1. Sales Law: Terms Formation Performance Title
Chapter 13
Sales Law:
Terms
Formation
Performance
Title

2. I. Uniform Commercial Code

3. The UCC was created to recognize that commercial transactions in the United States are unique in nature and deserving of specialized treatment in the body of law
The UCC has now been adopted in all 50 states, the District of Columbia and the Virgin Islands
In California, the UCC is called the “Uniform Commercial Code,” the “California Commercial Code,” or simply the “Commercial Code”

4. A. California Commercial Code Divisions
Division 1 General Provisions
Division 2 Sales
Division 3 Negotiable Instruments
Division 4 Bank Deposits and Collections
Division 5 Letter of Credit
Division 6 Bulk Sales
Division 7 Warehouse Receipts, Bills of Lading, and Other Documents of Title
Division 8 Investment Securities
Division 9 Secured Transactions; Sales of Accounts, Contract Rights and Chattel Paper
Division 10 Personal Property Leases
Division 11 Funds Transfers
Division 13 Effective Date and Repealer
Division 14 Effective Date and Transaction Provisions
Division 15 Effective Date and Transaction Provisions
Division 16 Effective Date and Transaction Provisions

5. B. The Purposes of the Commercial Code
The purposes of the Commercial Code are:
to simplify, clarify, and modernize the law governing commercial transactions;
to permit the continued expansion of commercial practices through custom, usage and agreement of the parties, and
to make uniform the law among the various jurisdictions
[Com Code § 1103(a)(3)]

6. II. Terms

7. A. Transactions
TRANSACTIONS are interpreted broadly enough to include leases, bailments, and gifts. However, the majority of Division 2 provisions apply to contracts for the sale of goods.

8. B. Goods
GOODS are usually thought of as being movable, tangible personal property
The Commercial Code’s definition for goods is “all things which are movable at the time of identification to the contract for sale”
[Com Code § 2105(1)]

9. Goods v. Non-Goods Goods: Not included as goods:
Specially manufactured goods
The unborn young of animals
Timber to be cut
Growing crops
Minerals
Not included as goods:
The money in which the price is to be paid;
Investment securities;
Things in action;
Services
The sale of real estate/land

10. C. The Sale
A SALE consists of the passing of title from the seller to the buyer for a price
Present Sale of Goods
Future Goods
Contract to Sell

11. III. Formation

12. A. Good Faith
GOOD FAITH is honestly in fact in the conduct or transaction concerned
Merchants must observe reasonable commercial standards of fair dealing in trade in addition to acting in good faith
The Commercial Code imposes a higher standard upon merchants, due to their greater knowledge, than non-merchants

13. B. Merchants A MERCHANT is a person who: deals in goods of the kind or
otherwise, by his/her occupation, holds himself/herself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or
to whom such knowledge or skill may be attributed by his/her employment of an agent or broker or other intermediary who by his/her occupation holds himself/herself out as having such knowledge or skill
[Com Code § 2104(1)]

14. C. Unconscionability
UNCONSCIONABILITY has generally been recognized to include an absence of meaningful choice on the part of one of the parties, together with contract terms that are unreasonably favorable to the other party

15. D. Manner of Agreement
Just as a contract can generally be formed by words or conduct, under the Commercial Code “a contract for sale of goods may be made in any manner sufficient to show agreement (MANNER OF AGREEMENT), including conduct by both parties, which recognizes the existence of such a contract”
[Com Code § 2201(1)]

16. E. Open Terms
OPEN TERMS mean that even though one or more terms are left open, a contract for sales does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy
[Com Code § 2204(3)]
Price
Quantity
Performance

17. F. Firm Offer to a Contractor
Commercial Code Section 2205(b) involves the offer for a sale of goods to a licensed contractor:
Offer may be written or verbal
Merchant has actual or imputed knowledge that the contractor will be relying on for his bid
Offer is irrevocable for 10 days after the awarding of the contract to a licensed contractor, but no event for more than 90 days
For offers of $2,500 or more, they must be confirmed in writing by the licensed contractor within 48 hours after made
Merchant may provide that the offer will be held open for less than the time provided for in this code section

18. G. Statute of Frauds
According to the Statute of Frauds, a sales contract for less than $500 need NOT be in writing
When the contract is between merchants, a writing sent by one merchant confirming the contract will bind the other party to the contract even though he has not signed the writing
If the goods are to be specifically manufactured for the buyer and are not suitable for other customers of the seller, an oral contract will be enforceable
[Civil Code § 2201(3)(a)]

19. H. Acceptance Acceptance can be made in “any reasonable manner”
In a sale of goods, the offeree does not need to communicate his acceptance in the same manner in which the offer was communicated
Varying Acceptances

20. I. Auctions
Under Section 2328(2) of the Commercial Code, a sales by auction is complete when the auctioneer so announces by the fall of the hammer or in an other customary manner. Until then, the bid can be revoked, which, if accomplished, does not revive the previous bid.
With Reserve Auction
Without Reserve Auction
Internet auctions, such as on eBay.com, are no different than traditional auctions

21. IV. Seller’s and Buyer’s Obligations

22. A. Seller Obligations
BASIC OBLIGATIONS - is to deliver conforming goods to the buyer [Com Code § 2301]
CONFORMING GOODS are goods that are in accordance with the obligations under the contract [Com Code § 2106(2)]
A COMMERCIAL UNIT is when commercial usage treats a unit of the good as being a single whole if any division materially impairs its character or value in the market [Com Code § 2105(6)]
TENDER refers to the present ability and willingness to perform the exact terms of the contract
CURE – allows a seller the right to “cure” the imperfect delivery if time remains for performance to occur

23. A. Seller Obligations (cont.)
TIME - the tender must be made at a reasonable hour and the goods must be kept available for a reasonable time period for the buyer to take possession
[Com Code § 2503(1)(a)]

24. A. Seller Obligations (cont.)
PLACE for delivery
Non-Moving Goods
Moving Goods
Shipment contract
Destination contract
F.O.B.
Shipping Terms
F.O.B. Place of Destination
F.A.S. Vessel
F.A.S. Vessel at a Named Port
C.I.F.
C & F
Bill of Lading

25. B. Buyer’s Obligations
BASIC OBLIGATION – is to accept and pay in accordance with the contract [Com Code § 2301]
INSPECTION – to verify that the goods are conforming, the buyer should inspect them
REJECTION OF GOODS – an indication by the buyer that he is unwilling to accept the goods tendered by the seller constitutes a rejection
ACCEPTANCE OF GOODS – when the buyer signifies to the seller that the goods are conforming or that the buyer will retain them in spite of the nonconformity, an acceptance has occurred
[Com Code § 2606(1)(a)]
REVOCATION OF ACCEPTANCE – if a buyer accepts goods under a belief that the seller intends to cure the nonconformity, he has the same rights and duties to the goods as if the buyer has originally rejected them
[Com Code § 2608]

26. V. Assurances

27. Assurances
When a party reasonably believes that the other party may not perform, he or she may demand, in writing, adequate assurance that the other party will perform according to the contract

28. VI. Breach

29. A. Anticipatory Repudiation
When a party fails to provide assurances of performance or otherwise repudiates the contract, the other party has three actions that he may take:
a nonbreaching party may give the breaching party a commercially reasonable time in which to tender conforming performance
a nonbreaching party can make use of any remedy provided for under sections 2703 or 3822 of the Commercial Code
finally, a nonbreaching party may:
Suspend his performance
Identify the goods to the contract, or
Salvage unfinished goods [Com Code § 2610(a)-(c)]

30. B. Seller’s Breach
Unless otherwise agreed, under the perfect tender rule, the seller breaches his obligation by not perfectly performing
One exception to this is an INSTALLMENT CONTRACT where the goods are required or authorized for delivery in separate lots that must be independently accepted [Com Code § 2612(1)]

31. C. Buyer’s Breach
The primary way that a buyer breaches the sales contract is by failing to make the payment as called for under the contract

32. VII. Remedies for Non-Payment

33. A. Seller’s Remedies
If the buyer is unable to tender cash, the seller is under no obligation to deliver the goods, and may stop the delivery of any goods already shipped to the buyer

34. B. Buyer’s Remedies

35. VIII. Title

36. A. Identification of Goods
Identification of the goods must take place prior to title passing from the seller to the buyer
[Com Code § 2401(1)]
Where the future goods are animals, identification occurs when the animals are conceived
[Com Code § 2501(1)(c)]

37. B. Passage of Title
Once the goods are in existence and identified, title may pass from the seller to the buyer
[Com Code § 2401(1)]
Determining the time and place of delivery depends on whether the contract is a “shipment” contract or “destination” contract
Shipment contract
Destination contract
No Movement Required to Deliver Goods

38. C. Transferring Title
A general rule is that a seller transfers no greater title than what he has
Voidable Title
Entrustment

39. D. Document of Title
A DOCUMENT OF TITLE is an instrument that represents ownership of goods
The two most commonly used documents of title are the “bill of lading” and the “warehouse receipt”
The documents may be either negotiable or nonnegotiable

40. Chapter Summary Uniform Commercial Code
California Commercial Code
Purpose of the Commercial Code
Terms
Transactions
Goods
The Sale
Formation
Good Faith
Merchants
Unconscionability
Manner of Agreement
Open Terms
Firm Offer to a Contractor
Statute of Frauds
Acceptance
Auctions
Seller’s and Buyer’s Obligations
Assurances
Breach
Anticipatory Breach
Seller’s Breach
Buyer’s Breach
Remedies for Nonpayment
Title
Identification of Goods
Passage of Title
Transferring Title
Documents of Title