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Reference Guide

Sales & Leases of Goods - Reference Guides

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York University
ACTG 2010

TM permacharts S a le s&L e a s e so fG o o d s General Considerations Uniform Commercial Code Article 2: Sale of Goods COMMERCIAL LAW ARTICLE 1 SCOPE • Under the Uniform Commercial Code (UCC),transactions tak• Provides structure by expressing underlying policies (i.e.,simplify commercialons in goods,unless context requires otherwise forms,subject matter is personal property,and parties incllaw; allow expansion of commercial practice through parties’ agreement; consumers m ake law uniform in various jurisdictions) (s.1-102(1)) • Covers contracts for present or future sale of goods (s.2-106(1)) • Parties to contract of sale include seller and buyer (s.2-103(1)); parties toich provisions may be varied by agree• Involves contract between a seller and buyer (s.2-103(1)(a),(d)) lease of goods are lessor and lessee (s.2A-103(1)) •Provides general definitions (s.1-102) • Goods includes all things (including any specially manufactured goods) that • Contracts for sale of goods are regulated by UCC Article 2; contracts forrs of substance (i.e.,imposing good faith duty uponle at the time of identification to contract for sale (s.2-105(1)) leases of goods are regulated by UCC Article 2A performance of contracts) (s.1-203) •Excludes money where price is to be paid,investment securities,and things SUBSTANTIVE CONTENT in action • Transactions in goods do not include gifts,bailments,consignments,leases Contract Formation •Article 2:Sales •Article 2A:Leases •Article 3:Commercial P(covered byArticle 2A),and service and construction contracts subject to •Article 5:Letters of Credit •Article 6:Bulk Sales •Article 7:Documents ofTitle IMPORTANCE OF AGREEMENT STATUTE OF FRAUDS •Article 8:Investment Securities •Article 9:SecuredTransactionsIES • A contract is formed when • It conditions enforceability of an • Flexible standards dominate,as opposed to rigid rules (s.2-206(1)) Article 2 gives legal effect toreement with the presence of aODOLOGY • Title receives less emphasis as a problem solving device with regards to parties’ agreement in fact; totalting indicating that the• Analyze problem and develop general issue(s) rights,obligations,and remedies (s.2-401(1)) legal obligation that results fromact for sale has been madeetermine whether Code applies •Pre-transaction planning is encouraged and rewarded parties’ agreement (s.1-201(11)) signed by the charged partyevelop precise statutory issues •Reasonable terms exist to fill gaps in agreement (with limits) (s.2-204(3)) •Anagreement is the bargainin (s.2-201(1)) • Consult applicable statutory language,definitions,and cr•When a seller or buyer is a merchant,different and higher standards of fact of parties as foundintheirquirement is met even thoughther sections to determine principal purpose(s) and appliconduct are required (s.2-104(3)) language or by implicationfromriting does not contain all•Enhance interpretation by consulting comments,legislative• Abuses at time of contracting are regulated by the unconscionability other circumstances (i.e.,course ofal terms or where secondary sources doctrine (s.2-302) dealing,course of performance, erchant fails to object to• Analyze judicial decisions interpreting same sections; C• Abuses at time of performance or enforcement of contract are regulated by usage of trade) (ss.1-205,2-208)isfactory confirmation in evidence of meaning requirement of good faith (s.1-203) OFFERS & ACCEPTANCE writing sent by other merchant • An offer is display of willingness non-writing situations are to enter into a bargain made manufactured goods,party Third Party Claims justify another person’s performance,admission in court, understanding that assent to reliance) OWNERSHIP CLAIMS SELLER’S WARRANTY OF TITLE bargain is invited and ends •Agreement is not enforceable• When an owner seeks to replevin goods sold by a seller t• Seller makes a warranty to the buyer that title conveyed is good,its transfer • A firm offer (an option) maybeyond quantity of goods showneller can only provide the buyer with title that is withirightful,and goods are free of any security interest (s.2-312(1)) created without considerationin writing or evidenced by transfer (s.2-403) • Buyer’s damages for breach include incidental and consequential damages reliance in a writing signed performance or admission •Exceptions occur when the owner has delivered goods to the(s.2-714(2)) merchant GENERAL POLICIES transaction of purchase (later claimed to be voidable) and owner has • An acceptance may be in any entrusted goods (but not power to sell) to merchant where buyer makes a CLAIMS reasonable method or manner •not a promise or considerationurchase in ordinary course of business • After delivery,seller has a limited right to reclaim goods from a buyer in a unless otherwise unambiguousl(s.2-204) SECURITY INTEREST CLAIMS credit sale where buyer was insolvent (s.2-702) or cash sale where check indicated (s.2-206(1)) • Less emphasis on formalities;Security interests in goods are created and perfected underArticle 9is dishonored (s.2-507(2)) •Offeree may accept by promisebest evidence of agreement mayIf a secured party creates a perfected security interest in seller’s goods, is subject to purchasers,including a secured party,who performance or commencing be parties’ conduct rather thand seller sells them to buyer,then buyer is subject to security interestto intervene before a demand is made performance their words • Buyer takes free of security interest if secured party authorized sale orgoods is protected from claims of consignee’s creditors and • A contract is formed if off• Parties’ intention to make abuyer is a buyer in ordinary course of business and security interest was if appropriate notice is given m gives definite acceptance witcontract is given legal protection,d by seller • A buyer who leaves named goods in seller’s possession may be entitled different terms or if there ieven though time of contractSECURITY INTERESTS to them as against the seller through specific performance,reolevin or conduct by both parties that formation cannot be determined reclamation recognizes a contract even whor material terms have not beenf seller creates a security interest by agreement or retpossession is entrusted to a merchant and sale was in the ordinary course writings do not agree (s.2-20agreed upon interest,priority,and enforcement are governed byArticle 9of businesscurity . • If contract is formed,then • If parties intended to make• If seller retains or regains possession of goods upon buyer’s default,thenr may prevail over buyer if retention or identification was additional or different termscontract,but a material term he/she may have possessory security interest underArticle 2raudulent become part of agreement if not been agreed,then court w• Security interest is created without security agreement and perfected withoutourse of business may prevail over perfected security offeror has expressly assentesupply a reasonable term and filing a finance statement interest even though goods have been left with seller r them enforce bargain a Remedies h c BREACH OF CONTRACT BUYER’S REMEDIES • Where one party impairs another’s expectations (no breach),aggrieved party may suspen• Upon seller’s breach,buyer may exercise self-help remedies a adequate assurance (s.2-609) • Includes withholding due payments,cancelling contract,and seeking damages • Response (or lack) may lead to renewed performance,modification or repudiation • If seller repudiates or fails to deliver,then buyer has certain goods-oriented remedies m •future performance under contract (s.2-610) conduct) by a promisor to promisee that he•and cover is not reasonably available (s.2-712); and recovery of goods where seller is insolvent (s.2-502) identified • Damaged party may cancel contract,suspend performance,and pursue damages • If specific performance or replevin are not available,then buyer may cover by purchasing substitute goods in the market • Other types result from conduct of seller or buyer during performance or seek damages at places when buyer learned of breach e • Seller may fail to deliver on time or tender defective goods; buyer may pursue remedy• Buyer may recover difference between contract price and cost to cover • Buyer may fail to pay on time or make a wrongful rejection; seller may pursue remedy • Failure to effect cover does not preclude damages measured by formula p • Remedies respond to type and timing of other’s breach • Damage remedies are augmented by provable damages and decreased for expenses saved; available where buyer SELLER’S REMEDIES rightfully rejected goods or revoked an acceptance • Upon buyer’s breach,seller may exercise self-help remedies Seller’s Non-Conforming Tender • Includes suspending performance,withholding delivery of goods in its possession,and stopping delivery of goods inon inspection,then buyer may reject goods,cancel contract,and pursue damages (s.2-601) transit (s.2-705) • Rejection must occur in fair time; state grounds to avoid harming seller’s right to cure • Seller may cancel the contract for certain types of breaches and seek damages • Limits include obligation of good faith,requirement (in installment contracts) that non-conformity be material,and seller’s • Seller may exercise various damage remedies limited right to cure non-conformity • Includes action for the price (s.2-709); resale to third party of goods completed before or after breach (s.2-706);htfully rejected goods has security interest for amounts paid and expenses incurred; varying action for damages measured by difference between contract price and market price at time and place for tendernd disposition (s.2-708(1)); and action for lost profit (including reasonable overhead) (s.2-708(2)) • If goods have been accepted,then buyer has limited power to revoke acceptance,cancel contract,and pursue • Each remedy has its own conditions damage remedies (s.2-714) • Contract price/market price formula is a fall back position when all else fails • Revocation requires notice within reasonable time; influenced by importance of non-conformity,whether buyer • Damages may be increased by incidental damages,incurred after breach,and adjusted downward for savings realizedon of goods at time by breach • If buyer cannot revoke acceptance,then it may recover damages to accepted goods; notice must have been given to • Administration of remedies may be influenced by seller’s choice of one remedy over the other,effect of lost volume,andbuyer discovered it applicability of components approach Damages AGREED REMEDIES • If breach of warranty occurs,then buyer’s direct damages are difference in value between goods warranted and • Parties may attempt to liquidate damages upon breach (s.2-718) goods accepted (measured at time of acceptance) (s. 2-715) • A reasonable forecast of damages is enforced as a remedy unless the amount was either unreasonably large ornclude post-breach expenses incurred in inspection,receipt,transportation,and custody of unconscionably low expensesly rejected goods; commercially reasonable expenses connected with cover; and other reasonably related • Parties may add or limit other remedies,provided that agreement does not deprive aggr• Consequential damages result from buyer’s inability to use promised goods remedy • Damages result from buyer’s needs which seller had reason to know at time of contracting; buyer must make reasonable • A clause excluding liability for consequential damages must be conscionable efforts to avoid them permacharts TM Performance of Contract for Sale S TRUCTURE BUYER’S OBLIGATIONS P ARTIES’ OBLIGATIONS • After formation,order and content of performance are settled by agreeme•tTo accept and pay in accordance with contract (s.2-301) • Seller’s obligation is to transfer and deliver; buyer’s obligation is to accept (s.2-301) • Price can be paid either in money,goods or an interest in realty and pay for goods in accordance with contract (s.2-301) • If agreement is insufficient,then performance obligations of seller and (s.2-106(1)) • Agreement may cover whether either party extends credit to the other,time buyer are supplied byArticle; parties must have intended to contract and order of performance,and duration and termination of contract • Buyer may pay either a fixed price,a price to be determined by an external • Absent an agreement,Article 2 governs risk of loss problem and standard,a fixed price that is subject to escalation or a price fixed by seller11(1),2-309(1)) determines when one party is excused by post-contract events which make• Pricing mechanism may vary,each of which allocates risks in a different Absent an agreement,neither party extends credit to the other; reasonable continued performance impracticable way terms on order of performance,duration,and termination • Encourages agreed risk allocation and supports agreements during • If parties intended to contract,but then either they fail to agree on the priceludable duty of good faith is imposed upon parties in performance performance which modify contract or the pricing mechanism fails,then the court may choose to supply a (s.1-203) reasonable price RISK OF LOSS SCOPE OF AGREEMENT • Determined by parol evidence rule • Buyer has no duty to accept and pay until it has reasonable opportunit• Rules determine which party bears risk when goods are lost or damaged • Parties intend writing to be either partial or total integration of agreementct goo
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