Contracts II Outline – Professor Maggs
I. Contract Interpretation
A. PAROLE EVIDENCE RULE – PRIOR AGREEMENTS
1. RULES:
a. An integration is the final written expression of an agreement. Rest. 2nd § 209(1).
i. An integration is complete if it is intended to be the exclusive statement of the agreement.
§ 210(1). Otherwise it is incomplete. § 210(2).
b. A complete integration discharges any terms of a prior agreement that are w/in its scope. §
213(2).
c. A partial integration discharges any terms of a prior agreement that are inconsistent. §§
213(1), 216(1).
d. Williston’s 4-Corners Test (Majority): courts determine whether an integration is complete
by looking only w/in the 4 corners of the document
i. Contract must appear on its face to be incomplete in order to permit parol evidence of add’l
terms
ii. if it looks complete- integrated; if doesn’t look complete- partially integrated
e. Corbin’s All Circumstances Test (Minority): for issues of completeness, no relevant
evidence, parol or otherwise, is excluded; no written document is sufficient standing alone
f. A court may reform a written contract based on mutual mistake or fraud as to its content. §
155.
g. Merger clauses (i.e. Henningsen, p. 446) – specifies this contract/document is an exclusive
statement of all the terms as a complete integrated agreement
2. PATTERN OF ARGUMENTATION
a. Π’s claim: Δ made a promise and did not keep it
b. Δ’s defense: the alleged promise was discharged under the parol evidence rule b/c it was not
included in our subsequent written agreement.
c. Π’s 1st reply: the promise was not discharged b/c it is outside the scope of the written
agreement
i. Gianni v. R. Russell- contract says Gianni can’t sell tobacco; new drugstore in building;
Held- the alleged prior agreement (exclusive right to sell soda) was w/in the scope of the
lease (b/c would naturally be included in document)- given the clause giving up right to
sell tobacco (4 Corners Test used)
d. Π’s 2nd reply: The promise was not discharged b/c the written agreement was only a partial
integration, and the promise is not inconsistent (term not discharged b/c not inconsistent)
i. Masterson v. Sine- Masterson sold ranch to sis, incl. in contract clause that he could
repurchase w/in 10 yrs. for “same consideration”, he goes bankrupt, bankruptcy trustee
wants to repurchase; Held-possible alleged prior agreement that the option was assignable
only for family exists; remand to find parties intent
e. Π’s 3rd reply: The written agreement should be reformed to include the promise b/c we both
mistakenly thought the promise was included or b/c Δ fraudulently misled me to think it was
included
i. Bollinger v. Central Penn Quarry- Quarry deposits waste on Boll’s farm; Boll alleges prior
agreement they will cover all waste w/topsoil , which they did initially; Held- contract
includes prior term- Quarry wouldn’t have initially covered waste if they hadn’t agreed to
do so from beginning (court reformed lease to include the promise)
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B. PAROL EVIDENCE RULE – MEANING OF TERMS (discharge of prior agreements)
1. 2 QUESTIONS:
a. Can parol evidence by admitted (to show the meaning of terms)?
b. If extrinsic evidence is admitted, whose meaning controls?
2. RULES:
a. Traditional “Plain Meaning Rule” (Minority): if the contract has a plain/ clear meaning, then
no extrinsic evidence can be introduced.
i. Usage of Trade (“Custom”) Exception- some fields use terms w/special meaning that ppl
in that trade understand; trade usage meaning can always be admitted
 Hurst- Lake contracted w/Hurst to buy meat scraps w/Lake having right to discount if
meant < 50% protein, Lake took discount; Hurst- we meant 49.5% + protein; Heldallowed custom exception- trade meaning of the term
b. Modern Intent Rule (Majority): if there is an ambiguity, you may introduce extrinsic
evidence; § 214(c); may ALWAYS introduce extrinsic evidence (doing away w/parol v. rule)
i. Side-issues:
 Arguments for: goal- figure out intent of parties; language is not precise and difficult to
figure out; this ev. should always come in
 Extrinsic evidence never excluded (unless irrelevant); problem- no certainty in
contracts b/c can always bring in parole v. – implies words inadequate to bind meaning
ii. Pacific Gas- turbine dropped, damaged; Pacific- you have to pay for damage b/c you
promised you would “indemnify” us; Thomas- “indemnify” meant only 3rd party prop.
damage would be covered, not that owned by you; Held- plain meaning rule applies;
damages covered under contract
iii. Trident- Trident took out loan, interest rates fell, Trident wanted to pay off loan & get
lower rate elsewhere; clause- “shall not have right to prepay”; Trident argues this mean
you could prepay but there would be a 10% penalty; Held- evidence can come in
c. When evidence shows that 2 parties attached different meanings to a term, if one party knew
or should have known the meaning attached by the other party, it will be interpreted against
the party who should have known the meaning attached by the other. § 201(2).
d. If neither party’s meaning of a term prevails under the previous rule, the term cannot be
enforced; if no fault, then no contract. § 201(3).
3. PATTERN OF ARGUMENTATION
a. (Round 1)
i. Π’s claim: Δ promised to do X, which means Y, and did not do it.
ii. Δ’s defense: X means Z, and I did Z.
 Raffles v. Wichelhaus- Δs, Wichel, buying cotton from Πs “to arrive ex Peerless”; Π
meant- any ship Peerless; Δ meant- Oct. ship; cotton came on Dec. Peerless, Δs didn’t
pay; Held- parol evidence admitted; one party thought it meant one thing, other party
thought it meant something else, neither should have known what other thought, so no
binding contract
 Oswald- Allen had 2 coin collections, “Swiss” (only Swiss coins) and “Rarity” (some
Swiss); Π, Oswald, wanted to buy all of the Swiss coins; Δ thought just the “Swiss”
collection; Held: parole v. shows parties construed different meanings of “all Swiss
coins,” so no contract
 Frigaliment- BNS sells Frig chix; Π, Frig, meant “broiler”; Δ meant “any chicken”;
extrinsic evidence admitted, which conflicted; to win, Frig would have to show BNS
knew/should have known what Frig meant or meant it as Frig did
b. (Round 2)
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i. Π or Δ: The court should conclude the X has my meaning based on the following extrinsic
evidence: [description of evidence; i.e. Frigaliment- testimony as to meaning of “chix”].
ii. Π or Δ: The court should not consider the other party’s proffered extrinsic evidence (other
than usage of trade evidence) b/c X has a plain meaning.
 i.e. in Raffles, seller asserted: plain under contract that as long as goods arrived on a
ship called Peerless, doesn’t matter when sailed (ct. rejected)
c. (Round 3)
i. Π or Δ: My meaning of X should prevail b/c the other party knew or should have known
what I thought X meant. Frigaliment- buyer said seller should have known b/c we used
“chicken” in Engl. (tho rest in German) to convey meaning; ct. rejected
ii. Δ: If my meaning does not prevail, then the term has no meaning and cannot be enforced
b/c I did not know and should not have known what Π thought X meant.
 Raffles, Oswald, Frigaliment- this defense succeeded in all; held- no agreement on that
aspect, cannot be enforced
C. FILLING GAPS W/IMPLIED TERMS
1. RULES
a. Contracts may include not only their express terms, but also terms implied in law or implied
in fact.
b. Implied in fact: implied based on the particular circumstances of the contract at issue
i. Wood v. Lucy- “reasonable efforts” implied; Lucy gave Wood exclusive right to market her
products, then she gave someone else the rights, he sued; Held- implied duty of good faith
– that he would use reasonable efforts
c. Implied in law- based on policy considerations, law says this term will be part of the contract;
2 Kinds:
i. Mandatory (i.e. every contract includes duty of good faith)- cannot be waived/ altered,
always present. § 205
 Dalton- Dalton’s SAT varies b/c he is sick 1st time; ETS won’t release his score, relies
on their handwriting expert; Π submits evidence, but ETS won’t look at it; Heldimplied duty of good faith – ETS MUST evaluate materials he has submitted
ii. Default (i.e. general assignability of contract rights, such as was waived in Masterson)implied in law, unless contract says otherwise – parties may change. § 317(2)(c).
2. PATTERNS OF ARGUMENTATION
a. (Implied Promise)
i. Π’s claim: Δ made an implied promise and did not keep it
ii. Δ’s claim: I did not make the implied promise
 ct. must look at all circumstances of the case
b. (Implied Condition)
i. Δ made a promise and did not keep it
ii. Δ’s defense: my performance was excused by the non-occurrence of an implied condition
iii. Π’s response: the implied condition does not exist or, in the alternative, was satisfied
II. Performance and Breach
A. EXPRESS CONDITIONS
1. RULES
a. The non-occurrence of an express condition excuses performance subject to the condition,
regardless whether it has a material effect on the performance.
i. defense- party being sued claims they didn’t have to perform b/c their performance was
subject to a condition (which didn’t occur)
ii. Strict Compliance Rule- unless the condition is strictly met, the party whose performance is
condition doesn’t have to perform
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iii. Luttinger v. Rosen- Luttinger agrees to buy Rosen’s house if he gets an interest rate <
8.5%, he doesn’t (non-occurrence of express condition); Δs offer to reduce the house
price so payments stay the same; Held- Π may reject the offer; new offer irrelevant b/c
there must be strict compliance w/the orig. terms of bargain
b. A party may condition performance on a subjective event/ standard (i.e. satisfaction w/the
other party’s performance). But when practicable, courts will interpret a condition of
satisfaction to mean satisfaction of a reasonable person. § 228.
i. Gibson v. Cranage- Gibson, artist, offered to enlarge Cranage’s small portrait of his dead
daughter subject to condition that Cranage would only pay if satisfied; Held- subjective
standard okay if Cranage evaluated photo and acted in good faith
2. PATTERN OF ARGUMENTATION
a. Π’s claim: Δ made a promise and did not keep it
b. Δ’s defense: My performance of the promise was excused by the non-occurrence of an
express condition.
B. CONSTRUCTIVE CONDITION OF PRIOR PERFORMANCE
1. RULES
a. Prior performance by one party may be a constructive condition to the other party’s
performance (when facts suggest one performance is “dependent” on another). § 237
b. Substantial performance (performance w/o a material breach) will satisfy the constructive
condition.
c. Courts determine whether a material breach has occurred by considering a variety of
circumstances. § 241. In general, courts are hesitant to find a material breach.
2. PATTERN OF ARGUMENTATION
a. Π’s Claim: Δ made a promise and did not keep it.
b. Δ’s Defense: My performance was excused b/c Π’s prior performance was a constructive
condition to my performance, and Π did not perform as promised.
c. Π’s 1st Reply: There was no constructive condition of prior performance; our performances
were meant to be independent of each other.
i. Kingston (Π) v. Preston- Kingston was to buy Preston’s business and provide security (i.e.
mortgage thru bank); he did not provide security, Preston didn’t deliver business; Lord
Mansfield, Held- evidence, sense, and meaning of the contract – there was logically a
constructive condition here; promises not independent of each other
d. Π’s 2nd Reply: Even though I did not perform exactly as promised, I substantially performed
(no material breach) and therefore satisfied the constructive condition. (claim used in regard
to what remedy should be; Δ must still pay, but allow damages)
i. Jacobs & Youngs v. Kent- J & Y promise to build house w/Reading pipe (constructive
condition?) in exchange for payment; Held- there was substantial performance, wrong
pipe not material breach, so Kent must perform/pay (Court may subtract allowance for
damages)
ii. Walker & Co. (Π) v. Harrison- Harrison, Δ, contracted w/W & Co. for them to install and
maintain a sign; cobwebs, graffiti, tomato, Harrison defaulted; Held- poor maintenance
not severe (no material breach), so Δ not excused from paying
iii. Plante (Π) v. Jacobs- Plante built Jacobs a house, they didn’t pay, asserted non-occurrence
of constructive condition – building house to the contract (no downspouts, kitchen
cabinets, wall in living rm. 1 ft. off); Held- Plante substantially performed, no change in
value of house, Jacobs must pay
 example of some courts’ reluctance to find a material breach, even when breach is
somewhat substantial
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C. RESTITUTION DESPITE A MATERIAL BREACH
1. RULES
a. In some jurisdictions, a party to a contract may recover in restitution despite having
committed a material breach. § 374(1).
b. The measure of recovery is the benefit conferred in excess of any loss caused. § 374(1).
2. PATTERN OF ARGUMENTATION
a. Π’s claim: I conferred a benefit on Δ in attempting to perform a promise, and although I
breached, Δ would be unjustly enriched if he did not pay for the benefit.
i. Britton v. Turner- Britton agrees to work on Turner’s farm for 12 mos., but leaves after 9.5
and isn’t paid; Held- Britton can recover under a theory of restitution, should be
compensated for benefit; Damages = contract price – (cost of completion + other loss)
 ex. of court requiring restitution despite a Π’s breach
D. DIVISIBILITY OF PERFORMANCES
1. RULES
a. When practicable, a court may divide a single contract into 2 or more separate contracts. §
240.
b. Even if a Π materially breached the undivided contract, the Δ’s performances are not excused
in any of the separate contracts which the Π has substantially performed.
2. PATTERN OF ARGUMENTATION
a. Π’s Claim: Δ made a promise and did not keep it.
b. Δ’s Defense: My performance was excused b/c Π’s prior performance was a constructive
condition to my performance, and Π committed a material breach.
c. Π’s Reply: Although I committed a material breach, I substantially performed one or more
divisible parts of the contract. Δ’s performance is not excused for those parts.
i. Kirkland v. Archbold- Builder, Kirkland, making repairs to Archbold’s house; he started,
she stopped him and refused to pay b/c he used wrong siding; Held- not practical to
divide one construction project (where separate payment installments)
E. IMPRACTICABILITY AND FRUSTRATION OF PURPOSE
1. RULES
a. A party’s performance may be excused by the occurrence of an event that renders the
performance impracticable, if both parties assumed that the event would not occur. § 261.
b. A party’s performance may be excused by the occurrence of an event that frustrates the
party’s principle purpose, if both parties assumed that the event would not occur. § 265.
2. PATTERN OF ARGUMENTATION
a. Π’s Claim: Δ made a promise and did not keep it.
b. Δ’s 1st Defense: My performance was excused b/c an event occurred that rendered my
performance impracticable, and we both assumed that the event would not occur.
i. examples: death, illness, destruction; non-occurrence of the constructive condition- that
something wouldn’t happen to make performance impracticable
ii. Taylor v. Caldwell- Taylor to rent Caldwell’s property for concerts, hall burnt; Heldimplied constructive condition that if something happens to render performance
impracticable (that the parties hadn’t specified in contract b/c they didn’t consider it
happening), you don’t have to perform
iii. Limitations:
 promisor’s fault
 promisor’s negligence (courts are divided)
 contrary indications in contract
c. Δ’s 2nd Defense: My performance was excused b/c an event occurred that frustrated my
principle purpose, and we both assumed that the event would not occur.
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i. Krell v. Henry- Krell agreed to rent Henry his apt. to see procession of coronation of
Edward VII; parade rescheduled, Henry didn’t pay; Held: Henry does not have to pay b/c
his purpose had been frustrated
III. Who May Enforce a Contract
A. INTENDED 3RD PARTY BENEFICIARIES
1. RULES
a. An intended 3rd party beneficiary of a promise may enforce the promise. § 304.
b. A person is an intended 3rd party beneficiary of a promise if the promise intended to give the
person the benefit of the promise and a right to enforce would effectuate the parties’
intention. § 302.
2. PATTERN OF ARGUMENTATION
a. Π’s Claim: Δ made a promise and didn’t keep it.
b. Δ’s Defense: Π is not a person entitled to enforce.
c. Π’s reply: I am an intended 3rd party beneficiary.
i. Bain v. Gillispie- Gillispie, whose store sells sports memorabilia, sues Bain, the referee, for
making a bad call; Held- Bain cannot recover b/c no close relation/ he was not an
intended beneficiary (as promisee or 3rd party)
ii. Seaver v. Ransom- Mrs. Beman wants to leave her house to her niece, but no time to
modify; husband agrees to convey the house to her niece, he doesn’t; niece sues; Heldthe niece can enforce the promise as an intended 3rd party beneficiary
B. ASSIGNEES
1. RULES
a. An assignee of contract rights may enforce those rights.
b. A party may assign rights under a contract, unless (1) the assignment would increase the
burden on the promisor; (2) the assignment is forbidden by statute; or (3) the assignment is
precluded by contract. § 317(2).
c. To assign a right under a contract, a party must manifest an intention to surrender the right
permanently to another person.
2. PATTERN OF ARGUMENTATION
a. Π’s Claim: Δ made a promise and did not keep it.
b. Δ’s Defense: Π is not a person entitled to enforce.
c. Π’s Reply: The promisee assigned his or her rights to me.
d. Δ’s Argument: The assignment wasn’t valid. Or- there was a restriction.
i. Shiro v. Drew- Drew gives loan to Fiberlast for manufacturing radome to go to Counter;
Fiberlast promises any $ received from Counter would be remitted to Drew; Held- no
assignment b/c $ is still going thru Fiberlast (who isn’t giving up right to receive
payment), Drew isn’t able to force payment from Counter b/c there is no assignment
ii. Herzog v. Irace- Jones injured in motorcycle accident; Irace obtains settlement for him;
Jones gets surgery done by Herzog, Π, agreeing to assign his right to the settlement
proceeds; Jones tells Irace to pay him directly and that he’ll pay Herzog, he doesn’t;
Held- this was a valid assignment to Herzog
IV. Scope of Article 2
A. RULES
1. Provisions of Art. 2 apply to “contracts for the sale of goods,” supplementing or replacing the
common law rules that apply to other kinds of contracts. See, e.g. §§ 2-201(1), 2-314(1). See also
§ 2-102.
2. THE TERM “GOODS” INCLUDES:
a. things movable at identification
§ 2-105(1)
i. things- must have tangible, physical properties; ambiguity- electricity, natural gas
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3.
4.
5.
6.
7.
ii. does not include services (getting a haircut) or intangible properties (copyright); does not
include real estate or things attached to real estate
iii. transformation is possible (repaving driveway- concrete movable before mixed/laid)
b. unborn young of animals
§ 2-105(1)
i. i.e. calf after it’s born
c. growing crops
§ 2-105(1)
i. i.e. corn still growing in the field
d. minerals to be severed by the seller
§ 2-107(1)
i. coal, gold
ii. only if severed by seller b/c if buyer severs, will need other property rights (easement, etc.)
e. structures to be severed by the seller
§ 2-107(1)
i. i.e. items attached to realty and capable of severance
f. other things severable w/out material harm
§ 2-107(2)
i. i.e. fixtures at time of purchase that can be torn out w/o harm (presumably to the realty)i.e. fireplace
g. timber to be cut
§ 2-107(2)
h. future goods
§ 2-105(2)
i. i.e. doesn’t fit into a category at the time, but will in the future meet def. of goods
The term “goods” does not include anything not covered by the preceding definition (i.e. real estate
or services), and 3 items are expressly excluded from the definition (non-goods: money in which
the price is to be paid, securities, things in action, or legal claims) § 2-105(1).
A “sale” of goods is a transaction in which title to the goods passes from the seller to the buyer for
a price. § 2-106(1). This definition excludes transactions like leases, bailments, and gifts.
The term “contract for sale” includes both a contract to sell in the future and a present sale, even
though a present sale may not involve any promises. § 2-106(1).
A HYBRID CONTRACT is a contract for sale of both goods and non-goods.
a. Predominant Purpose Test (Majority) – most courts will apply Art. 2 provisions to a hybrid
contract when the predominant purpose of the contract is the sale of goods.
b. Gravaman of the Complaint Test (Minority) - some courts will apply Art. 2 provisions to a
hybrid contract if the complaint of the suit concerns the sale of goods (if complaint is about
services, UCC will not apply, and common-law will apply).
i. Anthony Pools v. Sheehan- Pools constructs a pool for Sheehan, who slips off the diving
board and is injured; Pool- 2-314 doesn’t apply b/c sale of services, not goods; Held- Ct
applies gravamen of complaint test b/c diving board = sale of good
Most courts will apply Art. 2 provisions to a transaction that is not a contract for the sale of goods
but is analogous.
a. Hoffman v. Horton- Hoffman bids on property, gavel comes down, new bidder says he had
bid more, price went up $17k, Hoffman still bout, but sued for difference; Held- UCC doesn’t
apply b/c involves property, but okay for trial court to borrow UCC rule and hold ok to
continue bidding when there was nothing in the common law
b. Zapatha (Π) v. Dairy Mart- DM cancels its franchise agreement w/Zapatha, who refused to
keep store open longer hrs.; Zapatha- clause allowing cancelation of franchise violates UCC’s
good faith req, 1-203, and termination clauses can be unconscionable, 2-302.; Held- contract
not w/in scope of UCC (tho it involved sale of goods, thrust was franchise fee), but applies
UCC by analogy
c. Some courts take an inclusive approach to Art. 2 based on policy considerations.
i. Advent Systems v. Unisys- see below, top of p. 8; i.e. one reason ct. decided to apply Art. II
is that software is sold like other goods
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B. PATTERN OF ARGUMENTATION
1. Example 1: AVAILABILITY OF A CLAIM
a. Π’s Claim: Δ breached the implied warranty of merchantability in § 2-314(1).
b. Δ’s Defense: § 2-314(1) does not apply (and therefore no implied warranty of
merchantability was made) b/c this is not a contract for the sale of goods.
2. Example 2: AVAILABILITY OF A DEFENSE
a. Π’s Claim: Δ made a promise and did not keep it.
b. Δ’s Defense: The promise is not enforceable b/c the requirements of the statute of frauds in §
2-201(1) were not satisfied.
c. Π’s Reply: § 2-201(1) does not apply b/c this is not a contract for the sale of goods.
i. Advent Systems v. Unisys- Unisys backed out of contract to buy software from Advent;
Unysis defends- SOF, no signed writing; Advent- SOF doesn’t apply b/c software not a
good; Held: software is a good b/c 1. once on floppy disk, it’s tangible; 2. good to have a
uniform rule to apply to software
3. Example 3: AVAILABILITY OF AN EXCEPTION TO A DEFENSE
a. Π’s Claim: Δ promised to keep an offer open and broke the promise.
b. Δ’s Defense: The promise is not enforceable b/c Π gave no consideration in exchange.
c. Π’s Reply: No consideration is needed b/c of the exception for firm offers in § 2-205.
d. Δ’s Response: § 2-205 does not apply b/c this is not a contract for the sale of goods.
V. Article 2 Basic Concepts
A. MERCHANT RULES
1. RULES
a. Art. 2 applies to both merchants and non-merchants, but it contains some provisions
applicable only to merchants.
i. i.e. the SOF in § 2-201(1) applies to everyone, but the confirmation exception in § 2201(2) applies only to contracts btw 2 merchants.
b. A party can be a merchant by:
i. dealing in goods of the kind involved in the transaction;
ii. having knowledge or skill as to the goods involved in the transaction, for the purpose of
“goods” provisions like § 2-314 on the implied warranty of merchantability;
iii. having knowledge or skill as to the practices involved in the transaction, for the purpose of
“practices” provisions like § 2-201(2) or § 2-205 on firm offers
 Decatur Coop v. Urban- Urban offers to sell wheat to Decator Coop, who then
contracts to sell it to a grain elevator; price of grain increases, and Urban denies
making the contract, asserts SOF; Held- Urban is non-merchant, does not have
knowledge in the business practice; exception to SOF non-applicable
iv. hiring an agent who has the knowledge or skill to qualify as a merchant. § 2-104 & cmt. 2.
c. A person can be a merchant for the purpose of some UCC provisions or some transactions but
not others.
2. PATTERN OF ARGUMENTATION
a. Π’s Claim: Δ breached a promise to buy or sell goods.
b. Δ’s Defense: My promise is not enforceable b/c the SOF is not satisfied. § 2-201(1)
c. Π’s Reply: The SOF is satisfied b/c Δ failed to respond to my confirmation w/in 10 days. §
2-201(2)
d. Δ’s Response: The confirmation exception does not apply b/c I am not a merchant. § 2104(1)
i. Decatur Coop (see above)
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B. MODIFICATION OF CONTRACT TERMS
1. RULES
a. Common law- consideration req’d. Rest. § 72, Alaska Packers
b. Art. 2- no consideration req’d. 2-209(2)
i. But- request for modification must be made in good faith (must have a good reason, not just
intent to extort more $)
ii. Contract may bar oral modification
c. Waiver of Contract Rights
i. Common law- waiver permitted.
 Swartzreich- Swartzreich received a job offer, then got another offer for more $; his
current employer offered him more $ and tore up the old contract; Held- free to waive
your contractual rights
ii. Art. 2- same- may waive your contractual rights for the sale of goods. 2-209(4)
 Wisconsin Knife v. Nat’l Metal Crafters- Nat’l agreed to make blanks for Wis. Knife;
Nat’l’s delivery was late; Wis. Knife initially accepted late orders and then sued when
they continued to be late; Held- Wis. Knife waived right to insist on timely deliver, and
Nat’l relied on that waive
 Majority- must have reliance for a waiver to be enforceable (problem- not in code)
 Takeaway- UCC is different from common law in that it doesn’t require consideration
for modifications
C. UNCONSCIONABILITY
1. RULES
a. A court may refuse to enforce a contract or term of a contract that it finds unconscionable. §
2-302(1). Q: does enforcing the clause shock the conscious?
i. Some arguments a party might assert to an objectionable term: may argue for strict
construction, may argue lack of adequate notice (Klar), may argue it’s unenforceable b/c
it violates public policy
b. Courts monitor contracts for “oppression” (substantive unconscionability), perhaps produced
by remedy meddling or excessive prices, and for “unfair surprise” (procedural
unconscionability), perhaps resulting from hidden contract terms or contracts offering no
meaningful choice. § 2-302 cmt. 1.
i. Substantive unconscionability- oppression; i.e. limiting remedies (Bloomfield Motors) or
modification of warranties
 restriction of recovery for personal injury more commonly viewed as unconscionable
than restricting recovery of economic loss
ii. Procedural unconscionability- unfair surprise; manner in which the contract is made is
unconscionable; i.e. tiny terms one can’t read, terms one wouldn’t ordinarily expect, no
meaningful choice over terms, such as an adhesion contract
c. Courts rarely invalidate contract provisions as unconscionable, especially in contracts btw
merchants. Note- don’t get carried away.
2. A & M Produce case- A & M purchased a tomato sorting machine from FNC, machine defective,
tomato crop lost; A & M claims breach of express and implied warranties; FNC- contracts
disclaimer says no consequential damages; Held- procedurally uncons. b/c: 1. terms in small print
on back of form contract; 2. unequal bargaining power; substantively uncons. b/c: 1. unreasonable
disclaimer on mass-produced product; 2. FNC is expert, relied upon by A & M; 3. consequential
damages foreseeable; 4. manufacturer should bear risk machine won’t work
a. FNC’s response (common, decent arg.)- § 2-316 specifies method by which warranties can be
excluded (writing must be conspicuous and mention merchantability), and we complied
w/this, so it was not unconscionable
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3. PATTERN OF ARGUMENTATION
a. Π’s Claim: Δ breached the implied warranty of merchantability. § 2-314(1).
b. Δ’s Defense: The implied warranty of merchantability was disclaimed. § 2-316(2).
c. Π’s reply: The attempted disclaimer is unconscionable and therefore not enforceable. § 2302(1).
D. GOOD FAITH
1. RULES
a. Some UCC provisions expressly require good faith. I.e.- the buyer under a requirements
contract must specify the quantity of goods required in good faith. § 2-306(1).
b. All UCC contracts also contain an implied duty of good faith in their performance and
enforcement, though not in their formation. § 1-203.
c. The general definition of good faith requires only honesty in fact. § 1-201(19).
d. The merchant definition of good faith requires honesty in fact and the observance of
reasonable commercial standards of fair dealing in the trade. § 2-103(1)(b). The existence
of commercial standards of fair dealing in the trade must be proved.
2. PATTERN OF ARGUMENTATION
a. Π’s Claim: Δ breached the implied duty of good faith when Δ did X. § 1-203.
b. Δ’s Defense: There was no dishonesty and (if Δ is a merchant) Π has not shown that
standards of fair dealing in the trade prohibit X.
i. Zapatha v. Dairy Mart (see p. 7)- Zapatha had not proved existence of fair dealing
E. UCC STATUTE OF FRAUDS SPECIAL RULES
1. RULES
a. Contract must specify only the quantity of the goods (not essential terms). 2-201(1), cmt. 1
i. Can’t rely on SOF if you received a written confirmation and didn’t object
ii. Merchant exception. 2-201(2) – a writing in confirmation of the contract satisfies the
writing requirement of 2-201(1) if btw merchants and sent w/in a reasonable time unless
written notice of objection to the contents is given w/in 10 days after receipt
 Decatur Coop- p. 8
b. Special manufacture- if manufacturer started work, can’t assert SOF as a defense
c. Admissions- if you admit you made the promise, can’t assert SOF as a defense
i. Unique Designs- Court rejected SOF argument ruling oral agreement was valid b/c it was
undisputed the parties had made the agreement
ii. Partial delivery- the contract is not enforceable beyond amount of goods admitted. 2201(3)(b); if seller only admits to part, that is all that is enforceable
d. Paid/Received. 2-201(3)(c)- if you’ve paid/accepted or received/accepted the goods, can’t
assert SOF as a defense
e. Electronic transactions can substitute a signed writing; i.e. clicking ‘buy’ online
f. Is promissory estoppel an exception to the SOF?
i. Non-UCC states
Rest. 139, Monarco
 Majority- yes, promissory estoppel may be used to overcome a lack of writing when a
signed writing is required by the SOF
ii. UCC states
 Majority- yes; most states have agreed promissory estoppel may be an exception to the
SOF
o Decatur (p. 8); 1-103
 Minority- no
o Union Oil v. Lige Dickson- Lige does paving contracting, buys asphalt from
Union; Union promised not to raise prices for existing contracts Lige had,
broke that promise and alleged they’d not made it; Held- promissory estoppel
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claim fails, 2-201(3) states all exceptions, need uniformity, don’t want an
increase in litigation
2. PATTERN OF ARGUMENTATION
a. Π’s Claim: Δ made a promise and didn’t keep it.
b. Δ’s Defense: SOF
c. Π’s Reply: promissory estoppel
F. SUPPLEMENTAL GENERAL PRINCIPLES
1. RULE- Unless displaced by particular provisions of the UCC, otherwise applicable principles of
law and equity supplement the UCC’s provisions. UCC sits on top of the common law and other
statutes, leaving them intact and applicable.
2. PATTERN OF ARGUMENTATION
a. Supplemental Claims
i. Π’s Claim: In performing our contract for the sale of goods, Δ’s conduct gave me a claim
under a state statute applicable as a supplemental general principle of law.
 Zapatha v. Dairy Mart- see p. 7
b. Supplemental Defenses
i. Π’s Claim: Δ promised to buy or sell goods and did not do it.
ii. Δ’s Defense: Promise is not enforceable b/c it was induced by a statement constituting a
misrepresentation under common law rules applicable as supplemental general principles.
VI. Article 2 Offer and Acceptance
A. MISCELLANEOUS RULES
1. FIRM OFFERS § 2-205
a. Option Contract = promise to keep offer open (exception to requirement of consideration)
i. common law- basis for enforcement req’d; enforceable promise not to revoke a promise for
a certain period requires consideration
 Dickinson v. Dodds-; Dick found out informally the property was being sold to
another; Held- no obligation to keep offer open b/c no consid.; before complete
acceptance by Dick, Dodds could contract w/another
ii. Art. 2- exception for firm offers by merchants (if requirements met). § 2-205.
 An option contract by a merchant is not revocable during the time stated if the
following requirements are met: 1. offeror is a merchant and; 2. merchant promises in
writing to keep the offer open.
 If req’s met, offer must be kept open for the stated period but for no more than 3 mos.
 If not in writing, requires consideration
iii. Friedman v. Sommer- Sommer, owner of NY apt. building decides to sell apt.s as co-ops;
Sommer offers: purchase at current price for 30 days; Sommer then revokes, and
Friedman attempts to accept; Held- Sommer may revoke the offer b/c the terms are nonexclusive; saying it’ll lapse after 30 days different from saying it will be open for 30 days
b. Revocation
i. prevented from revoking if:
 binding option contract (promise to keep offer open)
 exception for firm offers by merchants applies. § 2-205
 party makes offer, other party relies on the offer, and no promise to keep the offer open
ii. Drennan v. Star Paving- Π, general contractor, relied on Δ Star Paving’s offer in
submitting a large bid; Held- enforceable on promissory estoppel; Π’s reliance makes Δ’s
offer irrevocable
iii. E.A. Coronis case- Gordon Construction, contractor, solicited bids for a bldg project; E.A.
promised to sell Gordon steel structural gods and then revoked; Held- reliance could
make an offer revocable, but Π must prove elements of promissory estoppel
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iv. UCC sits on top of the common law, and if it’s not precluded by the UCC, UCC may
be supplemented w/the common law
 Response may argue something is precluded by the UCC (as in Lige Dickson, where
promissory estoppel couldn’t overcome SOF b/c couldn’t creat add’l exceptions to
those already listed in UCC)
2. FORM OF ACCEPTANCE § 2-206(1)(a)
a. Offeror is master of the bargain
b. If offeror does not specify how to accept, any reasonable manner of acceptance is ok
c. You can make a promise by beginning performance but doesn’t count as acceptance unless
you provide notice
d. Means of Acceptance:
i. promise to ship
ii. shipment
 policy- prevent unilateral trick; trickster may argue no acceptance b/c no complete
performance; UCC- if you ship the goods, whether conforming or non-conforming,
you are accepting the contract; if defective- you’ve breached
e. Pittard (Π) v. Unique- Pittard helped Unique sell their lathe w/understanding Unique would
buy a lathe from Pittard, they didn’t; Unique- contract too indefinite to enforce (2-204(3)) b/c
not agreed upon and course of dealing shows no formation (1-205); Held- 2-305- price can be
settled later, just must be reasonable; & 1 prior contract does not equate to a course of dealing
3. NOTICE OF ACCEPTANCE § 2-206(2)
a. If you’re merely promising to perform, notice of acceptance is required (unless waived, as in
Corlies & Tift)
4. CHARACTERIZATION OF ORDERS
§ 2-206(1)(b)
a. ORDERS ARE OFFERS
b. important b/c at common-law, it was important to look carefully at the communication to
determine whether it was an offer or just preliminary communications
5. CONDUCT SHOWING AGREEMENT § 2-204(1)
a. courts do not need to determine precisely what was the offer and what was the acceptance; so
long as the parties can be shown to make an agreement, it is enough (even w/o specific
characterization of 1 offer and 1 acceptance)
6. DEFINITENESS § 2-204(3)
a. promise is sufficiently definite to enforce so long as it can be shown the parties intended to
enter an agreement and there is a reasonable basis for providing an appropriate basis
b. open term (e.g. price), 2-303(1); even if there are open terms, enforceable if clear there was
intent to form a contract; price must just be reasonable
B. PATTERNS OF ARGUMENTATION
1. NO OFFER
a. Π’s Claim: Breach of contract.
b. Δ’s Defense: There was no offer.
c. Π’s 1st Reply: An order for goods may be characterized as an offer under § 2-206(1)(b).
d. Π’s 2nd Reply: No distinct offer is necessary if the conduct of the parties shows the
existence of a contract. § 2-204(1).
2. OFFER REVOKED BEFORE ACCEPTANCE
a. Π’s Claim: Breach of contract.
b. Δ’s Defense: The offer was revoked before acceptance.
c. Π’s Reply: Δ promised to keep the offer open.
d. Δ’s Response: There was no consideration for the promise to keep the offer open.
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e. Π’s Reply: No consideration is needed under § 2-205 (option contract in writing by merchant
must be kept open).
3. NO ACCEPTANCE
a. Π’s Claim: Breach of contract.
b. Δ’s Defense: There was no proper acceptance
c. Π’s Reply: The attempted acceptance was made in manner and medium reasonable under
the circumstances. § 2-206(1)(a).
d. Δ’s Response: There was no consideration for the promise to keep the offer open.
e. Π’s 2nd Reply: The acceptance was made by a promise to ship or a prompt or current
shipment of conforming or nonconforming goods. § 2-206(1)(b).
f. Π’s 3rd Reply: No distinct acceptance is necessary if the conduct of the parties shows the
existence of a contract. § 2-204(1).
4. NO NOTICE OF ACCEPTANCE
a. Π’s claim: breach of contract.
b. Δ’s defense: There is no contract b/c you did not provide notice of your acceptance of my
offer before it lapsed. Notice was required b/c you attempted to accept by beginning
performance. § 2-206(2).
5. AGREEMENT TOO INDEFINITE TO ENFORCE
a. Π’s claim: Breach of contract.
b. Δ’s defense: The agreement is too indefinite to enforce b/c obligations of parties are unclear.
c. Π’s reply: The contract is sufficiently definite b/c the facts show the parties intended to make
a contract, and there is a reasonably certain basis for giving an appropriate remedy, in
particular ______. § 2-204(3).
C. THE BATTLE OF THE FORMS
1. Is there a contract?
a. RULES
i. mirror image rule Rest. § 59, 1-103
 common law rule- a purported acceptance which contains different or add’l terms to
the offer is not really an acceptance but a counteroffer, no contract
o Columbus Rolling Mill- Π, Rwy., rejected by making new offer; Held- a
proposal to accept on terms different from those offered = rejection of offer,
ending the negotiation, unless other party accepts
ii. exception to mirror image rule § 2-207(1)’s 1st Clause
 may form a contract even if there are different/ add’l terms in the purported
acceptance, unless the offer says the offeree has to agree to the stated terms (proviso)
iii. proviso (exception to exception) § 2-207(1)’s 2nd Clause
 exception subject to proviso- may form a contract even if add’l/different terms
UNLESS acceptance is made expressly conditional on assent to the add’l terms
 i.e. if purported acceptance contains add’l terms and if the acceptance requires assent
to those terms to form a contract, there is no contract (mirror image rule applies)
iv. contract by conduct § 2-207(3)
 conduct by both parties which recognizes the existence of a contract is sufficient to
establish a contract (even if the writings don’t acknowledge a contract)
 i.e. buyer sends “want 200 cds”; acceptance- “will ship Tues. but only if you agree to
this price”; buyer doesn’t agree to price but takes cds and sells them  binding
contract
 What are the terms of a contract formed by conduct but not by forms? 2-207(3)
o terms on which the writings agree § 2-207(3)’s 2nd sent.;
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
the terms will consist only of those terms that are common to both forms;
add’l terms cut out
o AND any “gap fillers” supplied by UCC
e.g., § 2-309(1)
 must be reasonable
o Pattern of Argumentation
 Π’s Claim: Δ broke a promise to do X.
 Δ’s Defense: Our contract was formed by conduct and X is not a term on
which the writings agree.
 Π’s Reply: The term X becomes part of the contract as a “gap filler”
supplied by the UCC.
b. PATTERN OF ARGUMENTATION
i. Π’s Claim: Breach of contract.
ii. Δ’s Defense: No contract was formed b/c the purported acceptance was not a mirror image
of the offer. Rest. § 59.
iii. Π’s 1st Reply: A contract may be formed even if the acceptance contains add’l or different
terms under the exception in § 2-207(1)’s 1st clause.
iv. Δ’s Response: The exception does not apply b/c the acceptance in this case expressly
required the offeror assent to the different or add’l terms. § 2-207(1)’s 2nd clause.
v. Π’s 2nd Reply: A contract was formed by our conduct even if the forms do not create a
contract. § 2-207(2).
2. What are the terms of the contract formed by the exception to the mirror image rule?
a. RULES
i. Additional Terms
 General Rule- A contract has been formed, but it doesn’t contain the add’l terms,
which are just proposals for modifying the terms. § 2-207(2)’s 1st sent.
 Merchant Rule- If btw merchants, the terms become part of the contract unless the
offeror objects to them (in advance, or after seeing them, w/in reasonable time) or
unless they materially alter the contract (where merchant rule won’t apply).
o usually doesn’t apply, would just use general rule
ii. Different Terms; 3 different ways to deal w/them:
 same as additional (minority)- treat them as proposals for modifying the contract;
different terms become part of the contract if the two parties are merchants unless they
would materially alter or buyer objects. § 2-207 cmt. 3
 “knock out” (majority)- if different terms btw offer and acceptance, knock-out the
different terms, change the terms to what is reasonable (i.e. gap-filler). § 2-207 cmt. 6;
Prof. White
 offer controls- b/c 2-207 doesn’t say you must do anything, just ignore them and say
the terms of the offer control (Prof. Summers)
iii. “Gap Fillers”- i.e. default- reasonable price.
e.g. § 2-305(1)
 gap fillers specify a rule if the contract does not; i.e. if no specification of when it is to
be performed, must be w/in a reasonable time
b. PATTERN OF ARGUMENTATION
i. Π’s Claim: Δ broke a promise to do X.
ii. Δ’s Defense: I did not promise to do X in my offer.
iii. Π’s 1st Reply: The term X was included in my acceptance and became part of the contract
under the merchant rule in § 2-207(2)’s 2nd sent.
iv. Δ’s Response: The merchant rule in § 2-207(2)’s 2nd sent. does not apply b/c its elements
are not satisfied. At most the term is a proposal for modifying the contract, which I did
not accept. § 2-207(2)’s 1st sent.
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v. Π’s 2nd Reply: The term X is part of the contract as a gap filler supplied by the UCC b/c
either our agreement does not address the issue or b/c the offer and acceptance have
different terms on the issues; a court should apply the “knock-out” approach.
vi. Δ’s Response: The court should not apply the knock-out approach.
c. C. Itoh & Co., Inc. v. Jordan Int’l Co.- Itoh sent purchase order for steel coils; Seller,
Jordan, sent acknowledgement that contained add’l terms- express condition required
arbitration if dispute arose; Held- falls under proviso; there is a contract b/c parties acted like
there was, knock out add’l terms (arbitration clause)
i. Hypo- what if no express condition? there would be a contract, under 2-207(1), but the
arbitration clause would just be a proposal; merchant rule would apply- unless objected
to, it would be part of the agreement; C. Itoh could argue it materially alters the
agreement
d. Hypo- Prob. 3, p. 77- offer for goods – ship Oct. 15, purported acceptance- ship Dec. 15;
majority- “knock out” 2 dates and just requires shipment w/in reasonable time
VII. Terms in the Box
Is a buyer bound by terms in the box? Is the contract formed before or after the buyer saw the terms in
the box? 2 Views:
1. View #1: Hill v. Gateway- Hill orders/ pays for Gateway comp.; arrival- Hill finds terms in the
box- if you keep the comp. past 30 days, agree disputes will be arbitrated; Hill - clause
inconspicuous (rejected by court), and only bound by terms they knew about when contract made;
Held- seller is master of the bargain and may specify how acceptance is formed
2. View #2: Klocek v. Gateway- buyer orders goods, seller accepts by shipping; Held- terms in box
are at most a proposal to modify/ amend the contract, 2-207; terms of the contract are whatever was
agreed to when the computer was bought
VIII. What Courts May Consider in Determining the Meaning of an Agreement
A. § 1-205(4) Hierarchy: Express Terms  Course of Performance  Course of Dealing  Usage of
Trade
1. Express terms- first in the hierarchy
2. Course of performance, 2-208(1)- a course of performance acquiesced to is evidence of the terms
of the agreement
3. Course of dealing, 1-205(1)- past transactions (previous contracts) have established a common
basis of understanding for interpretation of the parties’ dealings
4. Usage of trade, 1-205(2)- any practice/ method of dealing done regularly in a place/ trade as to
justify an expectation that it will be observed w/respect to the transaction in question
B. Nanakuli v. Shell- Shell promised to ‘protect’ price of asphalt for Nanakuli, asphalt paver, and
breached; Held- upheld protection b/c price protection is regularly practiced for existing contracts in
the asphaltic paving trade, 2 instances enough to establish course of perf., exception to express terms
(paying posted terms at delivery), not a negation
1. For Lige Dickson case, (holding oral agreement to protect price unenforceable b/c of SOF), could
have used usage of trade arg. instead of relying on the oral agreement
IX. Art. 2 Receipt, Inspection, and Warranties
A. RECEIPT AND INSPECTION
1. Rules
a. BUYER’S RIGHTS AND DUTIES
i. Duty to pay. § 2-301
 if goods tendered. § 2-507(1)
 after inspection. § 2-513(1), (2)
o if defective, seller has to pay cost of inspection (otherwise, they are buyer’s
cost)
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ii. Right to reject § 2-601(a)
 perfect tender required- if they fail to conform to contract, buyer has right to reject
 good faith § 1-203; buyer has general duty of good faith, must act honestly and abide
by reasonable standards of commercial dealing in the trade (i.e. trade might not permit
rejection if only slight defect)
iii. Methods of acceptance. § 2-606(1)
 signifying acceptance, 2-606(1)(a)
 failing to reject, 2-606(1)(b)
 acting inconsistently, 2-606(1)(c): i.e. buyer rejects but continues to use, sells, or leases
the good
iv. Right to revoke acceptance. § 2-608(1) & (3); i.e. if buyer discovers after acceptance the
goods have a defect, which substantially impairs the value of the goods to the buyer, and
buyer was unable to discover defects prior to paying (b/c latent b/c or seller had assured
no defect), then buyer may revoke
b. SELLER
i. Duty to deliver. § 2-301.
 if price tendered by buyer. § 2-511(1)
ii. Right to cure (mitigates perfect tender rule)
 “early tender”. § 2-508(1); seller may try again to deliver perfect goods
 “surprise reject”. § 2-508(2); i.e. if seller thought the goods would be acceptable to the
buyer; may cure by making conforming tender w/in reasonable time (and will get
purchase price; however, seller must still pay damages, since they weren’t conforming,
i.e. if late)
iii. Effect of cure
 seller gets price. § 2-607(1)
 seller pays damages. § 2-714(1)
2. Pattern of Argumentation
a. SELLER’S CLAIM AND BUYER’S DEFENSES
i. S’s Claim: B did not pay for the goods. § 2-301
ii. B’s 1st Defense: S did not tender the goods. § 2-507(1).
iii. B’s 2nd Defense: S did not let me inspect the goods. § 2-513(1).
iv. B’s 3rd Defense: I rejected the goods b/c they were not perfect. § 2-601(1).
v. S’s 1st Reply: You in fact accepted the goods b/c you did an act consistent w/my
ownership of them, etc. § 2-606(1)(c).
vi. S’s 2nd Reply: Although you rejected, I subsequently cured the defect. I had a right to
cure b/c I tendered early or b/c I had reasonable grounds for thinking the goods would be
accepted. § 2-508(1) & (2).
 (If seller cures, buyer must accept and pay for goods, but may have a claim for
damages caused by the non-conformity)
vii. B’s 4th Defense: I revoked acceptance. I had a right to revoke acceptance b/c (1) the
goods were non-conforming; (2) the non-conformity substantially impaired their value to
me; and 3(a) I reasonably assumed the non-conformity would be cured or (3)(b) I did not
discover the non-conformity during inspection b/c of the difficulty of discovery or b/c of
your assurances. § 2-608(1) & (3).
b. BUYER’S CLAIM AND SELLER’S DEFENSES
i. B’s Claim: S failed to deliver the goods. § 2-301.
ii. S’s Defense: B failed to tender payment for the goods. § 2-511(1).
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B. WARRANTIES
1. RULES
a. Types of Warranties
i. EXPRESS WARRANTY § 2-313(1)(a) & cmt. 3; any assertion of fact seller might make
about the good; doesn’t necessarily have to be case that buyer relies on the statement
 Common arguments by sellers in express warranty cases:
o no intent to make warranty
 always invalid- intent unnecessary; goods must be described in some way;
if seller makes an affirmation about product, it creates an express
warranty
o no reliance by buyer
 always invalid; there is no requirement of reliance; if description is made,
that warranty is enforceable b/c it’s part of the bargain
o seller disclaimed warranty (contract says there is no express warranty)
 always invalid; may not disclaim express warranties; will look at
disclaimer and description to try to make them consistent
o buyer waived warranty violation (by not objecting though buyer knew the
description was false)
 sometimes valid; q: whether buyer waived or not
o mutual mistake
 Rest. § 152, 154(1); sometimes valid; 154(1)- usually seller should bear
the risk that they are mistaken when making a warranty (b/c they are the
expert)
o just puffing/ opinion
 2-313(2), Tyson; sometimes valid
 Doug Connor, Inc. v. Proto-Grind, Inc.- Doug buys wood-grinding machine from PG, who said it would grind up Palmettos; it didn’t; Doug asserts breach of express
warranty; P-G: oral affirmations were puffing/ opinion and buyer didn’t rely (b/c he
knew a competitor who the machine didn’t work for); Held: finder of fact could reas.
conclude the promise were more than just puffing
ii. IMPLIED WARRANTIES
 F.F.P.P., § 2-315
o Fitness For a Particular Purpose- the goods will be useful for whatever you
bought them for (i.e. seller recommends a particular item for a certain use)
 opinions may create it, merchantability doesn’t matter, seller doesn’t have
to be a merchant, not typically disclaimed
o Tyson v. Ciba-Geigy Corp.- farmer, Tyson, planting no-till soybeans needed
pesticide; seller recommended Dual 8E, but it didn’t kill Tyson’s crabgrass;
Held- no express warranty (just puffing) but there was breach of FFPP
 Merchantability § 2-314(1) & (2)
o if the seller is a merchant, unless there is a disclaimer, there is an implied
warranty that the goods will be merchantable: fit for their ordinary use
(ordinary purposes for which such goods are used) [2-314(2)(c)] and properly
packaged and labeled
o Ambassador Steel Co. v. Ewald Steel Co.- Ambassador sold Ewald steel,
which Ewald sold to another co.; steel cracked when used on RR tracks, co.
didn’t pay Ewald, who wouldn’t pay total $ to Ambassador; Held- the steel
wasn’t merchantable, not fit for ordinary purposes b/c it wasn’t w/in the
commercial range
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 Morrow v. New Moon Homes- Marrows buy a mobile home from Golden Heart
(immediate retailer), manufactured by New Moon Homes; many defects; Held- Πs
may recover from GH under FFPP and warrant of merchantability for difference btw
what home is worth and would have been worth if warranted, as well as for
consequential damages (i.e. to property);
o tho § 2-318 doesn’t address vertical privity: Held: Morrows may also recover
from NMH; Rule: consumer may bring a warranty action against the
manufacturer even tho consumer has no privity w/manufacturer
o policy reasons: consumer inability to protect himself; manufacturer more able
to handle risk, has more info; promotes circularity of litigation
 Title § 2-312(1); seller warrants that seller has good title when selling the goods
 Other § 2-314(3) -that arise from facts of the cases (new, when you buy from store)
b. Warranty Issues
i. 3rd-Party Beneficiaries § 2-319, esp. alt. C
 Alternative C (Majority)- the warranty extends to anyone who could be reasonably be
expected to use or be affected by the goods
ii. Damages
 loss in value of the product itself § 2-714(2) –i.e. you get the difference in value btw
what you were promised and what you got (difference btw value of goods as they are
and what value they would have had if as warranted)
 consequential damages § 2-714(3), § 2-715(2)(a)
o economic loss- recoverable, provided it was foreseeable
o personal injury § 2-715(2)(b); foreseeability not required; so long as injury was
proximately caused by breach of warranty, buyer/ injured party may recover
o may recover for property if damages were foreseeable
 Morrow v. New Moon Homes
iii. Privity
 connectedness btw the parties/ who can bring suit
 Vertical Privity (can buyer recover from remote seller (vs. immediate seller)?)
o UCC doesn’t address vertical privity
 Horizontal Privity (can injured non-buyer recover from a seller?)
 Hypo- Maggs’ car accelerates due to defect and he and passengers (family and guests)
crash into his garage)
o warranty theory- good claim car is not merchantable, buyer can recover from
immediate seller
o Can buyer, non-buyer, and intended 3rd party occupants recover?
 § 2-714- if breach of warranty, buyer may recover the measure of
damages, which is the difference at the time of acceptance btw value of
goods accepted and value they would have had if as warranted; may also
recover consequential damages
 Alternative A (Majority)- A seller’s warranty, express or implied, extends
to buyer, and his family and guests, if reas. to assume they might be
affected by the goods (addressing horizontal privity)
c. Disclaimers
i. Express warranties § 2-316(1) – can’t be disclaimed
ii. Implied warranties § 2-316(2) – can be disclaimed, provided req.s are met
 Implied warranty of merchantability- almost all sellers attempt to disclaim this
 Disclaimers invalid if there is non-compliance w/formalities, 2-316(3):
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o Writing must be conspicuous and mention merchantability
 conspicuous = reasonable person ought to have noticed it
o FFPP disclaimer- must be in writing, be conspicuous, and mention
merchantability
 Sierra Diesel v. Burroughs- Burroughs sold SD a computer for billing/ tracking
inventory, didn’t function as expected; Held- disclaimer of merchantability and FFPP
not conspicuous b/c on back of page, lack of heading, right in middle, small font
 Exceptions: “with all faults” or “as is” – no implied warranty of merchantability (i.e.
used car, e-bay)
iii. Unconscionability § 2-302(1)
 efforts to disclaim when breach results in person injury typically unconscionable
 Martin v. Joseph Harris- Martin bought Harris seeds, which had fungus and
developed a disease; Held- unconscionable even tho min. req.s of 2-316 met
2. PATTERN OF ARGUMENTATION
a. Π’s Claim: Δ made an (express or implied) warranty that the goods would be __, and the
goods are not __, b/c __. §§ 2-312(1), 2-313)1), 2-314(1), 2-315
b. Δ’s 1st Defense: I did not make the warranty; the elements of § __ are not satisfied b/c __.
i. Coakley & Williams v. Shatterproof Glassc. Δ’s 2nd Defense: I did not make the warranty to you b/c you are not the person who might
have been reasonably expected to use, consume or be affect by the goods. § 2-318, alt. C.
d. Δ’s 3rd Defense: I disclaimed the warranty in accordance w/the requirements of 2-316(1).
e. Π’s 1st Reply: The warranty is an express warranty and cannot be disclaimed. § 2-313(1).
f. Π’s 2nd Reply: The disclaimer is unconscionable in this case b/c __. § 2-302(1).
i. Martin v. Joseph Harris
g. Π’s Remedy: I am entitled to damages equal to the value of the goods accepted and the value
they would have had if they had been as warranted, plus incidental and consequential
damages. 2-714(1), (2); 2-715(1) & (2).
X. Buyer’s Remedies (if there is breach of contract)
A. RULES
1. CANCEL/ STOP PAYMENT/ RECOVER PAYMENTS, 2-711(1), 2-601, 2-608
a. When can buyer cancel and withhold/ recover payment?
i. upon seller’s failure to deliver/ repudiation, 2-711
ii. upon buyer’s justified rejection of goods (i.e. if damaged at time of delivery), 2-601 (may
reject unless otherwise agreed)
 perfect tender/ good faith, 2-601, 1-203
o perfect tender rule- if the goods (or tender of delivery) fail in any respect to
conform to the contract, the buyer may reject the goods
 this is contrary to the rule of substantial performance & material breach
(i.e. Jacob & Youngs v. Kent- use of Cohost instead of Redding pipe not
a material breach; see also Walker & Young v. Harrison- duty to
maintain neon sign subst. performed)
 why different? w/goods, you can generally give the goods back, so much
less of a hardship
o obligation of good faith- i.e. if tender is nearly perfect- “oh come on” rule
o DP Technology v. Sherwood Tool- DP creates custom computer system for
Sherwood, hardware came 16 days late and Sherwood doesn’t pay; Heldapplies minority rule- no material breach b/c substantially performed
 seller’s right to cure, 2-508(1), (2) if:
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o early tender (time of performance hasn’t occurred yet) OR surprise rejection
(reasonable grounds to believe the goods would conform), 2-608(1)
o seller has a limited right to try again, to get it right; mitigates harshness of
perfect tender rule
 duty to hold goods for seller, 2-602(2)(b), (c)- buyer must hold w/reasonable care for
sufficient time for seller; don’t have to send back unless previously agreed
iii. upon buyer’s justified rejection of acceptance (buyer accepts goods and then decides to
revoke acceptance)
 Requirements:
o the defect must cause substantial impairment of value to buyer (substantial
breach)
o it must b/c of assumption of cure/ difficulty of discovery (i.e. difficult to
discover it wouldn’t work or seller assured it would work)
o reasonable time
 Jorgensen v. Presnall- buyers purchased mobile home, which had many defects; they
sought to revoke acceptance/ cancel the contract; Held- there was a substantial
impairment of value, seller has limited number of chances to cure
2. FORCE DELIVERY OF GOODS, 2-716, 2-502
a. Ways buyer can force delivery of goods if seller fails to deliver goods/ repudiates
i. Specific performance if goods are unique or other proper circumstances (not really
defined by UCC), 2-716(1)
 Sedmak v. Charlie’s Chevrolet- Charlie’s reneged on its promise to sell a corvette
pace car to the Sedmaks; Held- specific performance is appropriate b/c, although the
car is not unique, it would have been impossible to obtain otherwise w/o considerable
expense and inconvenience
 Hilmor Sales Co. v. Supronica Corp.- Π claims lipstick and nailpolishes ordered at
close-out prices are unique; Held- specific performance not granted; Π could cover at a
higher price and obtain the difference
ii. Replevin (pre-judgment seizure), 2-716(3)
 Requirements:
o goods identified, 2-501(1)(a)
 i.e. not if future-made, custom goods or seller doesn’t have them
o unable to cover (buyer is unable to make a reasonable purchase in substitution
after reasonable effort), 2-712(1)
iii. Recovery after partial payment, 2-501(1)
 Requirements:
o special property interest (i.e. goods have been identified)
o buyer pays unpaid portion
o buyer may only recover if: consumer goods (since 1999) or seller becomes
insolvent
3. RECOVER DAMAGES FOR NON-ACCEPTED GOODS, 2-712, 2-715
a. cover difference, 2-712,
i. Cover- price at which buyer buys substitute goods; can charge seller who breached the
difference
ii. Requirements:
 good faith
 w/o reasonable delay
 reasonable purchase; must be a commercially reasonable substitute if not the same
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 in substitution; can’t buy add’l goods; must be substituting goods seller didn’t supply
b. market difference, 2-713(1) – difference btw market price at time buyer learned of breach and
contract price, together w/consequential damages, less expenses saved
i. measuring market price?
 location, 2-713(2)
o non-delivery – place of tender
o if rejection occurs – place of arrival
 i.e. NY buyer buys eggs from Atlanta seller, FOB; rejects; here, use
market price at place of arrival; if FOB, buyer not entitled to recover
shipping costs b/c they are not incidental; other incidentals- cost of
storing/ selling the eggs; consequential- lost profit possibly
 time – when buyer learned of breach, 2-713(1)
 branch of trade – same as contract, 2-713
o i.e. if farmer selling corn to elevator breaches, elevator can recover cost to
cover (minus contract price) from another farmer, not the market price
elevators are selling for
ii. Limitations on buyer’s ability to recover market damages under 2-713?
 none mentioned, so none; sometimes buyer gets a windfall if f buyer decides not to use
the market damages to buy the goods (and there is a dramatic change in price)
 2-711, cmt. 3; 1-106: remedies should be liberally administered to put aggrieved party
in as good a position as if the other party had performed
 Allied v. Victor- Allied to buy raisins from Victor, resell to Jap. buyer; price of raisins
shot up, Victor didn’t deliver, Allied sues; Jap. co. never sues Allied; Held- recovery
not allowed under 713; aggrieved party should be put in as good a position as if the
other party performed – requires limiting award of damages to buyer to its actual loss
(expected profit)
o general statement of 1-106 (putting aggrieved party in same place they would
have been in) vs. specific rule that buyer can recover the market price
difference; general rule: specific controls (ct. here disagreed)
 But See TexPar Energy v. Murphy Oil- Texpar to buy asphalt from Murphy and then
sell it to Starry; price of oil shot up; Murphy breached, forcing TexPar to breach
w/Starry (who it settled w/); Held- specific provision of 2-713 applies, TexPar entitled
to market price damages (allows non-breaching party the windfall)
 What if buyer has already covered?
o Can buyer recover market price if buyer has covered at a lower price?
 courts are divided; most courts- no, b/c buyer would then be better off
 some courts- always entitled to market damages (even if cover damages
are less)
▫ why? someone will get a windfall, why give it to the breaching party;
benefit of buyer being a good negotiator/shopper should not be given
to the seller, who breached
o 2-712- if you pay over the market price, in good faith, you may recover the
difference
c. incidental damages, 2-715(1)- damages that arise in the ordinary case, expenses reasonably
incurred; may recover post-rejection costs
d. consequential damages, 2-715(2)- loss that is foreseeable and unavoidable
4. OBTAIN DAMAGES FOR ACCEPTED GOODS, 2-714, 2-715
a. General Rules
i. buyer may accept some or all goods, 2-601(b),(c)
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ii. duty: payment for goods accepted, 2-607(1); must be at the contract price
iii. duty: notice to seller, 2-607(3)(a): must be w/in a reasonable time after you realize goods
are defective
b. damages for accepted goods may be for breach of warranty, 2-714(2), (3)
i. difference btw value of goods as accepted and value they would have had if as warranted
ii. Chatlos Systems v. NCR- NCR sold Chatlos a computer for bookkeeping; contract price$40k, value of accepted goods- $6k, value if as warranted- over $200k (use of expert
testimony to prove); Held- Πs recover difference btw value of goods if as warranted (over
$200k) minus value of goods accepted ($6k)
c. damages may be for other problems (i.e. lateness, etc.), 2-714(1),(3)
i. J.V. Zimmerman v. General Mills- JVZ delivered toys for GM’s cereal late; JVZ’s
defense that GM didn’t provide notice of defect fails- JVZ knew delivery was late; GM
wants $ for airfreight, overtime, and cartons it destroyed; Held- GM recovers airfreight and
overtime (but not cartons b/c not date-stamped, could’ve used in another box)
5. AWAIT DELIVERY/ RETRACTION OF REPUDIATION
6. RECOVER IN RESTITUTION DESPITE BUYER HAVING ALSO BREACHED
a. Seller fails to deliver, but buyer is also in breach; buyer may recover in restitution any
payments buyer has made to seller, but must subtract either $500 or 20%, whichever is less.
B. PATTERN OF ARGUMENTATION
1. BUYER’S DEFENSES BASED ON REMEDY PROVISIONS
a. S’s claim: B promised to accept and pay for goods and did not do it.
b. B’s 1st defense: I had a right to suspend my payment b/c S gave me reasonable grounds for
feeling insecure (and I demanded that S provide me w/adequate assurance of performance). §
2-609(1).
c. B’s 2nd defense: I had a right to cancel the whole contract b/c S repudiated the whole
contract or breached the whole by failing to deliver when payment was due. §§ 2-610(b), 2711(1).
d. B’s 3rd defense: I had a right to cancel w/r/t one installment b/c S repudiated the obligation to
deliver the installment or failed to deliver it when payment was due. §§ 2-610(b), 2-711(1).
2. BUYER’S REQUEST FOR THE PRICE PAID AND MARKET DAMAGES
a. B’s claim: S promised to transfer and deliver the goods and did not do it.
b. B’s damage request: S should have to pay damages equal to the price already paid and the
difference btw the market price and the contract price, plus incidental and consequential
damages but less expenses saved. §§ 2-711(1)(b), 2-713(1).
c. S’s reply: B is not entitled to the market price difference b/c B covered. § 2-713 cmt. 5.
3. BUYER’S REQUEST FOR THE PRICE PAID AND COVER DAMAGES
a. B’s Claim: S promised to transfer and deliver the goods and did not do it.
b. B’s damage request: S should have to pay damages equal to the price already paid and the
difference btw the cover price and the contract price, plus incidental and consequential
damages but less expenses saved. §§ 2-711(1)(a), 2-712(2).
c. S’s reply: B is not entitled to the cover price difference b/c B did not make in good faith, and
w/o unreasonable delay, a reasonable purchase in substitution from those due from me. § 2711(2).
4. BUYER’S ATTEMPT TO FORCE DELIVERY
a. B’s claim: S promised to transfer and deliver the goods and did not do it.
b. B’s 1st request: I am entitled to replevin b/c the goods have been identified and I am unable
to cover. § 2-716(3).
c. B’s 2nd request: I am entitled to recover the goods identified b/c the seller became insolvent
w/in 10 days after receipt of the 1st installment for their price. § 2-502(1).
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d. B’s 3rd request: The court should award specific performance b/c the goods are unique or
there are other proper circumstances. § 2-716(1).
e. S’s reply: The court has the discretion to deny specific performance for equitable reasons. §
2-716 cmt. 1.
5. BUYER’S REQUEST FOR RESTITUTION
a. B’s claim: Although I breached the contract (by repudiating or by failing to pay the full price
when due), I am entitled to restitution of the payments made to the seller, minus $500 or
20%, whichever is less. § 2-718(2). See Davis Chemical v. Diasonics.
b. S’s counterclaim: B failed to pay and accept the goods and is liable for damages. §§ 2-718(3);
2-703.
6. NON-CONFORMING DELIVERY
a. B’s claim: S delivered non-conforming goods.
b. B’s 1st remedy request: Having accepted and paid for the goods, I am entitled damages
measured in any reasonable manner. §§ 2-714; 2-703.
c. B’s 2nd remedy request: Having rejected the goods, I am entitled to recover the price and
damages. § 2-711(1).
XI. Seller’s Remedies
A. If buyer repudiates/ failure to pay (see XII): Seller may (2-610b), seek any remedy available for any
other type of breach; withhold/suspend delivery; cancel the contract; suspend performance; or reclaim
the goods.
B. What DAMAGES can the seller recover from the buyer? 2-713
1. FULL CONTRACT PRICE (recovery of full purchase price) when:
a. goods accepted, 2-709(1)(a)- if buyer has accepted goods, he must pay full purchase price
i. issue: when does acceptance occur?
ii. Bloom v. Skelly- issue: when does acceptance occur? Skelly agreed to buy candelabras
from Bloom; delivery attempted multiple times to her home, eventually she said she would
not accept them; Held- if you don’t reject or inspect (w/opportunity to do so), implied
acceptance, Bloom recovers [Skelly might assert there was implied rejection]
b. “white elephants”, 2-709(1)(b), (2)- buyer has not accepted goods, but seller can’t resell
them at a reasonable price after reasonable efforts (seller entitled to full contract amt.)
i. i.e. buyer contracts for mink coat in large size w/large flare; might be able to resell, but
unlikely for reas. price; best for seller to recover full purchase price so that buyer can
actually get the coat (rather than paying a high amt. of difference and getting zip)
2. DIFFERENCE BETWEEN CONTRACT PRICE AND THE MARKET PRICE
a. seller will seek damages b/c contract price higher than market damages; if buyer seeking
market damages, b/c market is higher than agreed to
b. measure market price at time/place for tender; if repudiation occurs before tender, consider
market price at time seller learns of repudiation (i.e. anticipatory damages)
3. DIFFERENCE BETWEEN CONTRACT PRICE AND RESALE PRICE
a. if resale is made in a commercially reasonable manner, seller can recover difference btw
contract price and resale price, even if it’s lower than the market price
b. if there is a resale, and resale (35.5) is higher than market price (35), can’t get difference btw
contract (36) and market- must get difference btw contract and resale price
c. Is the seller barred from using 2-708(1) (difference btw contract and market price) if:
i. seller actually resells? Yes, Tesoro
 Holborn Oil v. Tesoro- Holborn to buy oil at $1.30, price fell to .80, repudiated;
Tesoro resold gasoline for $1.10 (higher than market!); Tesoro wants diff btw market
and contract (we should benefit from our negotiating skills, could have made 2 sales),
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Holborn btw resale and contract; Held- 1-106, seller should be limited to difference
btw contract and resale, not recover more than expected profit
ii. market damages would exceed lost profit under 2-708(2)? No, Southwire
 Transworld v. Southwire- contract for sale of aluminum, monthly deliveries, price
dropped, buyer repudiates; Held- seller may recover difference btw contract price and
market price (which exceeds lost profit); ok for seller to get windfall; risk taken by
both parties market price would rise/fall
4. RULE: buyer may get retain the deposit up to a certain limit:
a. amount of liquidated damages
i. if buyer’s deposit exceeds the liquidated damages, buyer can recover the difference btw the
deposit and the liquidated damages
b. buyer can recover deposit, less 20% of the value of the total performance to which buyer is
obligated under the contract or $500, whichever is smaller, 2-718(2)(b)
c. amount of actual damages, 2-718(3)(a)
5. LIQUIDATED DAMAGES, 2-718(1)
a. seller may recover liquidated damages stipulated in contract at an amount reasonable in light
of the harm caused by the breach
b. sellers often ask for % of contract price, or the deposit; Courts have usually found a % of
contract price to be a reasonable amount
c. Martin v. Sheffer- buyer, Martin, rejected (wrongfully) printer on b/c ‘late’; Martin had paid
50% deposit and sues to get it back; seller counterclaims for liquidated damages; Held- full
purchase price liquidated damages not unreasonable (they are getting goods at price they
contracted for; sophisticated parties, UCC- businesses can vary terms)
6. LOST PROFIT, 2-708(2)
a. restitution offset to showing of seller’s ability to recover damages
b. impt measurement b/c in many cases, contract price will be the same as market price, and
resale is often the same as contract/market price
c. Test for whether seller could have made another sale & is due lost profit under 2-708:
i. seller had capacity to make another sale (Majority)
 Neri v. Retail Marine Corp.- Neri hospitalized, couldn’t buy boat, Retail refused to
refund his deposit; Held- Neri entitled to his deposit, less Retail’s lost profit (another
boat sale), less incidental damages (storing boat until resale)
ii. seller had the capacity and could have made one more sale profitably (Diasonics)
 Diasonics v. Davis- Diasonics contracted to sell MRI to Davis, who breached; Heldcase remanded to determine if seller could have made another sale profitably
o most sellers are already producing at max capacity
d. Calculation of lost profit
i. 2-208(2)- measure of damages may be the profit which seller would have made if buyer
had fully performed:
 [profit expected + overhead] + incidental costs + costs incurred – payments/ proceeds
(usually 0)
o profit expected is contract price – cost of procurement
o cost expected = direct cost expected + overhead
o profit + overhead = contract price – direct costs expected
ii. Bulldozers Inc.- lost profit is 30k (contract price) – (20k, direct cost, + 1k, commission) +
0 + 0 – 0 = $9k
 lost profit changes when # of bulldozers sold changes b/c the cost of fixed overhead
changes when spread over 10 vs. 9 bulldozers
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C. Pattern of Argumentation
1. SELLER’S DEFENSES BASED ON SELF-HELD REMEDY PROVISION
a. B’s Claim: S promised to transfer and deliver goods and did not do it.
b. S’s 1st Defense: I had a right to suspend my performance b/c B gave me reasonable grounds
for feeling insecure (and I demanded assurance).
c. S’s 2nd Defense: I had a right to cancel the whole contract b/c B repudiated the whole
contract or breached the whole by failing to pay when payment was due.
d. S’s 3rd defense: I had a right to cancel w/respect to 1 installment b/c B repudiated the
obligation to pay for it or failed to pay for it when payment was due.
e. S’s 4th defense: I had a right to refuse to deliver except for cash b/c I discovered B’s
insolvency.
f. S’s 5th Defense: I had a right to stop delivery b/c B repudiated or failed to pay or b/c I
discovered B’s insolvency.
2. SELLER’S REQUEST FOR THE CONTRACT PRICE
a. S’s claim: B promised to accept and pay for goods and did not do it.
b. S’s damage request: B should have to pay the contract price for the goods.
c. B’s reply: S is not entitled to the contract price b/c I did not accept the goods and the goods
could be resold for a reasonable price after reasonable efforts.
3. SELLER’S REQUEST FOR THE RESALE DAMAGES
a. S’s claim: B promised to accept and pay for goods and did not do it.
b. S’s damage request: B should have to pay the difference btw the contract price and the resale
price, plus incidental damages less expenses saved.
c. B’s reply: S cannot recover the resale price difference b/c S did not resell the goods in good
faith and in a reasonable manner.
4. SELLER’S REQUEST FOR THE MARKET DAMAGES
a. S’s claim: B promised to accept and pay for goods and did not do it.
b. S’s damage request: B should have to pay the difference in the market price and the contract
price, plus incidental damages, less expenses saved.
c. B’s reply: S cannot recover market damages b/c S resold the goods at a price above the
market price. (Southwire)
5. SELLER’S REQUEST FOR LOST PROFIT
a. S’s claim: B promised to accept and pay for goods and did not do it.
b. S’s damage request: B should have to pay my lost profit as measured by § 2-708(2).
c. B’s reply: S cannot recover lost profit b/c S is not a lost volume seller. S could not have
profitably made another sale if it had delivered the goods to me. (Davis v. Diasonics)
6. SELLER’S REQUEST TO RECLAIM GOODS
a. S’s claim: I have a right to recover goods from B b/c the goods were delivered before I
discovered B’s insolvency.
b. B’s 1st defense: S did not assert a claim for the goods w/in 10 days after their receipt and the
buyer did not fraudulently misrepresent solvency in writing w/in 3 mos. before delivery. § 2702.
c. B’s 2nd defense: I purchased the goods from the buyer in the ordinary course or in good faith,
and thus acquired good title.
XII. Diminished Expectation of Future Return Performance
A. Insecurity and Insolvency
1. BUYER AND SELLER’S REMEDIES FOR INSECURITY/INSOLVENCY
a. If a party has reasonable grounds for feeling insecure about the other party’s performance,
they may demand adequate assurance the other party will perform and suspend performance
until receipt of assurance
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i. 2-609(1)- when you make a contract, you not only promise to perform, but also implicitly
promise not to impair the other person’s expectation you will perform
ii. Standard for insecurity? very low: just a report from an apparently reliable source
iii. If no adequate assurance is given? 2-609(4): after receipt of demand for assurance, failure
to provide assurance w/in a reasonable time, not to exceed 30 days, is repudiation of the
contract (treated as a breach- recover thru ordinary means)
iv. CPMT v. Panama Canal- PC chartered tugboat from CPMT- option to purchase boat
w/clear title; PCC heard CPMT had 3rd mortgage, wasn’t making payments on 1st
mortgage from broker, said it’d w/hold payment until receipt of assurance; Held- PCC’s
feeling of insecurity and request for assurance reasonable (didn’t have to exercise due
diligence to find out if info true); PCC had a right to suspend performance
b. Seller’s remedies upon discovering buyer’s insolvency
i. refuse to deliver except for cash (even if contract requires otherwise), 2-702(1)
ii. stop delivery (even if title has passed)
 2-401(2)- when title passes from seller to buyer:
o if seller responsible to get goods to carrier, title passes at start of shipment
 2-705- requirement of notice to stop deliver, but notice to buyer not required
iii. reclaim goods already delivered, 2-702(2); seller must make reclaim for goods w/in 10
days (10 day period does not apply if buyer misrepresented solvency in writing w/in 3
mos. before contract was made)
 what if buyer has sold them to another? 2-702(3) seller may still recover them unless
they were bought in good faith
c. Definition of insolvency, 1-201(2):
i. have ceased to pay debts
ii. have ceased to pay debts as they are due (may not have defaulted yet, but won’t be able to
pay debts as they come due)
iii. meet definition of insolvency under federal bankruptcy law: if your assets exceed your
liability (total amount of $ you owe)
2. BUYER’S OR SELLER’S REPUDIATION
a. ways to repudiate
i. by language or conduct
 i.e. common to call and repudiate by saying you’ll only perform if contract terms are
changed
 Ducks ex.- Motion Pix finds out that Robles leased the WW2 Duck to someone else;
Motion may cover immediately, even before performance is due; Motion does have a
duty to mitigate
ii. by not providing assurance
b. retraction of a repudiation- buyer may retract a repudiation unless the seller treated it as
final / took action in reliance
c. permitted responses to a repudiation
i. may immediately resort to any remedy that is available for breach
ii. await performance, for a commercially reasonable amount of time
d. Oloffson v. Connor- Coomer to sell corn, 2 installments; repudiates; Oloffson proceeded as if
no repudiation, then tried to charge Coomer $ to cover on each date of installment; Heldupon repudiation, Coomer could wait a commercially reas. time (here, none) or cover
immediately; why? clear repudiation, easy to contract w/another; trade custom to pay diff.
btw contract/market price date of repudiation
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B. Cancellation of Installment Contracts
1. SELLER’S REMEDIES WHEN BUYER BREACHES W/RESPECT TO ONE INSTALLMENT:
a. recover price of accepted goods (whether 1 or several installments)
b. suspend future deliveries until buyer provides adequate assurance
c. cancel remainder of contract if breach “substantially impairs the value of the whole”
i. “breach of the whole”: when a nonconformity substantially impairs value of the whole
contract; whole contract should not be cancelled lightly
 if only seller’s security is impaired, seller has a right to demand assurance, but not to
cancel whole contract
2. BUYER’S REMEDIES WHEN SELLER BREACHES W/RESPECT TO ONE INSTALLMENT:
a. accept installment and seek damages
b. reject installment and seek damages (if breach substantially impairs value of installment and
cannot be cured)
c. suspend future payments until seller provides adequate assurance
d. cancel remainder of contract if breach substantially impairs the value of the whole
i. i.e. if 1st breach suggests there will be future breaches that can’t be cured
ii. Graulich Caterer v. Hans Holterbausch- Graulich to provide microwavable meals for
World Fair exhibit; 1st 2 installments not as warranted, Hans cancelled entire contract;
Held- subst. impairment of whole contract, ok to cancel; time was of the essence, no time
to wait for cure
iii. Midwest Mobile Diagnostic v. Dynamics- Midwest to buy 4 trailers from Dynamics; 1st
couldn’t be certified by MRI co. and wasn’t ‘attractive’; Held- grounds to cancel entire
contract b/c 1st had substantial impairment and needed all 4 w/in period of time
e. perfect tender rule does not apply in installment contracts; can only reject if there hasn’t been
substantial performance; defects in prior installments are cumulative in effect
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