2. 17-2
The Law of Sales
The law of sales affects many individuals and businesses, and is very comprehensive.
It does not include investment securities, real estate, or services.
Contracts for services are considered ordinary contracts and are not covered by the UCC.
In transactions that involve both goods and services, a court looks to the predominant portion of the contract to determine whether it is a sales contract for goods or a services contract for repairs.
Learning Outcome 17-1: Discuss the concept of title in relation to the law of sales.
Page: 268

3. Contracts for Sale vs. Contracts to Sell
17-3
Contract for sale: A legally enforceable agreement that has as its purpose the immediate transfer of title to personal property in return for consideration.
This may be for a present sale of goods or for a sale of future goods.
Sale: The passing of title from the seller to the buyer for a price (payment can be in the form of money or goods).
Learning Outcome 17-2: Distinguish between a contract for sale and a contract to sell.
Page: 268

4. Contracts for Sale vs. Contracts to Sell (cont.)
17-4
Existing goods: Goods that physically exist and are owned by the seller at the time of sale.
Future goods: Goods that do not exist at the time of the sales transaction but are expected to come into the possession of the seller.
Examples: Growing crops and timber, and goods not yet manufactured.
An agreement to sell future goods is considered a contract to sell, in contrast to a contract for sale.
The distinction between existing and future goods is important because a person cannot sell goods to which he or she does not hold title.
In almost every case, courts have held that title to such future goods remains with the seller.
Learning Outcome 17-2: Distinguish between a contract for sale and a contract to sell.
Page: 268

5. Oral, Written, Express, and Implied Contracts
17-5
Sales contracts may be oral or written, and express or implied.
Contracts greater than $500 must be in writing to be enforceable.
Complete agreement need not be in writing, but should show evidence of the intention of the parties.
Contract must be signed by the affected parties.
Learning Outcome 17-3: Identify the classifications of sales contracts, including oral, written, express, and implied.
Page: 268

6. Entire and Divisible Sales Contracts
17-6
The difference between entire contracts and divisible contracts is distinct and can be seen in many business transactions.
Entire contract: Because all components are interdependent and included in the same order, payment for the contract would not be required until the whole order is fulfilled.
Divisible contract: If components are ordered as separate entities, payment for each deliverable is due only when delivery is complete.
Learning Outcome 17-4: Discuss the difference between entire and divisible contracts.
Page: 269

7. Contracts for Labor and Materials
17-7
Contract for labor and materials: A sales contract for goods of special design, construction, or manufacture is neither a contract for sale nor a contract to sell.
A contract for labor and materials does not have to be in writing to be enforceable (even if greater than $500).
The contract will not be binding if the buyer repudiates (cancels) the oral contract and the seller receives the notice before he or she has made either a substantial beginning in manufacturing the goods or commitments for their procurement.
If, however, the seller has begun manufacture or made a commitment, the cancellation is not effective.
Learning Outcome 17-5: Describe the special requirements of contracts for labor and materials.
Page: 270

8. Trial Periods and Returns
17-8
Trial Periods and Returns
Some sellers are willing to allow prospective customers a trial period or the right of return for the merchandise.
It is important to determine who owns and has title to the merchandise while it is in the prospective buyer’s possession, in the event of loss or damage.
Example: An online store sends a customer a vacuum cleaner to try for 30 days, before the customer makes a decision to buy it.
Learning Outcome 17-6: Discuss trial periods and returns.
Page: 270

9. Trial Periods and Returns (cont.)
17-9
Contract of Sale with Right of Return
Sometimes goods are sold on a trial basis; a short trial period will be established during which the buyer can use the machine.
A contract for sale with the right of return gives the buyer both title to the goods and the opportunity to return them to the seller at a later time.
Sale on Approval
When a contract provides for the sale of goods subject to the buyer’s approval, the transaction is a sale on approval.
The goods remain the property of the seller until the buyer has expressed approval of the goods.
Learning Outcome 17-6: Discuss trial periods and returns.
Page: 270

10. Trial Periods and Returns (cont.)
17-10
Sale or Return
Most goods sold can be returned for a variety of reasons unless the sale is clearly identified as final or the circumstances of the return are unreasonable.
Sale or return: An agreement where the seller will accept the return of goods at the request of the buyer.
Merchants will agree to a sale or return in order to maintain goodwill rather than because the seller is legally obliged to accepted the return goods.
Learning Outcome 17-6: Discuss trial periods and returns.
Page: 271

11. Other Kinds of Sales Auction Sales
17-11
Other Kinds of Sales Auction Sales
Buyer: The party making the offer, or bid.
Seller: Owner of the goods, who engages an auctioneer to gather bids from interested parties with the intent of selling to the highest bidder.
A bidder may retract a bid at any time before the hammer falls, and such retraction does not revive any previous bid.
Kinds of Auctions:
Auction without reserve: Goods must be sold to the highest bidder and may not be withdrawn after bidding has begun.
Auction with reserve: Gives the auctioneer the right to withdraw the goods at any time before announcing completion of the sale if reasonable bids are not made.
If a reserve amount has been established, it is announced by the auctioneer before bidding begins.
Auction sales are with reserve unless otherwise specified.
Learning Outcome 17-7: Discuss auction sales, conditional sales, and consignment sales.
Page: 272

12. Other Kinds of Sales Conditional Sales
17-12
Other Kinds of Sales Conditional Sales
One way of selling merchandise is with the condition that title will remain with the seller until the purchase price has been paid.
The buyer cannot legally resell goods purchased this way because title has not passed; a person cannot sell goods to which he or she has no title.
The seller can repossess the goods if the buyer does not pay in the time agreed.
Learning Outcome 17-7: Discuss auction sales, conditional sales, and consignment sales.
Page: 273

13. Other Kinds of Sales Consignment Sales
17-13
Other Kinds of Sales Consignment Sales
A consignment sale occurs when a seller (a consignor) entrusts goods to a merchant (a consignee).
The merchant acts under contract as the seller’s agent to sell the goods in exchange for a small fee.
Learning Outcome 17-7: Discuss auction sales, conditional sales, and consignment sales.
Page: 273

14. Delivery Many transactions require shipment of goods purchased.
17-14
Delivery
Many transactions require shipment of goods purchased.
However, shipping goods is not without risk.
While goods are in transit, there is a distinct possibility that damage may occur. Example: flood damage
Generally, a prudent party will make certain that goods are insured against these types of losses; however, to do so, he or she must have an insurable interest in the goods.
Learning Outcome 17-8: Discuss how the delivery of shipments affects the passage of title, and how f.o.b. shipping point and f.o.b. destination differ.
Page: 273

15. Delivery (cont.) Insurable Interest
17-15
Delivery (cont.)
Insurable Interest
An insurable interest is the right to insure goods against any potential loss.
Sellers have an insurable interest in the goods as long as they have title to them, whereas buyers are allowed to insure goods even before they obtain title to them [UCC 2-501(1)].
Learning Outcome 17-8: Discuss how the delivery of shipments affects the passage of title, and how f.o.b. shipping point and f.o.b. destination differ.
Page: 273

16. 17-16
Delivery (cont.)
The manner in which the goods are shipped affects the passing of title.
Title to goods that are shipped by private carrier or delivered by the seller passes at the time of delivery to the buyer.
If the buyer arranges for delivery, title passes when the buyer, or his or her agent, picks up the goods.
In the case of goods that are shipped by common carrier, title passes to the purchaser according to the conditions that follow.
Learning Outcome 17-8: Discuss how the delivery of shipments affects the passage of title, and how f.o.b. shipping point and f.o.b. destination differ.
Page: 273

17. F.O.B Shipping Point and F.O.B. Destination
17-17
F.O.B. means “free on board.”
F.O.B. shipping point: When goods are sold f.o.b. shipping point, title to the goods passes from the seller to the buyer when the carrier receives the shipment (buyer will pay the transportation charges).
F.O.B. destination passes when the goods are delivered to the buyer.
Cost of transporting the goods is paid to the carrier by the seller but is usually included in the buyer’s invoice.
The buyer has an advantage in this method of shipment.
Learning Outcome 17-8: Discuss how the delivery of shipments affects the passage of title, and how f.o.b. shipping point and f.o.b. destination differ.
Page: 273

18. Remedies for Breach of Sales Contracts
17-18
Remedies for Breach of Sales Contracts
Remedies are available for only a limited time.
The UCC provides a statute of limitations, that is, a time limit after which the usual legal remedies are no longer available.
In the absence of negligence or fraud, legal action to remedy a breach of sales contract must be started within four years from the breach.
Learning Outcome 17-9: Explain both sellers’ and buyers’ remedies for breach of sales contracts.
Page: 274

19. Sellers’ Remedies Buyer Refuses to Accept Delivery of the Goods
17-19
Sellers’ Remedies
Buyer Refuses to Accept Delivery of the Goods
Store goods for the buyer, and sue to recover the sales price.
Resell the goods immediately if perishable or if market value might depreciate rapidly.
Seller can sue buyer for the difference between the price the goods brought in the resale and the price the buyer had agreed to pay
Retain the goods, and sue the buyer for the difference between the contract price and the market price.
Buyer Refuses to Pay the Purchase Price
If the seller still has possession of the goods, he or she can resell them.
If merchandise has already been delivered to the buyer, he or she can sue for the purchase price.
Learning Outcome 17-9: Explain both sellers’ and buyers’ remedies for breach of sales contracts.
Page: 274

20. Example: Seller’s Remedy
17-20
Example: Seller’s Remedy
Facts:
Kip placed an order with Best Purchase for specially designed medical laboratory testing equipment.
When the equipment was ready for shipment, Kip notified Best Purchase of his intention to cancel the order.
When the buyer refuses to accept delivery of the goods, the seller may retain the goods and sue the buyer for the difference between the contract price and the market price at the time the buyer refused to honor the contract.
In this case Best Purchase has the right to hold the equipment for Kip and sue for the agreed-upon purchase price.
Learning Outcome 17-9: Explain both sellers’ and buyers’ remedies for breach of sales contracts.
Page: 275

21. Sellers’ Remedies (cont.)
17-21
Sellers’ Remedies (cont.)
PO: 9; Page:
When the Buyer Is Insolvent
When the buyer is insolvent, the seller has the right of stoppage in transit.
Stoppage in transit is the right of an unpaid seller to stop goods in transit and order the carrier to hold them.
This right exists for both FOB shipping point sales and FOB destination sales.
Learning Outcome 17-9: Explain both sellers’ and buyers’ remedies for breach of sales contracts.
Page: 277

22. Buyers’ Remedies When the Wrong Quantity Is Delivered
17-22
Buyers’ Remedies
When the Wrong Quantity Is Delivered
If a smaller quantity of merchandise is delivered than was ordered, the buyer may either reject delivery and sue for damages or accept the quantity delivered and sue for damages.
If a larger quantity of goods is delivered than was ordered, the buyer may reject the entire shipment; accept only what was ordered and reject the rest; or accept the entire shipment and pay for the additional items at the contract price.
When the Goods Are Not as Ordered
Buyer may revoke the contract and return the goods that are substantially different from those that were ordered.
If the goods have already been paid for, the buyer may demand a refund of the purchase price.
Learning Outcome 17-9: Explain both sellers’ and buyers’ remedies for breach of sales contracts.
Page: 275

23. Buyers’ Remedies (cont.)
17-23
Buyers’ Remedies (cont.)
When the Seller Fails to Deliver the Goods
Buyer can sue for damages by bringing a tort action charging conversion.
If the goods are unique (work of art) and the buyer wants the particular goods that are specified in the contract, the buyer can seek a court order of specific performance.
A buyer who wishes to obtain goods that are rightfully his or hers, rather than money damages, can sue to obtain them by bringing an action of replevin.
The buyer can cover, and if the buyer chooses to cover, he or she may demand from the seller, as damages, the difference between the cost of cover and the contract price
If title has not yet passed to the buyer, his or her remedy when the seller refuses to deliver at the time and place stated in the contract is a suit for breach of contract.
Learning Outcome 17-9: Explain both sellers’ and buyers’ remedies for breach of sales contracts.
Page: 276

24. Example: Buyers’ Remedy
17-24
Example: Buyers’ Remedy
Facts:
Terry ordered 100 microwave ovens from a wholesaler, but the wholesaler made an error and shipped 200 microwaves instead.
However, Terry was delighted; he received an unexpected bargain, since the price of the microwave was going to increase shortly as a result of change in the foreign exchange rate.
If the seller delivered a larger quantity of goods than was ordered, the buyer may (a) reject the entire shipment, (b) accept only what was ordered, or (c) accept the entire shipment and pay for the additional items at the contract price.
In this case, Terry can take delivery of the entire shipment and pay for all 200 microwaves at the contract price.
Learning Outcome 17-9: Explain both sellers’ and buyers’ remedies for breach of sales contracts.
Page: 277