Sales Briefs

UCC Sales Briefs Printed

14.04.2020

1. Foster v. Colorado Radio Corp. (1967); pg. 2, briefed 8/25/96

2. Facts: Foster promised to buy Colorado Radio as a going concern, including the license, good will, real estate, studios, transmission equipment, and furniture. Foster breached the promised to buy certain assets of the radio station.

3. Procedural Posture: At trial, the parties stipulated that the measure of damages is the difference between the resale price and the contract price. Shortly after filing of the suit, the radio station negotiated a private resale. The trial court found that the sale of the radio station did not fall under the UCC definition of “goods” and so the stipulation of damages was effective, thus awarding the radio station over $15,000.

4. Issue: Whether the contract for the sale of the radio station is divisible into a contract for the sale of goods (to which the UCC requirement of prior notification before private resale is applicable) and a sale of non-goods (to which the UCC is not applicable, and thus the stipulation would be applicable).

5. Holding: Yes.

6. Reasoning: There is nothing in the Code to suggest that it is not applicable to all sales of goods, even if mixed in a transaction involving non-goods. Here, the goods are the furniture and other movables. This case is distinguishable from Epstein because here the sale is not of services. Furthermore, the “primary purpose” test should not apply because it would defeat the broad language of §2 that the code be applicable to all sales of goods. In this case, the value of the goods was about ten percent of the total value of the price of the contract, and so the damages award should be reduced accordingly.

1. Wivagg v. Duquesne Light Co., (1975); pg. 4, briefed 8/25/96

2. Facts: A fire destroyed Wivagg’s building. The fire was started by a surge of electricity from Duquesne-owned electrical equipment.

3. Procedural Posture: The trial court found that Duquesne Light was not negligent, but that it was nevertheless liable under an implied warranty theory analogized from the UCC implied warranty of goods in a sale.

4. Issue: Whether an implied warranty of safe and hazard-free electrical service can arise from the supply of electricity by a public utility.


6. Reasoning: The UCC does not technically apply because this was a “hybrid” transaction which was part sales and part service. However, few sales of goods can be deemed “pure” sales. The supply of electricity is intimately associated with the apparatus

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and equipment by which it is generated and conducted. The code itself suggests that warranties should extend to analogous transactions beyond sales. Warranties of fitness are necessary in the provision of electricity for the same reasons that they are necessary in a sale of goods. Specifically, the utility company has complete control of the electricity, the consumer/customer/buyer is unable to protect himself and must rely on the skill of the utility company, and the utility company is of sufficient size to distribute the costs and bear the losses.

1. Glenn Dick Equipment Co. v. Galey Construction, Inc., (1975); pg. 8, briefed 8/25/96

2. Facts: Lease of goods.

3. Procedural Posture: Unknown.

4. Issue: Whether Article 2 of the UCC should be extended to the lease transaction invovled here.

5. Holding: Unknown.

6. Reasoning: This court has ruled that the implied warranty provisions of the UCC should extend by analogy to lease transactions under appropriate circumstances. A lease is analogous to a sale, and is commonly used as an economical substitute for a sale. It would be anomolous to treat the two differently. Thus, Article 2 will be used as a premise for reasoning when the case involves the same considerations that gave rise to the Code provisions and an analogy is not rebutted by additional antithetical circumstances.

Problems on Goods to be Severed From the Land, pg. 10, briefed 8/25/96

1. Does the Statute of Frauds provision of Article 2 apply to an oral contract to sell a building when the buyer is the person who is to remove the building, and the seller

repudiates before removal?

1. No. This is a contract for the sale of a structure which is to be severed from the realty by the buyer (not the seller), and therefore does not fall under §2-107. Thus, from the Official

Comment to subsection (1), “If the buyer is to sever, such transactions are considered contracts affecting land and...[t]herefore, the Statute of Frauds section of [Article 2] does not apply to such contracts, though they must conform to the Statute of Frauds affecting the transfer of interests in land.”

2. Do the Code risk of loss provisions (as by fire) apply to timber that was severed by the seller, after the seller had severed half of the timber, but before the buyer could haul

it away?

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2. By §2-107(2), a contract for the sale of timber to be cut is a contract for the sale of goods whether it is to be severed by the buyer or the seller, and even though it forms part of the realty at the time of contracting. Furthermore, the parties can, by identification, effect a present sale before severance. By §2-106, a “present sale” is one which is accomplished by the making of a contract. Thus, if the timber has been identified, then a “sale”, which is the transfer of title from the seller to the buyer for a price, has occurred. Thus, the title to the timber is in the buyer at the time of the fire because the sale has occurred (at the very least to the timber which has already been severed, because it certainly has been identified).

3. Does Art. 2 apply if the buyer repudiates a contract to sell wheat shortly before

harvesting?

3. Yes, for the same reasons as question #2, i.e. a contract for the sale of crops is a contract for the sale of goods, even though it forms part of the realty at the time of contracting.

Thus, by §2-102 article 2 applies to the contract for the sale of goods.

Questions on Offer and Acceptance:

1. What Art. 2 provisions cover contract formation:

1. Most of section 2, including specifically: §2-204 - Formation in General; §2-206 -Offer and

Acceptance in Formation of Contract, and §2-207(3) - Conduct recognizing the existence of a contract, and §2-205 on Firm Offers.

2. (a) Why does article 2 have so few direct references to contract formation?

2. (a) Because practical business experience shows that there are many ways to create a contract including the formal offer and acceptance (§2-206), acceptance by partial or full performance (§2-204), conduct recognizing the existence of a contract (§2-204(1)). Thus, the Code seeks to get away from the formal and rigid requirements of the previous common law of contracts, and allow more efficient and broader protection of more transactions. Often times, it is difficult to determine the exact moment of contract formation, and so the Code recognizes this (§2-204(2)). One of the purposes of the code is to permit the continued expansion of commercial practices through custom, usage and agreement of parties (§1-102(2)(b)). Also, the common law already is incorporated by

§1-103, so the drafters only made changes where tweaks were necessary.

2. (b) Why have the draftsmen chosen the provisions on contract formation that are

included in the Code?

2. (b) The provisions that are included are a broadening and reshaping of the basic tenents of the common law. In many ways they diverge from the common law. The Code tries to cover the traditional methods of contract formation (i.e. offer and acceptance,

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performance, options, firm offers, etc.), but leaves enough room for other methods (i.e. conduct).

3. How is a contract for the sale of goods formed? Are offer and acceptance required?

3. By §2-204(1) “a contract for the sale of goods may be made in any manner sufficient to show

agreement.” Thus, offer and acceptance are not required because §2-204 includes contract formation by “conduct...which recognizes the existence of such a contract.”

4. If S sends a telegram to B offering to sell B specified goods, does B have to respond by telegram in order to accept? By a means of transmission at least as fast as telegram

service?

4. Under §2-206(1), “Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a contract shall be construed as inviting acceptance in any

manner and by any medium reasonable in the circumstances.” Thus, unless the offer (or circumstances) requires acceptance by telegram, B does not need to respond by telegram to accept. However, B must still use a medium reasonable under the circumstances. Thus, if the offer were for sale of goods whose price was so volatile that it varied significantly over a few hours, then B would probably have to use a medium of acceptance fast enough that the seller, S, would be protected from loss if he couldn’t get an answer immediately.

For example, common stock sold on the NYSE is volatile enough that some fast method of acceptance would probably be required.

5. If an offeror indicates that an acceptance must be by a return promise by telephone to

the offereor in two days, can the offeree nevertheless create a contract by other means?

5. §2-206(1) provides for the case when the offer does not unambiguously specific a method of acceptance. However, it does not explicitly provide for the converse case, i.e. when the offer is unambiguous, but it does imply that if the offer is “unambiguous” in requiring a specific mode of acceptance, then than an attempted acceptance fails if it does not conform to the offer’s requirements. However, further conduct by both parties may continue, and eventually a contract may be formed by some other mechanism.

6. Does a contract for the sale of goods fail if the parties do not specify the price to be

paid for the goods?

6. No. By §2-204(3) “even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.” Furthermore, we know from

§2-201(1) that quantity is the only required term in a contract to satisfy the statute of frauds.

Questions on Firm Offers:

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To what extent will the following facts affect an offer under §2-205?:

1. The offeror is a book salesman offering to buy an electric range.

1. The firm offer provisions of §2-205 only apply to “merchants”. Thus, since §2-104(1) defines merchant as “a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices of the goods involved in the transaction,” a book salesman is not a “merchant” for the purposes of §2-205 with respect to an offer to buy an electric range.

2. The offer is oral.

2. §2-205 clearly requires that the offer be in writing. Even where the trade practice is well settled that firm offers may be made orally, and relied upon without further evidence,

§2-205 does not apply. See the comment section (2), last sentence. “Authentication by writing is the essence of this section.”

3. The offeror illegibly initials his written offer.

3. §2-205 requires that the writing by “signed.” However, as explained in the comment, and further in §1-201(39), “signed” includes “any symbol executed or adopted by a party with intention to authenticate a writing.” Thus, there is no formal requirement that the signature be a full signature (initials are acceptable) or even that the initials be legible.

4. The offer provides assurance that it will be kept open for seven months.

4. By §2-205, “in no event may such period of irrevocability exceed three months” unless, of course, it is supported by consideration. That is to say that an offer that is not supported by return consideration is revocable after three months, regardless of whether it makes longer assurances. By the comment section (3), it may be renewed at the end of three months.

5. The offeror signs a form drafted by the offeree.

5. By §2-205, “any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.” Thus, the offeror’s signature must be somehow separately associated with the term making the offer irrevocable. A simple signature as to the entire contract is insufficient, because it could result in unconscionable results by an offeree “sneaking in” a firm offer term.

Problem on Contract Formation:

(a) Offeree telephones “We will ship your order immediately.”

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(a) Unless otherwise unambiguously stated, a “prompt promise to ship” conforming goods operates as an acceptance of the offer to buy the goods. §2-206(1)(b). Furthermore, the telephone is effective as a medium of acceptance because §2-206(1)(a) provides for effective acceptance by “any medium reasonable in the circumstances.” Lastly, the acceptance does not have to mirror the terms of the offer, and so if it is reasonable to refer to the order as “your order”, then the acceptance would be effective, and a contract would be formed at the time of the phone call.

(b)/(c) Offeree wires or sends a letter saying “We will ship your order immediately.”

(b)/(c) Same as (a), except we must look a little more closely at whether the medium of acceptance (i.e. wire vs. regular mail) is reasonable under the circumstances (i.e. whether the offeror is in immediate need of the goods to avoid losses). If effective, the contract would be formed at the time of dispatch of the wire or letter (by the “mailbox rule” of common law).

(d) Offeree ships the goods as ordered.

(d) Again, under §2-206(1)(b), “the prompt or current shipment of conforming or non-conforming goods” is effective as an acceptance. However, under §2-206(2), “where the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.” Thus, either the goods must arrive within a reasonable time, or the offeree must otherwise notify the offeror. The contract would be formed at the time of dispatch of the goods, subject to the condition that the notification of shipment also be made promptly.

(e) Offeree sends its acknowledgment form which describes the goods precisely as

described in the offer to buy form.

(e) Although the acceptance does not need to mirror the terms of the offer exactly (because it may be made “in any manner” reasonable §2-206(1)(a)), this would be acceptable given that the offeror could reasonably interpret it as being an acceptance. Contract formation would occur at the time of dispatch of the acknowledgment form.

(f) Offeree ships non-conforming goods without any explanation as to whether the

goods are in satisfaction of the order, or otherwise for accomodation.

(f) By §2-206(1)(b), “a shipment of conforming or non-conforming goods” is effective as an acceptance of an offer, unless made for accomodation only. Contract formation would occur at the time of shipment even though the shipment would technically be a breach of that same contract, and would bind the offeree, thus avoiding the “unilateral contract trick” where the offeree could deny the existence of the contract if the offeror sued.

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(g) Offeree ships non-conforming goods with a notice that there are no conforming goods in stock but that it “hopes that this shipment will be of some assistance to

Adams.”

(g) By §2-206(1)(b), “a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accomodation to the buyer.” Here, the seller has seasonably notified the buyer that the goods are non-conforming and made for the purpose of accomodation, so there is no contract.

(h) Assume that the purchase order form of the offeror contains the explicit and conspicuous (i.e. unambiguous) provision requiring a particular mode of acceptance, and that the seller (offeree) does not comply. Is a contract formed in any of the above

situations?

(h) §2-206(1) provides that the acceptance can be made in any manner “unless otherwise unambiguously indicated.” Thus, there would be no contract formation based on the offer and any of the purported acceptances above. However, the parties would be free to continue to take actions which may eventually result in contract formation by other mechanisms (i.e. conduct).

1. Southwest Engineering Co. v. Martin Tractor Co., (1970); pg. 14 supp, briefed 9/8/96

2. Facts: Southwest, a general contractor, received an oral bid on a runway light generator from Martin. Southwest was awarded the contract based on this oral bid. However, when Cloepfil from Southwest met with Hurt from Martin, they negotiated a new price, as evidenced by a memorandum in which Hurt laid out a cost breakdown of the generator.

Martin subsequently breached, and Southwest had to cover on the open market.

3. Procedural Posture: Southwest claimed that the memorandum was sufficient evidence of a binding contract for the sale of goods under the UCC. Martin claimed that the memorandum was insufficient because it left out material terms as to the schedule of payment, and was not formally signed, and so it was only a prelude to more negotiations.

The trial court found for Southwest and awarded contract-market difference as damages.

4. Issue: Whether the memorandum was sufficient under the UCC statute of frauds for the sale of goods.


6. Reasoning: The statute of frauds requires that sufficient evidence of a contract for the sale of goods be recorded in writing, including a quantity term, and being signed by the party against whom it is being asserted. Here, the memorandum clearly included a quantity term. It also included price, and showed that it was for the sale of a generator.

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Although Hurt only printed his name on it, this was sufficient as authentication for the purposes of the UCC (1-102(39)). Furthermore, the fact that terms were left open did not defeat the existence of the contract, since there was otherwise reason to believe that a contract existed, and an adequate remedy was available (2-204). Thus, the UCC provides that the open term could be implied by law, and even provides a code section stating that unless otherwise agreed, payment is due upon reciept (2-310).

1. Harry Rubin & Sons v. Consolidated Pipe Co., (1959); pg. 19 supp, briefed 9/8/96

2. Facts: Rubin ordered a quantity of hoops from Consolidated. Consolidated agreed by telephone. Rubin followed up with a written purchase order confirming the order and referencing the telephone call. Consolidated did not reply to the purchase order, and also did not supply the full quantity of hoops ordered.

3. Procedural Posture: The trial court held that the oral contracts were unenforceable because they were not represented in writing, and thus did not overcome the statute of frauds.

4. Issue: Whether the written purchase orders, although not signed by Consolidated, were evidence of a binding contract sufficient to overcome the statute of frauds.


6. Reasoning: As between merchants, UCC 2-201(2) provides that a writing need not be signed by the opposing party if the opposing party does not respond within a reasonable time, and has reason to know the contents of the writing, and the writing otherwise complies with the terms of §2-201(1) (i.e. has a quantity term and evidences a contract for the sale of goods). The purchase order references previous orders, and was not refuted by

Consolidated. Thus, as a merchant, they can not claim that it was merely an offer to buy which was never accepted. A merchant fails to read his mail at his own peril.

1. Lockwood v. Smigel, (1971); pg. 21 supp, briefed 9/8/96.

2. Facts: Smigel offered to sell a Rolls Royce to Lockwood. Lockwood accepted and gave a

$100 downpayment. Smigel then failed to deliver the car, and sold it to someone else.

3. Procedural Posture: The trial court entered judgment for the defendant, holding that the partial payment did not overcome the statute of frauds writing requirement.

4. Issue: Whether the partial payment on the purchase of a single automobile is sufficient to overcome the statute of frauds.


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6. Reasoning: The Cal. Civil Code equivalent to UCC 2-201(3) provides that even though a contract may not satisfy the writing requirement, it is nevertheless enforceable with respect to goods for which payment has been made and accepted. Here, there is only a single good - a single automobile. Thus, the $100 downpayment which was accepted by Smigel is sufficient evidence of the contract to overcome the statute of frauds.

Problem on UCC §2-201

(a) When Southern Furniture (seller) did not deliver $5,000 of chairs (which were ordered and promised by telephone), Adams (buyer) inquired and was told by Southern

that there was no contract. Adams brought an action and Southern demurred.

(a) Since the price is greater than $500, it falls under UCC §2-201. There is no writing here, only a telephone conversation. The oral contract would be unenforceable for lack of any writing evidencing a contract.

(b) Upon receipt of a telephone order for 100 skillets (at $15/skillet), Northern (seller) submitted the following writing to Adams (buyer), which Adams received without objection: “This confirms June 20 order from Adams Dept. store for 12-inch electric

skillets. Price $1,500. (Signed) Northern.”

(b) The telephone order is evidenced by a writing which was sent from the seller to the buyer, both of whom ar merchants. Thus, UCC 2-201(2) provides that the merchant against whom the contract is being enforced need not sign the writing if he receives it and does not object. However, this does not have a quantity term and thus the writing is not

“sufficient against the seller.”

(c) After consummating the deal by telephone for a custom christmas tree, American

(supplier) immediately ordered special custom glass required for the manufacture of the tree. Two days later, Adams (buyer) notified American by telephone that it cancelled

the order for the tree.

(c) Under UCC 2-201(3), a contract which does not satisfy the writing requirement is nevertheless enforceable if “the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of seller’s business and the seller, before notice of repudiation is received...has made...commitments for their procurement.”

Thus, this contract is enforceable if there are other circumstances indicating that the trees were for Adams (and not some other buyer).

(d) Adams (buyer) receives a confirmation of an order that it allegedly placed by telephone to the National Corporation (seller) for $8,000 of ladies’ sportswear. The

confirmation is on National’s form. Adams simply discards the confirmation letter.

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(d) Adams and National are both merchants for the purposes of the UCC §2-201(2). Thus, since Adams has reason to know the contents of the form (it was read before being discarded), and the form is assumably sufficient against the sender (i.e. is authenticated and has a quantity term), then there is a contract for sale because written notice of objection was not given by Adams within 10 days of receipt.

1. Columbia Nitrogen Co. v. Royster Co., (1971); pg. 24 supp., briefed 9/19/96

2. Facts: Columbia (buyer) contracted with Royster (seller) to buy a minimum 31,000 tons of phosphate each year for three years, with an option to extend. The contract had an express price term, which could be increased based on market conditions (in favor of

Royster), but could not be decreased. Soon after, the market on phosphate fell, and

Columbia refused to buy the full amount.

3. Procedural Posture: The trial court refused to allow Columbia’s offered evidence on course of dealing and usage of trade that express price and quantity terms in farming contracts for fertilizer materials were merely projections to be adjusted according to market forces, and the jury found for Royster on the contract. The trial court stated that evidence of course of dealing and usage of trade is not admissible if it contradicts unambiguous language of the contract. It also seems that Columbia had sold nitrogen to Royster for several years at rates that varied from the express terms, and that Columbia had relied on the anticipation of reciprocal behavior by Royster.

4. Issue: Whether the evidence of usage of trade and course of dealing should have been allowed even though the contract appeared to be unambiguous on its face.


6. Reasoning: The Code 1-102 states that it should be construed broadly to promote its underlying purposes of the expansion of business practices through custom, usage, and the dealings of the parties. The official comment to 2-202 expressly rejects the old requirement that a contract be ambiguous before course of dealing or trade usage evidence could be introduced to contradict the terms. Where the trade usage and course of dealing should be admitted depends on whether it can be reasonably construed as consistent with the express terms of the contract. This contract is silent about price adjustments in a declining market, and thus, trade usage may be used to supplement the contract.

Furthermore, even though the contract states that it is complete and that it does not include verbal terms, that does not exclude trade usage implied terms. Unless carefully negated, trade usage is admissible to supplement any contract.

1. Southern Concrete Services, Inc. v. Mableton Contractors, Inc., (1975); pg. 27 supp., briefed 9/19/96

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2. Facts: Mableton (buyer) contracted with Southern (seller) to purchase “approximately

70,000 cubic yards of concrete” at $19.60/cubic yard, over a one year period, in connection with the construction of a foundation for a power plant building. The contract also stated that “No conditions which are not part of this contract will be recognized.” Mableton only purchased about 12,500 cubic yards of concrete, which was the total amount needed for the foundation.

3. Procedural Posture: Southern sued for breach, seeking lost profits and costs. The case is on appeal of a ruling on the admissibility of trade usage evidence. Mableton seeks to introduce evidence of trade usage that the quantity and price terms, although express, are understood to be subject to renegotiation.

4. Issue: Whether, in light of the express terms of the contract, the evidence of trade usage should be allowed.

5. Holding: No.

6. Reasoning: The court distinguished Royster because in that case, the equities were strongly in favor of the defendant, who had always made price concessions to Royster, but now that Royster was the seller, it refused to make concessions, and even included a one-sided price protection provision in its favor (too much reservation of power).

However, those equities are not present here. If the court were to interpret the past reluctance of parties to litigate contracts (to preserve costs and customer relations) as a waiver of those contractual rights, then the contract system would be in jeopardy. The more reasonable approach is to assume that the parties intended to be bound by their express terms, and to allow evidence of trade usage only when it is reasonably consistent with the express terms. Here, the alleged trade usage is not reasonably consistent with the express terms, and furthermore, not properly interpreted as a trade usage.

Problems on Delivery and Payment Terms, pg. 31, briefed 9/19/96

Seller contracts to sell 1,000 gizmos to buyer for $3,000. Seller ships the goods properly one month later by railroad car. The goods arrive one month later, whereupon buyer is notified, inspects the goods, and accepts delivery.

If the contract delivery terms were “F.O.B. buyer’s place of business”:

1. What kind of contract is this? Destination contract. See §2-503, and §2-504 including comments.

2. What kind of shipment does this contract require? Under §2-319(1)(b) it requires the seller “at his own expense and risk [to] transport the goods to that place [the buyer’s place of business] and there tender delivery of them” in accordance with 2-503.

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3. When are the goods delivered? The goods are delivered when he “put[s] and hold[s] conforming goods at the buyer’s disposition and give[s] the buyer any notification reasonably necessary to enable him to take delivery.” §2-503(1). In this example, it would be at the time that the goods arrived at the buyer’s place of business, and the buyer was notified.

4. When are the goods required to be delivered? Since the contract does not expressly provide for a delivery date, then 2-309(a) provides that the goods shall be delivered within a “reasonable time.” If the reasonable period has already expired, the seller is not in breach unless the buyer has reasonably notified the seller what the reasonable time is. See comment 5 to 2-309.

5. Where does the delivery of the goods occur? At the buyer’s place of business when the seller complies with 2-503.

6. Where are the goods required to be delivered? The contract expressly requires F.O.B. buyer’s place of business.

7. Who pays the expense of the freight? The seller under 2-319(1)(b).

8. What is required of the seller for proper shipment? Under 2-503(1), the seller must

“put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable him to take delivery,” including (a) tendering at a reasonable hour and keeping the goods available for a reasonable time, and tendering any documents required.

9. How can the seller ship? The contract does not expressly provide for mode of shipment, so the mode is at the option of the seller. 2-311(2).

10. When/Where is payment due? Since it has been left out of the contract, 2-310(a) provides for payment at the “time and place at which the buyer is to receive the goods.”

Here, that is the buyer’s place of business, on the date of delivery.

If there were no delivery terms specified, then the contract is assumed to be a shipment contract, and the seller has delivered when he has properly shipped the conforming

goods.

Problems on Good Faith, pg. 33, supp. briefed 9/24/96

1. Frank is a wholesale bookseller in New York. John is a book retailer in a law school town. John has several books that he knows are about to be superseded. He sells them to Frank, who does not know that they are about to be superseded. When Frank finds out, he seeks to rescind. Assuming that John’s non-disclosure does not amount to

“fraud”, what result?

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1. UCC §1-203 requires that good faith be exercised in the enforcement and performance of all contracts, but does not lay out any standard for their negotiation. However, UCC

1-103 provides that common law principles of contract which are not superseded by the code, are still applicable. At best, Frank would have an unconscionability argument. He would hope to find case law indicating that when the buyer knows that his goods are about to be worthless, he may not unload them on an ingnorant buyer. However, these appear to be two merchants with equal bargaining power. Frank should not be rewarded for his lack of foresight.

2. Ice, Inc. is a supplier having a requirements contract with Sam McGee for “such ice as it requires.” This has amounted to about 25 tons of ice per month in the past.

Suddenly, Sam McGee decides to increase its business, and orders 300 tons of ice from

Ice, Inc., who promptly notifies McGee that they can not make the whole delivery.

Upon notification, McGee treats the requirements contract as no longer binding, and that he is free to get all of his Ice from a larger supplier named Prime. What advice for

Ice?

2. First of all, 1-203 requires good faith in the enforcement and performance of all contracts.

Good faith, under 1-201(19) is the honesty in fact, and is measured by reasonable commercial standards of fair dealing. Here, it appears that Sam McGee had another supplier lined up, probably at a cheaper price, and was looking for a way to get out of the existing contract with Ice. The code specifically deals with this in 2-306(1), which states that a requirements contract is bounded by good faith, “except that no quantity unreasonably disproportionate to...any normal or otherwise comparable ...requirements

...may be demanded.” Thus, even though no specific requirement was estimated in writing, the contract is still valid (2-311), and McGee is bound in good faith to continue to purchase a reasonably consistent amount of ice from Ice, but it can get its extra amount (if any) from Prime.

3. Rowan is a car broker. Martin wishes to buy a particular model of car by a certain date to drive in a race. Tucker, owns such a car, and offers to sell it to Rowan for

$13,000. However, once Tucker finds out that Rowan intends to resell the car for

$15,000 to Martin, Tucker inists on a price increase to $14,500. Rowan finally agrees, knowing that he will lose any sale whatsoever if he doesn’t get the car and resell it to

Martin by the day of the race. What advice of Rowan?

3. Although 2-209(1) provides that a modification to a contract requires no additional consideration to be binding, the comments to that section explain that the modifications must still meet the good faith test of 1-203. Thus, there must be a legitimate commercial reason for the modification, rather than mere extortion of a modification due to bad faith exploitation of the other party’s inability to cover at a late date.

Problems on Risk of Loss, pg. 34 Supp., briefed 10/3/96

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Contract for sale of Gizmos from Seller (S) to Buyer (B). Express delivery terms are

“F.O.B. seller’s place of business.” S packages the goods, takes them to the railroad for delivery, forwards the required documents to B, and notifies B of the shipment. Who

bears the loss if the Gizmos are destroyed while in transit?

The risk of loss provision is 2-509 because there has not been a breach. Here, the contract expressly provides for the delivery terms as F.O.B. seller’s place of business, so therefore

2-509(1) applies because 2-319(1)(a) on shipment contracts requires the seller to ship the goods in accordance with 2-504, and thus the contract “requires or authorizes the seller to ship the goods by carrier” as stated in 2-509(1). Since the contract is a shipment contract under 2-504 (delivery by putting goods in the possession of the carrier) 2-509(1)(a) applies because the seller is not required to deliver the goods at a particular location. Thus, under

2-509(1)(a), the risk of loss passes to the buyer when the goods are duly delivered to the carrier. Since the facts indicate that S has complied with the delivery requirements of

2-504, then the goods have been “duly delivered” to the carrier, and thus the risk of loss falls on the buyer. As such, since the duty of the buyer is to pay for the goods under

2-301, B will still have to pay for the goods (although he may have an action against the railroad for damages as a bailee).

What result if S had not properly packaged the gizmos?

Then the goods would not have been “duly delivered” as required by 2-509(1)(a), and thus the loss would remain on S.

What result if the Seller fails to make a proper contract for the transport of the goods, or fails to promptly notify the buyer, and the goods are subsequently destroyed in transit

due to some cause totally unrelated to the seller’s failures?

Technically, the goods would not have been “duly delivered” under 2-509(a)(1) because

2-504 for shipment contracts requires the seller to make the proper contract for the transportation of the goods, deliver any documents, and promptly notify the buyer.

However, the last sentence of 2-504 implies that the Buyer’s grounds for rejection are limited in this case unless a delay or loss ensues. The best course of action is to analyze the balance of power and determine a tradeoff between the importance of prompt notification and technical formalities. Arguably, the Seller could not have done anything differently to prevent the loss, and the Buyer is assumably not paying a premium for mere technical correctness, so the risk of loss should remain with the buyer.

1. Eberhard Manufacturing Co. v. Brown, (1975); pg. 36 supp., briefed 10/3/96

2. Facts: π and ∆ entered into a contract for the sale of goods. The contract did not have an

F.O.B. term, but it did have a “ship to” address with the ∆’s place of business. π put the

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goods on a common carrier, with instructions to deliver them to the ∆. The goods were apparently lost in transit.

3. Procedural Posture: π sued ∆ for breach of contract for failure to pay, and ∆ counterclaimed for damages for breach. Both parties alleged that the risk of loss lie with the other. The trial judge gave judgment for ∆ for the lost goods. The circuit court affirmed, and the Supreme Court remanded the case to the Supreme Court of the State of

Michigan.

4. Issue: Whether the risk of loss passed to the buyer upon the seller’s placement of the goods with the common carrier.


6. Reasoning: There was not an express agreement between the parties, but if there were, it would control (2-509(4)). The contract contained no F.O.B. term, so the default contract is a shipment contract (2-503 comment (5)). The “ship to” address is not a substitute for the

F.O.B. term and does not invoke 2-509(1)(b)’s requirement to deliver the goods “to a particular destination.” A “ship to” term must be included in every contract in which a shipment is contemplated, and thus has no significance in determining risk of loss. Thus, the trial court erred in giving the ∆ credit for the lost shipment.

1. Consolidated Bottling Co. v. Jaco Equipment Corp., (1971); pg. 38 supp., briefed

10/3/96

2. Facts: Consolidated contracted to sell some canning equipment to Jaco. The contract contained the terms “F.O.B. purchaser’s truck.” The equipment was damaged while in storage at Consolidated, and before the equipment had been picked up by Jaco. Jaco refused to pay for the damaged canning equipment.

3. Procedural Posture: Consolidated sued Jaco for the contract price. Jaco counterclaimed for consequential damages for lost profits. The trial court dismissed Consolidated’s complaint with prejudice.

4. Issue: Whether the risk of loss passed to the buyer.

5. Holding: No.

6. Reasoning: 2-509(4) provides that the express agreement of the parties controls. Here, there was the express F.O.B. term. Under 2-319(1)(c), when the F.O.B. term names a vehicle, the seller is required to load the goods on board the vehicle at his own risk.

Clearly, the seller retained the risk of loss given his affirmative confirmation of the F.O.B. term.

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1. Caudle v. Sherrard Motor Co., (1975); pg. 41 supp., briefed 10/3/96

2. Facts: Caudle contracted to purchase a trailer from Sherrard, and made a downpayment and signed a promissory note for the balance. However, while the trailer was being prepared for delivery, it was Caudle was called away on business, and promised to return.

The trailer was stolen from Sherrard’s lot before Caudle could return to pick it up. Caudle stopped payment on the check. A clause in the contract stated that the buyer was not released from his obligation to pay in the event of damage or loss.

3. Procedural Posture: Sherrard sued Caudle for the contract price. The trial jury found that Caudle had breached, and the judge entered judgment for Sherrard for damages.

4. Issue: Whether the risk of loss had passed to the buyer.

5. Holding: No.

6. Reasoning: The seller here is not a commercial bailee for purposes of the code, and thus

2-509(b)(2), where the risk of loss passes upon acknowledgment by the bailee of the buyer’s right to possession of the goods, does not apply. Furthermore, 2-509(d) does not apply because the language in the contract concerning the buyer’s obligation to pay in case of loss is most reasonably construed to mean risk of loss after he has taken possession. Such is the normal course of understanding, and the contract would have to be much more explicit in order to overcome that meaning. Therefore, 2-509(c) applies because the seller is a merchant, and the buyer had not yet taken physical possession. The risk of loss remains with the seller because he is in practical control of the trailer, and in a position to insure it.

Problems on Risk of Loss in the Absence of Breach, pg. 45 supp., briefed 10/3/96

1. Jenkins (buyer) and Smedley (Seller) contract for the sale of goods, F.O.B. Seller’s plant. Smedley chose Consolidated Van lines to carry the goods to Jenkin’s plant. En route, the truck crashed, destroying the goods. Smedley sues Jenkins for the purchase

price of the goods. What result?

1. The risk of loss provision is 2-509 because there has not been a breach. Here, the contract expressly provides for the delivery terms as F.O.B. seller’s place of business, so therefore 2-509(1) applies because 2-319(1)(a) on shipment contracts requires the seller to ship the goods in accordance with 2-504, and thus the contract “requires or authorizes the seller to ship the goods by carrier” as stated in 2-509(1). Since the contract is a shipment contract under 2-504 (delivery by putting goods in the possession of the carrier) 2-509(1)(a) applies because the seller is not required to deliver the goods at a particular location.

Thus, under 2-509(1)(a), the risk of loss passes to the buyer when the goods are duly delivered to the carrier. Since the facts indicate that S has complied with the delivery

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requirements of 2-504, then the goods have been “duly delivered” to the carrier, and thus the risk of loss falls on the buyer. As such, since the duty of the buyer is to pay for the goods under 2-301, B will still have to pay for the goods (although he may have an action against the railroad for damages as a bailee).

2. Jenkins (buyer) contracts to buy two office desks from Smedley (Seller), F.O.B. seller’s plant. Jenkins sends a truck to get them.

(a) When the truck arrives, it breaks down, and so the seller agrees to hold the goods

until the next morning. During the night, the goods are destroyed. What result?

(a) The seller here is not a commercial bailee for purposes of the code, and thus 2-509(b)(2), where the risk of loss passes upon acknowledgment by the bailee of the buyer’s right to possession of the goods, does not apply. Therefore, 2-509(c) applies because the seller is a merchant, and the buyer had not yet taken physical possession. The risk of loss remains with the seller because he is in practical control of the trailer, and in a position to insure it.

(b) Same facts as (a) except that the goods have already been loaded and driven off before the truck breaks down. The truck returns the goods for temporary storage

overnight in Smedley’s plant, where they are subsequently destroyed.

(b) Here, the delivery has occurred under because the buyer has taken physical possession of the goods, and under 2-509(c) the risk of loss has passed to him. Thus, when he returns the goods to the warehouse, the risk of loss would remain with the buyer. However, the buyer may have an action against the seller for negligence or other action under the common law of bailments, but he is still obligated to pay for the goods under the contract.

1. Martin v. Melland’s Inc., (1979); pg. 46 supp., briefed 10/3/96

2. Facts: Martin and Melland contracted for the sale of some farming equipment. Martin was to trade in his old equipment as a down-payment on the new equipment. However, while the new equipment was being modified and prepared, Martin was to keep the trade-in and use it. The trade in was damaged by fire in the interim.

3. Procedural Posture: The trial court held that the risk of loss had not passed to Melland because the title had not passed, since Martin had retained possession.

4. Issue: Whether the risk of loss passed to the buyer?

5. Holding: No.

6. Reasoning: 2-509 on risk of loss in the absence of breach controls. The seller here is

Martin, because the goods were the trade-in vehicle. The seller can not be considered to be a bailee in this case because such an interpretation would defeat the purpose of the code.

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Thus, 2-509(3) applies. Since the seller is not a merchant, the title passes when he has tendered delivery. Under 2-503, delivery occurs when the seller puts and holds the goods at the buyer’s disposition. Since Martin retained possession of the trade-in, he did not put and hold the goods at the buyer’s disposition. Thus, there was no tender of delivery, and the risk of loss remained with the seller, Martin.

Problems on Effect of Breach on Risk of Loss, pg. 50, supp. briefed 10/10/96

1. Jenkins agrees to buy goods from Smedly, F.O.B. Smedley’s plant. When the goods arrive, they are non-conforming, and Jenkins immediately rejects. Smedly proposes to cure by substituting conforming goods. Before the conforming goods can be shipped, the non-conforming goods in Jenkins’ warehouse are totally destroyed, absent any fault by Jenkins. Smedly sues Jenkins for the price of the goods. What result?

1. This is a shipment contract (F.O.B. seller’s plant) under §2-319. Under §2-509(1)(a), the risk of loss would normally fall on the buyer as soon as the seller complies with the provisions of §2-504, by putting the goods in the possession of the common carrier.

However, §2-510(1) provides that “where a tender of delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance. Here, the seller has attempted to “cure” under §2-508 by seasonably notifying the buyer of his intention to ship conforming goods, thereby suspending the buyer’s right of rejection. However, Comment 2 to §2-510 makes it clear that “the cure of defective tenders contemplated by subsection (1) applies only to those situations in which the seller makes changes in goods already tendered, such as repair...’cure’ by repossession and new tender has no effect on the risk of loss of the goods originally tendered.” Thus,

Smedly would not be able to recover the price of the goods under §2-709 because §2-709(a) only allows recovery of price for “goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer.”

2. Facts the same as #1 above, except that Jenkins does not immediately reject the goods.

Instead, he accepts them, and after noticing the defects, properly revokes his acceptance under §2-608. Jenkins has enough insurance on the goods to cover one-half of the loss.

Smedley sues Jenkins for the price of the goods. What result?

2. §2-709(a) allows recovery of price for “goods accepted.” Here Jenkins has accepted the goods. Thus, under §2-510(1), the risk of loss has passed to the buyer (because it only remains on the seller “until...acceptance.”). However, since Jenkins has properly revoked his acceptance, §2-510(2) applies, and Jenkins 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.” Thus, to the extent that Smedley may recover from Jenkins the full amount of his insurance coverage. However, Smedley may not recover for the half of the loss that was not covered by Jenkins’ insurance (anti-subrogation provision).

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3. Jenkins agreed to purchase goods from Smedley, F.O.B. Smedley’s plant. The goods in Smedley’s plant are separated and stenciled with Jenkins’ name. Jenkins then telephones Smedley and repudiates. The goods are subsequently destroyed by fire.

(a) Assume that Smedley had no insurance on the goods. If Smedley sues Jenkins for

the purchase price, what result?

(a) Under §2-709, Smedley may recover the price of “goods identified to the contract.”

Here, the goods have been identified by stenciling and separating them. Under 2-319, the seller must bear the risk of placing the goods into the possession of the common carrier.

However, here the buyer has repudiated before the time of tender of delivery (i.e. before the risk of loss had passed to the buyer). Thus, §2-510(3) applies, which provides: “Where the buyer as to [1] conforming goods [2] already identified to the contract for sale repudiates...before risk of loss has passed to him, the seller may to the extent of [3] any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time.” Here, the goods are assumed to be conforming.

Also, the goods have been identified, and the deficiency in insurance coverage is 100%.

Thus, the only issue is whether the risk of loss was on the buyer for a commercially reasonable time. If so, then Smedley may recover the entire amount.

(b) Assume that Smedley has insurance which totally covers his loss. What result?

(b) Then there would be no “deficiency in his effective insurance coverage” under

§2-510(3), and therefore the risk of loss is not shifted to the buyer for any portion of the loss

(anti-subrogation provision).

(c) Assume Smedley has insurance that covers only one-half of the purchase price of the goods. Would Smedley be able to recover for one-half of the purchase price, or the entire purchase price?

(c) Smedley would be limited to the “deficiency in his effective insurance coverage” under

§2-510(3), and therefore only be able to recover one-half of the purchase price from Jenkins.

(d) Assume that Smedley’s insurance has paid either all or some of the value of the goods identified to the Jenkins contract. It now seeks to recover from Jenkins the

amount it paid to Smedley on the basis of a subrogation clause in the insurance contract.

(d) Under §2-510 Comment 3, “the ‘deficiency’ referred to in the text means such deficiency in the insurance coverage as exists without subrogation. This section merely distributes the risk of loss as stated and is not intended to be disturbed by any subrogation of an insurer.” Thus, The insurance company would not be able to recover from Jenkins because Jenkins would have discharged his liability by bearing the loss as to the amount of the “deficient” insurance.

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1. Multiplastics, Inc. v. Arch Industries, Inc., (1974); pg. 51 supp., briefed 10/10/96

2. Facts: Multiplastics and Arch entered into a contract for the manufacture and sale of plastic resin pellets. The pellets were specially made for Arch, who agreed to a 1,000 lb per day delivery schedule. On August 18, 1971, Arch refused to take delivery because of labor difficulties and holiday schedules. Multiplastics responded with a letter urging

Arch to take delivery, and Arch promised that they would do so soon. However, they never did. On September 22, 1971 the goods were destroyed by fire in Multiplastics warehouse, and Multiplastics’ insurance did not cover the loss.

3. Procedural Posture: Multiplastics brought this action to recover the contract price for the damaged goods. The trial court found that Arch had repudiated the contract by refusing to accept delivery, and that the month following the repudiation and before the destruction of the goods was not a commercially unreasonable time, and thus found for Multiplastics.

4. Issue: Whether the seller is entitled to recover the cost of the goods, i.e. whether the risk of loss may be treated as being borne by the buyer.


6. Reasoning: Under §2-510(3), where the buyer of goods already identified to the contract repudiates before the risk of their loss has passed to him, the seller may treat the risk of loss as passing to the buyer to the extent of any deficiency in his effective insurance coverage, if that risk is passed to the buyer for only a commercially reasonable time.

Here, there has been a repudiation of conforming goods that were identified to the contract, and the one month period was found by the trial court to be a commercially reasonable time. Thus the seller is entitled to recovery under §2-709.

Problems on Creating Express Warranties, pg. 55 supp., briefed 10/15/96

1. Consider the statements below made by a used car salesman during a sale. Which, if

any, constitute an express warranty under §2-313?

(a) “This car is perfect for you. You couldn’t buy a better car.”

(a) This statement, if it creates an express warranty, would fall under the “affirmation of fact or promise” of 2-313(1)(a). However, 2-313(2) makes it clear that “a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.” Thus, the threshold issue is whether the statement was an affirmation of fact, or an opinion. Although there are no bright-line tests to distinguish them, the following considerations are relevant: 1) whether the statement can be empirically tested,

2) the relative sophistication of the parties, 3) whether it was made in the context of other statements of fact, and 4) when during the negotiations it was made. Here, the statement can not be empirically tested, because what is a “perfect” car for the customer is purely

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subjective. Furthermore, the car buyer is expected to realize that used car salesmen make many statements that are merely their opinion. Thus, there is no reason to believe that the buyer was in a significantly inferior bargaining position. Furthermore, regardless of when the statement was made, it would appear to the objective observer as a mere opinion, and not strong enough to create an express warranty that the car was actually “perfect”, or that there are no “better” cars being sold.

(b) “This car is in perfect, A-1 condition.”

(b) This statement is closer to creating an express warranty that that of problem (a) because the statement appears to be an affirmation of an empirically measureable fact. As such, it may create an express warranty that (at the least) there are no significant problems with the condition of the car, if it meets the further criteria that it has become part of the “basis of the bargain.” Considering comment (8), the statement may be said to have “in the circumstances and in objective judgment become part of the bargain” because a buyer probably may reasonably rely on the statement as creating an express warranty.

Furthermore, since it is a close call, the burden would be on the seller to show “good reason” why the statement should not be interpreted as creating a warranty. And by comment (3), “no particular reliance on such statements need be shown in order to weave them into the fabric of the agreement. Rather any fact which is to take such affirmations, once made, out of the agreeement requires clear affirmative proof.”

(c) “This car will provide excellent transportation for you. You can drive it

anywhere.”

(c) This statement is a little farther from creating an express warranty than that of problem

(b), but marginally closer than that of (a). Here, the statement appears to have some empirical testability to it. Namely, it seems to expressly warrant that the car will be driveable, at least - meaning that it runs. Thus, it appears to be an affirmation of fact.

Given that “no particular reliance” need to be shown to make it part of the “basis of the bargain”, there would be at least some express warranty created. However, the scope of the warranty created would be highly questionable. For example, it would not be fair to say that the hearer could rely on the car being driveable literally “anywhere.” That appears objectively to be a plain exaggeration. Also, it is unclear how good “excellent” is in this context. These ambiguous and undefined words cast doubt on the warranty’s creation, or at least its scope.

(d) “I can really recommend this baby. She can really go.”

(d) This appears to be a plain “commendation of the goods”, which “does not create a warranty” under 2-313(2).

(e) “I know the roads are bumpy where you’re going to drive this car. Don’t worry.

This baby will take those bumps easily.”

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(e) This appears to be a affirmation of fact that would be empirically measurable by a road test. Although there are some problems with the scope, if any, of this statement (i.e. what does “easily” mean), it is stated in such a way as to create a reasonable reliance in the buyer that the car will not break down due to bumpy road conditions. In fact, it is stated in such specific terms (i.e. “I know...where you are going to drive this car), that it may not be brushed aside as mere “puffing up.” Instead it appears to be directly addressing a term that is being bargained for. As such, it would have no problem becoming part of the

“fabric of the bargain.”

(f) “You’ll get 16 miles per gallon in the city and 19-20 on the road.”

(f) This statement would probably be judged by either 2-313(1)(a) as an “affirmation of fact or promise” or 2-313(1)(b) as a “description of goods.” In either case, the statement is empirically testable, and also the kind of statement that a reasonable buyer relies upon to be true when deciding to buy the car. As stated in comment (3) “affirmations of fact...about the goods during a bargain are regarded as part of the description of those goods.”

(g) “That is the sweetest car on the lot; it is a real cream puff.”

(g) This appears to be a plain “commendation of the goods”, which “does not create a warranty” under 2-313(2).

(h) “The brake lining on that car has just been replaced. They’re good for at least

15,000.”

(h) This appears to be a plain “affirmation of fact” under 2-313(1)(a), which would become “part of the basis of the bargain.”

(i) “These tires make any other tire look like wagon wheels. They’re 30% wider so that the ride will be smoother. And the traction - wow! Why do you think they’re called

‘supertrack’?”

(I) The only statement above which could be viewed as an “affirmation of fact” under

2-313(1)(a) or a “description of the goods” under 2-313(1)(b) would be the statement concerning the 30% wider width. This appears to create an express warranty that the tires are in fact 30% wider than those they are being compared to. However, it is very questionable whether the scope of the warranty would include the collateral statement that the “ride will be smoother” because it is unclear what “smoother” means (i.e. under what conditions it would be tested, and what improvement would be measureable). Additional facts as to the tires that it is being compared to would help in the determination.

2. A minature model of a window is demonstrated by the seller. After noting the ease with which is operates, the buyer orders 17 windows. The life size windows don’t

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operate as easily, and the buyer sues for breach of express warranty under 2-313(1)(c).

What result?

2. The sample or model creates an express warranty only if it “is made part of the basis of the bargain.” Further explaination can be found in comment (6) which states that “the presumption is that any sample or model just as any affirmation of fact is intended to become a basis of the bargain.” However, “if a model of merchandise not on hand is offered, the mercantile presumption that it has become a literal description of the subject matter is not so strong.” Here, it is probably not reasonable to expect that the window model would operate the same as the life size versions because common experience tells us that there is more friction in larger windows. However, there may be further facts that cut the other way, such as the relative sophistication of the parties, and whether the issue of ease of use was actually discussed.

3. A buyer asks for “one-inch brass shut off valves.” The seller directs him to a display of valves having red handles. The buyer is pleased with the display model because of the color, but does not convey his delight concerning the color to the seller. The buyer places an order for 24 valves. When they arrive, they are identical to the display models

except for the color. Has the seller breached an express warranty?

3. Perhaps. Under 2-313(1)(c), “any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shal conform to the sample or model.” Here, the goods delivered did not conform in every respect to the display. However, comment (6) states that where “a model of merchandise not on hand is offered, the mercantile presumption that it has become a literal description of the subject matter is not so strong.” Thus, this is not a clear case of breach. However, it may have been reasonable, given the circumstances, for the buyer to rely on the color of the valves without actually raising the issue.

4. Buyer buys a “Veg-O-Matic” which does not perform as well as the demonstration on T.V. Is there a breach of express warranty. What if the salesman is able to make it

work properly when the buyer tries to get his money back?

4. This is another example of a 2-313(1)(c) “sample or model.” Also, it is clearly part of the basis of the bargain that the machine operate properly, because that is what motivated the buyer to go to the store and purchase it. Thus, it would appear to create an express warranty “that the whole of the goods shall conform to the sample or model.” However, there is a question of scope of the warranty. It is unclear what “conform” means in this context where user operation is involved. It is probably too much to assume that the warranty ensures that the slicer will work as well as shown on T.V. in the hands of a novice user, unless it was shown as such. Thus, if the salesman at the store can operate it, it is probably “conforming” and there is no breach of express warranty.

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Problems on Standards of Merchantability, pg. 61 supp., briefed 10/20/96

1. Ewald Steel Corp. purchased steel from Ambassador Steel Co. for approx $10,000.

Subsequently, Ewald resold the steel to Budd Corp. which attempted to weld it onto railroad cars. The steel cracked after being welded. Budd charged its losses back to

Ewald. Ewald seeks to recover against Ambassador on the ground that it was entitled

to “commercial steel”. What result?

1. Under 2-314, Ambassador is a “merchant with respect to goods of that kind” for steel, and thus is subject to the implied warranty of merchantability. Under 2-314(2), merchantable goods (a) pass without objections in the trade, (b) are of fair average quality, and (c) are fit for the ordinary purposes for which such goods are used. Here, there appear to be two grades of steel, commercial and non-commercial. If Ambassador sold

Ewald “non-commercial” steel, and it was not defective, then there would be no violation of 2-314(2)(a)-(c). However, if Ambassador simply sold Ewald a bad batch of steel, then there would be a violation of 2-314(2)(a)-(c) (any of them).

2. An employee of the buyer opened a package of automobile parts which have sharp edges. The package contained no warnings of their sharpness. The employee cut his

hand when reaching in, resulting in serious injury.

2. 2-314(2)(e) states that the goods must be “adequately...labeled as the agreement may require.” Thus, even if the goods are properly designed and manufactured, they are not of merchantable quality if the seller’s failure to give adequate instructions to the buyer results in harm. Here, there is a question of fact as to whether the lack of warning could be regarded as a “defect” in the labeling or packaging. If so, then the employee would be able to recover on the basis of breach of the warranty of merchantability.

3. Consumer purchases “Flounder Fillets” from the local retail grocery store, and is injured by a bone in the fillets. The grocery store’s procedure is to merely unpack the

goods from their shipping containers, and place them on the shelves.

3. There are two questions of fact here. First, the threshold issue is whether the grocery is a “merchant with respect to goods of the kind.” Under 2-104 comment 2, the phrase

“with respect to goods of that kind” limits the group of merchants for the purpose of implied warranties. Also, 2-314 comment 3 implies that a person is not a merchant unless he makes more than “isolated sales”. Here, however, the grocery would seem to be a merchant because of repeated sales. An argument against is that the grocery is not inspecting the goods, and so has no way of preventing the harm. However, assuming that he is a merchant, then there is the further issue of fact as to whether the presence of the bones violates the implied warranty of merchantability. This turns on whether any of the

2-314(2) limitations have been violated. Even though a product causes harm, it is merchantable if its quality is consistent with that of other goods of the same class. Here, most fillets probably have bones, and it might be reasonable for a consumer to expect that

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a large bone would be present, particularly in the absence of any suggestion otherwise by the grocery.

4. Buyer purchases “log chains” from seller. A “log chain” is one which has the last link of the chain cut, and a hook inserted into the link, and then the link rewelded.

The chain parts at the welded link while the buyer is using it as a tow line for a large truck. What part of 2-314(2) would the buyer rely upon? What evidence must the

buyer present to substantiate the claim?

4. 2-314(2)(c) requires that the goods be “fit for the ordinary purposes for which such goods are used.” Thus, the buyer would need to argue that the ordinary use of log chains is for towing large loads.

1. Robert Carr & Sons, Inc. v. Yearsley, (1963); pg. 62, briefed 10/20/96

2. Facts: Buyer purchases “log chains” from seller. A “log chain” is one which has the last link of the chain cut, and a hook inserted into the link, and then the link rewelded. The chain parts at the welded link while the buyer is using it as a tow line for a large truck.

3. Procedural Posture: Buyer brought suit and the seller demurred.

4. Issue: Whether the seller is liable for an implied warranty of merchantability with respect to the chains.


6. Reasoning: A demurred can not be sustained here. There is a question of fact as to whether using “log chains” as a “tow cable” is an ordinary use under 2-314(2)(c).

However, there does exist some warranty of merchantability, and the complaint is sufficient under the Code.

1. Webster v. Blue Ship Tea Room, (1964); pg. 64 supp., briefed 10/20/96

2. Facts: Webster ate a bowl of fish chowder in a New England restaurant. A bone in the chowder lodged in Webster’s throat, injuring her.

3. Procedural Posture: Webster brought suit under the implied warranty of merchantability, claim that the bone prevented the soup from being fit for the ordinary purpose of eating. The lower court found for plaintiff.

4. Issue: Whether fresh fish chowder violates the implied warranty of merchantability if it has bones in it.

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5. Holding: No.

6. Reasoning: Based on the manner in which New England chowder has been prepared for many years, and based on the familiarity of the woman with New England chowder, it must be said that anyone who eats such a dish should expect that there would be the occasional bone in it. The reasonable expectation of the consumer is that a hearty bowl of fish chowder with large chunks would contain bones.

1. Testo v. Russ Dunmire Olds, Inc., (1976); pg. 68 supp., briefed 10/20/96

2. Facts: Testo purchased a used Camaro Z-28 from the Olds dealer. The Olds dealer knew that the car had been used for racing. In fact, it had substantial modifications to it which made it overheat easily. Testo was not informed of the modifications to the car.

After a few hours of use, it refused to start.

3. Procedural Posture: Testo brought suit against the dealer for breach of the implied warranty of merchantability.

4. Issue: Whether the sale of a used car that overheats and will not start is a breach of the implied warranty of merchantability with respect to that used car.


6. Reasoning: Under 2-314(2)(a), merchantable goods must “pass without objection in the trade” and (c), “are fit for the ordinary purposes for which the goods are used.” The comments further provide that a contract for the sale of used goods provides only a warranty which is appropriate for the contract. A good indicator of level of warranty is the price paid. Here, the plaintiff paid a reasonable amount of money for the car. Thus, to be fit for the purpose of ordinary driving, a 4-year old automobile, seling for $2,697 in

1973, must be in reasonably safe condition and substantially free of defects which render it inoperable. It also must be a “used car” and not a vehicle substantially modified for racing purposes and extensively used as such. Here, the car was simply not merchatable.

Problem on Applicability of Implied Warranty of Merchantability, pg. 70, briefed

10/20/96

A consumer is injured while carrying a carton of cola bottles from the shelf of a grocery store to his cart. One of the bottles explodes. What result if the jurisdiction has

refused to adopt section 402A of the Restatement of Torts?

2-314(2)(e) requires that the goods, to be merchantable, must be “adequately contained

[and] packaged.” Here, the exploding bottle is clearly not “adequately packaged.” There probably was a manufacturing defect which caused the bottle to be weaker than required.

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Problem on Horizontal Privity, pg. 71 supp., briefed 10/22/96

Miller purchased a new and expensive gas range for family and household purposes.

The range malfunctioned, exploding during normal use. Indicate which parties can

recover for the following injuries:

(a) Wife and children personally injured

(a) §2-318 covers the horizontal privity requirement. Regardless of the alternative adopted, the wife and children would be able to recover, becuase even the most restrictive alternative “A” provides that: “A seller’s warranty...extends to any natural person who is in the family or household of his buyer...if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty.” Here, the wife and children are natural persons in the family, and they suffered personal injuries. Since it is a gas range to be used for household purposes, it is reasonable to expect that the wife and children might be injured by its failure to function properly in accordance with warranty. Here, the warranty of merchantability would be implied from 2-314 that the range would be fit for its ordinary use.

(b) Wife, children, and neighbor are personally injured.

(b) 2-318 would again provide recovery for the same reasons as in “(a)” above for the wife and children. Additionally, “A” provides the same protection for “a guest in his home.”

Here, it is assumed that the neighbor is a guest.

(c) The mailman is blinded by flying debris as he passed the house

(c) There would be no recovery for the mailman under option “A”. However, under the more liberal option “B”, the warranty extends to “any natural person who may be reasonably expected to...be affected by the goods, and who is injured in person.” Here, the mailman is a natural person who was personally injured. Thus, the only issue is the question of fact as to whether one may “reasonably expect[]” that the mailman would be injured as he walked by. Arguably, it is foreseeable that an exploding gas range would cause a wide radius of damage.

(d) The kitchen appliances are destroyed

(d) There would be no recovery for anyone other than the buyer under either option “A” or “B” because both require personal injury. However, option “C” provides that the warranty extends to “any person who may reasonably be expected to...be affected by the goods and who is injured by breach.” Thus, under option “C”, anyone within the houshold could probably recover, even though the injury was not a personal injury. The only limitation is whether the person would be reasonably expected to be affected.

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(e) The gas range fails and can not be repaired

(e) Same as “(d)”.

1. State of Oregon ex rel. Western Seed Prod. Corp. v. Campbell, pg. 72, briefed 10/22/96

2. Facts: The plaintiff bought seed from a local distributor. The local distributor bought the seed from Western Seed, and out of state producer. The seed turned out to be defective, and the plaintiff farmer lost the profits from the year’s crop.

3. Procedural Posture: The farmer brought an action against both the local distributor and the out of state producer. However, for long arm jurisdiction he had to allege a tortious act was committed in state.

4. Issue: Whether a purchaser of a defective product who suffers only economic losses should be allowed to maintain an action for breach of warranty against a remote seller in the chain of distribution.

5. Holding: No.

6. Reasoning: The underlying policies that support remote liability in tort in personal injury cases do not lend themselves to contract law if only economic losses result. The common law of contracts requires that there be vertical privity between the buyer and the defendant. Here, there is no such privity. The risk that a product may not perform correctly is inherent in every transaction. Thus, to allow a bargain hunting buyer, who has not carefully chosen a seller who can back up the warranty, should not be allowed to seek a remedy from the remote seller. This would unduly complicate the code’s scheme which recognizes the consensual elements of commerce.

1. Randy Knitwear, Inc. v. American Cyanamid Co., (1962); pg. 74 supp., briefed

10/22/96

2. Facts: Cyana makes a shrink-resistant coating for fabrics. Randy purchased some fabric from a local distributor who had treated the fabric with the shrink-proof coating. The treated fabric was made into children’s clothing and sold to consumers who complained that ordinary washing caused the clothing to shrink. Cyana advertized the qualities of their coating substantially, and this advertisement was relied upon by Randy.

3. Procedural Posture: Randy brought this breach of express warranty action against cyana. Randy successfully opposed a motion for summary judgment on the defense of lack of privity raised by Cyana. Cyana appealed.

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4. Issue: Whether the traditional vertical privity limitation is applicable to an action for breach of express warranty by a remote purchaser against a manufacturer who induced the purchase by representing the quality of the goods in advertising.

5. Holding: No.

6. Reasoning: The significant warranty to be concerned with is the onw which is given by the manufacturer through advertising and labeling to ultimate consumers with whom he has no direct contractual relationship. The policy of preventing harm to the consumers who rely on the advertising outweighs the traditional rules. It would be incongruous to allow the manufacturer to benefit directly from the advertising claims, but then allow him to claim lack of privity if the product fails.

1. Dorman v. Int’l Harvester Co., (1975); pg. 80 supp., briefed 10/29/96

2. Facts: Dorman purchased a tractor from Int’l Harvester. Dorman signed a contract which included a disclaimer of all warranties, including the implied warranty of merchantability and fitness for particular purpose. The disclaimer was set off from the rest of the contract, but was not titled. It was not in large, capital or bolded print.

3. Procedural Posture: The trial court found for the plaintiff, and awarded damages equal to the amount of money he had already spent on the contract.

4. Issue: Whether the disclaimer of warranty on this contract was sufficiently conspicuous to be given effect.

5. Holding: No.

6. Reasoning: 2-316(2) provides that in the case of a writing, the disclaimer of the implied warranty of merchantability must be conspicuous. It further provides that any disclaimer of the implied warranty of fitness for a particular purpose be in writing and conspicuous.

The code defines “conspicuous” as “so written that a reasonable person against whom it is to

operate ought to have noticed it.” Whether a term is conspicuous is a question of law for the court. This code section seeks to protect a buyer from the unexpected and unbargained disclaimer. Here, the term is not sufficiently conspicuous because it is not in capitals or bolded. In fact, the italicized language, read alone, is misleading - making the buyer think that the warranties actually do apply. Furthermore, there is no evidence that a warranty was presented to the buyer in this case. Even if it were, disclaimers given to the buyer after contract formation or generally not binding in the absence of clear proof of modification.

1. Zabriskie Chevrolet, Inc. v. Smith, (1968); pg. 85, briefed 11/9/96

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2. Facts: Smith purchased a new car from Zabriskie. Within 7/10 of a mile after the car drove off the lot, it stalled, and had serious transmission problems. Smith immediately called to cancel the sale and cancel the check. Zabriski towed the car back to the lot and replaced the transmission.

3. Procedural Posture: Zabriski sued for the balance of the purchase price.

4. Issue: Whether the buyer had “accepted” the car and was thus liable for the purchase price.

5. Holding: No.

6. Reasoning: 2-606(1)(a) provides that acceptance occurs when the buyer, “after a

reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity.” Here, the “spin around the block” at the dealership did not comprise a “reasonable opportunity to inspect.” Although it is not clear how long the buyer must drive the new car to have a

“reasonable opportunity to inspect it,” it is very clear that 7/10 of a mile is too short. A layman has an expectation that a new car will be mechanically sound and does not have to perform a thorough mechanical inspection for latent defects before leaving the lot.

1. Can-Key Industries, Inc. V. Industrial Leasing Corp., (1979); pg. 88 supp., briefed

11/9/96

2. Facts: Can-Key manufactured a first-article turkey hatcher. Industrial purchased the hatcher and released it to Rose-A-Linda turkey farms. To protect itself from being left holding the bag, in its purchase order, Industrial included a clause stating expressly that the order was “conditioned upon your assurance that lessee has selected the equipment...and will accept same on delivery.” The hatchery did not work properly, and

Rose-A-Linda immediately notified Can-Key to have it removed. Can-Key assured a cure, and Rose-A-Linda continued to try to make it work. Eventually, Rose-A-Linda gave up and refused to pay the lease.

3. Procedural Posture: The trial court found that there was acceptance due to the long time that Rose-A-Linda kept the hatcher.

4. Issue: Whether there was a proper acceptance by the buyer sufficient to make it liable for the purchase price.

5. Holding: No.

6. Reasoning: Industrial could only have accepted the hatchery if Rose-A-Linda accepted it. Here there is no evidence to support a finding of express acceptance upon delivery because there is a contrary term in the purchase order. However, there is uncontradicted

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testimony that Rose-A-Linda promptly notified Can-Key of its rejection. Thus, under

2-606(1)(c), the only way that there could have been acceptance after this rejection was if

Rose-A-Linda “[did] any act inconsistent with the seller’s ownership.” Although

Rose-A-Linda made several attempts to modify and use the hatchery, that can only be attributed to the statutory duty to mitigate damages and to act to resolve a contract dispute in good faith of 2-715.




4. Issue: Whether the buyer had a right to reject, and properly rejected the car.


6. Reasoning: 2-601 provides that unless otherwise agreed, “if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may...(a) reject the whole....”

2-602 indicates that a buyer can reject after taking possession by seasonably notifying the seller. Here, notification was immediate. Furthermore, Comment 2 to 2-106 provides that

“exact performance” by the seller is the policy of the code. Thus, the right of rejection existed and was properly executed.

1. Miron v. Yonkers Raceway, Inc., (1968); pg. 97 supp., briefed 11/9/96

2. Facts: ∆ purchased a horse from π at auction. The horse was represented as being sound. However, 24 hours later, after being transported to ∆’s stables, it was found to have a fractured leg. ∆ then notified π and demanded to return the horse.

3. Procedural Posture: ∆ sues π for the purchase price of the horse.

4. Issue: Whether the ∆ accepted the horse, and is thus liable for th purchase price.


6. Reasoning: The horse’s fracture is something that would have been revealed had the ∆ conducted an inspection at the time of purchase. Under 2-606(1), ∆ accepted the horse if, having had a reasonable opportunity to inspect it, he did not reject it within a reasonable time. This is a factual question that turns on the circumstsances of the case. Here, the

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sale was for a live animal. The animal was very spirited and could have broken his leg after delivery. Furthermore, it is customary to have a veterinarian inspect a horse after purchase at auction and before delivery. Thus, ∆ passed up the reasonable opportunity to inspect. Furthermore, waiting 24 hours to reject is an unreasonable time in such a case.

1. Wilson v. Scampoli, (1967); pg. 103, briefed 11/9/96

2. Facts: π purchased a new color television from ∆. When the television was delivered and plugged in, it did not work properly, because it had a reddish tinge to the picture. ∆’s serviceman came out to the house to repair the set, but was unable to determine the problem. He then offered to take the set out of the cabinet, and take it into the shop for repair. The π refused, and demanded a new set.

3. Procedural Posture: π seeks refund of the purchase price and recission of the contract.

The trial court granted recission.

4. Issue: Whether the buyer wrongfully interfered with the seller’s right to cure by repairing the television.


6. Reasoning: 2-508(2) provides that “where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable...the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.” A retail dealer would surely have reason to believe that an unopened box from the manufacturer would contain a conforming set which would be accepted. Caselaw indicates that minor repairs or reasonable adjustments are frequently the means by which an imperfect tender may be cured. Removal of the set for a short period of time to repair is not unreasonable. Refusing to allow this opportunity upon seasonable notification therefore improperly interfered with the seller’s right to cure under 2-508.




4. Issue: Whether the seller had a right to cure the imperfect tender by replacing the transmission.

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5. Holding: No.

6. Reasoning: 2-508 provides the sellers right to cure. However, it is not a proper “cure” to replace the transmission of a new car with one from a car of unknown lineage.

Furthermore, the purchase of a defective new car shakes the faith of the purchaser, who must always thereafter be on the lookout for more defects, thereby defeating the reason for buying a new car in the first place. Thus, the attempted cure was ineffective.

Problem on Perfect Tender, pg. 108 supp., briefed 11/9/96

Furniture manufcaturer contracts to deliver 500 “cherrydale” cabinets by April 15th.

Consider whether the buyer may reject in the following circumstances:

(a) A timely delivery of 495 cherrydale cabinets in perfect condition.

(a) By UCC 2-601, “if the goods or the tender of delivery fail in any respect to conform to the contract” the buyer may reject them. Here, the contract states that the “cabinets are to be delivered by April 15th.” Thus, once April 15th has passed, the seller has breached if he has not yet delivered 500 units. Thus, the buyer has a right to “reject the whole” if he wishes. However, the buyer is limited by the dutynof good faith imposed by 1-203 not to reject them if he is not actually objectively dissatisfied with the short delivery.

(b) A timely delivery of 500 cabinets, 490 of which are cherrydale, and 10 of which are

not, all cabinets in perfect condition.

(b) Again, the tender of delivery has failed to conform to the contract in quantity, and also

10 of the goods themselves fail in type. Thus, by 2-601, the buyer may reject them all, or

“accept any commercial unit and reject the rest. 2-601(c). Again, the duty of good faith would tend to limit the buyer’s remedy to only rejecting the 10 non-cherrydale cabinets unless there were some significance to having all 500 cabinets delivered together.

(c) A timely delivery of 500 cherrydale cabinets, 498 of which are in perfect condition, 2

of which are slightly scratched.

(c) As previously stated, 2-601 provides a right to reject if the “goods or tender of delivery fail in any respect to conform to the contract.” Here, it is unclear whether the minor scratches in the 2 units would be defects which would not conform to the contract, because it is silent on quality. However, it could be assumed through the course of dealing, perhaps, that the buyer wanted perfect cabinets, in which case he could reject at least the 2 scratched ones under 2-601(c). Again, the buyer is limited by good faith.

(d) A delivery of 500 cherrydale cabinets in perfect condition on April 16.

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(d) Here, the tender of delivery has failed by one day. Thus, the buyer has the right to reject the whole, but is limited by good faith. Thus, assuming that the date of delivery was material to the contract, the buyer would have a right to reject them all. However, if the date of delivery was not material, and the buyer may not be able to reject them in good faith.




4. Issue: Whether the buyer had a right to revoke, even if he did accept.


6. Reasoning: 2-608 provides that the buyer may revoke if the non-conformity

“substantially impairs its value to him if he has accepted it...without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances.” Clearly, the value to the buyer was substantially impaired. Also, the acceptance, if ther was any was due to non-discovery of a latent defect. The dealer here was in a better position to find the defects in the transmission than the buyer.

Problems on Responding to Impaired Expectations, pg. 111 supp., briefed 11/17/96

1. You represent a subcontractor, C, who has contracted with a components buyer, B, to deliver electronics parts in installments. Under the contract, B was to make payment for parts delivered by C “when invoices are submitted to us on a monthly basis for parts shipped the previous month” and after the parts had been inspected and approved.

Before any deliveries were made, C uncovered unfavorable credit information about B indicating that it was stretched to its credit limit and would probably delay payments, although it had not actually defaulted on any contract yet. B has subcontracted to you to fill requirements it has under a contract with A. How would you advise C’s

president who wishes to demand payment in advance?

1. C’s president wishes to change the terms of the contract based on his fear of B’s inability to pay. Since there has not yet been any delivery, and thus no payment is yet due, any breach would still be prospective. Under 2-609(1), “A contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not

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be impaired. When reasonable grounds for insecurity arise with 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.” Here, there are reasonable ground for insecurity due to the financial status of B. Thus, the proper course of action is to at least demand adequate assurances in writing. However, it is very unclear as to whether it would be “commercially reasonable” to suspend performance by requiring cash up front terms. B has the expectation of the benefit of their bargained payment terms (the following month, and after inspection and acceptance).

2. Repeunzel makes an installment contract with Cicero to deliver 20 equal installments of cheese, for which Cicero will pay within 30 days of receipt of each installment. After 15 installments, in which Cicero was never more than a few days late in payment, Repeunzel receives word that Cicero has suffered several serious financial setbacks. Repeunzel refuses any more shipments except for cash on delivery.

A clause in the contract reserves the right to the seller to demand cash or satisfactory security before making shipments if payment is not promptly made in accordance with the contract or the credit or financial responsibility of the purchaser becomes unsatisfactory to the seller. You represent Repeunzel. How do you advise her to

proceed?

2. Even though Cicero has been late in payments previously, the value of the whole contract has not been impaired. Under 2-610 comment 6, “if only the seller’s security in regard to future installments is impaired, he has the right to demand adequate assurances of proper performance, but has not an immediate right to cancel the entire contract.”

Thus, the proper route is to demand adequate assurances. However, the seller must have

“reasonable grounds” to believe that there is insecurity. Here, the facts do not indicate that there has been a diligent investigation of the financial insecurity (i.e. by a Dunn &

Bradstreet report or similar), but appear to be only a rumor. But the contract clause expressly provides for such a contingency, and will control since it appears to be bargained for between merchants. It defines when there right to assurances accrues (ie. when the buyer’s financial condition becomes “unsatisfactory”) and the action to be taken (i.e.

“demanding cash or satisfactory security”). Thus, similar to the Corn Products case in comment 4 to 2-609, the demand for assurances would be proper.

3. You represent Tivoli, who entered into an installment contract to buy

Tivoli-designed valves from Ace in 6 equal installments at three-month intervals. After giving Ace 6 months lead time, and 25% down on the contract, Ace states that the first installment (due in two weeks) will not be met due to a tooling mistake. However, they provide written assurance that they will make every effort to comply with the second installment, and make up the quantity over time by the end of the contract period. Tivoli states that the delay will “wreak havoc” with its production schedule, and seeks to cancel the contract and get the refund of the 25% down payment. You find out that if the contract were cancelled, Tivoli would only cover for 50% of the valves from another supplier (who could also guarantee full performance in 4 months) because

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they overestimated their demand, and that Ace would “probably” be able to catch up by

the second installment. How do you advise Tivoli?

3. Ace has demonstrated “a clear determination” not to make the first installment, under

2-610 comment 1. Thus, there has been an anticipatory repudiation by Ace. Under

2-613(3), whenever “default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole.” Here, the delay will

“wreak havoc” on the production schedule and cause contractual difficulties with other parties. Thus, there is a substantial impairment of the value of the whole. As such, Tivoli has the option of treating the entire contract as being breached by Ace, and may resort to any remedy for breach under 2-610(b). Thus, under 2-711, the “buyer may cancel and...in addition to recovering so much of the price as has been paid...cover.” However, Tivoli may only cover for the amount he actually needs in good faith.

1. Graulich Carter, Inc. v. Hans Holterbosch, Inc., (1968); pg. 113 supp., briefed 11/17/96

2. Facts: Graulich contracted to provide microwaved German food at the Lowenbrau pavillion of the New York state fair operated by Holterbosch. The food was to be prepared and delivered on a daily basis. The first day’s installment was of poor quality, and did not match the quality of the samples provided during contract negotiations.

Graulich, assisted by Holterbosch, attempted to improve the quality of the microwaved food, but the second day’s installment was likewise unsellable.

3. Procedural Posture: Holterbosch discontinued using the Graulich microwave setup, and instead spent a week converting the microwave kitchen to a standard kitchen, where the food was thereafter prepared. Graulich sues for breach.

4. Issue: Whether the defendant properly treated the entire contract as being breached.


6. Reasoning: Under 2-612, “whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract, there is a breach of the whole.” What amounts to a substantial imparment is a question of fact. Here, the food was unsellable, and was thus non-conforming. Because of the defendant’s immediate need for quality food and the plaintiff’s inability to cure, there was indeed a substantial impairment of the whole contract. Since the breach goes to the whole contract, the buyer may cancel the whole contract under 2-711(1).

Problems on Cover Damages, pg. 117 supp., briefed 11/17/96

1. A, in New York, contracts to buy lockers from B for $80,000 F.O.B. in VA. The buyer,

A, had already determined that shipping costs between VA and NY were $7,000, and

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that a local contractor would install them for $2,000, bringing the total cost to A to

$89,000 installed. B, the seller, breached. After incurring $50 long distance phone bills, A covered under a contract with a local provider C that cost $92,000 delivered and installed. What are A’s damages against B?

1. 2-712(1) provides that the buyer may cover in good faith “any reasonable purchase of...goods in substitution for those due from the seller.” Here, it appears that the cover contract was a reasonable substitution. Under 2-712(2) the buyer may recover “the difference between the cost of cover and the contract price, togethr with any incidental or consequential damages...but less expenses saved in consequence of seller’s breach.”

2-715(1) defines incidental damages expenses “reasonably incurred...in conncetion with effecting cover.” Thus, the difference between the cost of cover and the contract price is

$92,000-$80,000 = $12,000. The expenses saved in consequence of the seller’s breach were the shipping and installation costs of $7,000+$2,000=$9,000. Thus, the buyer may recover

$12,000-$9,000=$3,000 on the contract, plus $50 of incidental damages for the long distance bill incurred in covering. However, if the original contract were F.O.B. A’s place of business, then the buyer would not have saved $7,000 in shipping costs, and thus his total damages recoverable would have been $92,000-$80,000-$2,000=$10,000.

2. A contracted to purchase a special high-quality brand of carpet from B for $25,000 installed with a 10 year guarantee. The carpet was to be delivered on September 15th, and installed by the 25th. B breached on the 15th by notifying A that they would not deliver or install. During the month of September, the price for the high-quality brand of carpet remained the same, and A could have covered from any of B’s competitors for the same price. However, A delayed until October 3rd, and had just decided to buy a lesser-quality brand of carpet for $23,000, when it found out that the price of the high-quality carpet had just went up to $35,000 plus $2,500 installed. They immediately contracted to buy the high-quality carpet from C, who offered a 15 year guarantee. What

are A’s damages?

2. 2-712 requires that a buyer cover in good faith “and without unreasonable delay” by making a reasonable purchase of substitute goods. Here, there is a question of fact as to whether there was a “unreasonable delay.” However, it appears that the delay was, in fact, unreasonable because the factor that prompted A to make the substitute purchase of the high-quality carpet was the increase in the market cost. As such, A violated the duty of good faith by switching from a decision to buy the cheaper carpet because they could suddenly get a good deal on the high-quality carpet at B’s expense. Thus, A must be limited to the damages it would have obtained, but for its bad faith. Here, since A was about to purchase a lesser quality carpet for $23,000, it would be entitled to no damages because it would have saved money due to the breach.

Problems on Contract-Market Damages, pg. 118 supp., briefed 12/1/96

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1. Seller (NY) and Buyer (LA) enter into a contract for the sale of a pot-hole filling material. The contract price is $2,000 and the shipping expense from NY to LA is $100.

The shipment date by the seller is September 1st, at which time the price in NY has gone up to $2,100 and the price in LA has gone up to $2,200. The arrival date in LA is

September 15th, at which time the price in NY has gone up to $2,300, and the price in LA has gone up to $2,400.

(a) Assume the contract terms are F.O.B. NY and that the goods are shipped properly.

What are the buyers damages if buyer discovers non-conformity upon receipt

inspection?

(a) Under 2-713(1) provides that the damages are the contract-market differential, together with incidental and consequential damages, less the amount saved by the breach. The time of measuring the market price is the time “the buyer learned of the breach.” Here, the buyer learned of the breach on the date of arrival. 2-713(2) provides that the market price is to be determined “in the cases of rejection after arrival..., as of the place of arrival.”

Here, there is a rejection after arrival, so LA is the place of the market. The market price in LA on the date of arrival is $2,400. Thus, the damages are $2,400 (mkt) - $2,000

(contract) - $100 (expenses saved) = $300.

(b) Assume that the contract terms are F.O.B. NY, but that the goods are not shipped.

What are buyer’s damages if buyer is not aware of the non-shipment until his inquiry

on the arrival date?

(b) 2-713(1) provides that the market price for damages is to be measured at the time the buyer learned of the breach. Here, that is the date of arrival. 2-713(2) provides that the place for measuring market price damages is “the place for tender” unless there is a rejection after arrival. Thus, the market damages are to be measured from the NY market on the date of arrival. They are $2,300 (mkt) - $2,000 (contract) = $300. There is no deduction for the cost of transportation, because that has not been saved. Furthermore, there is no addition for cost of transportation, because that is a cost the buyer would have borne under the original contract anyway.

(c) Assume the contract terms are F.O.B. LA (destination contract). What are the buyer’s

damages if Buyer is not aware of the non-shipment until his inquiry on the arrival date?

(c) Like (b) above, the market price is measured on the date of arrival, i.e. when the buyer learned of the breach. However, since this was a shipment contract, the “place for tender” under 2-713(2) is the place of arrival. Thus, the market damages are to be measured from the LA market on the date of arrival. They are $2,400 (market) - $2,000 (contract) - $100

(expense saved) = $300.

2. A contracted to purchase a special high-quality brand of carpet from B for $25,000 installed with a 10 year guarantee. The carpet was to be delivered on September 15th, and installed by the 25th. B breached on the 15th by notifying A that they would not deliver or install. From September 15th to October 3rd, the price for the high-quality

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brand of carpet went up to $35,000, but then dipped back to $25,000 on October 4th. On

October 4th, A purchased another type of carpet with a 5 year wear guarantee from another seller for $32,000. What are A’s damages? Can A use §2-713 (contract-market

damages) instead of §2-712 (cover damages)?

2. Here, the buyer learned of the breach on September 15th, when the market price was

$35,000. However, they actually covered on October 4th for a different brand of carpet for

$32,000. Allowing the buyer to ignore the actual cover damages and elect the contract-market differential enables the buyer to speculate at the seller’s expense. 2-712(1) provides that the buyer may cover in good faith and without unreasonable delay. Here, since the market price suddenly crashed on the date that the buyer purchased a substitute carpet. Given that the substitute carpet was much more expensive than the contract carpet, and that the contract carpet was available at the contract price, it would probably be considered bad faith to make such a cover purchase. Thus, even though the buyer would have been entitled to 2-713 damages as of September 15th, ($35,000-$25,000=$10,000), he may not now claim those damages since he elected to cover. It is likely that the court would limit the damages to incidental and consequential damages since the buyer could have covered at no extra cost on the 4th.

Problems on Damages for Breach of Warranty, pg. 119 supp., briefed 12/1/96

1. A entered a contract to deliver 100 21-inch tv sets of a stated model to B for $15,000.

By carelessness, A shipped 19-inch sets to B. Since B’s inventory of 19-inch sets was also low, B decided to retain the 19-inch sets. The cost of the 19-inch sets are $40 less than the 21-inch sets. B does not want to pay A because of A’s breach. What result?

1. Under UCC 2-301, the buyer’s obligation is to pay for goods which are accepted. Here,

B accepted the goods so he must pay for them, minus the amount of damages due to him.

UCC 2-714(1) provides that when the buyer has accepted, “he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner which is reasonable.” The ordinary measure of damages given by 2-714(2) as the “difference...between the value of the goods accepted and the value they would have had if they had been as warranted.” Here, the tv sets would have been worth $40 more per set had they been 21 inch sets rather than 19 inch sets. Thus, the measure of damages would be $4,000.

2. A sells a new motorcycle to B for $3,000. The motorcycle delivered and accepted by

B has a defective brake assembly in breach of an express warranty by the seller. A replacement assembly will cost $280. Labor to replace the assembly will cost $140. Can these amounts be recovered as damages?

2. According to UCC 2-714(2), the measure of damages for breach of warranty is

“difference...between the value of the goods accepted and the value they would have had if they had been as warranted.” By 2-714(1), the damages can be determined “in any

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manner which is reasonable.” A reasonable way to calculate the difference in value is by the amount that it costs to repair the goods. Thus, the $280 repair parts are recoverable.

Also, by 2-714(3) “incidental and consequential damages...may also be recovered.” Here, the incidental cost of labor of $140 is also, therefore, recoverable.

3. Assume the same facts as 2 above, and that B has learned that he could have purchased the same motorcycle for $300 less from any other franchised dealer. Can B

recover the $300 as damages from the breaching seller?

3. No. B is limited to the damages provided for buyers who have accepted. B has apparently made a bad bargain, but may not take advantage of the lower prices elsewhere by covering because he has accepted the goods. However, if B were able to successfully revoke under 2-608, he may be able to get out of his bad bargain.

Problem of the Pig Farmer, pg. 120 supp., briefed 12/1/96

1. Farmer buys 400 head of pigs, and later discovered that they were seriously ill. Half of them died, along with 4 of his own herd. The other half were saved, but ran up expensive medical bills and care.

The farmer asks the court for:

(a) The sum equal to the difference between the value of the pigs at the time of

delivery and the value the pigs would have had if they had been as warranted ($4,370).

(a) Under 2-714(2), the proper measure of damages is the “difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted.” Thus, the farmer may recover this amount.

(b) A sum representing the fair and reasonable value of veterinary services and

medicines reasonably required in the treatment of the pigs ($444.50).

(b) Under 2-714(3) incidental damages may be recovered in accordance with 2-715. Under

2-715(1) the buyer may recover “any...reasonable expense incident to the...breach.” Here, the medical expenses are probably reasonable, and would be recoverable. They were only incurred because of the breach.

(c) A sum representing the fair and reasonable cost of medication required to be added

to the feed of the pigs ($360).

(c) For the same reason as (b),. these may also be recovered.

(d) A sum representing the fair and reasonable value of four fat hogs lost allegedly

after the disease was communicated to them.

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(d) Under 2-714(3), the buyer may recover consequential damages in accordance with

2-715. Under 2-715(2) consequential damages include “injury to...property proximately resulting from any breach of warranty.” By the comment 5, the “question of ‘proximate’ cause turns on whether it was reasonable for the buyer to use such goods without such inspection as would have revealed the defects.” Assuming that in the pig industry it is reasonable to assume that pigs do not have communicable diseases, then the farmer could recover these costs.

(e) The fair and reasonable value of feed fed to pigs that died and excess feed fed to pigs

that lived ($3,500).

(e) The excess feed fed to the pigs, whether they lived or died, was required as part of their treatment for the disease. As such, to the extent that this represented an amount above the ordinary, it would probably be recoverable for the same reasons as the medicine and veterinary care. However, the ordinary amount of food that was fed to any pig, including those that died, would be a normal operating cost that the farmer would have had to pay anyway, and thus would not have “resulted from the seller’s breach” and would not be recoverable as incidental damages under 2-715(1).

Problem on Specific Performance, pg. 121, briefed 12/1/96

A retailer contracts with a manufacturer for a special kind of television set having improved color performance. The retailer intends to resell the sets. The day after contract formation, the manufacturer repudiates. The retailer attempts to cover for several months but is unsuccessful due to a market shortage caused by their tremendous popularity. The cover cost is excessively high. The retailer’s catalog, printed after repudiation, indicates that the sets will go on sale in one month. May retailer seek specific performance on its contract with the manufacturer?

Ucc 2-716(1) provides that “specific performance may be decreed where the goods are unique or in other proper circumstances.” Here, the goods are not literally “unique”.

However, the comments clarify that relief may be also granted in “other proper circumstances”, and “inability to cover is strong evidence of ‘other proper circumstances’.” Thus, it appears that the retailer may seek specific performance. His chances of succeeding are good if he can show that the goods may not be covered.

Problems on Seller’s Damages Absent Resale:

1. Friendly Auto is a Ford frandchisee. During one particular week, Friendly sold nine cars, including one car to Smith for $27,500. The other 8 sales ranged from $26,900 to $27,800. Friendly’s cost for each car was $26,300. Prior to delivery, Smith repudiates. Friendly promptly resells the car to Jones for $27,600. What should the

measure of damages be for Friendly due to Smith’s breach?

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1. Here, the dealer can not be put in as good a position as he would have been if the buyer had performed simply by awarding resale damages (§2-706 resale price-contract price = nothing). The dealer is a lost-volume seller. He has the capacity to make an additional sale (i.e. the salseman could have sold the same car to someone else instead of Smith if

Smith were not there), the additional sale would have been profitable for the seller (based on his history of selling cars for more than his cost), and the seller probably would have made the additional sale even if the breach had not occurred (i.e. there would have been more cars available, and there is no reason to believe that Jones would not have purchased a car regardless of Smith’s breach). Thus, under §2-708(2), the dealer’s damages are “the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental and consequential damages...due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.” Here, the lost profit is the contract price minus the dealer’s cost, or

$27,500-$26,300=$1,200. If the contract were for sale of a used car, however, the dealer might not be considered a lost volume seller because the additional sale might not have happened but for the breach. That is to say that there may have been many fewer used cars available to the dealer, and Jones might not have bought any of the others. This is different from the case of new car sales, where the dealer can usually get as many as he can sell.

2. Bombay Bicylces sells a new titanium bicycle frame, which it builds and sells on a custom-order basis. Clairmont Cycling orders 50 specially designed units at a contract price of $40,000, but then repudiates with respect to half (25) of the units. Bombay can produce and deliver the frames for $600 each. Bombay received notice of the repudiation shortly after starting the build of all 50 frames. Clairmont takes 25 frames, and pays $20,000. What are Bombay’s damages if it completes manufacture and resells the frames? What are Bombay’s damages if it stops manufacture and sells the

remaining frames for $150 each as scrap?

2. Inder 2-704, Bombay has the choice to “exercise commercially reasonable judgment” and either complete the manufacture UCC 2-706(2) authorizes resale of goods that are

“reasonably identified as referring to the broken contract, but it is not necessary that the goods be in existence...before the breach.” Here, the frames are reasonably identified to the contract because they are custom made to order. Thus, Bombay may resell them and obtain the difference between the resale price and the contract price, together with incidental damages and less expenses saved under 2-706(1). However, if Bombay stops the manufacture, and sells the scrap then its damages could not be measured by resale under 2-706 because the frames were not finished, nor could they be measured by 2-708(1) for the same reason. 2-708(2) provides the measure of damages where the traditional measures are inadeqate. Here, the damages are “the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental and consequential damages...due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.” The profit is $20,000 -

25*$600 = $5,000, minus the credit of $150*25 for scrap resale = $5,000-$3,750 = $1,250.

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