Sales and Leases Outline & Problems

Scope of Article 2
Article 2 covers the sales of goods. o Would not cover other dealings in goods, such as gifts, bailment, and gratuitous bailment. o True lease of goods is covered by Article 2A o Computer software licenses, not specifically covered by Article 2, process of drafting Article 2B to deal with this issue. (covered in class notes) o If the transaction is to operate only as a security transaction, Article 2 will not apply. o Article 2 covers any sale, no matter how small or large, as long as the subject is goods. o Real property is NOT movable and cant be considered goods; not governed by Article 2. o Chose in action or things in action an incorporeal right, a right not reduced to possession but recoverable by bringing and maintaining an action such as copyrights, etc. Although copyrights can be bought and sold, Article 2 does not handle those transactions. o Investment securities are expressly excluded from the scope of Article 2. o

Goods:
All things that are movable at the time of identification (other than the money in which the price is paid) Unborn young of animals and growing crops All those whose value is determined by its physical attributes; those whose value is determined by the things in them. Must be both existing and identified before any interest in them can pass. Future goods goods that are not both existing and identified

Transactions: There is no definition for this word. What is the scope of Article if this term is not defined? Milau Associates, Inc. v. North Avenue Development Corp. Action: 1. Negligence and breach of implied warranty of fitness for a particular purpose. Facts: 1. Burst in an underground section of pipe; damage to bolts of textiles stored in warehouse. 2. Commercial tenants sought recovery from the general contractor (which built the warehouse) and the subcontractor (which designed and installed the sprinkler system). 3. Evidence: water hammer a sudden and unpredictable interruption in the flow from the city water main followed by back-surge and buildup of extreme internal pressure: caused crack to develop. 4. Stress-raising notch produced by poor tool used by Higgins (subcontractor). 5. Defendants produced evidence securing that the pipe itself was neither defective as manufactured nor improperly installed. Issue: 1. Does the torts negligence action or the implied warranty and strict warranty application of Article 2 apply? Rule: 1. When service predominates, and the transfer of personal property is but an incidental feature of the transaction, the exacting warranty standards for imposing liability without proof of fault will not be imported from the law of sales to cast purveyors of medical services in damages. 2. Cannot separate the goods from the services service predominates Holding: 1. Given the predominantly service-oriented character of the transaction, neither the Code nor the common law of this State can be read to imply an undertaking to guard against economic loss stemming from the non-negligent performance by a construction firm which has not contractually bound itself to provide perfect results.

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What factors would you look at to determine whether the transaction is one for sale or service? Look at relative values of the goods portion and the service portion: if the value/price of the goods is greater than the value/price of the service portion. If, in the contract, the buyer specifies that the goods are specific and particular may indicate that he is more interested in the sale of goods rather than the services portion of the hybrid. Is a breach of contract dependent on proof of negligence? No, contracts are strict obligations. Article 2 covers implied warranty. Contractual liability may or may not require proof of negligence. Typically, contractual obligations are strict. Article 2 does not cover most custom designed goods; the materials, etc. involved in the making of the goods are incidental to the services. Are loans or gifts considered transactions? Article 2 is consistently interpreted to be limited to sales (supported by 2-101 and by the fact that in all the comments and articles, the body of the transactions identified mention seller and buyer). Until recently, there was a tendency to apply the article to lease transactions, mostly because there was not a specific body of law covering lease transactions (Article 2A now covers this area). Predominant Purpose test characterization of the transaction as a whole as either a sales transaction or a service transaction. This characterization is applied to all parts of the transaction. Gravaman test what gave rise to the cause of action/dispute? Not always easy to apply because it requires to answer some difficult causation questions. This does, however, do away with the problem of having to characterize each transaction as one of two types holistically. 2-314 service of food in a restaurant (contains both service and sales elements) = provides that this type of hybrid transaction is always to be considered a sales transaction (all Article 2 warranties apply). This article recognizes that this type of transaction may be considered a service transaction. (Does not apply to other types of hybrid transactions; these are covered by the predominant factors test or the Gravaman test).

Anthony Pools v. Sheehan (product liability case: questions about implied warranty) Facts: (2-314) 1. P (Sheehan) and wife sue D (Anthony Pools). 2. P sustained injuries when he fell from the side of the diving board (Anthony designed and manufactured the pool and diving board). 3. Ps theories of liability: a. Skid resistant material didnt extend to the edges of the board breached an implied warranty of merchantability. b. D used defective diving board that was inherently dangerous. 4. Trial court found for D = stipulation in contract provided that the express warranties were in lieu of any others. 5. Appeals court reversed pool = consumer goods; cant limit the implied warranty of merchantability. 6. The contract = hybrid transaction in part a contract for the rendering of services and in part a contract for the sale of goods. 7. The test = whether the predominant factor , the thrust, the purpose, reasonably stated, is a transaction of sale with labor incidentally involved. If follows that, if the service aspect predominated, no warranties of quality were imposed in the transaction. 8. Used the majority test to determine what the predominant factor was: the Ps hired D to install a pool, the sale of the board was incidental to the construction of the pool. Although the diving board is goods it was not purchased in a separate agreement and therefore not protected by implied warranty. Holding: Where, as part of a commercial transaction, consumer goods are sold which retain their character as consumer goods after the completion of the performance promised to the consumer, and where monetary loss or personal injury is claimed to have resulted from

a defect in the consumer goods, the provisions of the Maryland UCC dealing w/implied warranties apply to the consumer goods, even if the transaction is predominantly one for the rendering of consumer services. [Used the gravamen test]

The Merchant Class

2-104: 1. Merchant means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. 2. Because of the word or used repeated in trying to spell out the classification, there is no single test to determine if someone is a merchant. 3. Comment #2 the term merchant as defined here roots in the law merchant concept of a professional in business. The professional status under the definition may be based upon specialized knowledge as to the goods, the business practices, or as to both and which kind of specialized knowledge may be sufficient to establish the merchant status is indicated by the nature of the provisions. 4. The definition of merchant is supposed to distinguish between the professional on the one hand and the casual or inexperienced buyer or seller. 5. A person making an isolated sale of goods is not considered a merchant; warranty of merchantability will not apply. 6. Sometimes determining the status of merchant is a toss up; general rule to follow: the more professional the party appears to be, the more likely he will fall within the classification of merchant; the more casual or inexperienced the less likely. 7. The court usually distinguishes between casual sellers of food (luncheons, etc.) and the commercial restaurateur. Of course, if the organizer of the luncheons did it on a regular or continuing basis, it may then change its status of merchant. 8. One is considered a merchant as soon as he holds himself out as having the kind of knowledge and skill that others in the field have; it matters not that the individual is a newcomer; the code protects the buyer, not the merchant when it comes to the warranty of merchantability. Sieman v. Alden (1975) Illinois Appellate Court Facts: 1. P sued D for injuries sustained while operating a multi-rip saw. 2. Theories of recovery: strict tort liability for the sale of a defective product; breach of warranties; negligence. 3. D owned the saw P purchased; D informed P that the saw was NOT in operating condition; P would have to do a lot of work to the saw, but determined to buy it for $2900. 4. On appeal, P contended that summary judgment should be reversed because: D had a sufficient relationship to the saw which injured P to subject him to strict tort liability and the UCC would hold D liable for implied warranties. 5. Language of the UCC limits the application to sellers engaged in the business of selling the product. (the occasional seller is explicitly excluded) This was an isolated transaction and thus, not protected by the code.

II. Contract Formation

Offer and Acceptance
1. 2-204 Formation in General a. (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. b. (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undermined. c. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. The drafters realized that contracting parties, either through lack of diligence or because they continue to squabble over details, fail to produce a neatly packaged contract. The question is whether the parties have as a practical matter reached sufficient agreement for contract liability to arise. If they have in fact reached agreement, how they did so is of secondary or no importance.

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Commercial standards of indefiniteness, not the standards of an uninformed layperson and certainly not the standards of a pettifogging lawyer, are what are relevant to the question of contract formation. 5. The section does not preclude finding a contract by the traditional form of offer and acceptance; the parties having agreed to buy and sell is enough, no further conduct is necessary. 6. 2-105 Firm Offers modifies the rule stating that consideration is no longer a requirement; offers are firm if they are characterized as such and in signed writings. a. An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. b. ** This is an OPTION CONTRACT 7. The common law of offer and acceptance was altered significantly by the UCC. Much of the evolution of the common law has been brought about by Article 2 of the UCC, in particular. 8. It is now clear that a contract for sale may be created by the parties having exchanged forms which contain different terms as long as the differences are not of the type which in the commercial environment usually make or break a deal. 9. Generally, the terms of the offer are the terms of the contract. 10. Under 2-207, there are 2 ways that an additional term in the acceptance can become part of the contract: a. Implicit in the statement that such additional terms are to be construed as proposals for additions to the contract. An additional term can become part of the contract by is express acceptance by the original offeror.

Battle of the Forms

2-207 Additional Terms in Acceptance or Confirmation 1. A definite and seasonable expression of acceptance or a written confirmation which is sent w/in a reasonable time (emphasizes both the principles of freedom of contract and the desirability of making judgments based on the circumstances of an individual transaction) operates as an acceptance (means to bind both parties) even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. 2. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: a. The offer expressly limits acceptance to the terms of the offer; b. They materially alter it; or c. Notification of objection to them has already been given or is given w/in a reasonable time after notice of them is received. 3. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. People in business tend to rely on form documents detailing all manner of terms and conditions. When merchants/businesspeople exchange forms, the information specific to the deal = dickered terms. Under common law, the exchange of forms would probably not result in a binding contract mirror image rule; any additional terms/conditions were considered counteroffers. only to an acceptance which clearly reveals that the offeree is unwilling to proceed with the transaction unless he is assured of the offerors assent to the additional terms therein does the proviso (1) apply; it should be reasonably worded and presented in such a manner as is calculated to bring a reasonable recipient to the understanding that no deal has yet been concluded and none will be concluded unless and until either it responds favorably to the new terms being presented or even more negotiation brings on a compromise. (Dorton test) The common law of offer and acceptance was altered significantly by the UCC. Much of the evolution of the common law has been brought about by Article 2 of the UCC, in particular. It is now clear that a contract for sale may be created by the parties having exchanged forms which contain different terms as long as the differences are not of the type which in the commercial environment usually make or break a deal. Generally, the terms of the offer are the terms of the contract. Under 2-207, there are 2 ways that an additional term in the acceptance can become part of the contract:

Implicit in the statement that such additional terms are to be construed as proposals for additions to the contract. An additional term can become part of the contract by is express acceptance by the original offeror.

Diamond Fruit Growers, Inc. v. Krack Corp. (1986) Facts: 1. Krack (K) manufacturer of cooling units containing tubing supplied by Metal Matic (MM). 2. At beginning of each yr. K sent blanket purchase order to MM stating how much tubing it would need for the year. Then K would send release orders and MM would respond w/acknowledgment form and shipping of tubing. 3. MMs acknowledgement form disclaimed all liability for consequential damages and limited MMs liability for defects in tubing to refund of the purchase price or replacement or repair of the tubing. (these terms were not found in Ks purchase order). acceptance made conditional on additional terms [see reverse side for terms and conditions = printed on signature side of acknowledgement form] 4. K objected to the terms, but they were never changed, and K continued to buy. 5. K then sold one its cooling units to Diamond Fruit Growers (P). 6. Unit began leaking ammonia. Found a pin-hole leak in cooling coil. P sued for lost produce. K brought MM in as a third party complaint. 7. Jury found for P; MM was liable for 30%. 8. Issue is whether the disclaimer was ever a part of the contract with K. 9. K argues 2-207 applies (it does apply to commercial transactions in which parties exchange printed forms). In this case, they exchanged forms w/ different terms. 10. 2-207 changes the common law mirror image rule: converts a common law counteroffer into an acceptance even though it states additional or different terms The only requirement is that the responding form contain a definite and seasonable expression of acceptance; if the offeror assents, the parties have a contract w/additional terms; if offeror doesnt assent, but performs, then there is a contract w/additional terms. 11. MM argues that K agreed based on conversations and then continued buying. 12. But, 2-207 does away with common laws last shot rule which gives advantage to the party who sent the last form. Instead, all the terms on which the parties forms do not agree drop out, and the UCC supplies the missing terms. 2-207(3) 13. Accepting MMs argument would in effect reinstate the last shot rule. Holding: Because Ks conduct did not indicate unequivocally that it intended to assent to MMs terms, that conduct did not amount to assent. [if the seller truly doesnt want to be bound unless the buyer assents to its terms, it can protect itself by not shipping until it obtains that assent]. Dale R Facts: 1. 2. 3. Horning Co. v. Falconer Glass Industries, Inc. (1990) P (AGM) seeks recovery for consequential damages for breach of warranty. AGM was to install curtain wall & glass for building; time was of the essence. AGM entered into agreement with D (Falconer Glass) to supply glass; there was no discussion of limiting remedies or disclaiming warranties over the phone. AGM sent D an confirming order form (contained no language of warranties, damages). D sent his form to P at same time; his form contained fine print stating that buyers exclusive and sole remedy for defective goods shall be to secure replacement the seller shall not be liable for special, direct, indirect, incidental, or consequential damages. [not underlined, bold-faced, etc] AGM received defective glass and told Carmen (rep. For D) that it would hold D responsible; there was no objection to this. No agent or employee was aware of the restrictive terms of Ds form. In the commercial glass industry, it is customary common practice for suppliers to place restrictive warranty terms on the back of their forms. (despite standard forms, suppliers will often work w/buyer to help cover part or all of the extra costs incurred due to defective products). 2-715 provides that consequential damages may be recovered by the buyer for any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; there need not be a conscious acceptance of an insurers liability on the sellers part, nor is his obligation for consequential damages limited to cases in which he fails to use due effort in good faith. However, D did attempt to exclude consequential damages by sending its form w/fine print on the back. Issue do these terms form part of contract?

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2-207(2) states that they become part of the agreement unless they materially alter the prior agreement = if its incorporation into the contract w/o express awareness by the other party would result in surprise or hardship 8. Course of dealing and usage of trade analysis would have to be invoked at this stage to determine if the new terms imposed surprise or hardship; for if the buyer is generally aware that such limitations are imposed in the industry, the buyer cannot be heard to complain or surprise in any individual transaction. 9. Glass industry presents a dichotomy in the course of dealing analysis: suppliers make exceptions where it is in their best interest. Boilerplate clauses are not reliable; parties must expressly negotiate terms of limited liability if they dont want to be found liable. 10. Note: the code did not completely abolish the concept of mutual assent. Leonard Pevar Co. v. Evans Products Co. (1981) Facts: 1. P sued breach of implied and express warranty; he entered into an oral agreement for the purchase of plywood. P sent p/o but it didnt mention warranties, etc. D sent his acknowledgement form in boilerplate fashion stating that the contract of sale would be expressly contingent upon Ps acceptance of all terms contained in the document. 2. D contends that the oral agreement is unenforceable: in violation of statute of frauds which holds that if an agreement is in excess of $500 it is unenforceable. 3. Section 2-201 however, holds an exception: if written confirmation is sent to the receiving party and party doesnt object w/in 10 days, then the oral agreement is enforceable. 4. Where 2-207 applies: a. Where an oral agreement has been reached followed by sending of forms containing terms not discussed. The additional terms will be part of the agreement unless they materially alter it; if they do, then the standard gap fillers provisions of article 2 will provide the terms of the agreement. b. Where the parties have not entered into an oral agreement but have exchanged writings which do not contain identical terms. 5. Court rejected the last shot rule (Ds argument)

The Statute of Frauds

Before even looking at statute of frauds, you must first determine whether a contract exists at all. (This has to do with matters of offer and acceptance) Statute of Frauds does not deal with this stuff. Parties who invoke a statute of frauds defense are not claiming that a contract wasnt agreed to, they are claiming that even if a contract was formed, the contract is not enforceable against them. (Basically, theyre saying that the court lacks the power to enforce a contract even if they did breach) At common law, when a contract fell under Statute of Frauds, all its terms and conditions had to be in writing, or the contract was not enforceable. Under 2-201, a contract is enforceable even if a main term is omitted or misstated. The only term necessary for enforcement is quantity. There are 4 exceptions: 1. Merchant confirmation letters. a. Under the merchants exception, a party could be bound by a writing it had not signed. b. UCC distinguishes the obligations of business people from others in an effort to promote predictable, dependable, decent business practices. c. 2. Special manufacture. 3. Part performance. 4. Admission in legal proceedings. Bazak International Corp. v Mast Industries, Inc. Facts: 1. Annotated purchase order forms signed by the buyer were sent to the seller and retained without objection. 2. Ds claim if the memorandum on its face is such that a reasonable merchant could reasonably conclude that it was not a confirmation, then the claim is barred as a matter of law by the Statute of Frauds.

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Ps claim a requirement only that the writings afford a belief that the alleged oral contract rests on a real transaction (Rule of law); contends that the purchase orders were sent in confirmation of the agreement already reached, and that there is sufficient support for that interpretation in the documents themselves.

Whether the disputed documents qualified as confirmatory writings within the merchants exception to the Statute of Frauds. 2. Are explicit words of confirmation necessary? Rule of law: 1. A confirmatory writing does not satisfy the requirements of 2-201(2) unless it is sufficient against the sender. the sending merchant itself runs the risk of being held to a contract. 2. Explicit words of confirmation are not necessary, but the writing must satisfy the test that it be sufficient to indicate that a contract for sale had been made..

The Parol Evidence Rule

2-202 Final Written Expression: Parol or Extrinsic Evidence. Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented a) By course of dealing or usage of trade (section 1-205) or by course of performance (2-208); and [this means, unless specifically negated, course of dealing or usage of trade assumptions are to be taken as part of the agreement; additionally, the course of actual performance of the parties is considered an indication of what they intended the writing to mean] b) By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement. This section rejects: any assumption that because a writing has been worked out which is final on some matters, it is to be taken as including all the matters agreed upon; the premise that the language used has the meaning attributable to such language by rules of construction existing in the law rather than the meaning which arises our of the commercial context in which it was used; and the requirement that a condition precedent to the admissibility of the type of evidence specified in paragraph a is an original determination by the court that the language used is ambiguous. The parole evidence rule makes it possible for a party to argue that something to which he or she expressly did in fact agree has ultimately been rendered unenforceable because it was not later set forth in the writing adopted by the party. Under the Code, trade terms are part of the agreement as much as those provisions expressly dickered over by buyer and seller.

Course of Dealing and Usage of Trade

Section 1-205 1. A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. 2. A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court. 3. A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement. 4. The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. 5. An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance.

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Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.

Course of Performance
Section 2-208 1. Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. 2. The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade. 3. Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance.

Columbia Nitrogen Corp. v. Royster Co. (1971) Facts: 1. P manufactures fertilizer; D produces nitrogen. 2. Contract for P to sell phosphate to D for 3 yrs with option to extend. 3. D contends that express price and quantity terms in agricultural contracts are mere projections to be adjusted according to market forces. (usage of trade and course of dealing). 4. Held that ambiguity in the language is not necessary to invoke the usage of trade argument. The contract is silent about adjusting prices to reflect a declining market neutrality provides for the application of usage of trade.

III. Terms of the Contract

Gap Fillers (177-183)
At common law if parties left terms out of contract, courts could find n o legally enforceable agreement. Today courts try to save a contract by implying reasonable terms where possible: gap filling 2-305 2-311 2-305 Open Price Term 1. The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if a. Nothing is said as to price; or b. The price is left to be agreed by the parties and they fail to agree; or c. The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. 2. A price to be fixed by the seller or by the buyer means a price for him to fix in good faith. 3. When a price left to be fixed otherwise than by agreement of the party fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price. 4. Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable to do so must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account. 2-306 Output, Requirements and Exclusive Dealings 1. A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

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A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

2-307 Delivery in Single Lot or Several Lots Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot. 2-308 Absence of Specified Place for Delivery Unless otherwise agreed a) The place for delivery of goods is the sellers place of business or if he has none his residence; but b) In a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and c) Documents of title may be delivered through customary banking channels. 2-309 Absence of Specific Time Provisions; Notice of Termination 1. The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time. 2. Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party. 3. Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable. 2-310 Open Time for Payment or Running of Credit; Authority to Ship Under Reservation Unless otherwise agreed a) Payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; and b) If the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of the contract; and c) If delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment is due at the time and place at which the buyer is to receive the documents regardless of where the goods are to be received; and d) Where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but postdating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period. 2-311 Options and Cooperation Respecting Performance 1) An agreement for sale which is otherwise sufficiently definite to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and w/in limits set by commercial reasonableness. 2) Unless otherwise agreed specifications relating to assortment of the goods are at the buyers option and except as otherwise provided in subsections (1)C and (3) of 2-319 specifications or arrangements relating to shipment are at the sellers option. 3) Where such specification would materially affect the other partys performance but is not seasonably made or where one partys cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies a. Is excused for any resulting delay in his own performance; and b. May also either proceed to perform in any reasonable manner or after the time for a material part of his own performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods. Landrum v. Devenport (1981) Facts: 1. P brought act for breach of contract & violations of Texas Deceptive Trade Practices Consumer Protection Act. 2. P wanted to buy Indy Pace Car for sticker price; D agreed to deal; P gave D $100; by the time the car came in, the market value had increased. D didnt want to continue on w/the agreement, he wanted to raise the price. P bought the car for the increased price but protested.

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Trial court found that no contract was formed because there was no express price on the purchase order. But, 2-305 establishes that even if the price was not expressed, the law will imply that a reasonable price was intended; the contract was otherwise complete: both parties had signed and P had tendered performance. Estoppel was not established: estoppel arises when a representation or act by one party causes the other to do an act which would operate to his detriment if the first party is allowed to complain, or where a party recognizes the validity of a transaction and accepts benefits from it and then attempts to repudiate it. Court reversed and ordered a new trial.

Unconscionability
2-302 Unconscionable Contract of Clause (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination. In the name of freedom of contract, caveat emptor, and the duty to read, courts have permitted some rapacious merchants to insulate themselves in legally formidable contracts that have bordered on fraud and were filled with I winyou lose provisions adhesion contracts (because the lesser party had to adhere to the will of the stronger). Professor Leff divided unconscionability into: a) Procedural unconscionability: unfair conduct in the formation of a contract. b) Substantive unconscionability: unfairness in the terms of the resulting bargain. He said that both should be required before a court can make a finding of 2-302 unconscionability.

Warranties
Title Warranty (77-79) The UCC divides warranties into two basic types: 1. Warranty of Title 2. Warranty of Quality

2-312 Warranty of Title and Against Infringement; Buyers Obligation Against Infringement 1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that a) The title conveyed shall be good, and its transfer rightful; and b) The goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the item of contracting has no knowledge. 2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have. 3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications. Note Warranty of title includes: 1. a warranty that there are no security interests (or other liens) on the goods other than those of which the buyer knows 2-312(1)B, and 2. a warranty given by merchant sellers against claims based on patent infringement or the like 2-312(3). o If the buyer furnishes specifications to the seller (which happens whether the goods are to be specifically manufactured to buyers order) the buyer automatically makes a warranty to the seller that protects the latter from infringement claims. This is the only situation in the UCC where the buyer is the warrantor. Warranty of Quality. (79-83) o Express Warranties

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Arises when the seller does something affirmative to create buyer expectations about the characteristics or performance of the goods. (i.e. seller will make oral or written representation about the product in advertisements, the verbal sales pitch, or the written contract). Rest on dickered aspects of the bargain. The representations must have some substance = they must relate to the goods and become part of the basis of the bargain. Most courts have adopted a test that a statement goes to the basis of the bargain if its natural tendency is to induce the buyer to purchase (even though it is not the sole reason) if the statement has any substance to it so that it might have played a part in buyers decision to buy, the burden in on the seller to prove that the buyer did not rely . Problem 22: Joe College bought a new car from Flash Motors, relying on the sellers extravagant claims about the cars superior qualities. He signed a purchase order on Aug. 1, and the car was delivered 2 wks later. In the glove compartment he found the warranty booklet and on reading it was dismayed to learn that the actual written warranty was very limited in coverage. Is he bound by the written warrantys terms? What argument can he make? Comment 7 to 2-313, 2-209. o For a post sale modification, no consideration is needed, but there must be agreement. Additional post sale statements working themselves in rarely apply to disclaimers. These kinds of cases where a written warranty is contained, courts have rejected the applicability of the written warranty. One aspect that has changed is the warranty in computer sales (where sales were made online/telephone and at time of sale negotiation, nothing was said about warranty. o In this case, the post sale limited warranty is ineffective. In regard to computer sales, if he didnt do anything, (reject the modification) then it would be considered an agreement w/the limited/additional terms. Implied Warranties Automatically part of the contract unless the seller (or the circumstances) does something affirmative to get of them. Implied as a matter of law; sometimes referred to as children of the law The sellers intention to create any implied warranty is completely irrelevant. Implied warranty of merchantability the idea must be saleable and conform to the normal expectations of the parties. Does not relate to the use of the goods; just means that it is sellable. The warranty expanded in the common law and began to cover users as well as sellers. 2-314 Implied warranty of fitness for purpose specific description of the content of the warranty of implied merchantability. 2-315 Implied Warranty: Fitness for Particular Purpose

In what case does a post sale warranty alter the agreement? Look at 2-209. Comment 7. Unilateral statements that dont seem to matter to the buyer are unable to equal a post sale warranty. Courts have been reluctant 2-313 and have 2-314 Problem 24: o A. Are cigarettes that cause lung cancer if used over a period of years merchantable? If the sellers advertisements stated that the cigarettes were mild, would that create an express warranty? The aspects of what it does to your health do not imply that it the product is not fit for its ordinary purpose. Theyre not un-merchantable because all cigarettes cause lung cancer; they are no worse the average product (OBJECTIVE there is no departure from the norm; SUBJECTIVE still conform to the reasonable expectation of the buyers). So long as theyre as good/bad as the products in the market, the fitness for purpose is satisfied. The tobacco cases involved concealment additional ingredients added to the product to make them more potent w/o adequately disclosing; the cases succeed on fraud grounds, not on breach of warranty grounds. Some things which pose a greater risk than normal, may be held unmerchantable w/o proper notice.

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Mild does not create an express warranty unless they are not mild: the expectations of the buyers would be different and therefore may be a breach of warranty. If the buyer has been led to expect that he is getting a milder o B. Officer Krupke, a NY policeman by profession, sold his family car to his next-door neighbor, Maria, telling her it was a good car. In fact, it was falling apart and blew up the first time she drove it. Has Krupke breached the implied warranty of merchantability. Should 2-314 be extended so that the warranty is made by all sellers? No, b/c if you dont deal in goods of the kind, youre not as knowledgeable about the products fitness of ordinary purpose. The policeman is not a merchant, but he did have a duty to tell her of all and any latent defects (comment 3). There is not an implied warranty, is there an express warranty? (Comment 4). If he had guaranteed the car, for example, then the warranty arises. Disclaiming an express warranty is next to impossible; if seller is saying that the goods are fit for its ordinary purposes, then that warranty is almost impossible to detach. Problem 25: Natty Bumpo was driving through upstate NY when a deer ran in front of his car. He swerved to avoid it and ran into a tree. His major injuries came from his sudden contact w/the inside of the drivers door, where he smashed up against sharp points on the door handle, the window lever, and an ashtray. Natty sued the car manufacturer for breach of warranty or merchantability. His theory was that the design should have been safer. The manufactures defense was the car was fit for its ordinary purpose and that Netty misused it. How should this come out? o By swerving the car in such a way, he brought the injury upon himself; if there were no fault on his side, the question would arise to whether the design defect made the car un-merchantable because of the liability to produce injury because of the features. Defense: all cars are like this; none of them have padded doors, etc. o How does a court determine that the car in un-merchantable? Ct held that the design ought to be different; buyers had a right to expect that they would be protected against injuries of this kind. So: even though the car was no worse than all the cars in the market place, it failed to satisfy the expectations of the buyer. (Dual test: dynamic element into product design brings about changes in product design, much like strict liability in tort brings about incentive to exercise higher standard of care) Problem 26: When Christopher Wren finished building a recreation room in his basement, he wanted a heater for it. He saw an ad for the A-1 Hotblast heater, which seemed to be what he needed. A good friend of Wrens named Jones ran a nearby appliance store. Wren went there and told Jones that he wanted the A-1 Hotblast for the new room. Jones knew the room well; he had helped build it. When the heater arrived, it worked perfectly, but it didnt have the capacity to heat the room. May Wren sue Jones for breach of 2-314 or 2-315? o For fitness of purpose to apply, Seller must have reason to know of purpose; reason to know that the buyer was relying on the seller; buyer was relying on the seller. This warranty probably doesnt apply because the buyer didnt ask for the sellers advice (the seller, did however, know of the room for which he buying and he knew the buyer and the degree of non-expertness and the relationship which suggests that the seller knew that the buyers use of the brand name wasnt a result of the buyers expert knowledge of the heater and its suitability for that particular room); but the buyer also wanted that particular brand. So, the fitness warranty MAY arise; if it arises, its been breached. The merchantability warranty does arise, but hasnt been breached. Note comment 8: patent or trade name exception. Irrefutable presumption that if a buyer comes in and orders something of a brand name is enough to determine that the buyer is relying on his own judgment; however, this factor is just one among many. o Under old law, if the buyer insisted on a particular brand it eliminated the possibility of reliance; comment 5 says that this is no longer an absolute rule. Problem 27: Harold Thumbs went to the Easy Paint Store and bought a can of green paint, which the store mixed on the premises from various pigments. Harold used the paint on his dining room walls, but due to a miscalculation on his part, he ran out when he was half finished. He took the empty paint can back to the store. He told the clerk that he was only half done with the job and needed another can, which the clerk promptly mixed and sold him. Harold finished the painting and then notice two things: (1) the dried paint gave off an offensive odor, and (2) the paint from the second can did not match the first. o The merchantability warranty has been breached; the first paint can was not fit for ordinary purposes. o The fitness warranty? The seller knew of the buyers particular purpose, that he is relying on him to match the paint, and he knew what the paint was for. There is no breach of warranty of merchantability, but the fitness warranty is breached (the painted purpose had a different purpose; the buyer had a specific purpose in mind (a non ordinary purpose) and the paint sold did not fit that purpose; the 3 requirements were met). Problem 28: Donald Souse ordered a martini at the Tired Executives Club. When he bit into the olive, he cracked his new $2000 dentures on a pit. Is there a cause of action under either 2-314 or 2-315? Courts faced with this last problem (harmful substances

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in food) have split into 2 camps: those that deny liability if the object is a natural substance, as opposed to a foreign object, and those that permit recovery even when the consumer is injured by a nautral substance as long as the biters reasonable expectation is that it would have been removed. o Does the merchantability warranty arise? Value of food or drink is also applied to the merchantability warranty arises. Has it been breached? Was the martini not fit for ordinary purpose? The reasonable expectation is that the olive in martini doesnt have a pit in it. However, there is a question as to what the expectation is; the evidence is probably inconclusive as to whether martinis are typically sold w pitted olives. o What about the fitness purpose? No cause of action unless he can show that the buyer specifically had the seller know that he was expecting a pitted olive in his martini. In the absence of an individual communication of that kind, would the fitness warranty arise? If the customer was a frequent one who relied on the pitted-ness of the olives, then the fitness warranty may arise. Unless it was a settled practice that the club sold pitted olive martinis, the only cause of action the buyer may be able to establish is the fitness warranty. o The content of the merchantability warranty depends on the typical customer of the establishment; if the customers are typically tourists, their expectations may be different from those of the frequent ones. It may be that the tourist/consumer may have a claim of breach of merchantability; if not, then the only claim would be breach of fitness warranty which would depend on the individual conversation. Webster v. Blue Ship Tea Room, Inc. (1964) Problem 29: Carry Nation, on the advice of her hairdresser, bought a hair dye and proceeded to use it in accordance w/the instructions on the box. Unfortunately, the product contained alcohol, to which Nation was allergic, and she suffered considerable burn damage to her scalp and ears. When she sued the manufacturer, the basic defense was that only 5% of the population had that reaction. Is this a good defense? o Only 5% of the people had this reaction. So, the merchantability warranty probably would not apply. The fact that there are allergic reactions to scalp preparations: but it must be fit for the typical customer. Assuming that is not the case, assuming it is a regular establishment, probably, the analogy affecting such a small proportion of the population, it probably wont be considered unmerchantable. The jury, however, must decide what standard the manufacture must be held to. o The fitness warranty may be able to apply if the buyer had made it known that she had a particularly sensitive scalp. Also, unless the seller worked with the manufacturer, then she wouldnt really know of the particular purpose, etc. If the suit was on the dresser, then the hair dresser would know of the buyers particular purpose (a hair dye that doesnt burn the scalp). Additionally, there is not a privity issue; the manufacturer did not directly sell the hair dye. In this case, it may have been the duty of the buyer to look at the ingredients. o A warranty suit can only be brought against the buyer and the seller; not the buyer and someone who advised the buyer; it must rest on the privity of contract. One of the evolving changes is the gradual erosion of the privity requirement as applied to warranty.

Burden of Proof
In a warranty suit the P has the burden of proving: (1) The creation of a warranty; (2) Its breach; (3) Its causal connection to Ps injury (proximate cause); and (4) The fact and extent of the injury. Flippo v. Mode ODay Frock Shops of Hollywood (1970) Facts: P (Gladys Flippo) was bitten by a spider while trying on clothes at store. Filed complaint asserting: 1. pair of slacks were in defective condition (presence of poisonous spider); 2. both the store and owner were negligent; 3. there was an implied warranty that the slacks were fit for the purpose for which they were purchased, though actually not fit, because of the poisonous spider concealed therein.

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Holding/Reasoning: Implied warranty of merchantability does not apply. P bought the pants after being bitten and has worn and laundered them since the incident. There is no evidence that the goods were defective in any manner. The spider was not part of the product; neither manufacturer or retailer had control of the spider or caused it to be in the pants.

Warranty Disclaimers and Limitations

Warranty disclaimer is a disclaimer of obligation; it is an attempt to reduce or eliminate the scope of obligation it assumes. Without more, the merchant/seller assumes that the goods are fit for purposes ABCD. However, he may only wish to accept the obligation for ABC, and therefore wants to reduce the scope of the warranty of merchantability (that risk is then transferred to the buyer). If the seller is willing to assume goods are fit for ABCD, but unwilling to pay the full damages if the goods are unfit, then what the seller needs is a Limitation. 2-316 Remedy LIMITATION for consequential damages; here the obligation is unaffected, the only thing changed is the amount of damages he must pay in the event there is a breach.

2-316 Exclusion or Modification of Warranties 1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. 2. Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that There are no warranties which extend beyond the description on the face thereof. 3. Notwithstanding subsection (2) a. Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like as is, with all faults or other language which in common understanding calls the buyers attention to the exclusion of warranties and makes plain that there is no implied warranty; and b. When the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and c. An implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. 4. Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy. (section 2-718 and 2-719) (Limitation) Cate v. Dover Corp. (1990) Issue: enforceability of a disclaimer of implied warranty. Facts: P purchased 3 lifts manufactured and designed by Dover Corp. The lifts never functioned properly. D claims that P is barred from recovery based on a disclaimer contained w/in a written, express warranty. The disclaimer, although contained in a separate paragraph w/in the warranty text, is in the same typeface, size, and color as the remainder of the text. D argues that a lesser standard of conspicuousness should apply to a disclaimer made to a merchant. Rules/Reasoning: 1. An implied warranty of merchantability arises in a contract for the sale of goods unless expressly excluded or modified by conspicuous language. 2. Whether a disclaimer is conspicuous is a question of law a term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals is conspicuous; language in a body of a form is conspicuous if it is larger or of other contrasting type or color. But in a telegram, any stated term in conspicuous. (1-201 section 10) 3. Although the warranty in its entirety may be considered conspicuous, the disclaimer is hidden among attention-getting language purporting to grant the best warranty available. Ds disclaimer fails to attract the attention of a reasonable person. 4. Because the object of the conspicuousness requirement is to protect the buyer from surprise and an unknowing waiver of his or her rights, inconspicuous language is immaterial when the buyer has actual knowledge of the disclaimer. This knowledge can result from the buyers prior dealings with the seller, or by the seller specifically bringing the inconspicuous waiver to the buyers attention. (code recognizes that buyer knowledge makes the inconspicuous waiver immaterial; also course of dealing

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5. 6.

7.

or usage of trade can also act as an exclusion of implied warranty). The seller has the burden of proving the buyers actual knowledge of the disclaimer. D failed to establish that P understood warrantys limitations or exclusions. (Dissent) 2-316 undermines implied warranties. Implicitly it adopts the position that disclaimers should be enforced because society benefits when parties to contract are allowed to set all the terms of their agreement. It ignores the fact that governmental implication of protective terms into private contracts is commonplace and rests on the faulty premise that contractual disclaimers are generally freely bargained for elements of a contract. Marketplace reality suggests that freedom of contract in the sale of goods is actually nonexistent; a buyer can either take the contract w/the disclaimer attached or leave it and go w/o the good. this reality would seem to demand that the legislature prohibit implied warranty disclaimers by repealing 2-316 (w/o this action, courts have to rely on the unconscionability or conspicuous requirements to reach a fair result. Purpose of implied warranty they create incentives to produce and market higher quality products; they discourage shoddy workmanship and unethical trade practices; they place responsibility on those who profit from the sale of goods, have the greatest control over the products, and are better able to bear the risk of loss. A statement buried in the fine print of a used car purchase agreement states that There are no express or implied warranties that are part of this sale. i. Are the implied warranties effectively disclaimed? 1. NO. The disclaimer was not conspicuous. Also, as a side note, the disclaimer may have failed the unconscionability test as well. ii. If the car dealership asks you to redraft this clause so as to comply with the Code, what changes would you make in the language? 1. You would include as is or with all the defects, etc. iii. What changes would you make in the physical appearance of the clause in the contract? Is it all right to put the disclaimer in the clause labeled WARRANTY? 1. You cannot put the disclaimer in the section labeled warranty because it would not call attention to itself. Changes made the physical appearance of the contract would include a change in font or type face, color, or separation from the rest of the warranty provisions. iv. Can the car dealer win the legal dispute by arguing that the usage of trade permits the burial of warranty disclaimers in the fine print? 1. He may win, however, the usage of trade and course of dealing argument can be used the other way as well: it is a usage of trade and course of dealing presumption that buyers dont read the fine print, especially in boilerplate forms. The words AS IS are written with soap in large letters across the front windshield of the used car. Is this effective to disclaim implied warranties? Express warranties? Must the as is language be conspicuous? i. The writing is specific and conspicuous; should meet the test of enforceability. The car salesman asks the buyer, Would you like to examine the car? and the buyer, who is in a hurry, says, NO. Effective disclaimer? i. If buyer refused to examine the goods then the resulting injuries likely resulted from buyers own action rather than from breach of warranty. An examination could have revealed defects; the buyer had a responsibility to inspect the goods he was purchasing. Remember Ted Traveler (problem 19) who walked into the mens room of the bus depot and bought an expensive watch? We decided that there was no warranty of title in that transaction; however, a warranty of quality is a separate question. Are there implied warranties in this sale? i. Yes. There is an implied warranty of fitness and merchantability; an implied warranty that the car will work, etc.

Problem 31 a.

b. c.

d.

Bowdoin v. Showell Growers, Inc. (1987) Issue: whether the defendants effectively disclaimed the implied warranties of fitness and merchantability w/respect to a high pressure spray rig that caused injury to Ps. Facts: The disclaimer was included in the instruction manual; the manual was delivered to Ps after the sale. The disclaimer stated: The foregoing warranty is expressly in lieu of any and all other warranties, express, implied, statutory or otherwise (including, but w/o limitation, the implied warranties of merchantability and fitness for a particular purpose). Rules/Reasoning:

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1. 2.

Post-sale disclaimers are not effective because they do not for a part of the basis of the bargain b/w the parties of the sale. The buyer is not bound by the disclaimer to which he had never agreed at the time of the sale and which first appears in the manufacturers manual delivered to the buyer with the goods or the manufacturers printed material brochure, or warranty booklet that accompanies the goods.

Remedy Limitations
2-719 Contractual Modification or Limitation of Remedy 1. Subject to the provisions of subsection (2) and (3) of this section and of the preceding section on liquidation and limitation of damages, a. The agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyers remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and b. Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. 2. Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act. 3. Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not. Wilson Trading Corp. v. David Ferguson, LTD. (1968) Facts: 1. P suing based on theory of unmarketability (yarn shaded); 2. Ds defense is that P did not perform all of the conditions of the contract no claims relating to excessive moisture content, short weight, count variations, twist, quality or shade shall be allowed if made after weaving, knitting, or processing, or more than 10 days after receipt of shipment.; also included a merger clause. 3. P alleges that the yarn had latent defects that could not have been detected until after the yarn was processed; D does not seem to argue that the yarn was unmerchantable, but instead relies on the theory that P did not give notice of the breach of warranty until after the specified time had run. 4. The warranty limited remedies to 10 days and before knitting & processing; issue whether the time limit and conditions are reasonable. a. Any clause purporting to modify or limit the remedial provisions of this Article in an unconscionable manner is subject to deletion and in that event the remedies made available by this Article are applicable as if the stricken clause had never existed. Ruling: 1. Where an apparently fair and reasonable clause because of circumstances fails in its purpose or operates to deprive either party of the substantial value of the bargain, it must give way to the general remedy provisions of this Article. 2. The contract limits the remedies for the breach and tries to alter the warranty of merchantability; attempt to warrant and then refuse to warrant goods creates ambiguity in which one term must yield to the other. (top of page 122: either that clause will be viewed as either sellers warranty regarding defects in the product was unimpaired, but the seller was disclaiming any damages brought to its attention after the period of 10 days (warranty disclaimer clause); or it could be viewed as a contraction to the warranty, so that it would be viewed as a contractual relation stating that it would not cover any damages after 10 days.) Problem 32: On Nov. 1, Jack bought a car from King. J used the car to get to work during the week in the winter and for fun on the weekends. The contract he signed stated that the seller warranted the vehicle was merchantable, but that, in the event of breach, the buyers remedy was limited solely to repair or replacement of defective parts. Moreover, the contract conspicuously stated that the seller was not responsible for any consequential damages. One week after J received the car, he noticed a rumble in the engine; he took it back and the machine was allegedly repaired; the same thing happened several times. 4 weeks later, J was seriously injured; he lost the use of his arm, incurred hospital expenses, lost pay, and lost the cost of vehicle. K defended on the grounds that his liability was limited to the cost of repair or replacement. J argued the remedy limitation was unconscionable. How should the suit result? o The personal injury losses: hospital expenses, lost pay, lost use of left arm. Could he recover from those losses? The contract limited liability for consequential damages. Does this argument work? NO, any attempt to limit the liability for injury is an unconscionable attempt and they are excluded leads to the deletion of the objectionable clause 2-719

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and 2-302. There must be some argument that the seller can use to offer an exemption from liability? What is it that makes a provision unconscionable? :Concealment, etc. 2-719 1b seems to say that this is a limited warranty; attempt to recover damages for personal injury is precluded by 2-719 1b and 1a. If you were advising the buyer facing these damages, what call would you make? It is still unconscionable and this argument still trumps the sellers argument. The distinction between failure of essential purpose and unconscionability is big. The agreement to a limited remedy represents a bargain. This bargain should be made to function perfectly; when it doesnt, the limited remedy has failed in its essential purpose. If the buyer cannot prove that the damages were caused as a proximate result, then he cannot recover. This is a matter of foreseeability, etc. which may prevent recovery despite contract limitations, etc. The remedy limitations: 1. no consequential damages, 2. the only remedy is for replacement. As far as consequential damages, the limitation is unconscionable; on the damages for non-consequential damages or damages that are injury, but not consequential, the problem is that w/ so many repeated failures, the buyer is going to be able to argue that the limitation failed in its essential purpose and therefore should be excluded from the contract.

Warranty limitations and buyer disclaimers try to limit the liability of the seller trip back the scope of the warranty (there is no warranty for certain losses); these are difficult drafting decision that are faced because you have to account for the probability that any disclaimer, etc. will even stand up to the unconscionability test. (disclaimers are subject to stricter regulations than warranty limitations). Goddard v. General Motors Corp. (1979) Facts: 1. P bought car w/ warranty: repair any defective or malfunctioning part of the vehicle (except tires) for 12 months or 12,000 miles whichever comes first; the warranty covers only repairs made necessary due to defects in material or workmanship; did not cover consequential damages. Holding/Reasoning: 1. When a seller is unable to fulfill its warranted obligation to repair or replace defects in goods which are the subject matter of the sale and the buyer is deprived of the benefits of the limited remedy, the remedy fails it essential purpose (2-719). 2-714 Buyers Damages for Breach in Regard to Accepted Goods 1. Where the buyer has accepted goods and given notification (subsection 3) of Section 2-607 he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the sellers breach as determined in any manner which is reasonable. 2. The measure of damages for breach of warranty is the difference at the time and place of acceptance b/w the value of the goods accepted and the value they would have had if they had been aw warranted, unless special circumstances show proximate damages of a different amount. 3. In a proper case any incidental and consequential damages under the next section may also be recovered. NOTE: in a commercial setting where the buyer is not a consumer, courts tend to hold that disclaimer limiting consequential damages is enforceable despite the failure of the limited warranty.

Defenses in Warranty Actions Notice

In all warranty actions a buyer loses all UCC rights if he fails to give the seller notice of the breach w/in a reasonable time after the breach should have been discovered. 2-607 Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over. 1. The buyer must pay at the contract rate for any goods accepted. 2. Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity. 3. Where a tender has been accepted

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4. 5.

6.

The buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy (time begins to run when buyer becomes aware or should have been aware; there is a general obligation to inspect the goods ); and b. If the claim is one for infringement or the like and the buyer is sued as a result of such a breach he must so notify the seller w/in a reasonable time after he receives the notice of the litigation or be barred from any remedy over for liability established by the litigation. The burden is on the buyer to establish any breach w/respect to the goods accepted. Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over a. He may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the 2 litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound. b. If the claim is one for infringement or the like the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expenses and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred. The provisions of 3, 4, and 5 apply to any obligation of a buyer to hold the seller harmless against infringement or the like.

a.

2-515 Preserving Evidence of Goods in Dispute In furtherance of the adjustment of any claim or dispute A. Either party on reasonable notification to the other and for the purpose of ascertaining the facts and preserving evidence has the right to inspect, test and sample the goods including such of them as may in the possession or control of the other; and B. The parties may agree to a third party inspection or survey to determine the conformity or condition of the goods and may agree that the findings shall be binding upon them in any subsequent litigation or adjustment. 2-508 Cure by Seller of Improper Tender or Delivery; Replacement 1. Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intentions to cure and may then w/in the contract time make a conforming delivery. 2. Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable w/ or w/o money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. Problem 33 o The notice that Dave had given was too late; he waited 60 days after delivery. The notice section allows the seller the right to cure the breach/problem; if the notice is given too late, then the opportunity to cure will likely lapse. Problem 34 o Here, the seller knew: the shipment was five months late. Was notice necessary? Here there is an installment contract; so notification of a breach in the first installment would give the seller the opportunity to make up for it in the second installment. Without notice, the delay is not deemed to be important. Even if the seller was aware of the importance of timely delivery, if he had been notified then the seller would reasonably be able to do something to avoid delay. o If 2-607 is not satisfied, then youre left with no remedy. o When the second delay occurs, the buyer sends a notice; seller argues that it is insufficient notice to satisfy 2-607. Comment 4 says that all is necessary to be included in the notice is that the transaction is troublesome. However, the weak letter doesnt tell the seller that something needs to be done. notification need only be such as informs the seller that the transaction is claimed to involve a breach, and thus opens the way for normal settlement through negotiation. Especially if youve attained legal advice on the matter, you should include the word breach and make it clear that the breach has not been waived. o Would filing of a suit be sufficient? The purpose of notice is to give the seller time to cure the breach or offer a settlement. If the buyer files suit right away, then those rights are taken away. Even if one wasnt looking for a cure, there are other means of settlement. In a sense, one could argue that those settlements are all short circuited by skipping the notice portion. Seller could argue that 2-607 says that if there is no notice, you are barred from any remedy. Some courts have held that no serious negotiation occurs before filing of suit. However, to be safe, if you were giving advice, you would not want to skip that step (unless, of course, you were facing imminent bankruptcy of the seller, etc.).

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2-318 Third Party Beneficiaries of Warranties Express or Implied (states select one alternative) Alternative A A sellers warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such a person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section. (This is the most restrictive alternative) Alternative B A sellers warranty whether express or implied extends to any natural person who may reasonably be expected to use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section. (This is broader than the first alternative; does not limit it to family members or guests of a household) Alternative C A sellers warranty whether express or implied extends to any person, who may reasonably be expected to use, consume or be affected by the goods and who is injured by breach of the warranty. A seller may not exclude or limit the operation of this section with respect to injury to the person or an individual to whom the warranty extends. (This is the broadest of the alternatives; it includes corporations as well as injuries that are not personal, such as financial) Problem 35 o 2-318 extends to third party beneficiaries the warranty of merchantability. (Alternative A is the most restrictive; but the alternative which applies varies by jurisdiction). o Does Sancho have to give notice in order to maintain an action? NO. 2-607 speaks only of buyers, Sancho is not a buyer. Would it make sense to require an non-buyer to give notice? The comment suggests that even though 3rd party beneficiaries are not required to give notice of breach, they may required to give notice of injury. Is there a real difference? Plus, how would Sancho give notice? Sancho doesnt know anything about Carrasco. Notice of breach sections make a lot of sense when youre talking about buyers and sellers (all the information is available); however, when you include 3rd parties, its more difficult to hold them to a notice requirement because they lack the information necessary. The comment doesnt make clear what a notice of injury is. Most courts hold that individuals claiming under alternative A or B have held that they dont need to give notice (a court can ignore the comment). o What about Alonzo himself (the buyer) is held to a notice requirement? What if he wanted to sue La Mancha, not Carrasco? Alonzo is claiming breach of merchantability w/contract to Carrasco. He could claim under alternative B because he in the foreseeable range of use of the product. Would he have to give notice to La Mancha? Courts have tended to ignore the notice injury requirement for 3rd party. However, he does fall w/in the term buyer (he bought from Carrasco). Courts still hold that he is a 3rd party and tend to hold that he is not required to give notice. o Are there any other warranty claims? If you were representing Alonzo, youd want a stronger claim? How would you argue that there is a direct warranty to Alonzo? Can you find a contract b/w the manufacturer and Alonzo? This is a heavily advertised product. With respect to mass circulation, highly advertised products, the representation made to buyers acts as a direct contractual relationship between the buyer and the manufacture. Alonzo could argue that he was persuaded by La Manchas advertisements, etc. and by acting upon that advertisement he directly engaged in a contract (consideration included, the representations then become express warranties). If hes suing on express warranty, then he would have to satisfy the notice requirements under 2-607.

Privity
Suits on warranties are contract actions. Buyer must establish that there was in fact and in law a contract b/w the parties = privity. The problem of how far back up the distribution chain the buyer can go is said to be an issue of vertical privity. Horizontal privity deals with identifying to whom the retail seller is liable other than the immediate purchaser. Problem 36 o Mr. Gauss could use alternative C (the jurisdiction would have to have adopted this provision) to sue. If the jurisdiction did not adopt C, could he establish a direct warranty/contract b/w himself and the manufacturer? Consideration has to be something that is reasonably/conceivably conclusive on part of the seller. It would be difficult to construct a contract out of that. He would have to depend on Alternative C (as far as the dog is concerned); or Alt B for injuries to himself. o Cayley could establish a direct contract w/manufacture (not the paint company though) and therefore was protected by the express warranty.

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Can Mr. Gauss bring a tort action based on strict product liability? a defect in the product maintained by strict liability. All he would have to prove is a defect that is unreasonably dangerous.

Strict Products Liability in Tort

Strict products liability permits recovery by an injured consumer in a suit against the manufacture as long as the consumer can prove that the manufacturer distributed into commerce a product that contained a dangerous defect. There is no necessity of proving either negligence or privity. Section 402A Special Liability of Seller of Product for Physical Harm to User or Consumer 1. One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if a. The seller is engaged in the business of selling such a product, and b. It is expected to and does reach the user or consumer w/o substantial change in the condition in which it is sold. 2. The rule stated in subsection 1 applies although a. The seller has exercised all possible care in the preparation and sale of his product, and b. The user or consumer has not bought the product from or entered into any contractual relation with the seller. Differences b/w strict liability action and breach of implied warranty of merchantability: 1. 402A does not require notice 2. 402A damages are limited to physical injury 3. 402A has the statute of limitations imposed by state law for tort actions; UCC is governed by 2-725; time periods may vary significantly. 4. 402A is not affected by disclaimers or remedy limitations 5. 402A does not consider privity 6. 402A requires that the product contain a defect; UCC warranty may be breached even if the product is not defective. East River Steamship Corp. v. Transamerica Delaval, Inc. (1986) Issue: does admiralty law incorporate principles of products liability, including strict products liability. Facts: A defective product purchased in a commercial transaction malfunctioned and injured only the product itself causing purely economic loss. P sought 3.03 million in damages for cost of repair and lost income while the ships were out of service; alleged that D was strictly liable for the design defects and negligent supervision of the installation. Ruling: The Ct of Appeals held that damage only to a defective product is actionable in tort only when the defect creates an unreasonable risk of harm to persons or property other than the product itself; here, P was disappointed w/the products quality which was protected under warranty strict liability and negligence were not cognizable claims. Products liability was a policy judgment affording greater protection from dangerous products than warranty law provides. o These types of actions are ones where it is reasonably certain to place life and limb in peril; here D would be liable regardless of negligence b/c public policy demands responsibility to be fixed to reduce hazards to life and health caused by dangerous products. o This COA would also attach if there was additional property damage (reasoning is that the case would distinguish itself from the warranty COA and make it a strict liability action). o However, usually defective products fall under the contract law causes of action. Rule A manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself. Damage to a product is understood as a warranty claim; disappointment in a products failure can be insured as protection; liability in tort would create unnecessary costs to the public. A warranty action also has a built in limitation on liability, whereas a tort action could subject the manufacturer to damages of an indefinite amount; in a warranty action where the loss is purely economic, the limitation derives from the requirements of foreseeability and of privity, which is still generally enforced for such claims in a commercial setting. Problem 37 The axle on Montys car snapped while driving; Monty skidded across median and ran into Bystander. What is the best cause of action: negligence, 402A, or 2-314? Whom should you sue? o 402A is probably the best COA; you dont have to establish negligence or privity. Although Bystander was not a consumer; part 2b states that it applies even if the user or consumer did not buy the product himself. All you have to

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prove is that manufacturer distributed into commerce a product that contained a dangerous defect. Also, the damages are limited to personal injury, so you wouldnt be suing for merchantability of the product, but rather for personal injury damages.

Identification of the Goods

2-501 Insurable Interest in Goods; Manner of Identification of Goods 1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs a. When the contract is made if it is for the sale of goods already existing and identified; b. If the contract is for the sale of future goods other than those described in paragraph C, when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers; c. When the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve months after contracting or for the sale of crops to be harvested within twelve months or the next normal harvest season after contracting whichever is longer. 2) The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified. 3) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law. Comment 2 if identification in tentative or contingent, it is the general policy to resolve all doubts in favor of identification. Problem 44 o Seller, a fisherman, contracts to sell his entire catch for the coming season. Does the identification occur on the making of the contract, on the catching of the fish, or on their packaging with a label indicating they belong to this particular buyer? 1) 2-501 1B when the contract is for future goods (not growing crops or unborn young) identification is when goods are shipped, marked or otherwise designated by the seller. So, in this case, identification occurred when he packaged the fish w/ a label indicating they belonged to that particular buyer. o Circus contracted to sell the unborn calf of Nancy the elephant as soon as it was born; the contract was made when Nancy was 2 months pregnant. Does the identification occur on the date of contracting, on the calfs birth, or when the calf is marked for shipping? 1) The identification was made on the date of contracting because the calf had already be conceived by then. Identification takes place on the conception of the unborn young (which in this case was also the date of the contracting). 2-501 1C o Carl agreed to sell of the grain he stored in a place where it was mixed w/other grain. Does the identification occur on contracting or on segregation of the grain? 1) Identification occurs at the time of contracting; the portion of the grain is part of an undivided share of identifiable bulk with presumably equal units. o W contracted to sell 5000 widgets to a buyer. Its warehouse contained 2 million, all alike. Does identification occur on contracting or when the goods are picked out and marked as pertaining to this contract? 1) 1-201 [17] Fungible with respect to goods or securities means goods or securities of which any unit is, by nature or usage of trade, the equivalent of any other like unit. Goods which are not fungible shall be deemed fungible for the purposes of this Act to the extent that under a particular agreement or document unlike units are treated as equivalents. 2) If the contract left it up to W (implicitly or explicitly) then identification would occur when W makes the selection (picks it out and marks it as pertaining to the contract). If the contract stated that B would go by the warehouse and pick out the items, then identification would occur when B made his selections. Note: the comments state that the code favors the earliest possible identification of the goods.

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Risk of Loss When There is No Breach

Prior to the adoption of the UCC, the question of who bore the risk of loss was dominated by the notion of title. The UCC however eliminated all mention of title in considering risk of loss problems. Comment 1 of 2-509 the underlying theory of these sections on the risk of loss is the adoption of the contractual approach rather than an arbitrary shifting of the risk with the property in the goods; Comment 3 makes clear that the attempt in these sections is to place the risk on that party who is more likely at the moment of loss to have insurance on the goods. 2-509 Risk of Loss in the Absence of Breach 1) Where the contract requires or authorizes the seller to ship the goods by carrier a. If it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation (this is shipment contract; he is NOT actually responsible for them getting where they are going) (section 2-505); but b. If it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes t the buyer when the goods are there duly so tendered as to enable the buyer to take delivery. (this is a destination contract; seller has an added layer of obligation and takes ultimate responsibility that the goods will get if not literally into Buyers hands as least to the particular destination) 2) Where the goods are held by a bailee (a person engaged in the business of storing goods for hire) to be delivered without being moved, the risk of loss passes to the buyer(In many contracts, the seller must arrange for the warehouse company (bailee) to change its records to show the buyer as the new owner; this section sets out the rules as to when the risk of loss passes to the buyer in this situation) a. On his receipt of a negotiable document of title covering the goods; or b. On acknowledgment by the bailee of the buyers right to possession of the goods; or c. After his receipt of a non-negotiable document of title or other written direction to deliver, as provided in subsection 4b of section 2-503. 3) In any case not within subsection 1 or 2, the risk of loss passes to the buyer on his receipt (means taking physical possession of them, 2-103) of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery. (applies only when paragraph 1 and 2 do not) 4) The provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on approval (section 2-327) and on effect of breach on risk of loss (section 2-510) The general rule on the transfer of the risk of loss is that, absent contrary agreement, o Where the seller is a merchant, the risk of loss passes to the buyer on the buyers actual receipt of the goods; and o Where the seller is not a merchant, risk of loss passes to the buyer when the seller tenders delivery. Problem 45 W bought car from J. He paid price in full and J promised delivery on the next Mon. On Mon. the car was ready and J called W to come take it away. W said he was busy and that he would pick it up the next day; J agreed. That night the car was stolen from the lot due to no fault of J who had taken reasonable precautions against such a thing. Who had the risk of loss? o J has risk of loss; W had to take actual receipt of the car; J who was to make actual delivery at his own place continues meanwhile to control the goods and can be expected to insure his interest in them. The buyer, on the other hand, has no control of the goods and it is extremely unlikely that he will carry insurance on goods not yet in his possession. Problem 46 J decided to have a garage sale to clean up her home. In the course of the sale, B offered J $200 for the piano. J said, take it. B said shed be back the next day. That night Js home burned to the ground, and the piano was destroyed. Did the risk of loss pass from J to B? (2-503) If B never picked up the piano and if it was destroyed in a fire 6 months after the sale, what result? (2-709 1a)

2-503 Manner of Sellers Tender of Delivery 1) Tender of delivery requires that the seller put and hold conforming goods at the buyers disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this Article, and in particular a. Tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but

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b. Unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods. 2) Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions. 3) Where the seller is required to deliver at a particular destination tender requires that he comply w/subsection 1 and also in any appropriate case tender documents as described in subsections 4 and 5 of this section 4) Where goods are in the possession of a bailee and are to be delivered w/o being moved a. Tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyers right to possession of the goods; but b. Tender to the buyer of a non-negotiable document of title or of a written direction to the bailee to deliver is sufficient tender unless the buyer seasonably objects, and receipt by the bailee of notification of the buyers rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the non-negotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender. 5) Where the contract requires the seller to deliver documents a. He must tender all such documents in correct form, except as provided in Article with respect to bills of lading in a set; and b. Tender through customary banking channels is sufficient and dishonor of a draft accompanying the documents constitutes non-acceptance or rejection. 2-709 1A Action for the Price 1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price a. Of goods accepted or of conforming goods lost or damages w/in a commercially reasonable time after risk of their loss has passed to the buyer (Once the risk of loss has shifted to the buyer, seller is entitled to payment of the price). b. of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. 2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of nay such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold. 3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (section 2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section. Jasons Foods, Inc. v. Peter Eckrick & Sons, Inc. (1985) Issue: Whether acknowledgment to the seller complies with the statute; defendant maintains that acknowledgment must be to the buyer. Facts: 1. Jan 13 Jasons requested the transfer be made to Es account; a clerk at the warehouse noted the transfer immediately on the books but did not send receipt until Jan 17 or 18; E did not receive notice of the transfer till Jan. 24. The goods were destroyed in a fire on Jan. 17. If the risk of loss transferred to E before the fire, then Jasons is entitled to the contract price. 2. Jason argues that the risk transferred on the 13th because he lost all rights to the goods and should not bear the risk of loss. E owned them and would be covered by insurance; Jasons on the other hand did not own them and therefore would not be insured for the loss. 3. Case cant be decided by reference to what the parties knew or didnt know; cant be decided on the basis of which party could have insured against the loss. 4. Section 2-509 (2) separates title from risk of loss. Title to the ribs passed to E when the warehouse made the transfer on its books from Jasons account to Es, but the risk of loss did not pass until the transfer was acknowledged. 5. Jason argues that it was sufficient to make the acknowledgment to the seller (part B of 2 doesnt say to whom the acknowledgment must be made); BUT, if the draftsmen of B had meant the risk of loss to pass when the transfer was made, one would think they would have said so, and not complicate life by requiring acknowledgment. 6. Comment 4 states where the agreement provides for delivery of the goods as b/w the buyer and seller w/o removal from the physical possession of the bailee, the provisions on manner of tender of delivery apply on the point of transfer of risk.

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Delivery Terms
Shipment Contract: in sales contracts the parties often agree that the seller need only get the goods to the carrier and then the buyer will take the risk of loss. (Comment 5 of 2-503 says that this is the normal type of contract) Destination Contract: the parties agree that the goods must be delivered by the carrier before the risk of loss passes from seller to buyer. (this is the variant type) F.O.B. = free on board; can indicate a shipment or destination contract; the risk of loss transfers at the named place. F.A.S. = free along-side C.I.F. = cost, insurance, freight; always indicates a shipment contract; also, means the stated price includes the cost of the item, the insurance premium, and the freight charge; here buyer agrees to pay insurance C. & F. = cost and freight; always indicates a shipment contract; same as C.I.F. except buyer doesnt agree to pay for insurance because usually a blanket insurance policy already covers goods the buyer owns. Ex-ship = off the ship 2-504 Shipment by Seller Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must (a) put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and (b) obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and (c) promptly notify the buyer of the shipment. Failure to notify the buyer under paragraph C or to make a proper contract under paragraph A is a ground for rejection only if material delay or loss ensues. 2-319 F.O.B. and F.A.S. Terms 1) Unless otherwise agreed the term F.O.B. (which means free on board) at a named place, even though used only in connection with the stated price, is a delivery term under which a. When the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this Article 2-504 and bear the expense and risk of putting them into the possession of the carrier; or b. When the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this Article 2-503 c. When either (a) or (b) them term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply w/the provisions of this Article on the form of bill of lading (2-323) 2) Unless otherwise agreed the term F.A.S. vessel at a named port, even though used only in connection with the stated price, is a delivery term under which the seller must a. At his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer; and b. Obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading. 3) Unless otherwise agreed in any case falling w/in subsection 1a or c or subsection 2 the buyer must seasonably give any needed instructions for making delivery, including when the term is F.A.S or F.O.B. the loading berth of the vessel and in an appropriate case its name and sailing date. The seller may treat the failure of needed instructions as a failure of cooperation under this Article 2-311. He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment. 4) Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents. 2-320 C.I.F. and C & F Terms 1) The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named destination. The term C&F or C.F. means that the price so includes cost and freight to the named destination. 2) Unless otherwise agreed and even though used only in connection with the stated price and destination, the term CIF destination or its equivalent requires the seller at his own expense and risk to a. Put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the entire transportation to the named destination; and

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Load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the freight has been paid or provided for; and c. Obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at the port of shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by the bill of lading and providing for payment of loss to the order of the buyer or for the account of whom it may concern; but the seller may add to the price the amount of the premium for any such war risk insurance; and d. Prepare an invoice of the goods and procure any other documents required to effect shipment or to comply with the contract; and e. Forward and tender with commercial promptness all the documents in due form and with any endorsement necessary to perfect the buyers rights. 3) Unless otherwise agreed the term C&F or its equivalent has the same effect and imposes upon the seller the same obligations and risks as a CIF term except the obligation as to insurance. 4) Under the term CIF or C&F unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents. 2-321 CIF or C&F: Net Landed Weights; Payment on Arrival; Warranty of Condition on Arrival Under a contract containing a term CIF or C&F. 1) Where the price is based on or is to be adjusted according to net landed weights, delivered weights, out turn quanitity or quality or the like, unless otherwise agreed the seller must reasonably estimate the price. The payment due on tender of the documents called for by the contract is the amount so estimated, but after final adjustment of the price a settlement must be made with commercial promptness. 2) An agreement described in subsection 1 or any warranty of quality or condition of the goods on arrival places upon the seller the risk of ordinary deterioration, shrinkage and the like in transportation but has no effect on the place or time of identification to the contract for sale or delivery or on the passing of the risk of loss. 3) Unless otherwise agreed where the contract provides for payment on or after arrival of the goods the seller must before payment allow such preliminary inspection as is feasible; but if the goods are lost delivery of the documents and payment are due when the goods should have arrived. 2-322 Delivery Ex-ship 1) Unless otherwise agreed a term for delivery of goods ex-ship (from the carrying vessel) or in equivalent language is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination where goods of the kind are usually discharged. 2) Under such a term unless otherwise agreed a. The seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the carrier under a duty to deliver the goods; and b. The risk of loss does not pass to the buyer until the goods leave the ships tackle or are otherwise properly unloaded. 2-323 Form of Bill of Lading Required in Overseas Shipment; overseas 1) Where the contract contemplates overseas shipment and contains a term CIF or C&F or FOB vessel, the seller unless otherwise agreed must obtain a negotiable bill of lading stating that the goods have been loaded in board or, in the case of a term CIF or C&F, received for shipment. 2) Where in a case w/in subsection 1 a bill of lading has been issued in a set of parts, unless otherwise agreed if the documents are not to be sent from abroad the buyer may demand tender of the full set; otherwise only one part of the bill of lading need be tendered. Even if the agreement expressly requires a full set a. Due tender of a single part is acceptable w/in the provisions of the Article on cure of improper delivery (2-508 subsection 1); and b. Even though the full set is demanded, if the documents are sent from abroad the person tendering an incomplete set may nevertheless require payment upon furnishing an indemnity which the buyer in good faith deems adequate. 3) A shipment by water or by air or a contract contemplating such shipment is overseas insofar as by usage of trade or agreement it is subject to the commercial, financing or shipping practices characteristic of international deep water commerce. 2-324 No Arrival, No Sale Term Under a term no arrival, no sale or terms of like meaning, unless otherwise agreed, (a) the seller must properly ship conforming goods and if they arrive by any means he must tender them on arrival but he assumes no obligation that the goods will arrive unless he has caused the non-arrival; and (b) where without fault of the seller the goods are in part lost or have so deteriorated as no longer to conform to the contract or arrive after the contract time, the buyer may proceed as if there had been casualty to identified goods (2-613)

b.

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Problem 47 Seller in NY contracted to sell 80 boxes to B in Ga. Delivery term was $1800 FAS SS Seaworthy, NYC. S delivered the goods to the dock alongside the ship and received a bill of lading from the ship as a receipt. Before the boxes could be loaded, the dock collapsed, and everything thereon disappeared into the water. Must B pay anyway? What if the delivery term had been ex-ship SS Seaworthy, Savannah and the boxes had been properly unloaded just before the dock collapsed. Would 2322 make B pay? Part one; this is a shipping contract. Once the seller put the goods in the hands of the carrier, the risk shifted to the buyer. Part two: the buyer still assumes the risk of loss because the ex-ship section specifies that the risk transfers when the goods are properly unloaded. (destination contract) Problem 48 S in MI contracted to sell and ship 50 Ts to B in AL. Assume lightning strikes, destroying all vehicles after the carrier has received them, but before they are loaded on board the railroad car that was to take them to AL. Who had the risk of loss if (a) the contract said FOB Detroit; (B) the contract said FOB railroad cars Detroit; (C) the contract said CIF Birmingham? Buyer ; this is a shipment contract; goods were delivered to the carrier; risk passed. Seller; this is a shipment contract however the goods never reached the RR cars in Detroit so the risk never passed. Buyer; if seller met all the requirement of 2-320 then the risk shifted to the buyer; this is a shipment contract. Problem 49 Dispatcher of PP, Inc. just finished loading 5 boxcars of product on board the cars of an independent RR carrier when he received notice from PPIs sales department that it agreed to sell one of them to GKFS FOB sellers processing plant. The dispatcher agreed to divert one of the cars to GK, but before he could do so, a hurricane destroyed all five cars and their contents. Who bears risk of loss? This is a destination contract; the goods were never tendered to the destination and therefore risk of loss was never passed to buyer.

Cook Specialty Co. v. Schrlock (1991) Facts: (a) Terms: FOB MSIs warehouse in Schaumburg, Illinois. (b) Carrier took possession of goods from warehouse; while in transit to Ps warehouse good was damaged. (c) Carrier was negligent; P got $5000 from carriers insurance but the machine was worth $28000. (d) Risk of loss passes to the buyer when the goods are duly delivered to the carrier; however, seller must satisfy 2-504. (e) P argues that the goods were not duly delivered because seller did failed to ensure that carrier had sufficient insurance coverage to compensate P for a loss in transit. However, court held that reasonableness of shippers conduct regards the mode of transportation selected. Holding; Buyer bore the risk of loss in transit. Rheinberg-Kellerei GmbH v. Vineyard Wine Co. (1981) Facts: shipment contract; Manufacture of the wine did deliver it to the carrier, however it did not fulfill the obligations of 2-504 and failed to promptly notify the buyer thereby not giving him enough notice to insure his interest of the goods while in transit. Since the defendant (in this case the buyer) was never notified directly or by the forwarding of shipping documents w/in the time in which its interest could have been protected by insurance or otherwise, D was entitled to reject the shipment pursuant to 2-504C.

Performance of the Contract Chapter V

When making a contract, the parties have bargained for performance! The TARR provisions: Tender, Acceptance, Rejection, Revocation Identification continued (because Naresh cant teach for shit!) Definition the process or event in which an individual item becomes separated out from the whole world of other such articles and are designated as the particular goods to which the contract refers. Tender and Its Consequences Tender is thought of as an event, but it also connotes an action. Tender is the sellers responsibility. Tender is the first step to performance of the contract. 2-507 Effect of Sellers Tender; Delivery on Condition

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1. 2.

Tender of delivery is a condition to the buyers duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract. Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.

The Perfect Tender Rule and the Code

Definition the sellers tender had to be conforming in every respect, it had to be perfect, in order to trigger the buyers obligation to take and pay for the goods. Although the perfect tender rule is rigid and harsh, especially compared to the substantial performance or material breach concepts that govern other areas of contracts there are some provisions which help to alleviate the rigidity. 2-601 Buyers Rights on Improper Delivery Subject to the provisions of this Article on breach in installment contracts and unless otherwise agreed under the sections on contractual limitation of remedy, if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest. Some ways of getting out of the Perfect Tender Rule: 1-203. A buyers rejection must be made in good faith. Note that for an Article 2 merchant good faith requires not only honesty in fact (which is required of all of us) but reasonable commercial standards of fair dealing in the trade 2-103 (1)(b). The buyer is prohibited from relying dishonestly and, in the case of a merchant, unreasonably on some imperfection in tender which really doesnt matter to him or her simply to get out from under a deal that now seems undesirable. 2-605. A buyer may not later justify a rejection by pointing to defects on which he or she did not rely at the time of rejection. A buyer is foreclosed from later cooking up a good excuse for a wrongful rejection. i. Recall the significance given to trade usage, course of dealing, and course of performance. These trade terms actually became part of the agreement and hence the contract between the parties. If in a given trade buyers regularly give some leeway to sellers in judging compliance with the contract terms, that measure could also become part of any specific contract w/in the industry. 2-504. Some defects in the sellers manner of shipment will be grounds for buyers rejection only if material delay or loss ensues. 2-601. The perfect tender standard does not apply to so-called installment contracts. Installment contracts are dealt with by a rule of material breach. 2-608. Even if a buyer is given the right to reject for a nonmaterial breach under 2-601, if the buyer does accept and later tries to revoke his or her acceptance, a different standard will apply. If the buyer does reject, the seller will have in many instances the important right to cure. The Means of Tender Bills of Lading documents of title given by commercial carriers when goods are delivered to them. Warehouse receipts documents given by commercial warehouses. (Look back at Identification for the next step in contract performance; then to tender and the delivery terms). Problem 53 S signed contract to buy 5 cars. Cars were delivered; S test drove all and rejected 2 because the cigarette lighters didnt work. The dealer offered to repair the defects but S refused. Who wins? o The dealer would probably win because even though the 2 cars were non-conforming the seller still retains the option to cure the defect. o Yes, the cure section is useful to the dealer. It is a way of getting around the perfect tender rule. o Yes, usage of trade is built into the contract regardless of whether it is explicit. It is also another way of getting around the perfect tender rule.

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Cure
2-508 Cure by Seller of Improper Tender or Delivery; Replacement 1. Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. 2. Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. Problem 54 F ordered a new car from PM for $22,000. It had special accessories ordered and would be delivered; the car was ready early so buyer picked it up. 3 miles from the dealer the engine blew up w/o warning. F wanted his money back. PM said: a) PM offered to take the engine out of another car and replace it. (the rest of the car was not damaged) b) PM refused to refund the money; instead, it claimed a right to give F a new car to be delivered fresh from the factory a week later. a. According to 2-508, the seller has the right to cure; however, using 2-607, if the value is substantially impaired to the buyer, he may reject the product and in effect cancel the contract. The Shaken Faith Doctrine may be applied to the purchase of vehicles. Shaken Faith Doctrine: For a majority of people the purchase of a new car is a major investment, rationalized by peace of mind that flows from its dependability and safety. Once their faith is shaken, the vehicle loses not only its real value in their eyes, but becomes an instrument whose integrity is substantially impaired and whose operation is fraught with apprehension. The attempted cure in the present case was ineffective.

Wilson v. Scampoli (1967) Facts: Ps bought tv set; it was delivered but did not function properly; they wanted a new one; the seller wanted to fix it and if fixing it didnt solve the problem, then he would replace it. Trial court judge granted the rescission of the contract; defendant appealed saying that that was an error and that he should have had a chance to cure. Appellate court reversed saying that D never had a chance to cure or determine the cause of the defect.

Acceptance or Rejection of Goods

2-602 Manner and Effect of Rightful Rejection 1) Rejection of goods must be w/in a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. (a letter, for example, must express that the buyer is rejecting the goods and is not sufficient if he just informs the seller that he is unhappy with the tendered goods or that he claims there is a breach; a letter such as that would be sufficient under 2-607 but here it would not constitute a rejection. A rejecting buyer does not just claim breach; he EXPECTS the seller to take the goods back!) 2) Subject to the provisions of the two following sections on rejected goods (sections 2-603 and 2-604), a. After rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and b. If the buyer has before rejection take physical possession of goods in which he does not have a security interest under the provisions of this Article (subsection 3 of 2-711), he is under a duty after rejection to hold them with reasonable care at the sellers disposition for a time sufficient to permit the seller to remove them; but c. The buyer has no further obligations with regard to goods rightfully rejected. 3) The sellers rights w/respect to goods wrongfully rejected are governed by the provisions of this Article on Sellers remedies in general (section 2-703) 2-606 What Constitutes Acceptance of Goods 1) Acceptance of goods occurs when the buyer a. After a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or b. Fails to make an effective rejection, but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or c. Does any act inconsistent with the sellers ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him.

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2) Acceptance of a party of any commercial unit is acceptance of that entire unit. 2-607 Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over. 1. The buyer must pay at the contract rate for any goods accepted. 2. Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a nonconformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for nonconformity. 3. Where a tender has been accepted a. The buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred [FOREVER!!] from any remedy (time begins to run when buyer becomes aware or should have been aware; there is a general obligation to inspect the goods ); and b. If the claim is one for infringement or the like and the buyer is sued as a result of such a breach he must so notify the seller w/in a reasonable time after he receives the notice of the litigation or be barred from any remedy over for liability established by the litigation. 4. The burden is on the buyer to establish any breach w/respect to the goods accepted. 5. Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over c. He may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the 2 litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound. d. If the claim is one for infringement or the like the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expenses and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred. The provisions of 3, 4, and 5 apply to any obligation of a buyer to hold the seller harmless against infringement or the like. The buyer has to react to a tender whether or not it is conforming tender. If she doesnt make a rejection, then the law will make an acceptance for her by default. Rejection isnt automatic if the goods are non-conforming. Consequence of Rejection If a buyer rightfully rejects the seller will usually be responsible for getting back the goods; the seller may be able to try again under the notion of cure; the buyer will have some minimal responsibility for protecting the goods after rightful rejection. Consequences of Acceptance The buyer must pay for the goods. Under subsection 2 of 2-607, the buyer has forever lost the opportunity to reject. (right of revocation are a little tricky). There is a notification requirement for breach; if you dont give notice, youre barred forever from ANY remedy. Lesson when a buyer experiences any problem with accepted goods, the seller should be notified as soon as possible and with as much specificity as possible about the problem; the notice should make clear that the buyer considers the problem to be a breach of the sales agreement and furthermore that he may have to pursue some remedy in light of what is now known about the goods. Problem 55 MS ordered lobsters from ME FOB Portland. ME loaded the goods on an airplane in Portland but failed to notify MS of the date of flight until 2 days later when MS called to inquire. He then made inquiries as to the current location and found that they were sitting in Iowa for a day. MS signed a receipt and picked them up. 20 of them were clearly dying; the other 30 were fine. MS decided that it wanted none of the lobsters. o Is the sellers failure to notify MS of the shipment ground for rejection? If the seller fails in his obligations to the buyer after shipping the goods, then the buyer may rightfully reject if it causes material delay or loss. Here the seller failed to promptly notify of the shipment causing buyer to have to hunt for the goods and then discover that the lobsters were dying (loss) and delay. So, yes, the failure to notify is grounds for rejection. o May MS reject due to the 20 dying lobsters? According to the perfect tender rule, the buyer may be able to rightfully reject the whole if the goods fail to conform to the terms of the contract. This section does not apply to installment contracts. Also, 2-509 (1) provides that the goods must be duly tendered; this includes fulfilling the sellers obligations under 2-504 which he did not do because he did not notify the buyer and therefore the risk of loss did not rightfully pass from the seller to the buyer.

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How quickly must MS act if it wants to reject? 2-602 states that notice of rejection must be given in a reasonable time; especially when dealing with live animals for sale the notice would have to be almost immediately after delivery and inspection. This is to give the seller the opportunity to take back the goods and resell, etc. Must MS reship the goods if the latter offers to pay freight? 2-603 Merchant Buyers Duties as to Rightfully Rejected Goods 1. Subject to any security interest in the buyer (subsection 3 of 2-711), when the seller has no agent or place of business at the market of rejection a merchant buyer is under a duty after rejection of goods in his possession or control to follow any reasonable instructions received from the seller with respect to the goods and in absence of such instructions to make reasonable efforts to sell them for the sellers account if they are perishable or threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses not forthcoming. 2. When the buyer sells goods under subsection 1, he is entitled to reimbursement from the seller or out of the proceeds for reasonable expenses of caring for and selling them, and if the expenses include no selling commission then to such commission as is usual in the trade or if there is none to a reasonable sum not exceeding ten per cent on the gross proceeds. 3. In complying with this section the buyer is held only to good faith and good faith conduct hereunder is neither acceptance nor conversion nor the basis of an action for damages. Here, the buyer would have to follow the sellers instructions to send back the goods, especially because they are perishable. If MS decides to keep 30, is this allowed? Any acceptance of a commercial unit is acceptance of the entire unit. (2-606 2). Here you have to see what constitutes a commercial unit. Each lobster is probably its own unit, so acceptance of 30 and rejection of the rest is probably okay as long as the notice of rejection is timely, etc. Under 2-601 the perfect tender rule, the buyer could accept some commercial units and reject the rest. If MS rejects the goods, must it give its reasons in the notice of rejection? What penalty for not doing so? If there is rejection, there must be a notice of the rejection. If there is no notice, then the buyer is forever barred from any remedy. 2-605 Waiver of Buyers Objections by Failure to Particularize 1. The buyers failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach a. Where the seller could have cured it if stated seasonably; or b. Between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely. 2. Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent on the face of the documents. A failure to state the reasons for rejection may constitute a waiver of objection if the rejection is based on a defect that the seller could have cured. Here, the buyer rejected 20 of the lobsters because they were dyeing. This is probably not something the seller could have cured, unless it had some sort of miracle life drug or something So, the buyer may be able to rely on the fact the seller could not have cured the dyeing lobsters. If MS gives a valid notice of rejection w/in a reasonable period of time after the lobsters are delivered, what should it then do with the lobsters? According 2-603, the buyer has little obligation in regard to the goods, unless they are perishable and the buyer is a merchant. In that case, the buyer should try to sell the goods at the sellers account (this would not constitute acceptance or waiver of rejection) or follow any necessary instructions given by the seller as to the reasonable storage/keeping of the goods until the seller can pick them up; or follow any instructions as to the re-shipping of the goods.

Ramirez v. Autosport (1982) Issue: whether the Plaintiffs could reject tender by defendant of a camper van with minor defects and cancel the contract for the purchase of the van. Answer YES.

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Holding: The van had several minor defects; Ps left the van there longer so that they could be fixed; Ps were called and told that the van was ready, but it still had defects; Ps rejected it. Ds transferred title to Ps w/o them knowing. Ps determined they wanted their trade in back; Ds wanted to give them book value of the van (which would mean they would get a profit from the deal) Buyers rejection doesnt preclude sellers right to cure (w/in a reasonable time). After acceptance, the buyer may revoke acceptance only if the nonconformity substantially impairs the value of the goods to him. Subject to the sellers right to cure, a buyer who rightfully rejects goods may cancel the contract. 2-711 Buyers Remedies in General; Buyers Security Interest in Rejected Goods 1. Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (section 2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid a. cover and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or b. recover damages for non-delivery as provided in this Article (Section 2-713). 2. Where the seller fails to deliver or repudiates the buyer may also a. If the goods have been identified recover them as provided in this Article (Section 2-502) b. In a proper case obtain specific performance or replevy the goods as provided in this Article (2-716) 3. On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in the goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller. (2-706) Problem 56 S ran a ranch in CO. He wanted a statue of a horse; it was to be especially manufactured by E and arrived in 6 boxes for assembly. When the horse was put together, S didnt like the tail; he removed it and substituted it w/one of his own. He returned the original tail w/letter of rejection. In the meantime, S painted the horse black and used it for advertising the ranch. After 3 months of display, S took the horse down and returned it back to E w/letter of rejection stating that the tail made the horse unusable. E sues. Did S make a rightful rejection? If the tail didnt conform, was that grounds for objection? a. According to 2-606, he made an inadvertent acceptance by doing something that is inconsistent with the sellers ownership (he painted the horse); he also attempted to accept only part of a commercial unit (which he cannot do) violation of 2606 2. b. The effect of acceptance (2-607) means that he is barred forever from any warranty; as soon as goods are accepted he is liable to pay the contract price. (these were the conditions of the Plateq case). (Subsection 1 of 2-607). Is this true also if the goods are non-conforming? Yes. If no effective revocation takes place, then the buyer has to pay the contract price. (Revocation can take place if the buyer accepts the goods under the assumption that the defect would be cured). If he accepts and does not revoke, does the buyer have any recourse against the buyer for the violation of the express remedy? He may be able to sue for damages for non-conforming goods (subsection 2 of 2-607 provides that acceptance doesnt preclude any other remedy for non-conformity (2-714, 2-715). c. The steps that the buyer should take to protect his legal rights to damages for breach of warranty (non-conformity); he must notify the seller of the breach (content of notification must include some notification that a breach had occurred; the comments seem to suggest that if you say that the transaction was troublesome it would be enough, however, the airplane case ruled that that sort of statement wasnt strong enough). Effective acceptance occurs when there is a failure to make an effective rejection. If buyer had a right to reject but failed to reject effectively; because the acceptance is effective, he is liable for the contract price, but it does not eliminate buyer rights (but he must preserve those rights by notifying). An acceptance can occur if a buyer can fail to particularize (but even if they hadnt found this, the buyer had made some affirmative action which resulted in acceptance). There is some case law that allows the buyer to use the rejected goods for a reasonable time (if there are no substitute goods available or alternative methods) w/o effecting an acceptance. [If the right of post-revocation use is to exist, it should be limited] Comment 1 of 2-608 seems to indicate that the revocation attempts to put both the buyer and seller at the same position they were in before the contract was made; this indicates that the buyer may responsible for compensation to the seller for the benefits he received during the post-revocation use.

Plateq Corp. v. North Haven v. Machlett Labortaries, Inc. (1983)

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Issue: whether buyer accepted goods before it attempted to cancel the contract. Facts: Plateq sued to recover from alleged wrongful cancellation; D denied liability and counterclaimed for damages. D ordered custom goods from P. P was late in delivering and in construction of the goods; D however, failed to notify P of any other than acquiescence regarding the whole deal and did not rely that the performance was in any way unsatisfactory. D said that he would sent his truck to pick up the remaining pieces, but instead sent a cancellation notice failing to particularize the reason for cancellation. Trial court found that he accepted under 2-606 and failed to show that a substantial impairment to the value to the defendant under revocation section 2-608. And, since the tanks were not resellable, P was entitled to recover contract price, minus salvage value, plus interest. General Statutes 42a 2-605(1)(a): a buyer is precluded from relying, as a basis for his rejection, upon unparticularized defects in his notice of rejection, if the defects were such that, with reasonable notice, the seller could have cured by making a substituted, conforming tender. Trial court found that the letter of rejection wrongfully interfered w/Ps right to cure. The buyers acceptance of goods, despite their alleged nonconformity, is a watershed. After acceptance, the buyer must pay for the goods at the contract rate; and bears the burden of establishing nonconformity. After acceptance, the buyer may only avoid liability for the contract price by invoking the provision which permits revocation of acceptance. It requires proof that the nonconformity [of the goods] substantially impaired [their] value to him .

Revocation of Acceptance
2-608 Revocation of Acceptance in Whole or in Part 1. The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it a. On the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or b. Without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the sellers assurances. 2. Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in the condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. 3. A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them. The difference between revocation and rejection When parties choose to rescind the contract they both renounce any and all rights under that agreement; there is no longer any contract to enforce. When a buyer revokes, he has not waived and may still enforce any claim for damages to which he or she is entitled under the terms of the contract and the provisions of the article. The drafters wanted revocation to be possible when the defects that never get cured (subpart a) or later turn up (subpart b) are serious and materially affect the value of the goods to the purchaser (subjective test). The reasonable time period to revoke may be extended where the delay is prompted either by the sellers attempts to cure the defect, or where the delay was in reliance on the sellers continued assurances that the defect would be successfully repaired. Notification of revocation while the notice need not be in any particular form and may be implied by conduct, it must inform the seller that the buyer does not want to keep the goods. On postrevocation use: a court will annul a revocation and conclude that a reacceptance has occurred only where the buyers actions with respect to the goods are deemed unreasonable.

Rester v. Morrow (1986) R bought car from M; the car was a hassle and caused serious inconvenience; R had to buy a back up car while the other one was in the shop to void losing his job. Revoked. Trial court sustained motion for directed verdict for M stating that the defects were not substantial. Appellate court reversed and remanded. Issue whether the car failed to conform to the sellers contractual and legal obligations incident to the sale and whether such nonconformity substantially impaired the value of the car to R. Held Rs acceptance was induced by sellers assurances. The aggregate nonconformity substantially impaired the cars value to him: But our law does not allow a seller to postpone revocation in perpetuity by fixing everything that goes wrong with the automobile; there comes a time when enough is enough. Substantial impairment is determined by reference to the particular needs of the buyer, even

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though the seller may have no advance knowledge of those needs and even though those needs may change after acceptance of the automobile. Question 1. To revoke acceptance, must you return the goods? NO. He just has an obligation to notify the seller that the goods are there and he needs to go pick them up (he has the same rights and responsibilities as one who had rejected the goods; of course, if the seller comes to pick up the goods, he cannot insist on keeping the goods). What is the difference between the rejecting buyer and the revoking buyer? The revoking buyer has already accepted the goods and he has a security interest for the price that has been paid; in most situations, a rejecting buyer hasnt yet paid the contract price; in both cases, the rejecting or revoking buyer will want to get that money back. How does a rejecting buyer get the money back (if hes paid contract price) or revoking buyer (if hes paid)? The mechanism that results in getting the money back is cancellation of the contract (this only applies to future obligations; it means that the obligations of both parties as yet unperformed get cancelled = 2-711. Problem 57 o How must time do you have to reject the goods? What is the criterion for a reasonable time? With a car, the time is different: more time because there are complicated mechanisms that an ordinary person wouldnt be able to determine/inspect the goods. 2-513 gives the buyer a right of inspection of the goods; the period necessary to exercise that right is different from each good; if the period lapses w/o you taking any affirmative action to inspect, then it really constitutes acceptance. o If the car is so flimsy that it is not a curable defect, then she probably has a right of revocation. 2-608 sanctions the use of a subjective use (a history of impairment, so that accumulation of defects may lead to allowance of revocation). The section speaks of substantial impairment to him. Enough is enough and notwithstanding the sellers good faith efforts, the buyer should be allowed to say that thats all and revoke. 2-609 might be advisable in situations where problems have been fixed. Look at comment 4. Problem 58 Limitations of remedies cannot be unconscionable and they should not preclude a buyer from revocation if the value of the goods has been substantially impaired. Here, the buyer could still revoke by showing that the value is substantially impaired; enough is enough and the buyer shouldnt be subjected to a perpetual postponement of revocation by the sellers assurances to repair continuing defects. Problem 61 This seems as though the material breach is a subjective issue. He did accept the computer; however after discovery of one of the features, the value of the goods was substantially impaired. Comment 2 suggests that it doesnt matter what the sellers actual knowledge as to the buyers needs or circumstances, if the non-conformity impairs the value, then a right of revocation exists. Problem 62 ? I would think that he would be able to get his purchase price back at least on the basis that the goods were not merchantable.

Installment Sales
2-612 Installment Contract; Breach 1. An installment contract is one which requires or authorizes the delivery of goods in separate lots (a parcel or single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract, 2-105 5) to be separately accepted, even though the contract contains a clause each delivery is a separate contract or its equivalent. 2. The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection 3 and the seller gives adequate assurance of its cure the buyer must accept that installment. 3. Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment w/o seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments. Substantial performance is the law. The seller is entitled to payment even where the tender of goods fails to conform exactly to the contract as long as it substantially conforms. The right of rejection in installment contracts hinges on substantial nonconformity, which must mean something different than the failure to conform in any respect which is the hallmark language of 2-601. Problem 52

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Cherwell-Ralli, Inc. v. Rytman Grain Co. (1980) Facts: buyer stopped payment for deliveries tendered and accepted based on an unreasonable assumption that the seller would not deliver further shipments. Court ruled in favor of seller; ordered the full payment of the contract price.

Risk of Loss When There is a Breach

2-510 Effect of Breach on Risk of Loss 1) Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance. 2) Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning. 3) Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time. Problem 63 o Did Empusa waive its rights to sue for repudiation? To be safe, after having receiving notice of cancellation, you would advise Empusa to declare a reservation of rights (1-207). Courts are reluctant to find modifications under 2209 where those modifications would justify a breach by one of the parties; there were have to be evidence of a renegotiation of the contract. o Under non conformity, the risk doesnt transfer until the goods are accepted or cured. How can you be sure about a right of rejection? o Was the seller entitled to make the judgment that the good would not survive the ship travel? 2-614: they must find an alternative. In this case, the delivery obligations and the risk of loss pass at the same moment as the agreed upon delivery method. So, risk of loss passed w/delivery to the plane. o When the gargoyle was accepted, 510 1 says that risk passes on acceptance; 510 2 says that the risk may not pass if the buyer revokes acceptance.

Jakowski v. Carole Chevrolet Court ruled that the seller never accepted the car merely by taking possession of it for such a short time. There had been no reasonable opportunity to inspect under 2-606. Since there was a clear nonconformity which gave the buyer the right to reject, 2510(1) applied and the risk remained on the seller until cure or acceptance. The defect had not been cured at the time of the theft nor, of course, had the auto been accepted. Risk of loss remained on the seller.

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