reimbursement) **Can then obtain cover or cancel the K and seek damages as if lessor had refused delivery.Revocation of AcceptanceOnce buyer accepts cannot reject goods, but can revoke acceptance. -must give notice of revocation [not effective until then] and must occur before goods underwent any change. Also must relinquish dominion.Revocation of a commercial unitAcceptance of a lot can be revoked if nonconformity SUBSTANTIALLY impairs value of whole lot or 1) acceptance based on assumption that nonconformity would be cured. 2) failure to discover nonconformity induced by difficulty to discover or assurances made by seller.right to recover damagesif accept nonconforming goods, can keep goods and recover damages = value if delivered conforming - value of actually sent (nonconforming)Exclusive remediesIf the parties state that a remedy is exclusive, then it is the sole remedy.Consequnetial damagesparties can limit/exclude in K (If conscionable) -buyer is consumer: limitation of consequential damages for personal injuries in unconscionable. -limitation of consequential damages not unconscionable if commercial in nature (lost profits/prop. damages)Statute of LimitationsAction for breach of conduct must be commenced within 3 years for oral K and 5 years for written K in Oklahoma.Warranties of title3 types: 1) Good Title 2) No Liens 3) No infringementsWarranty of good titleSellers warrant that they have valid title to the goods they are selling and that the transfer of title is rightful.Warranty of No LiensProtects buyers who are unaware of any encumbrances against goods at the time K is made. -Buyer is unaware: can recover from the seller -Buyer who is aware: no recourse against sellerWarranty of No InfringementsSeller is merchant; goods will be free of infringements of copyright, trademark, or patent claims by 3rd parties. -If 3rd party sues: buyer must timely notify seller...seller can decide whether to defend buyer in the lawsuit **IF buyer doesn't notify seller then cant sue to recover expenses of lawsuitExpress Warrantiescan be created by seller making representations concerning quality, condition, description, or performance potential of goods. Statements that create: 1) Affirmations (declarations) or promise of fact 2) Descriptions 3) Samples or models shown to buyerBasis of the bargain and express warrantiesSeller does not have to use formal words to create warranty -created instead when the buyer enters into the agreement based, at least in part, on the affirmation, description, etc.Statements of opinion and valueOnly statements of fact create express warranties. -exception: statements by expert **Reasonable reliance often controlling criterion in case. [ex.- Ladder will never break no matter what and will last a lifetime....clearly improbable so shouldn't rely on]Implied Warrantiesone that the law derives by inference from the nature of the transaction or the relative situations or circumstances of the parties 1) implied warranty of merchantability 2) implied warranty of fitness 3) warranties implied from prior dealings or trade customsImplied warranty of merchantabilityevery sale/lease made by merchant gives rise to this -Merchantable goods: goods reasonably fit for ordinary purpose for which goods are used. (fair, average, medium quality) -merchantable foods: food that is fit to eat. (based on consumer expectations...should expect bones in some fish)Implied Warranty of Fitness for a Particular Purposearises when seller knows both 1) particular purpose for which a buyer will use goods 2) buyer is relying on their skill to select suitable goods **Example: ask Sherwin Williams to match paint sample brought in. Color is totally wrong -implied warranty of merchantability met: because they give you paint and it is of fair quality -implied warranty of fitness for a particular purpose: not met because failed to match the color you asked and relied on them too.Warranties Implied from Prior Dealings or Trade CustomW/out evidence to contrary, when both parties have knowledge of well recognized trade customs, court will infer both parties intended for that custom to apply to the K.Lemon LawsLaws that protect consumers from the consequences of buying a defective car. -Buyer must notify and give them a number of times to try to fix it. IF the seller fails to fix it buyer is entitled to new car, replacement of defective parts, or return all consideration. **Arbitration is commonly required before take it to court. (Decisions non-binding for purchaser and binding for manufacturer)Magnuson-Moss Warranty ActApplies only to consumer products. Seller not required to give written warranty but if they do and product is over $25, must be labeled as either: 1) Full warranty- free repairs, replacement and choice of either refund or replacement if cant be repaired. 2) Limited Warranty- recourse limited in some fashion **Both must be conspicuously statedOverlapping consistent warrantiesExpress and Implied warranties cumulative if consistent. -if unreasonable for them to be consistent, court looks at intention of parties.Overlapping inconsistent warranties1) express warranties displace implied (unless implied warranty of fitness for part. purpose) 2) samples over general descriptions 3) exact specifications over samples/general descriptionsDisclaiming Express Warrantiescan disclaim oral express warranties by including a written disclaimer in the K. -must be clear and called to attention *allows seller to avoid false accusations and ensures only authorized personnel make representations.Disclaiming implied warrantiesImplied warranty of merchantability and fitness disclaimed by "as is" or "with all faults" -merchantability: must mention "merchantability" and if in writing must be called to attention. -Fitness: Must be in writing and called to attention, doesn't have to mention fitness. [Ex- "there are no warranties that extend beyond description on the face hereof"Buyer's Examination or Refusal to ExamineIf the buyer inspects the goods before entering into the contract, implied warranties do not apply to defects that are apparent on examination. If buyer refuses to inspect when asked to by buyer, there is no implied warranty with respect to reasonable evident defects.