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Sales Law Outline: Notes for Law School

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					SALES OUTLINE
SCOPE OF ARTICLE II 1. 2-102 Scope a. Goods: ―applies to transactions in goods‖ i. 2-103(1)(k) definition: ―all things that are movable at the time of identification to a contract for sale‖ 1. includes future goods, specially manufactured goods, unborn animals, growing crops, etc. ii. Little v. Grisely: identification 1. modular home, manufactured and shipped and then permanently attached to the ground 2. When did identification occur? a. Defined in 2-501, in absence of agreement, identification occurs: i. when K is made for sale of goods already existing ii. when K is made for sale of future goods b. English: ID occurs when you know that these particular goods are the goods the K anticipates c. even though the house wasn’t manufactured at the time of K, it was identified at the point when it was movable iii. Niagra Mohawk Power 1. K for sale of electricity, is electricity goods? 2. ―things in action‖ probably not goods, can’t be identified (that electric current) 3. intangibles not generally covered by UCC b. Contract for Sale i. 2-106 definition: 1. present or future sale of goods 2. sale—passing title from seller to buy for price ii. McQuiston: 1. jar breaks, hurts woman while she is looking in it at KMart, but before she went to buy it 2. There was no sale, she can’t bring breach of warranty 3. Look at intent—here she didn’t intend to buy 4. technically could’ve sued manufacturer for breach of warranty, because manufacturer sold to retailer, if in a J with broad privity rules she would’ve had suit even if she wasn’t a purchaser iii. Gray area 1. if someone is taking item to check out and gets hurt, is this enough intent to prove contract for sale? a. J split

i. yes: item on shelf is offer, customer taking down item into basket is acceptance (criticized because if customer puts item back putative K isn’t breached) c. Transactions in goods, not just contracts i. Leases in goods covered under Article 2(a) (because otherwise no transfer of title has actually occurred) 1. 2(a)-103: definition of lease a. transfer of good for a term for possession and good is returned at the end b. look to see whether transaction is a true lease or a true sale i. 1-201(37): whether transaction creates a sale or security interest is determined by the facts. Security interest is created if consideration is paid over time and the lessee has the ability to become true owner at the end ii. is the payment plan set up to function mainly as a sale, and the ―lease‖ is just security? 1. ex: if at the end of the lease term lessee has option to buy for $1, then truly a sale 2. if sale, governed by Article 2, not 2(a) d. Sales/Service Contracts i. If sales, UCC applies, but if service K, UCC n/a ii. Majority Rule: if K is mixed sales/service, look at whether the predominant purpose is the rendition of services or the sale of goods 1. all or nothing rule 2. Factors: a. look to see whether the transfer of the goods was incidental to the rendering of the service, or vice versa b. how much for the total K price is for the goods? c. does seller have discretion in which goods he uses n the services or is buyer giving direction? iii. Very minority rule: if mixed sales/service, if goods are at issue in the suit then UCC applies, but if services are at issue common law of Ks applies 1. ―severance approach‖ 2. almost nowhere uses this iv. Common controversies: 1. 2-314(1): sale of food and drinks in restaurant is a sale

2. blood transfusions, other health services—depends on J 3. Computers a. is computer information goods? i. ex: online software (no physical disk) ii. current state: 2 different results depending if you buy software in store (UCC applies) or online (UCC n/a because information doesn’t fall into definition of ―goods‖) iii. Advent case e. Statute of Limitations i. 2-725(1) action for breach of K for sale must be brought within 4 years of when breach occurs, or one year after the breach was or should’ve been discovered, but no longer than 5 years after breach occurs 1. parties can reduce it to a minimum of 1 year, cannot expand ii. 2-503(1) action for breach of warranty—4 year statute of limitations begins running upon tender of delivery (not when breach is discovered) iii. Exception: 2-725(2) if warranty explicitly extends to future performance and discovery must await until future performance then statute runs from date of discovery of breach of warranty (instead of tender of delivery) 1. implied warranty of merchantability never applies to future performance 2. this exception is mainly for express warranties relating to future performance 3. exception very favorable to buyers 4. Majority view: implied warranty by nature cannot extend to future performance 5. Minority view (PA): Nationwide case, promise to cure any defect in the first year is a warranty of quality that falls within the exception iv. 2A-506 statute of limitations for leases: 1. if action for default on lease/breach of warranty—4 years 2. begins running when default/breach of warranty is or should’ve been discovered, or when default occurs, whichever is later GENERAL PRINICPLES 1. Good Faith a. required by 1-203, every K under UCC is subject to duty of good faith i. Definition: 1. old 1-201(19): honesty in fact in the conduct/transaction 2. new: honesty in fact and observance of reasonable standards of fair dealing in the trade b. Scope Generally:

i. narrowly interpreted when it arises under performance or enforcement of a specific K term ii. doesn’t impose a duty to act fairly with respect to all times and all circumstances under the K 1. Urdang a. buyer defaults on car payments, seller accelerates and won’t accept buyer’s offer to pay off a large chunk of the debt, seller repossesses the car, re-sells it, but still holds buyer responsible for the outstanding balance b. buyer claims bad faith, Court agrees—seller didn’t act fair in rejecting buyer’s offer c. but Court probably incorrect: seller accelerated the debt as per his right i. technically, the seller was honest in fact ii. Court may have applied revised definition, because rejecting the money probably wasn’t in accordance with reasonable commercial standards c. Specific Provisions: i. 2-305(2): if K says seller or buyer fixes the price, must be done in good faith ii. 2-306: if K contains output quantity, requirement must be met/ posted in good faith 2. Unconscionability a. definition: i. there is none, but attempts to prevent oppression and unfair surprise b. scope: i. looks at specific K terms to determine whether they’re unconscionable c. analysis: i. Must have both: 1. Procedural unconscionability: a. is there lack of meaningful choice? i. really small print, unfair surprise, inequality of bargaining power, sharp practices? 2. Substantive unconscionability: a. K term unreasonably favors one party ii. because a court won’t interfere with a K just because it doesn’t appear fair d. leases: i. 2A-108: where unconscionability is found with consumer lease, winner gets attorneys fees CONTRACTUAL FORMALITIES

1. Statute of Frauds (SOF) a. 2-201(1): if K for sale of goods for $500+, K isn’t enforceable unless there’s a writing meeting certain requirements: i. sufficient writing: 1. any reduction of agreement to tangible form ii. quantity (2-201) 1. K isn’t enforceable beyond the quantity of goods shown in writing, so if no quantity, unenforceable iii. signed by party charged 1. 1-201(39): any symbol execute or adopted with present intention to adopt or accept a writing 2. email signatures generally sufficient, but depends on J iv. sufficient to indicate K for sale has been made 1. usually includes listing price, if price not indicated hard to show K for sale 2. evidence of agreement between two parties a. Comment 1: doesn’t have to include all terms that were agreed upon v. Cases: 1. Rosenfeld: woman to buy 3 of defendant’s paintings, wrote partial agreement in crayon confirming she paid down payment a. writing was sufficient even though it didn’t contain delivery term or price 2. First Bank v. HKA a. this court: inclusion of ―purchase price‖ not enough to indicate K b. 2-201(2): Exceptions to statute of frauds for Ks between merchants i. If between merchants B, a merchant receives a document that would satisfy 2-201(1) against he sender, if B doesn’t object to the contents in 10 days B cannot later use SOF as a defense 1. Designed to fix situation where A who sent the writing would be bound but B wouldn’t ii. Policy: 1. merchants often make oral Ks followed up by written confirmations, so if merchant receives confirmation presumption is that he will object if he doesn’t agree iii. Analysis: 1. Are both parties merchants? a. Comment: 3 ways to define merchant: i. someone who deals in goods of the kind ii. someone who by their occupation holds themselves out as being familiar with the goods involved

2.

3.

4. 5.

iii. someone who by their occupation holds themselves out as having knowledge particular to the practices involved Was writing in confirmation of a K sufficient against the sender? a. does it contain quantity, signature, and evidence of agreement for sale? Was writing received by a merchant within a reasonable time after K was made? a. fact specific, look at relationship between parties Merchant receiving the writing had reason to know its contents Merchant receiving the writing didn’t give objection within 10 days of receipt

iv. Cases: 1. Perdue Farms v. Motts a. Motts sent letter to Perdue, Perdue never objected, now Motts wants to sue Perdue and Perdue says there was never an agreement b. Court goes through 5-part analysis, finds K c. Which means at trial, Perdue can dispute terms of the K, but cannot deny its existence 2. Cudahy Foods v. Holloway a. Cudahy delivered cheese to Holloway, a real estate agent, then sends follow-up invoice. Holloway never pays, Cudahy sues, Holloway says SOF n/a because he never signed a writing, and she’s not a merchant b. Issue: is Holloway a merchant? i. real estate agent doesn’t herself out as having knowledge/skill in cheese ii. but is involved in business generally iii. Court takes narrow approach—if this is an isolated purchase of a type of goods unrelated to your business then you’re not a merchant iv. BECKER: wrong, Comment is broader than this c. 2-201(3): Exceptions that don’t require a writing i. (c): K that doesn’t satisfy 2-201(1) but which is valid in other respects is enforceable with respect to goods for which payment has been made and accepted or which have been received and accepted 1. Kaufman v. Solomon

ii.

iii.

iv.

v.

a. buyer gives seller a check, seller holds onto it for 30 days and then returns it to buyer. Has payment been made and accepted? b. Court: holding onto check for 30 days indicates real transaction, agreement between parties (despite absence of writing) Comment 2: partial performance validates the K only for goods which have been accepted 1. ex: if order for 10,000 screws and buyer pays for 5,000 (and seller accepts payment) buyer can only go after the 5,000 already paid for 2. what about part performance on indivisible good? a. where seller admits the part payment, there’s enough of a basis for believing a K for sale has been made between parties, so SOF is not a defense for seller (a) Where there’s an oral K for specially manufactured goods where the circumstances indicate the goods are for a particular buyer and where the seller has made substantial performance on the K, there’s enough evidence to show there has been an agreement and seller cannot use SOF as a defense 1. must show seller was making particular goods for this buyer (b) Judicial admissions exception 1. if party admits in court (judicial proceeding) that K for sale was made, then party cannot use SOF as defense 2. interpretation problem: what counts as a judicial proceeding? a. Majority J: a demurrer is not an admission, defendant can assert SOF b. Minority J: only people who have opportunity to deny under oath that there was a K can use SOF as defense, so a demurrer will be treated as a temporary admission and case will go to trial i. at trial,, defendant will be asked whether there was an oral K ii. if defendant says no, can assert SOF iii. if defendant says yes, real admission, SOF no longer a defense Estoppel: 1. Plaintiff can estop defendant from asserting SOF as defense if plaintiff shows: a. Proof of clear and unambiguous promise b. Reasonable and foreseeable reliance c. Unconscionable injury 2. J split on whether estoppel is permitted under UCC

a. Yes: 1-103 preserves common law estoppel principles unless displaced b. No: common law estoppel is displaced by UCC 2201 which explicitly lists exceptions for writings (treat exceptions as exhaustive) 2. Parol Evidence Rule (PER) 2-202 a. Language: i. ―Terms set forth in confirmatory records…intended by [both] parties to be a final expression of their agreement with respect to such terms therein may not be contradicted by evidence of any prior agreement or of any contemporaneous oral agreement but may be supplemented by evidence of: 1. (a) course of performance, trade usage, course of dealing a. 1-205(2) trade usage: i. practice/method of dealing having such regularity of observance in place/trade as to justify expectation that it will be observed ii. K can include clause prohibiting evidence of trade usage b. 1-205(1) course of dealing: i. how these two parties previously dealt with each other with respect to previous Ks c. 2-208(1) course of performance: i. how the parties performed under this K d. In relation to each other: i. course of performance trumps course of dealing trumps trade usage e. J split: i. Majority: trade usage is always permissible evidence because it always explains the context so it can be contradictory ii. Minority: if trade usage, course of dealing or course of performance evidence contradicts explicit terms of the K it can’t be introduced 2. (b) consistent additional terms unless court finds record to be exclusive and exhaustive statement of terms b. Contradiction: i. terms in a writing expressing the final agreement of both parties cannot be contradicted 1. by evidence of a prior agreement 2. or contemporaneous oral agreement ii. but if additional consistent oral agreement 1. 2-202(2)(b)—an agreement can be explained or supplemented by additional consistent terms 2. UNLESS the court finds the writing to have been intended to be a complete and exclusive statement of the terms

a. Comment 3: would the terms have been included necessarily if they had been agreed upon? b. Look at writing, if it looks exhaustive/long, tends to show writing was intended to be complete and exclusive (and therefore PER would par even consistent additional terms) c. ―Merger Clause‖—seller’s tool for stating the writing is complete and exclusive iii. Cases: 1. Perdue case: writing set price at $4, Perdue thinks price is $3, Perdue not barred by PER from introducing evidence to support its position because the writing wasn’t agreed upon by both parties as final expression CONTRACT FORMATION, MODIFICATION AND TERMINATION 1. Battle of the Forms: Additional or Different Terms in Acceptance a. 2-207(1) i. A definite and seasonable expression of acceptance operates as an acceptance even though it contains additional terms 1. rejects mirror image rule 2. Typical situation: if B sends offer and S sends ―acceptance‖ that is essentially the same but contains an additional term b. 2-207(2) i. Additional terms (in 2-207(1)) are construed as proposals, but between merchants they become part of the K unless: 1. the additional term materially alters the K a. if it would result in surprise/hardship (Comment 4) i. Comment 5 provides examples b. examples: i. arbitration clause ii. choice of law clause iii. choice of forum clause iv. disclaimer of warranty of merchantability v. limitation of remedies ii. if seller wants an additional term, but scared it will materially alter the K, then make term expressly conditional on buyer’s assent 1. seller’s language should mirror UCC ―expressly conditional on buyer’s asset to these additional terms‖ 2. seller’s response becomes a counter-offer, no K formed until buyer expressly accepts c. 2-207(3) i. if seller includes ―conditional asset clause‖ and there is subsequent performance on the K, then what are the terms of the K? 1. those on which the writings agree 2. those on which, despite absence of writing, parties agree

3. together with any supplemental terms incorporated under UCC (gapfillers) d. Different, not additional, terms: Two Approaches: i. Majority ―Knock Out‖ Approach: 1. Different terms cancel each other out, and filled in by gapfillers 2. Policy: fairness, neither side gets its way 3. Comment 6 ii. Minority Approach—treat 2-207(2) as applicable: 1. but offeree would always lose because the different term in the acceptance would always be a material alteration, and thus not incorporated 2. Comment 3 e. Cases: i. Itoh ii. Daitom iii. Horning iv. Herzog 2. Missing Terms a. 2-204(3) i. Even if one or more terms are left open, a K for sale doesn’t fail for indefiniteness if the parties have intended to make a K and there is a reasonably certain basis for giving an appropriate remedy ii. Code will provide gapfillers 3. Shrinkwrap Licenses a. Pro-CD i. software wrapped in shrinkwrap, from the outside buyer can see ―subject to restrictions inside‖ but cannot read the actual restrictions until buyer opens the disk and uses it. Are the terms binding on a user who violates them? ii. If no warning on the outside, user not subject to terms listed inside because there was no meeting of the minds, the restrictions weren’t part of the bargain iii. If writing included in the box grants additional warranties, it is binding because manufacturer didn’t have to include it iv. If writing is listed on outside of the box, it is binding because consumer should’ve seen it (and presumably wouldn’t have bought it if he didn’t agree) v. In cases like Pro-CD where there’s a warning but not clues as to the extent of the restrictions/limitations: 1. J Split a. Unenforceable: if seller wants restriction should say so up front b. Enforceable: restrictions binding if user opens box and continues to use product

WARRANTIES 1. 2-313 Express Warranties a. (2)(a) any affirmation of fact or promise made by seller which relates to the goods and becomes part of the basis of the bargain creates express warranty that the goods shall conform to the affirmation/promise i. Factual statement: 1. look at context a. if statement is made as a response to question asked by buyer it might turn a neutral statement into a statement of fact b. knowledge differential between parties? c. made in response to buyer’s statement of need for a good? d. specificity of words in statement ii. Affirmation as part of basis for bargain: 1. Comment 3: a. affirmations of fact made about the good during the bargain become part of the K 2. buyer doesn’t have to show reliance 3. burden on seller to prove it wasn’t part of the bargain a. very hard, seller usually loses 4. Can be oral or written a. written: in brochures, packaging etc. i. even if not written during the bargain b. oral statements i. made during bargain (definitely) ii. made after bargain 1. Comment 7: if seller makes oral statement after K, after delivery, in response to buyer’s question, it is a modification (2-209) 2. Daughtry 5. If buyer doesn’t see warranty until after the K, J split: a. Warranty still binding: even if buyer didn’t know about it, it was part of what buyer got at the time i. no unfairness to seller b. Warranty not binding: wasn’t part of the bargain b. (2)(b) any description of the goods which is made part of the basis of the bargain creates express warranty that goods will conform to description c. (2)(c) a sample/model of the goods can create an express warranty i. Alimenta nut case d. Breach: i. General rule: must manifest within express warranty period (Duquesne) 2. Implied Warranties a. Analysis of Implied Warranty Claims:

i. Is there an implied warranty? 1. merchant 2. K for sale ii. What is the content? 1. fit for ordinary purpose, pass w/o objection, etc. iii. Is merchant kept out? 1. 2-316(2), 2-316(3)(b) 2. is it unfair for merchant to be liable? (usually no) b. Implied Warranty of Merchantability: i. 2-314(1) Unless disclaimed, ―a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind‖ 1. ―Merchant‖ (2-104): regularly deals in goods of the kind, or holds himself out as having particular skills/knowledge particular to the goods 2. applies to goods sold by merchants, regardless if new or used 3. defect must be present at time of sale a. Design defect: i. entire product line has a design flaw ii. proven with expert testimony b. Mechanical defect: i. this particular model has a design flaw ii. proven with expert testimony ii. 2-314(2) Goods are merchantable if they: 1. pass without objection in the trade under the K description 2. are fair average quality 3. are fit for ordinary purpose for which the are used, etc. a. look at expectations of purchaser b. even if purchased for one use, if reasonably foreseen that it will be used for another purpose then must be fit for that purpose as well 4. run, of even kind, quality and quantity within each unit and among all units involved 5. are adequately contained, packaged and labeled as the agreement requires 6. conform to the promise/affirmations of fact made on the container iii. 2-316 permits exclusions: 1. (3)(a): seller can disclaim implied warranty by using ―as is‖ or ―with all faults‖ to make clear that there is not implied warranty, and if the K is in writing the disclaimer must be conspicuously written 2. (3)(b): no implied warranty if seller examines goods as he wishes, or refused to examine the goods after seller insists, and then a defect manifests

a. Comment 8: i. interpret this exclusion narrowly ii. examine isn’t synonymous w/ inspection iii. UTC, did buyer understand seller was disclaiming implied warranty? iv. Defenses: 1. Due care is NOT a defense a. irrelevant whether seller was negligent b. the fitness of the goods is the only relevant factor c. but it it’s not clear that product is defective then defendant can introduce evidence of due care that shows that it’s not defective (Orlando) 2. If express warranty conflicts with implied warranty, then the express warranty controls (2-317(c)) a. unless implied warranty of fitness for particular purpose 3. Preemption v. Damages: 2-714 1. (3) incidental damages 2. (b) damages for injury to property or person c. Implied Warranty of Fitness for Particular Purpose i. 2-315: 1. Where seller at time of K has reason to know any particular purpose for which the goods are required and that the buyer is relying on seller’s skill/judgment to select goods, implied warranty that goods will be fit for that purpose (unless excluded/modified) a. express warranty cannot displace implied warranty of fitness for particular purpose ii. often arises when seller isn’t a merchant so merchantability n/a d. Warranty of Title i. 2-312(1): in every K for sale warranty that 1. (a) title conveyed is good and its transfer rightful and shall not unreasonably expose the buyer to litigation b/c of any colorable claim to/interest in the goods a. Stolen goods: i. 2-403--if transferor didn’t have title because he stole goods then buyer doesn’t have good title either b. Voidable title: i. if someone gets goods under a ―voluntary purchase transaction‖ (goods were transferred to them by seller) then there’s voidable title ii. person with voidable title can transfer good title to a good faith purchaser for value

c. Entrustment exception: i. if person voluntarily entrusts goods to merchant who deals in goods of the kind, and merchant subsequently sells goods to a good faith purchaser for value, the purchaser has good title d. Litigation issue: i. right of quiet possession ii. if buyer is sued over legitimate title dispute buyer can subsequently go after seller for breach of warranty of title 2. (b) goods are freed from any security interest/lien/ encumbrance that buyer doesn’t know of ii. Damages 1. 2-714(2): difference at the time and place of acceptance b/t value of the goods as accepted and value they would’ve had if they had been as warranted e. Lease Warranties: Article 2A i. 2A-209(1): Whatever promises supplier makes to lessor, including all warranties, extend to the lessee under a finance lease 1. Finance lease (2A-103(g)): lessor doesn’t select manufacturer or supply the goods 2. lessor acquires the goods in connection with the lease ii. 2A-210: Express Warranties iii. 2A-212: Implied Warranty of Merchantability 1. arise if lessor is a merchant as long as it’s not a finance lease iv. 2A-213: Implied Warranty of Fitness for Particular Purpose 3. Privity a. Generally: i. privity required between buyer and seller in order to sue on a breach of warranty ii. ―immediate buyer‖: buyer that enters into K with seller iii. ―remote purchaser‖: person that buys/leases goods from an immediate buyer or other person in normal chain of distribution b. 2-318 Implied Warranties and Privity i. Alternative A: (Majority) 1. Seller’s warranty, whether express or implied, extends to any natural person who is in the family/household of the immediate buyer, or if he is a guest in the home and it’s reasonably foreseeable he’ll use it the goods, and the goods cause personal injury 2. only horizontal privity (seller’s warranty extends only to people with close relationship with buyer) 3. here, buyer couldn’t sue manufacturer 4. Analysis:

a. Does it apply on its face? b. If not, what exceptions have been made to the privity requirement? i. Some states—no exceptions ii. IL: permit buyer who is injured in person to sue someone up the line for breach of implied warranty of merchantability ii. Alternative B: 1. Seller’s warranty to an immediate buyer OR a remote purchaser, whether express or implied, extends to any individual who may reasonably be expected to use the goods and who sustains personal injury because of the breach 2. Vertical privity—down the line buyer can sue up the line seller 3. Covers non-buyers a. ex: customer that comes into store and is injured before purchasing b. customer is reasonably expected to use goods c. customer can’t sue retailer (no K for sale) but can sue manufacturer iii. Alternative C: 1. Seller’s warranty to immediate buyer OR a remote purchaser, whether express or implied, extends to any person that may reasonably be expected to use goods, and that is injured by the breach. 2. Vertical privity 3. NOT limited to personal injury (all foreseeable damages recoverable) 4. But seller can expressly limit the privity to personal injury only iv. J split about whether, if J permits exceptions for privity, it will allow recovery for non-economic losses (as opposed to losses for personal injury or property damage) c. Express Warranties and Privity i. 2-313: express warranties are made to immediate buyers 1. automatically creates privity requirement ii. Any person that is not an immediate buyer would need an exception under 2-318 to recover for breach of express warranty 1. Alternative A state: a. no vertical privity, only horizontal 2. Alternative B state: a. vertical privity if breach results in personal injury 3. Alternative C state: a. vertical privity for any foreseeable victims of the breach

MODIFICATIONS 1. 2-209 a. (1): agreement modifying a K doesn’t need consideration to be binding i. must meet test of good faith, i.e. legitimate reason for modifying b. (2): a K can exclude any modifications not in writing in its terms c. (3): SOF must be satisfied if the K as modified is within its provisions i. J Split on interpretation: 1. Favors buyer: a. modification must be in writing, signed by party charged, specify quantity, sufficient to indicate agreement 2. Favors seller: a. if the K initially satisfied SOF, the modification doesn’t have to be in writing unless the K changes the quantity b. if modification, plus the K that allegedly already satisfies SOF, as a whole satisfies SOF, then modification is binding d. (4): if modification fails under (2) or (3) (i.e. if not reduced to writing and J requires that), the attempt can still operate as a waiver i. doesn’t often come up, J split: 1. Majority: waiver operable only if party asserting it has relied on what they believed to be a valid modification 2. Minority: it means exactly what it says, reliance is irrelevant TERMINATION 1. General: a. Usually K terminates when performance is complete b. Issue arises when K calls for continuous performance 2. 2-309 a. (2): If K provides for successive performances but is indefinite in duration, it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party i. fact-specific, may require time for dealer to recoup investment b. (3): termination of K by one party except on the happening of an agreed event requires reasonable notification be received by other party and agreement dispensing with notification is invalid if its operation would be unconscionable. K can include term specifying standards for nature/time of notice as long as they aren’t unreasonable. RISK OF LOSS 1. General: a. between buyer and seller, who bears risk of financial loss if goods are destroyed when neither party is at fault?

2. 2-509: Risk of Loss in the Absence of Breach a. (1) If K requires/authorizes seller to ship by carrier: i. (a) if K doesn’t require delivery at a particular destination, risk of loss passes to buyer when goods are delivered to carrier 1. ―shipment K‖ 2. presumption is that K is a shipment K, something particular must take it down to (b) a. Comment 5 ii. (b) but if K requires delivery at a particular destination, risk of losses only passes to buyer when goods are tendered to buyer at destination 1. ―destination K‖ 2. inclusion of f.o.b. term tends to indicate destination K a. where f.o.b. is place of destination b. (2) If goods are held by a bailee to be delivered w/o being moved, risk of loss passes to buyer: i. (a) on buyer’s receipt of possession/control of negotiable document of title covering the goods 1. 1-201(15) defines document of title 2. title to car is not a document of title (Martin) ii. (b) on acknowledgement by bailee to buyer of the buyer’s right to possess the goods 1. often applies to commercial bailees 2. if seller sells good but holds onto it until buyer is ready, is he a bailee? a. general rule, no (Martin) c. (3) If not (1) or (2) risk of loss passes to buyer on buyer’s receipt of goods i. default rule, seller bears risk of loss while in possession of the goods ii. policy: seller more likely to insure the goods than buyer d. (4): parties can agree to assign risk of loss differently 3. 2-510: Effect of Breach on Risk of Loss a. General: i. creates opportunity for non-breaching party to shift risk of loss onto breaching party b. (3) If buyer as to conforming goods already identified to the K repudiates or is otherwise in breach before risk of loss has shifted to buyer, seller may treat risk of loss as resting on buyer for commercially reasonable time if seller doesn’t have insurance TRANSPORTATION, DELIVERY AND INSPECTION 1. Delivery a. ―Tender of Delivery‖ i. 2-507(1): condition to buyer’s duty to accept duty and pay for good ii. 2-503(1) definition: seller puts goods at buyer’s disposition

b. Seller’s duties under 2-503(2) i. Must get goods on carrier ii. Must make reasonable K with carrier for delivery 1. make sure reasonable care has been taken to protect goods a. fact-specific depending on type of good 2. Comment 3: seller can’t agree to limited valuation below true value and cut off buyer’s rights (if buying insurance from carrier) 2. Inspection a. 2-513(1): Buyer’s rights to inspect goods i. unless otherwise agreed, where goods are tendered or delivered, buyer has right to inspect the goods before accepting and paying for them b. 2-513(3) Exception: i. buyer isn’t entitled to inspect goods before payment when the K provides for delivery c.o.d. 1. buyer must pay before inspection 2. 2-512(2): buyer’s rights not impaired just because he paid first c. Carriers don’t like c.o.d.’s, they prefer payment be made first, then include in their carrier K terms either: i. (a) payment against documents of title ii. (b) cash against documents 1. Process: a. seller obtains negotiable bill of lading from carrier, and once buyer pays seller, seller will give bill to buyer, which triggers the carrier to deliver to buyer 2. Bill of lading: a. straight: buyer gets receipt and carrier delivers to person (buyer) named on bill of lading i. carrier doesn’t have to receive bill of lading prior to delivery b. negotiable: carrier can’t deliver until buyer gets bill of lading from seller and gives it to carrier d. Summary: i. buyer cannot inspect before payment if: 1. payment c.o.d. 2. payment against documents of title PERFORMANCE AND BREACH 1. Anticipatory Repudiation a. 2-610(1) If either party repudiates the K with respect to performance not yet due the loss of which will substantially impair the value fo the K to the other, the aggrieved party may: i. (a) await performance by repudiating party for commercially reasonable time

ii. (b) resort to any remedy fro breach (2-703, 2-711) iii. (c) suspend performance or proceed on seller’s right to identify goods to the K notwithstanding breach or salvage unfinished goods (2-704) b. 2-611: Retracting repudiation i. (a) Until repudiating party’s performance is due, repudiating party can retract repudiation unless non-repudiating party has canceled or materially changed position or indicated that repudiation is final c. Determining repudiation: i. Comment 1: overt communication of intention not to perform, or action that renders performance impossible, or action which demonstrates clearly repudiating party isn’t going to continue with performance 1. look at seller’s language, actions ii. Comment 2: demand for more money than what K calls for isn’t a repudiation in and of itself 1. will need more facts iii. If repudiating party doesn’t respond to demand for assurances/ doesn’t provide adequate assurances d. 2-609 Assurances i. Generally: help party determine whether other party is capable of performing, is going to perform, or is repudiating ii. (1): if party has reasonable grounds for insecurity, may demand in writing adequate assurances of due performance. Until assurances received, demanding party may suspend its own performance for a commercially reasonable time for performance not yet paid for iii. (2): between merchants reasonableness of grounds for insecurity and adequacy of assurances are determined according to commercial standards iv. (3) acceptance of improper delivery/payment doesn’t prejudice aggrieved party’s rights to demand adequate assurance of future performance v. (4) after receiving justified demand, failure to provide an adequate assurance within a reasonable time (not exceeding 30 days) is a repudiation 1. Determining whether assurance is adequate: a. often party will say ―I promise I can perform‖ but does demanding party have to rely on that promise? i. Comment 3: sometimes a promise is enough b. if buyer says ship c.o.d. or cash against documents probably adequate assurance c. seller might be able to say the only adequate assurance buyer can give me is a promise of cash against documents d. if buyer is insolvent seller has right to demand cash (2-702(1))

2. Rejection and Revocation of Acceptance a. Buyer’s Rights When Seller Breaches and Buyer Doesn’t Keep Goods i. 2-601: Buyer’s Rights on Improper Delivery 1. unless otherwise agreed, if delivery fails to conform with K, buyer can: a. reject the whole i. ―perfect tender rule‖—buyer can insist on perfect compliance ii. if he rejects, remedies are determined under 2-711 1. recovery of purchase price iii. Limits: 1. if installment K, perfect tender rule doesn’t apply a. can only reject nonconforming installment if the defect substantially impairs the value of the installment and can’t be cured 2. bound by limitation of remedy (2719) a. K might limit buyer’s right to reject 3. if shipment K, seller’s failure to notify buyer or make a proper K is ground for rejection only if material delay or loss ensues (2-504) 4. look to see whether seller has right to cure under 2-508 a. (2): if buyer rejects nonconforming tender that seller had reasonable grounds to believe would be acceptable seller may, if he seasonably notifies the buyer, have a further reasonable time to substitute conforming tender i. buyer would have to take back good if seller fixed defect b. Pro buyer: seller must provide substitute, conforming goods c. Pro seller: seller has right to make minor repairs b. accept the whole

c. accept any commercial unit and reject the rest ii. Making the Rejection (2-602) 1. (1) rejection must be within reasonable time after delivery, and is ineffective unless buyer seasonably notifies seller a. Determining ―reasonable time‖ i. difficulty/ease of inspection ii. trade usage and trade practice b. Do not have to tell seller why he is rejecting i. BUT under 2-605(1) if buyer doesn’t state he is rejecting because of a particular defect he is precluded from rejecting if seller could’ve cured the defect had seller been notified seasonably 2. (2)(b) if buyer has taken possession of goods before rejecting them, buyer must hold them with reasonable care at seller’s disposition for a time sufficient to allow seller to come get them a. Exception: 2-711(3) i. if buyer has a security interest in goods (i.e. has already made down payment) buyer can reject and hold onto goods until seller gives back money already paid 3. 2-603: if buyer is a merchant and seller has no agent/ business in market where rejection is made, buyer must a. follow reasonable instruction from seller b. if goods are perishable and no instruction then buyer must make reasonable efforts to re-sell them 4. 2-604: if seller doesn’t give directions to buyer within a reasonable time after notification of rejection, buyer may store goods (at seller’s expense) or re-ship goods to seller 5. (3) seller’s rights to goods wrongfully rejected (2-703) iii. Making a Revocation of Acceptance 1. 2-606(1): Acceptance occurs when buyer: a. after reasonable opportunity to inspect signifies to seller that goods are conforming or that buyer is accepting despite non-conformity b. fails to make effective rejection, but no official acceptance until buyer has had reasonable opportunity to inspect goods c. acts inconsistent with seller’s ownership i. can’t be literally applied because any time buyer takes possession it is inconsistent with seller’s ownership ii. Intervale: look to see if buyer has done the act knowing of the defect

2. 2-608(1) Buyer can revoke acceptance of whole or commercial unit whose nonconformity substantially impairs its value to the buyer if: a. buyer accepted on reasonable assumption that defect would be cured and hasn’t been seasonably b. buyer accepted without discovering the nonconformity because nonconformity was difficult to discover before acceptance i. if there was a disclaimer of implied warranty there’s no nonconformity with the K terms c. Test for substantial impairment to buyer: i. subjective: look at needs of this buyer ii. objective: would this reasonably impair the value to a reasonable person in buyer’s position? 3. 2-608(2) Revocation must occur within a reasonable time after buyer discovers/should’ve discovered grounds for it and before substantial change in condition of goods which isn’t caused by their own defects a. reasonable time is longer than reasonable time for rejection i. fact-specific 4. Revocation not effective until buyer has notified seller 5. 2-608(3): revocation gives buyer same rights and duties as if he had rejected them 3. Buyer’s Right to Damages for Accepted Goods a. Proof of Defect b. Notice Requirement i. 2-607(3)(a): If tender is accepted, buyer must within reasonable time after he discovers/should’ve discovered breach notify seller. 1. Otherwise absolute bar from remedy ii. Adequate notice: 1. Lenient standard: almost any complaint will satisfy notice requirement a. beginning of Comment 4 b. if buyer is consumer, probably applies 2. Strict standard: must inform seller that the transaction had caused breach in buyer’s POV a. end of Comment 4 b. if commercial buyer, probably applies 3. notice doesn’t have to be in writing iii. Who to notify? 1. If buyer sues someone with whom buyer is not in privity, who else must buyer give notice to? 2. 2-607(3) only requires buyer to notify seller, but what if buyer is suing manufacturer?

a. if lay customer, might be okay to only notify seller because lay customer not knowledgeable of notice requirement i. but notice to the seller is definitely required 3. If person suing is not the purchaser, might not have to give notice because 2-607(3) only says seller must give notice iv. Notice exceptions: 1. Don’t have to give notice if: a. seller actually knew of the defect b. filing complaint satisfied notice requirement i. usually this doesn’t satisfy requirement c. Measure of Damages i. Remember: proof of damages is part of the prima facie case ii. 2-714(1): If buyer has accepted and given notification of breach to seller, he can recover damages for loss resulting in the ordinary course of events from the seller’s breach as determined in any manner reasonable iii. 2-714(2): value as warranted – value as accepted = damages, unless special circumstances show proximate damages of a different amount 1. No definition of ―value as warranted‖ a. buyer wants value to be high as possible to maximize damages b. usually purchase price=value as warranted 2. Intervale: a. seller says value as accepted is higher than buyer claims, because raw material as accepted could’ve been used for other purposes b. buyer’s argument prevails because of ―other special circumstances‖ language iv. C/A: 1. prove warranty and breach 2. prove value of goods as warranted 3. prove value of goods as accepted (defective condition) a. repair costs b. market value in that condition i. if re-sold, then re-sale price v. 2-715 Incidental and Consequential Damages 1. (1) Incidentals include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses surrounding cover, and other reasonable expenses relating to delay/breach. a. narrowly construe this provision 2. (2) Consequentials

a. Test: foreseeability of this type of damage resulting from this type of defect under normal circumstances b. Lost Profits i. must be shown with reasonable certainty, but precision isn’t required ii. Established business can prove it through: 1. losses on a K 2. losses for un-generated profits iii. For new businesses: 1. can be recovered if proven with reasonable certainty 2. through expert testimony 3. comparisons to similar businesses c. Lost Good Will d. Attorneys Fees e. Emotional Distress i. can only recover if breach also caused bodily harm ii. breach is of a kind that serious emotional disturbance is likely to result f. Injury to person/property proximately resulting from breach vi. Punitive damages not usually available for breach of K 1. some states allow it if conduct in breaching the K amounts to an independent tort vii. No right to cure under 2-714 d. Causation i. Need proximate causation ii. under 2-715(2)(b) can only recover for damages not caused by buyer’s own negligence e. Vouching In i. If buyer is sued for breach of warranty for which another party is answerable, buyer may give the other party notice of litigation 1. puts third party on notice, gives 3rd party chance to defend 2. 3rd party will be bound by any common issue of fact found in this action 4. Buyer’s Remedies When Seller Fails to Deliver Entirely a. 2-711 i. (1): Where seller fails to make delivery or repudiates, or buyer rightfully rejects or revokes acceptance, buyer can cancel and in addition can recover price 1. (a) ―cover‖ and have damages 2. (b) recover damages for non-delivery as provided by 2-713 ii. (2): if seller fails to deliver/repudiates buyer can also 1. recover for identified goods under 2-502 2. obtain specific performance (if circumstances permit)

b. Anticipatory repudiation: If seller repudiates before date fixed for performance i. 2-610 buyer may 1. wait for performance for a commercially reasonable time 2. resort to any remedy for breach (2-711) ii. cover is available if it is done without unreasonable delay (2-713) iii. 2-713 damages for anticipatory repudiation: 1. K price – market price at time buyer learned of breach 2. Cosdin: don’t measure from date buyer learned of breach, measure from ―a commercially reasonable time after he learns of the repudiation‖ c. 2-712(2)(b): if seller doesn’t deliver buyer can seek specific performance or replevin i. awarded if goods are unique or in other proper circumstances 1. court free to define ―other proper circumstances‖ 2. where good cannot be obtained elsewhere except at reasonable expense/trouble/loss ii. 2-716(3): can seek replevin if good is identified to the K after reasonable effort you are unable to get cover 1. identified to the K: specific goods this K references d. 2-717 i. buyer’s right to deduct damages from any part of purchase price still due 1. if buyer still owes seller money on the K, only must pay seller price less the damages 2. deduction only permitted from damages stemming from this K between buyer and seller ii. if buyer deducts too much, buyer is in breach 5. Seller’s Protections a. Disclaimer of Warranty i. Warranties that can be disclaimed: 1. Express warranties: a. 2-316(1) express warranties cannot be disclaimed if the disclaimer is inconsistent with the terms of the warranty b. generally disclaimers always fail, express warranty always prevails, because disclaimer always inconsistent c. PER/merger clause issue? i. Becker thinks merger clause can disclaim the express warranty ii. 2-316(1) express warranty can triumph over merger clause iii. lesson: if you’re the seller use a well-drafted merger clause for your K, K should include the disclaimer

d. if seller says ―no warranty shall be binding‖ it is inconsistent with terms of warranty and warranty will trump disclaimer e. if K includes ―as is‖ clause, but also an express warranty, the express warranty will trump 2. Implied Warranty of Merchantability a. 2-316(2) requirements for disclaimer: i. must mention ―merchantability‖ 1. absolute requirement, word must be there ii. must be conspicuous b. 2-316(3) i. ―as is‖ and ―with all faults‖ sufficiently disclaims implied warranties ii. language must be clear enough to put sellers on notice iii. course of dealing is not sufficient to disclaim implied warranty c. unconscionable? i. disclaimer unconscionable if you show procedural and substantial fairness ii. if new consumer goods and they cause personal injury, some courts will find disclaimer to be unconscionable iii. minority of courts will find valid disclaimer, despite personal injury 3. Implied Warranty of Fitness for Particular Purpose a. disclaimer must be in writing and must be conspicuous (2-316(2)) b. must be part of the K MISCELLANEOUS 1. Conflict of Law a. 1-105(1) i. in the absence of an agreement, apply the law of the state with the most appropriate relationship to the controversy ii. Comments 2 and 3 2. Title a. 2-403: i. can original owner recover property from subsequent good faith purchaser for value if goods were stolen from original owner? ii. yes, subsequent purchaser doesn’t have good title because they purchased from someone who didn’t have title b. Insurance coverage i. title necessary to prove to insurance company ii. 2-401, title passes at time that seller completes performance


				
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