Commercial Law Outline

TIDBITS:
Statute of Frauds: contract must be in writing, BUT it only applies to executory contracts, contracts yet to be performed.
1-103 à common law and UCC fit together, where they do not conflict, both may be used, where they conflict, UCC trumps common law.
Article 9 à Key Concepts:
Attachment: debtor signs security agreement granting the lien.
Perfection: Secured party (bank) files the necessary documents with secretary of state to let the world know they have a security interest.
Priority: first in time, first in right; first to file has priority.
Right to Cure à Seller’s Right to Cure is the right to fix certain defects and re-tender the goods. 
Parol Evidence Rule does not apply to oral contracts. You need a written contract.
Statute of Frauds is a writing requirement à contract can be valid, but unenforceable. 
Zero-Sum Gain à a participant’s gain or loss is exactly balanced by the losses or gains of the other participants. 
All entrustments are bailments, not all bailments are entrustments.
Bills of Lading are not always negotiable.
The Statute of Frauds in Article 2 of the UCC does NOT require a writing for contracts that cannot be performed in one year. This is the common law requirement. UCC requires it for contracts for goods over $500.00.
A thief can never pass good title to goods. However, in the entrustment context, this would create voidable title, the power to create greater title in someone than you had.
The three parties to a Letter of Credit are Issuer, Customer, and Beneficiary.
An express warranty can be created by a description of the goods. 2-313(1)(b)
Express terms may sometimes take precedent over Course of Dealing. Nanakuli.
Good faith is non-disclaimable under the UCC.
A presentment under a Letter of Credit is made not to the customer, but to the issuer (bank) by the beneficiary.
The Statute of Frauds under the UCC requires a writing signed by the party against whom enforcement is sought.
In an entrustment, the party to whom the goods are entrusted has voidable title.
A property interest in the goods sought is a necessary prerequisite to a replevin action.
 
Chapter 1: Introduction
Every case:
What is the cause of action?
Is there a contract?
What are the contracts terms?
What are the duties under the contract?
What is the remedy sought?
 
Elements of contract under common law –
–          Offer
–          Acceptance
–          Consideration
–          “Meeting of the minds” (agreement on fundamental terms)
Sales contracts are governed by Article 2 of the UCC (Article 2 applies to the sale of goods, and applies to non-merchants), however –
–          § 1-103: Common law of contracts is part of the law in the UCC to the extent it is not inconsistent with the UCC
How do buyer and sellers manage risk when seller is worried about getting paid for goods and buyer wants to ensure receipt?
–          Article 5 – The Letter of Credit:
o   Bank on either end of the transaction, seller’s bank sets up a LOC to enable the seller to put the goods in the possession of a common carrier – once the common carrier has the goods the seller’s bank sends the LOC to buyer’s bank, then once buyer’s bank receives the LOC, they release the money for the goods.
–          Article 3 – Negotiation = seller and third party’s agreement to transfer a check
o   Third party becomes Holder in Due Course
§ What happens if the seller’s goods go to shit and the buyer stops payment? Seller sues for the money, but the buyer has a defense (warranty)
§ Article 3 – Protects third party (to a degree) from the buyer’s defenses
–          Article 4 – Check collection process
–          Article 9 – Secure transactions
o   Two forms of credit –
§ Unsecured debt (debtor makes a naked promise to pay)
§ Secured debt – Implied bailee obligations
·         Who pays more for the loan?
o   The debtor with the unsecured loan pays more b/c the creditor is taking a bigger risk
o   Security interests can be created in things that don’t necessarily exist at the time of the creation of the interest –
§ Target – Stuff comes in from all over the place, they have a line of credit running with checks paying for everything (Line of Credit is with PNC BANK)
·         PNC has lent the $1 M line of credit to Target; in exchange it has taken a security interest in Target’s inventory, machinery, etc.
o   Bank has a floating lien on the inventory, as soon as Target takes possession the Bank’s security interest attaches to that property
o   Event of Fault – If Target defaults on the line of credit then the Bank can seize the property and sell it to get its money back
Hill v. BASF Wyandotte Corp.
BWC manufactures herbicide – Pennington is a rep for them (may have actual authority, or apparent)
Kerr – Retailer
Hill – farmer buys herbicide – Pennington made some comments about efficacy
Is there a contract?
Pennington – BWC = employment contract
BWC – Kerr McGee = distribution contract
Hill – Kerr McGee = sales contract
Is there a contract b/w Hill + Pennington?
Offer/acceptance, maybe, but no consideration
Does Pennington have authority to bind BWC to a contract? Probably not – his statements were probably just Puffing (sales rep building up the product – main issue is if statement was opinion or fact See § 2-313)
Only clear cause of action for Hill is tort action for misrepresentation (hold BWC vicariously liable)
 What about warranties on the product? Did Pennington’s assertions constitute express warranties?
Express –
§ 2-313
(a) Affirmation of Fact –
This case is about (a) – Pennington said the product would do certain things:
Look for privity – Kerr and Hill have contract, but no contract b/w Hill + BWC
§ 2-313 (A) & (B) in proposed amendments – Would erase the privity requirement so that if a company says something the entire public has warranty protection whether they had interactions with the company or not
(b) Description of Goods –
(c) Sample or Model –
Implied –
Merchantability – Suitable for general purpose
Particular Purpose – Seller tells buyer that the product is suitable for a particular purpose
What kind of damages can be recovered for breach of warrant?
Direct
Indirect (consequential)
In this case there was a disclaimer of warranties –
Can disclaim implied warranties by conspicuous statement – there was one on the can of herbicides here
Disclaimer of incidental and consequential damages –
§ 2-719(3) permits this, so even if Pennington’s statements constitute an express warranty, the buyer only gets direct damages because of the disclaimer of consequential damages
Normally disclaimer of remedies leaves the buyer with repair/replacement
Formation issues at common law –
For a unilateral amendment you need consent and consideration
Under § 2-209 there does not need to be consideration for an effective modification
Fraud: inducement and factum
 
Chapter 2: Agreement and Good Faith
 
Contract theory is objective à to be interpreted not on the bases of the subjective intent of the parties, but from the point of view of a reasonable party standing in the shoes of the recipient.
 
Course of Performance:
Nanakuli Paving and Rock Co. v. Shell Oil Company, Inc.à Asphalt sales, primarily to the government, can never charge the government more than the bid, had to be a fixed amount according to the bid – therefore price protection was widespread in the industry –
Two Long Term Requirement Contracts b/w Nanakuli & Shell –
                                                              i.      Requirement contracts – a contract in which a seller promises to supply all the goods or services that a buyer needs during a specific period and at a set price, and in which the buyer promises (explicitly or implicitly) to obtain those goo