ARTICLE 2 PROVISIONS
WHAT IF THE CREDITOR IS A SELLER, AND THE DEBTOR A BUYER?
The seller is in no better position subject to a few exceptions:
1. Right to withhold goods, 2-703, 2-511 (1)
2. Right to resell the goods, 2-703(d)
3. If seller has reasonable grounds to feel insecure, he can get assurance under 2-609, and if there is no assurance, he can treat the K as repudiated.
4. Refuse to deliver if buyer is insolvent except for cash, 2-702(1)
GOODS IN TRANSIT
1. If seller ships something to buyer, and while goods are en route, seller discovers that buyer is insolvent, seller may stop delivery, 2-705(1) If it is a large delivery, the seller may stop for two additional reasons: if buyer repudiates, fails to make a payment, or if for any other reason the seller has the right to withhold the goods.
2. REPLEVIN–An action to get back property that belongs to you that someone else does not want to give back. If goods are delivered to the buyer, and buyer was defrauding the seller, the UCC “assumes” that the K is rescindable. While not addressed, principles of fraud and equity still apply, 1-103(b). It is a shorter judicial proceeding than the judicial lien process, because there is only one issue to decide–who owns the property. You get a trial within 15 days. Other simplified/expedited proceedings include EVICTION and REPOSSESSION. No discovery is allowed–only complaint, answer, and decision.
IF THE CODE DOES NOT ADDRESS AN ISSUE, YOU CAN USE COMMON LAW PRINCIPLES.
FRAUD–intentional misrepresentation of a past or existing fact. A promise is not a fact because it is a statement about what you will do in the future.
INSOLVENT BUYER RECEIVING GOODS ON CREDIT UCC 2-702(2)
1. Seller may recover the goods within 10 days after buyer’s receipt of the goods and nonpayment.
2. Under the common law action of replevin if there is fraud. If there is no fraud, you can’t get them back under the common law, but you can under the UCC.
3. You can get them back if you demand within 10 days. If buyer misrepresented his solvency within 3 months before receiving the goods, there is no 10 day rule. Reliance is necessary to dispense with the 10 day rule. But for the buyer’s misrepresentation, seller would have not sold the goods.
4. If several of the checks were good, but one bounced, the previous checks were a representation of solvency. However, a couple of bounced checks that is not a pattern is not insolvency.
5. If the misrepresentation was made by someone other than the buyer, such as a credit agency–the intent is to keep the buyer from misrepresenting his insolvency; unless the buyer misrepresents insolvency, the buyer’s fraud is irrelevant; that is the only time the 10 day rule is dispensed with. The only way the seller can reclaim the goods is if the buyer is insolvent. Seller cannot reclaim goods based on buyer misrepresenting anything else.
BILL OF LADING–transfers title from the seller to the buyer, allows buyer to pick up the goods.
GOODS SENT COD
The buyer cannot retain the goods unless he pays for them, 2-507(2); Basically a replevin action.
RECLAMATION MUST BE DONE WITHIN A REASONABLE TIME BECAUSE
Under 2-702 and 2-507, seller must reclaim goods within a reasonable time; if seller does not promptly reclaim, he waives his right. Seller is also motivated to be timely because he runs the risk of the buyer selling the goods off to someone else.
INVOLVEMENT OF THIRD PARTIES 2-403(1)
Voidable title–person who has this is a person who has received goods but has not paid or finished paying for them yet; seller retains power to void the sale. A person with voidable title can transfer good title to a good faith purchaser. A person with void title passes no title. A thief has no title/void title. General rule is all you can convey is what you have–you cannot convey more than what you have; 2-403 is an exception.