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BADM 350 Ch 14 Sales and Leases

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on 4 November 2015

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Transcript of BADM 350 Ch 14 Sales and Leases

BADM 350 Ch 14 Sales and Leases
A. WHAT IS COVERED BY ART. 2, UCC?
1. WHAT IS A GOOD?
PROPERTY THAT IS TANGIBLE, I.E., MOVABLE. INTANGIBLE PROPERTY IS STOCKS, BONDS, BANK ACCTS.
2. WHO IS MERCHANT UNDER ART. 2?
PERSON ACTING IN A MERCANTILE CAPACITY AND USES EXPERTISE RELATED TO GOODS BEING SOLD.
3. WHAT DOES ART. 2A COVER?
LEASES OF PERSONAL TANGIBLE PROPERTY.
4. WHO IS A LESSOR?
SOMEONE WHO LEASES PROPERTY TO ANOTHER.
5. WHO IS A LESSEE?
SOMEONE LEASING PROPERTY FROM A LESSOR.
6. WHAT IS AN OPEN TERM?
AN ESSENTIAL TERM IN A K THAT IS MISSING THAT A COURT MAY INFER PROVIDING PARTIES INTENDED TO ENTER A K, AND THERE IS SOME BASIS FOR DETERMINING THE MISSING TERM. IF TOO MANY OPEN TERMS, COURT WILL NOT ENFORCE.
7. WHAT IS OPEN PRICE?
IF PARTIES HAVE NOT AGREED ON A PRICE, COURT WILL DETERMINE A REASONABLE PRICE AT TIME OF DELIVERY. PRICE FIXED IN GOOD FAITH.
8. WHAT IS AN OPEN PAYMENT TERM?
WHEN NO PAYMENT TERMS SPECIFIED IN K, PAYMENT IS DUE WHEN GOODS DELIVERED.
9. WHAT IS OPEN DELIVERY?
WHEN NOT SPECIFIED, DELIVERY UNDER UCC TAKES PLACE AT SELLER’S PLACE OF BUSINESS.
10. WHAT IS AN OPEN QUANTITY TERM?
WHEN QUANTITY MISSING IN A K, COURTS NORMALLY WILL NOT ENFORCE, UNLESS K IS A REQUIREMENTS OR OUTPUT K.
A. WHAT IS A MERCHANT’S FIRM OFFER?
WHEN MERCHANT ASSURES IN WRITING THAT HIS OFFER WILL REMAIN FOR A SPECIFIED TIME; CANNOT BE REVOKED; CANNOT EXCEED 3 MOS.
B. WHAT ARE CONFORMING VS. NONCONFORMING GOODS?
CONFORMING GOODS CONFORM TO K; NONCONFORMING GOODS DO NOT.
C. WHAT HAPPENS TO ADDITIONAL K TERMS NOT CONTAINED IN OFFER?
1. IF ONE PARTY OR BOTH ARE NOT MERCHANTS, ADDITIONAL TERMS DO NOT BECOME PART OF THE K.
2. IF BOTH PARTIES MERCHANTS, ADDITIONAL TERMS BECOME PART OF K UNLESS TERMS MATERIALLY ALTER K.
11. IS CONSIDERATION PRESUMED UNDER UCC?
YES, TO INCLUDE K MODIFICATION K’S.
12. UNDER STAT/FRAUDS, WHEN MUST K’S BE IN WRITING?
WHEN $500 OR MORE FOR SALES OF GOODS, BUT $1000 OR MORE FOR LEASE PAYMENTS.
13. WHAT IS A MERCHANT’S CONFIRMATION MEMO?
IF MERCHANTS ORALLY AGREE AND ONE SENDS A MEMO CONFIRMING ORAL K, THEN RECEIVING MERCHANT IS BOUND UNLESS HE OBJECTS WITHIN 10 DAYS OF RECEIPT.
14. ARE THERE ANY STAT/FRAUDS EXCEPTIONS WHEN K NEED NOT BE IN WRITING?
A. SPECIALLY MANUFACTURED GOODS NOT SUITABLE FOR RESALE, E.G., FRATERNITY SHIRTS.
B. ADMISSIONS IN COURT PROCEEDINGS OR DOCUMENTS CONFIRMING ORAL K EXISTED.
C. PARTIAL PERFORMANCE OF ORAL K WHERE GOODS HAVE BEEN DELIVERED AND ACCEPTED.
CASE: NAUTILUS INSURANCE CO. V. CHERAN INVESTMENTS, LLC., 2014
FACTS: BLASINI ENTERED INTO A CONTRACT WITH CHERAN INVESTMENTS, LLC., TO BUY THE PERSONAL PROPERTY ASSETS (NOT THE REAL ESTATE) OF THE ATTIC BAR & GRILL IN OMAHA, NE. HE OBTAINED INSURANCE ON THE PROPERTY FROM NAUTILUS INSURANCE CO. THE CONTRACT REQUIRED A DOWN PAYMENT AND MONTHLY INSTALLMENT PAYMENTS UNTIL THE PURCHASE PRICE WAS PAID.
THREE YEARS LATER A FIRE DESTROYED THE PERSONAL PROPERTY AND BLASINI FILED A CLAIM WITH NAUTILUS FOR PAYMENT. NAUTILUS ARGUED TITLE HAD NOT PASSED UNTIL THE FULL PURCHASE PRICE HAD BEEN PAID, SO BLASINI WAS NOT THE PROPERTY OWNER. NAUTILUS FILED AN ACTION IN COURT TO DETERMINE WHO THE PROPER PARTY CLAIMANT SHOULD BE. THE STATE COURT DETERMINED THAT THE CONTRACT SALE HAD NOT BEEN CONSUMATED/COMPLETED, SO BLASINI APPEALED.
ISSUE: WHEN DID TITLE PASS FOR THE PERSONAL PROPERTY—WHEN THE CONTRACT WAS SIGNED OR WHEN PAYMENT WAS MADE IN FULL?
RULE: UNDER UCC SECT. 2-401, IF THE GOODS ARE AT THE TIME OF CONTRACTING ALREADY IDENTIFIED TO THE CONTRACT AND NO DOCUMENTS ARE TO BE DELIVERED, TITLE PASSES AT THE TIME OF CONTRACTING.
APPLICATION: TITLE TO THE GOODS PASSED TO BLASINI AT THE TIME OF CONTRACTING. THE PURCHASE AGREEMENT CONTRACT MADE NO PROVISION FOR TITLE PASSING TO BLASINI, SO THE UCC PROVISION CONTROLS.
CONCLUSION: REVERSED TRIAL COURT JUDGMENT IN FAVOR OF BLASINI.
B. WHAT IS THE GOOD FAITH RULE?
THE UCC PROVIDES “EVERY CONTRACT OR DUTY WITHIN THIS ACT IMPOSES AN OBLIGATION OF GOOD FAITH IN ITS PERFORMANCE OR ENFORCEMENT. GOOD FAITH MEANS HONESTY IN FACT.
FOR A MERCHANT, IT MEANS HONESTY IN FACT AND OBSERVANCE OF REASONABLE COMMERCIAL STANDARDS OF FAIR DEALING IN THE TRADE.
C. WHAT IS TENDER OF DELIVERY?
IT REQUIRES THE SELLER OR LESSOR TO HAVE AND HOLD CONFORMING GOODS AT THE DISPOSAL OF THE BUYER OR LESSEE,
AND GIVE THE BUYER OR LESSEE WHATEVER NOTIFICATION IS REASONABLY NECESSARY TO ENABLE THE BUYER TO TAKE DELIVERY.
D. WHAT ARE CONFORMING GOODS?
GOODS THAT CONFORM EXACTLY TO THE DESCRIPTION OF GOODS IN THE K.
E. UNDER PERFECT TENDER RULE, IF GOODS FAIL TO CONFORM IN ANY RESPECT TO K, BUYER MAY:
1. REJECT IN WHOLE;
2. ACCEPT WHOLE;
3. OR ACCEPT PART AND REJECT PART.
EXCEPTIONS TO PERFECT TENDER:
1. IF PARTIES AGREE OTHERWISE LIMITING TYPE OF REJECTION ONLY TO NONCONFORMING GOODS OR REDUCTION IN COMPENSATION.
2. SUBSTITUTION OF CARRIERS PERMITTED IF AGREED DELIVERY MANNER FAILS OR TYPE OF CARRIER BECOMES UNAVAILABLE.
CASE: FITL V. STREK, 2005
FACTS: STREK SOLD FITL A 1952 MICKEY MANTLE BASEBALL CARD FOR $17,750 AT A BASEBALL CARD SHOW. STREK REPRESENTED THAT IT WAS IN NEAR-MINT CONDITION. TWO YEARS LATER IN MAY 1997 FITL SENT THE CARD TO PROFESSIONAL SPORTS AUTHENTICATORS, A SPORTS CARD GRADING SERVICE. THEY TOLD FITL THAT THE CARD WAS UNGRADABLE BECAUSE IT WAS DISCOLORED AND HAD BEEN DOCTORED.

FITL COMPLAINED TO STREK WHO SAID HE SHOULD HAVE INITIATED RETURN OF THE CARD WITHIN A TYPICAL GRACE PERIOD OF 7 DAYS TO 1 MONTH. IN AUG 1997 FITL SENT THE CARD TO ASA AUCUGRADE FOR A SECOND OPINION WHO CONCLUDED THE CARD HAD BEEN REFINISHED AND TRIMMED. FITL FILED SUIT IN NE STATE COURT. HE WAS AWARDED $17,750 PLUS COSTS IN DAMAGES. STREK APPEALED CLAIMING NOTIFICATION IS NOT TIMELY OF THE DEFECTIVE CONDITION TWO YEARS AFTER THE PURCHASE.

ISSUE: WHAT IS A REASONABLE TIME FOR TAKING ANY ACTION AFTER PURCHASE OF AN ITEM IS MADE?
RULE: WHAT IS A REASONABLE TIME FOR TAKING ANY ACTION DEPENDS ON THE NATURE, PURPOSE, AND CIRCUMSTANCES OF SUCH ACTION.
APPLICATION: THE POLICIES BEHIND THE NOTICE REQUIREMENT, TO ALLOW THE SELLER TO CORRECT A DEFECT, TO PREPARE FOR NEGOTIATION AND LITIGATION, AND TO PROTECT AGAINST STALE CLAIMS AT A TIME BEYOND WHICH AN INVESTIGATION CAN BE COMPLETED, WERE NOT UNFAIRLY PREJUDICED BY THE LACK OF AN EARLIER NOTICE TO STREK.
CONCLUSION: AFFIRMED TRIAL CT. FINDING IN FAVOR OF FITL FOR $17,750 AND COSTS.
F. WHAT IS CURE?
UCC PROVIDES OPPORTUNITY TO CURE DEFECTIVE PERFORMANCE PROVIDING TIME FOR PERFORMANCE NOT EXPIRED AND PARTY NOTIFIES BUYER/LESSEE OF INTENTION TO CURE WITHIN K PERIOD.
ADDITIONAL CURE TIME MAY BE PROVIDED IF SELLER/LESSOR HAD REASONABLE GROUNDS TO BELIEVE GOODS WERE CONFORMING (E.G., BASED ON PAST PRACTICE) AND DESIRES TO CURE AFTER K PERFORMANCE DEADLINE.
G. WHAT IS AN ASSURANCE?
IF ONE PARTY HAS REASON TO BELIEVE ANOTHER PARTY WILL NOT PERFORM, THAT PARTY MAY MAKE WRITTEN DEMAND FOR ASSURANCE. IT REQUIRES WRITTEN RESPONSE.
UNDER THE UCC WHEN ASSURANCE OF PERFORMANCE IS NOT FORTHCOMING, THE PARTY MAY SUSPEND THE K AND HOLD THE UNCOOPERATIVE PARTY IN BREACH.
H. PAYMENT: UNLESS SPECIFIED IN K, PAYMENT CAN BE MADE IN ANY MANNER ACCEPTABLE IN ORDINARY COURSE OF BUSINESS (CHECK, DRAFT, CREDIT CARD).
WHAT IS THE PROBLEM OF TAKING A PERSONAL CHECK FOR GOODS FROM A BUYER?
I. WHAT ARE BUYER’S/LESSEE’S RIGHTS OF INSPECTION?
1. UNLESS OTHERWISE SPECIFIED IN K, BUYER HAS RIGHT TO INSPECTION OF GOODS TENDERED, DELIVERED, OR IDENTIFIED PRIOR TO ACCEPTANCE OR PAYMENT.
2. PARTIES MAY AGREE TO TIME, PLACE, AND MANNER OF INSPECTION, BUT IF NOT SPECIFIED IN K, THEN REASONABLE TIME, PLACE, AND MANNER IS IMPUTED.
3. EXCEPTIONS: COD AND CIF BUYERS HAVE NO RIGHT TO INSPECTION UNDER UCC.
J. WHAT IS ANTICIPATORY REPUDIATION?
MERE WAVERING IS NOT REPUDIATION. IF REPUDIATION MADE, AGGRIEVED PARTY MAY SUSPEND PERFORMANCE.
1. REPUDIATING PARTY MAY RETRACT ANTICIPATORY REPUDIATION IF:
A. THE K IS NOT CANCELED;
B. AGGRIEVED PARTY HAS NOT MATERIALLY CHANGED THEIR POSITION;
C. OTHERWISE INDICATED REPUDIATION IS FINAL.
K. WHEN DOES ACCEPTANCE OF GOODS OCCUR?
1. IF BUYER COMMUNICATES TO SELLER IN WORDS OR CONDUCT THAT HE/SHE IS ACCEPTING OR RETAINING GOODS EVEN THOUGH NONCONFORMING; OR
2. FAILS TO INSPECT GOODS WITHIN REASONABLE TIME AFTER DELIVERY OR TENDER BY SELLER.
3. IF BUYER USES GOODS IN ANY MANNER INCONSISTENT WITH SELLER’S RIGHTS, E.G., RESALE.
L. WHEN MAY DELIVERY OF GOODS BE WITHHELD?
1. REJECTS OR REVOKES ACCEPTANCE OF GOODS;
2. FAILS TO MAKE PAYMENT WHEN DUE;
3. OR REPUDIATES K.
4. WHEN SELLER DISCOVERS BUYER IS INSOLVENT; THIS OCCURS WHEN HE:
A. CEASES TO PAY DEBTS IN ORDINARY COURSE OF BUSINESS;
B. CANNOT PAY DEBTS WHEN COMING DUE; OR
C. IN BANKRUPTCY.
M. IF BUYER BREACHES K WHILE SELLER LESSOR STILL IN POSSESSION OF GOODS, THEY MAY RESELL OR OTHERWISE DISPOSE OF THEM.
N. WHAT 2 RULES GOVERN PERFORMANCE OF ALL K’S UNDER UCC?
GOOD FAITH AND REASONABLENESS.
1. MERCHANTS HELD TO HIGHER STANDARD OF GOOD FAITH THAN NONMERCHANTS USING AN OBJECTIVE STANDARD;
2. NONMERCHANTS HELD TO LOWER STANDARD USING A SUBJECTIVE STANDARD.
O. WHAT IS COVER?
1. BUYER MAY SUBSTITUTE GOODS FOR NONCONFORMING OR NONRECEIVED GOODS
2. AND RECOVER DAMAGES BETWEEN COST OF COVER AND K PRICE AND INCIDENTAL AND CONSEQUENTIAL DAMAGES.
P. SPECIFIC PERFORMANCE POSSIBLE ONLY WITH UNIQUE GOODS OR DAMAGES AT LAW INADEQUATE.
Q. WHAT IS THE UCC RIGHT TO REJECT IF GOODS OR TENDER FAILS TO CONFORM TO K?
MAY A PARTY REJECT AN ENTIRE K IF ONE INSTALLMENT IN AN INSTALLMENT K IS NONCONFORMING?
NO, ONLY THAT INDIVIDUAL INSTALLMENT UNLESS THE ONE INSTALLMENT SUBSTANTIALLY IMPAIRS THE VALUE OF THE ENTIRE K, E.G. CEMENT INGREDIENTS.
R. WHAT IS REVOCATION?
1. GOODS ARE NONCONFORMING;
2. NONCONFORMITY SUBSTANTIALLY IMPAIRS THEIR VALUE;
3. ANY OF THE FOLLOWING OCCURS:
A. SELLER’S PROMISE TO CURE IS UNFULFILLED;
B. GOODS ACCEPTED BEFORE NONCONFORMITY DISCOVERED AND NONCONFORMITY DIFFICULT TO DISCOVER; OR
C. GOODS ACCEPTED BEFORE NONCONFORMITY DISCOVERED AND SELLER ASSURED BUYER THEY WERE CONFORMING.
4. REVOCATION NOT EFFECTIVE UNTIL SELLER NOTIFIED AND MUST OCCUR WITHIN REASONABLE TIME AFTER NONCONFORMITY DISCOVERED OR SHOULD HAVE BEEN DISCOVERED.
S. WHAT IS A WARRANTY?
SELLERS WARRANT THEY HAVE GOOD TITLE TO ALL GOODS SOLD AND THAT TRANSFER OF TITLE IS RIGHTFUL. DISCLAIMER REQUIRES SPECIFIC AND CONSPICUOUS LANGUAGE.
1. WHAT IS AN EXPRESS WARANTY?
CREATED WHEN A SELLER AFFIRMS, ORALLY OR IN WRITING, GOODS MEET CERTAIN STANDARDS. E.G.,
A. AFFIRMATION OF FACT OR PROMISE-THIS CAR WILL RUN FOR AT LEAST 100,000 MILES;
B. DESCRIPTION OF GOOD-PICTURE OR AD
C. MODEL OR SAMPLE OF GOOD
BUYERS CAN RECOVER FOR EXPRESS WARR. VIOLATION IF EXPRESS WARRANTY INDUCED BUYER TO PURCHASE GOOD, I.E., BASIS OF BARGAIN.
STATEMENTS OF OPINION ARE PUFFING, E.G., BEST CAR ON MARKET, CLEANSER WILL CLEAN ANYTHING IMAGINABLE.
2. WHAT DOES IMPLIED WARRANTY OF MERCHANTIBILITY MEAN:
A. GOODS FIT FOR ORDINARY PURPOSES FOR WHICH USED;
B. GOODS MUST BE ADEQUATELY CONTAINED, PACKAGED, AND LABELED
C. GOOD MUST BE OF AN AVERAGE KIND, QUALITY, AND QUANTITY WITHIN EACH UNIT.
D. GOODS MUST CONFORM TO ANY PROMISE OR FACT ON CONTAINER
E. QUALITY OF PRODUCT MUST PASS WITHOUT OBJECTION IN TRADE
F. FUNGIBLE GOODS MUST MEET AVERAGE OR MIDDLE RANGE OF QUALITY
3. IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE APPLIES WHERE:
A. SELLER HAS REASON TO KNOW PARTICULAR PURPOSE FOR WHICH BUYER IS PURCHASING;
B. SELLER MAKES STATEMENT GOODS WILL SERVE THIS PURPOSE;
C. BUYER RELIES ON SELLER’S SKILL AND JUDGMENT.
CASE: RILEY V. FORD MOTOR CO., 2014
FACTS: COUNTY SHERIFF BEN RILEY WAS DRIVING HIS FORD F-150 PICKUP TRUCK WHEN IT COLLIDED WITH ANOTHER VEHICLE. THE DRIVER’S DOOR OPENED IN THE COLLISION AND RILEY WAS EJECTED AND KILLED. RILEY’S WIDOW BROUGHT A WRONGFUL DEATH ACTION ON BEHALF OF THE DECEASED’S ESTATE FOR PRODUCT LIABILITY.

PLAINTIFF ALLEGED THAT DESIGN OF THE TRUCK’S DOORLATCH ALLOWED THE DOOR TO OPEN IN A COLLISION. THE COURT AWARDED $900,000 IN DAMAGES. FORD APPEALED ARGUING PLAINTIFF HAD NOT PROVED EXISTENCE OF A REASONABLE ALTERNATIVE DESIGN.
ISSUE: DID THE PLAINTIFF MEET THE RISK-UTILITY TEST OF SHOWING A FEASIBLE ALTERNATIVE DESIGN WOULD HAVE PREVENTED OR MITIGATED THE INJURIES INCURRED?
RULE: WEIGHING OF COSTS AND BENEFITS ATTENDANT TO THE DECISION OF DESIGN CHOICE IS THE ESSENCE OF THE RISK-UTILITY TEST.
APPLICATION: PLAINTIFF ESTABLISHED WITH FORD’S OWN EVIDENCE THE REASONABLENESS AND FEASIBILITY OF AN ALTERNATIVE CABLE-LINKAGE SYSTEM THAT FORD DESIGNED, MANUFACTURED, AND SOLD IN F-150 TRUCKS THREE MODEL YEARS EARLIER, BUT DISCONTINUED BECAUSE THEY COST TWO TO THREE TIMES THE COST OF THE CHEAPER ROD SYSTEM USED IN RILEY’S FORD VEHICLE.
CONCLUSION: AFFIRMED TRIAL COURT DECISION IN FAVOR OF RILEY’S ESTATE.
4. WARRANTY DISCLAIMERS:
A. EXPRESS WARR. CAN BE LIMITED IF DISCLAIMER CAN BE REASONABLY CONSTRUED W/ EACH WARRANTY;
B. IMPLIED WARR. CAN BE DISCLAIMED WITH WORDS “AS IS” OR “WITH ALL FAULTS” MAKING CLEAR NO IMPLIED WARRANTIES;
C. DISCLAIMERS OF IMPLIED MERCHANTIBILITY MUST USE THAT WORD.
D. IMPLIED WARR. OF FITNESS FOR PARTICULAR PURPOSE MAY BE DISCLAIMED IN GENERAL LANGUAGE W/O USE OF WORD “FITNESS”
E. WHEN BUYER EXAMINES GOODS, OR REFUSES TO EXAMINE GOODS AFTER SELLER DEMANDS, NO IMPLIED WARRANTIES FOR DEFECTS THAT COULD HAVE BEEN DISCOVERED UPON EXAMINATION.
DISCLAIMERS MUST BE CONSPICUOUSLY DISPLAYED, NOTICEABLE TO A REASONABLE PERSON.
DISCLAIMERS WILL NOT BE ENFORCED IF UNCONSCIONABLE BASED ON SOPHISTICATION, EDUCATION, AND BARGAINING POWER OF PARTIES AND WHETHER SALE WAS BASED ON A “TAKE IT OR LEAVE IT” BASIS.
SALES OF GOODS.
WHEN BUYER/LESSEE WRONGFULLY:
UNDER UCC, BUYER/LESSEE MAY REVOKE PREVIOUS ACCEPTANCE IF:
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