SALES

1. SALES 19 Warranties & Product Liability 18 Formation & Terms of Sales Contracts 20 Performance of Sales Contracts 21 Remedies for Breach of Sales Contracts

2. CHAPTER 18 Formation & Terms of Sales Contracts

3. Introduction • Sale of Goods = Transfer of ownership of personal property in exchange for money, other goods or the performance of services. • UCC Article 2 applies to transactions in goods • Code applies where sale of goods is the predominant part of the transaction • Leases- UCC Article 2A

4. Introduction • Sale of Goods? • Heart of Texas Dodge, Inc. v. Star Coach, L.L.C., p.303 • A contract to customize a truck was found to be a contract for services and labor with only the incidental furnishing of equipment and materials; because the predominant element was the furnishing of services and labor, the contract was not one for the sale of goods and is not governed by the UCC..

5. Introduction • Sale of Goods? • Question 1 at end of chapter • No. the court noted that the UCC applies only to transactions in goods and not to service contracts. Where the transaction is viewed a mixed sales and service contract, the courts look to the main purpose of the agreement. Here, the courts focus on whether the predominant factor is service, with goods only incidentally involved, or the sale of goods,, with labor only incidentally involved. In this case, the goods involved were available only to licensed applicators such as Capitol and could not have been purchased by the Abelmans. They did not contract with Capitol to buy gold Crest Termite, but rather the sole purpose of the contract was for Capitol to provide the service of ridding their home of termites. Accordingly, the contract was not one for the sale of goods and there was no express or implied warranty. Abelman v. Velsicol Chemical Corp., 15 UCC Rep.2d 93 (Cir. Ct. Md. 1991).

6. Introduction • Higher Standards for Merchants • Buyer reliance • Merchants generally more knowledgeable • Code Requirements • Good faith • Commercially reasonable manner

7. Terms of Sales Contracts • Gap Fillers (for omitted terms) • Common trade practice • Commonly used terms • Unless contract specifies otherwise • Price • Reasonable Price at Delivery • Good faith required where 1 party allowed to fix • Contractual Quantity Terms • Output/Requirements (e.g. all of a crop produced) • Limited to actual or good faith reasonable amount

8. Terms of Sales Contracts • Gap Fillers (for omitted terms) • Exclusive Dealing • Requires best efforts to supply & to sell • Delivery • Usual default: Single shipment lot to seller’s place of business • Time • Default: reasonable time

9. Title & The Code • General Title Rules • Physical Delivery • Delivery Without Moving Goods • Negotiable Document of Title • Code Changes • Title • Risk of Loss • 3rd Party Claims • Insurable Interest • Buyer Rejection

10. Title & The Code • Physical Delivery • Butler v. Beer Across America, p.307 • Where the sales invoice and shipping documents provided that the sale was FOB the seller who was located in Illinois and the beer was brought to Alabama by a common carrier, the sale was considered to have been made in Illinois and title passed from the seller to the buyer at the time the beer was tendered to the carrier. • Note that the main impact of the sale having taken place in Illinois was that the case against the seller had to be brought in Illinois.

11. Title & The Code • Physical Delivery • Example:Under 2-407(2), title to the vehicle passed to the buyers at the time and place when the seller completed his performance with reference to the physical delivery of the goods. The fact that the dealer retained the Certificate of Title pending receipt of full payment for the car was effective under Section 2-401(1) only as the reservation of a security interest in the vehicle. O’Donnell v. American Employers Insurance Co., 622 N.E.2d 570 (Ct. App. Ind. 1993)

12. Title & the Code • Delivery without moving goods • Title passes at time & place of contracting, if goods identified (by surrounding circumstances) • Negotiable Document of Title • (e.g Bill of Lading) • Title passes with delivery of document • Buyer rejection • Title reinvests in seller

13. Title & the Code • Delivery without moving goods • Title passes at time & place of contracting, if goods identified (by surrounding circumstances) • Question 2 at end of chapter • No. If delivery is to be made without moving the goods and no documents of title are involved, title passes at the time of contracting if the goods are identified at the time of contracting (Section 2-401[3][b]). It is not necessary that the goods be in a deliverable state in order to be identified to the contract. Because the Kinsvater boat was identified at the time the parties contracted for sale, because there was no requirement for documents of title for boats in this state, and because delivery was to be made without the seller moving the boat, title passed to Clouser at the time of the contracting. Transamerica has confused title with risk of loss. Russell still had the risk of loss because he retained possession of the boat. Title, however, had already passed to Clouser. Russell v. Transamerica Insurance Co., 322 N.W.2d 178 (Ct. App. Mich. 1982).

14. Title & Third Parties • Protection of Innocent Buyers • Transfer of Voidable Title- Good Faith Purchaser, For Value • Reason: Place Burden of Loss on Party who had best opportunity to avoid harm (true owner vs. good faith buyer) • Alsafi Oriental Rugs v. American Loan Co., p.308 • Where an individual, through fraudulent representations, convinced a rug dealer to give her possession of some oriental rugs “on consignment,” the individual had voidable title to the rugs and the power to transfer good title to a good faith purchaser for value. • Is this an equitable result? Who was in the best position to avoid the harm in this case?

15. Title & Third Parties • Protection of Innocent Buyers • Transfer of Voidable Title- Good Faith Purchaser, For Value • Sutton v. Snider, p. 310 • Where the owner of a motorcycle entrusted possession of his motorcycle to a dealer on consignment and the dealer sold the motorcycle to a third person, that individual received good title to the motorcycle as a buyer in the ordinary course of business and the original owner was not entitled to recover the motorcycle from him.

16. Title & Third Parties • Protection of Innocent Buyers • Transfer of Voidable Title- Good Faith Purchaser, For Value • Question 3 at end of chapter. • Yes. Under 2-403 of the Code a “person with voidable title has power to transfer good title to a good faith purchaser for value” even though the voidable titleholder obtained the goods by deceiving the transferor as to the identity of the purchaser and that deception was punishable as criminal fraud. Here, Gude obtained a voidable title to the merchandise, and he could pass on good title to Simpson if Simpson was able to show he was a good faith purchaser for value. Club Pro Golf Products, Inc. v. Simpson, 7 UCC Rep.2d 425 (Cir. Ct. Va. 1988).

17. Title & Third Parties • Protection of Innocent Buyers • Buyer in Ordinary Course of Business (i.e. from a dealer in that type of goods) • Reason: To promote confidence in commercial transactions • Entrusting Goods • e.g. Watch to jeweler for repair • Remedy: Sue for conversion

18. Title & Third Parties • Protection of Innocent Buyers • Buyer in Ordinary Course of Business (i.e. from a dealer in that type of goods) • Question 4 at end of chapter • No. Jones does not have to surrender the vehicle to Mitchell even though the dealer had never paid Mitchell or received a title from her. Jones was a buyer in the ordinary course of business because he purchased a used car in good faith from a merchant dealing in used cars. Section 2-403(2) protects a buyer in the ordinary course against a true owner in every case where the owner has entrusted goods to a merchant who deals in goods of that kind Jones v. Mitchell, 2001 WL 1299237 (Ct. Civ. App. Ala. 2001).

19. Risk of Loss • Overview • Terms of Agreement- Tender of Delivery • Shipment Contracts • Destination Contracts • Goods in Possession of 3rd Party • Risk Generally • Breach of Contract/Risk of Loss • Insurable Interest

20. Shipment Contracts • Free On Board (FOB) • Goods to carrier passes risk of loss to buyer • Free Alongside (FAS) • Goods delivered alongside of vessel, passes risk of loss to buyer • Cost, Insurance, & Freight (CIF) • Seller retains risk of loss (to insure) • Cost & Freight (C&F) • Seller no obligation to insure

21. Destination Contracts • Destination Contracts - Seller retains risk of loss until reach specified destination • FOB Destination • Ex-Ship • Seller retains risk until unloaded from ship used • No Arrival, No Sale

22. Goods in Possession of 3rd Parties • Risk passes to buyer when buyer has the power to take possession • Harmon v. Dunn, p.312 • Where goods that are the subject of a contract for sale re held by a bailee to be delivered without being moved, the risk of loss passes to the buyer on acknowledgment by the bailee of the buyer’s right to possession of the goods.

23. Goods in Possession of 3rd Parties • General rule, where no other rules apply, risk passes with receipt • Example: Where the seller is a merchant dealing in goods of the kind sold, the risk of loss passes to the buyer on his receipt of the goods under UCC Section 2-5099999(3). Here, the seller was a merchant and still had possession of the goods when they were stolen. Under these circumstances, Wheel Sports Center was still responsible for the motorcycle. Ramos v. Wheel Sports Center, 409 N.Y.S.2d 505 (Cir. Ct. N.Y.C. 1976).

24. Risk of Loss • General rule, where no other rules apply, risk passes with receipt • Question 5 at end of chapter • No. Under section 2-509 of the Code, risk of loss passes from the buyer from a merchant on the buyer’s receipt of the goods. Here, Legendary Homes never received the goods; thus the risk of loss remained with Ron Mead. Receipt of goods means taking physical possession of them. The court concluded that the act of the deliveryman of placing the goods in an unlocked garage in a house under construction and then locking the door did not give Legendary Homes the opportunity to take physical possession of them. Ron Mead T.V. & Appliance v. Legendary Homes, Inc., 746 P.2d 1163 (Okla. Ct. App. 1987).

25. Risk of Loss • General rule, where no other rules apply, risk passes with receipt • Question 7 at end of chapter. • Yes. Where no shipment of the goods or holding of the goods by a bailee is involved, if the seller is not a merchant, the risk of loss passes to the buyer on tender of delivery. The risk of loss does not turn on who is the title holder. Here, there was no effective tender of delivery. Putrell had not removed the items from either the mobile home or the shed that she was required to remove and had not surrendered the keys to the shed. As the trailer and shed had not been put at Burnett’s disposition without being fettered with the items of personal property, there was no tender of delivery within the meaning of the Code. Consequently, the risk of loss remained with her. However, there was a strong dissent who argued that the fact Putrell had left some personal effects in the mobile home was not sufficient to conclude that delivery had not been tendered. She had permission to enter the mobile home only for a specific, limited reason. From the point in time that title was transferred and the keys given to Burnett, delivery was tendered and only a bailment for personal property existed. Burnett v. Putrell, 1992 Ohio App. Lexis 3467.

26. Goods in Possession of 3rd Parties • If breach, burden on breaching party • Possible mitigation of risk: Insurance where insurable interest

27. Sales on Trial • Sale/Return • Where primarily for resale • Title & Risk of Loss on Buyer • Example: The transaction was a “sale or return” under Section 2-326(1)(b) because the language of the invoice indicated that a sale had occurred but that B & B would take back unsold goods after 90 days. Accordingly, Collier had title to and the risk of loss of the goods while they were in his possession. Collier v. B & B Sales, Inc., 471 S.W.2d 151 (Tex. Ct. App. 1971).

28. Sales on Trial • Sale/Return • Where primarily for resale • Title & Risk of Loss on Buyer • Question 6 at end of chapter • YMCA. The case is controlled by section 2-327 (2), which provides in part as follows: “. Under a sale or return unless otherwise agreed “(a) the option to return extends to the whole or to any commercial unit of the goods while in substantially their original condition, but must be exercised seasonably; and (b) the return is at the buyer’s risk and expense.”Seaway Candy, Inc. v. Cedar Rapids YMCA, 283 N.W.2d 315 (Sup. Ct. Iowa 1979).

29. Sales on Trial • Sale on Approval • Risk does not pass to Buyer until accepts • Sale on Consignment or Memorandum • Consignor retains title & risk of loss • Note: if no notice, consignee’s creditors may attach

30. Sales on Trial • Sale on Consignment or Memorandum • In Re Corvette Collection of Boston, Inc., p. 315 • Goods delivered on consignment are deemed to be on sale or return and thus they are subject to the claims of the consignee’s creditors unless the consignor has complied with the requirements of Article 9 of the UCC, posted a sign pursuant to a state signage law (which Alabama does not have) or establishes that the consignee is generally known by his creditors to be selling the goods of others (which could not be established in this case).

31. Sales on Trial • Sale on Consignment or Memorandum • Question 8 at end of chapter • Yes. Under section 2-326(3) of the UCC, goods delivered on consignment are deemed to be on sale or return. Thus by deeming the consignee a purchaser of the goods, the consignor is precluded from asserting an ownership claim to the goods vis-à-vis the consignor’s creditors. A consignor can avoid having the consigned goods being subject to the claims of the consignee’s creditors only if he (1) complies with an applicable law providing for his interest to be evidenced by a sign; (2) establishes that the person conducting the business is generally known by his creditors to be selling the goods of others; or (3) complies with the filing provisions for secured transactions. In this instance, Jackson is not protected because Alabama has no sign law, only one of the Auclair’s creditors, at best, had knowledge of the consignment, and Jackson had not complied with the filing requirements for secured transactions. In Re Auclair, McGregor v. Jackson, 131 B.R. 183 (Bankr. M.D. Ala. 1991).