6.01 Understand Sales Law BB30 Business Law 6.01Summer 2013.

BB30 Business Law 6.01Summer 2013

6.01 Understand Sales Law

SALES LAW & EXCHANGE OF OWNERSHIP• Sale is a contract in which ownership transfers.

• Ownership is the right to hold the title, possess, use, enjoy, profit from, waste, and even destroy.

• Goods are tangible, moveable items of personal property. Goods are NOT money, intangible items (stocks, bonds, etc), patents, copyrights, and trademarks, and real property.

• Price is the consideration for a sale.

• Barter is a exchange of goods.


E-commerce Laws• E-commerce – conducting business using electronic

means, especially the Internet• Jurisdictional issues – which state has jurisdiction in

cases involving sellers & buyers in different states?– The ability to access a website in a particular state does

not, by itself, give that state jurisdiction– States may gain jurisdiction over e-commerce

transactions if the website allows users to purchase merchandise• Example: Amazon.com - jurisdiction lies with the state in

which the buyer resides


E-commerce Laws• Tax issues – jurisdiction helps to determine

which state may tax Internet sites, and how buyer may be taxed

• Authentication – helps to make certain that buyers and sellers are who they say they are

• Digital signature – encoded message that appears at the end of a contract created online


UNIFORM COMMERCIAL CODE

• Group Activity:– Create a one page summary of the UCC.• Include:

– General Information (First published, definition, goal/purpose)– Specific Information (leasing goods, contracts for

goods/services, special rules)– Why is it important?


TRANSFER OF OWNERSHIP• Payment – buyer pays for the item• Delivery – buyer possess or has control of item• Receipt of Goods – buyer takes physical possession.

What is the proof? Bill of Sale

• Vendor = Seller (Merchant regularly deals with item OR casual seller who does not)• Vendee = Buyer

• Unconscionable contract is so grossly unfair that the courts will refuse to enforce it. • Statute of Frauds: requires certain contracts to be in writing. • Applies to : Sale of goods valued over $500• Requires: Date, Place, Parties, Subject matter, Price, Signatures

TRANSFER OF OWNERSHIP• Authorized person – A third party may sell someone else’s

product with their permission. Realtor sells a home on behalf of the owner. Consignment shops are examples.

• Buyers in a Sale Induced by Fraud – If a person sells an item due to fraud they can void the transaction and receive the item back. However, if the other party has already sold the item to a good faith purchaser then the third party now has a good title.

• Holders of Negotiable Instruments – Ownership may transfer while the items are in transit or storage (warehouse receipt, bill of lading, common carrier).

• Merchants with Possession of Stolen Goods – If a party bought stolen goods (not sale induced by fraud), then they must return the item.


TRANSFER OF OWNERSHIP

• Existing Goods – physically exist and owned by the seller.

• Identified Goods – designated for a sale Ex. - if they have received a box from the back

of the store that has marker written on it with their name.

• Future Goods – this is a contract and not a sale because under UCC you cannot own future goods.


When does ownership transfer?Situation Definition Who owns item?

Tender of delivery Seller notifies buyer of item being available.

Buyer once notified.

Seller ships goods Seller is required to ship item but not deliver to buyer.

Buyer once the carrier is in possession of item.

Seller sends document of title

Seller provides the document of title to the buyer and the buyer can receive the goods at anytime.

Buyer once document of title is possessed.

Seller tenders items at place of sale

Buyer is offered item at the place of the sale.

Buyer once item is tendered.


RISK OF LOSS

Situation Who is at risk?

FOB Shipping Point Buyer is at risk once the item is shipped.

FOB Destination Seller is at risk until the product is delivered to the buyer

You purchase a used car on autotrader.com from a dealer in Atlanta. While the caris being driven to North Carolina it slides off the road and is damaged. What is typedelivery terms will protect you in this transaction?

When does risk of loss transfer?

Types of Sales/Transfer of Rights?Situation Definition Who is at risk?

Cash and Carry Sales Pay cash and take immediate delivery

Buyer assumes risk at receipt.

Sales on Credit Payment at a later date Buyer assumes risk at receipt.

COD Sales Collect on delivery Buyer assumes risk at receipt (when paid in full).

Sale or Return Buyer has the option to return the goods

Buyer assumes risk at receipt.

Sale on Approval Buyer has goods on a trial basis

Buyer assumes risk at time of approval.

Sale of an Undivided Interest Buyer owns a portion of the item

Each owner has a partial risk.

Auction Buyer bids on item. Ownership transfers when the gavel falls (unless reserve is not met).

Bulk Transfer All or a major part of a business is sold.

Buyer must notify creditors of ownership transfer.

RISK OF LOSS


WARRANTIES

• Express• Implied• Warranty of Title• Exclusions


Express Warranty

Express warranty is also called a guarantee • The promise or assurance of the quality or life

of a product– “Guaranteed satisfaction or your money back”– “Lifetime guarantee”


Express Warranty

• Can be oral or written• Written form recommended• Parol evidence rule applies: evidence of oral

statements made before signing a written contract cannot be presented in court to change or add to the terms of that written agreement

• Magnuson-Moss Act – requires that written warranties be labeled as full or limited


Express Warranty

• Puffery by salesman is not a warranty, but an opinion of the salesperson.

• Express warranties are created by:– Statement of fact or promise by seller– Description of goods– Use of same item or model


Implied Warranty

A guarantee of quality imposed by law but not in writing • Implied warranty deals with sale of goods• Regulated by UCC• Given by all sellers


Implied Warranties

• Warranty of fitness for a particular purpose

– Seller knows the purpose for which goods are needed– Seller advises buyer in making purchase– Buyer relies on seller’s advice to make decision– Seller infers that the goods are fit for a particular purpose– A warranty exists


Implied Warranties

• Warranty of Merchantability– Given by a merchant only– Merchant infers that goods pass in the trade

without objection– Goods are fit for the ordinary purpose such goods

are used for– Conform to any promises or statements made on

the container or label


Implied Warranties

Usage of TradeAn implied warranty that is a well established custom or practice among people in specific trades or businesses• Example: When a person sells a thoroughbred horse

there is an implied warranty that papers are provided to prove the animal’s pedigree as a thoroughbred. It is expected in the horse trading business


Warranty of TitleSeller warrants that the title is good and transfer is rightful

Seller warrants that goods will be delivered free of any financial obligations about which the buyer had no knowledge


Warranty of Title

• Sale of Stolen Goods– If stolen goods are sold to an innocent purchaser,

the true owner is entitled to return of the goods

– The buyer can pursue remedy against the seller for breach of warranty of title


Full Warranty

A full warranty requires that the defective product be repaired or replaced for free within a reasonable length of time after complaint is made. • If the product cannot be fixed, the consumer has the

option to get their money refunded.• Have you ever tried to return merchandise that you

thought was under warranty but was not?


Limited Warranty

A limited warranty provides a restricted guarantee. • Must state “Limited” Warranty• Be sure to read and understand the limits of

the warranty before purchasing…caveat emptor!


Limited Warranty

Caveat Emptor - Latin for “Buyer Beware”– It is the duty of the consumer to make informed

decisions. – Be sure to read labels and research products

before buying. Comparison shop.– It is the duty of the seller to provide appropriate

information for the consumer.


Limited Warranty

Caveat Venditor - Latin for “Seller Beware”– It is the duty of the seller to make informed

decisions. – Example: Banks, credit card companies and

businesses who extend credit to customers check credit histories and applications before extending credit.

6.01 Understand Sales Law BB30 Business Law 6.01Summer 2013.

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Transcript of 6.01 Understand Sales Law BB30 Business Law 6.01Summer 2013.