George Mason School of Law
Contracts II
Warranties
This file may be downloaded only by registered students in my
class, and may not be shared by them
F.H. Buckley
fbuckley@gmu.edu
1
Next day
 Finish Warranties
 Mistake: 709-47
2
Conditions and Warranties
Promises
Conditions
Warranties
Election
Forfeiture
3
Damages
Damages only
Warranties
 With a warranty a seller assumes a
risk as to the product
 The prior question is whether the risk
should be born by the seller or the
buyer
4
Let’s say seller sells a whizbang
$999.99 at Home Depot
5
The whizbang
50% chance of a whiz
It might go whiz
6
The whizbang
50% chance of a whiz, 50% of a bang
It might go whiz …
7
or it might go bang …
Evaluating risk: Expected Values
 The expected monetary value of an
accident is p*L
8
Evaluating risk: Expected Values
 The expected monetary value of an
accident is p*L
 where p is the probability of occurrence
 And L is the cost of the accident on
occurence
9
Evaluating risk: Expected Values
 So the expected monetary value for
an accident with a 50 percent
probability of a loss of $250 is $125
10
Assigning risk
 The least cost risk avoider, in contract
and tort law
 Joined at the hip historically with the
action on the case
11
The Least-Cost Risk Avoider
 Seller sells a whizbang to Buyer for
$1,000, with no warranties as to bangs
12
The Least-Cost Risk Avoider
 Seller sells a whizbang to Buyer for
$1,000, with no warranties as to bangs
 Assume that the expected cost of a bang
is $125
13
The Least-Cost Risk Avoider
 Seller sells a whizbang to Buyer for
$1,000, with no warranties as to bangs
 Assume that the expected cost of a bang
is $125
 So Buyer has a whizbang at a cost of
(1,000 + 125 =) $1125
14
The Least-Cost Risk Avoider
 Seller sells a whizbang to Buyer for
$1,000, with no warranties as to bangs
 Assume that the expected cost of a bang
is $125
 Assume that seller (but not Buyer) can
eliminate this risk at a cost of $100
15
The Least-Cost Risk Avoider
 Seller sells a whizbang to Buyer for
$1,000, with no warranties as to bangs
 Assume that the expected cost of a bang
is $125
 Seller (but not Buyer) can eliminate this
risk at a cost of $100
 Do we see a Coasian bargain here?
 How will the parties assign the risk?
16
The Least-Cost Risk Avoider
 Seller sells a whizbang to Buyer for
$1,000, with no warranties as to bangs
 Assume that the expect cost of a bang is
$125
 Seller (but not Buyer) can eliminate this
risk at a cost of $100
 Seller is the least-cost risk avoider and
buyer will pay seller to assume the risk
17
The Least-Cost Risk Avoider
 Assume that the expect cost of a bang is
$125
 Seller (but not Buyer) can eliminate this
risk at a cost of $100
 How will the parties assign the risk?
 Buyer will pay seller to assume the risk
 And what will this do to the purchase price?
18
The Least-Cost Risk Avoider
 Assume that the expect cost of a bang is
$125
 Seller (but not Buyer) can eliminate this
risk at a cost of $100
 How will the parties assign the risk?
 Buyer will pay seller to assume the risk
 What is the range of prices between which
the parties will bargain?
19
The Least-Cost Risk Avoider
 Assume that the expect cost of a bang is
$125
 Seller (but not Buyer) can eliminate this
risk at a cost of $100
 How will the parties assign the risk?
 Buyer will pay seller to assume the risk
 Seller will not accept less than $100 and
(risk-neutral) buyer will not pay more than
$125
20
The Least-Cost Risk Avoider
 Assume that the expect cost of a bang is
$125
 Seller (but not Buyer) can eliminate this
risk at a cost of $100
 Let’s say that seller offers a warranty for
the risk at a price of $110
 Buyer pays an extra $110 and saves $125
21
The Least-Cost Risk Avoider
 How it looks to buyer:
 No warranty: 1,000 + 125 = $1125
 With the warranty: $1110
22
Let’s flip this
Buyer as Least-Cost Risk Avoider
 Seller sells a whizbang to Buyer for
$1,000, with no warranties as to bangs
 Assume that the expected cost of a bang
is $125
 Buyer (but not Seller) can eliminate this
risk at a cost of $100
 What happens now?
23
Let’s flip this
Buyer as Least-Cost Risk Avoider
 Seller sells a whizbang to Buyer for
$1,000, with no warranties as to bangs
 Assume that the expected cost of a bang
is $125
 Buyer (but not Seller) can eliminate this
risk at a cost of $100
 Buyer will spend $100 to eliminate a risk
with an EMV of $125
24
Let’s flip this
Buyer as Least-Cost Risk Avoider
 Buyer’s options;
 Take no care: 1000 + 125 = $1125
 Take care: 1000 + 100 = $1100
25
The Least-Cost Risk Avoider
 The parties will seek to assign the
risk to the party who can most
efficiently eliminate it.
26
The Least-Cost Risk Avoider
 The parties will seek to assign the
risk to the party who can most
efficiently eliminate it.
 An application of the Coase Theorem
 If bargaining is costless, does it matter
how the law assigns the risk?
27
The Least-Cost Risk Avoider
 The parties will seek to assign the
risk to the party who can most
efficiently eliminate it.
 An application of the Coase Theorem
 And if bargaining isn’t costless?
28
The Least-Cost Risk Avoider
 You’re a judge. You have a pretty
good idea who the least-cost risk
avoider is. The parties have left the
question of risk silent in their
contract. How do you assign the risk?
29
The Least-Cost Risk Avoider
 “Mimicking the market”
30
A second way of thinking about
Least-Cost Risk Avoiders
 Same example. But now neither party
can eliminate the risk for less than
$125.
 On whom should the risk fall? Does it
matter?
31
A second way of thinking about
Least-Cost Risk Avoiders
 Same example. But now neither party
can eliminate the risk for less than
$125.
 Suppose one party is in a better position
to value the loss?
32
A second way of thinking about
Least-Cost Risk Avoiders
 Same example. But now neither party
can eliminate the risk for less than
$125.
 Suppose one party is in a better position
to value the loss?
 As between a manufacturer and a
consumer, who is this likely to be?
33
A third way of thinking about
Least-Cost Risk Avoiders
 Suppose that seller is a large
corporation and buyer is an
impecunious consumer. Does that
make a difference?
34
A third way of thinking about
Least-Cost Risk Avoiders
 Suppose that seller is a large
corporation and buyer is an
impecunious consumer. Does that
make a difference?
 Do risk preferences matter?
35
Are you an EMV’er?
 An EMV’er always selects the payoff
with the highest expected monetary
value (p*O)
36
Are you an EMV’er?
 An EMV’er always selects the payoff
with the highest expect monetary
value (p*O)
 Suppose I offer you a lottery ticket
with a .5 probability of 0 and a .5
probability of $2. Would you pay me
50¢ for the ticket?
37
Are you an EMV’er?
 An EMV’er always selects the payoff
with the highest expect monetary
value (pO)
 Suppose I offer you a lottery ticket
with a .5 probability of 0 and a .5
probability of $2. Would you pay me
50¢ for the ticket?
 EMV = .5($2) = $1.00
38
Are you an EMV’er?
 An EMV’er always selects the payoff
with the highest expect monetary
value (pO)
 Suppose I offer you a lottery ticket
with a .5 probability of 0 and a .5
probability of $10,002. Would you
pay me $5,000.50 for the ticket?
39
Are you an EMV’er?
 An EMV’er always selects the payoff
with the highest expect monetary
value (pO)
 Suppose I offer you a lottery ticket
with a .5 probability of 0 and a .5
probability of $10,002. Would you
pay me $5,000.50 for the ticket?
 EMV = .5($10,002) = $5,001
40
Three kinds of people
 EMV’ers are risk neutral
 They always take the gamble with the
highest EMV
41
Three kinds of people
 EMV’ers are risk neutral
 Most people are risk averse
 They’ll pass on some opportunities with a
positive EMV
42
Three kinds of people
 EMV’ers are risk neutral
 Most people are risk averse
 Risk lovers are risk prone
 They will accept some gambles with a
negative EMV
43
Recall what we said about utility
 Utility is the economist’s measure of
well-being (cf. utilitarianism)
 Ordinal Utility measures preferences
without weighing them (first, second,
third are ordinal numbers)
 Cardinal Utility (Bentham’s “utils”)
weighs utility (one, two, three are
cardinal numbers)
44
Cardinal Utility plotted against EMV
Utility
For EMV’ers,
utility is linear with money
$EMV
45
Cardinal Utility
For the risk averse, the marginal utility
of money declines (more money generates
increasingly smaller increases in utility).
Utility
$EMV
46
Cardinal Utility
 Start with someone with 1,000
Utility
1,000
47
$
Cardinal Utility
 Would he be willing to take a fair bet
of 250? [.5(0) + .5(250)]
Utility
1,000
48
$
Cardinal Utility
 Would he be willing to bet 250?
Utility
750
49
1,000
1250
$
Cardinal Utility
 Mapping this into utilities
Utility
750
50
1,000
1250
$
Cardinal Utility
 Mapping this into utilities
Utility
750
51
1,000
1250
$
Cardinal Utility
 What is the utility if he rejects the
gamble?
Utility
750
52
1,000
1250
$
Cardinal Utility
 What is his expected utility if he takes
the gamble?
Utility
750
53
1,000
1250
$
Cardinal Utility
 What is his expected utility if he takes
the gamble?
Utility
750
54
1,000
1250
$
Cardinal Utility
 So there is a utility loss from the
gamble
Utility
750
55
1,000
1250
$
Are there policy implications?
 So there is a utility loss from the
gamble
Utility
750
56
1,000
1250
$
No utility loss for an EMV’er who
takes a fair bet
Utility
For EMV’ers,
utility is linear with money
$EMV
57
This suggests a third way of thinking
about Least-Cost Risk Avoiders
 Would you assume that firms are
risk-neutral and consumers risk
averse as to a loss of $250?
58
This suggests a third way of thinking
about Least-Cost Risk Avoiders
 There is a 50 percent probability of a
loss of $250
 Same example. But now neither party
can eliminate the risk for less than
$125
 Would you assume the firms are riskneutral and consumers risk averse?
 Would you expect the risk to be born by
the wealthier party?
59
Further readings?
 http://cyber.law.harvard.edu/bridge/
LawEconomics/risk.htm
60
Now--A fourth way of thinking
about Least-Cost Risk Avoiders
 Suppose that seller sells 10,000
whizbangs and buyer buys only one?
Does that make a difference?
61
Probability distribution for buyer
%
.5
750
1,000
Mean = 875
62
$EMV
Probability distribution for seller of 60
whizbangs
1.0
%
875
63
Probability distribution for seller of 200
whizbangs
1.0
%
875
All Curves have the same mean value ($875)
but different risk (dispersion from the mean).
64
Probability distribution for seller of
10,000 whizbangs
1.0
%
875
65
$EMV
The “insurance idea” in tort and
contract law
66
Four kinds of Least-Cost Risk Avoiders
1. Where one party is better able to
reduce the risk or the harm
2. Where one party is better able to
value the loss
3. Assuming risk aversion, where one
party is wealthier than the other
4. Assuming risk aversion, where one
party is a better insurer because he
can diversify the risk
67
Let’s add the possibility of third party
insurance
 There’s something called State Farm…
 Who then would you expect to bear a
loss, as between:
 Seller (manufacturer)
 Buyer (self-insurance)
 Third party insurance company
68
Three kinds of Least-Cost Risk Avoiders
 Who would you expect to bear the
loss for:
 Liability for a faulty transmission?
 Emotional Distress
 World War III?
69
Express and Implied Terms
 What does UCC § 2-313 require
before a statement becomes a
warranty?
70
Sessa v. Riegle at 660
 Was there a finding that the horse
that was sold was defective?
Riegle
Sessa
71
Sessa v. Riegle
 Was there a finding that the horse
that was sold was defective?
 Tendenitis might have resulted from the
drive, or from unclean conditions in
Sessa’s stable
 In the later case, buyer took the risk
72
Sessa v. Riegle
 Was there a finding that the horse
that was sold was defective?
 Tendenitis might have resulted from the
drive, or from unclean conditions in
Sessa’s stable
 In the former case, who took the risk?
 UCC §§ 2-501(1)(a), 2-504
73
Sessa v. Riegle
 Why not within UCC §2-313?
74
Sessa v. Riegle
 Why not within UCC §2-313
 Not “an affirmation of fact”
 Statements of opinion: UCC §2-313(2)
 Mere puffs
75
Sessa v. Riegle
 Why not within UCC §2-313
 “an affirmation of fact”
 Statements of opinion: UCC §2-313(2)
 Mere puffs
 A special rule for horse traders?
 “horses are fragile creatures”
76
Sessa v. Riegle
 Why not within UCC §2-313
 “an affirmation of fact”
 Statements of opinion: UCC §2-313(2)
 Mere puffs
 Is there never a warranty in such cases?
77
Sessa v. Riegle
 Why not within UCC §2-313
 “an affirmation of fact”
 Statements of opinion: UCC §2-313(2)
 Mere puffs
 Is there never a warranty in such cases?
 Frederickson at 665
 McNair at 665
 Flood at 663
78
Royal Business Machines at 665
79
Royal Business Machines at 665
 Representations: Copy machine…




80
Was of high quality
Frequency of repair was very low
Would remain so
Will bring buyer substantial profits
Royal Business Machines
 Copy machine:
 Machines were tested
81
Royal Business Machines
 Copy machine:
 Machines will not cause fire
82
George Mason School of Law
Contracts II
Warranties
This file may be downloaded only by registered students in my
class, and may not be shared by them
F.H. Buckley
fbuckley@gmu.edu
83
Next day
 Finish Warranties
 Mistake up to Scott 718
84
Four kinds of Least-Cost Risk Avoiders
1. Where one party is better able to
reduce the risk or the harm
2. Where one party is better able to vale
the loss
3. Assuming risk aversion, where one
party is wealthier than the other
4. Assuming risk aversion, where one
party is a better insurer because he
can diversify the risk
85
Four kinds of Least-Cost Risk Avoiders
Incentives
86
1
Risk or Harm Avoiders
2
Lower Information Costs
Insurance
3
Differential Risk Aversion
4
Risk Diversification
Express and Implied Terms
 What does UCC § 2-313 require
before a statement becomes a
warranty?
87
Express and Implied Terms
 What do each of these exclude?
 Affirmation of fact
 Relates to the goods
 Part of the basis of the bargain
88
Express and Implied Terms
 Cf. UCC § 2-313(1)(b)
 Description of the goods
 Part of the basis of the bargain
89
Contract and Tort
 The abolition of privity of contract in
UCC §§ 2-313A and 2-313B
 Cf Prosser at 672
90
Specificity: Searls v. Glasser at
668
 “recession resistant”?
 Keith: “sure-footed seaworthiness”?
91
Implied Warranties
 Merchantability: 2-314
 Fitness: 2-315
 Title: 2-312
92
Merchantability
 Flippo at 669
 Implied warranty in UCC 2-314
93
Merchantability
 What is “merchantability”?
 Cf. UCC § 2-314(2)
94
Merchantability
 Qu. expected impurities
 Cf. Coffer at 671
95
Merchantability
 I sell you a car whose transmission
fails six months later?
 What’s the issue?
96
Merchantability
 I sell you a car whose transmission
fails six months later?
 Qu. Lapse of time
 UCC § 2-314, cmt. 13
97
Fitness for Purpose
 Merchantabilty: UCC § 2-314
 Fitness: UCC § 2-315
98
Implied UCC Warranties
 I sell you a car which proves
unsuitable for off-terrain driving
99
Fitness: UCC § 2-315
 How is this different from
merchantability?
100
Fitness: UCC § 2-315
 How is this different from
merchantability?
 What more is needed?
 Seller knows or has reason to know
 Particular purpose
 Buyer’s reliance
101
Fitness: UCC § 2-315
 Why no warranty in Lewis and Sims
at 674?
102
Implied Warranties
 What’s the problem in Gulash at 675?
103
Warranty of Workmanlike Performance
 Construction and services contracts
 Could any contractor be thought to resist
such a duty?
104
Exemption Clauses
 UCC §§ 2-314, 2-315: “Unless
excluded or modified”
 UCC § 2-316
 What does (1) mean?
105
Exemption Clauses
 Pelc v. Simmonds at 676
1978 Sunbird
106
Exemption Clauses
 Pelc v. Simmonds at 676
 Who was the seller
107
Exemption Clauses
 Pelc v. Simmonds at 676
 Oral statements by Simmons
 Only thing wrong is the a/c
 Good little car, above average
108
Exemption Clauses
 Pelc v. Simmonds at 676
 History of the car
109
Exemption Clauses
 Pelc v. Simmonds
 Oral statements by Simmons
 Only thing wrong is the a/c
 Good little car, above average
 “As is” clause. UCC § 2-316(3)(a)
110
Exemption Clauses
 Pelc v. Simmonds
 Oral statements by Simmons
 Only thing wrong is the a/c
 Good little car, above average
 “As is” clause. UCC § 2-316(3)(a)
 Should UCC § 2-316(1) have been
invoked?
111
Exemption Clauses
 What if it had been proven that seller
knew it was a clunker?
 Morris at 679
112
Exemption Clauses
 The “doomed” car
113
Exemption Clauses
Weisz v. Parke-Bernet at 680
 Can you spot the fake Van Gogh?
114
Weisz v. Parke-Bernet
 Why was the exemption clause ignored?
115
Weisz v. Parke-Bernet
 What is a “Raoul Dufy”?
116
Weisz v. Parke-Bernet
 Might a breach be so fundamental as to
wipe out the contract?

117
Suisse Atlantique, [1966] 2 All E.R. 61 (H.L.)
George Mason School of Law
Contracts II
Warranties
This file may be downloaded only by registered students in my
class, and may not be shared by them
F.H. Buckley
fbuckley@gmu.edu
118
Next day
 Mistake
119
Substantial Performance
vs. Perfect Tender
 Sales Law: Perfect Tender Rule
 UCC § 2-601
 Non-sales Law: Substantial
Performance
 Restatement § 229 (no disproportionate
forfeiture unless “material” event)
 Restatement § 237 (a condition that “no
uncured material failure
120
Substantial Performance in Non-sales
Law
 Non-sales Law: Substantial
Performance
 Materiality defined in Restatement § 241
121
Substantial Performance
 Jacob & Youngs v. Kent at 65
122
Substantial Performance
in Jacob & Young
123
Substantial Performance
 Jacob & Youngs v. Kent at 65
 Was there a breach?
 How serious was it?
124
Substantial Performance
 Jacob & Youngs v. Kent
 What remedy does the Π seek?
125
Substantial Performance
 What are Dependent vs. Independent
Promises, and why did it matter?
Benjamin Cardozo
126
Substantial Performance
 What are Dependent vs. Independent
Promises?
 Dependent promises as “conditions”
 Tender of price and of delivery under Article 2
 Independent promises as mere “promises”
127
Substantial Performance
 What are Dependent vs. Independent
Promises?
 Dependent promises as “conditions”
 Tender of price and of delivery under Article 2
 Independent promises as mere “promises”
 I know Cardozo called it a “promise” but I’m
going to call it a “warranty”.
128
Conditions and Warranties
Promises
Conditions
(Dependent Promises)
Forfeiture
Warranties
(Independent Promises)
Damages
Damages only
129
Substantial Performance
 So how does one tell whether it’s a
condition or warranty?
130
Substantial Performance
 How does one tell?
 “Intention not otherwise revealed may be
presumed to hold in contemplation the
reasonable and probable.”
131
Substantial Performance
 How does one tell?
 Do considerations of “equity and fairness”
get one to the same place?
132
Substantial Performance
 Could the parties to a building
contract bargain for perfect tender?
 “This is not to say that the parties are
not free …”
133
Substantial Performance
 Could the parties to a building
contract bargain for perfect tender?
 Did they in Jacob & Young?
134
Substantial Performance
 Could the parties to a building
contract bargain for perfect tender?
 Did they in Jacob & Young?
 Could you draft a clause that would
have given Kent a right to rescind?
135
Substantial Performance
 Could the parties to a building
contract bargain for perfect tender?
 Did they in Jacob & Young?
 Would the parties have agreed to
such a clause? Why not?
136
Substantial Performance
 Wait a minute—what about Coasian
bargaining?
137
Substantial Performance
 Wait a minute—what about Coasian
bargaining?
 Assume:
 Value of house with Reading pipe is $77,000
 Value of house with Cohoes pipe is $76,900
 Cost of replacement is $10,000
138
Substantial Performance
 Assume:
 Value of house with Reading pipe is $77,000
 Value of house with Cohoes pipe is $76,900
 Cost of replacement is $10,000
 So what would a Coasian bargain look
like, given those numbers?
139
Substantial Performance
 Assume:
 Value of house with Reading pipe is $77,000
 Value of house with Cohoes pipe is $76,900
 Cost of replacement is $10,000
 So will the pipe be replaced?
140
Substantial Performance
 Assume:
 Value of house with Reading pipe is $77,000
 Value of house with Cohoes pipe is $76,900
 Cost of replacement is $10,000
 Will this satisfy the builder?
141
Substantial Performance
 Is Grun Roofing at 682 consistent
with Jacob and Youngs?
142
Substantial Performance
 Grun Roofing
 What is substantial performance for a
roof?
143
Substantial Performance
 Grun Roofing
 What would it cost the owner to install a
completely new roof?
144
Substantial Performance
 Grun Roofing
 What would it cost the owner to install a
completely new roof?
 How did
the court arrive
at damages of $122?
145
Substantial Performance
 Remedies in Plante v. Jacobs at 688
 Cost of repair or diminished value?
 What is the proper measure of Πs loss?
146
Substantial Performance
 Plante v. Jacobs at 688
 Cost of repair or diminished value?
 Does the latter undercompensate?
147
Substantial Performance
 Plante v. Jacobs at 688
 Cost of repair or diminished value?
 Does the former open the door to
opportunism?
148
Haymore v. Levinson at 685
 Was there a breach?
149
Haymore v. Levinson at 685
 Was there a breach?
 The two standards?
150
Grun Roofing vs. Haymore
 Personal taste or fancy vs. operative
fitness
 “mere taste may be controlling” in the
former case
151
Willful deviations
 Cf Grun Roofing at 684
 “Contractor must have intended to
comply”
 Material Movers at 687
 Can you justify this on efficiency
grounds?
152
Recall the Four kinds of Least-Cost Risk
Avoiders
1. Where one party is better able to
reduce the risk or the harm
2. Where one party is better able to
value the loss
3. Assuming risk aversion, where one
party is wealthier than the other
4. Assuming risk aversion, where one
party is a better insurer because he
can diversify the risk
153
Four kinds of Least-Cost Risk Avoiders
Incentives
154
1
Risk or Harm Avoiders
2
Lower Information Costs
Insurance
3
Differential Risk Aversion
4
Risk Diversification
Now: Warranties as a signaling strategy
 Warranties also signal product quality
 The informational asymmetry between
seller and buyer
155
Recall the Four kinds of Least-Cost Risk
Avoiders
 Warranties also signal product quality
 As between two sellers, one of whom
offers a warranty and the other of whom
doesn’t, you have more information
about the former
156
Warranties as a signalling
strategy
 If a dealer offers you an extended
warranty at a premium price, why
does Consumers Reports tell you to
reject this?
157
Warranties as a signalling
strategy
 If a dealer offers you an extended
warranty at a premium price, why
does Consumers Reports tell you to
reject this?
 The offer of the extended warranty gives
you the information, even if you don’t
take it up
158
Warranties as a signalling
strategy
 If a dealer offers you an extended
warranty at a premium price, why
does Consumers Reports tell you
always to reject this?
 Absence of screening and competitive
pricing?
159
Warranties as a signalling
strategy
 If a dealer offers you an extended
warranty at a premium price, why
does Consumers Reports tell you
always to reject this?
 Judgment biases?
160
Warranties as a signalling
strategy
 If a dealer offers you an extended
warranty at a premium price, why
does Consumers Reports tell you
always to reject this?
 Adverse selection problems?
161
Adverse selection:
Flood insurance and Lower Town
Flood insurance isn’t
such a good deal in
la ville en haut, and
extended car warranties
are such a good deal
for low maintenance drivers
162
Can someone explain this to me?
Do we think that Sean Connery drinks Japanese Scotch?
163
If a warranty can operate as a
signal, what about a breach?
164
Why did Van Halen ban brown
M & Ms?
165
If a warranty can operate as a
signal, what about a breach?
 An argument for the perfect tender
rule?
166
George Mason School of Law
Contracts II
Warranties
This file may be downloaded only by registered students in my
class, and may not be shared by them
F.H. Buckley
fbuckley@gmu.edu
167
Next day
 Finish Mistake
 Excuse (plus Scott 84-93)
 Frustration
168
Substantial Performance
vs. Perfect Tender
 Sales Law: Perfect Tender Rule
 UCC § 2-601
 Non-sales Law: Substantial
Performance
 Restatement § 229 (no disproportionate
forfeiture unless “material” event)
169
Presumption against forfeiture in nonsales contracts
Promises
Conditions
Perfect Tender
Forfeiture
170
Warranties
Substantive Performance
Damages
Damages only
Perfect Tender in Sales Law
Promises
Conditions
Perfect Tender
Forfeiture
171
Warranties
Substantive Performance
Damages
Damages only
But what Sales Law gives the buyer, it
also taketh away
 Buyer gets a perfect tender rule, BUT:
 Modification, waiver, estoppel,
 Seller’s right to cure
172
Buyer’s Remedies in the UCC
2-601 Perfect Tender required
Conforming goods 2-106
173
Buyer’s Remedies in the UCC
2-601 Perfect Tender required
Accept 2-606
174
Reject 2-602
Buyer’s Remedies in the UCC
2-601 Perfect Tender required
Accept 2-606
Damages 2-714, 2-715
175
Reject 2-602
Buyer’s Remedies in the UCC
2-601 Perfect Tender required
Accept 2-606
Damages 2-714, 2-715
176
Reject 2-602
Revocation of Acceptance 2-608
Buyer’s Remedies in the UCC
2-601 Perfect Tender required
Accept 2-606
Damages 2-714, 2-715
Reject 2-602
Revocation of Acceptance 2-608
Cancel 2-711, 2-106(4)
Damages 2-711, 2-713
177
Buyer’s Remedies in the UCC
2-601 Perfect Tender required
Accept 2-606
Reject 2-602
Action for price paid 2-711
Incidental Damages 2-711, 2-713
Cover plus damages 2-711, 2-712
178
Cure by Seller
2-601 Perfect Tender required
Accept 2-606
Reject 2-602
Cure 2-508
179
Don’t cure
Seller’s Remedies
Goods not delivered
Withhold delivery 2-703
Stoppage in transitu 2-705
Damages 2-703, 2-708
180
Goods delivered
Seller’s Remedies
Goods not delivered
Goods delivered
Action for the price 2-709
181
Opportunism and Perfect Tender?
 The problem of buyer opportunism is
addressed by the seller’s right to cure
182
Opportunism and Perfect Tender?
 TW Oil at 691
 Why did buyer reject?
183
Opportunism and Perfect Tender?
 TW Oil at 691
 Why did buyer reject?
 25% price drop
184
Opportunism and Perfect Tender?
185
Opportunism and Perfect Tender?
 TW Oil: What was the breach and was
the seller aware of it?
186
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 When was delivery to take place?
187
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 When was the substitute delivery to occur?
188
Opportunism and Perfect Tender?
 Cure after delivery date: 2-508(2)
 Seasonable notice
 Reasonable time
 Seller had reasonable grounds to believe would
be acceptable, with or without money
allowance
189
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 If he would cure, must seller know that
tender will be non-conforming?
Nordstrom on Sales
 Cf. footnote 40
190
Opportunism and Perfect Tender?
 Could cure rights permit a seller to
act opportunistically?
191
Opportunism and Perfect Tender?
 What if first tender is junk?
 Ramirez at 697: an unconditional right to
cure before the delivery date
192
Opportunism and Perfect Tender?
 If the delivery date has passed, in
what way might this be unfair to the
buyer?
193
Opportunism and Perfect Tender?
 If the delivery date has passed, in
what way might this be unfair to the
buyer?
 The delay by itself?
 Seller’s incentive problem
194
Ramirez at 695
 Delivery scheduled for August 3
 Trial Court finds rejection on Aug. 14
195
Why no cure permitted in Ramirez?
 After rejection, seller still has a right
to cure under 2-508(2)
Why no cure permitted in Ramirez?
 Delivery scheduled for August 3
 Rejection on Aug. 14
 Did sellers effect a cure?
197
Why no cure permitted in Ramirez?




198
Delivery scheduled for August 3
Rejection on Aug. 14
Did sellers effect a cure?
Did buyers accept the goods in 2606?
Why no cure permitted in Ramirez?




Delivery scheduled for August 3
Rejection on Aug. 14
Did sellers effect a cure?
Did buyers accept the goods in 2606?
 Semble not, so no need to revoke
acceptance
199
Why no cure permitted in Ramirez?




200
Delivery scheduled for August 3
Rejection on Aug. 14
Did sellers effect a cure?
Can the buyer revoke acceptance for
a trivial defect?
Can 2-508 be waived by seller?
 Qu. Consumer goods where seller
specifies “goods satisfactory or
money refunded”
201
When is buyer opportunism most a
problem, and when are cure rights most
needed?
202
When is buyer opportunism most a
problem, and cure rights most needed?
 Idiosyncratic, custom-made goods
203
When is buyer opportunism most a
problem, and cure rights most needed?
 Volatile markets
204
How might sellers behave
opportunistically, given cure rights?
205
How might sellers behave
opportunistically, given cure rights?
 Sloppiness as to delivery?
 Sloppy repair: Ramirez, Zabriskie at
702
206