George Mason School of Law
Contracts II
Warranties
F.H. Buckley
fbuckley@gmu.edu
1
Conditions and Warranties
Promises
Conditions
Warranties
Election
Forfeiture
2
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
3
Let’s say seller sells a whizbang
4
The whizbang
50% chance of a whiz
It might go whiz
5
The whizbang
50% chance of a whiz, 50% of a bang
It might go whiz …
6
or it might go bang …
Evaluating risk: Expected Values
 The expected monetary value of an
accident is p*L
7
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
8
Evaluating risk: Expected Values
 So the expected monetary value for
an accident with a 50 percent
probability of a loss of $250 is $125
9
The Least-Cost Risk Avoider
 Seller sells a whizbang to Buyer for
$1,000, with no warranties as to bangs
10
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
11
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
12
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
13
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
 How will the parties assign the risk?
14
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
15
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?
16
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?
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
 Seller will not accept less than $100 and
(risk-neutral) buyer will not pay more than
$125
18
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?
19
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
20
The Least-Cost Risk Avoider
 The parties will seek to assign the
risk to the party who can most
efficiently eliminate it.
21
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
who bears the risk?
22
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?
23
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
 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?
24
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
 “Mimicking the market”
25
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?
26
A second way of thinking about
Least-Cost Risk Avoiders
 Same example. But now neither party
can eliminate the risk for less than
$150.
 On whom should the risk fall? Does it
matter?
 Suppose that seller is a large corporation
and buyer is an impecunious consumer.
Does that make a difference?
27
A second way of thinking about
Least-Cost Risk Avoiders
 Same example. But now neither party
can eliminate the risk for less than
$150.
 On whom should the risk fall? Does it
matter?
 Suppose that seller is a large corporation
and buyer is an impecunious consumer.
Does that make a difference?
 Do risk preferences matter?
28
Are you an EMV’er?
 An EMV’er always selects the payoff
with the highest expected monetary
value (p*O)
29
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?
30
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
31
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 for the ticket?
32
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 for the ticket?
 EMV = .5($10,002) = $5,001
33
Three kinds of people
 EMV’ers are risk neutral
 They always take the gamble with the
highest EMV
34
Three kinds of people
 EMV’ers are risk neutral
 Most people are risk averse
 They’ll pass on some opportunities with a
positive EMV
35
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
36
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)
37
Cardinal Utility plotted against EMV
Utility
For EMV’ers,
utility is linear with money
$EMV
38
Cardinal Utility plotted against EMV
For the risk averse, the marginal utility
of money declines (more money generates
increasingly smaller increases in utility).
Utility
$EMV
39
Cardinal Utility plotted against EMV
A justification for progressive income taxation?
Utility
$EMV
40
This suggests a second 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 that firms are riskneutral and consumers risk averse as to
a loss of $250?
41
This suggests a second 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?
42
Now--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
 On whom should the risk fall? Does it
matter?
 Suppose that seller sells 10,000 whizbangs
and buyer buys only one? Does that make
a difference?
43
Probability distribution for buyer
%
.5
750
44
$750
1,000
$EMV
Probability distribution for seller of 60
whizbangs
%
.5
875
45
$EMV
Probability distribution for seller of
10,000 whizbangs
1.0
%
875
46
$EMV
Probability distribution for seller of
10,000 whizbangs
1.0
%
875
All Curves have the same mean value ($875)
but different risk (dispersion from the mean).
47
Probability distribution for seller of
10,000 whizbangs
1.0
%
875
All Curves have the same mean value ($875)
but different risk (dispersion from the mean).
48
Probability distribution for seller of
10,000 whizbangs
1.0
%
875
49
$EMV
Three kinds of Least-Cost Risk Avoiders
1. Where one party is better able to
reduce the risk or the harm (or to
value the loss)
2. Assuming risk aversion, where one
party is wealthier than the other
3. Assuming risk aversion, where one
party is a better insurer because he
can diversify the risk
50
Three kinds of Least-Cost Risk Avoiders
 Where one party is better able to reduce the
risk or the harm (or to value the loss)
 Assuming risk aversion, where one party is
wealthier than the other
 Assuming risk aversion, where one party is a
better insurer because he can diversify the risk
 Where might third party insurance
substitute?
51
Three kinds of Least-Cost Risk Avoiders
 Where might third party insurance
substitute?




52
Liability for a faulty transmission?
Break-in of a house?
Emotional Distress
World War III?
Express Terms: Sessa v. Riegle
 Was there a finding that the horse
that was sold was defective?
53
Express Terms
 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
54
Express Terms
 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
55
Express Terms
 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
 Thrombosis might have been a preexisting latent condition
 Might the seller be liable for this?
56
Express Terms
 Was this a promise that the horse
would be sound after the sale
 Like a 5 year warranty on a sale of a
car?
57
Express Terms
 Was this a promise that the horse
would be sound after the sale
 E.g. 5 year warranty on a sale of a car
 Was this a promise that the horse
was sound at the time of the sale?
 “the horse is sound”
 “the horse is a good one”
 “you will like him”
58
Express Terms
 Was this within UCC §2-313?
 A sale of goods? UCC § 2-105
59
Express Terms
 Why this within UCC §2-313?
 Affirmation of fact
 Part of the basis of the bargain
 Not an opinion or simple commendation
60
Express Terms
 A special rule for horse traders?
 “horses are fragile creatures”
61
Express Terms
 What about cattle and chinchillas?
 Can you distinguish Frederickson from
McNair? p 665
62
Express Terms
 When does a statement become “part
of the basis of the bargain”?
63
Royal Business Machines p. 665
 Copy machine:
 Was of high quality
 Experience showed that the frequency of
repair was very low
 Would remain so
 Will bring buyer substantial profits
64
Royal Business Machines p. 665
 Copy machine:
 Machines were tested and ready to be
marketed
 Maintenance costs specified
65
Royal Business Machines
 Copy machine:
 Machines will not cause fire
66
Royal Business Machines
 Remand to determine if the
statements formed part of the basis
of the bargain
67
Royal Business Machines
 Is reliance essential on an action for
breach of warranty?
 UCC 2-313 Illustration 3
68
Royal Business Machines
 Is reliance essential on an action for
breach of warranty?
 UCC 2-313 Illustration 3
 But cf. Sessa at 664: “this is essentially
a reliance requirement”
69
Express Terms: Specificity
 Searls v. Glasser 668: “recession
resistant”?
 Keith 668: “sure-footed seaworthiness”?
70
Implied UCC Warranties
 Merchantabilty: UCC § 2-314
 Fitness: UCC § 2-315
71
Merchantability
 UCC 2-314: When goods are sold by
a merchant dealing with goods of that
kind
 2-314(2)
 Pass without objection in the trade
 Fair average quality
 Fit for ordinary purposes
72
Merchantability
 UCC 2-314: When goods are sold by
a merchant dealing with goods of that
kind
 2-314(2)
 Does reliance come into this?
 Should it be presumed?
73
Merchantability
 Causation
 Qu. Lapse of time
 I sell you a car whose transmission fails six
months later?
 UCC § 2-314, cmt. 13
74
Flippo 669
 Remedy in tort?
75
Flippo
 Remedy in tort?
 Remedy in contract?
76
Flippo
 Remedy in tort?
 Remedy in contract?
 I.e., strict liability if breach of warranty
 Cf. Prosser on p. 672
 UCC § 2-313B
 Note how materiality substitutes for reliance
77
Flippo
 Remedy in tort?
 Remedy in contract?
 What were the goods?
78
Merchantability
 Qu. A car dealer sells a car which the
buyer wants to use for off-terrain
driving?
79
Fitness: UCC § 2-315
 How is this different from
merchantability?
80
Fitness: UCC § 2-315
 How is this different from
merchantability?
 What more is needed before fitness
duties arise?
 Seller knows or has reason to know
 Particular purpose
 Buyer’s reliance
81
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
 Why no warranty in Lewis and Sims at
674?
82
Warranty of Workmanlike Performance
83
Warranty of Workmanlike Performance
 Does Article 2 apply to construction
and services contracts?
84
Warranty of Workmanlike Performance
 Would such as warranty amount to a
guarantee as to quality, as under
merchantability?
85
Warranty of Workmanlike Performance
 Does Article 2 apply to construction
and services contracts?
 What about Gulash v. Stylarama? 675
86
Warranty of Workmanlike Performance
 Does Article 2 apply to construction
and services contracts?
 Suppose the pool had been
negligently installed?
87
Exemption Clauses
 Pelc v. Simmonds
88
Exemption Clauses
 Did the oral statements by Simmons
amount to a warranty?
89
Exemption Clauses
 Did the oral statements by Simmons
amount to a warranty?
 If so, were they excluded by the “as
is” clause?
 UCC § 2-316(3)(a)
90
Exemption Clauses
 What if it had been proven that seller
knew it was a clunker?
 Morris v. Mack’s
91
Exemption Clauses
 What if seller in Pelc had said “I
guarantee it’s in good shape”
92
Exemption Clauses
 What if seller in Pelc had said “I
guarantee it’s in good shape”
 UCC 2-316(1)
93
Weisz v. Parke-Bernet 680
 Can you spot the fake Van Gogh?
94
Weisz v. Parke-Bernet
 Why was the exemption clause ignored?
95
Weisz v. Parke-Bernet
 Just what is a “Raoul Dufy”?
96
Weisz v. Parke-Bernet
 Just what is a “Raoul Dufy”?
 Suisse Atlantique, [1967] A.C. 361 (H.L.)
97
George Mason School of Law
Contracts II
Warranties
F.H. Buckley
fbuckley@gmu.edu
98
Next day
 Excuse (up to Scott 781)
99
Perfect Tender vs.
Substantial Performance
 Perfect tender required in UCC § 2601
 Substantial Performance
 Restatement § 229 (no disproportionate
forfeiture unless “material” event)
 Restatement § 237 (“no uncured
material failure
100
Is this a UCC transaction?
 UCC 2-105
 Qu. Car dealer sells a factory car yet to
be built?
101
Is this a UCC transaction?
 UCC 2-105
 Qu. Car dealer sells a factory car yet to
be built?
 “future goods” 2-105(2)
102
Is this a UCC transaction?
 UCC 2-105
 Qu. In-ground swimming pool?
 Chlan 690
103
Perfect Tender vs.
Substantial Performance
 When might the parties prefer perfect
tender to substantial performance,
and when vice versa?
104
Perfect Tender vs.
Substantial Performance
 When might the parties prefer perfect
tender to substantial performance,
and when vice versa?
 Relational contract that has been
ongoing for five years?
105
Perfect Tender vs.
Substantial Performance
 When might the parties prefer perfect
tender to substantial performance,
and when vice versa?
 Contract where substantial reliance
expenditures by one party (e.g. jacob
and Young)
106
Perfect Tender vs.
Substantial Performance
 When might the parties prefer perfect
tender to substantial performance,
and when vice versa?
 Volatile commodities markets?
107
Tempering the perfect tender rule
1.
2.
3.
4.
108
Divisibility
Presumption against forfeiture
Waiver and estoppel
Cure
Tempering the perfect tender rule
1.
2.
3.
4.
109
Divisibility
Presumption against forfeiture
Modification, waiver and estoppel
Cure
Presumption Against Forfeiture
Howard
110
Presumption Against Forfeiture
Jacob & Young
 Did the parties bargain for perfect
tender in Jacob & Young?
111
Substantial Performance
in Jacob & Young
112
Presumption Against Forfeiture
Jacob & Young
 Would the parties have bargained for
perfect tender?
113
Substantial Performance
 Was this like Grun Roofing at 682?
114
Substantial Performance
 Was this like Grun Roofing at 682?
 What is the test for substantial
performance—and what is the border
between warranty and condition
 What did the court order?
115
Haymore v. Levinson 685
 Is this Jacob and Young all over
again?
 Is substantial performance what the
parties would bargain for?
116
Grun Roofing vs. Haymore
 Personal taste or fancy vs. operative
fitness
 Subjective “mere taste may be
controlling” in the former case, and
objective standard in the latter
117
When is a breach “material”?
 Restatement §§ 229, 241
118
When is a breach “material”?
 Restatement §§ 229, 241
 Qu. Intentional breaches?
 Builder substitutes a less expensive part he
considers just as good?
119
When is a breach “material”?
 Restatement §§ 229, 241
 Qu. Intentional breaches?
 Builder substitutes a part he considers just
as good?
 Cardozo at 66: the “willful transgressor”
 Material Movers at 687
120
Measure of damages
 Plante v. Jacobs at 688
 Cost or repair or diminished value?
 How is this like the distinction between
condition and warranty?
121
Tempering the perfect tender rule
1.
2.
3.
4.
122
Divisibility
Presumption against forfeiture
Modification, waiver and estoppel
Cure
Modification, Waiver, Estoppel
Clark v. West 644
The dirty little secret of textbook publishing revealed
123
Modification, Waiver,
Estoppel
 What are Modifications?
124
Modification, Waiver,
Estoppel
 Modifications are bilateral agreements
to vary obligations under a contract
 Restatement § 89
 Promises are modified
125
Modification, Waiver,
Estoppel
 Modifications are bilateral agreements
to vary obligations under a contract
 What are Waivers?
126
Modification, Waiver,
Estoppel
 Modifications are bilateral agreements
to vary obligations under a contract
 Waivers are unilateral acts by one
party to excuse another’s
performance of an obligation
 Clark at 646
 Waivers as an election
127
Clark v. West
 UCC § 1-107. Waiver or Renunciation
of Claim or Right After Breach. Any
claim or right arising out of an alleged
breach can be discharged in whole or
in part without consideration by a
written waiver or renunciation signed
and delivered by the aggrieved party.
128
Modification, Waiver,
Estoppel
 Modifications are bilateral agreements
to vary obligations under a contract
 Waivers are unilateral acts by one
party to excuse another’s
performance of an obligation
 (Promissory) Estoppel bars a
promisor from enforcing a right
where he knows that a promisee has
detrimentally relied on him.
129
Modification, Waiver,
Estoppel at common law
130
Agreement
Required?
Reliance
required?
Modification
yes
no
Waiver
no
no
Estoppel
no
yes
Clark v. West
 What was the promise?
131
Clark v. West
 What was the promise?
 Now you know why textbooks are so
long.
 Facts alleged on 647
 Would this be enough for an estoppel?
 A waiver?
132
Election Waivers
 Lee v. Casualty at p.656
133
Estoppel Waivers
Wisconsin Knife Works
 What was the contract?
Spade Bits
134
Wisconsin Knife Works
 What was the contract?
 Six Purchase Orders in Aug-Sept 1981
for delivery in Oct-Nov 1981
 New purchase orders in July 1982
 Seller not able to deliver first orders until
December 1982—13 months late
 Jan 1983—buyer rescinds after 50%
completion under original orders
135
Wisconsin Knife Works
 What was the contract?
 Qu. The no-modification clause
 tracking UCC 2-209(2)
 How do you parse this?
136
Wisconsin Knife Works
 Modifications are binding w/o
consideration. UCC § 2-209(1)
137
Wisconsin Knife Works
 Modifications are binding w/o
consideration. UCC § 2-209(1)
 Opportunism is addressed not by the
consideration doctrine but by good fatih
requirements
 Comment 2
138
Post-contractual
opportunism
 Opportunism is addressed not by the
consideration doctrine but by good faith
requirements
 1-203. Obligation of good faith. Every contract
or duty within this Act imposes an obligation of
good faith in its performance or enforcement.
139
Wisconsin Knife Works
 What was the evidence of
modification or waiver here?
140
Wisconsin Knife Works
 What was the evidence of
modification or waiver here?
 Was an unwritten modification valid?
141
Wisconsin Knife Works
 What was the evidence of
modification or waiver here?
 Was an unwritten modification valid?
 How do you interpret 2-209(2)?
 But except as between merchants…
 Easterbrook at 655 (“casual subsequent
remarks”)
142
Wisconsin Knife Works
 What was the evidence of
modification or waiver here?
 Was an unwritten modification valid?
 Was waiver available? UCC § 2-209(4)
143
Wisconsin Knife Works
 What was the evidence of
modification or waiver here?
 Was an unwritten modification valid?
 Was waiver available? UCC § 2-209(4)
 So does waiver eat up modification?
144
Loss of the right to rescind:
Modification, Waiver, and Estoppel
145
Agreement
Required?
Reliance
required?
Modification
yes
no
Waiver
no
no
Estoppel
no
yes
Wisconsin Knife Works
 What was the evidence of
modification or waiver here?
 Was an unwritten modification valid?
 Was waiver available? UCC § 2-209(4)
 So does waiver eat up modification?
 Posner: Not if waiver requires reliance:
 “can operate as a waiver”
146
Wisconsin Knife Works
 What was the evidence of
modification or waiver here?
 Was an unwritten modification valid?
 Was waiver available? UCC § 2-209(4)
 So does waiver eat up modification?
 Posner: Not if waiver requires reliance
 And was there reliance here?
 NMC’s work from July ‘82 on?
147
Wisconsin Knife Works
 What was the evidence of
modification or waiver here?
 Was an unwritten modification valid?
 Was waiver available? UCC § 2-209(4)
 Easterbrook on waiver: 2-209(5) implies
that waiver does not ordinarily require
reliance
148
Wisconsin Knife Works
 What was the evidence of
modification or waiver here?
 Was an unwritten modification valid?
 Was waiver available? UCC § 2-209(4)
 Easterbrook on waiver: 2-209(5) implies
that waiver does not ordinarily require
reliance
 What instead it requires is an “intentional
relinquishment of a known right.”
149
Wisconsin Knife Works
 What was the evidence of
modification or waiver here?
 Was an unwritten modification valid?
 Was waiver available? UCC § 2-209(4)
 Easterbrook on waiver: 2-209(5) implies
that waiver does not ordinarily require
reliance
 What instead it requires is an “intentional
relinquishment of a known right.”
 And might work even if modification doesn’t.
150
Modification and Waiver
in the UCC
 Modifications are binding w/o
consideration. UCC § 2-209(1)
 Modifications can be barred by
express agreement, UCC § 2-209(2)
 Unless signed written modification
 But waivers still permitted. UCC § 2209(4)
 Tho’ these can be retracted unless other
parties changes position. UCC § 2-209(5)
151
Why no waiver in Suzuki?
152
Why no waiver in Suzuki?
 Termination clauses and agency costs
 Wisconsin Fair Dealership Law, 1974

153
135.03 Cancellation and alteration of dealerships. No
grantor, directly or through any officer, agent or employee, may
terminate, cancel, fail to renew or substantially change the
competitive circumstances of a dealership agreement without good
cause. The burden of proving good cause is on the grantor.
Why no waiver in Suzuki?
 Free riding in franchises
Dirty Macdonalds restaurant
154
Tempering the perfect tender rule
1.
2.
3.
4.
155
Divisibility
Presumption against forfeiture
Modification, waiver and estoppel
Cure
Things looked simple at common law
Promises
Conditions
Warranties
Election
Forfeiture
156
Damages
Damages only
They’re more complicated in the
UCC
Buyer’s Remedies
2-601 Perfect Tender required
Conforming goods 2-106
157
Buyer’s Remedies in the UCC
2-601 Perfect Tender required
Accept 2-606
158
Reject 2-602
Buyer’s Remedies in the UCC
2-601 Perfect Tender required
Accept 2-606
Reject 2-602
Action for price paid 2-711(1)
Damages for non-delivery 2-711(1)(b), 2-713
Cover 2-711(1)(a), 2-712
159
Cure by Seller
2-601 Perfect Tender required
Accept 2-606
Reject 2-602
Cure 2-508
160
Don’t cure
Buyer’s Remedies in the UCC
2-601 Perfect Tender required
Accept 2-606
Damages 2-714, 2-715
161
Reject 2-602
Buyer’s Remedies in the UCC
2-601 Perfect Tender required
Accept 2-606
Reject 2-602
Revocation of Acceptance 2-608, 2-607(2)
162
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, 2-607
Cancel 2-711(1), 2-106(4)
Damages 2-711, 2-713
Specific performance? 2-711(2)
163
Seller’s Remedies
Goods not delivered
164
Goods delivered
Seller’s Remedies
Goods not delivered
Goods delivered
Withhold delivery 2-703(a)
Stoppage in transitu 2-703(b), 2-705
Damages 2-703(d)-(e), 2-708
165
Seller’s Remedies
Goods not delivered
Goods delivered
Action for the price 2-709(1)
Damages 2-709(1), 2-710
166
Cure and Perfect Tender
 The problem of buyer opportunism is
in part addressed by the seller’s right
to cure
167
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
168
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
 The sulfur content was promised to be
0.5%
 The price of oil had fallen by 25%
169
Opportunism and Perfect Tender?
170
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 When was delivery to take place?
171
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 When was delivery to take place, and when
did it take place?
172
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 When was delivery to take place, and when
did it take place?
 What if seller had retendered on Jan. 28?
173
What’s the opportunism problem
under perfect tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 Before delivery date: 2-508(1)
 Cure after: 2-508(2)
 Seasonable notice
 Reasonable time
 Seller had reasonable grounds to believe would
be acceptable, with or without money
allowance
174
What’s the opportunism problem
under perfect tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 Before delivery date
 Cure after
 Seasonable notice
 Reasonable time
 Seller had reasonable grounds to believe would
be acceptable, with or without money
allowance
 Must seller know that tender will be nonconforming? Nordstrom on Sales
175
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 Qu. Cure before delivery date
 Seasonably notify buyer---why?
 What if first tender is junk?
176
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 Before delivery date
 Seasonably notify buyer---why?
 What if first tender is junk?
 Ramirez at 697: an unconditional right to
cure before the delivery date
177
Opportunism and Perfect Tender?
 TW Oil: Why did buyer reject?
 Cure: 2-508
 Before delivery date
 Seasonably notify buyer---why?
 What if first tender is junk?
 Ramirez at 697: an unconditional right to
cure before the delivery date
 What was the delivery date in Zabriskie p.
702
178
Why no cure permitted in Ramirez?
 Delivery scheduled for August 3
 Trial Court finds rejection on Aug. 14
179
Why no cure permitted in Ramirez?
 Delivery scheduled for August 3
 Rejection on Aug. 14
 Did sellers effect a cure?
 Held not: 2-508(2)
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?
 2-606
 Semble not, so no need to revoke
acceptance
 No revocation unless substantial
impairment: 2-608
181
Can 2-508 be waived by seller?
 Qu. Consumer goods where seller
specifies “goods satisfactory or
money refunded”
182
When is buyer opportunism most a
problem, and cure rights most needed?
183
When is buyer opportunism most a
problem, and cure rights most needed?
 Idiosyncratic goods
 Volatile markets
184
How might sellers behave
opportunistically, given cure rights?
185
How might sellers behave
opportunistically, given cure rights?
 Sloppiness as to delivery?
186
How might sellers behave
opportunistically, given cure rights?
 Sloppiness as to delivery?
 Sloppy repair: Ramirez, Zabriskie
187
George Mason School of Law
Contracts II
Mistake
F.H. Buckley
fbuckley@gmu.edu
188