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Contracts II Outline - Fiebelman

Contracts II Outline
Spring 2018
UCC Master List
1-103 - Construction of UCC to Promote its Purposes and Policies; Applicability of Supplemental
Principles of Law) Relationship to Common Law
1-201 – General Definitions (Defines agreement)
1-302 - Variation by Agreement (Default Rules)
1-303 – Course of Performance, Course of Dealing, and Usage of Trade
1-304 – Obligation in Good Faith
1-305- Remedies to Be Liberally Applied (Arguments for unjust enrichment; spirit of the code)
2-103 – Definitions and Index of Definitions *** HELPFUL AF
2-104 Definitions “Merchant, Between Merchants, Financing Agency
2-105 Definitions: Transferability; “Goods”; “Future” Goods; “Lot”; “Commercial Unit”.
2-201 – Formal Requirements; Statute of Frauds SOF
2-202 – Final Written Expression: Parol or Extrinsic Evidence
2-204 – Formation in General
2-205 – Firm Offers
2-206 – Offer and Acceptance in Formation of Contract
2-207 Additional Terms in Acceptance or Confirmation (Battle of the Forms)
2-209 – Modification, Rescission and Waiver
2-302 – Unconscionable Contract or Clause
2-308 – Absence of Specified Place for Delivery
2-309 – Absence of Specific Time Provisions; Notice of Termination (Gap filler for delivery term)
2-313 – Express Warranties by Affirmation, Promise, Description, Sample
2-314 – Implied Warranty: Merchantability; Usage of Trade
2-315 – Implied Warranty: Fitness for Particular Purpose
2-316 – Exclusion or Modification of Warranties
2-318 – Third Party Beneficiaries of Warranties Express or Implied
2-319 – F.O.B. and F.A.S. Terms (FOB)
2-501 – Insurable Interest in Goods; Manner of Identification of Goods
2-503 – Manner of Seller’s Tender of Delivery (Destination Contract)
2-504 – Shipment by Seller (Shipment Contract)
2-508 – Cure by Seller of Improper Tender or Delivery; Replacement
2-509- Risk of Loss in the Absence of Breach
2-510 – Effect of Breach on Risk of Loss
2-513 – Buyer’s Right to Inspection of Goods
2-601 – Buyer’s Rights on Improper Deliver
2-602 – Manner and Effect of Rightful Rejection
2-603 – Merchant Buyer’s Duties as to Rightfully Rejected Goods
2-605 – Waiver of Buyer’s Objections by Failure to Particularize
2-606 – What Constitutes Acceptance of Goods
2-607 – Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance;
Notice of Claim or Litigation to Person Answerable Over
2-608 – Revocation of Acceptance in Whole or in Part
2-609 – Right to Adequate Assurance of Performance
2-610 – Anticipatory Repudiation
2-611 – Retraction of Anticipatory Repudiation
2-612 – “Installment Contract”; Breach
2-613 – Casualty to Identified Goods
2-615 – Excuse by Failure of Presupposed Conditions
2-616 – Procedure on Notice Claiming Excuse
2-702 – Seller’s Remedies on Discovery of Buyer’s Insolvency
2-703 – Seller’s Remedies in General
2-704 – Seller’s Right to Identify Goods to the Contract Notwithstanding Breach or to Salvage
Unfinished Goods
2-705 – Seller’s Stoppage of Delivery in Transit or Otherwise
2-706 – Seller’s Resale Including Contract for Resale (like cover but for Sellers)
2-708 – Seller’s Damages for Non-Acceptance or Repudiation (market damages/lost profits)
2-709 – Action for the Price
2-710 – Seller’s Incidental Damages
2-711 – Buyer’s Remedies in General; Buyer’s Security Interest in Rejected Goods
2-712 – “Cover”; Buyer’s Procurement of Substitute Goods
2-713 – Buyer’s Damages for Non-Delivery or Repudiation (market price damages)
2-714 – Buyer’s Damages for Breach in Regard to Accepted Goods
2-715 – Buyer’s Incidental and Consequential Damages
2-716 – Buyer’s Right to Specific Performance or Replevin
2-717 – Deduction of Damages from the Price
2-718 – Liquidation or Limitation of Damages; Deposits
2-719 – Contractual Modification or Limitation of Remedy
List of Gap Fillers:
 When price is unspecified: 2-305
 When time of delivery is unspecified: 2-309
 When place of delivery is unspecified: 2-308
 When manner of delivery is left open: 2-307
 When other delivery specifications are left open: 2-311
 When time and place of payment are left open: 2-310
 When quantity is left to be defined by seller’s output or buyer’s requirements: 2-306
 When an unforeseen event renders performance impossible or impracticable: 2-508;
 When the quality of the goods is undefined: 2-312-318
I. Introduction – Codes and Sales
Cotton Industry – PLS
 Clear cut language with brightline rules
 Reputation is used as an
incentive/influence to resolve
 No good faith duty
 Dispute resolution is streamlined
through tribunal hearings
UCC – Public Legal System
 Use of the words “reasonable”
and “seasonable”
 Code is used to resolve disputes
that can’t otherwise be resolved
between parties
 Duty to act in good faith
 Costly and lengthy adjudication
process involving courts
II. Formation
A. Scope of Article 2
 Relationship with common law 1-103(b)
 Default rules 1-302(a)
 Unless the code displaces the common law, the common law applies
Definition of Goods
 2-105(1) – moveable at time of identification
Ragus Co. v. City of Chicago
 Mouse trap case – confusion about if a glue trap meant one mouse trap or two
 Court deferred to usage of trade in this case -> two per glue trap (1-303)
 If terms in contract are unambiguous -> then they govern
 If ambiguity
 Brought in external evidence to show that there is ambiguity in
the contract -> express terms don’t govern
 Then, they have to figure out what it means
 Look to usage of trade -> 24/case meant 24 packaged pairs
 Old-fashioned 4 corners approach
o Look at document -> no ambiguity -> that’s what it means
Whether it Applies
 Mixed contracts for services and goods
o Contract to install cabinets
 Two Tests:
o 1. Predominant Purpose Test
 What is the predominant purpose of the contract? Goods or Services
o 2. Gravamen of Action Test (Source of the Complaint)
 Determines whether the source of the complaint is with the goods or
the services
Simulados Software v. Photon Infotech
 Contract to make mac compatible software and a web application
o Software itself is a good -> but we are just modifying pre-existing
 Court applied predominant factor test
o Was for modifying software -> not a good -> No UCC application
Default Rules for Merchants
Cook v. Downing
 Defective dentures from the dentist, sued dentist as merchant
o Dentist does not sell dentures, he just uses them as part of being a
 Dentist is not merchant under UCC and dentures are not goods
o Would be merchant if he advertised as a denture specialist
 Majority talked about use for a particular purpose -> no warranty here
o Dentures used for ordinary purpose -> what other purposes would you
use dentures for?
 Dissent applied predominant purpose test -> dentures are good and dentist is
o UCC only applies if dentures are goods
o If dentist is merchant -> warranty of merchantability applies here
 Implied warranty of merchantability
o Goods of the same kind; sporting goods store selling paint -> not usual
 General Duties of Good Faith and Standards of Fair Dealing
Problem 1.2
Look at 1-303(e) express terms>course of performance>Course of dealing>usage of
trade -> no express terms
a. Buyer’s argument: course of performance is that delivery is at their place of
business; seller’s argument: Are three deliveries a course of performance? -> Buyer
probably wins because express terms>course of performance>Course of
dealing>usage of trade -> no express terms -> course of performance wins
b. No course of performance (under the current agreement at issue), yes, course of
dealing (what the parties have done previously).
c. In this case usage of trade prevails
a. Which trumps the default gap filler from the code (1-201(b)(3), 1-303(c))
Problem 1.3
Aunt takes home movies to be made to DVDs. The video store destroys the movies. Can
she sue under the UCC?
 Hybrid case – goods and services
Predominant purpose test argument: Could argue that the purpose was to walk out
with the DVDs. She wants the good/thing.
Gravamen of the action argument: At the end of the day, the nature of her grievance
is the loss of the home movies. That’s the service. Probably a tort case then and not
within the scope of the UCC. (2-102, 2-313, 2-314, 2-315)
Court of Dealing
Hypo: Egg Sandwich
 Claim course of dealing -> you walk in with the newspaper, we make you a
 Argument: You did not come in with the newspaper and sit at your regular stool
o Course of dealing would probably win
B. Statute of Frauds (2-201)
 Goods over $500 must be in writing to be enforceable
 An exception when the merchant fails to object to the written confirmation of an
oral contract that is sent by another merchant
 Writing down contracts is often a judgment call
 Some use master agreements which outline all the terms and conditions of each
sale that will take place in the future
o All future sales are then conducted without future writing
 Article 2 requires all sales for over $500 be in writing
 Three requirements:
o 1. A sufficient indication that the contract for sale has been made
o 2. The signature of the party who is trying to avoid the contract
o 3. A quantity term
 2-201 sets out other ways in which the writing requirement might be met
 2-201 3 sets out ways to enforce a contract that was no in writing
 Exception for when a party admits in a pleading, testimony, or otherwise in court
that an oral contract was reached
Writing Requirements
UCC 2-201(1)
 if over $500 then it must be in writing
 otherwise writing must:
o sufficiently indicate contract/agreement
o be signed by party trying to avoid
o include quantity (not enforceable beyond that quantity)
 Exceptions:
o UCC 2-201(2) – merchant exception for confirmations, where no written
objection made within 10 days
o UCC 2-201(3)
 Goods are to be made and only suitable for buyer, and seller begins
or commits to perform
Party admits in pleading, testimony, or in court
Where payment made & accepted or goods received & accepted
 Acceptance of goods is an entire topic we will cover
o Different from acceptance of an offer
DF Activities Corp. v. Brown
 Frank Lloyd Wright chair case; had an oral agreement, then sold it to someone
 SOF issue -> not in writing -> discovery did not have to continue
 Most courts believe that a plaintiff should at least get to conduct some discovery
before having its case dismissed for a lack of writing
 Another exception is part performance
 Plaintiff wants to prove there is an enforceable deal here
 Plaintiff did not claim that the note written on the envelope satisfied the writing
o Plaintiff felt there was a deal, and she sent the check
o Brown never signed the note
o For plaintiff to claim this scribbling at the bottom of the letter -> it would
have to satisfy 2-201(1)
 Could not use it against Brown because it has to show agreement
and be signed
 Doesn’t seem like it was
 Party wants discovery to get her to admit in pleading, testimony, or in court
o Brown submitted an affidavit saying there was no agreement
 Majority: The chance of her perjuring herself is so slim and remote to justify
going to discovery on a SOF defense
 Dissenting: Thought the court should have discretion v. a blanket statement that
there should be no discovery going forward
General Trading Int’l v. Walmart
 Scary reindeer case
 Were the emails a sufficient writing
 Article 2 writing requirement: no proof -> plaintiff’s case over
 Proof -> plaintiff continues to prove the enforceability of the contract
 Boils down to whether there was an agreement about the write down?
 Dispute over emails
o Using it as a legal hook for the markdown
o Walmart is arguing that it is a written confirmation
 But it is not because a written confirmation is after a deal
 Court says that it is just negotiation; even if GTI did not respond in
time, it does not give it effect
 Only one-side trying to modify -> Walmart
o Second email: There is a written confirmation and Walmart rejected it
a. Oral agreement for delivery in five weeks
Written confirmation that confirms it on letterhead
 Letterhead can and often does operate as a signature
 Mike is trying to enforce against Sara -> she didn’t sign it -> doesn’t satisfy 2-201(1)
 Move on to 2-201(2) -> Mike’s response is written confirmation
o It has to be signed by the person who sent it
o Although not signed, it is normal practice not to sign it
 She did not respond in writing -> Contract (2=201, 1-201(b)(37); Comment 37 to 1201)
b. Sends her objection in writing -> might kill the contract under 2-201(2) if it is a written
objection. If she only objected to a term -> think 2-207 (2-201)
c. Could be exception that payment was made for some of the goods. Check satisfies the
basic writing requirement of 2-201(1). Because it is written, she probably signed it,
Subject line says for the chairs. A check without the “down payment” memo forces this
writing in satisfying the 2-201(1).
Problem: only for 20,000. Full payment for one and a down payment for the second
one: aggressive reading. If it’s less than the full price, then it can’t be used as proof of
the full quantity. 2-201(3)(c) partial performance (2-201, Comment 2 to 2-201).
Quantity issue – The check makes the deal enforceable, but the court could make it at
least enforceable for 2 but it may be limited to 2.
d. If you have a sworn affidavit saying you didn’t make a contract, then it might survive
a 12(b)(6) motion. However, if it’s just the check, probably not enough (2-201). In
her complaint she isn’t saying she didn’t make an agreement. This seems like a case
where the trail judge would want to have at least some discovery.
e. Tests the specially manufactured goods exception. 2-201(3)(a). He is not making
goods that are specific to her. Does not fall into the exception. Promissory estoppel.
(2-201, 1-103)
a. Must be specifically manufactured for the buyer and not suitable to sell to
someone else. He can sell them to someone else and he is not specifically
manufacturing it for Sara.
b. Some jurisdiction will not let you use PE to get around a writing requirement
Design fee? Might be evidence of the whole deal.
Language of the code suggests if you have begun manufacturing, then the whole deal is
enforceable. Comments suggest that partial performance shows enforceability up to
what you have performed. (2-201, Comment 2-201).
Statute of Frauds Hypos:
Scenario 1
Oral agreement to M&S with price, quantity, no del. Term -> Written confirmation from
M to S price, quantity, delivery in 5 weeks -> no response from S (both merchants)
2-201? Enforceable contract? Yes if confirmation is signed
2-207? What term re: delivery? 2-207(2)(b), material term?
Scenario 2
Oral agreement to M&S with price, quantity, no del. Term -> Written confirmation from
M to S price, quantity, delivery in 5 weeks -> S objects in writing “No, I didn’t agree to
buy the chairs.”
2-201 Enforceable contract? No.
2-207 What term re: delivery? Irrelevant -> no contract
Scenario 3
Oral agreement to M&S with price, quantity, delivery in 3 weeks -> Written confirmation
from M to S price, quantity, delivery in 5 weeks -> S objects in writing “No, I didn’t agree
to buy the chairs.”
2-201 Enforceable contract? No.
2-207 What term re: delivery? Irrelevant -> no contract
Scenario 4
Oral agreement to M&S with price, quantity, delivery in 3 weeks -> Written confirmation
from M to S price, quantity, delivery in 5 weeks -> No response from S
2-207 Enforceable contract? Yes, if confirmation is signed
2-207 What term re: delivery? Should be 3 weeks, (but proof?)
 Should be 3 weeks because that is the term they actually agreed upon
Scenario 5 – Prob 5.1(b)
Oral agreement to M&S with price, quantity, delivery in 3 weeks -> Written confirmation
from M to S price, quantity, delivery in 5 weeks -> S responds “I object, we agreed on 3
2-201 Enforceable contract? Probably yes
2-207 What term re: delivery? Should be 3 weeks, (but proof)
Scenario 6
Oral agreement to M&S with price, quantity, no del. Term -> Written confirmation from
M to S price, quantity, delivery in 5 weeks -> S responds written “I object, we didn’t
discuss delivery, I need it in 3 weeks”
2-207 Enforceable contract? Probably yes
2-207 at term re: delivery? 2-207(2)(c) - 2-309(1)
 If party objects to a term in a timely way, it should not become part of the
 2-309 provides times for delivery as a reasonable time -> gap filler
2-207 – Battle of the Forms
Hill v. Gateway
 Computer came with 30-day return period and an arbitration clause
 Hills surpassed the date to return and sued in district court
 Hills accepted the terms without reading them -> arbitration clause enforceable
 Ordered a computer by telephone, it arrives with new terms -> arbitration clause
 ProCD guy buys a box that says additional terms inside and then violates those
 You are bound by the terms even if you don’t read the terms
 You are bound if you wait too long and don’t return the item
 There was no notice there were additional terms
 You don’t know until you get the thing -> also okay
 Shrink wrap
 Time of contract is when you buy the thing
o However, Easterbrook suggests that there’s still a phase of contracting
that continues until you haven’t returned the thing
 Erie doctrine issue: Did they use state law of the UCC? There is evidence in the
case that Easterbrook used both and ignored some of both
Click wrap -> click on terms
Shrink wrap -> terms on shrink wrap -> on notice and that’s okay
 Box said there were other terms that you will see when you open the box
 Shrink wrap
Modes of Formation
 Conversation/inquiry/agreement?
 Purchase order, might be:
o An offer
o A confirmation
o An inquiry
Invoice or acknowledgment, might be
o An acceptance
o A confirmation
Contract Formation
 If price, quantity and date -> sufficient
 Under 1-303 (COP, COD, UOT) become part of the agreement if they exist
 Now add default terms
2-205 says firm offers need consideration to be binding; unless the offeror is a merchant and
the offer is in writing.
 Only open for a reasonable time
 Not irrevocable for more than 3 months
2-206 says sales contracts may be accepted in any manner and by any medium reasonable
under the circumstances: shipping the goods or promising to ship them
 1b Even shipping non-conforming goods counts as acceptance
1. Gets rid of mirror image rule and last shot rule
1. If is not a definite and seasonable expression of acceptance (came too long after the
offer was made, terms of the acceptance were wildly and fundamentally different from
the terms of the offer)
2. Or if expressly made conditional on assent to the additional or different terms
 2-207(2) for a valid contract
 2-207(3) for no valid contract but performance
Material alterations
 Comment 4 and 5
 Not super clear -> look at industry custom
Different Terms
 Comment 3
 Knockout Rule
o The court will knock out the different term and use the UCC gap filler for the
knocked-out terms
 Virtually replicated the knockout rule
 Additional terms become part unless there is one of the three exceptions
2-207 Hypos:
Review: Hypo 1: K for price, quantity, date
 Under 2-204 that is sufficient
Now add 1-303 (Course of performance, course of dealing, usage of trade) these will become
part of the agreement if they exist
Now add default terms under Article 2
Hypo 2: Purchase order with same terms and delivery by the seller. This is acceptance under 2206. Therefore, the answer should be the same if we don’t have any other information.
Hypo 3: Essentially Belden. Purchase order + conditional acceptance -> delivery
 Belden court said the conditional acceptance was not an acceptance
 Therefore, no contract formed by the writings of the parties
 Add supplemental terms under the Act
o Is 1-303 a provision of the act such that it should be part of how we determine
the terms?
 Court in Belden said yes
o Then look at the default terms under the Act
Hypo 4: Purchase order + delivery then acknowledgement form, which contains the provision
that would limit liability. We should assume this is basically the same as number 2.
 Delivery is an acceptance of the terms
 Acknowledgement might be a written confirmation?
o If it is not, then it’s just a proposal for a modification, maybe
o If it is, then we use 2-207
 Check to see how 2-207 defines written confirmation
 Not helpful, look it up in the definition section 1-201 ***
Hypo 5: Purchase order + acknowledgement form (3.2a)
 Acknowledgment form satisfied 2-207(1)
 There is a K here
 Is this an additional term? Or a different term?
 More conventional approach is that these terms knock each other out
o Then they are likely to be filled in the Article 2 default terms
o Might be course of dealing or usage of trade
 Is this a material alteration?
o Look at comment 4 and 5
Belden v. American Electronic Components
 No contract in writing, but performance - 2-207(3) is controlling here
 AEC sent a purchase order
 Belden’s (seller)response form had terms on the back
o Had expressly conditional clause
 AEC wanted damages because they used the thing in a sensor to a car manufacturer;
they were therefore liable to Chrysler and wanted consequential damages
 Dispute is whether Belden wants to claim it is not responsible for these consequential
damages because in its form it has a term that says that
 Because of the expressly made conditional clause, we are kicked from section 1 to
section 3
 Not all courts agree with the expressly made conditional clause in the contract because
it was in the boilerplate
 Once in 2-207(3), you can’t go back to 2-207(1 or 2)
 Tried to argue course of dealing
o However, course of dealing does not get you your terms because just because
Belden puts it into their contract every time does not mean it is course of dealing
o Code gives you the default term
 Different rules under the code
 Ex. State of frauds, implied warranties of merchantability, heightened duties of good
faith and fair dealing
Problem 3.2
a. It looks like there was an acceptance when she shipped the products. The shipment did
not include additional terms. Not a 2-207 problem. Stretch argument is that the
acknowledgement after performance was written confirmation. Terms that limit the
scope of the warranty are often thought of as terms that materially alter a contract. (2204, 2-206, 2-207)
b. Arlene ships the wrong product. 2-206(1b) shipping the wrong product (non-conforming
goods) can be acceptance, unless you tell them as an accommodation -> acceptance in
this case
a. If she had said we don’t have these goods, here these are; it would be a different
case -> not an acceptance
c. Arlene finds a purchase order three months later
a. Not a reasonable amount of time
b. If offer said within a year -> would be fine
d. Purchase order can only be accepted by agreement with the terms. Probably not a
contract because acceptance has not confirmed to the writing. (2-204, 2-206, 2-207)
Problem 3.3
a. She cannot get out of the contract. Purchase order + acknowledgment form = contract under
2-207(b)(2). The arbitration clause has a 50/50 chance of being a material alteration for the
purposes of this class
b. Probably no mutual assent here because the two kinds of fitness equipment are very
different. Might not even be an acceptance.
c. Expressly conditional clause on the seller’s form. This is basically Belden. This would trigger
the clause in 2-207(1). If this is not an acceptance, then it is not a deal
d. Expressly conditional in offeror, Arlene shipped the goods. Contract by conduct under 2207(3). Arbitration clause is not operative because the writings do not agree. You would use the
Article 2 default term which is not arbitration. However, usage of trade is arbitration. Normally,
usage of trade would come first. Therefore, arbitration would be binding. (2-204, 2-206, 2-207)
C. Parol Evidence
 Parol evidence rule bars the introduction into evidence (and therefore the
enforceability) of certain terms that are not put into writing
 Written agreement between M & S, price, quantity, and date
 Just before or while signing, S asks M to deliver the goods to her, and he agrees,
 What is the effect of the oral agreement/side deals on the written agreement?
 If you have a writing that sets out terms on which you agree, that together
comprise writings on which the parties agree, then you can’t contradict that
 But you can supplement
 Contradictory v. additional (supplemental) terms
o Supplemental could be course of performance, course of dealing, usage
of trade
o No contradicting terms
 Merger clause normally says these are all of our terms; there are no other terms
o Forecloses the additional terms EXCEPT COD, COP, UT
 Must be prior or contemporaneous
o Never after/subsequent -> then no parol evidence issue
 Fraud is not generally barred by parol evidence
 Evidence of no contract is not usually barred by parol evidence
Parole and Extrinsic Evidence, 2-202
 Is there a written agreement of some terms or terms on which confirmatory
memoranda agree?
 If so, parties can’t try to prove contradictory agreements, written or oral, prior or
contemporary – or add terms that “would certainly have been included” (official
comment 3)
o Can argue additional/supplemental terms
Is the writing complete and exclusive? If yes,
o Can’t try to prove additional terms
o But can try to prove CoP, CoD, UT (1-303)
 Supplemented -> not contradicted
o If there is a merger clause -> it says so
 Sometimes only evidence -> not always conclusive
o Restatement calls it an integrated agreement
Druckzentrum Harry Jung v. Motorola
 German company that was supposed to print Motorola’s manuals unless
Motorola had a good reason
 Business fell -> Motorolz moved all business to China
 Druckzentrum filed for breach of contract and tried to use parol evidence
 Contract was unambiguous and integrated
o No parol evidence -> could not include evidence of the oral agreements
 Contract had merger/integration clause
o Could not include evidence of the oral agreements because it was parol
o Additional term -> not contradictory
 Can’t however if it has a merger clause (fully integrated
k)/complete and exclusive statement of the terms of the
 Druckzentrum was arguing that the k was ambiguous because they referenced
another agreement which is different from there is language in the k that makes
it ambiguous itself
1. If the writing that seeks to keep evidence out is not intended by both parties to be a
final expression of the parties’ agreement with respect to the terms therein, then it
will not serve to keep out any parol evidence
2. Even if there is a writing that is a final expression, parties may introduce evidence of
side agreements that occurred after the writing in question; parties are always free
to modify earlier agreements that they made, no matter how comprehensive and
final the earlier agreement seemed to be at the time. UCC 2-209
3. A party may always introduce evidence of usage of trade, course of dealing, or
course of performance to explain or supplement the writing UNLESS the writing has
carefully negated the possibility Official Comment 2 to 2-202
Cravotta v. Deggingers’ Foundry
 Contract for chandeliers
 District court said SOF barred the defendant from raising the defense that
Cravotta failed to provide specific information to make the chandeliers correctly
for the house
o SOF issue: because this term should have been in writing -> therefore,
o Should not have been a problem of enforceability for the contract
because SOF says as long as you have a writing, it is okay that certain
terms are left out; as long as there’s evidence that there is an actual
o Now look at parol evidence rule
Seller hadn’t delivered because he was waiting on specifications from the buyer
Court reversed this because the parol evidence needed to be included in
analyzing the k
The side deal says that buyer needed to provide information about the wiring to
the seller -> but it’s not written into the contract
o However, the seller says they understood it as part of the contract
Issue: Does the term contradict the writing?
o No, writing is very simple; enough terms for the deal; but does not
contradict it
Issue: Can this be a supplemental term?
o Court kicks it back to the lower court
o Possibility A: Need to see if the parties intended the writing to be a
complete and exclusive statement of the terms?
 No merger clause here
Possibility B: Course of dealing of the parties reflected that the parties had this
Caveat with Usage of Trade
 Permissible to explain or supplement
 Impermissible to contradict
General Parol Evidence Rule
 Prior consistent additional terms may be introduced to explain or supplement
any writing except where the writing is intended by both parties to be a
complete and exclusive statement of all the terms of the contract
Contract for steel. Oral assurance from him that she could purchase steel from other
manufacturer if it was cheaper. Contract does not reflect this statement. No merger
a. Because there was no merger clause, there is a good case for an
additional/supplemental term here. Wrinkle: There is a way to construe the term as
contradicting because the agreement was to be a sole supplier of steel. In this
agreement, do we think this term would have been put into writing?
b. After an agreement is made, it can be modified. Unless the merger clause prevents
modification. -> probably not a parol evidence problem. There might be a SOF
problem with the modification because it is not in writing and it might need to be.
a. If made after, then it is not a 2-202 problem (parol evidence)
b. Look to 2-209 (2-209(1))
c. Can introduce CoD evidence as additional/supplemental term. Cannot introduce it if
it is contradictory. (1-303, 2-202)
d. Can introduce usage of trade evidence (1-303, 2-202)
Oral agreement for 4 cars at $17,000. Received a written confirmation for 2 cars at
$25,000. SOF problem here. There is no parol evidence problem here because there is
no confirmatory agreement or final expression here by both parties – only the seller.
There was no bilateral confirmatory memoranda which means there is no parole
evidence trigger.
However, that satisfies 2-201(1), but it doesn’t really help us figure out the terms. But it
gets us over the SOF problem. In 2-201(1), he can only enforce for the quantity of goods
in the writing -> in this case for 2 cars. We are bound to 2 car enforceability.
A different term in a written confirmation should not have any effect except as a
proposal for modification.
I came up with two constructions of the writing
 If acceptance by Deborah of 2 cars in the writing -> then additional terms of price
 triggers 2-207 and knockout
o Written confirmation after the deal mean §2-207 could be triggered
o Deals with the possibility where the written confirmation has additional
terms, but there are different here.
o Both parties are not merchants here so they would only be proposals
because which evidences written confirmation by Deborah.
 If written confirmation by Deborah -> proposal for modification
His best argument is we had a deal for 4 cars at $17,000. It wasn’t in writing. So, he
needs to find a writing that satisfies the SOF, or else she can argue there is no deal at all.
He uses the Written confirmation that is signed by her. He can only enforce 2 cars
because that is what the writing reflects. It is okay in 2-201(1) that it states a term
incorrectly. He can now try to enforce the deal for 2 cars because there is a writing.
Justin has a witness, which is lucky. (2-201, 2-202, 2-207)
III. Terms
A. Warranties
 Implied warranties go along with any transaction pursuant to the code
Express warranty (2-313)
 Fact or promise has to be part of the basis of the bargain
 Important to the bargain or the transaction in some meaningful way
Implied Warranty of Merchantability (2-314)
Implied Warranty of Fitness for a Particular Purpose (2-315)
 Not expressly limited to merchants
Phillips v. Cricket Lighters
 Child played with lighter that had no childproof feature; died; and burned house
 Two-year-old was not intended user of the lighter
 Industry standard; not gross negligence
 Focused on warranty 2-314 – Implied Warranty of Merchantability
o Child was not the ordinary user
o Not fit for the ordinary purpose
 The warranty does not extend to the child
Leal v. Holtvogt
 Horse breeding case; new guy wanted to get into horse breeding; relied on idiot
 Warranty of Fitness for a Particular Purpose (2-315)
 Implied warranty of fitness for a particular purpose
o 1. Seller must have reason to know of the buyer’s particular
 Knew it was for breeding
o 2. The seller must have reason to know that the buyer is relying
on the seller’s skill or judgment to furnish or select appropriate
 Student/teacher relationship
o 3. Buyer must in fact rely on the seller’s skill or judgment
 Used the opinion to choose the horse to breed with
 Warranty arose from the fact that the seller knew the buyer was relying
on the seller’s skill
 Look at statement: he is capable of attaining national show titles again as
an express warranty
o Could be argued either way
o It is a fact -> express warranty
o It is an opinion -> not express warranty
Did not sue under implied warranty of merchantability
o Ordinary use of horse is to ride it
o Probably would not win
Problem 8.1
a. Not a merchant. If he was a merchant, the fact that you know about it does
not matter to you. (2-314, 2-104)
b. 1-304 has an obligation of good faith in its performance. Honesty in fact. (2314, 1-304, 1-201(b)(20), official comment 3 to 2-314
c. Still has a problem because of good faith. Misrepresentation or fraud by nondisclosure. Super could be construed as an express warranty because it could be
a fact, but it also could be argued that it is not because it is only an opinion. (2313, Comments 3 and 8 to 2-313, 1-103)
d. The law school could be merchants here. (2-314, Comment 3 to 2-314, 2104(1), Comment 2 to 2-104)
Problem 8.2
a. A humdinger is not an express warranty. It would be puffing. It is not an affirmation of
fact or promise. (2-313)
b. “They’re like camels.” The seller has made a statement in regard to gas mileage. It
could be a basis of the bargain. This is closer to an affirmation of fact. It could probably
be argued either way. (2-313)
c. In this case, you might be relying on your mother instead of the salesman. The
question would become whether that was the basis for the bargain. (2-313)
d. Basis for the deal. Similar to b. Do we think that Bob is making an affirmation of fact
about whether the car gets good gas mileage? Can good gas mileage be a fact? There is
also a decent case that there could be an implied warranty for fitness for a particular
purpose. Argument about how much weight the buyer is putting on the used car
salesman’s opinion.
Does the buyer want the car for its ordinary purpose? Or for the mileage? (2-313 2-315).
e. Makes an express warranty-like statement after the deal goes through. It is not a
warranty though because it is done after the deal.
However, comment 7 says that the warranty becomes a modification. It is often then
added to the deal through 2-209. Sometimes also conceptualized as related back to the
deal itself. (2-313, 2-209, Comment 7 to 2-313)
f. This is usually construed against the seller. This could be a case of promissory
estoppel. It would estop the seller from denying the promise that they made because
the written warranty was given. There may be reliance because the buyer asked for the
warranty. (2-313)
a. This is most likely a breach of implied warranty. It is like a strict liability rule. The
pants weren’t fit for the ordinary use. It would not pass without object in the trade. (2314)
b. Comment 13 -> the evidence of the search is important to show that she didn’t
breach the warranty. This would show that the tack got there after Carol had control
over it. It might be evidence that the tack was not in the pants when she sold them. (214, Comment 13 to 2-314).
c. The fact that this is a strict liability rule means that if the pants aren’t fit through no
fault of Carol, she will still be liable. She sold the goods and warranted that they are
merchantable. Therefore, this is a breach even if someone else intervened. There may
still be liability for the person that did it. It doesn’t obviate the warranty of
merchantability. The goods were not warrantable at the time they were sold. (2-314,
Comment 13 to 2-314)
Problem 8.5
 Lady buys a car without side airbags
 She is injured in a car accident
 She was using the car for its intended use -> meant to be driven
 Side airbags are common -> not yet universal (2-314(2))
B. Notice and Privity
In order to recover on a warranty theory, the plaintiff needs to show
1. That the warranty was made;
2. That the warranty was breached;
3. That the breach of warranty caused the harm complained of;
4. The extent of damages; and
5. That the plaintiff can fend off any possible affirmative defense, including disclaimers,
statutes of limitations, lack of notice, lack of privity, and assumption of the risk
 Buyer must notify the seller within a reasonable time about a defect in the goods or
lose all right to a remedy for the breach
Lack of privity
 In theory, a warrantor is only directly liable to the party with which it has a contract
 A manufacturer has no direct warranty liability to the consumer who purchases from a
 Manufacturer has no direct warranty liability to a retailer who purchases the
manufactured goods through a third-party distributor
 In practice, manufacturers will treat their warranties as if they run directly to the
ultimate purchaser
 2-607(5)(a) – the seller being sued can vouch in its own seller to defend the suit
o If the seller does not come in to defend, it is bound by the court’s decision
o Vertical privity
2-318 offers three alternatives for adoption
o Majority: Adopted A, which removes the horizontal privity barrier for family
members or household guests of the buyer in cases where the non-buyers have
suffered personal injury due to the seller’s breach of warranty
 Dad buys car; son gets injured; son can sue in warranty against the car
o Alternative B: horizontal privity barrier to any natural person who may
reasonably be expected to use, consume, or be affected by the goods and who
suffers personal injury by the seller’s breach of warranty
o Alternative C: Even broader; allows beneficiaries to recover even for property
damage or economic loss
 Virginia has held that it does not allow recovery of purely economic loss
for third-party beneficiaries
Notice of Warranty Claims:
•2-607(3)(a) - (3) Where a tender has been accepted:
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.
Hebron v. American Isuzu Motors
 Lady bought an Isuzu and got into an accident and brought suit two year after the
 2-607(3)(a) needs to bring suit in reasonable time -> not reasonable
 They also got rid of the truck, so there was no evidence to back up their claim, and
no explanation as to why they waited so long to notify them.
 Because they got rid of the car, it helps prove why they are unreasonable with their
 Unless its scope is expanded (by the Code, for example, or by common law) warranty
arises only between contracting parties
 Vertical (up & down stream of distribution)
o Seller can “vouch in” its seller – 607(5)(a)
o Manufacturers generally cannot escape warranty liability for person injury to
consumers (common law)
o 2-318 B & C extend warranty beyond the buyer vertically (2-381 A is neutral in
this regard)
 Manufacturer is not technically in privity with the buyer; but it generally cannot escape
warranty liability for the buyers
 Horizontal
o Generally involving people related to buyers who may use or be affected by the
use of the product (cricket lighters)
o 2-318 extends warranty beyond the buyer horizontally
Crews v. W.A. Brown
 Church case where girl lose her toes in walk in freezer
 2-318 applies to family, household and guests -> a church does not have these
o No privity for the girl
 No problem if the church sued
 2-318 A only extends the scope of the warranty that the buyer enjoys only when
o Household use
Problem 9.1
a. In a commercial transaction like this, five months after the sale is probably beyond a
reasonable time for notice. (2-607(3)(a), Comment 4 to 2-607)
b. Tricky. Notice requirement kicks in within a reasonable time after tender has been
accepted. Technically, delivery was in October. Not clear if tender was accepted ->
probably it was because she took the truck. Won’t be on the exam. (2-607(3)(a),
Comment 4 to 2-607)
c. Judi gives notice to Mack. She decides later to sue Acme, Mack’s manufacturer.
Assume Mack did not vouch in Acme. So, Acme did not have notice. Jurisdictional split:
Notice requirement still applies, and Judi could be barred for not giving notice to the
manufacturer OR giving notice to Mack was enough and does not bar Judi from suing
Acme ((2-607(3)(a), 2-607(5)(a))
d. Judi complained about the defect, but Mack did not have notice of the injury to
Michael. Could Michael be barred for failure to give notice under 2-607(3)? Michael was
not part of this transaction, so there may be terms/aspects of the deal that don’t apply
to Michael.
Comment 5 says that 2-607 doesn’t apply because Michael is not the buyer, but he is a
beneficiary. But, there is still a notice requirement about the injury. We are assuming
the warrant extends to Michael under 2-318. (2-607(3)(a), Comment 5 to 2-607)
Michael, as a third-party, has extra time to figure out the legal situation. But he still has
to be within a reasonable time.
To make sense of the comment that a beneficiary that is not a buyer has a notice
requirement under the code, we look at good faith. See 1-304
So now does the warranty apply -> under 2-318
It would not work under A because Michael is not a family, in the household, or a guest.
It would work under Alternative B and C -> he a person who is affected by the goods and
who is injured in person
Problem 9.2
a. This is a stronger case under the logic of the Cruz case. Commercial setting, but the
kid is in the guy’s family. Can you recover for the property damage? There is a case to be
made that Tom will be covered under an Alternative A jurisdiction because he is in the
family. Would the warranty extend to the economic loss? The best way to read it is just
as to whether you get the warranty. There is no express language about economic loss.
So, if you read it broadly, you can say you get all of the loss.
If you read it narrowly, you can construe it to say that it only covers personal injury.
Ambiguity in the statute.
Under Alternative B, Tom is clearly covered because he was injured in person.
Under Alternative C, it is clearer because it just says injured. Not personal injury or
economic injury. (2-318, Comment 3 to 2-318)
b. Problem under Alternative A because it states household of the buyer. Tom’s uncle
bought from the retailer and not the manufacturer.
However, Tom will likely have a case against the manufacturer, but not through the
code. It will be through common law or a products liability statute.
Under Alternative B and C, there is no limiting statement. So, the vertical privity is
c. Neighbor was also injured. Under A, not in the household. Under B, you could argue
under affected by. Could also argue that the extent of the loss would be limited to her
personal injury.
d. Comment says that the seller can limit the remedies, but it cannot limit its liability.
Alternative A and B jurisdictions may not exclude or limit the operation of this section.
Alternative C, you can only limit the economic loss, but no the personal injury.
(Comment 1 to 2-318)
e. The takeaway is in selling to a buyer you can’t say the other beneficiaries can’t have
liability under A and B. But you can disclaim the warranty altogether. If you disclaim the
warranty, then the buyer is disclaiming the warranty for themselves too. They have to
give it all or take it all away. You can’t try to cut someone out specifically. All or nothing.
If the buyer gets rid of the warranty, they need to buy insurance for themselves to
protect against this possible loss. (Comment 1 to 2-318)
f. In B, she was not injured in person. So, she is not within the scope of the warranty. In
C, it is not limited to people who are injured. So, she is within the scope of the warranty.
But, because of the disclaimer of the warranty, she cannot recover because it is
economic loss. (2-318)
C. Contracting Around Warranties
Assignment 12: Reducing or Eliminating Warranty Liability: Basics
A. Warranty Reduction with Sales of Goods
 Most commercial sellers will fight for a disclaimer of consequential damages
o Damages a buyer suffers that go beyond any damages to the product itself
 Consumer’s personal injuries from a defective product; a business’s
economic loss from a poorly designed machine
 Buyers will not lightly bargain away that category of recovery
Exclusion or Modification of Warranties
(1) exclusion or limitation of express warranty is unreasonable, though parol evidence
rule (2-202) applies
(2) to exclude/modify implied warranty of merchantability, must use word
“merchantability” and, if in writing, be conspicuous
To exclude/modify implied warranty of fitness, must be in writing and conspicuous
(3a) “as is” or similar language enough to exclude all implied warranties
(b) if buyer refuses (upon demand to examine fully), no implied warranties for defects the
buyer ought to have discovered
(4) limitation on remedies allowed, as per 2-718, 2-719 (under 2-719 can’t limit remedies
for person injury in consumer transactions)
Example: using as is can exclude all the warranties. People say there are no warranties,
which is not the same as saying as is. This may be good enough to exclude fitness for a
particular purpose, but not enough for warranty of merchantability.
“As is” is a catchall and gets around saying merchantability.
Wilbur v. Toyota Motor Sales
 Woman bought a demo car from Tri Nordic that had previously been in an accident
and improperly repaired
B. Warranty Reduction with Leases
2-316 is a carbon copy of 2A-214 except:
1. under 2-316(2) a seller can disclaim the implied warranty of merchantability with a
properly worded oral disclaimer; 2A-214(2) must use a conspicuous written disclaimer
2. Warranty of fitness for a particular use must be in writing for both: BUT: 2-316(2) is
more general, 2A-214(2) is specific. See Pg 242
To exclude warranty of merchantability in this fashion, it would explicitly need to say
merchantability. So, that is not waived. MUST SAY MERCHANTABILITY
 If it does not say merchantability in the writing -> must be conspicuous so a
reasonable person ought to have noticed it
If it said you are buying this as is -> that would be sufficient. (2-316, 1-201(b)(10))
 2-316(3)(b) comment 8 – no dealer demand to inspect so that dealer is put on notice
 No expression of exclusion
 She refused to examine, but is that language “check out” too ambiguous?
 Unprofessional buyers are held to the skill of a layman, not to the standard of what
only a professional would observe.
o Are engine problems able to be observed during an inspection if you’re not a
o There is likely a limit of what we would expect from an everyday buyer.
 The more you know, the more you are held to. But on the same line,
the deeper you inspect, the more you look like a professional and
then it would be assumed to hold you at a higher standard.
o It’s hard to see what a court would decide 2-316(3)(b))
We know that they are doing this is bad faith – it is theoretically possible to
prove this disclaimer in bad faith
2-302 – provision of unconscionability (catch all developed under common law
that provides an independent basis to find unenforceable terms of a contract
deemed to be unconscionable: both substantive and procedural)
 This is usually a common law alternative to good faith argument
Promissory estoppel (1-103(b))
 It is possible to make the claim that there was a promise given by the
implied warranty, and you relied on that
 Courts are usually uncomfortable using this route to get around the parol
evidence rule (2-316(1), 2-202, Comment 2 to 2-316)
2-719 says that you can limit remedies in a sale and that you can in general limit
remedies in place of the goods. The code provides that there has to be some
kind of remedy. If it fails in its original purpose, then remedy can be had.
Says that you can even limit consequential damages, unless limitation or
exclusion are unconscionable
If he included an “as is” clause, it would have called attention to the exclusion of
 The ultimate outcome would be very different than if he did not include
the clause.
 “as is” helps disclaim an implied warranty – doesn’t necessarily have to
be in writing. (2-719, 2-316(3)(a), 2-302, Comment 2-316, Comments 1
and 3 to 2-719)
D. Impracticability
A. Commercial Impracticability with Sales of Goods
Special Contingencies
1. An unexpected failure of seller’s source of supply
 Basis for a seller’s excuse
2. Dramatic price fluctuation
 Buyer or seller’s excuse
 Applies only where the contract requires for its performance goods identified when
the contract is made, and the goods are damaged or destroyed through no fault of
either party before risk of their loss has passed to the buyer
o The contract must be such that the contract requires for its performance
certain goods that are identified when the contract is made
 In such a case, the seller is excused from performance although the buyer will then
have a specific opportunity to buy the damaged goods at a reduced price
 Must then determine if the loss is total
o Contract is avoided completely
 Partial loss
o Buyer may nevertheless demand inspection and at his option either treat the
contract as avoided or accept the good with due allowance from the contract
price for the deterioration
o Buy car for $5000, suffers $1000 in dent damages
 Buyer can buy for $4000 or avoid the contract
Turbines Ltd. v. Transupport
 Bought a helicopter part that was seized by customs; then became illegal
 Claims 2-615 applies because the contract should be rescinded
o Can’t apply 2-615 because contract was already performed
o Can’t argue impracticability when the contract has been fully performed
 2-615 available to buyers? Or frustration of purpose under 1-303(b)?
 2-615 may not be available if obligation not executory
o It’s a defense to performance, not basis for rescission
If the doctrine were available to Turbines, would they satisfy it?
o Risk of Iran deal foreseeable?
o Risk of resale failure foreseeable?
Takeaway: doesn’t matter what was available because the contract was already
executory -> it had already been performed
o Can’t use it to undo performance that has already been done
2-207 problem (see below)
Conversation -> Turbines P.O. stating returns -> Transupport’s Invoice says no returns
1. K (returns) written confirmation -> returns would be available
2. K (Silent returns) written confirmation and additional terms -> Transupport’s could be
an objection? -> no returns are likely under 2(b and c)
3. No k -> offer -> acceptance with different term -> use either knockout rule to see if
there is a default term under the code or some jurisdictions then run it through 2-207(2)
and look for a material alteration
 Party claiming excuse must give notice to the other side
 Seller who wishes to claim excuse is required to notify the buyer of any delay or nondelivery occasioned by a justifiable excuse
 Seller that qualified for an excuse, a delay in delivery or a complete non-delivery is not
a breach of the seller’s duty under the contract
 Event must be a contingency the non-occurrence of which was a basic assumption on
which the contract was made
 Seller’s good-faith compliance with applicable governmental regulations as a
permissible basis for excuse
 Increased price is not enough unless the rise in cost is due to some unforeseen
contingency which alters the essential nature of the performance (Comment 4)
 Comment 5- unless both buyer and seller had a reason to believe that particular
source of supply was to be seller’s exclusive source of supply, then the seller should
not be able to rely on the inability of a particular supplier as a basis for its own excuse
 When a seller has several buyers under contract for the same type of goods, 2-615
requires he allocate production and delivery among the customers in a fair and
reasonable manner
Alamanca County v. Bobby Murray Chevrolet
 Bobby bid for school buses
 Then emission standards changed, and he couldn’t get the chassis to the buses
 2-615 does not apply
 Bobby Murray bid on buses for school board
 Regulation comes into play that they are trying to beat because the diesel engines
aren’t allowed anymore
However, they aren’t available because their own supplier is failing for some
Our own supplier failed and that should excuse our performance
o Failure to get the supplier is not allowed by the court
 Court calls it a failure of supply -> only available if the parties
understood you were going to get your supply from a particular
 From the parties’ actual contract, there is no reason to believe that
the County knew Bobby Murray had a very exclusive, vulnerable
Then move to Governmental regulations
o Court says that he assumed the risk because he was on notice and he never
conveyed to him that this could be a possibility
o The contract has a governmental restrictions clause -> Bobby Murray
needed to notify the board
 Clause could be construed that this could not be a defense for
Commercial Impracticability:
Frustration of purpose: takes place when unexpected circumstances undermine the purpose of
the contract. In order for the principle of frustration of purpose to apply, both parties must
have been aware of the primary purpose for the contract to begin with.
 This only applies if you think that a K has already allocated the risk, with the clause that
says whether you will or won’t be excused for a specific event happening.
o They are often read very narrowly.
 Ex. you say that they will be excused from hurricanes, snow storms, and
tornados. But you forget to mention earthquakes. Then the other party
will NOT be excused from earthquakes because it was not mentioned in
the clause.
 This is kind of a foreseeability test – is the K an allocation of this specific risk?
 Special contingencies:
o An unexpected failure of seller’s source of supply
 Only a seller’s excuse
o A dramatic price fluctuation
 Might excuse either buyer or seller
 2-613 – casualty of identified goods
 2-615 – general excuse for failure of presupposed conditions
o Subject to agreement of the parties
o Applies where “performance has been made impracticable by the occurrence of
a contingency the non-occurrence of which a basic assumption of the parties.”
 The kind of unbearable language the code uses to include this type of
o Including? Or? – change in law or regulation
There’s a basic principle that something happens that both parties never
foresaw, including a change in the code or law.
 The change in law or regulation has to be completely unforeseeable.
 For example, labor laws are constantly changing, so this might be
considered foreseeable
If partial impracticability, must allocate in a fair and reasonable manner.
“Pro Rata” – you have to give to your current customers in proportion of what
you already have. Do not unreasonably favor one customer over everyone else.
 Ex. If you promise 50% of your left-over goods to customer A, and the
other 50% is split amongst B, C, and D. It should be expected that you do
exactly that. Not give 50% to A and 50% to B.
Problem 14.2
a. Threshold question: 2-613 and 2-615 are mutually exclusive. Have to be in one or
the other. Real question is: was this a contract for specific identified goods at the
time? These were just machines she sold in general -> not a contract for specific
machines 2-615. (a) is like a foreseeability test. It is foreseeable in the sense as to
whether the parties allocated a risk or not.
b. The exclusive supplier failed but it’s in the contract saying it is an exclusive source of
supply. Straightforward way of asserting impracticability.
c. Two contracts. Half are ruined. Arlene wants to allocate the machines, so she can
keep her one customer happier. Is it fair and reasonable to allocate the machines in
this way? -> Ideally it should be pro rata and you should give each person half an
order. Parties in the world don’t always do this.
d. If Arlene satisfies 2-615, then she is excused from the rest of the contract. The buyer
can’t say no we are just going to keep the contract open. 2-616, buyer can
terminate or modify in quote -> can’t say the contract is still in force
E. Unconscionability
a. 2-302 – provision of unconscionability (catch all developed under common
law that provides an independent basis to find unenforceable terms of a
contract deemed to be unconscionable: both substantive and procedural)
i. This is usually a common law alternative to good faith argument
IV. Performance
A. Transactions and Closings
Chapter 3. Performance
Assignment 18: Closing the Sale with Sales of Goods
 Process of closing a sale of personal property begins with the buyer’s physical receipt of
the goods
Then reasonable opportunity to inspect the goods and/or reject the goods and put them
back into the seller’s possession
Buyer has a second chance after the inspection time has passed -> revocation of
o Not without limit
o Seller can cure the non-conformity -> buyer must keep the cured goods
Buyer has the burden of proof on non-conformities and must give timely notice of a
breach to recover damages
Three ways a buyer can accept goods (2-6061))
o 1. An affirmative signification that buyer has accepted
o 2. A failure to reject the goods following a reasonable opportunity to inspect
o 3. An act by the buyer that is inconsistent with the seller’s ownership
Rejection must occur within a reasonable time after delivery of the goods
Ineffective unless the buyer seasonable notifies the seller (2-602(1))
Buyer must state specific grounds for rejection (2-605(1))
Perfect tender rule:
o If contract is an installment contract, buyer may reject an installment only if the
non-conformity substantially impairs the value of that installment and cannot be
cured (2-612(2))
o Seller may have contractually limited the buyer’s remedies, including the right to
reject, thereby obligating the buyer to accept the seller’s efforts to repair or
replace defective parts
o Seller’s right to cure can often reverse a buyer’s rejection
o COD, COP, UT may allow the seller some commercial leeways in performance
Comment 2 2-106
Buyer who rejected goods has little responsibility for me
o Non-merchant buyers need to hold the goods with reasonable care
o Merchants must follow any reasonable instruction of the seller as to resale,
storage, or the like
o If goods are perishable, or will lose their value quickly, the buyer must sell them
on the seller’s behalf
Revoking buyer
o 1. The non-conformity must substantially impair the value of the goods to the
o 2. Buyer may revoke its acceptance only in one of two circumstances
 Where the buyer reasonably believed that the problem with the goods
would be cured and it has not been
 Where the buyer was unaware of the problem because of seller’s
assurances or because the problem was too hard to discover before
o Revocation must occur within a reasonable time after the buyer actually
discovered or should have discovered the grounds for the revocation
o Occur before there is any substantial change in the goods that was no caused by
their own defects
o Revocation is not effective until the buyer notifies the seller
Buyer’s Rights/Obligation
 Unless otherwise agreed, buyer has right to inspect goods before payment or
“acceptance” 2-513
 If goods “fail in any respect to conform,” buyer can accept goods, reject them, or
accept any commercial units (2-601)
 Rejection
o Must be within a reasonable time 2-602(1)
o Buyer must seasonably notify seller 2-602(1)
o Buyer exercising ownership of goods is “wrongful as against the seller” 2602(2)(a)
non-merchant buyer must hold for seller (2-602(2)(b)
o Merchant buyers have to follow seller’s reasonable instructions and may
have to sell perishable goods, but can recover costs (2-603)
 If rejection, buyer must state reason or rejection, unless seller could not have cured;
otherwise, buyer may not reject or claim breach (2-605)
 Acceptance, per 2-606, where,
o After reasonable time to inspect, buyer signals acceptance or fails to reject,
o Takes action inconsistent with seller’s ownership
North American Lighting v. Hopkins Manufacturing
 NAL bought a headlight aiming system from Hopkins that never worked
o There were repeated reassurances that the failure would be rectified
 Hopkins claims there is no revocation
o There was a delivery of the goods, NAL accepted the goods to begin with
 Both parties concede that NAL accepted
 NAL wants to revoke their acceptance
o They accepted the goods even though they were non-conforming
o Hopkins kept trying to fix it and saying that they could fix it
o Seller’s assurances basically extended the time for revocation
 Hopkins claims that at some point NAL should have known Hopkins couldn’t fix it
and that closed their period for revocation
 Court awarded Hopkins compensation as a rental value because plaintiff got
some value from the machine
o Not a standard remedy under the code
o Restitution (quantum meruit)
 1-103(b) catchall that says all contract remedies in equity are
Does the revoking buyer have to give the seller a chance to cure the defect?
o Not clear under the statute -> only talks about rejecting buyers
Shaken Faith Doctrine
o Seller cannot unilaterally define what constitutes an acceptable cure under 2508
Sinco v. Metro North
 Sinco made a bid for a safety contract; harnesses were not safe
 Sinco then re-made the harnesses, made a safety video, and suggested cures
 Metro North rejected these harnesses
 2-508(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
 Harnesses did not work
 Sinco provided non-conforming goods -> do they have a right to cure?
 Threshold question: Did Metro North accept the goods?
o In the case, not explicit: probably a revocation after an acceptance
 Metro-North does not want to give Sinco a chance to cure
o Made a how-to-use video, offered to fly them out, replacement parts,
and other things
 Court rejects these
o Not a complete cure; suggestions are not enough
o Problem with the video; only tested in one direction and it was produced
by Sinco not an uninterested third-party
o Sinco’s replacement parts were rushed through and they did not go
through the same safety tests that the last ones had been through
 Seller has a right to cure
o But it must be a sufficient cure, or the buyer can reject it
 Metro-North’s initial opinion was there was no way to cure this
o “Shaken Faith” syndrome
Problem 18.1
a. She probably can reject here. Buyer has a reasonable time to inspect. But if they do
any act inconsistent with the seller’s ownership, i.e. using it, could be used to show she
accepted it. (2-606, Comment 4 to 2-606)
b. She probably did because of 2-606(c), this is an act inconsistent with the seller’s
ownership. Seller has opportunity to not treat this as acceptance. He gets the choice to
ratify this. (2-606)
c. She was in her time to inspect the goods. But, she used them as her own despite the
non-conformity. This is an example of showing that she acted inconsistent with the
seller’s ownership. She knew of the non-conformity and used the good. Seller could
argue that she was using against the seller’s ownership. (2-606)
d. She rejected the goods. Comment 4 makes clear that a buyer can bind themselves
despite insisting they are rejecting the goods by an act inconsistent with the seller’s
ownership. So, you can post-rejection accept. (2-606)
e. Because there is still time left in performance of the contract, seller has time to cure.
Buyer can reject an installment if the non-conformity substantially impairs it. 2-612(2).
Seller probably has a right to cure. They may have a claim for breach of warranty but
might not be able to reject unless the non-conformity substantially impairs the value of
that installment. (2-612, 2-508, 2-601)
f. Computer explodes now. She would have a much better chance of arguing that the
non-conformity substantially impairs the value of the installment. Probably can reject
the whole contract. Seller may have the right to cure. If the jurisdiction recognizes
shaken faith, they might not give the seller the right to cure. 2-612(3) (2-612, 2-508)
g. She has not precluded herself. She still has to notify the seller of the breach within a
reasonable time. (2-607(2) and (3a), 2-608(1))
Problem 18.2
Arlene received steel that is non-conforming. She calls to reject it. Then, the price of
steel changes and she wants to keep it.
If she acts in a way that is against the seller. The, the seller has to ratify it, in this
situation. The seller in this case would want it back to capitalize on the increase in the
price of steel because they can sell it to someone else. (2-606(1), Official Comment 4 to
2-606, 2-602(2)(a), Comment 2 to 2-601)
Comment 4 to 2-606 states that a buyer can re-obligate himself after a rejection by a
communication of acceptance. However, the seller in this case will probably not retender the goods because of the price change.
Problem 18.3
Lou knows sellers have a right to cure. He wants to send the cars out and then cure the
issues afterwards. There are two ways this can go down. Buyer in inspecting the car
realize a non-conformity and reject. Or he could fail to reject, drive it around, and
discover a non-conformity -> revoking acceptance
It is unclear whether seller’s have a right to cure under revocation. This should not be
assumed because some jurisdictions limit seller’s right to cure under revocation. (2-508)
Problem 18.4
It seems like there has been an acceptance. Can they revoke their acceptance? Yes. They
can hold the bus under 2-711(3). However, they may not be able to use it because of 2606(1)(c). However, this statute is for rejecting, not for revocation. 2-608(3) says the
buyer has the same rights and duties with regard to the goods involved as if he had
rejected them.
She could argue that not using the bus will rack up her damages. She was just mitigating
her damages by using the bus. 1-103(b) basic common law provisions are still available.
We do not know whether a seller has a right to cure on a revocation. They do under a
rejection. Most jurisdictions would probably give the seller a right to cure under
revocation by relying under 2-608(3) as well. (2-508, 2-602, 2-606, 2-608, 2-711(3))
B. Risk of Loss
Assignment 20: Risk of Loss with Sales of Goods (2-510)
 If the destruction or damage to goods occurs through the fault of either the buyer or
the seller, then the negligent party must bear the loss and the usual risk-of-loss rules
do not come into play
 They are designed to cover only the cases in which the destruction or damage to the
goods occurs in a way other than through the fault of either buyer or seller
 Tend to involve insurance companies
 Two basic delivery terms (Free on board and means the seller must pay all charges
necessary for the merchandise to arrive, on board, at the designated location, free
of charge to the buyer
o FOB Seller’s place (shipment contract) (2-504)
 Risk of loss shifts to the buyer when the goods are delivered to the
 Buyer is responsible for paying the cost of freight
o FOB Buyer’s place (Destination contract) (2-503)
 Risk of loss does not shift to the buyer until the goods are tendered to
the buyer at the stated destination
 Seller is responsible for paying
o Default rule: a shipment contract
Tender/Delivery of Non-conforming goods
1. Acceptance -> if Yes, duty to pay. Perhaps revocation of acceptance. Can seller cure?
 Seller may still have a right to cure the non-conformity
2. Rejection -> Can seller cure?
 Trickier under the code
(If goods are conforming, rejection is wrongful. See seller’s remedies)
Buyer’s Rights/Obligation (Perfect Tender Rule)
Unless otherwise agreed, buyer has right to inspect goods before payment or
“acceptance” 2-513
If goods “fail in any respect to conform,” buyer can accept goods, reject them, or accept
any commercial units (2-601)
o Must be within a reasonable time 2-602(1)
o Buyer must seasonably notify seller 2-602(1)
o Buyer exercising ownership of goods is “wrongful as against the seller” 2602(2)(a)
non-merchant buyer must hold for seller (2-602(2)(b)
o Merchant buyers have to follow seller’s reasonable instructions and may have to
sell perishable goods, but can recover costs (2-603)
Buyer’s Rights/Obligations, Cont’d
 If rejection, buyer must state reason or rejection, unless seller could not have cured;
otherwise, buyer may not reject or claim breach (2-605)
 Acceptance, per 2-606, where,
o After reasonable time to inspect, buyer signals acceptance or fails to reject, or
o Takes action inconsistent with seller’s ownership
Per 2-607, if acceptance,
 Buyer must pay contract rate for accepted goods
 Buyer can’t then reject (and may not be able to revoke in non-conformity known at
 Buyer has burden to prove breach
Per 2-608, if acceptance, buyer can revoke if non-conformity “substantially impairs value” and
 If buyer reasonable assumed seller would cure; or
 If buyer could not have discovered non-conformity, or
 Seller’s assurance precluded discovery
Seller’s Right to Cure
Per 2-508, if rejection (or revocation, in some jurisdictions), seller has an opportunity to “cure”
non-conformity if
 Time for performance not elapsed, or
 Seller had reasonable grounds for believing that tender would be acceptable to buyer
Stampede Presentation v. Productive
 Contract for television deliveries. Stampede purchased TVs from 1SaleaDay;
Stampede hired Productive to pick up the TVs in California and deliver them to
Illinois. Productive subcontracted with MML Transport. The TVs were picked up,
but then someone stole them.
Default for ambiguous delivery term/no delivery term -> shipping contract
1SaleaDay is the seller
Stampede bought the products; selling to a third party -> Tiger Direct
o Stampede made the contract, but the seller needs to give the goods to
the carrier to transfer the loss to the buyer
FOB Origin -> shipment contract
o Risk of loss transfers to the buyer when the seller gives possession to the
Stampede contracted Productive
o Who subcontracted with MML Transport
The person that showed up had the bill of lading, which gave them authority to
take the goods
So, when 1SaleaDay gave the goods to fraudulent shipper; they had the bill of
lading -> no negligence; did everything that they were supposed to do
o So as soon as the shipper gave the goods to the shipper; the loss
transferred to the buyer
Requirements of Tender
The seller must:
1. Put and hold the goods at the buyer’s disposition for the period necessary for
the buyer to take possession
2. Give the buyer notice of tender, and
3. Give the buyer any documents that are needed for the buyer to take delivery
To deliver the goods to the carrier and shift the risk of loss to the buyer, the seller
1. Put the goods in possession of the carrier
2. Make a reasonable contract for their transportation
3. Delivery any document necessary to enable the buyer to take delivery
4. Promptly notify the buyer of a shipment
Cook Specialty Co. v. Schrlock
 Plaintiff wanted to buy a 28,000 machine from defendant
 During transit, the machine fell off the truck
 Shipper was underinsured
 Term was FOB seller’s place -> shipment contract
 2-509(1)(a) risk of loss transfers to buyer when the goods are transferred to
the carrier
 2-504 deals with when transfer is met
o Have to give them to the carrier and make a reasonable contract for
Had the seller sufficiently put them in possession of the carrier and made
sure it was sufficiently insured?
Did the fact that the seller did not make sure the carrier had sufficient
insurance mean it had made an unreasonable contract?
o Yes, they had. The fact that the carrier was not sufficiently insured
does not make the shipment contract unreasonable.
So yes, risk of loss transferred to the buyer when it was transferred to the
It would be worse if the value of the item had been understated by the seller
because it would limit the value that the buyer could sue upon
Takeaway: Seller has to deliver them to the carrier and provide for a
reasonable contract for the shipment of the goods
2-504 Ambiguities
 Ambiguity from failure to notify the buyer
 Does that mean it is a prerequisite for passing risk of loss to the buyer?
 Or instead are merely requirements on which the buyer can rely to recover
 Covers the effect of a breach by either the buyer or seller on when the risk of
loss passes from the seller to the buyer
 2-510(1) proves that 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
o If nonconforming shipment is destroyed in transit, through no fault of
either party, the seller keeps the risk of loss because the goods were
nonconforming, and the buyer had a right of rejection
 2-510(2) provides that when a buyer rightfully revokes acceptance, the buyer
may treat the risk of loss as if it had rested on the seller from the beginning, but
only to the extent of a deficiency in the buyer’s insurance coverage
o Got goods, revoked acceptance later on discovery of non-conformity,
then a loss of the machines
 If buyer has insurance -> insurer pays loss
 If not, seller has risk of loss
 2-510(3)
o Covers effect of breach by the buyer on risk of loss
o Buyer orders goods, then says no before they left the warehouse
 Buyer has risk of loss if seller’s insurance was deficient
Seller uses a third-party bailee to hold the goods for the buyer
Risk of loss passes to the buyer at the first of three events
1. When the buyer receives a negotiable document of title covering the goods
2. When the bailee acknowledges to the buyer the buyer’s right to possession of the
3. When the buyer receives a non-negotiable document of title or other written
direction to the bailee to deliver (2-509(2))
 Default rule on risk of loss for cases involving neither a third-party carrier nor a
 Risk passes to the buyer upon receipt of the goods if the seller is a merchant
 If not a merchant, then risk passes to the buyer when the seller tenders delivery of
goods to the buyer 2-509(3)
Subject to 3 qualifications
1. If the parties specifically agree when risk of loss will pass, that agreement governs
2. If one of the parties causes the loss in question, the negligent party assumes that
3. If one of the parties is in breach of its obligations under the contract, then the
special rules of 2-510 will determine when risk of loss passes from seller to buyer
 If transaction does not involve shipment or state a delivery term, default delivery term is
seller’s business or location of goods 2-308
 Unless otherwise agreed, “FOB” at a named place is a delivery term of a sales
transaction 2-319
o FOB -> free on board -> treated by the code as a delivery term
Risk of Loss
 For shipment contract (FOB seller’s place or place of shipment or by default), risk of loss
transfers to buyer when seller gives possession to carrier, pursuant to 2-319(a), 2509(1)(a), 2-504(a)
 For destination contracts (FOB buyer’s place of destination), risk of loss shifts to buyer
when carrier delivers, pursuant to 2-319(b), 2-509(1)(b), 2-503(1)
Risk of loss shifts here to buyer
S /----------------------------------/-------------------------------------> /B
Risk of loss shifts on delivery
FOB seller’s
FOB destination/buyer’s
Per 2-510
If buyer can rightfully reject, risk of loss remains with seller until cure or acceptance (2510(1))
If buyer rightfully revokes, risk of loss remains with seller “to extend of any deficiency”
in buyer’s insurance (2-510(2))
If buyer repudiates or is in breach, risk of loss passes to buyer “to the extent of any
deficiency” in seller’s insurance and only “for a commercially reasonable time.” (2510(3))
Problem 20.1
The risk does not pass to the buyer until the buyer receives the goods. The seller is a merchant;
risk of loss passes -> upon receipt of the goods.
Could contract for risk of loss within x amount of days -> then risk of loss passes to you
2-510(3) where the buyer repudiates or is in breach before risk of loss has passed, then 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.
Lou could charge a storage fee which would provide incentive for the buyer to come pick up the
car. (2-509(3), 2-509(4), 2-103(1)(c), 2-509(2)(b), 2-510(3), Official Comment 3 to 2-509
Problem 20.2
Customers threatens to revoke if the car doesn’t have its brakes fixed. Then, the car gets
damaged on the lot. Where does the risk of loss lie?
Risk of loss transferred to the buyer when she accepted the goods and did not reject them. This
extinguishes her rights under 2-510 (rejection). But under 2-510, she could still revoke.
She has not revoked yet, she has just threatened to revoke.
Her ability to revoke has been extinguished because there was a substantial change in condition
of the goods which is not caused by their own defects. 2-608(2)
 If something substantial changes, you lose your chance to revoke
Tricky case: Would probably want to argue that the girl’s statement was a revocation.
(2-510(1), 2-510(2), 2-608(2), Comment 3 to 2-510.
Problem 20.3
FOB Seller’s place -> shipment contract. Risk of loss shift to the buyer when they are given to
the shipment.
Under 2-510(1), the goods are non-conforming that are given to the carrier as to give a right to
rejection, then the risk of loss stays with the seller
By contract, Gold’s Gym could have given up their right to rejection and can only ask for repair
or replacement
(2-319(1)(a), 2-509(1)(a), 2-509(4), 2-601, 2-719
Problem 20.5
a. Guy is selling his lawn mower. Before the guy comes to pay, it gets stolen. They are not
merchants. So, risk of loss passes on tender of delivery. 2-503 defines tender of delivery. 2503(1) suggests that tender needs a reasonable amount of time for the buyer to take
possession. Tender of delivery probably has not happened, and risk of loss has not passed to
the buyer. They discussed it would be a couple days, so tender should at least be that couple of
days. (2-509(3), 2-503(1))
b. At this point, tender has probably passed because he said he would pick it up in a few days
and it has been a week. Therefore, risk of loss has shifted to the buyer. (2-509(3), 2-503(1), 2510(3))
c. By not coming to get it at all, Ed may have breached. Under 2-510(3), the seller can treat the
risk of loss as resting on the buyer. But Frank has to go against his insurance first and only for a
commercially reasonable time. Frank waited for six months. At the end of commercially
reasonable time, the risk of loss passes back to Frank.
Frank can recover in an action for the price, but only within the commercially reasonable time,
which may have passed. (2-509(3), 2-503(1), 2-510(3), 2-709(1)(a), 1-103)
d. Ed paid when they were doing the deal and promised to come back in the next couple days.
This does not change anything. The fact that Ed paid or did not pay is not relevant for when risk
of loss passes. Still has not tendered delivery, risk of loss is still with the seller even if the buyer
pays up front. (2-509(3), 2-503(1))
e. Ed paid up front, but then did not pick up the mower for six months. As a practical matter,
there should be no reason for Frank to sue on the price because Ed already paid.
The most that Frank can do is sue Ed and say that the risk of loss has passed to Ed. Buyer’s
breach under 2-510(3) says the risk of loss rests with the buyer for a commercially reasonable
time. (2-509(3), 2-503(1), 2-510(3), 2-709(1)(a), 1-103)
Two readings
1. If the goods are non-conforming, you would in theory have the right to reject even if
you contracted it away
2. Do you actually have the right to reject? The fact that you contracted it away, it is gone,
and the risk doesn’t pass to the seller
V. Remedies
UCC Remedies, generally
 Remedies under the Code should be administered to protect parties’ expectations
Consequential, special, and punitive damages not available unless specifically provided
Article 2 Remedies
 Different provisions based on identity of breaching party:
o Starting point for seller’s remedies (breaching buyer): 2-703
o Starting point for buyer’s remedies (breaching seller): 2-711
A. Seller’s Remedies
Assignment 22: Seller’s Remedies with Sales of Goods
A. Why Do Legal Remedies Matter at All?
1. The players in the system rarely resort to the legal remedies
2. The existence of the legal remedies is nevertheless a crucial feature of the system
B. What are a Seller’s Legal Remedies?
 1-305 -> The spirit of the remedies
 Two principles that are significant for a seller’s remedies
o 1. The goal of all the remedy provisions in the Code is “that the aggrieved party
may be put in as good a position as if the other party had fully performed?
o 2. Consequential damages are not allowed unless there is specific provision
made for them in the Code
 No code for consequential damages under Article 2
 2-703 gives incidental damages
 2-703
o Ways to breach
 1. Wrongfully rejecting goods
 2. Wrongfully revoking acceptance
 3. Failing to make a payment when due
 4. Anticipatorily repudiating the contract
o Seven Remedies
 1. Withhold delivery
 2. Stop delivery by any bailee
 3. Identify goods to the contract in the case of an anticipatory
 4. Resell and recover damages under 2-706
 5. Recover contract-market damages (or lost profits) under 2-708
 6. Sue for the price under 2-709
 7. Cancel the contract
 Canceling party always retains the right to sue for breach 2-106(4)
Seller’s Remedies
 Per 2-703, seller’s remedies under the Code available where:
o Wrongful rejection
o Wrongful revocation
o Failure to make a payment when due
o Anticipatory repudiation
Per 2-703, if its buyer breaches, seller may:
o Withhold delivery
o Identify goods to the contract (Which allows resale or action for price)
o resell the goods it sold to buyer and then collect damages under 2-706
o recover damages under 2-708
o or, perhaps, recover damages measured by the contract price under 2-709, or
o cancel contract
Under 2-703
 Wrongful rejection, wrongful revocation, and failure to make a payment by the buyer is
a breach
 Assuming a buyer has breached -> sellers can
o Cancel the deal
o Can identify goods to a contract
 Remedies:
o Action for the actual contract price
o Market measure of damages
o Resale price (cover)
Under 2-706, a seller can resell the goods (in a commercially reasonable manner) and
o Recover difference in resale price and contract price;
o Plus incidental damages allowed under 2-710 -> enumerates the things that can
be incidental damages
o Minus expenses saved (costs avoided) as a result of the breach
Under 2-708, seller can sue for damages (without attempting to resell) and recover:
o Difference between the market price at a time and place of tender and the
contract price (to determine market price, consult 2-723)
o Plus incidental damages allowed under 2-710
o Minus expenses saved as a result of the breach
If this measure is inadequate to “put seller in the position as performance would have
done,.” it can recover its expected profit
Under 2-709, the seller can sue for the contract price if the buyer fails to pay it as due
o The goods are accepted
o The goods are damaged/destroyed after risk passes to buyer
o The goods are not yet delivered, and the seller makes reasonable effort and
failed to resell them at reasonable price (or obviously can’t do so)
If seller sues for price, it must also:
o Give the goods to the buyer; or
o Credit the buyer with proceeds of a sale, including any net gain
Sack v. Lawton
 Contract for Modello painting
 No consequential damages for sellers -> only incidental damages, which are
limited to out-of-pocket expenses
 Seller was trying to sue for the actual price
 UCC 2-709 -> have to satisfy the statutory requirements
o Court finds they made a reasonable effort to resell, but could not find
o Entitled to the contract price
 Sack was going to buy a painting from Lawton for $12 million
 Lawton was going to sell a painting to Sack $10 million
o Was going to resell the painting for $15 million
 Neither of these go through because Lawton repudiates -> not 2-709(1)(a)
 Court is convinced that Sack cannot resell the painting for $15 million
 Seller wants consequential damages
o Not entitled to consequential damages
 RULE: Seller is entitled to incidental damages, but not consequential damages
o Unique for sellers
o Incidental damages that are attributed to the breach
 If the seller sues for the price, the seller must hold for the buyer the goods that are
the subject of the contract 2-709(2)
 If the buyer pays the judgment for the price, the buyer is entitled to the goods
 If when the seller is holding the goods, resale becomes available, the seller may
resell and must deduct from its action for the price any proceeds of resale 2-709(2)
 Incidental damages – any commercially reasonable charges, expenses, or
commissions incurred in stopping delivery, in the transportation, care and custody
of goods after the buyer’s breach, in connection with return or resale of the goods
or otherwise resulting from the breach
2-706 Damages Formula (Like cover but for sellers)
KP – RP +ID – ES
Contract price = resale price + incidental damages – expenses saved as a consequence of
the buyer’s breach
Firwood v. General Tire
 Contract for specialized machines
 Only purchased some of the machines before they went out of business
Had difficulty finding replacement buyers -> sold some as fungible goods 3 years
Firwood made these specific machines for General Tire
General Tire repudiated
Firwood tried to resell them for like 3 years
o Took parts out of the machines and sold them
o 2-706
Was this a commercially reasonable resale?
o Three years normally is too long
o Unique circumstances of the case -> not deemed to be commercially
o Seller entitled to difference between the contract price and the resale price
at the time of resale
If it had been commercially unreasonable, the seller has to sue for the market price
at the time of the breach
Seller is asking for interest from the time of the breach to the resale
o I could have invested that money
o Not allowed interest under UCC
 However, could get statutory interest in Michigan
RULE: Jurisdictional split about whether interest is consequential or incidental
Author after the case: incentivizes sellers to just file the suit and get their interest
instead of trying to resell and mitigate their damages
o Seller is better suited to resell the goods because presumably they know
other buyers
o If sellers sue on the price early, then the buyer has to find someone to resell
the goods to and it will be more difficult
Policy Issues Here
 It would have been better for Firwood to sue right away; they could claim
statutory interest on the amount from the date the suit was filed
 Incentive for companies to sue instead of trying hard to resell
2-708 Contract Market Difference
 MP = market price
o Measured at the time and place of tender, which are defined by the k
4. Lost Profits
o 2-708(2)
Had the buyer not breached, the seller would have made an additional profit
Problem 22.1
a. Under 2-709(1)(b), he can recover because he was unable to resell the beanie babies
at a reasonable price, but the goods have to be identified to the contract. There is a
question as to whether the pile had been identified to the contract.
2-703(c) tells us to proceed to 2-704.
Under 2-704(1)(a), the aggrieved seller may identify goods to the contract that were not
already identified if they are under his possession or control.
So yes, there are goods identified to the contract. This is probably not a reasonable price
for the dolls because it is 1/10th of the contract price. Seller can probably sue the buyer
for the full price. This may not be a reasonable price because the market bottomed out.
But we do not know for sure.
Question to ask: did the seller try and was the price reasonable? (2-704(1)(a), 2-709)
b. This is a risk of loss problem under 2-709. These are conforming goods lost or
damaged within a commercially reasonable time after risk of loss has passed to the
Did risk of loss pass to the buyer? 2-510(3) Here, the buyer repudiates, so the risk of loss
has passed to the buyer as to the deficiency in the seller’s insurance coverage.
Now we need to see if the goods were identified to the contract. Did the loss happen
when the goods were already identified to the contract? 2-501 comment 5 deals with a
situation of identified fungible bulks.
Presumably this is a fungible bulk, which is enough to affect an identification if there is
no explicit agreement otherwise. It is an identified good, which gets us to 2-709(1)(a).
Here was have conforming goods that were lost or damaged after the loss has passed to
the buyer.
Can the seller sue for the price? Have to satisfy some part of 2-709. Goods were
damaged -> 2-709(a). Look at 2-510 that when the buyer breaches, the risk of loss
passes to them. 2-510(3). Need to look if the goods were identified to the contract or
(2-510(3), 2-709, 2-501, Comment 5 to 2-501, 2-105(4), 1-201(b)(18))
c. 2-706. Resale measure of damages
Problem is that they’ve made three sales for different prices. The contract was for
$10,000. They sold three boxes for 6, 7, and 4k. Specialty would argue that the smallest
one was attributable to the breach. Buyer would say no we like the highest one because
it is the smallest difference. Resale has to be of goods identified to the contract. The first
box had Kid Knacks name on it. This may mean that those goods were identified to the
contract and that should be the resale that matters for the measuring of damages. (2706)
d. In the original deal, there were 1000 dobie dogs and 1000 digger frogs. Each would be
$5000. Breach and a resell for dobie dogs for $8000 and digger frogs for $3000. Real
question is are we treating this as one contract or two contracts.
If it’s one contract, then it was 10K for 2000 beanie babies which you resold for $11k.
There is no measure of damages because you recouped all the losses. Buyer would
probably argue this. However, the problem says there are two separate contracts.
If it’s two contracts, then
5000-8000 = damages are zero because they resold the dobie dogs for more than the
contract price
5000-3000 = damages are 2000 (2-706)
Problem 22.2
a. Has she accepted the goods? No indication that she has revoked. She cannot revoke
because she had notice at the time. She has accepted. He can sue for the price
2-607(3)(a) she must give him notice.
Buyer can still sue for breach of warranty. 2-714 (2)
2-714(1) – non-conformity that may or may not be a breach of warranty (2-709, 2-606,
2-607(2) and (3), 2-602(1), 2-608)
b. This is a wrongful rejection. But she also has not accepted. It denies him the chance to
sue for the price. She has not accepted, so he can’t sue for the price. 2-709(3) For
wrongful rejection. Takeaway: Wrongful rejection is enough to make it so the seller
can’t sue for the price. (2-709, 2-606, 2-602)
c. Here, she did not reject up front. She is attempting to revoke. This looks not like a
wrongful rejection, but a wrongful revocation. Does a wrongful revocation make it so
the seller can’t sue for the price?
Two ways to approach a wrongful revocation:
The seller probably accepted here. So then, they can sue on the price. But, the code is
ambiguous on this point.
If you did not have the right to revoke, it might act like a wrongful rejection and deny
the ability of the seller to sue for the price. Not the right way to read the code. (2-709,
2-608, Comment 5 to 2-709)
Problem 22.4
a. Seller selling 100 cattle to buyer for $50k. Performance set for May 1. Breach on May
1 by buyer. Market price on May 1 $45k. Resale June 15 -> 40k. Costs Ben 400/month to
feed the cattle. No acceptance and goods aren’t damaged -> no action for the price
Resale price was 49k
2-706 is 50-49+600 = 1600
Market price 2-708 is KP – MP -> 50k – 45k = 5000
Ben may want to argue that he gave no notice, so he is entitled the 2-708 damages.
Buyer would argue 1-305, where the Code says we should administer remedies to
protect the expectation interest. Code says he is entitled to 2-708 because he did not
give notice. However, that puts him in a better place than performance. (2-708, 2-706,
1-305(a), Comment 1 to 2-703)
b. 2-708 damages. Market price damages would be: KP – MP -> 50k – 45k = 5000
No incidental damages because we calculate damages at the time of tender. So in this
case, it would be May 1, and Ben has not incurred any incidental damages at this point.
However, may be able to persuade a court to grant them if they occurred closely to the
Resale under 2-706. KP – RP + ID: 50k – 40k + 600 = $10,600, if he is entitled to 2-706
damages. He can be denied this unless he gives notice. If no notice, left with 2-708
damages. (Comment 2 to 2-706).
c. In c, there is no notice problem. Could argue that the seller waited too long in a
declining market. (Comment 5 to 2-706). Use damage calculations from b.
d. Repudiation was on March 1. Resell on March 15 for 48k. Market price on May 1 was
2-708 50-45-600. 4400 because he saved 600 dollars in storage fees
2-706 50-48-600. 1400 because again he saved 600 dollars in storage/feeding
We have the same 1-305 problem because he did not give notice. So he is only entitled
to the market damages, which is a windfall. However, this should give license to the
court to say you are only entitled to 2-706 which is resell damages. (2-708(1), 2-706, 1305(a), Comment 1 to 2-703)
e. If you gave notice, then you can choose between the two. If no notice, you should get
2-708 damages and no cover. However, if this is unjust enrichment under 1-305, then
the court will choose the lesser one so there is no windfall. Comment 1, 2-703 allows
you to choose your remedy because they reject the election of remedies. -> saying seller
generally gets to choose
2-709 can apply when a seller cannot find a buyer under 2-709(1)(b) In this case, the
market for cattle should make it so you can always find a buyer somewhere. (2-708(1),
2-706, 1-305(a), Comment 1 to 2-703)
Assignment 24: Seller’s Remedies: Advanced Problems
A. The Lost-Volume Seller
Profit = KP – DC – FC
KP = contract price, DC = seller’s direct costs for this item, FC – allocable share of seller’s
fixed costs for this item
= KP – DC +ID (incidental damages)
Remedy for Lost-Volume Seller
 2-708(2)
 Must show that subsequent “resale” would’ve occurred regardless of breach
 Measure of damages is profit on the sale (contract price less direct costs) and
incidental damages
 If I own a car dealership, then I would presumably resell the car you breached on for
the same terms. The subsequent resell would be for no damages
o I would argue, no I would have made two sales
 So, to give the damages, you get the profit
Hypo: Company has 2 employees and a lease which cost 100k to maintain (overhead)
Revenue of whole company is 400k
Costs are 200k to manufacture
Net profit = Revenue – costs to manufacture – overhead costs
400k-200k-100k= 100k
Or think about it as 4 deals for 400k – 200k- 100k (overhead) = 100k
So if one deal is breached you need to look at the individual costs avoided and not the
overhead. So one deal would be 100k KP – 50K cost= So you saved 50k in costs
Do not look at net profit of the company. Just the profit of the good.
Sure-Trip v. Westinghouse
 Problem was that they tried to attribute the overhead costs a part of the profit
Court says you can only deduct costs that are direct costs of the deal. -> not the
You aren’t saving any overhead by not doing the deal
Lost profit = (contract price) – (costs attributable to the contract directly, i.e. direct
Young v. Frank’s Nursery
 2-704(2) – if goods are unfinished when buyer breaches, seller can “in the
exercise of reasonable commercial judgment” complete manufacture or resell
for scrap or salvage
 Usually, buyer will bear the burden to show that seller’s judgment was not
commercially reasonable
 Proceeds from resale under 2-704(2) deducted from damages under 2-708
 Nursery is selling trees to Young for a contract price
 Could not get price of contract because they could not identify the goods to the
contract because there wasn’t a pile of Christmas trees anywhere
 Buyer breaches because he wants less and at that point everyone who needed
Christmas trees has already bought them
o No opportunity for resell
o Market price had not changed -> no buyers out there
 Market price would not have yielded any remedy
 Buyer tries to argue under 2-704(2), that they should have tried to resell them
because that wasn’t reasonable commercial judgment
 The court found it was reasonable to mitigate damages for the nursery to not cut
down the trees and stop the production and sue
 Only way to sue to protect expectation interests was under 2-708(2) to recover
profit they would have made in selling the balance of trees
Problem 24.1
a. Sell a swing set for $8000. Buyer breaches because he found a cheaper swing set. 50%
profit. Is Swing Time a lost volume seller? Book says that he is a lost volume seller.
Materials would be direct costs -> 50 percent profit
Net profit includes overhead costs -> which we don’t care about (2-706(1), 2-708)
Lost volume seller, we assume that they lost one less of the thing and have an unlimited
supply of the thing.
Swingtime selling a swing set to Brian for 8k. Brian breaches and finds another swing set
for 7k. Swingtime is a lost volume seller because it can continue to sell swing sets; 50%
profit on the swing set -> lost profit would be 5k.
c. Because there is a limited supply, they are not a lost volume seller. Probably no
damage, because they just have the cover/market price. (2-708, 1-305(a))
B. Buyer’s Remedies
Assignment 25: Buyer’s Remedies with Sales of Goods
 Buyer can withhold the price and get the attention of the seller
o Burden the seller to file a suit
 Buyers will fight hard to retain their right to sue for consequential damages caused
by the seller’s breach
 Remedies hinge on whether or not the buyer accepted the goods
 Or if it’s too late to revoke
o If accepted and too late to revoke -> 2-714 limited to action for breach of
 VNCG = value of the non-conforming goods that buyer in fact
 VCG = value of conforming goods
 Must give notice within a reasonable time (2-607(3)(a)
 Difference can be as simple as having the defect repaired
 Rejected or revoked -> 2-711
 Both are eligible for incidental and consequential damages as defined in 2-715
Buyer’s Remedies
 Under 2-711, a buyer has two primary options if its seller breacher:
o “cover” and recover damages under 2-712; or
o Can recover damages under 2-713
 But if buyer has accepted goods (and can’t revoke), it can only recover under 2-714; but
it can, under 2-717, deduct damages from any amount of price as yet unpaid.
o Must give notice under 2-607(3)(a)
 Under 2-715, consequential damages include
o Damages that the seller had reason to foresee and that “could not reasonably be
prevented by cover,”
o Damages resulting from “injury to person or property proximately resulting from
breach of warranty”
T. Co. Metals v. Dempsey Pipe
 T. Co. sent defective pipe to Dempsey
o Contract waived consequential damages
 Dempsey paid to straighten them out
 2-714(2)
 Steel pipe was defective -> actual value $737/ton
 T.Co seller and Dempsey is buyer
o Dempsey was going to resell the steel pipe
 K price was $780/ton
Confusion as to whether the difference is consequential damages or the
difference in the value of the goods as promised and as given
Seller is arguing consequential damages -> buyer was reselling and lost some
profits on that -> so its consequential damages
Court says look at the value of what they were supposed to get and what they
o Has nothing to do with lost profits
Measure is the difference between the value of the goods as promised and as
o This is essentially compensating them for fixing it
 That’s why they don’t get consequential damages because it
would be like paying them twice
 Buyer is explicitly given the right to deduct from the price any damages that result from
seller’s breach
 Must give seller notice of its intention to do so
 Gives the seller a chance to assess the validity of the buyer’s complaint
 Buyer that never received goods
o Seller never delivered
o Buyer rightfully returned defective goods back to the seller
 Right to cover
 Right to contract-market damages
 Specific performance
 Rightfully rejecting Buyer (2-711(3)
 Hold the goods in his possession as security for repayment of its purchase price as
well as for any expenses the buyer incurs in holding or storing the goods
 Buyer can resell like an aggrieved seller (2-706(1))
2-712 Buyer’s Right to Cover
1. RBPP + CC -KP +ID + CD – ES
o RBPP = return of any purchase price paid by buyer
o CC = cost of cover
o KP = contact price
o ID – incidental damages
o CD = consequential damages
Buyer’s Cover
1. Did the buyer wait too long to cover?
2. Were the goods that the buyer purchased as a cover really the same as the contract
3. Did the buyer pay too much for the cover goods?
Buyer’s cover is strictly an optional remedy for buyer
 Not covering does not bar him from any other remedy (2-712(3))
2-713 Market Price
 Where the market price is measured is the place of tender, unless the buyer rejects or
revokes acceptance of the goods after arrival 2-713(1)
o Then market place is measured as of the place of arrive 2-713(2)
 RBPP + MP – KP + ID + CD – ES
o ES = expenses saved as a result of the seller’s breach
When One Party Gets Information Prior to the Performance Date that calls into question
the other side’s ability to perform the contract
o Insecure party can demand adequate assurance of future performance
o If assurance is not coming -> anticipatory repudiation of the contract which
entitled the aggrieved party to the usual remedies
o 2-609, 2-610
Consequential Damages 2-715(2)(a)
Buyer’s Consequential Damages those Damages Resulting from a Seller’s breach:
1. Of Any Kind, including purely economic loss;
2. Of which the seller had reason to know at the time of contracting (Hadley v. Baxendale
foreseeability limit)
3. That were “caused in fact” (Mere but for cause, rather than proximate cause) by seller’s
breach; and
4. That could not be prevented by “cover or otherwise” (basic mitigation principle)
Damages must be
1. Personal injury or property damage (economic loss does not qualify here), and
2. Proximately caused by the seller’s breach (mere but-for cause is not enough)
 Broader because no Hadley foreseeability limit
Problem 25.1
School contracted to have a floor installed. K price was 40,000, which cost installer 30,000. They
installed the wrong tile and it cost them 45,000. To treat it, it would have cost 5000 to remedy
the problem.
Value to the school as warranted 40k – 35k (what they have -5000 to fix it) = 5000
However, if the school had rejected or revoked. 2-711; cover under 2-712, or market damages
under 2-713.
Is this even a contract for goods under Article 2? Tests are predominant purpose or gravamen
of the action. There may be a very good chance that yes, it is goods. (2-714(2), 1-305(a))
Problem 25.4
a. Heavy Metal was supposed to make a machine for $35,000. They messed up and didn’t make
it. Buyer covered with a $42,000 machine.
Buyer would claim they covered under 2-712 = 42,000-35,000 = 7000
Seller would claim it is not reasonable cover. The machine is better and more expensive. (2712, comment 2 to 2-712)
Contract for a machine for 35k. They covered for 42k.
Tends to be a liberal test. If we had more facts, we could argue that this is not reasonable
cover. Assuming not, the remedy would be cover
42-35 = 7k
b. Could have gotten a comparable machine for 40,000. Instead, they bought a better one for
2-712 = 40,500 – 35,000 - 500 (benefit is construed as expenses saved) = 5000
2-713 = Market price = 40,000 – 35,000 = 5000
Seller argument  Third option would make damages zero. 40.5k – 35k – (9500) = damages are
zero (2-712, 2-713)
Now covered for a machine for 40.5k (originally 50,000). They could have purchased one at 40k.
So, assuming that the machine was a reasonable cover.
40.5k-35k = 5500 – 500 (as expenses saved because they buyer is better off) 5000
Seller may also argue that you are better off by 9500 dollars because the machine was so nice.
That makes damages zero. Probably a stretch but try to make it anyway.
Question of the character of the expense.
Characterize them as expenses saved. Courts will occasionally not do this.
c. Just like A, k price was 35k. Cover price was 42k.
In this scenario, the buyer was going to resell for 45k. Now with the new machine, they can
resell for 48k.
Expected a 10k profit. Actually, got a 6k profit. So, they should get the difference of the 4k
because they would be their expectation damages.
Buyer may not be entitled to consequential damages because of the foreseeability principle in
He covered at 42k – 35k = 7000 – 3000 (characterizing the benefit of the cover as expenses
saved because 48-45k = 3000) Damages would be 4000
Some courts might just give 7000 dollars because they don’t believe in characterizing expenses
saved in this way. Can argue that it is not in the spirit of 1-305.
Cover is supposed supplant consequential damages because you get the thing, so you shouldn’t
incur consequential damages. (2-715(2)(a))
a. Hog farmer with a stock of hog feed in his barn. He was going to purchase 8 tons of feed for
6.4k for delivery May 1. On May 1, seller doesn’t deliver, and market price is 1000/ton.
Hog farmer has the option as a remedy to shop around and cover. He subsequently buys three
covers at 7k, 6.5k, and 6.3k. First one on May 20.
Feibelman thinks the second two cover prices are red herrings. Probably the first purchase he
makes will count as cover.
Hog Farmer Miles would want market price. 2-713. 8000 – 6400= 1600
Seller would want cover price. 2-712 = 7000 – 6400 = 600 dollars
Comment 5 of 2-713 says that market damages cannot be used if you cover.
Miles would argue that he did not cover in a reasonable amount of time, so he should get 2-713
damages. Court would argue that you probably can’t benefit from your own mistakes because it
is not in the spirit of the UCC 1-305.
Miles would also argue that he keeps a stock pile of feed and regularly goes into the market to
buy more. This is not cover because as the language says in 2-712, it might not be in
substitution for the goods from the seller because they would have made the purchase anyway.
If you could have covered and you didn’t, then you might not be entitled to consequential
damages because you did not mitigate your damages. (2-712, 2-713, Comment 3 to 2-712,
Comment 5 to 2-713)
b. Market price is now 800/ton.
2-713 would equal zero. Even with expectancy
2-712 is what Miles would want to argue to get damages. He would argue that the first
purchase was cover and that he should get those damages. (2-712, 2-713, Comment 2 to 2-712)
c. This is a trick question. The buyer did not cover in this case because he already owned it. He
made no purchase for substitute goods, so there can be no cover.
He would only be entitled to market damages which under a was 1000/ton.
2-713 8000-6400 = 1600 (2-712, 2-713)
a. a. Atlanta was purchasing shingled from Nashville. FOB shipping point - Nashville. So, this is a
shipping contract. Measure of market place under 2-713(2) is place of tender. Place of tender in
this case is Nashville, so we are looking at market price in Nashville of 56k.
In a shipment contract, we assume the buyer is paying the shipping. Seller arranges the
contract, but the buyer pays it.
Measure of damages would be 56k – 50k – 1.5k = 4.5k
Pro Roofing can now just buy shingles in Atlanta for less money than the market price in
Nashville because in Atlanta market price is 54k. They can buy shingles for less than damages.
Shingle company could argue that damages are over compensatory under 1-305. Not all courts
will buy this argument. (2-713, 2-319(1), 2-809(1))
b. FOB is Atlanta
Market price is 54k in Atlanta. The shipping is no longer the responsibility of the buyer, but the
2-712 cover damages are just 54k-50k = 4k (2-713, 2-319(1), 2-509(1))
c. No delivery term in the contract. Default term is that FOB shipping point - the place of
delivery is the seller’s place of business. Same answer as a. (2-713, 2-509(1), 2-308(a), Comment
5 to 2-503)
d. Shipment of defective shingles and rejection.
2-713 market price of damages -> under 2-713(2) market value of place of arrival when goods
are rejected
54k – 50k = 4000 k (2-713)
e. If your counterparty anticipatorily repudiates, you can cancel the contract because it’s like a
breach. Bankruptcy does not necessarily mean that they will not honor its contracts. It is likely
not in fact enough to be treated as anticipatory repudiation. 2-609(1) you have the right to
request adequate assurance of performance and if commercially reasonable you can stop your
2-609(4) Failure to respond within 30 days is a repudiation.
2-610 when repudiation occurs, the other party can wait for performance, seek a remedy, or
cancel their performance (2-609, 2-610)
f. Other party wants to meet someone else’s offer. This is not necessarily a repudiation on its
own. If you cancel, they might say they weren’t going to repudiate, and then you are in breach.
Ask for adequate assurance of performance. (2-609, 2-610)
g. Clear repudiation. Pro roofing covers. Then Industrial Shingles backs out from its repudiation.
2-611 says that that is too late.
You can retract your repudiation, but if the other party has changed its position or cancelled,
then you cannot. (2-610, 2-611)
Twist on the Hypo: Market price in Nashville is 34k. Market price in Atlanta is 54k. K price was
50k. Seller has a new contract for 57k. Buyer says match my new contract. What should
Answer 1: Enforce the contract as is.
Answer 2: Pay the price and get the difference in damages. -> Will be made whole.
Assignment 27: Buyer’s Remedies: Advanced Problems
A. The Lost-Profits Buyer
 Most cases put the buyer in as good a position as full performance
 BUT: When the buyer never receives goods or validly rejects or revokes acceptance of
them, and the buyer is unable or unwilling to cover
 Buyer must claim damages under 2-713 contract-market measure
Hypo: Going to buy a car for 23k with performance on May 1. Seller repudiates on March 15
where market price is 23.5k. On May 1, market price is 24k.
 2-713 damages are market price on the day the buyer learned of the breach – contract
price -> 23.5k -23k = 500
 But had the seller performed, then they could have sold the car for a net gain of 1000.
Lost Profits Buyer
 Jobbers
 The buyers will not buy goods until they themselves have a buyer
 They have no intention of keeping or using the goods, and their sole purpose in making
the purchase is to make a profit on resale
Efficient Breach Concept
 Theoretical justification for expectation damages
 If we ensure we make the non-breaching party whole, then the other party can breach
 Caveat: is the possibility that we don’t think the expectation measure of damages is fully
compensatory because there are aspects that are intangible or cannot be proven
o Actual measure of damages is less than your experience of harm
 Caveat 2: We don’t want our remedies to entice people to breach
o As a society, we should promote the keeping of promises
Jetpac v. Bostek
 Contract to ship computers to Russia. Jetpac purchased them
 Were defective and blew up
 JetPac contracted with Bostek for computers to be sent to Russia
 They decided to do a trial run of 100 computers
 Bostek contracted with someone else to make the computers; then that person sent
them to Russia, where they exploded -> Breach of contract
 In this case, there is a breach of warranty (defects) = 23,517, incidental damages (travel
and additional shipping) = 6778.33, consequential damages (profit) = 148,500
 2-714, 2-715
 Entitled to the profit because the court was convinced that Bostek knew the trial run
was part of JetPac’s opportunity to get the big contract and a breach would cause this
Consequential = perspective profits
Incidental = the travel costs and extra shipping costs.
The buyer accepted the goods by testing them in Russia rather than rejecting it or never
receiving it -> can use 2-714 instead of 2-713
TexPar Energy v. Murphy Oil
 Contract for asphalt; Murphy repudiated and TexPar covered at a low price than.
Market price
 TexPar contracted to buy asphalt for 53/ton for 15,000 from Murphy
 Then they were going to resell to Starry for 56/ton for a profit of 45000 dollars
 Murphy repudiates
 Starry then negotiated directly with Murphy for a price of 68.5/ton so Starry covered
o Starry then got the difference for the cover from TexPar which was 68.5/ton –
56/ton = 191,000
 TexPar was arguing for market measure of damages at the time of the breach which was
80/ton, so the market measure of damage should be 2-713 80/ton – 56/ton with
consequential damages (lost profit) of 45,000
 Murphy argues 1-305 because this is a windfall for TexPar
o Court does not buy this
Court uses 2-713 market measure of damages because it needs to be uniform under the
o 1-305 does not displace the code
Contract by TexPar to buy asphalt with two companies: Murphy and Starry for 53/ton
and 56/ton
TexPar did not cover itself
Murphy repudiated when the market price for asphalt changed
What is the measure of damages?
Market price at the breach was 80 dollars/ton
o Won in the district court on market price at the breach
If you don’t cover, you might lose your right to consequential damages
o 2-715(2)
Argument that this is a windfall because 2-713 damages put them in a better position
o 1-305 (a) argument as always
Court did not buy it
o Should not reward the breacher
KGM Harvesting v. Fresh Network
 Lettuce case
 Distinguished from Allied Canning -> raisin case
 Price of lettuce rose and KGM did not want to sell to Fresh Network anymore
 Fresh Network had to cover in the open market
 Got damages under 2-712
 KGM argued this was a windfall because they had a deal with their other buyers that
would recoup the costs
o Actual damages incurred were 70k
o Should apply 1-305
o Argued Allied Canners
 Raisin case – where the court applied 1-305 because none of Allied
Canners buyers held them responsible
 There were no damages
 Court did not buy this argument because they don’t want to analyze whether they acted
in good faith or in bad faith -> inconsistent to policy
o They got 2-713 damages
o Not as a punishment for a bad faith breach but because that is consistent with
the code
C. Special Remedies
Assignment 28: Special Remedies
A. Specific Performance
 Common law: entitled to specific performance when damages are inadequate
2-716 – broadens specific performance as a remedy
o For unique goods See Comment 2 to 2-716
 For fuel or other natural resources
2-716(3) – replevin for goods identified to the contract whenever cover is reasonably
Specific Performance
 2-716 – specific performance “may be decreed” when
o Goods are unique; or
o In other proper circumstances
 Essentially adopts the common law approach but designed to be somewhat more
liberally applied, especially for output & requirement contracts
 Damages are not adequate
Bander v. Grossman
 Contract to buy an Aston Martin for 40,000
 Seller repudiated because he did not have the title
 Breach is determined by the buyer when he said the deal is off
 Seller later sells the car for 185,000 more than the original contract price
 Buyer thinks he is entitled to specific performance monetary damages -> RED FLAG
o Opinion suggests that there are courts that have allowed this
o However, we should assume this is not quite right -> should think of it as one or
the other -> either specific performance or monetary damages
 Buyer bought other cars -> probably not cover
o Buyer was in the market for other cars, not substitution
 No cover -> 2-713
 Court does not buy this argument because specific performance might have been
available if the suit had been brought sooner -> of actually getting the car
o In this case, two years went by and the price skyrocketed
o Court will not allow this
B. Liquidated Damages
 2-718
o Too large will be void as a penalty
o Too small may be struck down as unconscionable (comment 1)
Liquidated Damages
 20718(1) – liquidated damages provisions will be enforced if the amount liquidated is
o Reasonable in light of
 Anticipated or actual harm caused by breach
 Difficulty in proving loss
 Feasibility of obtaining adequate remedy at law
Damages may be found void as a penalty if they are unreasonably large (e.g., if there is
no actual harm)
o Not a penalty if reasonable when it was made or was a measure of anticipated
o Actual harm
Small, liquidated amounts will not be enforced if unconscionable (comment 1)
California & Hawaiian Sugar v. Sun Ship
 Sugar boat case
 Two contracts
 Measure of liquidated damages per day in the event of the breach by either party
 Both parties were late; settled with one
 Party was paying the liquidated damages under protest
o Arguing that there was no actual harm
 Two Parts:
 Other manufacturer was late too -> even if we performed on
time, there would have been no boat
o Court does not buy this
 What are the actual damages?
o Accounting is in the case -> actual loss was about 368,000
 Second Part: Breaching seller claims that this disparity between the actual harm and the
liquidated damages suggests that there is effectively no actual harm
o Disparity = a penalty
o Court does not buy this
 Damages were a reasonable estimation at the time of the contract
 However, the actual damages were way less
 This does not mean it’s a penalty
o There was a lot of negotiations; this was then reasonable
 Statutory liquidated damages for the seller in the case where the breaching buyer has
made pre-payments to the seller and the seller has justifiably withheld deliver of the
 Breaching buyer is entitled from the seller to any amount of which the buyer’s prepayments exceed twenty percent of the value of the total performance for which the
buyer is obligated under the contract or $500, whichever is smaller
 R = P – (< of.2t or $500 or P)
o R = the pre-paying buyer’s right to restitution
o P = the sum of the pre-payments made by the buyer
o t = the value of the total performance for which the buyer is obligated under the
 this is subject to offset of actual damages or any benefits the buyer has received
 2-718(3) R = P – (< of .2t or $500 or P) – SD – BB
o SD = seller’s actual damages
o BB = buyer’s benefits from the contract
Neri Marine explicitly rejects this
o Seller could only retain the great of its actual damages or the statutory
liquidated damages
Rule of Thumb: Exception to liquidated damages being a penalty is really only when there is NO
actual harm
 Not a bright-line rule
Statutory Liquidated Damages – 2-718(2)
 Absent an express enforceable liquidated damages clause, seller can get statutory
“liquidated damages” if buyer pre-paid some amount of the contract price
 Seller gets to keep 20% of the “value of performance” (usually the contract price), up to
$500 (i.e. whoever is smaller) – buyer gets back whatever exceeds this amount
 Seller may also get to deduct actual damages from the rebate, but Neri line of cases
limit the seller to actual damages or the statutory damages, whichever is more
Jurisdictional Split
 Either you get statutory damages, or you get the difference in damages
 You get statutory damages and all the other damages
Insolvent Buyers
 2-702
 Just assume the buyer is insolvent
C. Special Remedies When the Breaching Party is Insolvent
 2-702 and 2-705
 2-702 for when the seller discovers the buyer’s insolvency prior to delivery
 2-705 for when a seller discovers the buyer’s insolvency while the goods are in transit
can stop delivery of the goods whether or not the buyer has breached
VI. International and Comparative Regimes
A. Convention on Contracts for the International Sale of Goods
B. Scope of the CISG
 Convention on Contracts for the International Sales of Goods (CISG)
Scope of the CISG (Treaty)
 Articles 1(a), 2(a), 3(2), 5, 6, 7(2)
 Applies to parties that are members of different sovereign states that have both signed
the treaty
Valero Marketing v. Greeni
 Contract for naptha between a Finnish business and an American business
 There is a breach which involves delivery time
 What law governs this dispute?
o American company wants UCC
 Seller in Finland and buyer in New York
 Oral agreement and then two written confirmations
o First written confirmation says English law
 Drops out and no one is suggesting English law applies
o Second written confirmation says New York law
 This term would not be added under the 2-207 because it would
materially alter
 They need to expressly contract to not use the CISG
 U.S. signed the treaty, therefore it applies
o N.Y. law applies is not enough to contract out of the convention
 Jokes on you because N.Y. law is the CISG in this case
o Must say the CONVENTION DOES NOT APPLY and we want substantive N.Y. law
B. Formation of Contracts for International Sales
 CISG handles battle of the forms in a cross of 2-207 and the mirror image rule
o Additional terms are counteroffers
o Additional or different terms do count as long as they do not materially alter it
and the offeror does not object to the discrepancy without undue delay
 What materially alters it is broader
o Can’t make things expressly conditional on assent to the additional or different
o Also uses last shot doctrine
Formation under CISG
 Article 18, 19 (like 2-207)
Roser Tech v. Carl Schreiber
 Battle of the Forms in CISG
 There was a contract here with a provision about credit
o CSN thinks: If they could not get covered for the credit, then the other company
had to pay in advance or give a letter of credit
 Think of it as pay in advance
 Both think the other party is in breach, which depends on whether this credit provision
is part of the contract
 There is a quote, a purchase order, and an order confirmation
o Quote seemed to reference another document that had the payment in cash
o Which is also in the order confirmation in addition to the reference to the other
document also referenced in the quote
The purchase order is the offer and the order confirmation is an acceptance
Question 1: Which law applies?
o This court looks at it like a choice of law problem between the CISG and the UCC
o Following a modern approach to see if there is a difference in result in applying
the CISG and the UCC
 Really the analysis should begin is there a reason why the CISG doesn’t
 Maybe the parties chose a different law -> would have to
specifically say the CISG does not apply
 CISG is a treaty and is therefore superior to the UCC under the
Supremacy Clause
o But you can contract out of it
o CISG applies
Acceptance is not an actual acceptance but a counter-offer under the CISG because of
the additional term about payment
o It is a material term under the CISG
RTI is deemed to have accepted the counter-offer because they responded saying there
was a deal -> statement of acceptance via e-mail
o Term is therefore incorporated and governs
Therefore, RTI breached
RULE: To say no CISG, it needs to say we pick this law and do not want the CISG to apply
1. The CISG does not cover the sale of consumer goods, unless the seller neither knew nor
should have known that the goods were being purchased for a consumer purchase
2. Article 5 says that the CISG does not apply to the liability of the seller for death or
person injury caused by the goods sold
3. CISG specifically excludes from its coverage issues regarding whether the sale to the
buyer cuts off the property interest of third parties in the goods that were sold
Problem 4.2
Applying 2-207
Here, there was a purchase order, an acknowledgment form, and then shipment.
 Purchase order says all remedies
 Acknowledgement form says no consequential damages and arbitration (no expressly
conditional clause)
 Under 2-207(1) there is a contract here
o No consequential damages -> different term
o Arbitration is an additional term
Different term -> knockout rule -> Default rules which is all remedies apply
If knockout is not used -> no consequential damages is treated as an additional term,
which would likely be material -> therefore offeror’s term would probably govern -> all
Additional term -> arbitration clause is often considered a material alteration -> so it
would probably not become part of the contract
Under the CISG, this not a contract. It acts as a counter-offer. Corollary of the mirror image rule.
They then performed. So, the last terms would become part of the contract. Article 19 says you
can assent by conduct. Therefore, these terms would govern. -> Last Shot Rule (CISG 1(1), 18(1),
Performance & Breach
 Articles 25, 31(a), 35, 37, 38(1), 39, 46, 48, 49
o Default is shipment contract
 Takeaway: There isn’t the same kind of provision here as we are familiar with as
o Perfect Tender Rule: Can reject the goods for any reason
 To reject the contract here, it must be a fundamental breach
 Article 39: Deals with notice
 39(2)(b) Buyer ought to have known.
Problem 19.2
a. First question to ask: is this a fundamental breach? Article 25 says it has to substantially
deprive the buyer of what they are entitled too -> harm and foreseeability
 Probably foreseeable here that they could not sell suits that are cheap material and are
falling apart
Second question: Was the notice timely? Italy’s Best would argue that they should have noticed
the problem when they immediately came out of the box. They ought to have known when
they inspected it. Mal’s Shop would argue that the problem did not show up until they started
to fray. This was then timely notice.
Third question: Does Italy’s Best have a right to cure? If they can cure, it would be under Article
48 because delivery has been made. Article 48 is subject to Article 49. If Mal’s avoids the
contract, then Italy’s Best’s right to cure would be eliminated. If Mal’s can’t avoid the contract,
then Italy’s Best would have some time to cure under Article 48. (CISG 25, 39, 49, 48, 46)
Under Article 2, what would they be able to do? It is probably too late to reject. So, they would
probably try to revoke. Under 2-608, it is not the ought to have known provision. They would
probably use difficulty to discover. Result is roughly similar.
b. Same facts; suit material was fine; some suit sleeves were missing one or both button. This
might not be a fundamental breach under Article 25. If it’s not, then the buyer can’t avoid.
Assuming buyer can’t avoid, under 46(1) the buyer can only request a substitute if it’s a
fundamental breach. Probably not a fundamental breach. Can request repair. But the seller is in
Italy and the buyer is in Chicago, probably not reasonable for repair.
Would sue for damages for non-conformity
(CISG 25, 49, 48, 46)
Under 2-608, the buyer again could probably not revoke. This button loss does not substantially
impair the contract. Maybe a breach of warranty
c. Mal can likely avoid this contract because it is a fundamental breach. There is no question of
timeliness here because they discovered the problem immediately and notified them
Article 37 gives them the right to cure because there is still time remaining in the contract.
(Articles 25, 37, 49, 48, 46)
UCC 2-508 right to cure if the time for performance has not yet expired.
Feibelman’s Hypo: Deliver before the contractual delivery date; problem is with the buttons
and not the fraying material.
In this case, it is probably not a fundamental breach.
Under the UCC, they can reject it. The Perfect Tender Rule -> any non-conformity gives the
buyer the right to reject the goods.
B. Louisiana Law of Obligations
LA Civil Code
2467 – Risk of Loss
2616 – Things in Transit, Risk of Loss
2524- Warranty Section
Art. 2524. Thing fit for ordinary use
The thing sold must be reasonably fit for its ordinary use.
When the seller has reason to know the particular use the buyer intends for the
thing, or the buyer's particular purpose for buying the thing, and that the buyer is relying
on the seller's skill or judgment in selecting it, the thing sold must be fit for the buyer's
intended use or for his particular purpose.
If the thing is not so fit, the buyer's rights are governed by the general rules of
conventional obligations.
Acts 1993, No. 841, §1, eff. Jan. 1, 1995.
Art. 2548. Exclusion or limitation of warranty; subrogation
The parties may agree to an exclusion or limitation of the warranty against
redhibitory defects. The terms of the exclusion or limitation must be clear and
unambiguous and must be brought to the attention of the buyer.
A buyer is not bound by an otherwise effective exclusion or limitation of the
warranty when the seller has declared that the thing has a quality that he knew it did not
The buyer is subrogated to the rights in warranty of the seller against other
persons, even when the warranty is excluded.
Acts 1993, No. 841, §1, eff. Jan. 1, 1995.
2601 (Essentially 2-207)
Art. 2601. Additional terms in acceptance of offer to sell a movable
An expression of acceptance of an offer to sell a movable thing suffices to form a
contract of sale if there is agreement on the thing and the price, even though the
acceptance contains terms additional to, or different from, the terms of the offer, unless
acceptance is made conditional on the offeror's acceptance of the additional or different
terms. Where the acceptance is not so conditioned, the additional or different terms are
regarded as proposals for modification and must be accepted by the offeror in order to
become a part of the contract.
Between merchants, however, additional terms become part of the contract unless
they alter the offer materially, or the offer expressly limits the acceptance to the terms of
the offer, or the offeree is notified of the offeror's objection to the additional terms within
a reasonable time, in all of which cases the additional terms do not become a part of the
contract. Additional terms alter the offer materially when their nature is such that it must
be presumed that the offeror would not have contracted on those terms.
Acts 1993, No. 841, §1, eff. Jan. 1, 1995.
Art. 2520. Warranty against redhibitory defects
The seller warrants the buyer against redhibitory defects, or vices, in the thing
A defect is redhibitory when it renders the thing useless, or its use so inconvenient
that it must be presumed that a buyer would not have bought the thing had he known of
the defect. The existence of such a defect gives a buyer the right to obtain rescission of
the sale.
A defect is redhibitory also when, without rendering the thing totally useless, it
diminishes its usefulness or its value so that it must be presumed that a buyer would still
have bought it but for a lesser price. The existence of such a defect limits the right of a
buyer to a reduction of the price.
Acts 1993, No. 841, §1, eff. Jan. 1, 1995.
Cunard v. Datrex
 Cunard bought defective lighting systems from Datrex
 Argument as to which Louisiana standard applies
 LA 2524 applies, which is analogous to fitness for a particular use
o Longer prescription period (SOL)
 Contract for installation of lights that didn’t work
 The difference between a warranty and redhibitory is important because there are two
different statutes
o Has to be either or
o Cannot be both
 This is basically defective v. suitable
o If defective -> then redhibitory
o If suitable but doesn’t work because it’s not suitable for the purpose -> warranty
 The difference is important because of the prescriptive periods (SOL)
 Suing under 2524 for particular/ordinary purpose