UCC
The Scope of Article II
I.
Determining Scope: a.
Applies to transactions in goods b.
Transaction = a voluntary encounter, not one of duress, coercion, force, etc. c.
Is your K governed by common law or Article II [if transaction falls within Art. II, several changes occur as opposed to the common law] i.
Who cares? ‘good’ vs. service: If this is a ‘service’ there is no warranty liability under the common law, if it is a ‘good’ there are warranty/fitness provisions under the UCC which would apply if a ‘good’ was involved.
II. What is a “ good ”? 2-105(1) a.
Tangible personal property [issues arise as to what is ‘tangible’] b.
Included future goods, specially manufactured goods, unborn young of animals, growing crops, and other identified things attached to realty as per 2-107 a.
“Goods” severed from Realty2-107 b.
Issues: (1) what is being severed? (2) who is doing the severing? [see official comments] c.
Real estate and services are NOT covered under Art. II d.
“Information” NOT covered, thus the revision specifically says that ‘software is NOT a ‘good’ e.
Examples: What are ‘goods’ : (1) Sale of an insurance policy: No, rights and liabilities under an insurance K are intangible rights, they are only evidenced in the paper; (2) Sale of Real Property:
No; (3) Sale of house apart from the Realty: Yes, see 2-107 ; (4) Sale of building materials as part of a construction project: yes; (5) Sale of standing timber and crops: Yes, both are ‘goods’ under a
K of severance; (6) Defective spinal plate given to patient in operating room: could be considered a ‘service’ and not fall under scope of Art. II, (7) Sale of membership in a health spa: No, this is a service [to use the gym]; (8) Sale of all assets in a clothing store: yes or no, w/ “bulk transfers” implied warranties/fitness for purpose provisions of Art. II apply; (9) Sale of electricity: most courts say ‘yes’ f.
Recycled Paper Products : is the manufacture of a software program a ‘good’ or a K for ‘service’?
Held: The dominant nature of the transaction was for a finished product, the ‘services’ portion was incidental to the final product. [ note: appendix Q, 2003 Revision: software/information = NOT a good ]
I.
II.
Merchants and the Implied Warranty; Merchantability; Fitness: 2-104(1) & 2-314
What is a Merchant ? 2-104(1) : a.
Person who deals in goods of the kind b.
One who holds himself out as having knowledge or skill peculiar to the practices OR goods involved in the transaction
Merchant Rules a.
Generally, any person in business would be a ‘merchant’
-Banks and Universities can be ‘merchants’ [purchasing depts. or other business personnel who are familiar w/ business practices] b.
Deals in goods of a kind c.
NOTE: It is possible to be a ‘merchant’ under (a) but not (b) [where the warranty of merchantability would not apply—‘merchant’ status is a moving target ]
Ex: Law student sells car to other law student. Does Art. II apply?
(1)As per 2-314 , law student is NOT a merchant, this is an isolated ‘second-hand’ sale, however, if she stated that the car was ‘guaranteed’ then the provisions [warranties] of 2-314 may serve as a guideline
(2) The car is a
‘good’ , it is fungible and moveable, tangible personal property. NOTE: don’t look at the status of the parties involved [whether they’re merchants or not], look to whether the sale is for the sale of a good .
(3) The transaction is within Art. II, but if she is NOT merchant she does not have 2-314 applied to her— warranties. Even though she is not a merchant, this transaction is still governed by Article II, however b/c she is NOT a merchant the warranties of merchantability under 2-314 don’t apply.
(4) If she was a merchant and the car was defective, strict liability ensues.
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Ex: Amanda opens a hat store. Is she a merchant?
Yes: She is dealing in goods of a kind , namely hats. She sells the subject matter of the Ks she enters into.
She is also ‘holding herself out..by her occupation of owning a hat-store. Thus , 2-314 warranty of merchantability applies
Ex: Tom, a farmer, sells his produce to a wholesaler. Is he a merchant?
Most likely yes: He is dealing in goods of a kind . If Tom was a one-time seller or a small, unsophisticated, uneducated family farmer, an argument could be made that he should not be held to merchant status. As such, look to the particular facts of each case.
The Statute of Frauds: 2-201
I. Introduction a.
Under 2-201 , a K can be enforced even if a main term is omitted or misstated. The only term necessary for a sufficient memoranda under 2-201(1) is quantity b.
The price, time and place of delivery or payment, quality of goods or any warranties may all be omitted.
c.
The memorandum/record need not be specifically on a piece of paper d.
Under the UCC the S.O.F. has nothing to do as to whether or not there was a K, rather it deals with whether or not the K is enforceable e.
*** Any K for sale of ‘goods’ over $500 needs some sort of record f.
Record : includes electronic medium/data under 1-201(31) , this will satisfy 2-201 even though it is not a writing and is not actually ‘signed’ [digital signatures are sufficient]
II. 2-201 a.
2-201(1) : 3 requirements as to the memorandum: a.
It must evidence a K for the sale of goods i.
The writing must afford a basis for believing the offered oral evidence rests on a real transaction ii.
May be written in lead pencil, on a scratch pad, a check, etc. b.
Must be signed [authenticated], which identifies which party is to be charged c.
Must specify a quantity i.
The K is not enforceable beyond the quantity of goods shown in such writing b.
2-201(2) : Both parties must be merchants a.
Confirmation writing must be sent w/in reasonable time i.
The reasonableness of conduct is determined by the facts and circumstances existing at the time. [See Streit ] b.
Party receiving confirmation must have reason to know if its contents c.
Failure to answer confirmation w/in 10 days of receipt is tantamount to a writing under (2) and is sufficient against both parties under (1) d.
Only Effect of failure to answer is to take away from the party who fails to answer the defense of the SOF. Π must still prove the K!!!!
e.
SUM: The writing requirement of (1) is satisfied if, w/in a reasonable time, a writing in confirmation of the K which is sufficient against the sender is received and the merchant receiving it has reason to know if its contents, unless written notice of objection of its contents is given w/in 10 days of receipt . c.
2-201(3) are the exceptions to the other writing/record requirements a.
2-201(3)(a) : applies to specially manufactured goods , where one party already got supplies and cannot sell it to anyone else--then you DON’T need a record/writing . Must be: i.
Custom good : can’t be sold to anyone else ii.
Where party already started making it OR had started to procure supplies to make it. b.
2-201(3)(b) : if a party admits in pleadings or in court, then no writing is required and the SOF is NOT a defense, BUT the K itself is still not conclusively established. i.
Appendix Q : if party admits under oath and penalty of perjury, no longer must it be admitted only in court or a court proceeding. c. 2-201(3)(c) : w/ respect to goods for which payment has been made and accepted or which have been received and accepted.
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i.
Partial Performance as a substitute for the written record CAN validate a K only for goods which have been accepted or for which payment has been made and accepted. ii.
Receipt and acceptance either of goods or of the price constitutes an overt admission by both parties that a K actually exists.
Ex.: Ross orders 2 tons of ice from Scott. On a memo pad Scott enscribed “Amundsen Ice Co. from the Desk of the
President,” and wrote “ 2 tons Ross Co.” then scribbled his initials on it and placed it in a spindle marked “Orders”.
Ross then wrote Scott a confirmatory letter. Over a month later Scott phoned Ross and denied the existence of a K detailed in the Ross letter.
1. Does the memo pad satisfy 2-201(1)? (1) we have a writing, (2) signed by party to be charged [intitials: under 1-201(37) any symbol w/ intent to adopt/accept a writing; also the pre-printed stationary may be sufficient if memo pad was not initialed], and (3) identifies quantity
NOTE: The record need not show actual K formation, rather it must indicate that a K for sale had been made
Other Side’s Argument: Scott could argue that he was just doodling or that he was simply negotiating
{weak}
2. What legal effect did the letter have? 2-201(2)
-Written Confirmation: either buyer or seller can confirm. If the memo does not satisfy 2-201(1), the confirmation letter signed by buyer can be sufficient under 2-201(1), but the party receiving the letter must have reason to know of its contents.
-Both parties must be merchants under 2-201(2) for this to satisfy 2-201(1)
-Scott’s objection must by (1) timely AND (2) in writing
-Legal Effect: the SOF cannot be a defense for the party who fails to answer the confirmation letter
3. Did Scott’s denial of the terms in the letter avoid the operation of 2-201(2)?
No. Objections cannot be ambiguous. Must be timely and in writing. Scott’s failure to timely object was tantamount to a writing under 2-201(2) and is sufficient against both parties under 2-201(1)
4. What if Scott admitted K formation in a deposition? 2-201(3)
-if the party against whom enforcement is sought admits existence of K in dep, then the K would be enforceable
St. Angar Mills v Streit :
-There is a pre-existing oral agreement [ nothing is set in writing]
-More than $500 in goods, therefore, there needs to be a written record
2-201(2) : Written confirmation was sent 39 days after the oral agreement was made. This confirmation was not timely objected to.
Issue: Was the written confirmation sent and received within a reasonable time ? [This is an issue of fact]
Factors in determining a ‘reasonable time’ : (1) volatile market conditions combined w/ large sale price would normally narrow the window of reasonable time; (2) had the parties developed a custom or practice to delay delivery of confirmation’; (3) long-time amicable business relationship and had many other transactions w/o incident.
NOTE: The failure to answer a written confirmation takes away from the party failing to answer the defense of the
SOF, π must still show the requisites of a K, π must still prove the K!!!!!
Ex: City orally ordered water tank. Agreed price was $30,000. City sent down payment check for $3,000. Check was signed by City and marked “tank” on memo line. After performance had begun, City calls and tries to cancel the K.
2.
Does the check satisfy 2-201(1): Tank is over $500, thus we need a record floating around-- the check. It is signed by party to be charged and it also satisfies the 2-201(1) quantity requirement b/c the check says ‘tank’ thus implying one [singular form, did not say ‘tank s
’.
BUT does the check indicate that a K for sale has been made? Yes: b/c Δ wrote a check for
$3,000 [it affords a basis for believing a K for sale has been made]
3.
What about the 2-201(3)(c) partial performance exception ? [removes SOF]
-the code is ambiguous: is full payment required? Or does partial payment suffice? The code does NOT specifically mention “Full Payment”
-Tank Co. would argue that the $3,000 was a down payment on an indivisible good.
-City would argue that they have not yet made full payment , code is ambiguous
4.
2-201(3)(a) argument: Tank was solely made for sale to City, it is not suitable for sale to anyone else—the words “City of Thebes” had already been painted on it.
-seller had already begun substantial performance.
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NOTE: The Code is to be liberally construed so as to expand commercial practices thru custom, usage and agreement of the parties so YES: this check does satisfy 2-201(1)
Ex. Company sought refuge in SOF in that the writing did not contain a specific quantity in regard to a computer software program. Does 2-201(1) always require a specific quantity ?:
-the only term that needs to be stated is quantity which need not be accurately stated , but recovery is limited to the amount stated. [Argument: software: not really a quantifiable ‘good’, could it be assumed that the K was for a single
(1) software program ?]
-See 2-306 : a gap-filler for quantity. Refers quantity in reference to “all of seller’s output”—this would be considered a ‘quantity’ sufficient as per 2-201 [ don’t always need numbers for quantity , BUT 2-306 doesn’t work here b/c the K is not an output K b/c the buyer and seller can, under the K, deal w/ other parties [they have a nonexclusive clause in the K]
I.
The Parol Evidence Rule 2-202
Introduction a.
Parol Evidence anything outside the record, not necessarily just words, extrinsic evidence that a party wishes to use to interpret an agreement. b.
Parol Evidence Rule -Protects the record from evidence illustrated above. It prevents you from putting such evidence in front of the trier of fact---the 4 elements below. c.
Article II makes it easy to get extrinsic evidence in d.
Strictly oral agreements have no PER problem/issue e.
Presumption
: is that extrinsic evidence comes in, unless…… f.
Four elements required for the PER a.
Must have some kind of record [must be authenticated, includes electronic records] b.
Must be an integrated record —a ‘final expression’ i.
Intent: is the record intended to be the final expression of the agreement? c. The extrinsic evidence must be term evidence , evidence of a term to be added or explained . i.
Evidence of terms that were allegedly agreed to prior to or contemporaneously w/ the signing of the integrated writing. ii.
Term Evidence ONLY!!!, only terms of the K [must be trying to introduce a term]
1.
Extrinsic evidence of fraud would not work—NOT a term, but an affirmative defense to K formation d. Timing Issue i.
The changes, modifications or additions must arise from the negotiation phase or before the final execution point to get in
NOTE: If any of these 4 elements are missing, the PER is NOT going to apply and there is NO barrier to introducing extrinsic evidence to prove the terms the parties really agreed on.
II. 2-202 a.
2-202(a) Makes admissible evidence of course of dealing , usage of trade , and course of performance to explain or supplement terms of any record to aid in the construction of agreements. Assumed that course of dealings and usages of trade were taken for granted when document was phrased. a.
Usage of Trade : the customs w/in the industry b.
Course of Dealing : the parties’ past contacts w/ one another c.
Course of Performance : parties’ behavior during the existence of the K in ? d.
§1-201(3) tells us that the above 3 are presumed to be silent terms of the parties K relationship unless expressly stated otherwise: these are often used to get evidence that may seem contradictory in . b.
2-202(b) Consistent additional terms, not reduced to writing, may be proved UNLESS the court finds that the record was intended by both parties as a complete and exclusive statement of all terms. a.
If the additional terms are such that, if agreed upon, they would have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact b.
Presumes the evidence to get in
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Ex. Lawyers for swinging singles negotiated for 1 year to obtain K for construction of airplane. 30 page K contained merger clause, stating that all prior negotiations were merged into the K that contained all terms of the agreement. Does §2-202 bar the introduction of evidence of the following:
(1) a pre-K agreement that builder would provide free flying lessons to president of buyer’s co.?
[i.e.: K has terms “A”, “B”, and “C”----but not “X”. Is “X” a consistent additional term]
-Probably not---this is not really a material term , it is sort of trivial. The merger clause, under the Code, is not really given effect. Trier of fact can hear about it
(2) an alleged pre-K agreement that Swinging Singles could use plane for 2 months, and if they didn’t like it, they could return in for a full refund?
-This would be considered a consistent additional term b/c the K is silent about it, but it is material .
-§2-202 would probably bar its admission: b/c if agreed upon, this clause would likely have been included in the document . The final writing could likely be intended by both parties as a complete and exclusive statement. Thus, this will not go to the trier of fact.
Columbia Nitrogen v Royster : Involves Course of Dealing, Trade Usage, and Course of Performance. The breaching party wants to show evidence of (1) Trade Usage, and (2) Course of Dealing.
(1) Such Ks are mere projections b/c of uncertain crop and weather conditions, farming practices, etc. express price and quantity terms in Ks for materials in the mixed fertilizer industry are mere projections to be adjusted according to market forces.
(2) Pattern emerged where repeated and substantial deviation from stated amount, price, including situations where other party took none of the goods for which it had contracted.
NOTE: If there is a conflict b/w the two, Course of Dealing will trump .
§2-202 : Terms may NOT be contradicted, but may be explained or supplemented by (a) and (b). The ‘term’ need
NOT be ambiguous. The K includes silent terms that were the essence of previous dealings w/ each other, thus they are NOT necessarily contradictory.
Offer and Acceptance
I. General Rules a.
§2-204 —Formation in General: Changes the Common Law of Ks a.
(1) : Appropriate conduct by parties may be sufficient to establish an agreement b.
(2) : Moment of actual ‘making’ can be undeterminable c.
(3) : If parties intend to enter into binding agreement, such agreement is valid in law, despite missing terms , if there is any reasonably certain basis for granting a remedy. [ If intent to make a K is there, but lots of material terms are still left open, there must be a reasonably certain basis for giving an appropriate remedy ] i.
The test is NOT certainty as to what the parties were to do nor as to the amt of damages due, nor is the fact that terms are left open enough to defeat an otherwise valid agreement. ii.
The more terms a party leaves open, the less likely they intended to conclude a binding agreement.
iii.
Can have formation unless language unambiguously states otherwise. b.
§2-205 —Firm Offers….An offer by a merchant to buy or sell goods……… a.
“Firm Offers” need not be sustained by consideration in order to bind, rather they must (1) be characterized as such and (2) expressed in writing and (3) signed by offeror b.
Authentication by writing is the essence of this section. Must be ‘signed’ [includes authentication: signature, initials, even a handwritten memo on the writer’s letterhead purporting in its terms to confirm a firm offer may be enough] c.
Period of irrevocability may not exceed 3 months d.
A promise made for a longer period will operate under this section to bind offeror only for the
1 st 3 months, but may be renewed. e.
If supported by consideration it may continue as long as the parties specify. f.
If offer is ‘firm’/guaranteed until the happening of an event/contingency which will occur w/in 3 months, it will remain irrevocable until that event. g.
Requirements : (1) must be a writing/record, (2) from offeror stating that option will be kept open, (3) offer must be made by a merchant. c.
§2-206 ---Offer and Acceptance in Formation of K
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a.
(1) Unless otherwise unambiguously indicated: b.
(a) An offer to make a K shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.
any reasonable manner of acceptance is intended to be regarded as available unless the offeror has made clear that it will not be acceptable. c.
(b) An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by (1) prompt promise to ship or by (2) the prompt or current shipment of conforming OR non-conforming goods. Such shipment of non-conforming goods does NOT constitute acceptance if seller seasonably notifies buyer that shipment is offered only as accommodation to buyer
-this section deals where a shipment made following an order is shown by a notification of shipment to be referable to that order but has a defect. Such a non-conforming shipment is normally understood as intended to close the bargain, even though it proves at the same time a breach. However, the seller by stating that the shipment is nonconforming and is offered only as an accommodation to the buyer keeps the shipment or notification operating as an acceptance d. (2) Where beginning of requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance w/in reasonable time may treat offer as having lapsed before acceptance.
-such beginning of performance must unambiguously express offeree’s intention to engage himself
It is essential that notice follow in due course to constitute acceptance
Ex. MV ordered 20,000 fuses from GE, the order stated “reply by return mail”. Instead of formal reply, GE shipped the fuses. When fuses arrived, they were defective. MV sued GE for breach.
(1) at what moment was K formed? Under 2-206(1)(a): the ‘reply by mail’ request is too ambiguous [see lead in sentence of 2-206], must be more specific to require GE to do so. Also the shipment of the non-conforming goods was not an accommodation to MV in this instance.
(2) Can GE claim there was never a K since their alleged acceptance [shipment of defective goods] did not comply with requirements of MV’s offer [which contemplated only shipment of good fuses]?
-No 2-204(1): their conduct appears to recognize the existence of a K. Acceptance is in a reasonable manner
(3) Assume when GE received the order they no long made that type of fuse, but it did carry a similar one. So GE shipped the slightly different fuses along w/ note saying ‘these are similar to the fuses you ordered, but may not be right for you. If they are not suitable, we will take them back w/o charge.” Is GE now in breach b/c it shipped nonconforming goods?
-No: the shipment does NOT constitute a breach b/c GE notified MV that fuses were non-conforming and offered as an accommodation. This is a counter-offer which may be accepted or rejected w/o liability to either party.
Notification Requirement : must let other party know that the shipment is goods that are non-conforming. NOTE: an offer can self-destruct if nothing happens w/in reasonable amount of time.
Ex. X wanted car. He saw one on the lot of P Motors. After X dickered over terms w/ P’s owner, they agreed on price. X wanted to clear the deal w/ his wife before signing anything, so P’s owner promised to hold the car for X until the next day at noon. When X arrived the next day the car was gone. P’s owner made a better deal w/ someone else. Does X have a cause of action?
-It appears that w/o settled course of conduct or usages of trade, this oral offer is revocable since there was no authentication by writing .
Class notes on this ?: T1—offer to sell a car, T2—Offeree asks to hold offer open for specified period of time [an option to keep offer open and irrevocable.
§2-205: do not need consideration to keep option open, rather (1) in writing or some sort of record, (2) from offeror stating that option will be kept open, (3) offer must be made by merchant
Answer: Offer was made by a merchant [apply the ‘easy standard’—anyone in business], but there is no signed record. X could argue detrimental reliance, promissory estoppel, etc. as per §1-103 but not likely in this case
II.
Battle of the Forms--§2-207 a.
Intro:
: Additional Terms in Acceptance or Confirmation
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III.
i.
§2-207(1): Deals w/ formation only!! Tells us whether a K was created ii.
§2-207(2): Deals w/ interpretation only!! Can’t use (2) unless a K was formed under (1)
[(2) gives us what happens to the additional terms] iii.
§2-207(3): If no formation under (1), but conduct would indicate otherwise [K so long as parties intended to be bound so long as an appropriate remedy is available]
1.
Terms to which the parties agree become part of the K, terms that the parties don’t agree to are dropped---filled in by UCC gap-fillers iv.
Analysis Summary: If ‘yes’ as per §2-207(1), then go to §2-207(2). If ‘no’ as per §2-
207(1), then go to §2-207(3) v.
§2-207(1) proviso clause: ‘unless acceptance is expressly made conditional on assent to the additional or different terms’. If this clause is NOT used as part of the accepting form , then the purported acceptance DOES create a K, and the parties are directed to §2-207(2) to determine its terms. If this proviso is put into the accepting document, the exchange of forms DOES NOT create a K, and the parties are directed to §2-207(3) to see what results from their dealings. b.
§2-207(1) —[not limited to merchants] Requires (1) definite and seasonable expression of acceptance or written confirmation (2) sent w/in reasonable time operates as acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is made conditional on asset to additional or different terms. i.
Any additional matter contained in the confirmation or in the acceptance falls within §2-
207(2) and must be regarded as a proposal for an added term unless the acceptance is made conditional on the acceptance of the additional or different terms c.
§2-207(2) —Whether additional/different terms will become part of the agreement. Between merchants additional terms become part of the K UNLESS: i.
(a) : the offer expressly limits acceptance to terms of the offer, ii.
(b) : they materially alter it, or
1.
If they materially alter the original bargain, they will NOT be included unless expressly agreed to by the other party. However , if they are terms which would not so change the bargain they will be incorporated unless notice of objection to them has already been given or is given w/in reasonable time.
2.
Cause surprise or undue hardship
3.
See comment (4) and (5) p. 74 in the code iii.
(c) : notification of objection to them has already been given or is given w/in reasonable time after notice of them has been received. iv.
If no answer received w/in reasonable time after additional terms are proposed: assume their inclusion has been assented to v.
Where clauses on confirming forms sent by both parties conflict: assume each party objects to the clause of the other one. The notice of objection as per §2-207(2) is satisfied and conflicting terms do not become part of K
1.
The K then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by UCC gap-fillers. d.
§2-207(3) : Conduct that recognizes existence of K is sufficient to establish a K for sale even though writings of the parties do not otherwise establish a K. The terms of the particular K consist of those terms on which the writings of the parties agree, together w/ any supplementary terms incorporated by the UCC
The New §2-206 and §2-207 a.
The New §2-206 i.
Adds a subsection (3) which states: A definite and seasonable expression of acceptance in a record operates as an acceptance even if it contains terms additional to or different from the offer . b.
The New §2-207 i.
Deletes old §2-207 (1), (2), and (3) and adds: Subject to §2-202 [PER], if (i) conduct by both parties recognizes the existence of a K although their records do not otherwise establish a K, (ii) a K is formed by an offer and acceptance, or (iii) a K formed in any
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manner is confirmed by a record that contains terms additional to or different from those in the K being confirmed, the terms of the K are:
(a) terms that appear in the records of both parties;
(b) terms, whether in record or not, to which both parties agree; and
(c) terms supplied or incorporated under any provision of this act.
Ex.: Buyer calls and makes oral offer. Seller had pre-printed acknowledgement form and fills in all the ‘dickered’ terms. Seller then dispatches [prompt promise to ship] the ‘acceptance’ and in it is all the boilerplate language----K formed [this is an expression of acceptance under §2-207(1). The ‘acceptance’ disclaimed all warranties. Goods are then shipped. The parties have dealt w/ each other previously. Buyer would always receive acknowledgement form before the goods. They place each form in a file, accepted delivery of the goods, and promptly paid for it. On the last sale, the accepted and paid-for goods were non-conforming.
(1) Was the disclaimer of warranty provision part of the K? [acknowledgement of receipt of order may be viewed as acceptance even though it doesn’t mirror the K] §2-314, the act of a sale by a merchant imposes warranty of merchantability. At T1—oral offer to buy carpet w/ warranties, T2—acknowledgement of receipt form w/ no warranties. Under §2-207(1)—we still have a K b/c there is definite and seasonable expression of acceptance. So what are the terms? Go to §2-207(2). New material terms are treated as an offer to modify the K. The new material terms become part of the deal [are accepted] b/w merchants unless/except then: (1) the offer expressly limits acceptance to terms of the offer, (2) material alterations, (3) notification of objection w/in reasonable time. For examples of what is considered a material alteration under §2-207(b) see Comment 4: by saying no warranty in A or
R form is a material alteration so the warranty provision is still good in the K.
-The disclaimer of warranties materially alters the original bargain and since they were NOT expressly agreed to by buyer, they will not be included in the K .
Ex.: T1—demolition company offers to sell bricks w/ delivery date of June 15. T2—buyer gives acceptance by letter, w/ a check, but changes date to July 20. If buyer doesn’t pick up bricks on June 15, is buyer in breach?
-Argument that this isn’t w/in §2-207. §2-207 was designed to deal w/ pre-printed forms and the parties are negotiating by letter, thus this is not a ‘battle of the forms’ issue.
-If §2-207 applies go to §2-207(3) and K is terms of the original offer.
HOWEVER: this doesn’t fall under §2-207 b/c it involves ‘dickered’ terms.
Look for pre-printed forms [red flag] for §2-207(1)
Diamond Fruit v. Krack Corp.
:
T1: Krack orders tubing from M&M [included quantity and price] by a purchase order form
T2: M&M dispatches acknowledgement of receipt form w/ a proviso term that includes (1) disclaimer of liability for consequential damages and (2) makes limited remedy for breach of warranty to refund or cost of repair.
As of T2 no K is formed yet b/c Krack has NOT assented to the proviso terms. [If the parties stopped dealing at this point, then the purchase order is null, neither party has K liability to each other]. M&M then continued to ship goods and Krack accepted and paid. The proviso can be treated as a counter-offer, so Krack could agree, but it’s not likely.
§2-207(3): parties who show intention to be bound cause a K to be formed, the terms of which are all of those that the writings agree upon [quantity, price, delivery]
-Things on which the forms don’t agree on are knocked-out. The gaps that are left are filled by the code---which says no limits to remedies and there may be consequential damages. [NOTE: the code gap-fillers are usually buyerfriendly]
Diamond Fruit under the new §2-206 and §2-207 changes the result.
T1: purchase order for tubing, purchase order is silent in re to warranties
T2: seller acknowledgement of receipt [operates as acceptance under old §2-207 b/c of definite and seasonable expression of acceptance]
-does the A of R manifest an intention to be bound?
-do we have formation?
-Argument against: not a definite expression of acceptance. Argument for: parties’ bound
intention to be
-Seller’s A or R says: no consequentials, and limited remedies.
-Old §2-207(1) exchange of forms does not create a K, thus go to (3) b/c w/o (1) we can’t go to (2)
-New §2-206(3) does not contain the proviso language
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-Now, assume formation, how do we know the K’s terms: Use (a),(b),(c) from new §2-207
(a) all ‘dickered’ terms will be the same [all the ‘matching terms’]
(b) can go outside the record to find terms to which both parties agree
(c) gap-filler provisions: get consequentials if proved, and no limited remedies
Bayway Refining v. Oxygenated Marketing :
T1: Purchase order for 60,000 barrels of oil
T2: Acknowledgement of receipt [or confirmation], but this form is conditioned on the company’s standard terms and conditions. Included a tax clause [but this clause was not in the form they sent in response to the purchase order.
This clause would make buyer pay the original price + $470K in tax.
-the Ct applies §2-207(2): It concluded that §2-207(1) was satisfied [the A of R/confirmation was a definite expression of acceptance], therefore the tax clause becomes part of the K, unless §2-207(2)(a), (b), or (c) applies.
At issue : (b): does the tax clause materially alter the bargain. Materiality : does it cause (1) surprise or (2) undue hardship .
(1) Surprise : objective—they should’ve known and subjective. For the objective standard look to trade usage: the custom in the industry
(2) Undue hardship : Must be more than a one-time hardship. Must be commercially impracticable [usually must be in bankruptcy for this to work
Held : buyer has to pay tax or they would be in breach
What if…..at
T1: purchase order says ‘we don’t pay taxes’---------(A)
T2: confirmation says buyer pays taxes----------------(not A)
If we have formation under §2-206(3), what will the terms of the K be under new §2-207
-impose terms to which parties agree
-no extrinsic evidence
-how do we fill this hole?
trade usage : is a silent term in the agreement [same with course of dealing and course of performance]
Klocek v Gateway : Post-formation terms in Ks.
T1: communication from Klocek{buyer} to Gateway {seller} [this is not yet an offer. Paid before delivery. Is an oral
K formed at this point.
T2: Product is shipped [delivered]
Mr. Klocek received the computer, let it sit for 6 days then opens it up—a booklet of Gateway’s standard terms and conditions, he reads it and notices the arbitration clause. The computer ends up not working.
Held : The court here applied §2-207(1); π offered to purchase computer thru catalog order and Δ accepted π’s offer by agreeing to ship and/or shipping the computer to π. B/c π is not a merchant, additional or different terms contained in the Standard Terms and Conditions did not become part of the parties’ agreement unless π expressly agreed to them.
The fact that π kept the computer past the 5 day limit was not sufficient to demonstrate that π expressly agreed to the Standard Terms.
Gateway’s Argument: by keeping computer for 5 days, Klocek accepted the ‘new terms’ contained in the box.
Offers to Modify: §2-209--no additional consideration needed, need only show assent [holding on to the good for a period of time]
Court’s Application of §2-207(1) : Klocek must expressly agree to the standard terms [modification]
1.
He must have known about it
2.
To reject he must send the goods back [according to Gateway] and he’d only have 5 days to do it.
Warranties
I. Introduction a.
Express Warranty a.
§2-313 together with §2-316: CANNOT be disclaimed [comment 4, §2-313] b.
Implied Warranty —[code gap-fillers: if you can’t use usage of trade, course of dealing, course of performance, then use the implied warranties ]
more easily disclaimed
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a.
Merchantability b.
Fitness for intended use/particular purpose c.
These are considered to be silent terms in the agreement.
d.
They are automatically part of the K unless seller does something affirmative to get rid of them.
e.
Seller’s intention to create them is completely irrelevant c.
Warranty Law a.
§2-313, §2-314, §2-315 are warranties of quality b.
§2-316 is the disclaimer provision
II. Express Warranties by Affirmation, Promise, Description, Sample--§2-313
Generally: Express Warranty arises when seller does something affirmative to create buyer expectations about the characteristics/performance of the goods
-Seller may make oral or written representations about the product in advertisements, the verbal sales pitch, or the written K, even take out an ad, publish a booklet, say something orally about the product, point to a sample or model .
Such affirmative affirmations must:
1.
relate to the goods, and
2.
become part of the basis of the bargain
§2-313
(1) Express warranties by the seller are created as follows:
(a) any affirmation of fact or promise made by seller which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise
(b) any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description
-Description need NOT be by words: technical specifications, blueprints, etc. afford an exact description and if made part of the basis of the bargain , goods must conform w/ them
(c) any sample or model which is made part of the basis of the bargain creates an express warrant that the whole of the goods shall conform to the sample or model. [See comment 6]
NOTE: Timing does not matter. The question is whether the language or samples or models are fairly to be regarded as part of the K.
III. Implied Warranty: Merchantability; Usage of Trade---§2-314
Generally: Merchantability —the item must be saleable and conform to the normal expectations of the parties and applies to sales for use and sales for resale
§2-314
(2) To create an express warrant seller does NOT have to use the words “ warrant” or “guarantee” or that he have any specific intention to make a warranty.
-An affirmation of value or statement purporting to be the seller’s opinion or commendation of the goods does not create a warranty
(1) Unless excluded or modified [§2-316], a warranty that goods shall be merchantable is implied in a K for sale if seller is a merchant w/ respect to goods of that kind.
[NOTE: serving for value of food/drinks to be consumed either on the premises or elsewhere is a sale]
Merchant : a person making an isolated sale of goods is NOT a merchant, thus no warranty of merchantability would apply, BUT must disclose known material but hidden defects.
NOTE: even if not a merchant if he states that goods are ‘guaranteed’ this section may furnish a guideline to the content of the resulting express warranty--Second Hand Sales .
(2) Goods to be merchantable must be at least such as:
(a) pass w/o objection in the trade under the K description; and
(b) in the case of fungible goods, are of fair average quality w/in the description; [In cases of doubt as to what quality was intended, the
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price at which a merchant closes a K is an excellent index of the nature and scope of intended quality] i.
higher price implies higher merchantable quality while lower price implies lower merchantable quality ; and
(c) are fit for the ordinary purposes for which such goods are used, and…………
(e) are adequately contained, packaged, and labeled as the agreement may require……
(3) Unless excluded or modified [§2-316] other implied [NOT express] warranties may arise from course of dealing or usage of trade
IV. Implied Warranty: Fitness for Particular Purpose--§2-315
NOTE: where a buyer wants to use goods for something beyond their ordinary purpose, a warranty of merchantability is NOT enough.
** Particular Purpose —differs from ordinary purpose for which goods are used in that it envisages a specific use by the buyer which is peculiar to the nature of his business whereas the ordinary purposes for which goods are used are those envisaged in the concept of merchantability and go to uses which are customarily made of the goods in question.
§2-315 [NOT limited to merchants, this warranty can arise as to non-merchants ]
Where seller at time of contracting has reason to know any particular purpose for which the goods are required and that buyer is relying on seller’s skill/judgment to select/furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose .
Seller’s reason to know: If seller has reason to realize the purpose intended or that reliance exists
Buyer’s reliance: Buyer must actually rely on seller
Buyer asks for Particular Brand: He is not relying on the seller’s skill/judgment, so no warranty results , BUT the fact that the article purchased has a particular patent/trade name is NOT sufficient to indicate non-reliance if the article has been recommended by the seller as adequate for the buyer’s purposes.
Excluding this warranty: The warranty of fitness for a particular purpose must be excluded or modified by a conspicuous writing.
V. Exclusion or Modification of Warranties--§2-316
§2-316
(1) Disclaiming an express warranty is virtually impossible
-Protects buyer from unexpected and unbargained language of disclaimer by denying effect to such language when inconsistent w/ language of express warranty
-Express warranty trumps when inconsistent w/ language of disclaimer
-Seller is protected against false allegations of oral warranties by the PER and against unauthorized representations by the customary lack of authority clauses
(2) Can disclaim implied warranty of merchantability , but such disclaimers must (1) mention merchantability and (2) in case of a writing, must be conspicuous
Implied warranty of fitness for a particular purpose can be excluded by general language , but only if it is (1) in writing and (2) conspicuous
(3) These exceptions to the general rule set forth in (2) are common situations in which the circumstances surrounding the transaction are sufficient to call the buyer’s attention to the fact that no implied warranties are made or that a certain implied warranty is being excluded .
(a) General terms such as ‘as is’, ‘as they stand’, ‘with all faults’, and the like, are understood to mean that buyer takes the entire risk as to quality of the goods involved. These terms call the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty . [Does not allow for disclaim of express warranty]
(b) Warranties may be excluded/modified when buyer examines the goods or a sample/model of them before entering in the K. After buyer examined goods fully or has refused to examine the goods, before entering the K, there is no implied warranty w/ regard to defects which an examination ought in the circumstances to have revealed to him.
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1.
‘refused to examine’ language: for (b) to apply, it is NOT sufficient that the goods are available for inspection. There must in addition be a demand by the seller that the buyer examine the goods fully.
2.
Failure to notice standards: a failure to notice defects which are obvious cannot excuse the buyer. Nor can latent defects be excluded by a simple examination. a.
Professional Buyer: examining a product in his field is held to assume the risks as to all defects which a pro in his field should observe b.
Non-Professional Buyer: will be held to have assumed the risk only for such defects as a layman might observe.
(c) an implied warranty can be excluded or modified by course of dealing, course of performance, usage of trade .
How can a seller achieve the effect of disclaiming an express warranty?
(1) Don’t make any in the 1 st place
(2) Lack of authority issue: §2-316 Comment 2: this brings up the issue of the PER
(3)
Don’t make factual assertions in a record of the sale [take advantage of the PER]
Some Warranty Hypos
Problem 20
X visited wall paper store and inquired about vinyl wallpaper. Salesman told them that Expenso-Paper was ‘the finest in the store’ and sold at $25 a roll. He assured X that Expenso-Paper ‘goes up easily, can be put on w/ any paste, and dries immediately.’ He said it ‘would look wonderful’ and that Expenso-Paper ‘was used by Mary Magic’ the famous movie star. He showed X a sample book and X picked out a sample and ordered 10 rolls. The paper proved to be stiff and hard to work with. It tore easily and refused to stay flat on the wall. It was also dyed darker than the sample. Furthermore, Mary Magic did not have the same wall-paper. Manager then told X that Expenso needed special brand of paste. Manager also told X that Expenso was an inferior product. (a) Which of the salesman’s representations amount to express warranties? (1) finest? Could be a mere affirmation of value [probably was not part of the basis of the bargain] (2) Goes up easily? Could be seller’s commendation of the goods. (3) Can be put on with any paste? Yes
(4) Dries immediately? Yes. (5) Would look wonderful? No, this is an opinion of the seller. (6) Was used by Mary
Magic? No: not material, not part of K
Other Warranties:
-the sample was dyed lighter than the actual paper. If made part of the description of the goods , then the goods must conform . This sample could be a description under §2-313(b)
(b) Is the Mary Magic statement part of the basis of the bargain, arising as it did after K was signed? The precise time is not material
Problem 24
Wren needed heater for basement. He saw an ad for A-1 Hotblast which seemed to be what he needed. Wren’s friend Jones ran an appliance store. Wren told Jones he wanted the A-1 for the new room. Jones knew the room b/c he helped build it. The heater worked fine, but did not have the capacity to heat the room. May Wren sue Jones?
(1) Wren cannot sue under §2-314 b/c the heater was merchantable, it worked fine
(2) Could sue under §2-315 if Jones had reason to realize the purpose intended or realize that Wren relied on his skill/judgment [Wren must actually be relying on Jones]. BUT perhaps since Wren specifically asked for the A-1 he was NOT relying on Jones’s skill/judgment, thus no warranty results. Furthermore, it does not appear that the A-1 was recommended by Jones as being adequate for Wren’s purpose.
Problem 28-see listserv also
(1) The representation is NOT in the K of sale. It was made verbally, thus not part of the agreement. PER keeps such language out of the bargain . a.
The statement was NOT contradicted by any term in the agreement, thus it would be evidence of a consistent additional term and would be included, unless the term is of the type that should and would normally be in the agreement.
(2) Still, how do you protect the seller?
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a.
Limitation of remedy provisions: limit $ damages to amount of repair/replacement b.
Limit consequential damages c.
Such limitations cannot so limit the remedy: i.
For consequentials in a PI case ii.
Too severely limited.
From 9/22 email handout—HYPOS
(1)
A.
§2-313: Any express warranty created? Were there affirmations of fact or simply sellers’ opinion/commendations of the value of the product?
B.
§2-314: Seller must be a merchant to apply, there is no intention requirement
C.
§2-314(2)(c): we must define “such goods” a.
This ‘type’ of boot---$129, thus should be of high quality b.
We would want to show that these were lousy boots under any circumstances [that they would’ve broken after walking a city block] c.
NOTE: higher price implies a higher merchantable quality , while lower price implies a lower merchantable quality
D.
§2-315: Particular purpose = extreme hiking
(2)
A.
Description of product = express warranty
B.
Did he get what he bargained for? Yes—the type of car for that specific price
C.
“Still runs” = affirmation of fact
D.
§2-314: seems merchantable: [when dealing with used goods , quality in merchantability goes down , a new car would be held to a higher quality]
E.
§2-315: no particular purpose
(3)
A.
A person not a merchant can still make a §2-315 warranty
B.
You are held to what you say
Terms of the Contract
I. The Open Price Term--§2-305
§2-305
(1) The parties if they so intend can conclude a K for sale even though the price is NOT settled . In such cases the price is a reasonable price at time of delivery if:
(a) nothing is said as to price; or
(b) price is left to be agreed by the parties and they fail to agree; or
(c) price is fixed in terms of some agreed market or other standard as set or recorded by a 3d person or agency and it is not so recorded.
(2) A price to be fixed by seller or buyer means a price for him to fix in good faith [includes observance of reasonable commercial standards in fair dealing in the trade if the party is a merchant]
(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option (1) treat K as cancelled or (2) fix a reasonable price himself.
(4) Where parties intend NOT to be bound unless the price be fixed or agreed and it is not fixed or agreed there is NO contract. The buyer must then return any goods already received or if unable to do so must pay their reasonable value at time of delivery and the seller must return any portion of the price paid on account.
NOTE:
Under (1) : the postponement of agreement on price will mean that no deal has really been concluded---if they so intend
Purpose of this section: to give effect to the agreement which has been made—conditioned on the requirement of good faith.
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II. Output Requirements and Exclusive Dealings--§2-306
(1) A term which measures quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith , EXCEPT that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
1.
The party who will determine quantity is required to operate his plant or conduct his business in good faith and according to commercial standards of fair dealing in the trade so that his output or requirements [buyer] will approximate a reasonably foreseeable figure .
2.
If an estimate or outputs/requirements is included in the agreement, no quantity unreasonably disproportionate to it may be tendered or demanded. Any minimum or maximum set by the agreement shows a clear limit on the intended elasticity.
3.
If the enterprise under such K is sold: The output or requirements in the hands of the new owner continue to be measured by the actual good faith output or requirements under the normal operation of the enterprise prior to sale.
4.
Essential Test: whether the party is acting w/ good faith [a shut-down by a requirements buyer for lack of orders might be permissible when a shut-down merely to curtail losses would not]
(2) A lawful agreement by either the seller of the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
1.
Comment 5
III. Absence of Specified Place for Delivery--§2-308
Applies for those sales where no place or means of delivery has been agreed upon by the parties
Unless otherwise agreed: The surrounding circumstances , usage of trade , course of dealing , and course of performance , may constitute an ‘otherwise agreement’
(a) the place of delivery of goods is the seller’s place of business or if he has none his residence ;
BUT
(b) in a K for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place ; that place is the place for their delivery;
-applies to bulk goods in possession of a bailee : seller then has the obligation to procure the acknowledgement by the bailee of the buyer’s right to possession; and
(c) documents of title may be delivered thru customary banking channels.
IV. Absence of Specific Time Provisions; Notice of Termination---§2-309
(1) The time for shipment or delivery or any other action under a K if not provided in this article or not agreed upon shall be a reasonable time
reasonable time : depends on acceptable commercial conduct in view of the nature, purpose and circumstances of the action to be taken. HOWEVER, agreement as to a definite time may be found in a term implied from the contractual circumstances, usage of trade, or course of dealing or performance
when time for delivery left open : unreasonably early offers of or demands for delivery are intended to be read as expressions of desire/intention, requesting the assent/acquiescence of the other party , NOT as final positions which may amount w/o more to breach.
Good faith requirement : requires reasonable notification before a K may be treated as breached b/c a reasonable time for delivery or demand has expired.
Silence : when both parties let an originally reasonable time go by in silence, the course of conduct under the K may be viewed as enlarging the reasonable time for tender or demand of performance .
-Effective communication of proposed time limit calls for a response, so that failure to reply will make out acquiescence
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Where objection is made , or if demand is merely for info as to when goods will be delivered or will be ordered out, demand for assurances on the ground of insecurity may be made.
(2) Where the K calls for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party .
-When the arrangement has been carried on for years, the ‘reasonable time’ can continue indefinitely and the K will not terminate until notice.
(3) Termination of a K by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing w/ notification is invalid if its operation would be unconscionable.
-Requirement of notification is dispensed with where K provides for termination on the happening of an ‘agreed event’
V. Options and Cooperation Respecting Performance---§2-311
(1) An agreement for sale which is otherwise sufficiently definite [§2-304(3)] to be a K is NOT made invalid by the fact that it leaves particulars of performance to be specified by one of the parties . Any such specification must be made in good faith and w/in limits set by commercial reasonableness.
(2) Unless otherwise agreed, specifications relating to assortment of the goods are at the buyer’s option and except as otherwise provided specifications or arrangements relating to shipment are at the seller’s option.
(3) Where such specification (1) would materially affect the other party’s performance but is not seasonably made or (2) where one party’s cooperation is necessary to the agreed performance of the other but is NOT seasonably forthcoming, the other party in addition to all other remedies :
(a) is excused for any resulting delay in his own performance; and
(b) may also either proceed to perform in any reasonable manner or after the time for a material part of his own performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.
-the contract-keeping party may at his option proceed to perform in any commercially reasonable manner rather than wait.
-Remedy for insecurity: Request may be made pursuant to the obligation of good faith for a reasonable indication of the time and manner of performance for which a party is to hold himself ready.
Ex. D wrote X Co and said he wanted to buy 100 cases of oil. Some cases of Type A and some of Type B.
A=expensive kind, B= cheap kind. D said he would let X Co. know later how much of each kind he wanted. X Co. said that B type was $30, but since A type was fluctuating, the sale price would be set by X
Co. at time of delivery. D agreed. K was signed for delivery of 100 cases, types to be specified by D one week prior to delivery date. A week before delivery date X Co called D to ask how much of each type. D said ‘April fool! I’m not taking any!”
§2-311(c): can suspend your own performance/stop performance OR if you wish, you can perform in any reasonable manner…..treat D’s failure to specify or cooperate as a breach
BUT
We still have an empty quantity term
Obligation of good faith and dealing is implied in every contract: Since D is not acting in good faith, seller can specify the quantity---such specification must be made in good faith, thus look to the past course of dealing w/ respect to these parties
Landrum v. Devenport : an open price term
The market price of a car increases well above the sticker price: $14K to $22K
Landrum : we agreed on the sticker price at the time of delivery
Seller : no K formed—too gappy
The parties did not insert an agreed price into the agreement. The seller argues that the PER won’t let in evidence of any communication where there was an oral agreement prior to the execution concerning the sale at the sticker price BUT this was not an integrated writing. The seller must then show that the document was intended as a final expression/agreement and that the parties intended to leave the term open for the PER to bar admission of such evidence.
**the price was a consistent additional term b/c it was left blank, therefore evidence regarding oral communication gets in w/ regard to conversations involving price.
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NOTE: §1-308 How to Reserve Your Rights where the seller cannot argue that by actually paying the price, that you as the buyer have waived you rights to ‘protest’ the price.
VI. Unconscionability--§2-302
This is a partial defense, the court can pencil out terms it deems unconscionable. The Judge determines unconscionability.
NOTES:
(1) The Procedure: specific hearing on the unconscionability defense [a separate hearing: (1) substantive and/or
(2) procedural
(2) If you argue unconscionability, you are impliedly admitting a K was formed!!
(3) Use this as a ‘last ditch’ argument.
§2-302
(1) the K or any clause must be unconscionable at the time it was made. The court can refuse to enforce the K, may enforce the remainder of the K w/o the unconscionable term, or may limit the application of any unconscionable clause as to avoid any unconscionable result.
(2) When it is claimed that the K or any clause may be unconscionable, the parties are afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
The principle is one of the prevention of oppression and unfair surprise.
Purpose of §2-302 : the court may refuse to enforce the K as a whole if it is permeated by the unconscionability, or it may strike any single clause or group of clauses which are so tainted or which are contrary to the essential purpose of the agreement, or it may limit unconscionable clauses so as to avoid unconscionable results.
Ex. Buyer went to seller to buy a boat. Salesman showed him a boat costing $3,150. Buyer signed a K. On his way home buyer saw the same boat for $1000. Subsequent investigation proved the highest price any other store was asking was $1,200. Does §2-302 permit buyer to avoid the sale?
-buyer should shop around
price unconscionability goes to the substance of the bargain, thus it is harder to meet when price unconscionability is attempted.
Factors when §2-302 may apply
1. Consumer transactions as opposed to commercial ones
2. K of adhesion
3. Procedural unconscionability [time, place, manner]
4. Inequality of bargaining power
VII. Identification of the Goods--§2-501
Introduction: Identification gives a special property and insurable interest w/ re to the goods [once goods are ID’ed, they may be covered under your general insurance as ‘goods belonging to you that were lost/destroyed’
Once ‘Goods’ Are Identified:
(1) This interest can now be used as collateral
(2) You can get insurance. The insurance co. cannot claim that ID’ed goods aren’t covered b/c the title has not yet passed
§2-501: Insurable Interest in Goods; Manner of Identification of Goods
(1) Buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the K refers even though the goods so ID’ed are non-conforming and he has an option to return or reject them. Such ID can be made at any time and in any manner expressly agreed to by the parties . W/o explicit agreement ID occurs [ uncertainty is reduced by requiring explicit agreement of the parties before the rules of (a), (b), and (c) are displaced---as they would be by a term giving buyer the power to select the goods ]
(a) when the K is made IF it is for the sale of goods already existing and described
(b) if the K is for the sale of future goods other than those in (c), when the goods are shipped, marked or otherwise designated by seller as the goods to which the K refers
(c) when the crops are planted or otherwise become growing crops or the young are conceived if the
K is for sale of unborn young to be born w/in 12 months after contracting or for the sale of crops
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to be harvested w/in 12 months or the next normal harvest season after contracting whichever is longer.
[ID of crops is made upon planting ONLY if they are to be harvested w/in the year or w/in the next normal harvest season. This excludes timber crops.]
[applies to crop of wool or young of animals to be born w/in 12 months after contracting]
[The product of a lumbering, fishing, mining operation [though seasonal] is NOT w/in the concept of ‘growing’. ID under a K for all or part of the output of such an operation occurs at the point the
K is made]
(2) Seller retains an insurable interest in goods so long as title to or security interest in the goods remain in him and where the ID is by the seller alone he may until default or insolvency or notification to the buyer that the ID is final, substitute other goods for those ID’ed.
NOTES:
(1) All doubts are resolved in favor of identification
(2)
“explicit agreement’ can be found thru trade usage
(3) Undivided shares in an identified fungible bulk [grain in an elevator, oil in storage tank] CAN be sold . The making of the K w/ reference to an undivided share in an ID’ed fungible bulk IS enough under (a) to effect
ID if there is no explicit agreement otherwise
Ex. Has ID occurred in the following situations:
1. Fisherman Ks to sell his entire catch for the coming season. When does ID occur?
-On the making of the K
-“all of the catch” is impliedly stating 100% allocation to buyer, the result would be different if seller would have said that 5,000 lbs would be sold [here there is no pro rata share/allocation]
2. Circus Ks to sell the unborn calf of an elephant as soon as the calf was born. K was made when elephant was 2 months pregnant. When does ID occur?
-gestation for elephant is 2 years, therefore more than 12 months and ID occurs at time K was made.
3. Farmer agreed to sell ½ of the grain he stored in a silo. Farmer’s grain was mixed w/ that of other farmers. When does ID occur?
-Grain held by bailee. ID at time K was made. He can sell a part interest in what he owns. ID at time of the making of the K w/ reference to his share in the grain [an indentified fungible bulk] is enough w/ re to (a) to effect an ID.
4. WW contracted to sell 5,000 widgets to buyer. Its warehouse contained 2 million widgets. When does ID occur?
-at time of contracting if the warehouse was NOT involved
-Seller is selling 5,000 units, not a % of all existing [bulk] inventory.
VIII. Risk of Loss: No Breach---§2-509 [where for any reason seller’s delivery or tender fails to conform to the K, this section DOES NOT APPLY!!]
Introduction: The general code rule on the transfer of the risk of loss is that, absent contrary agreement, (1) where the seller is a merchant, the risk of loss passes to buyer on the buyer’s actual receipt of the goods; and (2) where the seller is not a merchant, risk of loss passes to the buyer when the seller tenders delivery.
Section applications: §2-509(3) applies only when (1) or (2) does not. In many Ks, where goods are in an independent warehouse, seller must arrange for warehouse co. [bailee] to change its records to show the buyer as the new owner. (2) basically says that the risk of loss rests on whoever has control over the bailee .
-whoever bears the risk of loss still has to perform [if risk passed to buyer, then car burns, buyer must still pay or be in breach]
§2-509
(1) Where the K requires or authorizes seller to ship goods by carrier
(a) if it does not require him to deliver them at a particular destination, the risk of loss passes to buyer when goods are duly delivered to the carrier .
-duly delivered = a K must be entered into w/ the carrier which will satisfy the requirements of the section on shipment by seller and delivery must be made under circumstances which will enable the seller to take any further steps necessary to a due tender.
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(b) If it does require him to deliver them at a particular destination and the goods are there duly tendered while in possession of the carrier, the risk of loss passes to buyer when the goods are there duly so tendered as to enable buyer to take delivery.
Goods to be delivered at seller’s place of business or situs of goods: merchant seller cannot transfer risk of loss and it remains on him until actual receipt by the buyer, even if full payment has already been made and buyer has been notified that the goods are at his disposal.
(2) Where goods are held by a bailee to be delivered w/o being moved, risk passes to buyer
(a) on his receipt of a negotiable document or title covering the goods; or
(b) on acknowledgement by the bailee of the buyer’s right to possession of the goods; or
(c) after his receipt of a non-negotiable document of title or other written direction to deliver.
(3) In any case not w/in (1) or (2) risk of loss passes to buyer on his receipt of the goods IF the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery .
*******
(4) This section are subject to contrary agreement of parties: Contrary agreement can be found in the circumstances of the case, trade usage or practice, or course of dealing or performance.
Ex. Will bought car from John, a car dealer. He paid full price, John promised delivery on the next Monday. On
Mon the car was ready and John called Will and said ‘take it away.’ Will said he was too busy and that he would pick it up the next day, to which John agreed. That night it was stolen from the lot. Who bears the risk?
-§2-509(3): if seller = merchant, risk shifts from seller to buyer on receipt [physical and actual] of the goods. Risk stays on seller until physical delivery or actual receipt
-if non-merchant seller: tender occurred when seller said ‘take it away’
Ex. J, at her garage sale, sold B a piano for $200. The two shook hands and J said ‘take it away, it’s yours.’ B said she’d get it the next day w/ 4 friends and a truck. That night J’s home burned and the piano was destroyed.
T1: K formed, T2: tender [b/c we have a non-merchant seller as per §2-509(3)], T3: destruction.
When does tender occur? ‘take it away, it’s yours’---maybe, BUT buyer w/ re to the piano cannot be reasonably required or expected to take possession of /move the piano right away. If tender occurred upon those words, then risk passed to buyer, but that doesn’t seem fair.
Seller argues: tender occurred when she said ‘take it away, it’s yours’, thus the risk of loss shifted to buyer before the piano was destroyed.
Buyer argues: tender occurs when she can take it away the next day; she shouldn’t be expected to move the piano and take possession of it immediately.
Delivery Terms w/ respect to §2-509(1)
I. Introduction:
A.
Shipment Contract : one which seller need only get the goods to the carrier and then the buyer will take the risk of loss.
-when K is silent on risk of loss, courts presume a shipment K was intended.
B. Destination Contract : goods must be delivered by the carrier before the risk passes to buyer
II. Types:
(1) CIF and C&F always indicate a shipment K a.
CIF = the price stated includes the cost of the item, the insurance premium, and the freight charge. W/ a CIF buyer takes the risk of loss during shipment. b.
C&F = same as CIF except that buyer does not agree to pay insurance c.
See §2-320
(2) FAS and ex-ship
= a delivery term in connection w/ ships. See §2-319(2) and §2-322
(3) FOB = can indicate either a shipment or a destination K. FOB Pittsburgh: the risk of loss passes at the named place. Thus if the named place is seller’s warehouse, the FOB term calls for a shipment K; if it is the buyer’s store, a destination K results. See §2-319
Electronic Contracting
Appendix Q: Allows K to be made even if no human is involved in the K formation/creation
Formation--§2-204(4)
§2-204(4) : Except as provided in §2-211 thru §2-213, the following rules apply:
(A) A K may be formed by interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents’ actions or the resulting terms and agreements
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(B) A K may be formed by the interaction of an electronic agent and an individual acting on the individual’s own behalf or for another person. A K is formed when the individual takes actions that he is free to refuse to take or makes a statement , and he has reason to know that the actions or statement will:
(i)
(ii) cause the electronic agent to complete the transaction or performance; or indicate acceptance or an offer, regardless of other expressions or actions by the person to which the electronic agent can’t react.
§2-211—Legal Recognition of Electronic Ks, Records, and Signatures
(1) A record or signature may NOT be denied legal effect b/c it is in electronic form
(2) A K may NOT be denied legal effect b/c an electronic record was used in its formation
(3) This article does not require a record or signature to be created, generated, sent, communicated, received, stored, or otherwise processed be electronic means or in electronic form
(4) A K formed by the interaction of an individual and an electronic agent does NOT include terms provided by the individual if the individual had reason to know the agent could not react to the terms as provided
§2-212—Attribution : An electronic record or electronic signature is attributable to a person if it was the act of the person or the person’s electronic agent or the person is otherwise legally bound by the act.
§2-213---Electronic Communication
(1) If the receipt of an electronic communication has a legal effect, it has that effect even if no individual is aware of its receipt.
(2) Receipt of an electronic acknowledgement of an electronic communication establishes that the communication was received BUT, in itself, does NOT establish that the content corresponds to the content received.
Performance of the Contract
I. Installment Contracts--§2-612
-Substantial Performance applies: seller is entitled to payment even where the tender of the goods fails to conform exactly to the K as long as it substantially conforms .
Tender : ‘offer to deliver’
§2-612—“Installment Contract”, breach
(1) An installment K is one which requires/authorizes delivery of goods in separate lots to be separately accepted even though a K clause says ‘each delivery is a separate K” [this rejects any approach giving clauses such as ‘each delivery is a separate K’ their legalistically literal effect]
(2) Buyer may reject any non-conforming installment if the non-conformity substantially impairs the value of that installment and cannot be cured OR if the non-conformity is a defect in the required documents; BUT if the non-conformity does not fall w/in (3) and seller gives adequate assurance of its cure the buyer must accept that installment
-Under (2) an installment delivery must be accepted if the non-conformity is curable and seller gives assurance of cure
(3) When a non-conformity w/ respect to one or more installments substantially impairs the value of the whole
K there is a breach of the whole. BUT buyer reinstates the K if he accepts a non-conforming installment w/o seasonably notifying of cancellation or if he brings an action w/ respect only to past installments or demands performance as to future installments
-buyer who accepts non-conforming installment which substantially impairs value of the whole K is permitted to w/hold any decision w/ re to canceling for a reasonable time
-whether the non-conformity in any given installment justifies cancellation as to the future depends, NOT on whether such non-conformity indicates a likelihood that future deliveries will also be defective, but whether the non-conformity substantially impairs the value of the whole K .
Ex. G ordered monthly shipments of statues from E, agreeing to take 12 shipments of 20 statues each. The 1 st month, all statues arrived upside down in their cartons. One was broken, G called E and E promised to ship a replacement.
Next month: statues packed upside down, half were broken.
(1) can G reject as per §2-612?: b/c this non-conformity substantially impairs the value of the whole K, G may reject and can cancel if he is not given adequate assurance of cure
Cherwell-Ralli v. Rytman Grain : buyer falls behind in timely payment
§2-612 offers a 2 tier requirement of material breach as per installment Ks
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(1) must show breach as material to the whole , and
(2) seller does not cure [cannot cure]
§2-609: Adequate assurance of performance, BUT cannot use §2-609 unless you have reasonable grounds for insecurity.
-the right to assurance is premised on reasonable grounds for insecurity. Here, a party to a sales K may not suspend performance of its own for which it has already received the agreed return. Here, at all times, the buyer received all the goods which it had ordered. The buyer could not rely on its own non-payments as a basis for its own insecurity
ROL: §2-609 may clarify who’s in breach, BUT to invoke §2-609, must have pre-existing reasonable ground for concern that the other party will not perform
II. The Perfect Tender Rule---§2-601
To prevail in a single-delivery[lot] sale , seller must make a perfect tender [offer of delivery], one that complied with all the terms of the K , and then show that the buyer refused to take goods.
§2-601—The Perfect Tender Rule
Subject to §2-612 on breach on installment Ks and unless otherwise agreed, IF the goods or the tender of delivery fail in any respect to conform to the K , the buyer may:
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest
“commercial unit” –defined in §2-105(6)
Buyer is entitled to a perfect tender, when a non-perfect tender, all buyer can do is reject the goods, CANNOT reject the K , seller can cure
Ex: S signed K to buy 5 new cars from SM. All 5 were to be delivered on Oct 1. Upon delivery S kept 3 and wanted to return 2. S rejected the 2 b/c one’s audio system didn’t work and two’s carpet in trunk was ripped. SM offers to repair both. S refused to permit repair, SM sues.
(1) use §2-601 NOT §2-612 b/c all 5 cars are tendered/delivered on same day, therefore no installment K.
(2) as per §2-606, buyer has reasonable opportunity to inspect
(3) small defect in two cars, thus seller has violated the perfect tender rule, thus S has right to reject. S’s options: (1) can accept all 5 cars [§2-606], (2) can she ‘cherry pick’? Yes , so long as she does it per commercial unit —a car is a separate commercial unit
(4) S has right to reject ‘left side of handout chart’. Rejection does not get you out of the K, just can send goods back to seller, then seller tries to cure.
(5) What if rejection is NOT proper or buyer accepts goods---see ‘right hand side of handout’
(6) ROL: buyer must either accept or reject , nothing in between, NOT both, however, you can accept some and reject others so long as they are separate commercial units [cars, trucks, etc, NOT a horse tail.
(7) See §2-508(2) for if SM has right to cure—is seller had reasonable grounds to believe that the cars would be accepted, the seller if he seasonably notifies the buyer may have a further reasonable time to substitute a conforming tender.
III. Cure---§2-508
If seller has not made a perfect tender, and buyer rejects goods, seller has a right [in some circumstances] to cure the defective performance.
§2-508---Cure by Seller of Improper Tender or Delivery; Replacement
(1) Where tender or delivery by seller is rejected b/c its non-conforming, and time for performance has NOT yet expired, seller may seasonably notify buyer of his intention to cure and may then w/in the K time make a conforming delivery.
-permits seller who has made a non-conforming tender, in any case, to make a conforming delivery w/in the K time upon seasonable notification to buyer. Applies even if seller has taken back non-conforming goods and refunded price— he may still make a good tender w/in K period
-‘K period’ can be modified—Comment 1
(2) Where buyer rejects non-conforming tender which seller had reasonable grounds to believe would be acceptable w/ or w/o money allowance, the seller may if he seasonably notifies buyer have a further reasonable time to substitute a conforming tender.
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-seller not protected unless he had reasonable grounds to believe that his tender would be accepted. Reasonable grounds
—look to trade usage, course of dealing and performance.
Ex. F and S ordered car from PM for $22,000 on Aug 8. Car was to be delivered no later than Sept 1. On Aug 15
PM told F and S that the car was ready, so they picked it up. Halfway home the engine blew. Engine was destroyed.
On being informed that F and S wanted their $ back, PM made the following responses: (1) PM offered to replace engine and put it in the original car, (2) PM refused to refund the $, it claimed a right to give F and S a new car on
Aug. 20
-does §2-508 require F and S to accept either of these?
NOTE: the car was delivered early, thus the time of performance has not yet come
(1) maybe [should consumers be bound by trade usage? Seems unfair]
(2) shaken faith doctrine : new cars are major investments, rationalized by peace of mind that flows from their dependability and safety. Once buyers’ faith is shaken, the vehicle not only loses its real value in their eyes, but becomes an instrument whose integrity is substantially impaired. Thus the attempted cure would be ineffective. a.
the problem must be profound, there would be no cure that really worked
Wilson v Scampoli : Involved sale of a TV set, TV was delivered after payment. This is a single lot sale, thus use §2-
601 and the perfect tender rule.
-If K called for separate deliveries—it is an installment K , thus use §2-612
-If everything is delivered at once— one lot , thus use §2-601
Here, the seller has a duty to deliver conforming goods under §2-601. TV had red tinge. Buyer wanted a new TV,
NOT a repaired one.
Distinguish b/w (1) rejecting goods and (2) rescission of the K.
(1) rejecting goods: §2-601
(2) rescission: this is what the buyer is actually attempting to do.
Here, buyer is entitled to reject the goods [b/c this is a single lot sale], this is different than rejecting the actual K.
Buyer can reject goods, but must allow seller an attempt to cure before you can reject the K .
IV. Rejection and Acceptance
NOTE: Failure to act on the part of buyer results in a technical acceptance , since rejection must come w/in a reasonable period of time after delivery. Effective rejection requires affirmative action by the buyer [to avoid acceptance]
§2-602---Manner and Effect of Rightful Rejection
(1) Rejection must be within a reasonable time after delivery/tender. Rejection is ineffective unless buyer seasonably notifies seller
(2) Subject to §2-603 and §2-604:
(a) after rejection, any exercise of ownership by buyer w/ respect to any commercial unit is wrongful as against the seller; and
(b) if buyer has before rejection taken physical possession of goods in which he does not have a S/I, he is under a duty after rejection to hold them w/ reasonable care at seller’s disposition for a time sufficient to permit seller to remove them, BUT
(c) buyer has NO further obligations w/ re to goods rightfully rejected
(3) Seller’s rights w/ re to goods wrongfully rejected governed by §2-703
§2-606---What Constitutes Acceptance of Goods
(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to seller that the goods are non-conforming OR that he will retain them in spite of their non-conformity; or
[ payment after tender can signify acceptance, but is not always conclusive]
(b) fails to make an effective rejection , but such acceptance does NOT occur until buyer has had a reasonable opportunity to inspect them ; or
(c) does any act inconsistent w/ seller’s ownership; but if such act is wrongful against seller it is acceptance only if ratified by seller
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[any action taken by buyer, which is inconsistent w/ his claim that he rejected goods, constitutes acceptance, BUT provision in (c) are subject to the sections dealing w/ rejection by buyer and his options]
(2) Acceptance of a part of any commercial unit is acceptance of that entire unit.
NOTE: once buyer has rejected goods, (a) does not operate in buyer’s favor unless seller has re-tendered the goods or taken other affirmative action indicating he is keeping tender open
§2-607---Effect of Acceptance
(1) Buyer must pay at K rate for any goods accepted
(2) Acceptance of goods precludes their subsequent rejection. Any return of goods thereafter must be by revocation of acceptance in §2-608. Revocation is unavailable for a non-conformity known to buyer at time of acceptance, except where buyer has accepted on the reasonable assumption that the non-conformity would be seasonably cured. All other remedies of the buyer remain unimpaired under (2)
(3) Where tender has been accepted:
(a) buyer must within a reasonable time [commercially reasonable time for merchant and ‘reasonable’ and good faith time for a consumer] after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and
(b) see book, involves claims for infringement
(4) Burden is on buyer to establish breach w/ respect to the goods accepted.
(5) Involves when buyer is sued for breach of warranty or other obligation
Ex. MWS, from IA, ordered 50 live lobster from ME, ‘FOB Portland’, thus buyer has risk of loss while lobsters are in transit. ME shipped lobsters but didn’t notify MWS that the shipment was coming. Lobsters had been sitting in
DesMoines for a day. MWS picked them up. 20 of them were dying [15 due to bad handling by ME before they were handed over to the airline, and 5 due to damage in transit]; the other 30 were fine. MWS wanted none of the lobsters.
NOTES: (1) This is a single-lot delivery, thus §2-601 applies. (2) Buyer has the right to reject b/c ME did not make perfect tender, except that §2-504 says that failure to notify, buyer cannot reject unless material delay or material loss ensues.
A. Failure to notify buyer under §2-504(c) is a ground for rejection only if material delay or loss ensues.
B. MWS has the right of rejection: goods were defective before tender, thus risk of loss does NOT pass to buyer, therefore buyer can reject all 50 if they want, or could keep 30 and reject 20. The option to ‘cherry pick’ under §2-
601 does NOT mean that you have to, you could reject all of them.
C. Buyer is given a reasonable time to notify seller of his rejection. Buyer is further obligated to hold the lobsters w/ reasonable care at seller’s disposition for a time sufficient for seller to remove them.
Summary of Rejection: To reject, buyer must:
1.
timely notify
2.
specify defect
3.
take reasonable care and custody of goods for the seller
4.
follow seller’s reasonable instructions/directions if buyer is a merchant as per
§2-603 a.
send lobsters back and right to indemnify, OR b.
have a salvage sale on seller’s behalf
Ex U ran a ranch. He wanted a statue of a horse near the entrance. The horse was specifically manufactured by E and arrived in 6 boxes to be assembled by U. When he put it together he didn’t like the tail. U removed the tail and put on one of his own design. He returned the original to E along w/ a letter of rejection. In the meantime U painted the rest of the horse black [in the delivered state it was white]. 3 months later U took down the rest of the horse and shipped it back to E w/ a letter of rejection and stated the problem w/ the tail made the horse unusable. Was this an effective rejection?
(1) The goods were non-conforming b/c there was an express warranty created by the model, the tail didn’t look like the sample, thus under §2-601, U may reject.
(2) Sending tail back was NOT an effective rejection b/c the tail is not a ‘commercial unit’
(3) §2-607(3) requires that after acceptance, buyer must notify seller w/in reasonable amt of time about the breach---3 months seems a little long.
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(4) U can still sue for breach of warranty, his other remedies are not limited by his acceptance
(5)
§2-602, rejection must be w/in reasonable time after delivery.
(6) U cannot revoke his acceptance [see below] under §2-608(2) b/c he substantially changed the condition of the goods.
V. Revocation of Acceptance--§2-608
Starting Point: assume buyer has accepted. The possibilities include:
1. buyer pays, then everything is OK
2. §2-607: problem w/ the good, buyer must give notice w/in reasonable time. This option affirms the K relationship, but is seeking damages as per §2-714
3. Unwind the K
Once acceptance is made §2-608 tells us that to revoke acceptance, buyer must show the non-conformity substantially impairs the value to him, whereas if buyer had not yet accepted [acted sooner] the perfect tender rule would allow rejection for minor non-conformities.
§2-608—Revocation of Acceptance in Whole or in Part
(1) Buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it…..
(a) on the reasonable assumption that its non-conformity would be cured, and it has not been seasonably cured; or
(b) w/o discovery of such non-conformity if his acceptance was reasonably induced either by difficulty of discovery before acceptance or by the seller’s assurances.
(2) Revocation of acceptance must occur w/in a reasonable time after buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is NOT caused by their own defects. It is not effective until buyer notifies the seller of it.
(3) Buyer who revokes has same rights/duties w/ re to the goods as if he had rejected them.
Ex. The day after A bought her new car the fender fell off. After this was repaired, it rained and all the paint from the car washed off. Two weeks later the engine quit. After that the trunk would not open.
(1) §2-608: to revoke acceptance would argue that fender falling off substantially impaired the value of the car to her, or as per §2-608(3), A could treat it like rejection, but then seller would have the right to cure---§2-
508.
(2)
Buyer’s cover: buyer may recover from seller the difference b/w the cost of cover and the K price along w/ incidentals and consequentials. NOTE: the goods purchased by ‘cover’ must be a reasonable substitute under the circumstances.
What if the K b/w A and the dealer explicitly limited remedy for breach to repair or replacement of defective parts.
Dealer argues that all defects have been cured and that remedy of revocation of acceptance is unavailable to A.
-A would argue that the limitation/exclusion of remedy is ineffective, it fails of its essential purpose to provide something of value to the buyer. She has to keep bringing it in for repair—she bargained for a car that would operate, not one that would constantly need repair--§2-719(2)— this limitation would deprive A of the substantial value of the bargain, thus the limitation must give way to the general remedy provisions of the UCC
§2-609---Right to Adequate Assurance of Performance
(1) A K for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise w/ respect to the performance of either party, the other may in writing demand adequate assurance of due performance and until he receives such assurance may IF commercially reasonable suspend any performance for which he has not already received the agreed return.
(2) B/w merchants the resonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.
(3) Acceptance of any improper delivery or payment does NOT prejudice the aggrieved party’s right to demand adequate assurance of future performance.
(4) After receipt of a justified demand , failure to provide [w/in a reasonable time not exceeding 30 days] such assurance of due performance as is adequate under the circumstances of the case is a repudiation of the K.
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VI. Risk of Loss: Where Breach has Occurred---§2-510
(1) Where tender/delivery fails to conform to the K as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance
-seller by his own action cannot shift the risk of loss to the buyer unless his action conforms w/ all the conditions resting on him under the K.
-seller’s privilege of cure does NOT shift the risk, however, until cure is completed
(2) Where buyer rightfully revokes acceptance, he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning.
(3) Where buyer, as to conforming goods already ID’ed to the K for sale, repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on buyer for a commercially reasonable time.
Jakowski v Carole Chevrolet : T1: seller tenders delivery of car, non-conforming—no undercoating. Buyer also pays. T2: buyer takes possession and discovers goods were non-conforming. Buyer is allowed a reasonable opportunity to inspect. T3: seller notifies buyer of the non-conformity, and offers to cure. This is the same as if buyer had simply rejected. Buyer returns the car to dealer T4: car stolen.
Issue: upon whom, as b/w buyer and seller, this loss should fall.
(1) buyer had right to reject b/c of the non-conformity
(2) did buyer accept the car by first taking possession of it? No, the mere taking possession is not = to acceptance. Before he can be held to have accepted buyer must be afforded a ‘reasonable opportunity’ to inspect. Thus buyer did not accept the non-conforming car.
Held:
§2-510(1): the goods failed to conform, the buyer never accepted them and the defect was not cured. Thus, risk of loss remained on seller.
ROL: Under §2-510(1): where goods fail to conform to the K, the risk of loss remains on seller until the buyer accepts the goods or until the seller cures the defect.
VII. Commercial Impracticability---§2-615 [usually lose this argument: need a very high showing]
(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with (b) and (c) is not in breach of his duty under a K if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basis of the bargain on which the
K was made or by compliance in good faith w/ any applicable foreign or domestic govt reg or order whether or not it later proves to be invalid.
-excuses a seller from timely delivery of goods K-ed for, where performance has become commercially impracticable b/c of unforeseen supervening circumstances not w/in the contemplation of the parties at the time of contracting.
increased cost -does not alone excuse performance, unless it is due to some unforeseen contingency which alters the essential nature of the performance
rise or collapse of market : does not excuse performance, for that is exactly the type of business risk which business Ks made at fixed prices are intended to cover
-This section does not apply when contingency is foreshadowed at time of K-ing to be included among the business risks which are to be regarded as part of the dickered terms, either consciously or as a matter of reasonable, commercial interpretation from the circumstances
may apply to: severe shortage of supplies due to war, embargo, local crop failure, unforeseen shutdown of major sources of supply, which cause a marked increase in cost or prevents seller from securing supplies necessary for perf.
NOTE: There is no excuse unless seller has employed all due measures to assure himself that his source will not fail
(b) Where causes in (a) affect only a part of seller’s capacity to perform, he must allocate production and deliveries among his customers, but may at his option include regular customers not then under K as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable
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(c) Seller must notify buyer seasonably that there will be delay or non-delivery and, when allocation is required under (b) an estimated quota thus made available for buyer.
Commercial Impracticability :
1.
must have contingency that occurs
2.
contingency must not be foreseeable
3.
must go to the material essence of the K
4.
the contingency causes the commercial impracticability
-The party seeking to excuse his performance must not only show that he can perform only at a loss, but also that the loss will be especially severe and unreasonable. A loss on the K alone is NOT enough to show CI.
Look to the effect on the entire business, NOT necessarily just this one transaction
Ex. WC agreed to sell 27 utility co’s 80 million lbs of uranium over the next 20 yrs. Average sale price per lb was
$10. When WC made the sale it only owned 15 million lbs. Over the next 10 yrs price of uranium had risen to
$40/lb. WC announced it wouldn’t honor its Ks. Utilities sued. WC claimed that the price rise was unforeseeable and that the Ks were excused under §2-615. They blamed the oil embargo and worldwide price fixing for the
‘unpredictable’ rises.
(1) this is an installment K where seller faces increased costs of performance.
(2) Increased costs do not excuse performance, either does a rise or collapse in the market
(3) As per §2-305, they should’ve left the price term open, then the price would have later then been one that was reasonable at the time.
NOTE:
Anticipatory Repudiation--§2-610 , requires material breach, must be material to the K
-a repudiation automatically result under §2-609 on insecurity when a party fails to provide adequate assurance of due future performance w/in 30 days after a justifiable demand has been made
-repudiation can result from action which reasonably indicates a rejection of the continuing obligation.
-Under §2-610: when a repudiation substantially impairs the value of the K, the aggrieved party may at any time (1) resort to his remedies for breach, or (2) he may suspend his own performance while he negotiates w/, or awaits performance by, the other party. But if he awaits performance beyond a commercially reasonable time he cannot recover damages he should have avoided.
Excuses to Performance
—when you assert an excuse, you are impliedly admitting that a K was formed
Louisiana Power & Light Co -involved a K for a supply of steel tubing [installment K]. Buyer’s remedy for breach =
‘cover’—get a substitute supplier to come in and supply the tubing. ‘cover’ is preferred under the UCC so long as it is reasonable ‘cover’.
1. Determine who is the victim of the breach: the buyer or seller?
-here, it is the buyer—so go to buyer remedies
-there has not been acceptance b/c seller never delivered it
2. Look to see if the goods had been accepted or not. If acceptance has occurred go to §2-607
Damage Remedies
1. K price compared with fair market price
2.K price compared with cost of ‘cover’—most preferred b/c it is the most concrete and easily ascertainable
Remedies
I.
Seller’s Remedies
-- [Sellers NOT entitled to consequential damages]
In General-§2-703---Seller’s Remedies in General [these are all the remedies an aggrieved seller has]
…Where buyer wrongfully rejects or revokes acceptance of goods, or fail to make payment due on or before delivery, or repudiates w/ respect to a part or the whole, then w/ respect to any goods directly affected and, if the breach is of the whole K, then also w/ respect to the whole undelivered balance, the aggrieved seller may …
(a) w/hold delivery of such goods;
(b) stop delivery by any bailee
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(c) proceed under §2-704 respecting goods still unidentified to the K
(d) resell and recover damages
A. Accepted Goods : seller’s recovery of damages is measured in §2-709 [action for the price] if the buyer has made a technical acceptance of the goods or if the goods are destroyed w/in a commercially reasonable period of time after the risk of loss shifts to the buyer
§2-709—Action for the Price
(1) When buyer fails to pay the price as is due, the seller may recover, together w/ incidental damages under §2-710, the price…
(a) of goods accepted or of conforming goods lost or damaged w/in a commercially reasonable time after risk of their loss has passed to buyer, AND
(b) of goods ID’ed to the K IF the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing
-under (1)(b) such an action can only be sustained after a
‘reasonable effort to resell’ the goods at a ‘reasonable price’ has actually been made or where the circumstances
‘reasonably indicate’ that such an effort will be unavailing
(2) Where seller sues for price he must hold for buyer any goods which have been ID’ed to the K and are still in his control except that if resale becomes possible he may resell them at any time prior to collection of the judgment. BUT the net proceeds of any resale must be credited to buyer and payment of judgment entitles him to any goods not resold.
(3) After buyer wrongfully rejected or revoked acceptance of goods or failed to make a payment due or has repudiated, a seller who is held not entitled to the price under this section shall be awarded damages for non-acceptance under §2-708
Ex. BAS Auto Sales sold new car to DD on credit. DD accepted it and drove it for a month. He then sent BAS a notice of revocation of acceptance and gave as his reason the recent repainting of his garage in a color that clashed w/ the car. The notice stated that DD parked the car down the street and that BAS should come and get it. 3 days after BAS received the notice, the car disappeared and was never found.
(1) the goods really are not non-conforming
(2)
Seller may recover price under §2-709 b/c DD accepted b/c he drove it for a month, thus risk of loss has passed to buyer [upon receipt of the car]
(3) There has not been a justified revocation of acceptance
(4) The car was conforming when it was tendered, thus his revocation was wrongful—buyer is in breach--§2-
510 does NOT apply
B. Unaccepted Goods —when buyer repudiates before delivery or rejects the goods, §2-706 applies, IF the seller resells the goods to someone else. If no resale occurs , damages are measured under §2-708
§2-706---Seller’s Resale Including K for resale
(5) As per §2-703, seller may resell the goods concerned or the undelivered balance thereof. Where the sale is made in good faith and in a commercially reasonable manner, the seller may recover the difference b/w the resale price and the K price together w/ any incidental damages , but less expenses saved as a result of buyer’s breach. [ anticipatory repudiation by buyer gives rise to any of the seller’s remedies for breach, and to the right of resale ]
(6) Except as provided in (3) or unless otherwise agreed, resale may be at public or private sale including sale by way of one or more Ks to sell or of ID to an existing K seller. Sale may be as a unit or in parcels and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable . Resale must be reasonably identified as referring to the broken K, but it is not necessary that the goods be in existence or that any or all of them have been ID’ed to the K before breach.
[(2) authorizes a resale of goods which are not in existence or were not ID’ed to the K before breach]
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(7) Where the resale is at private sale the seller MUST give the buyer reasonable notification of his intention to resell . Notification of the time and place of this type of sale is NOT required
(8) Where the resale is at public sale ..[auction or other recognized exchange]
(a) only ID’ed goods can be sold except where there is a recognized market for a kind of public sale of futures in goods of the kind, AND
(b) it must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily, the seller must give buyer reasonable notice of the time and place of resale ;
AND
(c) if goods are not to be w/in view of those attending the sale the notification of sale must state the place where goods are located and provide for their reasonable inspection by prospective bidders; AND
(d) the seller may buy
(9) Purchaser who buys in good faith at a resale takes goods free of any rights of the original buyer even though seller fails to meet all requirements of this section
(10) Seller is not accountable to buyer for any profit made on any resale.
If no resale occurs damages are measured under §2-708
§2-708---Seller’s Damages for Non-Acceptance or Repudiation
(1) Subject to (2), the measure of damages for non-acceptance or repudiation by the buyer is the difference b/w the market price at the time and place for tender and the unpaid K price together w/ any incidental damages, but less expenses saved as a result of buyer’s breach
NOTE: Time & Place of Tender is determined by reference to sections on manner of tender of delivery, and to the sections of the terms: FOB, FAS, CIF, C&F, Ex Ship,etc.
-if no evidence of current market price use substitute market
(2) If damages in (1) are inadequate to put seller in as good a position as performance would have done, then the measure of damages is the profit [including reasonable overhead] which seller would have made from full performance by the buyer, together w/ any incidental damages.
Ex. LL contracted to sell 80 neon lights to Signs, a firm in San Antonio. Price was $1500 “FOB Austin” and shipment date was March 15. On March 5 Signs called LL and told her the deal was off but LL refused the cancellation. LL went to her warehouse and picked 80 fixtures from stock and posted a notice stating that 80 fixtures would be sold to the person making the best offer. CC offered to pay $1000. LL sold them and accepted the $. [On
March 5 fixtures sold for $800 on open market and that on March 15 the price for 80 was $900 in Austin—which was the place of tender]
1.
Does §2-704 permit LL to select goods from the warehouse after buyer repudiates? Yes
2.
Was the resale proper? Seems commercially reasonable and in good faith. But this is a private sale, therefore must give notice to the breaching buyer of the impending private sale , as such, there is a technical violation of §2-706
3.
If damages are measured under §2-708(1): $1500-$900 = $600, seller should also try to show incidental damages under §2-713 for atty fees, transaction costs…
4.
If damages measured under §2-706: $1500-$1000 = $500 less any expenses saved b/c of buyer’s breach.
§2-704---Seller’s Right to Identify Goods to the K Notwithstanding Breach or to Salvage Unfinished Goods
(1) An aggrieved seller under §2-703 may…….
(a) identify to the K conforming goods not already identified if at the time he learned of the breach they are in his possession and control ;
(b) treat as the subject of resale goods which have demonstrably been intended for the particular K even though those goods are unfinished.
(2) Where goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the K or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner.
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Ex. CCC contracted to design and manufacture a special computer that would regulate the timing of subway trains for City. Price was $20,000 FOB CCC’s plant in Atlanta. When the computer was ½ way done, City cancelled. CCC stated that as scrap the computer and its components are worth $5,000 and if computer was finished there were other cities that may buy from anywhere b/w $15,000 to $20,000. On the other hand it will cost CCC $9,000 to complete the computer.
1. Should CCC stop the manufacture and sell it for scrap or complete the manufacture and try to resell?
Complete Manufacture: CCC could then pursue normal damages under §2-706 and §2-708, BUT §2-708(1) may not apply b/c there is no recognized market for such goods
-if resale is not practicable, CCC may finish manufacture and institute an action for the price under §2-709
Cease manufacture: can cease and sell compenents/scraps as per §2-704
-CANNOT resell the components/scraps and seek action for the difference b/w that resale price and the K price under §2-706 b/c the components/scraps are not what the original K called for.
Ex. F in S sells pools. A customer named E ordered a standard pool that retailed for $2,000. The pool’s components are purchased by F in S at wholesale price of $800. The assembly process costs $400. E has repudiated the K.
Current market price is $2,000 for such a pool. F in S is sure it can find another buyer at that price if it resells the pool. So….$2,000 is the K price, $800 for supplies, $400 for labor, thus to produce 1 unit F in S spends $1,200 in production, thus gross profit = $800
(1) F in S should be entitled to lost profits b/c they are a lost volume seller : sellers having an unlimited supply of goods.
(2)
§2-708(2) is treated as an alternative to the market base measure
(3) F in S can resell the same kit to buyer2 for the same price.. Damages under: a.
§2-706: K price – resale price: $2,000 - $2,000 = 0 + incidentals…..normal measure of damages is not adequate b.
§2-708(1): not an adequate remedy to put seller in same position as he would be had buyer performed [seller lost the profit from the sale] c.
§2-708(2): lost volume seller: entitled to lost profits + incidentals
The Lost Volume Seller
1.
Seller is not at capacity [to be a lost volume seller , seller must have unlimited supply
2.
Demand must be so robust that they don’t need to lower prices to make sales
Damages for a “Lost Volume Seller”
1.
Net profit
2.
reasonable overhead
3.
allowance for costs spent and not saved
Teradyne v Teledyne : both parties admit that seller is a lost volume seller
Buyer repudiated K. Teradyne would have made the sale to the resale purchaser even if Teledyne had not broken its
K. Thus if there had been no breach, Teradyne would have made 2 sales and earned 2 profits rather than 1.
NOTE: it is universally agreed that in a case where after buyer’s default a seller resells the goods, the proceeds of the resale are not to be credited to the buyer if the seller is a lost volume seller.
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