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Scope of Article 2
A.
2-102 scope provisions
1.
“applies to transactions in goods”
a)
2-105(1) defines “goods” as “all things which are movable at
the time of identification”
(1)
2-501(1) defines when “identification” occurs as:
(a)
at contract formation for goods already
existing and identified
(b)
when the goods are shipped, marked, or
otherwise designated
2.
does not apply to security transactions
3.
in hybrid transactions, (i.e. goods and intangibles such as goodwill)
it applies to at least the “goods” and perhaps the rest if the
“primary purpose” of the transaction is the sale of goods, according
to local case law.
a)
some courts divide transaction into goods and non-goods
and deal with each separately.
(1)
ex: in Foster, court argued that Art. 2 applied only
to the furniture and other movables, even though the
transaction involved the sale of a whole radio station,
including real property, goodwill, FCC license, etc.
b)
other courts treat contract as a whole by determining
“primary purpose” by looking at:
(1)
intent of parties, or
(2)
value of the goods in relation to the intangibles.
4.
code may be applied by analogy to non-goods transactions if:
a)
the same considerations that gave rise to the code are
applicable, and
b)
no rebutting analogy is successful
c)
ex: in Wivagg, the court applied 2-314 strict liability
warranty theory to a hybrid service/sale transaction.
d)
ex: in Glenn Dick, court applied art. 2 to a lease transaction.
B.
2-106(1) - “contract” and “agreement” in Article 2 are limited to “present
or future sale of goods”.
1.
“present sale” is a sale which is accomplished by contract
formation
2.
“sale” is “passing of title from the seller to the buyer for a price.”
C.
2-103(1) defines “buyer” and “seller” as:
1.
buyer is person who contracts to buy “goods”
2.
seller is person who contracts to sell “goods”
D.
2-104(1) defines “merchant” as “person who deals in goods of the kind”
E.
2-107 - Goods to Be Severed From Realty
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1.
II.
sale of things fixed to realty such as buildings, minerals, oil, gas,
etc., is a sale of “goods” only if they are to be severed by the seller
2.
sale of crops, timber, or things removable without material harm is
a “sale of goods”, regardless of who is to sever, and even though it
still forms part of the realty at the time of contracting.
F.
1-103 provides continuing applicability of common law unless displaced
by a particular provision.
Contract Formation
A.
2-204 contract formation in general is very flexible
1.
2-204(1) - contract “may be made in any manner sufficient to show
agreement, including conduct.”
2.
2-204(2) - even if the moment of contract formation is
undetermined.
3.
2-204(3) - even if some of the terms are left open
B.
2-206 Offer and Acceptance
1.
Definition of “offer” and “acceptance” is not found in the code
because their definition is incorporated from the common law by
1-103.
2.
Acceptance is very flexible unless unambiguously indicated by
language or circumstances:
a)
in any manner and by any reasonable medium
b)
by shipment (actual performance) of either conforming or
non-conforming goods, unless the seller indicates that the
shipment is only an accommodation.
(1)
avoids unilateral contract trick of seller denying
contract formation if buyer rejects goods, and
insisting on contract price if buyer accepts goods.
c)
beginning performance prevents revocation for a reasonable
time, but the performer must notify the offeror of acceptance
within that reasonable time.
3.
2-205 Firm Offers are irrevocable during their stated term (or for a
reasonable time) not to exceed three months if:
a)
made by a “merchant” under 2-104(1) definition.
b)
made in a “signed writing” signed by the offeror
c)
give assurances that it will be held open.
(1)
ex: an offer having an express term of 6 months may
be revoked after 3 months, but the offeror must take
affirmative action to do so because the common law
“dispatch rule” is incorporated by 1-103.
C.
2-209 Modification and Waiver
1.
An agreement modifying an contract needs no consideration to be
binding.
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2.
III.
private statute of frauds - parties can expressly require that any
modification may be in writing.
3.
the statute of frauds of 2-201 must be satisfied for a modification to
be effective - for the same reason as contract formation
4.
even if the modification attempt does not satisfy the statute of
frauds, it may still operate as a waiver if relied upon by the other
party.
5.
waivers are retractable by reasonable notification in the absence of
reliance on the waiver by the other party.
Statute of Frauds
A.
2-201(2) requires a “skeleton” of the contract (if $500 or more) exist in
writing to be enforceable:
1.
“sufficient to indicate that a contract for sale has been made
between the parties”
a)
not a high standard, only requires that the writing provide
“a basis for believing that the offered oral evidence rests on a
real transaction.”
b)
ex: in Southwest Eng. Co. v. Martin Tractor, a memorandum
of cost breakdown for different generators was sufficient.
2.
“signed by the party against whom enforcement is sought or his
authorized agent”;
a)
1-201(39) defines “signed” broadly to include “any symbol
executed or adopted by a party with present intention to
authenticate a writing.”
(1)
ex: letterhead, typed name, company name on a sales
brochure
(2)
ex: in Southwest Eng. Co. v. Martin Tractor, the
printed name of the salesman was sufficient
authentication.
3.
“not enforceable...beyond the quantity of goods shown in the
writing.”
a)
quantity is critical baseline in a contract from which other
terms can be inferred.
B.
2-201(2) is a limited exception to the signature requirement for merchants,
which has the effect that the merchant ignores his mail at his own peril, if:
1.
a merchant sends a written confirmation sufficient against the
sender
a)
must be sufficient signed writing with quantity term
b)
recipient not bound unless sender is bound
2.
the receiving party merchant has reason to know its contents; and
3.
it is not objected to within 10 days of receipt.
4.
ex: In Harry Rubin & Sons, a purchase order confirmation was
sufficient even though not signed by the seller.
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C.
IV.
2-201(3) creates exceptions based on partial performance or conduct of the
parties recognizing the existence of a contract:
1.
2-201(3)(a) - the beginning of manufacture of making commitments
for procurement of specially manufactured goods is sufficient to
overcome the statute of frauds if:
a)
the goods are not suitable for sale to others,
b)
circumstances reasonably indicate that the special goods are
for the specific buyer
2.
2-201(3)(b) admissions in judicial proceedings
a)
must be made in “pleading, testimony, or otherwise in
court”
3.
2-201(3)(c) with respect to goods paid for or accepted.
a)
ex: in Lockwood, a $100 downpayment on a Rolls Royce was
sufficient evidence of a contract.
D.
Satisfaction of the statute of frauds does not prove existence of a contract,
it is only a threshold bar that must be satisfied in order to proceed with
other evidence (including oral evidence) to prove that a contract did exist.
1.
First step: satisfy the statute of frauds by showing a sufficient
signed writing with a quantity term, or otherwise by conduct
2.
Second step: argue that a contract did exist, based on all the
evidence, including oral evidence.
Terms of the Contract
A.
Contract and Agreement distinguished
1.
1-201(3) an “agreement” is “the bargain of the parties in fact as
found in their language or by implication”
a)
consists of express understandings plus trade usage, course
of dealing and course of performance
2.
1-201(11) a “contract” is the “total legal obligation which results
from the parties’ agreement” as affected by the code and common
law.
a)
may contain more terms than the agreement, as in the case of
omitted terms which are supplied by gap-filler provisions
b)
may contain fewer terms than the agreement due to
unenforceability of terms due to parol evidence rule, fraud
or mistake (for example).
B.
2-202 Parol Evidence Rule
1.
terms intended to be a “final expression” of the parties’ agreement
may not be contradicted by other parol evidence, but may be
explained or supplemented:
a)
by course of dealing or usage of trade or course of
performance whether or not the document is “complete”;
(1)
these implied-in-fact terms are incorporated unless
carefully negated by express language.
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(2)
C.
D.
E.
F.
ex: in Royster, the court allowed evidence of usage of
trade and course of dealing even though the contract
was unambiguous on its face.
b)
evidence of additional consistent terms unless the writing
was also intended to be complete and exclusive.
(1)
“complete” means that evidence of omitted terms that
would “certainly” have been included in the
document is excluded.
(2)
a “merger clause” expressly stating that the document
is complete and final, might not be enforced against
an unsophisticated party.
c)
“final” terms are terms that agree, or terms that both parties
have otherwise assented to.
1-205 Course of Dealing and Usage of Trade
1.
Usage of trade is a “practice or method of dealing having such
regularity of observance in a place, vocation or trade as to justify an
expectation that it will be observed with respect to the transaction
in question.”
a)
what is fairly expected by parties in the given locality
involved.
(1)
ex: in Royster evidence was allowed that price terms
in farming fertilizer contracts are viewed in the trade
as projections and not fixed terms.
2.
Course of Dealing is a “sequence of previous conduct between the
parties” which establishes the basis for interpreting their conduct.
a)
ex: in Royster, evidence of past renegotiations of contract
terms was allowed.
b)
counter-ex: however, in Southern Concrete v. Mableton, the
past evidence of renegotiation was excluded as being
inconsistent with the express terms.
2-208 Course of Performance
1.
Course of performance occurs when the contract “involves
repeated occasions for performance...with knowledge of the nature
of the performance and opportunity for objection to it by the
other.”
Hierarchy of Terms
1.
1-205(4) -where inconsistent, the terms of the contract shall be
construed in the following order:
a)
express terms of agreement
b)
course of performance (2-208(2) adds this here)
c)
course of dealing
d)
usage of trade
Gap-Filler (Implied in Law) Provisions
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1.
G.
2-305 Open and deferred price terms - if parties intend to be bound
a)
The price, if not agreed upon, is a reasonable price at the
time of delivery.
(1)
“reasonable price” is typically the market price.
b)
if a price is to be fixed by one party, he is limited by good
faith
2.
2-301 Obligations of the buyer and seller
a)
“the obligation of the seller is to transfer and deliver”
b)
the obligation of the buyer is to “accept and pay in
accordance with the contract.”
3.
2-308 - place of delivery
a)
if not specified is the seller’s place of business, or if none
exists, the seller’s residence.
b)
if the parties know that the goods are located elsewhere at
contract formation, then that place.
c)
when shipment by the seller is “required or authorized”
then 2-504 applies, not 2-308.
4.
2-309 - Time for performance is a reasonable time
a)
both parties have a continuing responsibility to
communicate in good faith
(1)
buyer can not merely treat the contract as canceled
after a reasonable time, he must notify the seller that
delivery time is expiring.
(2)
silence may be treated as extending the reasonable
time
2-319 Shipment Contracts and Destination Contracts
1.
2-319(1)(a) Shipment Contract - “F.O.B. seller’s place of business” this is the default if the contract is for shipment to the buyer and no
F.O.B. term is supplied.
a)
seller must bear the expense and risk of putting them into
the carrier’s possession and ship them under 2-504:
(1)
make a “proper” contract with the carrier for delivery
taking into account the nature of the goods and the
circumstances
(2)
deliver documents necessary for buyer to take
possession (perfect tender of docs. req’d).
(3)
notify the buyer of shipment
b)
buyer bears the risk of loss in transit once seller has
complied with 2-504
2.
2-319(1)(b) Destination Contract - “F.O.B. buyer’s place of
business”
a)
seller must bear the risk and expense of transporting the
goods and tendering delivery under 2-503:
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(1)
H.
I.
J.
must “put and hold conforming goods at the buyer’s
disposition and give the buyer any notification
reasonably necessary to enable him to take delivery”
and
(2)
deliver any necessary documents to enable buyer to
take possession
b)
seller bears the risk of loss in transit until tender of delivery
under 2-503
Payment Terms
1.
2-310(a) - payment is due “ at the time and place at which the buyer
is to receive the goods” even in a shipment contract (so that buyer
can inspect before payment).
2.
2-513(1) the buyer has the right to inspect goods before payment
or acceptance
a)
the buyer is not required to make the inspection in the
distant city in a shipment contract, but may wait until
arrival.
b)
2-513(2) buyer must pay for inspection, but may charge cost
to seller if goods are properly rejected.
2-306 Output and requirements contracts (open quantity term)
1.
requirement of actual output or requirements in good faith a)
if market price rises, buyer can not demand excess to sell on
the spot market
b)
if market price falls, seller can not force buyer to take more
than required
2.
except that “no quantity unreasonably disproportionate to any
stated estimate or...to any normal or otherwise comparable prior
output or requirements”
a)
if buyer’s business booms, seller must try to keep up in good
faith, but is not absolutely bound
b)
if buyer’s business falls off, seller can not force buyer to take
more than required
2-302 Unconscionability
1.
If court finds the clause unconscionable it may:
a)
refuse to enforce the contract
b)
enforce the remainder of the contract without the clause
c)
limit the applicability of the clause
2.
the parties may introduce evidence to explain the clause, but it is a
question of law for the court
3.
Procedural and Substantive Unconscionability must both be
present:
a)
procedural - defect in contract formation preventing
“meaningful choice”
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(1)
V.
ex: inability of buyer to read, small print, fraud,
coercion, etc.
b)
substantive - defect in the terms themselves which shocks
the court
(1)
ex: excessive price, undue restriction/expansion of
rights, un-bargained-for terms
4.
not usually successful unless there is an extreme difference in
bargaining power
K.
1-203 Duty of Good Faith
1.
Every contract imposes a duty of good faith in its performance and
enforcement (but not negotiation).
a)
problems during negotiation must be handled through other
doctrines such as fraud, duress, and unconscionability.
2.
Good Faith is a question of fact for the jury
a)
1-201(19) general definition for non-merchants - “honesty in
fact” - a subjective standard
b)
2-103(1)(b) definition for merchant includes “observance of
reasonable commercial standards of fair dealing in the
trade.”
Risk of Loss
A.
Underlying principle - in absence of express allocation, allocate risk of loss
to party most likely to have insured against loss.
B.
2-509 Risk of Loss in the Absence of Breach
1.
2-509(4) - the parties may expressly allocate risk of loss as they see
fit.
a)
ex: 2-319(1)(a) - express F.O.B. terms- shipment contract seller bears the risk of putting the goods into the possession
of the carrier, and complying with 2-504 but buyer bears risk
of loss thereafter.
b)
ex: 2-319(1)(b) - express F.O.B. terms - destination contract seller bears the risk of transporting the goods to the
destination and tendering delivery under 2-503.
(1)
ex: in Consolidated Bottling, “F.O.B. purchaser’s
truck” meant that the risk of loss remained on the
seller until they loaded the goods into the purchaser’s
truck.
2.
2-509(1) - shipment by carrier
a)
shipment contract - risk of loss passes to buyer when the
goods are duly delivered to the carrier under 2-504
(1)
ex: in Eberhard, the “ship to” address was insufficient
to create a destination contract, and so the default
shipment contract placed risk of loss on the buyer
when the goods were placed with the carrier.
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b)
C.
destination contract - risk of loss passes to the buyer when
the goods are duly tendered at the destination under 2-503
3.
2-509(2) -if goods are held by bailee, risk of loss passes to the buyer:
a)
upon receipt of title documents from the bailee
b)
acknowledgment by the bailee that the buyer may possess
the goods
(1)
counter-ex: in Caudle, a salesman who held a
motorhome for a late pickup by a customer was not a
bailee.
4.
2-509(3) in any case not covered by shipment or destination
contract, or bailee, the risk of loss passes to the buyer:
a)
upon “receipt” of the goods if the seller is a merchant
(1)
1-203(1)(c) “receipt” is defined as “taking physical
possession” of the goods
(2)
ex: in Caudle, the seller was liable for the loss of the
motorhome stored on his lot because the buyer had
not yet taken delivery.
b)
upon “tender of delivery” if the seller is not a merchant
(1)
2-503 defines “tender of delivery” as to “put and hold
conforming goods at the buyer’s disposition.”
(2)
counter-ex: in Martin, a farmer (as seller) retained the
risk of loss of a trade-in tractor that he continued to
use because he never tendered delivery.
5.
2-709 Action for Price of lost or damaged goods:
a)
Buyer must pay for “conforming goods lost or damaged
within a commercially reasonable time after risk of their loss
has passed to the buyer.”
2-510 - Effect of Breach on Risk of Loss
1.
If the tender or delivery is non-conforming so as to give a right of
rejection to the buyer, the risk of loss remains on the seller until
cure or acceptance
a)
the buyer does not actually have to reject, the mere right of
rejection prevents the risk of loss from passing
(1)
ex: the risk of loss of non-conforming goods that are
lost in transport under a shipment contract remains
on the seller, due to the buyer right of rejection,
regardless of whether the buyer was aware that the
goods were non-conforming when they were lost.
b)
if the cure consists of replacing the non-conforming goods,
the risk of loss remains on the seller for those
non-conforming goods so long as they have not been
accepted.
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2.
3.
VI.
If the buyer accepts but then rightfully revokes, he can pass the risk
of loss back to the seller to the extent of any deficiency in his
effective insurance coverage.
a)
buyer must actually (and rightfully) revoke prior to the loss.
b)
the “anti-subrogation” provision prevents the buyer’s
insurance from having a claim against the seller
The seller may pass the risk of loss to a repudiating buyer for a
commercially reasonable time (long enough to obtain his own
insurance rider) to the extent that:
a)
the goods are conforming
(1)
otherwise the buyer’s right to reject keeps the risk of
loss on the seller under 2-510(1).
b)
the goods are already identified to the contract under 2-501
(1)
the buyer does not have an insurable interest in the
goods until they are identified to the contract.
c)
there is a deficiency in the seller’s insurance coverage
(anti-subrogation).
d)
ex: in Multiplastics, the risk of loss of the specially
manufactured goods passed to the buyer upon repudiation
since the seller did not have enough effective insurance.
Warranties
A.
2-313 Express Warranties - are created if they are “part of the basis of the
bargain” and they are either:
1.
an “affirmation of fact or promise” that the goods will conform to
the affirmation or promise
a)
empirically testable facts - “this car will get 15 mpg”
b)
seller more sophisticated than buyer - “this painting is an
original Salvador Dali”
c)
made in the context of other facts
d)
made near end of negotiations
2.
a “description of the goods” that the goods will conform to the
description
a)
ex: “this car is a 1970 Mercedes” creates a warranty that it is
not a 1969 or other year model.
3.
a “sample or model” that the whole of the goods will conform to
the sample or model.
a)
a “sample” is drawn from the lot of the goods and therefore,
if it is a good one, creates a high standard for the rest of the
lot (higher than implied warranties).
b)
a “model” is not one of the goods but a representation of
them so it creates a less strict standard than a sample.
4.
but an affirmation “merely of the value of the goods” or “the sellers
opinion” does not create a warranty.
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a)
B.
C.
but the seller does not need to have the specific intent to
create a warranty.
5.
the “basis of the bargain” is a low threshold, at most requiring that
the buyer know of the statement or representation made by the
seller.
a)
ex: in Autzen, the court found breach of express warranty
even though the favorable inspection report occurred after
contract formation because the report was still part of the
“bargain” even though it did not affect formation of the
“contract” (different concepts).
2-314 Implied Warranty of Merchantability
1.
Seller must be a “merchant with respect to goods of that kind”
a)
not just any merchant - requires a “professional status” as to
that particular type of goods.
b)
does not apply in the absence of a “contract for sale of
goods” (i.e. non-contract or non-goods).
(1)
ex: exploding bottles on a grocery shelf injure a
customer walking by - no contract for sale, 2-314 is
inapplicable.
2.
Standards of Merchantability:
a)
fungible goods “are of fair average quality”
b)
“fit for the ordinary purposes for which such goods are
used.”
(1)
based on consumer expectations
(2)
ex: in Webster, a bone in fish chowder is not a breach
of implied warranty because it is fit for its ordinary
purpose.
(3)
counter-ex: in Robert Carr & Sons, the court held that
using a “log chain” as a towing chain may not be an
ordinary use.
(4)
ex: in Testo, the court held that to be fit for the
ordinary purpose of driving, an expensive car must
be free from defects which render it inoperable (such
as being used as a race car previously).
c)
“are adequately contained, packaged, and labeled.”
(1)
ex: failure to warn of dangers of operation
3.
Also applies to used goods, but the warranty is less stringent.
2-315 Implied Warranty of Fitness for a Particular Purpose
1.
seller must have “reason to know” of the “particular purpose.”
a)
“particular purpose” is different from the “ordinary
purpose” for which the goods are used
b)
the goods need not be defective to breach the warranty of
fitness
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(1)
D.
E.
ex: non-defective lubricating oil is not fit for the
particular purpose of hydraulic fluid.
2.
buyer must be “relying on the seller’s skill or judgment to select or
furnish suitable goods”
a)
buyer can not select the goods himself.
2-318 Privity
1.
Seller may not disclaim how far the warranty extends (i.e. to whom
it extends horizontally) but may still completely disclaim all
warranties under 2-316
2.
Horizontal Privity (who is a proper plaintiff?) a)
Alternative “A” any natural person in the family or guest
who is injured in person
b)
Alternative “B” any natural person who is injured in person
c)
Alternative “C” an person (including corporation) who is
injured (whether or not personally).
d)
all must reasonably be expected to use, consume or be
affected by the goods.
3.
Vertical Privity (who is a proper defendant?)
a)
not addressed by the code.
b)
ex: in Western Seed, the buyer of defective seed was not
allowed to sue a remote distributor out of state.
c)
ex: in Randy Knitwear, the court held that a buyer could sue
a remote manufacturer even though there was no direct
contractual relationship because the manufacturer relied
heavily on advertising to generate sales through the retail
stores.
2-316 Disclaimer of Warranties
1.
2-316(1) disclaimer of express warranties is inoperative to the
extent that it is inconsistent with the express warranty itself.
a)
ex: a blanket disclaimer of “all warranties express or
implied” is ineffective to negate an express warranty.
b)
however, the parol evidence rule of 2-202 still applies and
the buyer must overcome it to get in evidence of oral express
warranties.
(1)
ex: contract for purchase of a car might claim to
disclaim all express warranties and that it is the final
and exclusive representation of the contract.
2.
2-316(2) disclaimer of implied warranties:
a)
of
merchantability
must
mention
the
word
“merchantability” and, if in a writing, be “conspicuous”
(1)
1-201(10) - “conspicuous” is defined as written such
that “a reasonable person against whom it is to
operate ought to have noticed it.”
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(a)
ex: capital letters, larger type, set off.
b)
of fitness must be in a conspicuous writing.
(1)
stricter standard due to reliance of buyer.
(2)
ex: in Dorman, even though the disclaimer was set
off, it was not “conspicuous” because it was not in
capital letters, and it was ambiguous.
3.
2-316(3) - other disclaimers
a)
“as is” or other language that calls the buyer’s attention to
the disclaimer and makes plain that there is no implied
warranty
b)
when the buyer has or should have inspected the goods
before contract formation, there is no implied warranty with
respect to defects that should have been revealed by
inspection
c)
course of dealing or course of performance may operate to
waive implied warranties.
4.
Post-Contractual disclaimers of warranty are, of course, generally
invalid as unilateral attempts at contract modification after the
buyer has already relied on the presence of the warranty.
F.
2-719 Modification of Remedies
1.
Different than disclaimer of warranty.
2.
The parties can expressly provide to:
a)
add or substitute remedies
b)
alter the measure of damages
(1)
ex: refund of the purchase price
c)
limit the buyer’s remedies
(1)
ex: return or replace defective part
3.
The alternate remedy is optional unless agreed to be exclusive.
4.
A modified remedy that “fails of its essential purpose” is invalid,
allowing the party any remedy otherwise provided for in the code.
a)
ex: warranting party either refuses to honor the substitute
remedy or is unable to honor it.
b)
restores all of the code remedies to the damaged party.
5.
Consequential damages may be limited or excluded subject to the
unconscionability doctrine
a)
limitation of personal injury damages is prima facie
unconscionable
b)
limitation of property damages is not prima facie
unconscionable
Acceptance, Rejection and Revocation
A.
2-606 Methods of Acceptance
1.
Statement of buyer
a)
after a reasonable opportunity to inspect;
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(1)
B.
C.
ex: in Zabriskie, a spin around the block at the new
car dealership was deemed not to be a “reasonable
opportunity to inspect”
b)
buyer “signifies” to seller that:
(1)
the goods are conforming; or
(2)
he will take them in spite of their non-conformity.
2.
Silence of buyer
a)
after a reasonable opportunity to inspect;
b)
buyer fails to make an effective rejection under 2-602(1)
(1)
buyer does not reject goods “within a reasonable
time” or
(2)
buyer does not “seasonably notify the seller”
(3)
ex: in Miron, the buyer of an injured racehorse was
held to have accepted because he had an opportunity
to inspect the horse at the auction but waited 24
hours.
3.
Conduct of buyer
a)
buyer acts inconsistent with seller’s ownership
(1)
buyer uses the goods for his own benefit
(a)
however, there is still the statutory duty to
mitigate damages and act in good faith
(2)
buyer changing the goods irreversibly
(a)
ex: changing raw metal into blanks
(3)
counter-ex: in Can-Key, the turkey farm was allowed
to experiment with trying to make the defective
hatchery work, and such acts were not “inconsistent”
with the seller’s ownership of the hatchery.
b)
if buyer acts wrongfully then it is only acceptance if seller
ratifies such wrongful action
2-607 Effect of Acceptance
1.
buyer must pay the contract price for any goods accepted.
2.
acceptance precludes rejection
3.
buyer must notify seasonably seller of any breach or be barred from
any remedy
4.
the buyer bears the burden of proof to establish breach
2-601 Rejection - Perfect Tender Rule for Sale of Goods
1.
“if the goods or tender of delivery fail in any respect to conform to
the contract” the buyer has three choices
a)
reject the whole
b)
accept the whole
c)
accept any commercial unit and reject the rest.
2.
does not have to be a “material breach” as in the case of
construction contracts
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a)
D.
E.
however, 1-203 requires that the rejection (which is the
enforcement of a contract right) be made in good faith.
2-602 Manner of Rejection
1.
must be within a reasonable time after delivery
a)
ex: in Zabriskie, the buyer notified the seller of the defects in
the car immediately after it broke down on the way home.
b)
counter-ex: in Miron, an attempted rejection after 24 hours of
an injured racehorse was ineffective because an opportunity
to inspect at the auction was available, and thus the rejection
was not within a reasonable time after tender.
2.
rejection is not automatic- buyer must take some action -rejection is
ineffective unless buyer seasonably notifies seller
a)
2-605 provides that failure to identify the defect to the seller
precludes rejection if the seller could have cured if the defect
were identified seasonably.
3.
the buyer has the duty, upon rejection, to hold the goods with
reasonable care at the seller’s disposition for a time sufficient for
the seller to remove them.
a)
2-603(2) the buyer is entitled to reimbursement for
reasonable expenses incurred in caring for the goods after
rejection.
2-508 Seller’s right to Cure - suspending rejection
1.
if the time for performance has not yet passed, the seller may
a)
seasonably notify the buyer of intent to cure
b)
make a conforming delivery within the contract time
c)
this prevents the buyer from treating the early defective
tender as anticipatory breach.
d)
if no time for performance is stated, 2-309 provides that it is
a reasonable time.
2.
if the time for performance has passed, AND the seller “had
reasonable grounds to believe” that the non-conforming tender
would be accepted, the seller may
a)
seasonably notify buyer of intent to cure
b)
have a further reasonable time to substitute a conforming
tender
c)
ex: in Wilson v. Scampoli, the seller had reasonable grounds
to believe that an unopened TV box from the manufacturer
would be acceptable, and the buyer prevented the seller
from examining the TV, thus denying his further reasonable
time to cure.
3.
money allowance - if the seller had reason to believe that the tender
would have been acceptable at a discount in price, then he has the
opportunity to cure.
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4.
F.
G.
H.
the seller may be limited in the amount of repair work that he can
do to cure a defective product
a)
the cured item must “conform” to the contract, meaning that
the repairs can not substantially change it’s nature or value
b)
the “shaken faith” doctrine limits a seller from curing by
making major repairs to new goods when a major reason
that the buyer bought the new goods was for reliability such repairs destroy the buyer’s faith in the products
reliability.
5.
The seller is still limited by the good faith requirement of 1-203 in
enforcing his right to cure.
2-612 Installment Contract Exception - NOT Perfect Tender Rule
1.
the buyer has a right to reject any installment which has a defect
which substantially impairs the value of that installment AND the
defect cannot be cured
a)
but if the seller gives adequate assurances of cure, then the
buyer must accept the installment.
(1)
the seller does not have to have reasonable grounds
for believing the tender would be acceptable absolute right to cure (limited by good faith).
2-504 Shipment Contract Exception - NOT Perfect Tender Rule
1.
2-504 last sentence - failure of notification of the buyer, or failure to
make a proper contract is a ground for rejection only if material
delay or loss ensues.
2.
however, failure to properly tender the documents is still subject to
the perfect tender rule.
2-608 Revocation - NOT Perfect Tender Rule
1.
buyer may only revoke if the non-conformity “substantially
impairs its value to him.”
a)
subjective standard
2.
if the defect is discovered before acceptance, the buyer may revoke
only if:
a)
he reasonably assumed the defect would be cured; and
b)
it has not been seasonably cured
(1)
the seller has no further right to cure to preclude
revocation because that would be a third chance at
performance
3.
if the defect is discovered after acceptance, the buyer may revoke
only if:
a)
his acceptance was reasonably induced by the difficulty of
discovery; or
b)
by the seller’s assurances
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c)
VIII.
ex: in Zabriskie, the court held that even if the buyer had
accepted the car, the latent defect was undiscoverable before
acceptance and substantially impaired the cars value to the
buyer.
4.
revocation must occur within a reasonable time AND before he has
made any substantial change in the condition of the goods.
Breach and Impaired Expectations
A.
2-711 - Actions amounting to breach by the seller
1.
failure to make delivery
2.
repudiation
3.
the buyer rightfully rejects
4.
the buyer rightfully revokes
B.
2-703 - Actions amounting to breach by buyer
1.
wrongful rejection
2.
wrongful revocation
3.
failure to make a payment due on or before delivery
4.
repudiation
C.
2-610 Anticipatory Repudiation - NOT Perfect Tender Rule
1.
repudiation must “substantially impair the value of the contract to
the other”
a)
material damage will result if the party is forced to wait until
time for performance
2.
requires overt communication or actions which demonstrates clear
determination not to continue with the contract.
3.
aggrieved party has the option to:
a)
await retraction for a commercially reasonable time
b)
resort to any remedy for breach even if still urging retraction
c)
suspend his own performance
d)
identify goods to the contract for purposes of damages and
possible risk of loss under 2-510
e)
salvage unfinished goods
D.
2-611 Retraction of Anticipatory Repudiation
1.
retraction must occur:
a)
before the repudiating party’s next performance is due; and
b)
before the aggrieved party has:
(1)
canceled
(2)
materially changed position
(3)
otherwise indicated that he considers the repudiation
final.
2.
the aggrieved party has a right to demand assurances under 2-609
E.
2-612(3) - Breach of the whole in Installment Contracts - NOT Perfect
Tender Rule
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1.
IX.
if the non-conformity of one or more installments substantially
impairs the value of the whole contract, then there is a breach of the
whole.
a)
same test as anticipatory repudiation
b)
ex: in Graulich Carter, the seller’s tender of two
non-conforming food deliveries, and his inability to cure
them, substantially impaired the value of the contract to the
buyer who needed good food on a daily basis.
F.
2-609 Demand of Adequate Assurances of Performance
1.
when “reasonable grounds for insecurity arise with respect to the
performance” the other may:
a)
in writing demand adequate assurance of performance
(1)
ex: escrow funds, letter of credit, performance bond,
security interest, assignment of receivables
b)
if commercially reasonable, suspend any executory portion
of his performance.
2.
other party has a reasonable time not to exceed 30 days to provide
such assurance as is adequate.
a)
failure to provide adequate assurance is repudiation.
Buyer’s Remedies
A.
2-711(1) - Return of purchase price paid
1.
upon breach by the seller, the buyer may:
a)
cancel the contract, and
b)
recover any amount of the purchase price paid, whether or
not he has canceled the contract.
B.
2-712 - Cover
1.
To qualify as a proper cover, the purchase:
a)
Must be made in good faith
(1)
doesn’t matter if hindsight proves that the purchase
could have been had for less.
(2)
purchasing
from
oneself
requires
good
documentation to prove good faith
b)
without unreasonable delay
(1)
depends on the nature of the volatility of the market
c)
be a reasonable substitute
(1)
if the cover goods are either superior or inferior, the
court should adjust the recovery accordingly.
2.
The measure of damages is cover price - contract price + incidental
& consequential - expenses saved.
C.
2-713 Market Price - Contract Price Differential
1.
measure of damages is market price - contract price + incidental &
consequential damages - expenses saved
a)
the market place is the place of tender in the case of
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D.
E.
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(1)
failure to ship under a shipment contract; or
(2)
repudiation
b)
the market place is the place of arrival in the case of
(1)
failure to ship under a destination contract; or
(2)
rightful rejection or revocation after arrival
c)
the market time is “when the buyer learned of the breach”
(1)
in the case of repudiation, this should be a
commercially reasonable time after the buyer learns
of the repudiation because he is entitled, under
2-610(a) to await performance for a commercially
reasonable time after repudiation.
2-714 Damages for Accepted Goods
1.
2-714(1) Recovery of Ordinary Losses
a)
after notifying seller of the defect, the buyer may recover the
loss resulting “in the ordinary course of events” from the
breach
(1)
determined in “any reasonable manner.”
2.
2-714(2) Breach of Warranty Damages
a)
difference between :
(1)
“value of goods as accepted”; and
(a)
typically cost of repair
(2)
“value they would have had if they had been as
warranted”
(a)
usually the contract price, but may be market
price if contract price is inadequate.
b)
value measured “at the time and place of acceptance.”
c)
unless special circumstances show damages of a different
amount
(1)
ex: if buyer does not discover defect until after
acceptance, and the value has depreciated in the
meantime.
3.
2-714(3) Incidental and Consequential damages are also available.
2-715 Buyer’s Incidental and Consequential Damages
1.
Incidental damages include those incurred in fulfilling rights and
obligations under the contract:
a)
inspection, receipt, transportation
b)
care and custody of goods
c)
charges or expenses in effecting cover
2.
Consequential damages are additional injuries that occur as a
consequence of the breach and include:
a)
general requirements that the seller at the time of contracting
had reason to know and could not have been prevented by
cover or otherwise (mitigation).
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b)
X.
personal injury or property injury proximately caused from
breach of warranty (limited by 2-318 options)
(1)
“proximate” turns on whether it was reasonable to
use the goods without such prior inspection as would
have revealed the defects.
F.
2-716 - Specific Performance
1.
may be decreed:
a)
“where the goods are unique”; or
(1)
broader than “one of a kind”.
b)
“in other proper circumstances”
(1)
inability to cover is “strong evidence” of other proper
circumstances.
Seller’s Remedies
A.
2-706 Resale
1.
measure of damages is resale price - contract price + incidental
damages - expenses saved, provided that:
a)
sale is made in “good faith”
b)
in a “commercially reasonable manner”
c)
seller must give “reasonable notification” to the buyer
(1)
additional req.’s for public resale include:
(a)
only identified goods can be resold
(b)
made at usual market place
(c)
seller may buy
2.
not necessary that the goods be in existence or all have been
identified to the contract
a)
2-704 when goods are unfinished, seller may exercise
reasonable commercial judgment in completing the goods
and reselling them, or scrapping or salvaging them.
3.
good faith purchaser gets good title free of the breaching buyer
even if the seller fails to comply with one or more requirements of
this section.
4.
seller is not accountable to the buyer for any profit made on resale
B.
2-708 Contract - Market Damages
1.
measure of damages is market price - contract price + incidental
damages - expenses saved
a)
market time and place is the place for tender regardless of
when the seller learned of the breach (contrast w/buyer’s
market damages).
2.
if the standard measure of damages would not put the seller in as
good a position as performance would have done, then he is
entitled to lost profits.
a)
ex: seller is a “lost volume” seller, then the measure of
damages is
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(1)
C.
D.
the profit which the seller would have made from full
performance by the buyer;
(2)
plus incidental damages;
b)
a seller is a lost volume seller if:
(1)
he has the capacity to make the additional sale
(2)
the additional sale would have been profitable
(3)
the seller probably would have made the additional
sale even if the buyer hadn’t breached.
c)
ex: manufacturers of uncompleted goods where no resale
market exists.
(1)
ex: if under 2-704, seller decides to scrap or salvage,
then he is entitled to lost profits, minus the proceeds
from resale of the scrap.
2-709 Action for Price
1.
seller is entitled to the price of:
a)
goods accepted
(1)
failure to make an effective revocation entitles seller
to recover contract price
(2)
however, a wrongful rejection still precludes
acceptance (under 2-607) and seller is relegated to
other remedies
b)
goods lost or damaged within a commercially reasonable
time after risk of loss has passed to the buyer
c)
goods identified to the contract that can not be resold
2.
seller may resell at any time prior to collection of judgment.
2-710 Seller’s Incidental Damages
1.
as contrasted to buyer, the code only expressly provides for
incidental damages for sellers, and not consequential damages.
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