Advanced Contracts (Sales and Leases)
Professor Keith A. Rowley
William S. Boyd School of Law
University of Nevada Las Vegas
Fall 2004
Homework Set #2 (Revised) – Model Answers
1.
Your law firm was just retained to represent a car manufacturer that was sued by a
woman who was seriously injured in a car accident while a passenger in one of your
client’s newer car models. The woman claims that the manufacturer’s failure to
include a passenger-side airbag as a standard feature in the car amounted to a
breach of the implied warranty of merchantability. The car, which was one of the
manufacturer’s economy models, had a standard driver-side airbag.
A.
Knowing nothing more than these facts, to what Article 2 warranty liability
may your client be exposed?
We do not know whether an express warranty came with the car, whether the manufacturer
or the buyer’s seller made any implied warranty of fitness for a particular purpose, or how far the
jurisdiction whose law governs extends vertical privity; further, we cannot assume an effective
warranty disclaimer, limitation of liability, or limitation of remedies. What we do know is that the
manufacturer is a merchant under § 2-104; therefore, the manufacturer made an implied warranty of
merchantability to someone – perhaps including the plaintiff. See § 2-314(1); see also § 2-318.
Which parts of § 2-314(2) are relevant? Does a car without a passenger-side airbag pass
without objection in the trade? § 2-314(2)(a). Is a car without a passenger-side airbag fit for the
ordinary purpose for which it is ordinarily used? § 2-314(2)(c). Did any information posted on the
outside of the car indicate that the car included a passenger-side airbag? § 2-314(2)(e) or (f). While
this last question may yield the most damning answer, we don’t have any facts about the “sticker,”
so we cannot assume that it misrepresented the presence of passenger-side airbags, and are stuck
with evaluating the plaintiff’s claim and our client’s position by referring to §§ 2-314(2)(a) and (c).
B.
Suppose that no currently-available cars include passenger-side airbags.
How should this affect your client’s Article 2 warranty liability?
If the majority of small car manufacturers were making their cars with passenger-side
airbags, that fact alone might mean that the car would not pass without objection in the trade. On
the other hand, should the fact that no car of any make included passenger-side airbags be
dispositive for the manufacturer on the issue of implied warranty liability? Though that fact would
certainly be quite helpful to the manufacturer for purposes of § 2-314(2)(a), does it resolve § 2314(2)(c) in the manufacturer’s favor? After all, § 2-314(2) sets down minimum standards for a
product to be merchantable. It is not inconceivable that an entire industry could be selling goods
that are not fit for the ordinary purpose for which buyers and others use such goods (e.g., cigarettes,
lead-based paints).
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C.
Suppose, instead, that no currently-available cars costing less than $5,000
more than this car include passenger-side airbags as a standard feature.
How should this affect your client’s Article 2 warranty liability?
Again, this fact would certainly be quite helpful to the manufacturer for purposes of § 2314(2)(a). Even if the plaintiff could show that some higher-priced car line (e.g., Volvos) all
included passenger-side airbags, that should not mean that lesser-priced cars necessarily need to do
the same in order to comply with the warranty of merchantability. Section 2-314(2)(a) speaks in
terms of the goods passing without objection in the trade “under the contract description,” meaning
that a Hyundai should not be held to the standard of a Volvo.
However, it does not appear to resolve § 2-314(2)(c) in the manufacturer’s favor unless we
can argue that the ordinary purpose for which buyers and others use economy cars is different from
the ordinary purpose for which buyers and others use more expensive cars. It is easy to see an
argument that the ordinary purpose for which buyers and others use trucks, SUVs, and other 4wheel drive, payload, or towing vehicles is different from the ordinary purpose for which buyers
and others use economy-sized passenger vehicles. But, while prestige and added comfort may
come with the purchase of a Volvo, is its ordinary purpose significantly different from the ordinary
purpose of a Hyundai? Still, Official Comment 7 to § 2-314 says in the last sentence (in the context
of fungible goods, but presumably this is true with all goods) that price is a good indicator of the
scope of the quality warranty made.
Alternatively, can we argue that the ordinary purpose for which buyers and others use
vehicles is for transport from point A to point B, not for withstanding a crash serious enough to
trigger passenger-side airbags? In other words, if ordinary purpose is defined narrowly to mean
“intended purpose,” then the manufacturer can argue that the ordinary purpose of the car is driving
it, not crashing it. If “ordinary purpose” means “not infrequent occurrence” or “not extraordinary,”
then the manufacturer won’t be off the hook. This tactic seems dicey as a matter of public relations,
if not as a matter of law. The client may decide that sales are more important than winning this
lawsuit.
Then again, if you determine that “ordinary purpose” should be read more broadly to
include unintended but not extraordinary uses, the question that remains is how far manufacturers
must go in protecting buyers from these uses. Sometimes people inadvertently drive their cars into
lakes. Must a car include a water-ejection seat to account for this possibility in order for the car to
be merchantable? Surely not.
Ultimately, this may come down to deciding whether the manufacturer must include a
particular safety feature in order for a product to be merchantable. Mimicking the famous (or,
perhaps, infamous) Learned Hand formula from Torts class, courts should consider the cost of the
safety feature, the probability of the unintended use, and the seriousness of the injury that is likely to
be caused by the unintended use (plus the likelihood that the safety feature would avoid or mitigate
that injury). Thus, one might argue as a general matter that the warranty of merchantability should
include a particular safety feature whenever B (the cost of such a feature) is less than P (the
probability of the injury without the safety feature minus the probability of the same injury with the
safety feature) times L (the gravity of the injury sought to be avoided).
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The problem with this formula, of course, just like in the torts arena, is that these variables
can rarely be quantified. Nevertheless, the formula provides a framework to think about these
issues. One difference between the tort context and the warranty context is that with warranties, the
plaintiff entered into a contract. Thus, one could argue that we should be more careful in the
warranty context to require additional safety features since that would prevent risk-preferring buyers
from purchasing products for a lower price that do not include safety features that these buyers
would just as soon do without. On the other hand, as long as the implied warranty of
merchantability can be voluntarily waived by the buyer, a seller that does not want to offer such a
warranty need not worry about which safety features such a warranty would require.
D.
Same facts as 1.C, except that the person who purchased the car in which the
plaintiff was injured had the option of paying an extra $1,000 to have a
passenger-side airbag installed, but decided to save money instead. How
should this affect your client’s Article 2 warranty liability?
If the plaintiff bought the car (just because she was a passenger, rather than the driver,
doesn’t mean she doesn’t own the car), we may be able to argue that she assumed the risk: the
buyer had the option to protect against the very type of injury she suffered (remember, the
original facts suggested the buyer was the injured party), but chose to save money and not
purchase the additional safety feature. “You pay your money; you take your chances.” Further,
the last sentence of Comment 13 to § 2-314 reads: “Action by the buyer following an
examination of the goods which ought to have indicated the defect [or deficiency] complained of
can be shown as a matter bearing on whether the breach was the cause of the injury.” If the
plaintiff was only a guest in the car, she almost certainly did not assume the risk that the car
would not come with a now-fairly-standard passenger-side airbag. That said, the chain of
causation may still be broken, according to Comment 13, by the buyer’s decision to purchase the
car knowing that it did not have a passenger-side airbag,.
E.
Suppose that the Manufacturer’s Limited Warranty that came with the car
when it was purchased disclaims the implied warranty of merchantability in
a manner that satisfies § 2-316 and that the car purchase agreement, which
the purchaser signed, expressly and conspicuously waived any implied
warranties in favor of the express Manufacturer’s Limited Warranty.
Would the disclaimer and waiver affect this plaintiff, who did not purchase
the car and did not expressly agree to waive any of her legal rights? Please
explain.
Yes. Comment 1 to § 2-318 explains, in relevant part:
To the extent that the contract of sale contains provisions under which
warranties are excluded or modified, or remedies for breach are limited,
such provisions are equally operative against beneficiaries of warranties
under [§ 2-318]. What this last sentence forbids is exclusion of liability by
the seller to the persons to whom the warranties which he has made to his
buyer would extend under [§ 2-318].
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F.
Same facts as 1.E. Now, suppose that the Manufacturer’s Limited Warranty
further stated that the manufacturer would not be liable for any breach of
warranty claim brought by anyone other than the purchaser or a member of
the purchaser’s immediate family. Assuming that the plaintiff is not a
member of the purchaser’s immediate family, would the limitation prevent
her from suing the manufacturer for breach of the Manufacturer’s Limited
Warranty? Please explain.
No. The putative limitation would only affect the plaintiff’s right to recover damages
other than those arising from a personal injury, and then only if her suit was governed by the law
of a jurisdiction that has adopted Alternative C of § 2-318. The final sentence of each alternative
version of § 2-318 forbids a seller from expressly limiting to whom its warranty(-ies) extend.
NOTE: I had grand ambitions for Question 1, but inadequate time to proofread it.
Consequently, I gave you some ambiguous, if not contradictory, information
about the plaintiff, which should have affected your answer to subpart D (unless
you either correctly guessed what I meant or you didn’t understand the difference
between what I wrote and what I meant – I’ll assume the former, for your sake).
As a result, I fudged in grading subpart D. On further reflection, I also don’t like
the way the second sentences of subparts B, C, and D are phrased. So, to show
you what I meant to ask you, and the answers I sought, I have revised the text of
the question slightly. This will be a better study aid for the final exam and,
eventually, in your preparation for the bar exam. (That said, I graded your
answers based on the questions I originally asked, making allowances for the
factual ambiguity.)
2.
Find Maine’s version of U.C.C. § 2-318.
A.
Compare Maine’s version of § 2-318 with current uniform § 2-318. What
aspect of privity does the Maine statute address that the current uniform
version does not and how does the Maine statute deal with it?
While all three alternative versions of uniform § 2-318 address only horizontal privity –
that is, who besides the buyer may sue the buyer’s seller for breach of warranty – ME. REV.
STAT., tit. 11, § 2-318 explicitly addresses vertical privity – that is, who may a party with
horizontal privity sue for breach of warranty besides the buyer’s seller – and provides that “any
person whom the manufacturer, seller or supplier may have expected to use, consume or be
affected by the goods” may sue the manufacturer, seller or supplier … for breach of warranty,
express or implied.”
B.
If Maine were to enact only §§ 2-313A and 2-313B of the 2003 Amendments
to UCC Article 2, leaving the rest of its current version of Article 2
unchanged, would the additional language in Maine’s current version of § 2318 continue to allow suits against any defendants on any warranty claims
that would not be allowed by the uniform language of current § 2-318
Alternative C plus proposed §§ 2-313A and 2-313B? Please explain.
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Yes. Proposed §§ 2-313A and 2-313B only address vertical privity for breaches of
express warranties – and not even all express warranties, at that. They do not address vertical
privity for breaches of implied warranties. Therefore, adopting proposed §§ 2-313A and 2-313B
would not make the non-uniform language in ME. REV. STAT., tit. 11, § 2-318 redundant,
because ME. REV. STAT., tit. 11, § 2-318 explicitly allows any person who would be permitted to
sue the buyer’s seller under current uniform § 2-318 Alternative C to also sue the manufacturer
and supplier(s) from whom the buyer’s seller acquired the goods for resale to the buyer.
C.
BONUS: Find the version of § 2-318 currently enacted in each state
(excluding Louisiana), plus the District of Columbia. Categorize each state’s
version as most closely resembling Alternative A, Alternative B, or
Alternative C. (There’s a very easy way to do this – without consulting with
another student currently enrolled in this course – and a not so easy way.
Let’s see how resourceful you are.)
Alternative A
Alaska
Arizona
Arkansas
Connecticut
District of Columbia
Florida
Georgia
Idaho
Illinois
Indiana
Kentucky
Maryland
Michigan
Mississippi
Missouri
Montana
Nebraska
Nevada
New Jersey
New Mexico
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Tennessee
Washington
West Virginia
Wisconsin
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Alternative B
Alabama
Delaware
Kansas
New York
South Carolina
Vermont
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Alternative C
Colorado
Hawaii
Iowa
Maine
Massachusetts
Minnesota
New Hampshire
North Dakota
Rhode Island
South Dakota
Utah
Virginia
Wyoming
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California has adopted Article 2, but its version of Article 2 omits § 2-318. Texas’s
version of Article 2, for all intents and purposes, omits § 2-318, because TEX. BUS. & COM.
CODE § 2.318 “le[aves] to the courts for their determination” the questions of horizontal and
vertical privity for breach of an express or implied Article 2 warranty.
NOTE: For future reference – both for those who turned in this assignment and
those who did not – an excellent starting point when trying to ascertain the status
of a uniform law in a particular state is UNIFORM LAWS ANNOTATED. Our law
library has it, as will any other academic law library or judicial library and many
other libraries. It is also available on Westlaw. It is not 100% accurate – for
example, it identifies Colorado, South Dakota, and Wyoming as Alternative B
states when, in fact, Colorado’s, South Dakota’s, and Wyoming’s legislatures may
have started with Alternative B but ended up with something much closer to
Alternative C when they were done, at least with regard to who can sue and for
what kind of injury – but it beats thumbing through 50 states’ statutes, relying on
sometimes out-of-date treatises or law review articles, or placing your faith in a
Westlaw or Lexis term search.
3.
One of our favorite clients, Pierre the art dealer, is back with a new problem. Pierre
sold a $50,000 painting called “Rustic Simplicity” to George Daly, who purchased it
with a bad check. George then sold it for $40,000 cash to George’s family friend,
Carla. Carla, in turn, gave the painting to George’s son as a birthday gift. George
Jr. lives with George Sr. and is aware that his dad has never made good on the
bounced check to Pierre.
A.
Does Pierre have recovery rights against just one Daly or against both of
them? Please explain.
Without facts not stated in the problem, Pierre cannot recover the painting from either Daly,
though he has, at a minimum, a good conversion claim against George Sr.
When Pierre sold the painting to George Sr. for a bad check, George Sr. received voidable
title to the painting per § 2-403(1)(b). When Carla bought the painting for cash (assuming she was a
good faith purchaser for value), she ended up with good title per § 2-403(1). What, then, does
George Jr. get as Carla’s donee? Per the first sentence of § 2-403(1) and the definition of
“purchase” in § 1-201(32), George Jr. gets everything Carla had: namely, good title.
The mere fact that George Jr. knows about his father’s shortcomings with the check does not
divest George Jr. of good title. If Pierre could show that George Jr. was a party to a conspiracy to
defraud Pierre, then Pierre could probably beat George Jr.’s title on equitable grounds: a defrauder
should not be able to profit legally from his own wrong. Short of that, however, mere knowledge
by George Jr. of the bad check should not taint the ability of a donee to receive whatever title his
transferor had.
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B.
Suppose that George Jr. was not only aware of George Sr.’s bounced check,
George Jr. was a party to a scam that was intended to “wash the title clean”
of the Rustic Simplicity painting. Does Pierre have recovery rights against
George Jr.? Please explain.
Even though the language of § 2-403 standing alone would seem to suggest that George Jr.
still gets good title under the shelter principle, here the common law of fraud should step in and
deny George Jr. the ability to profit from his own wrong.
C.
Suppose instead that, after George Sr. purchased the painting with a bad
check, he gave the painting to George Jr. for a birthday gift. Does Pierre
have recovery rights against George Jr.? Please explain.
Pierre beats George Jr. here because, as a donee, George Jr. only gets what his transferor
had: in this case, voidable title. Put another way, George Sr. had the power to transfer good title to a
bona fide purchaser for value, but George Jr. did not give value and thus does not get good title
from a transferor that has voidable title. Because George Jr. has only voidable title, Pierre, the true
owner, can reclaim the painting from George Jr.
D.
Same facts as 3.C, except that, after George Sr. purchased the painting with
a bad check and gave the painting to George Jr. for a birthday gift, George
Jr. then sold the painting for cash to Carla Stone, a bona fide purchaser for
value. Does Pierre have recovery rights against Carla Stone? Please explain.
Carla beats Pierre here. When George Sr. gave the painting to George Jr., he gave his son
voidable title. Because George Jr. inherited his father’s voidable title, George Jr. had the power to
transfer good title to a good faith purchaser for value. Since Carla was a good faith purchaser for
value, she got good title from George Jr.
E.
Return to the original facts, except that George Sr. steals the painting from
Pierre rather than purchasing it with a bad check. George Sr. then sells it
for cash to Carla Stone, a bona fide purchaser for value. Carla then sells the
painting to George Jr., who pays for it with a bad check. Finally, George Jr.
sells the painting to Harvey Nichols, a bona fide purchaser for value. Does
Pierre have recovery rights against Harvey? Please explain.
Pierre clearly wins here since a “true thief” breaks the chain of title and no later party can
have better title than the true owner.
4.
Pierre has one more problem another problem. Shelby Kostner, a famous local art
collector, brought Pierre an original work, “Caged Compassion,” that she asked
Pierre to frame for her. While the painting was still in Pierre’s gallery, Pierre’s
partner, Henri, who had just returned from vacation and did not know the origin of
“Caged Compassion,” agreed to loan the painting to a local fine art museum for one
year, in exchange for $10,000.
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A.
Can Shelby recover her painting from the museum immediately? Please
explain.
No. Section 2-403(2) does not apply to this problem because, although Shelby entrusted her
painting to a merchant dealing in goods of the kind, the museum as a lessee is not a “buyer” in the
ordinary course of business.
Nor does § 2A-304(2) apply because, although Pierre is a “lessor who is a merchant dealing
in goods of that kind,” the goods were entrusted to Pierre by the true owner rather than by “the
existing lessee of that lessor.” Section 2A-304(2) applies only when a lessee redelivers goods back
to its own lessor, which is not the case here.
That leaves § 2A-307(2). The basic rule of § 2A-307 is that a creditor of a lessor takes
subject to the lease contract unless the creditor had a perfected lien. It seems a stretch here to call
Shelby, the entruster, a “creditor” of Pierre’s. Yet § 2A-304 cmt. 3 makes it clear that this is how
the Code wants us to characterize someone in Shelby’s position. Perhaps that is a defensible
approach to take. After all, Shelby is clearly “owed” something by Pierre: either the painting back
or its value. Furthermore, if Shelby is not a creditor, then the Code simply does not provide an
answer as to how this problem should come out. Thus, under § 2A-307, Shelby cannot get her
painting back from the museum immediately.
B.
If not, what claim(s) would Shelby have against Pierre’s gallery, the museum,
or both? Please explain.
While Shelby cannot get her painting back from the museum immediately, she can, at a
minimum, collect the monthly payments the museum is going to pay to Pierre’s gallery (plus more,
if she can show other damages that exceed this amount), via a conversion claim, an unjust
enrichment claim, or both. Shelby should not have any claim against the museum, which
innocently leased the painting from Pierre’s and is (or will soon be) making monthly payments to
Pierre’s for the right to display the painting – and, therefore, is not unjustly enriched.
C.
Suppose, instead, that Pierre purchased the painting from Shelby with a
check that later bounced, then leased the painting to the museum for one
year. If Shelby discovers that Pierre is broke and is not going to make good
on his bad check, at what point can Shelby recover the painting from the
museum? Please explain.
Shelby will have the right to get the painting back from the museum after the one-year lease
is up. By purchasing the painting with a bad check, Pierre is a lessor with voidable title per § 2A304(1)(b). A lessor with voidable title “has power to transfer a good leasehold interest to a good
faith subsequent lessee for value.” Thus, Pierre had the power to transfer a valid leasehold interest
to the museum even though Pierre’s rights to the painting are inferior to Shelby’s in light of Pierre’s
bad check.
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D.
Return to the original facts. Suppose that, after the museum received
possession of the painting pursuant to its one-year lease agreement with
Pierre’s gallery, the museum subleases the painting to a private art gallery
for five years. What rights does Shelby have to recover the painting from the
private art gallery? Please explain.
Shelby should be able to get her painting back from the private art gallery at the end of one
year. The key point here is that the museum can only give what the museum itself has (absent
voidable title possibilities). As we saw in part “a,” the museum had a one-year leasehold interest
that was valid even as against Shelby, owner of the painting and now a “creditor” of Pierre’s. The
first sentence to § 2A-305(1) tells us that a sublessee, such as the art gallery here, “takes subject to
the existing lease contract.” The existing lease contract to which the museum is a party limits the
lease term to one year, a limit that will also apply to the art gallery as sublessee.
The gallery has another argument at its disposal: the entrustment doctrine of § 2A-305(2).
The art gallery can argue that it is a “sublessee in the ordinary course of business from a lessee who
is a merchant dealing in goods of that kind.” Therefore, the art gallery would argue, it takes free of
“all of the lessor’s and lessee’s rights to the goods, and takes free of the existing lease contract.”
This argument has two potential problems. First, is the museum “a merchant dealing in
goods of that kind”? According to the “merchant” definition in § 2-104(1) (to which we are referred
by § 2A-103(2)), a merchant includes a person (which also includes an organization) “who deals in
goods of the kind.” Official Comment 2 to § 2-104 tells us that the requirements of merchant status
vary depending on which Code provision is requiring a merchant. However, the Comment does not
tell us much about what it means to “deal in goods of the kind,” which we are told is required for
merchant status under § 2-403(2) (and presumably § 2A-305(2)).
Will we need to know whether this museum frequently sells or leases paintings?
Presumably the entrustment provision was included so that buyers or sublessees in the ordinary
course of business could buy or lease with assurance that some unknown third party claiming a
better interest would not later undo their transaction.
The second potential problem is the interest of Shelby, the true owner. Section 2A-305(2) is
clear that the sublessee in the ordinary course takes free of the interests of the lessee (the museum)
and the lessor (Pierre), “and takes free of the existing lease contract.” But what about Shelby’s
interests as owner? Can she successfully argue that § 2A-305(2) does not subordinate her interests
since it fails to say so explicitly? Shelby probably will lose that argument. As we saw in part “A”
above, Shelby blew it when she entrusted the painting to Pierre in the first place. Whatever rights
Shelby now has to the painting will be derivative of the rights of her entrustee. Thus, if the gallery
can take free of Pierre’s interest as lessor, it can take free of Shelby’s interest.
NOTE: I realize that the answer to this problem requires considering Article 2A
provisions we did not discuss in class. However, this problem is taken almost
verbatim from Keating Problem 17.1, which was on the Reading List and for which
you are accountable. Problem 17.1, in turn, cites to the relevant statutory
provisions. So, I will brook no “unfair surprise” claims here.
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5.
On May 1, 2004, Shaggy agreed to purchase The Mystery Machine from Fred for
$20,000. Shaggy and Fred further agreed that Shaggy would pay Fred the full
$20,000 purchase price on or before July 1, 2004, and that Fred would, upon receipt
of the full purchase price from Shaggy, transfer title to The Mystery Machine to
Shaggy.
A.
Which of the following statements or acts by Shaggy would constitute an
anticipatory repudiation of his promise to Fred? Please explain.
(1)
On June 1, 2004, Shaggy told Fred, “I recently lost my job at The
Malt Shoppe, and I am not sure I’ll be able to pay you the entire
$20,000 by July 1st.”
No. Shaggy’s statement is equivocal (“I am not sure …”). An equivocal
statement is not definite; therefore, it is not a repudiation.
(2)
On June 1, 2004, Shaggy told his friend Velma, “I know Fred is
planning to use the money I promised to pay him for The Mystery
Machine to travel to Europe with Daphne. I’m sick and tired of him
ending up with the girl and me ending up with the dog. I’m not going
to pay him anything. The Mystery Machine is a piece of junk
anyway.”
Here, Shaggy’s statement is clear, unequivocal, and unconditional, but
was not made to Fred or to anyone acting as Fred’s agent so as to give him
constructive notice of Shaggy’s repudiation.
(3)
On June 1, 2004, Shaggy told Fred, “I have thought this over, and I
am not going to pay you the money I promised you. How about a
‘Scooby Snack’ instead?”
In order to have repudiated, Shaggy must have definitely and
unconditionally manifested to Fred his inability to, or his intent not to,
perform as and when promised. Only here does Shaggy clearly,
unequivocally, and unconditionally tell Fred that he cannot or will not
perform as and when promised.
(4)
On June 1, 2004, Shaggy told Fred, “The more I think about, the
more I am convinced that you are asking too much for The Mystery
Machine. Would you agree to sell it to me for $15,000, instead of
$20,000?”
Merely requesting more favorable terms or suggesting a modification to
the terms of a contract does not repudiate the contract. On the other hand,
refusing to perform unless the other party agrees to the more favorable
terms does repudiate the contract.
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Note: Statements (1), (2) – if it comes to Fred’s attention – and, to a lesser extent
(4), may give Fred reasonable grounds for insecurity, so as to justify him
requesting from Shaggy reasonable assurances that Shaggy will perform as and
when promised. See R2 § 2-609(1). And, if Fred properly requests the
assurances and Shaggy does not respond adequately, then Shaggy’s failure to
provide adequate assurances in response to a reasonable and proper request –
but not Shaggy’s original statements themselves – will constitute an anticipatory
repudiation. See § 2-609(4).
B.
Assuming that Shaggy’s statement constituted an anticipatory repudiation of
his promise to Fred, which of the following actions was Fred entitled to take
in response to Shaggy’s repudiation? Please explain.
(1)
Do nothing, hoping that Shaggy would, in fact, perform as and when
promised.
(2)
Urge Shaggy to reconsider and to perform as and when promised.
(3)
Cancel the contract and retain The Mystery Machine.
(4)
Sell The Mystery Machine on June 24th to Mr. Greeley for $15,000
and sue Shaggy for $5,000.
Fred can do all of the above. A promisee whose promisor has repudiated his
obligation may elect to (1) cancel the contract, (2) bring suit against the promisor
or otherwise act in reliance on the repudiation, or (3) do nothing, subject to the
promisee’s obligation to mitigate damages, and await the promisor’s performance
at the appointed time. § 2-610. The promisee may also, without prejudicing his
right to any other remedy for the promisor’s repudiation, urge the promisor to
retract his repudiation or to perform in spite of it. See § 2-610(b). If Fred elects
to sell The Mystery Machine to Mr. Greeley in reliance on Shaggy’s repudiation,
Fred may sue Shaggy for the difference between the contract price ($20,000) and
the “cover” price – that is, the price at which Fred was able to sell to another
buyer – ($15,000).
C.
Suppose that, in order to sell The Mystery Machine to Shaggy “free and
clear” of any liens or other impediments of title, Fred had to pay off the last
$5,000 he owed Gomez and Morticia Addams, from whom Fred bought The
Mystery Machine 18 months earlier, and to obtain a release of lien from the
Addamses and file it in the county personal property records. In light of
Shaggy’s statement, did Fred have to go ahead and pay off the loan that was
not otherwise due to be paid off until December 31, 2004? Please explain.
No. Shaggy’s repudiation allows Fred to suspend his own performance, including
any preparatory actions Fred had to take in order to perform his end of the
contract to sell The Mystery Machine to Shaggy. § 2-610(c).
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D.
Suppose, instead, that Fred telephoned Shaggy on June 3, 2004 and asked
Shaggy for assurances, no later than June 10th, that Shaggy would have the
$20,000 to purchase The Mystery Machine by July 1st. Assuming that Fred
had reasonable grounds to demand adequate assurances from Shaggy that he
would perform as and when promised, did Fred’s June 3, 2004 phone call
constitute a proper request for assurances? Please explain.
Probably not. § 2-609(1) requires Fred to demand in writing assurances from
Shaggy. Some courts have relaxed this requirement, as discussed in the excerpt
from my article, but the statutory answer is that Fred’s phone call did not
constitute a proper request for assurances.
E.
Suppose, instead, that Fred faxed Shaggy on June 3, 2004 and asked Shaggy
for assurances, no later than June 10th, that Shaggy would have the $20,000
to purchase The Mystery Machine by July 1st. Assuming that Fred had
reasonable grounds to demand adequate assurances from Shaggy that he
would perform as and when promised, and Fred’s June 3, 2004 fax
constituted a proper request for assurances, which of the following
statements or acts by Shaggy, standing alone, would satisfy Fred’s request?
Please explain.
(1)
On June 3, 2004, when Fred called him to request assurances, Shaggy
told Fred “I’ll do everything I can to make sure that I have the money
by July 1st.”
Promising to “do everything I can to make sure that I have the money by
July 1st” is no more (and probably less) assuring than promising to have
the money by July 1st – which Shaggy has already promised.
(2)
On June 10, 2004, Fred received a letter from First National Bank of
Squaresville informing Fred that the Bank would guarantee Shaggy’s
promise to pay Fred $20,000 on or before July 1, 2004, to purchase
The Mystery Machine.
The bank’s guarantee that it will pay Fred the $20,000 if Shaggy fails to
do so is surely adequate assurance that Fred will receive the $20,000
Shaggy promised him.
(3)
On June 14, 2004, Shaggy called Fred to tell him “I just got off the
phone with my financial adviser, who was on vacation all of last week,
and I told her to sell some of the stocks I bought with the money I
inherited from Uncle Bob. She said it would take a couple of days to
get me a check, but I will have your $20,000 before July 1st.”
Providing assurances on June 14th when Fred asked for them no later than
June 10th does not satisfy § 2-609(4) because it was not within a
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reasonable time under the circumstances, even though it was within 30
days. The fact that Shaggy’s delay was due to his financial adviser being
out of town should not excuse his delay. If Shaggy had a sufficient
portfolio to enable him to satisfy Fred by selling off part of the portfolio,
Shaggy could easily have formulated another strategy for providing
assurances that did not require letting Fred’s deadline pass.
(4)
On June 30, 2004, Shaggy showed up at Fred’s house with $20,000 in
cash to purchase The Mystery Machine.
While $20,000 cash would likely have assured Fred under other
circumstances, because Shaggy until the day performance was due to
“show Fred the money,” Shaggy failed to provide Fred “such assurance of
due performance as is adequate under the circumstances.” § 2-206(4).
The fact that Shaggy’s $20,000 cash payment on July 1st would have
constituted full performance of his contractual obligation to Fred, in the
absence of Fred’s reasonable grounds for insecurity, ignores the fact that
Fred properly requested assurances and that Shaggy did not given them in
a timely fashion. See § 2-611(3).
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