BB30 Business Law 6.01 Summer 2013 6.01 Understand sales law

SALES LAW & EXCHANGE OF OWNERSHIP Sales Activity List 5 items you bought in the last week. List 2 “large” purchases your family has made in the last 2 years. BB30 Business Law 6.01 Summer 2013

SALES LAW & EXCHANGE OF OWNERSHIP Using the list of the items in the Sales Activity: Did ALL of those constitute a sale? What is the definition of a sale? What did you do with the product? What is the definition of ownership? Were they goods or services? Did money exchange hands for these items? If you didn’t have the money to buy the item, how could you change ownership? Talking Points: Sale is a contract in which ownership transfers. Ownership is the right to hold the title, possess, use, enjoy, profit from, waste, and even destroy. Goods are tangible, moveable items of personal property. Goods are NOT money, intangible items (stocks, bonds, etc), patents, copyrights, and trademarks (remind students of intellectual property unit), and real property (to be covered later this unit). Price is the consideration for a sale (remind students of the contract law unit) Barter is a exchange of goods. BB30 Business Law 6.01 Summer 2013

SALES LAW & EXCHANGE OF OWNERSHIP E-commerce laws E-commerce – conducting business using electronic means, especially the Internet Jurisdictional issues – which state has jurisdiction in cases involving sellers & buyers in different states? The ability to access a website in a particular state does not, by itself, give that state jurisdiction States may gain jurisdiction over e-commerce transactions if the website allows users to purchase merchandise Example: Amazon.com - jurisdiction lies with the state in which the buyer resides Tax issues – jurisdiction helps to determine which state may tax Internet sites, and how buyer may be taxed Authentication – helps to make certain that buyers and sellers are who they say they are Digital signature – encoded message that appears at the end of a contract created online BB30 Business Law 6.01 Summer 2013

UNIFORM COMMERCIAL CODE Group Activity: Create a one page summary of the UCC. Include: General Information (First published, definition, goal/purpose) Specific Information (leasing goods, contracts for goods/services, special rules) Why is it important? Key: Published 1952 Definition: Body of laws governing commercial transactions in the United States. Goal/Purpose: Form unity among all 50 states from businesses that complete transactions over state line. Important: Student should state how difficult it would be to know the laws in different states. If necessary, prompt the students with asking who has purchased something online in a different state. Imagine if there were 50 different laws on how sales are transacted. BB30 Business Law 6.01 Summer 2013

Requires: Contract be in writing and meet all requirements of writing TRANSFER OF OWNERSHIP Payment vs. Delivery vs. Receipt of Goods What is the proof? Vendor vs. Vendee vs. Merchant vs. Casual Seller Unconscionable Contract vs. Statute of Frauds Payment – buyer pays for the item Delivery – buyer possess or has control of item Receipt of Goods – buyer takes physical possession. What is the proof? Bill of Sale Vendor = Seller (Types: Merchant regularly deals with item OR casual seller who does not) Vendee = Buyer Unconscionable contract is so grossly unfair that the courts will refuse to enforce it. Statute of Frauds (recall contract law unit) requires certain contracts to be in writing. Applies to : Sale of goods valued over $500 Requires: Contract be in writing and meet all requirements of writing Requirements of Writing Include: Date, Place, Parties, Subject matter, Price, Signatures BB30 Business Law 6.01 Summer 2013

TRANSFER OF OWNERSHIP Authorized Person vs. Buyers in a Sale Induced by Fraud Holders of Negotiable Instruments Merchants with Possession of Sold Goods Discuss each point with the students individually: Authorized person – A third party may sell someone else’s product with their permission. Realtor sells a home on behalf of the owner. Consignment shops are examples. Buyers in a Sale Induced by Fraud – If a person sells an item due to fraud they can void the transaction and receive the item back. However, if the other party has already sold the item to a good faith purchaser then the third party now has a good title. However, if the third party bought stolen goods (not sale induced by fraud), then they must return the item. (Role Play: Bring three students to the front of the room and role play. Ask each person the ethics behind what has happened what their legal rights are in the transaction). Holders of Negotiable Instruments – Ownership may transfer while the items are in transit or storage (define warehouse receipt, bill of lading, common carrier during this discussion). Merchants with Possession of Stolen Goods – After purchasing an item, you may asked the merchant to hold it until you can pick it up. For example, you purchase a couch but do not return until the next day with a friend’s truck to pick it up. BB30 Business Law 6.01 Summer 2013

Existing Goods vs. Identified Goods vs. Future Goods TRANSFER OF OWNERSHIP Existing Goods vs. Identified Goods vs. Future Goods Existing Goods – physically exist and owned by the seller. Identified Goods – designated for a sale (Discussion: Ask students if they have ever seen a sign of a product that says, “Hold for Miller” or if they have received a box from the back of the store that has marker written on it with their name. Future Goods – this is a contract and not a sale because under UCC you cannot own future goods. (Discussion: What if they are never produced? How can you own something that does not exist?) BB30 Business Law 6.01 Summer 2013

When does ownership transfer? Situation Definition Who owns item? Tender of delivery Seller notifies buyer of item being available. Buyer once notified. Seller ships goods Seller is required to ship item but not deliver to buyer. Buyer once the carrier is in possession of item. Seller sends document of title Seller provides the document of title to the buyer and the buyer can receive the goods at anytime. Buyer once document of title is possessed. Seller tenders items at place of sale Buyer is offered item at the place of the sale. Buyer once item is tendered. Discuss each situation on box at a time. BB30 Business Law 6.01 Summer 2013

When does risk of loss transfer? Situation Who is at risk? FOB Shipping Point Buyer is at risk once the item is shipped. FOB Destination Seller is at risk until the product is delivered to the buyer You purchase a used car on autotrader.com from a dealer in Atlanta. While the car is being driven to North Carolina it slides off the road and is damaged. What is type delivery terms will protect you in this transaction? FOB means “free on board.” Discuss the example with the class. They should state that the best terms would be FOB (name of the town you are located in). Discuss with students the importance of checking this when purchasing on the Internet. How can they protect themselves with FOB Shipping Point? Prompt the students to discuss purchasing insurance from the carrier when shipping FOB Destination. BB30 Business Law 6.01 Summer 2013

RISK OF LOSS Situation Definition Who is at risk? Cash and Carry Sales Pay cash and take immediate delivery Buyer assumes risk at receipt. Sales on Credit Payment at a later date COD Sales Collect on delivery Buyer assumes risk at receipt (when paid in full). Sale or Return Buyer has the option to return the goods Sale on Approval Buyer has goods on a trial basis Buyer assumes risk at time of approval. Sale of an Undivided Interest Buyer owns a portion of the item Each owner has a partial risk. Auction Buyer bids on item. Ownership transfers when the gavel falls (unless reserve is not met). Bulk Transfer All or a major part of a business is sold. Buyer must notify creditors of ownership transfer. BB30 Business Law 6.01 Summer 2013

WARRANTIES Express Implied Warranty of Title Exclusions BB30 Business Law 6.01 Summer 2013

Express Warranty Express warranty is also called a guarantee The promise or assurance of the quality or life of a product “Guaranteed satisfaction or your money back” “Lifetime guarantee” BB30 Business Law 6.01 Summer 2013

Express Warranty Can be oral or written Written form recommended Parol evidence rule applies: evidence of oral statements made before signing a written contract cannot be presented in court to change or add to the terms of that written agreement Magnuson-Moss Act – requires that written warranties be labeled as full or limited BB30 Business Law 6.01 Summer 2013

Express Warranty Puffery by salesman is not a warranty, but an opinion of the salesperson. Express warranties are created by: Statement of fact or promise by seller Description of goods Use of same item or model BB30 Business Law 6.01 Summer 2013

Implied Warranty A guarantee of quality imposed by law but not in writing Implied warranty deals with sale of goods Regulated by UCC Given by all sellers BB30 Business Law 6.01 Summer 2013

Implied Warranties Warranty of fitness for a particular purpose Seller knows the purpose for which goods are needed Seller advises buyer in making purchase Buyer relies on seller’s advice to make decision Seller infers that the goods are fit for a particular purpose A warranty exists BB30 Business Law 6.01 Summer 2013

Implied Warranties Warranty of Merchantability Given by a merchant only Merchant infers that goods pass in the trade without objection Goods are fit for the ordinary purpose such goods are used for Conform to any promises or statements made on the container or label BB30 Business Law 6.01 Summer 2013

Implied Warranties Usage of Trade An implied warranty that is a well established custom or practice among people in specific trades or businesses Example: When a person sells a thoroughbred horse there is an implied warranty that papers are provided to prove the animal’s pedigree as a thoroughbred. It is expected in the horse trading business BB30 Business Law 6.01 Summer 2013

Warranty of Title Seller warrants that the title is good and transfer is rightful Seller warrants that goods will be delivered free of any financial obligations about which the buyer had no knowledge BB30 Business Law 6.01 Summer 2013

Warranty of Title Sale of Stolen Goods If stolen goods are sold to an innocent purchaser, the true owner is entitled to return of the goods The buyer can pursue remedy against the seller for breach of warranty of title BB30 Business Law 6.01 Summer 2013

Full Warranty A full warranty requires that the defective product be repaired or replaced for free within a reasonable length of time after complaint is made. If the product cannot be fixed, the consumer has the option to get their money refunded. Have you ever tried to return merchandise that you thought was under warranty but was not? BB30 Business Law 6.01 Summer 2013

Limited Warranty A limited warranty provides a restricted guarantee. Must state “Limited” Warranty Be sure to read and understand the limits of the warranty before purchasing…caveat emptor! BB30 Business Law 6.01 Summer 2013

Limited Warranty Caveat Emptor - Latin for “Buyer Beware” It is the duty of the consumer to make informed decisions. Be sure to read labels and research products before buying. Comparison shop. It is the duty of the seller to provide appropriate information for the consumer. BB30 Business Law 6.01 Summer 2013

Limited Warranty Caveat Venditor - Latin for “Seller Beware” It is the duty of the seller to make informed decisions. Example: Banks, credit card companies and businesses who extend credit to customers check credit histories and applications before extending credit. BB30 Business Law 6.01 Summer 2013