Bài giảng Business Law - Chapter 19: Formation and Terms of Sales Contracts

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin4Formation and Terms of Sales ContractsProduct LiabilityPerformance of Sales ContractsRemedies for Breach of Sales ContractsSalesPARTFormation and Terms of Sales ContractsPAETRHC19Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains.Thomas Jefferson, U.S. president and merchant, in a letter to Horatio G. Spafford (March 17, 1814)Learning ObjectivesAnalyze whether common law or the UCC applies to a sale of goods Explain the meaning of voidable title and when title to goods passes from seller to buyerApply UCC’s rules about risk of lossDistinguish between sale or return and sales on approvalThe Uniform Commercial Code (UCC or Code) govern most commercial transactions within the United StatesUnder UCC Article 2, a sale of goods involves the transfer of ownership to tangible personal property in exchange for money, other goods, or the performance of servicesDoes not specifically apply to trade in servicesThe UCC and Sale of GoodsIf dispute arises about a sales transaction, a disputing party must determine (a) the basis for the dispute, (b) applicable law, (c) and how to respond to the dispute (negotiate or litigate)Example: Dealer Management Systems, Inc. v. Design Automotive Group, Inc. in which court determined whether unsigned contract for software over $500 was a contract for goods governed by the UCC (yes) and if it complied with Statute of Frauds (no)If a Dispute ArisesInterpreting a sales contract is easier with common rules of interpretation:Trade practices refers to using words common in a particular industryExample: “case” has a different meanings for different industriesIf price was omitted, UCC 2-305 fills the gap by providing the term: reasonable price at the time for deliveryDetails of Sales ContractsAn outputs contract is an agreement in which buyer purchases all produce of sellerExample: hog farmer agrees to sell all hogs produced only to HamNBacon Co. A requirements contract is an agreement in which seller must provide all requirements for buyer’s production to the buyerExample: Textiles Inc. must provide all fabric required for production to T-Shirts LLC Details of Sales ContractsUnder the exclusive dealing contract provision of UCC 2-306(2), sellers have an obligation to use their best efforts to supply the goods to the buyer and the buyers are obligated to use their best efforts to promote their sale If no time for performance is specified, a reasonable time is impliedDetails of Sales ContractsFor contracts requiring successive performances over an indefinite period of time, UCC 2-309 provides that either party can terminate the contract upon giving reasonable noticeDetails of Sales ContractsStandardized shipping terms customarily used in sales contracts to aid in deciding which party bears risk of lossTitle (evidence of legal ownership) to goods cannot pass from seller to buyer until goods are identified to the contract [UCC 2–401(1)]Passage of title determines who bears risk of loss if goods damaged during shipmentIf no special agreement, title to goods passes to buyer when seller completes obligations of deliveryFundamental rule: buyer cannot receive better title to goods than seller hadTitle to GoodsUnder UCC 2-403(1), a seller who has a voidable title may pass good title to a good faith purchaser for valueVoidable title: gained by fraudulent meansGood faith [UCC 1–201(19)] means “honesty in fact in the conduct or transaction concerned” Title to Goods: Exception to RuleA buyer in ordinary course is a person who gains good title because s/hein good faith and without knowledge that the sale to him is in violation of the ownership rights of a third party, andbuys goods in the ordinary course of business of a person selling goods of that kind (other than a pawnbroker) [UCC 1–201(9)]Title to Goods: Exception to RuleIf goods are entrusted to a merchant who deals in goods of that kind, the merchant may transfer all rights of the entruster to a buyer in the ordinary course of business [UCC 2– 403(2)]But a merchant-seller cannot pass good title to stolen goods even if buyer is a buyer in the ordinary course of businessTitle to Goods: Exception to RuleCommon law placed risk of loss on the party who had technical title at time of lossUCC provides specific rules:Contracting parties, subject to the rule of good faith, may specify who bears risk of loss in the agreement [UCC 2–509(4)]If contract requires seller to ship goods by carrier but does not require delivery to specific destination, risk passes to buyer when seller delivers goods to carrier [UCC 2–509(1)(a)]Risk of Loss in ShippingUnited Nations Convention on Contracts for the International Sale of Goods (1980) provides rules governing risk of loss in sale of goods contractsInternational Chamber of Commerce publishes a list of common international shipping terms known as INCOTERMSInternational Sale of GoodsShipment contract: seller must place goods in possession of a carrier and contract for transportation as is reasonable for the nature of goods and other circumstancesUnless parties specify shipment method, contract is generally construed as a shipment contractDestination contract: seller must deliver goods to specific destination bearing risk and expense of deliveryCommon Shipping TermsFOB (free on board) point of origin: seller must deliver goods free of expense and at seller’s risk (including loading on board) to the place designated [2-319(1)]FAS (free alongside ship): seller must deliver goods alongside the vessel at the port at seller’s own risk and expense [2–319(2)]Shipment ContractsCIF (cost, insurance, and freight): price of goods includes seller’s cost and risk to load, ship, and insure goods [2–320]C & F: same as CIF, except seller not obligated to insure [2–320]Shipment ContractsCommon commercial practice is for seller of goods to entrust possession of goods to buyer to either give buyer an opportunity to decide whether or not to buy or to try to resell them to a third personSale on approval, sale or return, or consignmentRisk of loss depends on terms of entrustingSales on TrialThought QuestionsJefferson said, “Merchants have no country.” Do you agree with Jefferson? How might Jefferson view current international business practices?