Docstoc

Sales Law Outline for Law School

Document Sample
Sales Law Outline for Law School Powered By Docstoc
					SPRING 2005 SALES OUTLINE
NOTE: Work back through problems when studying, answers in notes.

CHAPTER 1. SCOPE OF ARTICLE 2
I. Scope--Is this transaction covered by the UCC? § 2-102. Scope; Certain Security and Other Transactions Excluded From This Article. Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers. a. If the UCC does not apply does that mean that purchasers are without protection/remedy? i. No, look to common law -- Possibly K law or real estate law. 1. The UCC has very specific provisions as to what is a warranty and what remedy that warranty provides; this distinguishes UCC warranties from common law. II. Goods § 2-105. Definitions: Transferability; "Goods"; "Future" Goods; "Lot"; "Commercial Unit". (1) "Goods" means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107). (2) [Identification] Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are "future" goods. A purported present sale of future goods or of any interest therein operates as a contract to sell. (3) There may be a sale of a part interest in existing identified goods. (4) An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller's interest in the bulk be sold to the buyer who then becomes an owner in common. (5) "Lot" means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract. (6) "Commercial unit" means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole. a. The key concept is movability. The item has to be movable when identified for the K of sale. i. Sometimes goods are identified at the time the K was made. In Little, B says build me a home and ship it to me, at that point the goods are not identified, it is identified when placed on the carrier. ii. If an object is not movable we do not want the UCC to apply. Sales of Goods consist of the sale of movable goods. b. What if S breaches when the K is completed, but the good is not yet created, does the UCC apply? i. Under 2-104(2) you can have a valid UCC sale of goods even when the goods are to be identified or created in the future. Thus, because the product would be movable when the K/good is identified in the future then it is a contract falling under the UCC. c. NOTE: General intangibles, like patent rights, are not “goods.” III. Examples of Goods a. Bowen i. Is electricity a good? 1. Is it movable? It is movable (electric current is movable and comes into your home). ii. Is there a contract for sale? Yes. It is the passing of title for price (2-106:1). 1. You pay for the electricity that is consumed. iii. Thus, it is arguably a “good.” 1. The argument that electricity is a “good” has been adopted by some other courts because it is in the “stream of commerce.” iv. Court holds that electricity is not a “good.” 1. Electricity is a service not a product. It is not manufactured, it is paid for by the hour, and there is no individual product. 2. Policy Reasons--we do not want to hold a public utility company liable for products liability, it is strictly regulated and can not easily deal with damages.

1

For the court that it is unfair to hold the power company liable for damages because they cannot pass the damages onto customers. They cannot just raise prices to offset the monies they spend to pay for their liability damages. They have set rates, highly state regulated. v. A PA court held in the opposite in a case dealing with tap water, these cases are all policy driven. b. Fire hydrant explosion 1. Fire hydrant outside home explodes and floods P’s home causing serious damage. 2. P sues under UCC and cites impure tap water case. a) P loses. Why? a. The water out of the fire hydrant was not purchased, there was no sale. Even if water is considered “goods” there was no sale of goods. IV. NOTE: The Code defines a “seller” as one who “sells or contracts to sell goods.” § 2-103(1)(d). § 2-106. Definitions: "Contract"; "Agreement"; "Contract for Sale"; "Sale"; "Present Sale"; "Conforming" to Contract; "Termination"; "Cancellation". (1) In this Article unless the context otherwise requires "contract" and "agreement" are limited to those relating to the present or future sale of goods. "Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time. A "sale" consists in the passing of title from the seller to the buyer for a price (Section 2-401). A "present sale" means a sale which is accomplished by the making of the contract. (2) Goods or conduct including any part of a performance are "conforming" or conform to the contract when they are in accordance with the obligations under the contract. (3) "Termination" occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On "termination" all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives. (4) "Cancellation" occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of "termination" except that the canceling party also retains any remedy for breach of the whole contract or any unperformed balance. a. McQuiston i. B picks up cookie jar to examine before buying and is severely injured, she sues. It is not within the scope of the UCC, why? 1. DC says that there was no contract for sale. No agreement to purchase. 2. Where does the requirement for a sale come from? a. 2-102 says that this article applies to transactions in goods. i. Arguably this case could be a “transaction in goods,” however, this court is correct in requiring a sale of goods. b. 2-106: “Contract for sale” includes both a “present sale of goods and a contract to sell goods at a future time” and a “sale” as “consisting in the passing of title from the seller to the buyer for a price.” i. P only picked up the cookie jar never purchased it. ii. Court explains that P could have picked up the cookie jar and placed it in her basket with intent to buy and then it explodes. 1. Some courts recognize this as a different case and courts would apply the UCC in such scenarios although there is no sale, why? a. There is an offer (placing the items with a listed price on the shelf for sale) and acceptance (intent to purchase the product) in order to have a “contract for sale.” i. This argument is somewhat weak, no consideration has passed and minds can change. ii. However, courts may make this exception in this scenario because of policy concerns. If you have sympathetic case and you can give the court a hook to go along with your argument then the court may apply the UCC. 1. The UCC is used to protect individuals in commercial situations, thus, it might fit here. a. Payment can be overlooked due to the policy concerns. b. Does not always work, you need a hook (policy concern) and fringe argument (near sale). V. Examples of NO SALE situations: a. Bailment: Test drive vehicle and there are serious defects. Sue dealer for breach of implied warranty of merchantability (2-314:1) goods have to be fit for the purchase for which they are sold (2-314:2). i. Father loses under classical interpretation of the UCC. There was no sale here, bailment. ii. There is an ancillary argument that can be made. Implied warranty of merchantability should be applied here by analogy. Although, there was no “sale” here the definition of “sale” should be extended to cover such instances. However, this is a policy argument (argument by analogy) but this argument is very difficult to make because the plain language is dead against it. b. Adoption: Adopt pet with defects, same as bailment above. Simply, no “sale.”

3.

2

Agency Law: Can you sue your agent for purchasing items that were defective for you. No, there was no sale between your agent and you. The agent established a sale for you or established a contract that you adopted under novation. You need a willing buyer and seller. The agent did not sell to the buyer, the agent was either acting as buyer (for the company he works for) or facilitator of a “sale.” i. Perhaps the company could sue their agent under negligence. d. Give-Aways i. Offer of free food at bar, you eat food and become sick. You sue under implied warranty of merchantability. ii. You can argue that the free food was advertising for the “sale” of beer. The food is thus part of the package of goods sold as part of the beer. Cost built into product. 1. This argument has worked, but is fringe. You need a hook. The give-away was part of a sale. Otherwise, no dice. § 2-107. Goods to Be Severed From Realty: Recording. (1) A contract for the sale of minerals or the like (including oil and gas) or a structure or its materials to be removed from realty is a contract for the sale of goods within this Article if they are to be severed by the seller but until severance a purported present sale thereof which is not effective as a transfer of an interest in land is effective only as a contract to sell. (2) A contract for the sale apart from the land of growing crops or other things attached to realty and capable of severance without material harm thereto but not described in subsection (1) or of timber to be cut is a contract for the sale of goods within this Article whether the subject matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting, and the parties can by identification effect a present sale before severance. (3) The provisions of this section are subject to any third party rights provided by the law relating to realty records, and the contract for sale may be executed and recorded as a document transferring an interest in land and shall then constitute notice to third parties of the buyer's rights under the contract for sale. a. If the buyer has the right to sever the goods in (1) then we are dealing with real estate law. VI. Mixed Sale/Service Situations: a. Burton i. Mixed sale of goods/services case. 1. So does it fall under UCC (goods) or common law (services)? ii. Court adopts a test which is the (near unanimous) test for UCC. The predominant purpose test: Is the predominant purpose of the contract the supply of goods or the rendition of services? 1. Predominant Trust or Predominant Purpose Test iii. In Burton it was predominantly a sale of goods. Passing a title of goods for a price is a sale of goods. He is performing a service (installation), but it is not the predominant purpose of the K. All or nothing test. b. How to determine if something is a sale of “goods” or “services.” i. Apportioned Cost ii. Degree of discretion granted. Services grant more lee-way or creativity. Ex. K with a Florist to supply Flowers for a wedding. Much more likely to be a service, there is a lot of discretion for the Florist. Decides the Flowers and placement, again, it determines on the wording of the K, what is the discretion granted. 1. In Burton, the K leaves him little discretion; you are paying for the goods, not judgment/discretion. iii. Whenever you buy from a manufacturer it will normally be for a “sale of goods.” It is the duty of lawyers to be sensitive to the situation and understand the difficulties in determining if something is a sale for goods or services. 1. Look at ISSUE (what is being sold here), FACTORS (cost, discretion) c. Minority Rule--Bifurcation--views the Ks as divisible. UCC laws applies to “goods” and contract law/real estate law applies to “services.” d. Health Care Cases i. Blood Transfusion Cases 1. Assume the blood contains a defect that the hospital is incapable of testing for at the time of the transfusion. What is the UCC theory? a. You are buying the blood. It is the sale of goods for a price. There is an implied warranty of merchantability. There is a breach of implied warranty of merchantability. b. OR, It is a service. The buyer is contracting for services, the ability of the hospital to get you blood, the sale of goods is incidental. 2. State legislatures have stepped in and adopted statutes saying that you cannot sue hospitals for implied warranty of merchantability or strict products liability. You can still sue for negligence. a. Why allow negligence actions, but not strict liability or warranty of merchantability theories? i. Burden of proof is greater under theories of negligence. Under the theory negligence you have to prove someone acted negligently (not in accordance with due care), under strict liability/implied warranty the actions of the seller are of no importance, the question turns solely on the products fitness for use, it does not matter if due care was used. ii. Legislatures say we will only hold hospitals liable where due care was absent.

c.

3

Advent (“software”) i. The sale/service question and how it relates to “software.” 1. It is a service because it is self-created intellectual property. You are designing programs. 2. It is a sale of goods because it is encased in a medium to transport the program. ii. Here, court says that goods are involved. 1. The medium used is tangible, movable, and marketable; regardless of the fact that the content can be copyrighted. iii. Classic View of UCC--If I am buying something movable when it passes to me then I have a UCC transaction. 1. Ex. If you buy a painting at an art gallery it is a “sale of goods.” 2. But See. If you hire a painting to paint a mural, then it is a service based transaction. iv. Traditionally 4 technology based categories: buy a computer or other computer hardware (sale of goods); buy software (sale of goods), have software created (sale/service debate), and download goods (if no money changes hand then no sale). These are the four categories of cases falling under computer-typed cases. v. Software producers--Never use UCC, the UCC should not apply, the information on the medium does not force the UCC to apply. The medium is not what is being bought; it is the services on the medium that are being bought (services). vi. UCITA--Designed to deal with information-based sale/service transactions. In those states--very few--who have adopted the UCITA, they allow it to govern over information-based transactions. vii. New version of Article 2 says that (2-102--Scope), under 2-103(K) (p. 65 statutory supplement) defines “goods” as not including information. 1. What does not include information mean? a. Presumably that means information bought on a disk is not a sale for “goods” contract. § 2-725. Statute of Limitations in Contracts for Sale. (1) An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it. (2) A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered. [Accrual of cause of action] (3) Where an action commenced within the time limited by subsection (1) is so terminated as to leave available a remedy by another action for the same breach such other action may be commenced after the expiration of the time limited and within six months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute. (4) This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action which have accrued before this Act becomes effective. VII. Statute of Limitations a. 2-725 i. § 2-725(1) (SOL for actions being brought under the UCC) 1. Four year SOL. Four years after the cause of action accrues. a. When does the four years begin to toll? i. A cause of action accrues when the breach occurs. 1. Regardless of the aggrieved party’s lack of knowledge of the breach. ii. Thus, tolling begins after the breach occurs. ii. § 2725(2) 1. Special rule for breach of warranty. A breach of warranty occurs when tender of delivery is made. a. Tender of delivery: When the seller puts and holds the buyer’s goods at their disposition (when buyer receives goods). b. Reasoning: When the seller delivered to the buyer the seller delivered a defective product, although the buyer did not know of the defect upon delivery. i. They have four years to find the defect. This applies to express and implied warranties. iii. § 2725(2) (Future Performance Exception) Exception to breach of warranty. 1. Where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered. a. Ex. Buyer buys a tank for the storage of certain acids. Seller states that the tank will resist any corrosion for 4 years i. Delivery 1/1/99, Discovery of breach 3/10/2002, Brings suit on 1/19/05 ii. The warranty was extended to future performance, which explicitly extends future performance. e.

4

Cause of action accrued 3/10/02, you have thus until 3/10/06 to bring the action. b. Courts in interpreting that language generally have said that the language should be interpreted strictly. i. The Future Performance Exception can thus only apply to an express warranty. 1. The wording has to be extremely clear. a. Types of express warranty: i. This tank will withstand corrosion for four years. ii. That is an explicit extension of performance iii. This tank will withstand corrosion. iv. This is not an explicit extension of performance. iv. NOTE: Implied warranties by nature do not and cannot extend to future performance. Only express warranties. VIII. Tort SOL a. Typically, tort statute of limitations is two years from the date in which the tort was discovered or should have reasonably been discovered. i. Thus, under strict liability there is a different set of rules when compared to implied warranty of merchantability in the UCC. ii. Thus, you the purchaser have the option to use either a tort SOL or a UCC SOL for your cause of action based on whatever is better for you. 1. HOWEVER, some courts say that if we are talking about an SOL, for personal injuries, we are going to apply a tort statute of limitations if the P would have been barred under tort law and bar the use of the UCC SOL. a. These courts do not want to give the P the choice between causes of action where the P would be time-barred from bringing one of the actions based on its longer SOL. IX. Article 2A Leases a. There is a difference with respect to the running of the SOL for leases. b. A cause of action accrues when the act or admission breaching warranty is or should have been discovered. i. Thus, for leasing purchases, the four year SOL runs for the time beginning upon the finding of the breach of discovery. c. Ch. 2A-506. SOL (1) 4 Years after cause of action occurred, (2) A cause of action for default accrues when the act or omission on which the default or breach of warranty is based is or should have been discovered by aggrieved party or when the default occurs, whichever is later. i. This eliminates the “tender of delivery” as the usual event which begins the running of the four year statute of limitations. X. Article 2 Revised § 2-725 a. P. 180 of statutory supplement, 2-725(1) i. SOL runs from date of discovery, but there is a cap of five years. ii. Parties may reduce SOL to not less than one year. 1. Gives the seller an opportunity to put in a lesser statute of limitations in the K. 2. Gives sellers and opportunity to cut down on the risk of suit against them. iii. The new provision has some consumer protection statute in it. In consumer contracts you cannot reduce the SOL. XI. NOTE -- International Sales of Goods a. The United Nations Convention on Contracts for the International Sale of Goods [“CISG”] became effective on January 1, 1988. b. It is a treaty (adopted by U.S.) that controls the applicable sales transactions--international K between two countries who have adopted the convention. XII. Cases a. Nationwide i. Language of warranty is very ambiguous. 1. Seller promised that “if there is any defect in material or workmanship the seller will fix and repair free of charge for one year.” a. Car bought on 1/5/82. The car is destroyed in a fire cause by own defects on 11/22/82. The lawsuit is brought on 6/20/86 (insurance, based on subrogation, brings suit). 2. S says SOL expired. This is four years after tender of delivery. 3. B says no, you explicitly extended performance for one year. I had four years from the date of discovery to bring the lawsuit, thus my suit is okay. ii. S argues that there was no promise that the goods would perform in a particular way, thus there is no warranty. 1. S says that if all you are saying is that if there is a defect in 12 months I will fix it (offering remedial repair), that is not an explicit extension of a warranty, just a promise to repair. iii. Pennsylvania says NO, the promise to fix over a certain period of time in the future is an explicit warranty extension.

1.

5

1. It is a future performance exception. This is the minority. iv. Majority--The promise to repair or replace over a certain term does not extend the SOL.. 1. Doesn’t extend to the future, it is a remedial promise. A promise to repair, not a warranty. 2. Basically, if seller uses language that does not warrant anything, it will be found as a remedial promise in the majority of jurisdictions. CHAPTER 2. GENERAL PRINCIPLES I. Duty of Good Faith § 1-203. Good Faith Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement. § 1-201(19) “Good faith” means honesty in fact in the conduct or transaction concerned. § 1-201(20)(revision) "Good faith," except as otherwise provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing. a. Why add the “commercial standards” into the new revision. i. It protects buyers because there could be a heightened standard in some industries. ii. You can be honest, but unreasonable in the first standard. 1. Ex. Urdang. Buyer buys good on time. Doesn’t pay. Seller repossesses and accelerates the balance due. Seller sells there is 1,100 due now, buyer offers 900. Seller says no and sells car to someone else for 200. Court says seller did not act in faith in accelerating the balance due when buyer offers 900. 2. Issue: Did seller act in good faith in accelerating balance under those circumstances. a. What would seller’s argument be under pre-revision definition of good faith? i. Seller never lied. ii. Thus, the addition can protect buyer’s in a sense because seller’s must now act reasonably. iii. If you were arguing a good faith issue today, you should argue for reasonable commercial standards within the trade. b. TO KNOW: There is a general obligation of good faith, there are also specific requirements of good faith, and that the old definition of “good faith” is really defined, today, more closely to the revised definition of “good faith.” c. There is a general duty of good faith for every contract. i. 2-305(2), 2-306 -- Specific obligations of good faith. 1. 2-305--Talks about open price, the parties can open into a binding agreement leaving the K price open or to be fixed by one of the parties. a. Must fix the price in good faith. 2. 2-306(1) -- the term which measures the quantity by the output of the seller, means such output as done in seller’s good faith. a. In revised Art. 1 the #’s have changed, it is now 1-304. § 2-302. Unconscionable Contract or Clause. (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination. II. Unconscionability a. Test: Unconscionability--In the light of the general commercial background and commercial needs of the particular trade or case, were the clauses involved so one-sided as to be unconscionable under the circumstances existing at the time of the making of the K . . . The principle is one of the prevention of oppression and unfair surprise . . . and not of disturbance of allocation of risks because of superior bargaining power. b. Unconscionability involves procedural and substantive elements. i. Procedural Unconscionability: Involves “bargaining naughtiness” in the formation of the K, and is equated with the words “unfair surprise” from the official comment and with the phrase “lack of powerful choice.” 1. The tem encompasses “not only the employment of sharp business practices and the use of fine print and convoluted language, but a lack of understanding and an inequality of bargaining power.” a. “Absence of meaningful choice.”

6

ii. Substantive Unconscionability: Involves the harsh, oppressive, and “one-sided terms of a K from which a party seeks relief . . .” 1. Such terms are generally characterized as being “unreasonably favorable” to the other party to the K. a. Ex. Excessive contract price. § 2A-108. Unconscionability. (1) If the court as a matter of law finds a lease contract or any clause of a lease contract to have been unconscionable at the time it was made the court may refuse to enforce the lease contract, or it may enforce the remainder of the lease contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) With respect to a consumer lease, if the court as a matter of law finds that a lease contract or any clause of a lease contract has been induced by unconscionable conduct or that unconscionable conduct has occurred in the collection of a claim arising from a lease contract, the court may grant appropriate relief. (3) Before making a finding of unconscionability under subsection (1) or (2), the court, on its own motion or that of a party, shall afford the parties a reasonable opportunity to present evidence as to the setting, purpose, and effect of the lease contract or clause thereof, or of the conduct. (4) In an action in which the lessee claims unconscionability with respect to a consumer lease: (a) If the court finds unconscionability under subsection (1) or (2), the court shall award reasonable attorney's fees to the lessee. (b) If the court does not find unconscionability and the lessee claiming unconscionability has brought or maintained an action he [or she] knew to be groundless, the court shall award reasonable attorney's fees to the party against whom the claim is made. (c) In determining attorney's fees, the amount of the recovery on behalf of the claimant under subsections (1) and (2) is not controlling. III. Supplementary Principles of Law § 1-103 Supplementary General Principles of Law Applicable Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.  Important to note that contract principles still apply to UCC law, where no UCC transaction is on point.  The general contract principles do apply unless displaced/inconsistent to the UCC. CHAPTER 3. CONTRACTUAL FORMALITIES § 2-201. Formal Requirements; Statute of Frauds (1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. (2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received. (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable (a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2606). Statute of Frauds I. OVERVIEW--Requirements: a. Requires a K of goods for a price of $500 dollars or more. i. HYPO: There were three paintings each sold for 200. Does that fall under SOF or not? 1. You look to see that the sale of goods (plural) adds up to 500 or more. The aggregate has to reach 500. b. Requires a writing i. Defined in 1-201(46) (p. 1171): includes printing, typewriting, or any other attempted reduction into tangible form. 1. HYPO: Is email correspondence a writing? What about computers that make sales under set limits?

7

The UETA (Uniform Electronic Transfers Act) (adopted in PA) (appears on p. 1797): the Act says that the purpose of the act is to remove barriers to electronic commerce by removing general contract rules like tangible writings (records) and signature. b. The purpose of the Act is to say that electronic records satisfy writing requirements. ii. Revised Art. 2, 2-201(1) says there has to be a record (not a writing). Record is defined in a way to facilitate electronic transactions. c. Requires writing sufficient to indicate that a contract for sale has been made between the parties. i. A basis for believing that the writing represents a real transaction (comment 1). ii. The writing on its face has to indicate that a contract for sale has been made. iii. It is not insufficient because it omits a term agreed upon, all terms are not required to be included. d. It must be signed by a party against whom enforcement is sought. i. Defined in 1-201--The inclusion of authentication in the definition of “signed” is to make clear that as the term is used in this Act a complete signature is not necessary. . . e. The only term necessary to the K is quantity. f. Terms that are left open do not fail for indefiniteness if the parties purposely did so and will fill in reasonable terms. i. If open terms were agreed upon orally that is an issue of fact. ii. 2-204 says you can make an open K if they reasonably wanted to do and a reasonable remedy exists. iii. UCC has gap fillers. 1. 2-305 (open price terms) a. Price is a reasonable price at time of delivery if the parties do not agree to it. 2. 2-308 (place to deliver) 3. 2-309 (delivery time--a reasonable time) 4. 2-310 (payment--due at time and place at which buyer is to receive the goods). II. § 2-201(1) a. Rosenfeld i. Rosenfeld argues that the quantity is there, price, signature, and dates. ii. Estate argues that you have to include the date of delivery of the K? 1. Court says the date of delivery is not required, the K only has to be sufficient to indicate a K of sale has been made. iii. The Court gives a fairly generous, though well-respected, terms for determining whether a writing is sufficient to indicate that a K for sale has been made. b. First Bank i. Whether a set of facts complies with the UCC is a question of law. ii. Under the UCC for a particular document to constitute a K for sale the document must evidence a contract for the sale of goods, be signed, and specify a quantity. iii. Most courts have required that the writing indicate the consummation of a K, not mere negotiations. Thus, a writing which contained language indicating a tentative agreement has been found insufficient to indicate that a K for sale had been made. Writings which do not contain words indicating that a binding or completed transaction has occurred have been found insufficient. 1. Examples of writings held to be sufficient to meet the statute are purchase orders, bills of sale, invoices, and sale orders, which, by their terms indicate that, as the code requires, “a definite K for the sale of goods has been made.” 2. Writings held to be insufficient include documents such as a “price worksheet” lacking any indication that it was evidence of an existing, as opposed to possible future contract and a “price quotation” evidencing an agreement that was to be concluded at a future date. iv. As applied: The appraisal was insufficient: it was prepared in response to P’s request; it was entitled an “estimate,” and contains detailed listings of the boat’s components and equipment together with a list of needed repairs and missing items. III. § 2-201(2) a. 2-201(2) Requirements: i. Between merchants ii. Receipt of writing in confirmation of K iii. Sufficient against the sender iv. Party receiving has to know contents v. Meeting requirements of subsection 1 vi. B has not given notice of object with 10 days of receipt. vii. Merchants--Someone who deals in goods of the kind viii. Assumption--when a merchant, in the business of buying or selling goods, receives a letter asserting a contractual commitment and they do not object to that confirmation then we assume that there was a transaction between the parties (the lack of denial is probative enough), the SOF is no longer a valid defense. b. Perdue

a.

8

i. Requirements for 2-201(2): 1. You need two merchants (dealing in goods of a kind) 2. A writing in confirmation of the K and sufficient against the sender a. Must meet requirements of 2-201(1) (indicate that a K for sale has been made). i. the writing must evidence a K ; 1. Perdue makes a big deal of the fact that the writing contains the word order, however, the writing specifically states “in confirmation” in its heading. ii. the writing must be signed by P, and iii. the writing must specify a quantity. b. Second, the writing must be in confirmation of a K. This means that the oral agreement must have been made before the drafting of the writing. However, the writing does not have to state that it is sent in confirmation of the oral transaction and does not have to specifically refer to the oral agreement. “All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction.” i. “A writing in confirmation of the K”--most courts view that part of the phrase as meaningless. However, some courts see that language as requiring the confirmation to ensure that there is an agreed upon K. 3. The writing was received by the other merchant within a reasonable time after the K was made; a. Certified Mail--have them sign for it i. Via way of tracking it b. Follow phone call asking them if they received the mail. If the admit to receipt you have that fact. c. There is a presumption that if you can prove that the mail went out, there is a presumption the person received it. i. This is the majority view. 4. The merchant receiving the writing has to know of its content; and a. The “reason to know” element is best understood to mean that the confirmation was an instrument which should have been anticipated and therefore should have received the attention of appropriate parties . . . Presumably, the criterion will also require the party relying on the merchant rule of subsection (2) to go forward with some evidence that the confirmation was a follow-up of some negotiation and deal between the parties. b. Commentators say that it was put there so that if you were ever to receive a confirmation letter having nothing to do with your business, the writing has nothing to do with your work and you would have no reason to ever receive such a later. Rarely relied upon in litigation. 5. The merchant receiving the writing did not give written notice of objection within 10 days after the date of receipt. a. In Perdue there is a question of whether Perdue’s objection to order no. 3422 was valid. i. Under this requirement you must respond to the letter stating that the K does not exist, not that you are rejecting the K. 1. 2-201(2) does not provide for the rejection of a K, it provides for the denial of an existing K. 2. Perdue’s letter not only did not satisfy the rejection scheme allowed in 2201(2) but it may have satisfied 2-201(1) through its signature an admitting to key terms. ii. If a D is refused from using the SOF as a defense to deny K due to 2-201(2) they can still dispute the terms of the K, but they cannot use the SOF as a defense. c. CudahyFoods § 2-104 Definitions: "Merchant"; "Between Merchants"; "Financing Agency". (1) "Merchant" means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. (3) "Between merchants" means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants. i. The question here is whether the transaction here deals with two merchants. 1. The recipient, real estate broker, does not deal with goods of the kind (cheese). 2. Court explains that Comment 2 suggest that under 2-201(2) “almost every person in business would be deemed to be a “merchant.” 3. The question thus becomes, is this comment the law. If so, all persons in business is a merchant, no matter what type of business that is. a. Court says no, you need familiarity with a particular trade/type of business. i. It is debatable.

9

ii. Know: 1. Definition of merchant has three parts. 2. For 2-201(2) you need merchants on each side of the transaction. 3. According to Comment 2 anyone in business could be held to be a merchant when they receive a writing in the mail attesting to be a K. a. This is the majority. 4. Court says that if it is an isolated sale unrelated to your business you are not a merchant. a. This is the minority. Professor argues that you are only not a merchant when you are not in business. IV. § 2-201(3)(c) a. Kaufman i. There is an oral K, the buyer gives the seller a check, seller holds (does not cash) onto goods for month and does not deliver goods. The seller argues that there was no K accepted. The buyer offers that there was acceptance. The court says that payment was received and accepted in the situation. ii. This holding is consistent with the purpose of 2-201(3)(c). 1. There was enough of a transaction to permit people to go to the court, there is no fraud. The fact the check held onto it for a month is probative enough to show that a K existed. iii. The purpose of the SOF--requiring some evidence of an overt act to establish the existence of an agreement--is at least as well served by the transfer of a check as it would be if currency were used. 1. D admitted receipt and held for 30 days. a. These two factors do present “objective evidence of assent” to the sale and preclude a determination, as a matter of law that there was no acceptance of payment. V. Comment 2 a. “Partial Performance” as a substitute for the required memorandum can validate the K only for the goods which have been accepted or for which payment has been made and accepted. i. Code says part performance only validates the K as to the amount of the part performance where the K is divisible. b. How do you apply the SOF in situations where there is part performance (part payment), but the good is not divisible? i. If the K is all or nothing, the fact that partial payment has been made is enough to indicate that there was a real transaction, allowing the case to go forward. So, where there is partial performance for an indivisible good, partial performance is enough validate the use of 2-201(3) 1. Why? a. Policy behind 2-201(3)(c) is that there is proof enough to show that a transaction existed. We have offer and acceptance, we do not have to worry about fraud. VI. § 2-201(3)(b) a. Triangle i. P argued 2-201(3)(b). This is a last gasp argument. No signed writing, nothing under subsection 2, or (3)(c). 1. First, P argues that because D filed a demurrer, then the K is admitted. a. A motion to dismiss admits as true what is stated in the complaint, thus, P says look they are admitting that an oral K exists. i. However, the court argues that the motion to dismiss actually says that “even if what you say is true, you still cannot win.” 1. Demurrers are not taken literally. They are not admissions. 2. Second, P argues that you have to treat a demurrer as an admission, because 2-201(3)(b) says that a K is enforceable if admitted in testimony. Thus, if you do not let me get to the pleadings beyond the demurrer how can I use (3)(b). a. Court says no, judicial admission (conventional-majority view) is only used where you happen to get into court and the D is dumb enough to admit a K in open court. b. A minority view will hold that a demurrer is an admission because for policy reasons we do not someone to win under the SOF unless they are willing to swear under oath that there was no K. c. A few cases treat a demurrer as a temporary admission to get to discovery phase. If D says no K in discovery the D may then bring a SJ to throw case out based on SOF. This forces the D under oath to admit/deny oral K. After their denial we will protect the D and allow them to use the SOF. VII. § 2-201(3)(a) a. Impossible i. The SOF does not apply to specially made goods pursuant to 2-201(3)(a). This is because in these cases the very nature of the goods serves as a reliable indication that contract was indeed formed. Where the seller has commenced or completed the manufacture of goods that conform to the special needs of a particular buyer, not only is the likelihood of a perjured claim of a contract diminished, but denying enforcement to such a K would

10

impose substantial hardship on the aggrieved party (i.e. a seller is left with goods that are difficult or impossible to sell to others; a buyer may have difficulty locating an alternative supply of the goods.) ii. The term “specially manufactured,” therefore, refers to the nature of the particular goods in question and not to whether the goods were made in an unusual, as opposed to the regular, business operation or manufacturing process of the seller. 1. The crucial inquiry is whether the manufacturer could sell the goods in the ordinary course of his business to someone other than the original buyer. VIII. Estoppel to Assert the SOF a. Hoffman i. As P what is the argument you make in favor of promissory estoppel? 1. 1-103, supplemental principles of law, where they are not displaced, may be used in the UCC. a. So P relies on promissory estoppel. i. What is the argument against using P.E. in the UCC? 1. It undermines SOF and its exceptions. a. You can argue the UCC displaces the theory of P.E. in this situation. ii. The majority rule is that courts apply the rule of P.E. to UCC cases. 1. They rely on 1-103. a. Estoppel principles are applicable generally with the UCC’s stated goal of preserving common law principles of equity like promissory estoppel. iii. The elements of promissory estoppel are (1) a clear and unambiguous promise, (2) reasonable and foreseeable reliance on that promise, and (3) an unconscionable injury. 1. In Hoffman, the mere inability to gain a benefit does not create an unconscionable injury. a. P’s have spent money on visiting an art gallery and any possible costs involved in reprinting a catalog for use the Chicago museum--these costs are minor. b. Foregoing other business opportunities and loss of minimal funds is not an unconscionable injury. iv. It is a better test in standard commercial cases. 1. What was the clear and unambiguous promise? a. Some Courts say just tell me there was a promise. b. Some Courts say that the phrase “clear and unambiguous promise,” requires support from other corroborative evidence. Ex. Testimony. i. However, this can lead to fraud. 2. Was there clear and foreseeable reliance. a. P would have to show there was clear reliance. i. Ex. P made a contract to resell those goods, clearly relying on the K. 3. Unconscionable injury a. In a commercial context does unconscionable injury merely mean you are injured (sustained economic losses) or does it mean something more. i. Can D argue that P suffered injury but not unconscionable injury? 1. That argument exists. Have to look to jurisdiction to see what definition of unconscionable is. The Parol Evidence Rule § 2-202. Final Written Expression: Parol or Extrinsic Evidence Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented (a) by course of performance, course of dealing, or usage of trade (§1-303); and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement. I. Reformatted a. Terms i. with respect to which the confirmatory memoranda of the parties agree 1. or ii. which otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein b. May not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement i. But such terms may be explained or supplemented 1. (a) by course of dealing or usage of trade (§ 1-205) or by course of performance (§ 2-208); a. and

11

2.

(b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive of the terms of the agreement.

II. Overview a. The PER protects terms in a writing from contradiction by terms in a prior agreement or a contemporaneous oral agreement. i. K signed by D (or both). Writing intended by both parties as a final expression of their agreement. ii. Subsequent oral agreement is not barred by parol evidence rule. Only protects from contradiction a prior agreement or a contemporaneous oral agreement. 1. 2-209 allows for modification. b. The terms in a K, in a writing intended by the parties as a final expression of their agreement can be explained or supplemented by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement. i. You may add consistent additional terms, it is consistent if it does not contradict anything. 1. Caveat: Unless the court finds the writing to have been intended as a complete and conclusive statement of all terms. c. How do you make a K complete and conclusive, disallowing any other terms to come in. i. Put in what is called a “merger clause” (term of art), “this writing was intended by parties as a final and exclusive statement for all of the K’s terms.” d. If you do not have a merger clause in a K, the party who would wish to keep out additional terms of the K would have to argue that if you look to the K and its depth one can see that this represents a final agreement between the parties. e. NOTE: Fraud: the consumer may have a cause of action for fraud in the inducement. Suing in fraud is not a contract cause of action, so you do not have the parol evidence rule to worry about. So you could bring this suit under a theory of fraud, but you could not sue on the K. § 1-205(4) Course of Dealings and Usage of Trade The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever possible as consistent with each other; but when such construction is unreasonable, express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. III. Carter a. Written Ks that are free from ambiguity are enforced because they express the intention of the parties. i. The court here, found no ambiguity in the phrase “operator shall pay contractor” since the identity of the operator and contractor was established. 1. HOWEVER, extrinsic evidence of custom and usage is admissible to vary the terms of an unambiguous K. See § 1-205(4) via 2-202 2. Trade usage can undercut the contract, but it doesn’t matter. a. Trade usage, under the majority rule, comes in no matter what, it explains and modifies; accordingly, it prevents complete contract protection because trade usage can always come in and “supplement or explain” even essential terms of the K. i. The only time a trade usage would not be allowed in where it totally negates the K. 3. How do you protect yourself from trade usage? a. To prevent the inclusion of trade usage a K will need to contain a clause which explicitly disallows trade usage to come in and alter the K through supplementation or explanation. i. “NO trade usage, the parties have entered into this agreement and intend to be fully bound by the terms of this agreement herein listed and will not permit the inclusion of trade usage to vary the terms of this agreement.” 1. This statement forces the inclusion of trade usage terms to negate the K. 4. Is someone who is a merchant, but does not know of trade usage bound by the trade usage? a. Yes. Trade usage is something that everyone in the business knows or should know. i. You could dispute the allegations of trade usage by bringing in witnesses to testify to the fact that the trade usage does not exist. b. Consistent additional terms v. Inconsistent additional terms. i. Trade usage is seen as consistent, even though it may seem inconsistent because it exists, it can be attested to and proven, there is no chance of fraud. 1. It is not manipulative; you cannot lie your way into trade usage. ii. If the seller is arguing that the buyer told him one thing and the K has another thing in there, § 2-202(a) it will not be let in if inconsistent. c. Trade usage, course of dealing, and course of performance are three ways used to get evidence in and modify the K. i. 1-205(3) Course of dealings: Applies to past dealings. What does clause X in this contract mean? You may look at how parties have dealt with one another in the past to determine how to treat this clause/contract they are involved with today. ii. 1-205(4): Course of dealing is more reliable than is trade usage. If there is a conflict between the two then course of dealing controls.

12

iii. 2-208(1): Course of Performance (not listed in new Art. 1), how parties have performed under a K, relevant in interpreting a term of a K. When you have a term whose meaning is in doubt you can look to how parties have performed in regards to such clauses under prior Ks. 1. New Art. 1-303 delves into it a bit. 2. For exam purposes know it is old 2-208 and what it means as he has told us. CHAPTER 4. CONTRACT FORMATION, MODIFICATION & TERMINATION 1. Additional or Different Terms in Acceptance (Battle of the Forms) § 2-207. Additional Terms in Acceptance of Confirmation. (1) A definite and seasonable expression of acceptance of a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the K. Between merchants such terms become part of the K unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or hardship or surprise if incorporated into the K (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. (3) Conduct by both parties which recognizes the existence of a K is sufficient to establish a K for sale although the writings of the parties do not otherwise establish a K. In such case the terms of the particular K consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. § 1-201(45) “Written” or “writing” includes, printing, typewriting or another intentional reduction to tangible form. Common Law a. “Mirror Image” Rule--The Contracts had to mirror each other, varying terms within Ks were viewed as rejecting the previous K and making a counter-offer. Last shot rule. The Code changes the CL rule. II. Battle of the Forms a. Situation: Offer and acceptance each containing differing terms. The acceptance contains additional terms. Battle of the Forms. Three key questions for all questions of additional terms contracts? i. Was the K formed? ii. If so, when was the K formed, at the time the documents were exchanged or when the goods were shipped and used? iii. What are the terms of the K? III. 2-207(1) a. Under 2-207(1) the fact that there is a different term does not prevent the K from being formed. i. Unless the different term is so different that there was no true meeting of the minds, therefore, no K. (rare) 1. Ex. Situation where delivery is as expensive as cost. Buyer says seller delivers, seller says buyer delivers. a. Court says that the two sides viewed the situation so fundamentally different in the context of the K that there was no true meeting of the minds, thus no K. Comment 4 lists material alterations. b. However, 2-207(1) prevents an exchange of forms from creating a K where “acceptance is expressly made conditional on assent to additional terms.” i. At this point either party may walk away from the K, but future conduct will reestablish a K under sub. (3). IV. 2-207(2) a. 2-207(2) is very clear on additional terms, but does not mention different terms. The Court states: i. 2-207(2) is silent about different terms. ii. Are different terms treated the same as additional terms? 1. Comment 3 suggests that they are to be. The Court have differed, there are the established views: a. One view says that the different terms are treated exactly additional terms. b. Second view says that different terms never come in because they always materially alter a K. Per se materially alteration. c. Third view says that Comment 6 suggests that the different terms knock-out each other. Each term is viewed as objections to the other. i. Following knock-out you utilize UCC gap-fillers. I.

13

V. 2-207(3) a. § 2-207(3) provides conduct by both parties which recognizes the existence of a K is sufficient to establish a K for sale although the writings of the parties do not otherwise establish a K. i. 2-207(3) -- In such case the terms of the particular K consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. 1. The terms on which the exchanged communications do not agree drop out of the transaction, and reference to the Code is made to supply necessary terms. “Gap fillers” VI. Cases a. Diatom i. P is building a manufacturing plant. D is seller and offeror. S offers dryers to P. D’s offer has a 1 year SOL. 1. P is the buyer, offeree, and send back an acceptance. The acceptance does not specifically state anything about SOL. However, it states that it “reserves Ps rights at law.” ii. Litigation ensues, P sues for BOW. P’s lawsuit is in 4 year SOL, but outside of D’s 1 year SOL. iii. There is a K because goods were shipped and used. § 2-207(3). iv. Is the one year SOL in or out? 1. P argues that their acceptance was expressly subject to D’s assent to their “reserved rights at law.” Thus, P is making the 2-207(1) “unless clause” argument. a. If this is viewed as a conditional acceptance then there is no contract formed under 2-207(1), but you do have a K under 2-207(3), so you use UCC gap fillers, allowing for a 4 year SOL and Diatom may bring suit. i. The one-year SOL would dropout. The gap filling UCC term would be implemented. 2. D argues, there was no “unless clause.” Court agrees. a. The majority rule is that to constitute conditional assent language you have to track the code. You need to be very clear; you need the UCC “unless” clause exactly. 3. P then argues that their clause reserving all rights and warranties implicitly incorporated the 4-year SOL. This creates a conflict in terms. Court adopts knock-out rule, using 4 year SOL. a. This is a very artificial argument; court uses it to help out P. b. In Sum i. 2-207(2) states that between merchants, such additional terms become part of the resulting K unless (1)the offer expressly limited acceptance to its terms (2-207(1)), (2) the additional terms materially alter the K obligations, or (3) the offeror gives notice of his or her objection to the additional terms within a reasonable time. 1. Should any one of these three possibilities occur, the additional terms are treated merely as proposals for incorporation in the K and absent assent by the offeror the terms of the offer control. ii. Comment 6 to 2-207 suggests that different terms (as we have here) must be assumed to constitute mutual objections by each party to the other’s conflicting terms and result in a mutual “knockout” of both parties’ conflicting terms to be supplied by UCC “gap-fillers.” 1. However, there are 3 approaches taken by courts as to the treatment of different terms: a. (1) Treat “different” terms as “additional” under 2-207(2). Consequently, different terms in the acceptance would never become part of the contract, because by definition, they would materially alter the K. b. (2) The offeror’s terms control because the offeree’s different terms merely fall out; 2-207(2) cannot rescue the different terms since that subsection applies only to additional terms. c. (3) “Knockout” rule, conflicting terms cancel out and UCC “gap-fillers” used. i. Court in Diatom finds #3 the most reasonable approach. 1. 2-207 created to reform mirror-image rule and associated last-shot doctrine. To refuse to adopt “knockout” rule and instead adopt one of the remaining two approaches would serve to re-enshrine the undue advantages derives solely from the fortuitous position of when a party sent the first form 2. This is because either approach other than the knock-out rule for different terms results in the offeror and his or her terms always prevailing solely because he or she sent the first form. 3. Merchant’s do not sufficiently read K’s and the UCC was created to protect merchants and preserve contracts, thus the knock-out rule is the best idea. c. Horning i. 2-207 is intended to deal with two situations: (1) where an offer has been made and the acceptance comes by way of a standard form; (2) where the parties already reached an (usually orally) agreement and the standard form is merely a “confirmation” of that agreement. 1. Here, there is an oral agreement with follow up form serving as confirmation. ii. General rule, where two merchants are involved the confirming agreement containing material terms becomes part of the K, unless it (1) materially alters the contract or (2) is objected to (or (3) the offer limits acceptance). 1. Here, there is neither an objection nor a limiting acceptance clause.

14

iii. An additional term materially alters a preexisting K “if its incorporation into the K without express awareness by the other party would result in surprise or hardship.” 1. Official Comment 4 includes examples to additional terms that materially alter a K, such as, “a clause negating such standard warranties as that of merchantability of fitness or fitness for a particular purpose in circumstances in which either warranty normally attaches.” 2. Official Comment 5 includes examples that normally would not materially alter a K, such as, “a clause limiting the right of rejection for defects which fall within the customary trade tolerances for acceptance “with adjustment” or otherwise limiting remedy in a reasonable manner (see 2-718, 2-719). iv. Here, 3 additional clauses, containing terms, are added: 1. Choice of Form--Considered unfair surprise, thus a material alteration. 2. Warranty Disclaimer--Per Se Material Alteration 3. Consequential and Incidental Damages Disclaimer-a. Comment 5 gives support that this is not a material alteration. “A clause limiting the right of rejection for defects which fall within the customary trade tolerances for acceptance “with adjustment” or otherwise limiting remedy in a reasonable manner (see 2-718, 2-719). i. § 2-719 says you can eliminate consequential damages. 1. Pro-seller argument: limitation of consequential damages is permitted under 2-719, which states that exclusions of consequential damages permissible. ii. However, it court says that limitation of consequential damages can materially alter a K. If it is an unfair surprise. 1. If you have a contractual limitation of contractual damages, a limitation or elimination of consequential damages, courts are split on whether it is per se a material alteration. a. Some courts hold it per se material. b. Some courts say it is allowed under Comment 5, via 2-719. c. This court says that it is a material fact. d. Herzog i. There is an oral K, after the oral K the goods are shipped and along with the goods is an invoice containing two terms: 1. A finance chare of 1.5% per month of the unpaid balance would be added after 30 days and if an account were turned over for collection, attorney’s fees in the amount of 25% of the balance due would be added. ii. Can an invoice sent with goods be a confirmation? 1. 2-207 requires written confirmation in “reasonable time” and that it not be objected to, then, unless it materially alters it is part of K. a. So it is temporally legal. 2. Professor argues that an invoice is in and of itself insufficient to serve as confirmation, he would define the term “confirmation” narrowly. a. A restatement of the contract, not a price and two additional terms like the invoice in this case. b. Most courts do, however, treat an invoice as confirmation. iii. Here, the courts holds in regards to the additional terms: 1. The 1.5% does not materially alter, it was within trade practice. 2. The 25% was not within trade practice therefore it was an unfair surprise. iv. If the invoice was not a confirmation would the additional terms come in after goods are used? 1. If you deliver goods and party uses them, but there is no K, due to K. 2. Then you would go to 2-207(3). Supplement terms from UCC. VII. Pre-Revision 2-207 v. Revised 2-207 a. The new draft (current 2-207) uses the term “record” where the old version of article 2 used the term “writing” i. It is worded in a way that it specifically includes electronic contracts b. The revised 2-207 says nothing about when a contract is formed. i. It only explains that one there is a K . . . what are the terms of the contract. 1. Revised 2-207  Now only confined to the terms of the contract (adopts a knockout rule), and does not deal with whether or no a contract exists in the first place ii. Contract formation language now in 2-206. 1. 2-206(3)  REVISED UCC (p. 81 statutory supplement)  “A definite and seasonable expression of acceptance in a record operates as an acceptance even if it contains terms additional to or different from the offer”  Does this mean that if the A sends an offer to B, and B sends an acceptance back to A conditional upon A assenting to B’s additional terms, there is a contract regardless of whether A assents to B’s additional or different terms?  This is just an example of bad drafting c. So if there is a K, 2-207 adopts those terms that are the terms that appear in the records of both parties or if there is not writing than the terms that both parties agree upon. i. If there are extra terms than it depends on whether or not they are supplemental

15

2. Missing Terms § 2-204. Formation in General. (1) Any contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a K. (2) An agreement sufficient to constitute a K for sale may be found even though the moment of its making is undetermined. (3) Even though one or more terms a re left open a K for sale does no fail for indefiniteness if the parties have indeed to make a K and there is a reasonably certain basis for giving an appropriate remedy. I. ProCd a. Issue: Must buyers of computer software obey the terms of shrink-wrap licenses? b. “Shrinkwrap License”: Retail software packages are covered in plastic or cellophane “shrink-wrap,” and some vendors, though not ProCD, have written licenses that become effective as soon as the customer tears the wrapping from the package. c. Under UCC law, Art. 2. Is this a sale of goods falling under scope Art. II. i. Movable goods at time of sale? 1. 2003 Revision says that UCC does not apply to transactions in information. a. This may exclude such a case as this. i. If not covered by UCC you look at general K law. 2. In pre-revision Art. II this falls under UCC--you have a movable CD that you purchase. d. Is the license part of the agreement or not. i. Shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to Ks in general (for example, if they violate a rule of positive law, or if they are unconscionable). 1. “Notice on the outside, terms on the inside, and a right to return the software for a refund if the terms are unacceptable (a right that the license expressly extends), may be a means of doing business valuable to buyers and sellers alike. a. Many transactions include the exchange of money preceding communication detailed terms. i. Ex. Insurance, airline tickets, concert tickets, and radios. e. Bottom Line: Rule okay for specialized computer software case, but language in case is very troublesome. i. Examples: 1. TV, you buy it, take it home, inside TV there is a document disclaiming implied warranty of merchantability. Is that binding on you? a. No. You have no reason to know that it is there. i. Caselaw states that if it is not part of K it is not binding on you. 2. TV, you buy out, take it home, inside TV there is a document disclaiming implied warranty if you use TV. Is that binding on you? a. No. This is additional restriction you did not know of. i. This is a “surprise in a box.” 3. TV, you buy it, restrictions on outside of container, “no implied warranty of merchantability.” a. Some cases say this is okay, it was apparent. b. Other cases, only binding if you can prove buyer read it. i. Most authority says if restrictions on outside, it is binding on you. 4. TV, you buy it, box says restrictions inside, but there is no detail to restrictions. a. Not a lot of cases like this in general (outside of computer software). i. If it is like this, you can make DC’s argument. These are still secret terms, serving as unfair surprise. ii. Others say you have the opportunity to return following purchase, so the restrictions are part of K. 1. Professor says I would agree with DC in general areas (excluding software cases). 2. Difference is that in computer software cases, there is no other effective way to do it. 3. WARRANTIES 4 Types of warranties: (1) Express warranty (2) Implied warranty for merchantability (3) Implied warranty of fitness for particular purpose (4) Warranty of title - First three are quality warranties

16

-

They are the quality terms of the contract

Express Warranties § 2-313. Express Warranties by Affirmation, Promise, Description, Sample. (1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely of the seller’s opinion or commendation of the goods does not create a warranty. Overview a. Express warranties are by far the most often relied upon. b. Warranty puts into the contract a quality term  If the goods don’t measure up, you have an action for breach of warranty. i. § 1(a) any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis for the bargain creates an express warranty that the goods should conform to the affirmation. 1. Ex. Seller sells to buyer storage tanks for storing chemicals, and says this tank is leak proof for storing chemicals. a. This is an affirmation of fact – that it is leak proof with respect to storing coercive materials b. Buyer buys this and notices that there are small leaks despite what the seller said. i. If there is an affirmation of fact that the goods should conform to the warranty and they do not conform to the warranty, then there is breach of contract. c. What is the buyer’s burden? Does the buyer have to prove why it leaked, what the nature of it is? i. No b/c the seller promised that it would be leak proof. All you have to proof is that there was an express warranty (affirmation of fact) and that it leaked (not why or how). 1. Its not the buyers burden to prove the nature of the defect. ii. The B has to prove that there was an express warranty and that the goods didn’t measure up to that warranty (if there is a dispute as to whether the goods didn’t measure up, it is a matter of fact) ii. § 1(a) 2-313 applies to a seller that means both a merchant seller and a non-merchant seller 1. Ex. if next door neighbor sells you his used car and makes an express warranty about the car, like the car passed inspection 1 week ago when in fact he is lying. a. 2-313 would still apply i. If you make a statement you’re stuck with it, that’s the theory iii. (2) The seller need not show any specific intent if the words create an express warranty that is sufficient 1. Due care is not a defense. a. Is this unfair to the seller?  NO  This is based in contract  If the seller didn’t want to be liable for breach of express warranty, he should just keep his mouth shut and not make an express warranty b. Seller should bear the risk if he makes an express warranty, even if he exercises due care c. § 2-313 v. § 2-314 i. § 2-314 does not apply to both a merchant seller and a consumer seller, it is limited to a merchant seller. 1. Why does 2-314 only apply to a merchant seller and not a non-merchant seller? a. Its the policy if you’re in the business of selling goods than you undertake a responsibility to give an implied warranty of merchantability b/c responsible for giving quality products to the buyer II. Problem 4 a. Is the statement “the car is in perfect condition, it will take you anywhere you want to go. . .” an affirmation of fact? i. Sometimes in both commercial and consumer cases, it becomes difficult to determine where there was a promise or affirmation of fact ii. § 2-313(2) 1. Is it an affirmation of fact in the context? 2. In this case (problem 4), court found that it was an affirmation of fact a. Question to ask  Is the seller, in the context, making an affirmation of fact that has become a part of the bargain between the parties? I.

17

What factors become relevant in the determination of whether there was an affirmation of fact? i. Knowledge of the buyer, buyer’s familiarity with the goods ii. In the context, what purpose were the goods intended to serve? (Or what did the purpose appear to be?) 1. For instance, did the buyer of the car make it sound like she was simply going to use the car to go to the grocery store as opposed to driving across the country? iii. The more general the statement is, the more vague the terms of the statement are, the more the buyer must assign some meaning to it 1. In this case, for example, the buyer’s lawyer would have to argue that the statement constituted an express warranty that the car would take her to Kansas City  This is very difficult to do iv. Price is also relevant in determining whether there was an express warranty  Price can change the context of the sale (ex. if a car is sold for $75) c. § 2-313(2) says that an affirmation merely of the value or the seller’s opinion is not an affirmation and does not create a warranty. III. Weng (1(a)(b)) a. Express warranties are enforceable if the statements at issue are: (1) affirmations of fact or promise which relate to the goods and become part of the basis of the bargain; or (2) descriptions of the goods which are made part of the basis of the bargain. See §§ 2-313(1)(a)(b) b. If the goods fail to conform to the affirmations or promises, the seller may be held accountable for breach of warranty c. Here, the seller’s statements were affirmations of fact and descriptions of the car that created an express warranty. i. The TC ruling was erroneous. Affirmations of fact made during the bargain are presumed to be part of the basis of the bargain unless clear, affirmative proof otherwise is shown. 1. It is not necessary, therefore, for the buyer to show reasonable reliance upon the seller’s affirmations in order to make the affirmations part of the basis of the bargain. a. The burden is upon the seller to establish by clear, affirmative proof that the affirmations did not become part of the basis of the bargain. i. To say, as the TC did, that because of the age, mileage and price of the car no reasonable person could expect it to be mechanically sound is insufficient to overcome the presumption that the seller’s affirmations concerning the condition of the car created an express warranty. Comment 3: Affirmations of fact: Descriptions of the goods or exhibition of samples. In actual practice affirmation of fact made by the seller about the goods during a bargain are regarded as part of the description of those goods; hence no particular reliance on such statements need to be shown in order to weave them into the fabric of the agreement. Rather, any fact which is to take such affirmations, once made, out of the agreement requires clear affirmative proof. This issue normally is one of fact. ii. All that the buyer has to prove is that the statements were made during the course of negotiation and they are thereby presumed to become part of the basis for the bargain. iii. Can the seller ever prove that a statement made during course of negotiations was not part of basis of the bargain? 1. This comes up in limited circumstances; Comment 3 states that to prove this, seller has the burden of coming forward with clear affirmative proof. a. Very hard to prove this, even with expert opinion testimony. IV. How can warranties be made? a. The examples that we have talked about are oral statements made in the course of bargaining  But warranties can also be made in advertising, brochures, other types of written material handed to the buyer before the sale, etc. V. What if there is an affirmation of fact made after the deal is closed (Comment 3 v. Comment 7)? a. Courts explained that it depends on Comment 7--the precise timing is not what controls, but whether the language is fairly to be regarded as part of the K. i. The Problem is that If language is used after the closing of the deal, the warranty becomes a modification, which needs no consideration to be binding (2-209), but § 2-209 has its own SOF provision. ii. There are courts that would view the oral modification as not allowing for the creation of a basis of bargain. 1. However, this argument is made rarely because it is a direct statement to the seller. b. What happens if an oral statement is made before the deal is closed? i. Comment 3 c. What happens if an oral statement is made after the deal is closed? i. Comment 7 VI. Affirmation of fact (in written form) made to the buyer before or after the deal is closed, but the buyer does not receive it or look at it until much later. Three views: a. (1) It never comes into the K because the basis of the bargain requirement is not meant. i. These courts often use confusing language; they say that the buyer “never relied on the statement.” 1. This is because the term “reliance” is incorrect language. It should be that the buyer never saw it so it did not become the basis of the bargain. It has to be something that the buyer was aware of at the time the deal was made. b. (2) Some courts view it as a modification. The appraisal is a modification.

b.

18

i. It is a modification, oral or written after the deal. (3) As long as the buyer sees the statement at some point, it is part of the basis of the bargain no matter when they see it. i. If the statement is made in written material handed to the seller to the buyer is part of the basis of the bargain. It is not unfair to seller to hold otherwise. The seller intends the statement to become part of the basis of the bargain when the seller handed the written statement to the buyer before, during, or after sale. 1. Ex. automobile manufacturing brochures. VII. Daughtrey (1(a)(b)) a. Issue 1: Did we have an opinion or assertion of fact? i. The seller, someone with knowledge like a jeweler, the buyer has no knowledge, thus when a seller states information pertaining to the item it is an affirmation of fact. An expert speaking to a lay person. ii. The seller’s representation need only be “a part of the basis of the bargain.” A “contract” is the total legal obligation which results from the parties’ agreement as effected by this act and any other applicable rules of law. b. Issue 2: Was appraisal part of the basis of bargain. Court says yes. The appraisal was a modification to the K. VIII. Duquesne (SOL) a. S makes a 1 year express warranty. P does not discover defects until 10 years later. The defects do not manifest themselves until 10 years later. How can they argue that there is a breach of express warranty when there was no observable effect until 10 years later and there is only a one year express warranty how can you argue there was a breach of the express warranty? i. The argument is that if you deliver generators that have unobservable defect that we could not observe until 10 years later, the defect existed 10 years ago when you delivered. 1. Ex. slow crack in the wall. You did not see the defects until 10 years later, but the defect existed upon delivery. a. Respectable theory, but it generally loses. ii. Court says no. When you have this type of express warranty the clause requires the defect to manifest itself within the one year time. This is the majority theory. b. Duty to act in good faith i. § 1-203: “every K or duty within this title imposes an obligation of good faith in its performance or enforcement.” “Good Faith:” “honesty in fact in the conduct or transaction concerned.” 1. With rare exception, the courts use the UCC good faith requirements in aid and furtherance of the parties’ agreement, not to override the parties’ agreement for reasons of fairness, policy, or morality. 2. Courts generally utilize the good faith duty as an interpretive tool to determine “the parties” justifiable expectations and do not enforce an independent duty divorced from the specific clauses of the K. a. Ex., a court may use the duty to impose a standard of conduct in a requirements or output K, to ensure the parties’ actions conform to their reasonable expectations. b. In the absence of a dispute about the parties’ reasonable expectations under a particular term of the K, an independent “duty of good faith has been recognized only in limited situations.” IX. Alimenta (1(c)) a. D argued oral terms (sample) could not come in K under P.E.R. Court finds that under 2-13 (c) samples can constitute basis of bargain. The samples and introduction of samples, orally was consistent additional terms. Thus, they do not contradict the terms. PER does not prevent admission of evidence of the samples. b. 2-313(1)(c)--sample or model made part of basis of bargain becomes and express warranty (see Comment 6) i. Model--representation of goods, but not that the goods themselves. c. 2-313(1)(b)--description issue (Comment 5--can apply to technical specifications, blueprints, descriptions of the goods) c. Implied Warranty of Merchantability § 2-314. Implied Warranty: Merchantability ; Usage of Trade. (1) Unless excluded or modified (Section 2-316), 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. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale. (2) Goods to be merchantable must be at least such as [notice list is conjunctive] (a) pass without objection in the trade under the contract description; and (b) in the case of fungible goods, are of fair average quality within the description; and (c) are fit for the ordinary purposes for which such goods are used; and (d) run, within the variations permitted by the agreement, of even kind, qualify and quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled as the agreement may require; and (f) conform to the promise or affirmations of fact made on the container or label if any. (3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade. I. Dempsey

19

Issue: What is the buyer entitled to expect as of the K date. She sues for breach of implied warrant of merchantability. 2-314(2)(a) i. Is there a contract description? 1. Is the description of the pedigree dog sufficient? a. Do you need more evidence to pass without objection in the trade? b. Someone has to testify on the trade and the sufficiency of the contract description. Expert evidence may be required. 2. Professor feels 2(c) is a better fit here. Here, the ordinary purpose may be to show the dog, thus it would not be fit for the ordinary purpose for which it is sold. a. A second purpose may to be breed your dog with other dogs. If that is the purpose then presumably your dog does not meet the ordinary purpose because no one wants to mate their dog with dog that has one undescended testicle. 3. Thus, a does not seem to fit, (c) is broader and judges are less likely to require expert evidence. c. NOTE: IWM essentially covers design defects, unmerchantable goods, goods that when received have a defect or problem (whether you discover it that day or not), which make them unfit for the purpose for which they were sold. § 2-316. Exclusion or Modification of Warranties. (1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. (2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof." (3) Notwithstanding subsection (2) (a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and (b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. (4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy (Sections 2-718 and 2-719). II. Interplay with § 2-316 a. 2-316 (2) and (3) provide circumstances under which the implied warranty of merchantability does not come into existence. It is not part of the K. b. 2-316(2)--Gives the seller an opportunity to insert into the K a disclaimer of the implied warranty of merchantability. In the case of a writing it must be conspicuous. i. Permits the seller to insert into the K, a clause disclaiming the implied warranty of merchantability. 1. To do so the language must mention the word merchantability and must be conspicuous. ii. If there have been a valid disclaimer under 2-316(2) there is not implied warranty of merchantability. 1. If the buyer is not happy with the quality term and thinks the goods are defective and the seller says tough luck and the buyer has to sue, the buyer must have some other theory than implied warranty of merchantability. c. 2-316(3)(b) i. Another way of keeping implied warranty of merchantability kept out. 1. Done by circumstances. Where buyer prior to sale has refused to examine goods and defect is obvious then there is no implied warranty of merchantability. a. HYPO: Buyer goes into to buy a truck for commercial purposes. Buyer looks around and kicks tires and gets in and out truck. Says okay Ill buy it. It turns out there is substantial defects in the body that if the buyer would have opened up the trunk he would have seen it. i. Can the buyer sue under breach of IWM? ii. Under 2-316(3) (b) the buyer has had to have examined the goods as fully desired? This is very broad language, you can always argue the buyer examined the car as fully as he desired. 1. However, Comment 8 limits (3)(b) to very limited circumstances, making (3)(b) nearly void. iii. Comment 8--Interpreted as if the buyer has examined the goods as fully as desired and it is clear that his examination will determine quality and the implied warranty of merchantability is not really in the picture. It is understood between the parties that the examination will serve as the only guarantee. It is only in those circumstances where the seller’s responsibility for implied warranty of merchantability is negated by the buyer’s examination with respect to the defects that the examination would reveal.

a. b.

20

This is the right rule, if the buyer is just vaguely looking at the item you cannot negate his ability to bring a cause of action under IWM. iv. Also, under 3b a buyer’s refusal to examine goods only occurs where the buyer’s examination serves as the only guarantee of warranty. This is not the normal circumstance. 1. Thus, rarely will 3b be asserted or used to win a case that IWM does not exist. III. Jackson (food) a. Jackson purchased a can chocolate-covered, pecan and caramel candies. Upon biting into the candy she broke her tooth due to the fact that one of the pecan shells was embedded in the candy. b. Was their a breach under 2(c)? i. Court uses two tests: 1. Foreign-natural doctrine: If a substance in a manufactured food product is natural to any of the ingredients of the product, there is no liability for injuries caused thereby; whereas, if the substance is foreign to any of the ingredients, the manufacturer will be liable for any injury caused thereby. 2. Reasonable expectation test: Regardless whether a substance in a food product is natural to an ingredient thereof, liability will lie for injuries caused by the substance where the consumer of the product would not reasonably have expected to find the substance in the product. a. Majority c. Nestle argues that we sell pecan items, there are going to be pecan in our candies at time, there is nothing we can do with that. i. Court says no, you can avoid liability by labeling you candy with a warning. 1. Sometimes it may cut down on your sales. a. What does the label in terms of the IWM claim. i. It knocks out reasonable expectation test, you cannot say you did not have a reasonable expectation that a shell would be in there. 1. You see that in cases of coffee grounds in coffee. ii. Always know signs will help to protect from warranty. IV. Wolfe (failure to warn under § 2-314(2)(c)) a. P buys a camper, put together by Donahue, using Ford parts. Blowout in tire, serious injuries result. i. Jury did not find defect in tire, but held Ford liable due to failure to warn, which was the proximate cause of the accident (overloading of weight on under inflated tire and its dangers). b. When is failure to warn a breach of IWM? i. Ford disputes the jury’s finding that it was negligent in failing to provide an adequate warning of the danger that might arise from these conditions. It argues that, as a matter of law, adequate warnings were provided by the operator’s manual furnished with the vehicle and the “rating plate” affixed in the door of the vehicle which gave the “recommended gross vehicle weight rating.” ii. The duty of the manufacturer to warn of the dangers in the use of his product is well established; it is applicable to hazards involved in the use of properly designed products by users to whom the danger would not be apparent. 1. If the manufacturer owes a duty to use due care in making his products, he owes also the companion duty to warn of latent limitations of even a perfectly made article, the use of which, however, is dangerous if the user is ignorant of those limitations and the manufacturer has no reason to believe that he will recognize the danger.” a. Tests sounds of negligence: A warning is necessary when it is reasonably required under the circumstances to prevent dangers. iii. The warnings in the manual and rating plate were inadequate: Gross payload was not listed, the warning of overloading was not apparent, overloading was not presented as a danger, the rating plate did not appear as a warning--rather informational. c. Donahue’s sale was in breach of warranty of merchantability, for a product is “unmerchantable if sold without a suitable warning.” i. A retailer’s implied warranty of merchantability of goods not of his manufacture is that they are reasonably suitable for the ordinary uses for which goods of the description are sold when used in accordance with adequate warning and instructions. V. Denny (IWM v. SL) a. P was severely injured where her Ford rolled over after she slammed on her brakes to avoid a deer. She sued Ford on theories of negligence, strict products liability, and breach of IWM. i. Are the elements of a cause of action for strict products liability and breach of implied warranty always coextensive? 1. D argued that strict products liability and breach of IWM are identical and Ds verdict on the former cannot be reconciled with the latter. 2. P showed that the car was marketed to suburbia as a reliable car for the daily commute. The car, however, was modified (making it more off-road capable), these medications made the vehicle not fit for the ordinary purpose for which the car was sold, every-day driving.

1.

21

3. 4.

D showed that risks created by the car’s modified design was outweighed by its utility as an off-road vehicle. Strict Product liability determines defect, in part, through a risk/utility analysis, which determines how risks should be allocated. The UCC’s concept of a “defective” product requires an inquiry only into whether the product in question is fit for the ordinary purposes for which such goods are used. The UCC attempts to remedy the purchaser’s disappointed expectations.

b.

Significance: i. Strict liability in tort and IWM as a general proposition provide the same degree of protection. 1. However, there may be a difference. IWM may be more protective under certain design defect [where M will fight tooth and nail against SL so as not to have to recall a whole line] cases as seen here. ii. Although strict liability and IWM do provide the same degree of quality protection there are advantages and disadvantages for each. 1. Strict liability in tort is not available where the loss is characterized as an economic loss. 2. IWM is not great for personal injury cases, because IWM carries with it certain contract based defenses, such as privity. a. SL was created to allow up the line suits.

§ 2-317. Cumulation and Conflict of Warranties Express or Implied. Warranties whether express or implied shall be construed as consistent with each other and as cumulative, but if such construction is unreasonable the intention of the parties shall determine which warranty is dominant. In ascertaining that intention the following rules apply: (a) Exact or technical specifications displace an inconsistent sample or model or general language of description; (b) A sample from an existing bulk displaces inconsistent general language of description; (c) Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose. VI. Dickerson (“used” goods & § 2-317) a. P bought a used tractor from D. The tractor broke down profusely during the 90 day express warranty period. The warranty stated that the “used goods” would receive a 100% full warranty for 90 days. Following the 90 days the tractor again broke down. Apparently, two teeth where sheared off from the third gear wheel. D charged P over 1K. P paid and brought suit in small claims court. b. In a warranty cause of action, the burden is on the P to show the existence of a particular warranty, that the warranty was breached, and that damage was proximately caused by the alleged breach. See Comment 13 i. More specifically, to recover for the breach of an IWM, the P must prove: (1) the goods purchased were subject to an IWM; (2) the goods did not comply with the warranty at the time of delivery; (3) the purchaser’s damages were due to the unmerchantable nature of the goods; and (4) damages were suffered as a result of the breach of the warranty. c. Do IWM extend to “used” goods? i. Official Comment 3 indicates that the sale of second-hand goods is encompassed by the implied warranty of merchantability. 1. One distinction between new and used goods goes to the standard of merchantability applied to such goods. Generally, goods are merchantable when, at the least, they are fit for the ordinary purposes for which they are used. a. Comment 3 recognizes, “A K for the sale of second-hand goods, however, involves only such obligations of merchantability as is appropriate to such goods for that is their K description.” i. Therefore, the new or used character of the tractor is a factor in determining its standard of merchantability. In addition, “the buyer’s knowledge that the goods are used, the extent of their prior use, and whether the goods are significantly discounted may help determine what standards of quality should apply to the transaction.” 1. The factors include: “the buyer’s knowledge that the goods are used, the extent of their prior use, and whether the goods are significantly discounted (what did you buy it for) may help determine what standards of quality should apply to the transaction.” d. D argues that the express warranty ate up the implied warranty. No longer existed. And the 90 day warranty had run. i. § 2-317 another way to knock out the implied warranty. 1. You construe IWM and EW as congruous with one another unless inconsistent. When ascertaining content of parties, EW displaces inconsistent IWM. 2. The express warranty here is not violated. ii. What is the seller’s argument with respect to § 2-317? 1. EW and IWM are inconsistent because the express warranty ends at 90 days. Now you are trying to use the IWM to extend my obligations to this vehicle. Therefore, it is inconsistent in that once my express warranty expires you are trying to stick me with an IWM over a year after the point. iii. Buyer say I am suing under IWM not EW and they are not inconsistent with one another

22

The IWM relates to the condition of goods at the time of the delivery and does not extend into the future. Since the seller drafts the agreement they could have protected themselves in the agreement. Put in a 2316(2) disclaimer. e. The seller has a good argument here, they need to stress the specificity of the express warranty and argue that there was no way they intended the buyer anything more than this warranty. i. Buyer has to say listen you did not disclaim and you should have. VII. Dienno (determining defect--proof) a. Facts: P, DiIenno, sues Libbey for damages that occurred after she sustained an injury while attempting to open an allegedly defective jar. The jar was brought to work by, P, where it sat on an office shelf for 5 days. The jar was filled with peanuts that P fed on, unbeknownst to her, her co-workers fed on the peanuts as well. During the 5th day the jar shattered in her hand when she attempted to replace its lid after random snacking. b. Sues under IWM: A successful merchantability action requires proof (1) that a merchant sold goods, (2) which were defective at the time of sale, (3) causing injury to the ultimate consumer, (4) the proximate cause of which was the defective nature of the goods, and (5) that the seller received notice of the injury. c. It is clear that if the jar came apart due to a defect, then IWM would be the remedy. i. But Here--Issue: Under the circumstances can the defect be proved? 1. How do you prove breach of IWM? a. Lawyer for P has an expert examine another jar. No design defect. b. An expert cannot be called in to determine whether a manufacturing defect exists because the pieces of the jar were thrown out. i. Can the defect be proven under the circumstances of the case? 1. Courts say that you can infer a defect from circumstantial evidence. a. Ex., X buys the jar from store, pays for it, she opens it in the store after paying for it and it comes apart in P’s hand. i. Same is true in strict liability in tort. 2. Here, the court says that P has owned the product for 5 days, it has been at work, unguarded. a. The passage of time that has occurred prohibits the use of circumstantial evidence to show defect. i. Other courts, under same situation, may have allowed this to go to the jury. b. The longer period of time that expires the weaker your circumstantial evidence gets and more courts will disallow the factfinder to see the evidence. d. Suppose she was suing the manufacturer rather than the grocer, the break occurred 5 minutes after purchase. i. The case against the manufacturer is not as strong (in terms of circumstantial evidence). The item was shipped to the grocer; the grocer may have mishandled it. The grocer may have had it for 10 months prior to sale. In opposite, the grocer was directly liable for the product. e. Suppose it is clear that she got an expert and the expert was able to test the glass (the glass was defective). The glass broke six days after the purchase. i. If she sues the manufacturer and the grocer who is liable? 1. All violated the IWM because it was defectively manufactured. The sale of a defectively manufactured item is a breach of IWM. So, each are liable. f. Where you have a defect in the manufacture of a product all are liable. When you have circumstantial evidence you have to look at the evidence and the time periods for which each company was in control. g. NOTE: Res Ipsa applies only to negligence actions. VIII. Orlando (Comment 13 and proving defect/refuting defect) a. Facts: Orlando, P, purchased and consumed shrimp creole at Hotel Hershey. He became extremely ill and sued on a theory of IWM. b. In an action based on breach of an IWM, the “seller may be held liable irrespective of the existence or absence of negligence on his part, and it is not necessary that his negligence, if any, be shown.” i. In the instance case, P was required to show a food product that was unfit for human consumption and, therefore, unmerchantable. ii. D could show that its food product was not defective. 1. Comment 13: In any action based on breach of warranty, it is of course necessary to show not only the existence of the warranty but the fact that the warranty was broken . . . Evidence indicating that the seller exercised care in the manufacturing, processing, or selection of the goods is relevant to the issue of whether the warranty was in fact broken. iii. D could show that on the evening in question no other passengers complained of illness. 1. The fact that all other shrimp creole sold that evening prepared at the same time and using common ingredients, was found to be fit for human consumption was a relevant fact for the jury to consider.

1. 2.

23

Although not conclusive with respect to the wholesomeness of the shrimp creole sold to Orlando, it could be considered and weighed by the jury. iv. P objects, claims that the argument made is due care, evidence of due care is not a defense to IWM. COA holds that the evidence of due care is admissible, Comment 13 permits evidence of due care, the controverted issue is whether the product was defective. The circumstantial evidence comes in as proof or not whether it was defective. Evidence of care comes in to show that the shrimp was not defective. This is only because the P does not prove defect. He argues circumstantial evidence, so the court will allow in evidence of due care to dispute Ps circumstantial evidence. 1. Rarely is Comment 13 relied upon. It forces the jury to take notice of due care and focus on that, the jury will begin to think that due care = no defect. That is unfairly prejudicial. c. Know that Comment 13 exists and means that in some cases due care can be relevant to the issue of whether or not the product can be defective. IX. Kimco (IWM/Leases v. Sales w/security interests) a. Facts: The Fitness Center acquired toning tables and a sun room from Sun America Corp. Sun American arranged for Kimco to finance the transaction. Kimco purchased the equipment and leased it to the fitness center with an option to buy. Sun America shipped directly to the fitness center. Because the Fitness Center was dissatisfied with the equipment, it eventually stopped making payments to Kimco. Kimco brought suit. b. Categorization Issue: Is this a true lease (governed by Art. 2A) or is this a transaction that is structured as a lease, but actually a sale with a security interest (Art. 2). i. Pre-revision, Art. I, 1-201(37) (NOTE: 2A-103(1)(j)--defines lease) , whether it creates a lease on the one hand or sale + security interest on the other hand is determined by the facts of the case. However, it creates a security interest if the lessee cannot get out of deal and either (d) the lessee has the option to become owner of goods without additional consideration or nominal consideration upon compliance with the lease agreement. 1. The lessee actually pays off the purchase price plus interest over the term of years, and at the end of the period they get the title. If the terms are not met then the lessor cancels K and retains title. c. What are the rights of the lessee under the IWM when it is a true lease? d. HYPO 1: X leases construction equipment for one year from M. Product is defective. What rights does lessee have? i. 2A-212: A warranty that the goods will be merchantable is implied in a lease K if the lessor is a merchant with respect to goods of that kind. (very similar to Art. 2). There are minor adjustments based on the economics peculiar to leases, but is the same premise. ii. The IWM would clearly apply to this hypo. e. HYPO 2: (financed lease) FC wants goods, they cannot afford them, Sun will not sell to them on time, thus Sun sells to Kimco who will lease it FC (Sun thus gets money up front). i. If it is a financed lease we know that 2A-212 is inapplicable. Thus, there is not an IWM against the lessor. 1. What rights does the lessee have if it is a financed lease? a. 2A-209: In the case of a financed lease, the benefit of the supplier’s promise to the lessor and all of the warranties the supplier makes to the lessor, extend to the lessee under a finance lease. i. Thus, lessee does not have rights against lessor, but has the rights the lessor would have against the supplier of the goods. 1. CAVEAT 2A-209(1): The rights of the lessee are subject to the terms of the warranty and of the supply K and all defenses and claims arising from them. 2A-209(2): the extension of the benefit of a supplier’s promises and of warranties to the lessee doe not: modify the rights and obligations of the parties to the supply K, whether arising therefrom or otherwise, or impose any duty or liability under the supply K on the lessee. a. In laymen’s terms: The supplier can place a disclaimer in their K with the lessor that will limit the lessee’s later rights to sue. i. 2A-214: provides for exclusion and modification of warranties (equivalent to art. 2-316). b. Scheme: In a financed lease the lessee only has rights against the supplier (sellor), but if there is a disclaimer in the K with the lessor you do not have rights against anyone (it appears). i. However, the code has mechanism to protect against this. ii. 2A-103(g)--To be a finance lease the lessee has to have known about whether there were any disclaimers or given the opportunity to find out about the disclaimers. See 2A103(g)(iii)(A)(B)(C)(D). iii. What happens if the lessee does not see the K between the lessor and supplier? f. This is not a finance lease. Thus, 2A-209 is inapplicable. FC would thus have rights against Kimco. 2A-212 would thus apply.

24

Implied Warranty of Fitness for Particular Purpose § 2-315. Implied Warranty: Fitness for Particular Purpose. Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose. I. Overall a. For § 2-315 you need two things: i. There has to be a particular purpose, as distinct from an ordinary purpose. ii. The seller has to have reason to know the purpose and know the buyer was relying on the seller’s skill or judgment. II. Smith (basic application) a. When goods are acquired for the ordinary purpose for which such goods are generally used, no implied warranty of fitness for a particular purpose arises. A use for ordinary purposes fall within the concept of merchantability. b. § 2-315 applies only when the buyer indicates to the seller that he intends to use the goods in a manner not customarily made for the goods. Comment 2: A "particular purpose" differs from the ordinary purpose for which the goods are used in that it envisages a specific use by the buyer which is peculiar to the nature of his business whereas the ordinary purposes for which goods are used are those envisaged in the concept of merchantability and go to uses which are customarily made of the goods in question. For example, shoes are generally used for the purpose of walking upon ordinary ground, but a seller may know that a particular pair was selected to be used for climbing mountains. A contract may of course include both a warranty of merchantability and one of fitness for a particular purpose. The provisions of this Article on the cumulation and conflict of express and implied warranties must be considered on the question of inconsistency between or among warranties. In such a case any question of fact as to which warranty was intended by the parties to apply must be resolved in favor of the warranty of fitness for particular purpose as against all other warranties except where the buyer has taken upon himself the responsibility of furnishing the technical specifications. III. Ingram (examining Comment 2) a. Facts: Ingram, P, is a barge operator who asked D, Pott, a shipbuilder, to build for barges from them. P specified that the barges be equipped with steam-oil systems for heating heavy petroleum products and other heavy liquid cargo. Upon delivery the barges were found to have numerous problems. Ingram sued, under IWFPP, arguing that D used pipe so weak that barges could not serve their particular purpose of carrying heavy oil. b. D characterizes the goods at issue as heating-coil-equipped tank barges, and argues that carrying and heating heavy petroleum products is the customary use of such products. D maintains that Ingram’s use of the barges and the heating coils is not unique or peculiar to Ingram’s business, since others use heating-coil-equipped tanks barges in precisely the same manner; D itself had constructed over thirty such barges for use in the same manner before it built these four in Ingram. c. P argues that it is a question of degree. P characterizes the goods at issue as tank barges, which carry a multitude of cargoes. The barges here were equipped with steam coils to enable P to carry a particular kind of cargo. i. Neither D nor P deals solely or predominantly in barges that have stem coils. d. Ps use does not have to be one-of-a-kind to meet the requirements of § 2-315. i. Examining Comment 2. The court stated that the issue was a question of fact. The TC believed the barges to be intended to for a particular purpose, that is, the transportation of heavy oil, and that it found the barges inadequate for this particular purpose because they were equipped with defective pipe. ii. The court did not find the analysis deficient or unreasoned, so they deferred to the DC’s decision. e. D assailed the DC’s finding that Ingram relied upon Pott’s expertise to furnish suitable barges. i. The K stated that P was interested only in the results obtained and that the manner and method of performing the work were under Ds control. There was also testimony that Ps expertise in the area related primarily to operation and maintenance of barges, not to their design, whereas D was a shipbuilder, and supplied the design and specifications of the barges. IV. Rubin (comparing IWM to IWFPP and liability of M) a. Facts: P, Rubin, sued D, Marshall, after purchasing eye makeup remover. P went to Marshall where a sales clerk sold her the makeup removed. The sales clerk stated that the product was “recommended for all skin types,” as shown on the box and “if it wouldn’t be safe for you, it wouldn’t say it on the box.” Rubin had extremely fair skin and was worried about the products dangers. After using the makeup she was left with a primary irritant reaction lasting several months. The detergent in the makeup remover was probably the irritant (expert). i. D, through an expert, argued that the reaction was idiosyncratic and P did not prove that there was any defect in the makeup remover. 1. Idiosyncratic responses are an absolute defense to implied warranty.

25

b.

c.

d.

e.

f. g.

If a product were to cause an allergic reaction to 15-20% of the population that would not be an idiosyncratic response and you would need a warning or label to deter liability based on implied warranty of merchantability. Under § 2-315 the P needs to prove: (1) a sale of goods; (2) before the sale the seller had reason to know (a) a particular purpose for which P bought the goods, and (b) that she was relying on the seller’s skill to select goods suitable for that purpose; and (3) the goods were not suitable for that particular purpose. i. Need to define a defect is unnecessary, warranty law looks at conformity or nonconformity. The presence of a defect should be regarded as merely evidence of the fact that the goods are in such a condition that some warranty has been broken. ii. P’s proof of breach of IW was complete when she showed the Ds agent implicitly warranted that the products would be safe for her skin in particular, and it was not suitable for that particular use. D contends that they proved that Ps reaction was idiosyncratic, and this provides an absolute defense to the IW action. i. If P had no evidence of warranty beyond the fact that Ds offered the product for sale, her cause of action breach of warranty would be defeated by proof that her reaction was idiosyncratic. D could see Ps skin and knew Ps concern about safety of the product for use on that skin. Under these specific factual circumstances, it is reasonable to infer a warranty that the product would not harm P’s skin. While an idiosyncratic reaction may provide a defense in most implied warranty cases, in which the warranty is only that most people could use the product for the general purpose for which it was made, idiosyncrasy is not a defense when the warranty implied by the circumstances of the transaction is more as it was in this case. For IWFPP who liable? The seller, the manufacturer or both? i. The seller. The seller is the one who created the IWFPP, not the manufacturer. The seller promised a safe product for the particular buyer. The seller generated the IWFPP. Here, the court held that the merchant was an agent for the seller and the manufacturer, so both were held liable. That is kind of a special deal, usually just the seller would be liable, not the manufacturer. HYPO: Buyer walks into store, sees a box and box says recommended for all skin types. Buyer buys box and has horrible reaction. She sues. Who is liable? i. The theory would be an express warranty. Who would be liable? 1. Both liable. Manufacturer made it, seller sold it. Each broke their warranty. ii. The D would argue that a recommendation is not a warranty. There was not an “affirmation of fact or promise” that related to the goods. We never made an affirmation in this case that that the product was safe under all circumstances. We just recommend it for all skin types. 1. You could argue this either way. a. It appears in this case that the seller brought an EW claim and lost.

a.

Warranty of Title § 2-312. Warranty of Title and Against Infringement; Buyer's Obligation Against Infringement. (1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that (a) the title conveyed shall be good, and its transfer rightful; and (b) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge. (2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have. (3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications.

§ 2-403. Power to Transfer; Good Faith Purchase of Goods; "Entrusting". (1) A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though (a) the transferor was deceived as to the identity of the purchaser, or (b) the delivery was in exchange for a check which is later dishonored, or (c) it was agreed that the transaction was to be a "cash sale", or (d) the delivery was procured through fraud punishable as larcenous under the criminal law. (2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.

26

(3) "Entrusting" includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods have been such as to be larcenous under the criminal law.

I.

Overview a. It protects the buyer if a third party is able to come in and take the goods away because the third party has superior title. i. If this occurs the buyer has an action against the sell under 2-312. b. When can a buyer lose to a third party with superior title? i. That is governed in § 2-403. 1. HYPO: (Sale of stolen goods) A owns a BMW, S steals it and sells it to B, B is a BFP. a. A sues B to get the BMW back. i. B refuses. 1. B acquires any title that his seller had power to transfer under § 2-403. The seller had no ownership interest, no right to sell anything. a. Thus, in a replevin action, A wins. The seller never had any title, therefore, the buyer never had any title--B loses. 2. 2-312(1)(a) says that where buyer loses the goods in that replevin action, he has a right of action against seller for breach of warranty of title. a. What would be the buyer’s damages? i. Look to section § 2-714. Basic damages section. 2. HYPO: (Sale of goods with bouncing check) a. A owns BMW, S buys with check that bounces. In the meantime, S sells car to B. A sues B for the car. This sale was conditional on the check going through, it did not (payment was not made). Thus, the car is mine. b. In the normal circumstance, A could reclaim. c. However, here, B is a BFP. i. This problem is dealt with in Kotis. c. § 2-403 determines in a battle of two persons contesting ownership who may win. d. § 2-312 determines your right to sue where the title is not “good,” the transfer is not rightful, or the good is subjected to an unknown encumbrance. II. Kotis (interplay of 2-403 and 2-312) a. Facts: A sells Rolex to B, B pays with check. B’s check bounces, but before check bounces B sells watch to S. A sues S i. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a “transaction of purchase” (voluntary purchaser) the purchaser has such power even though (1) the transferor was deceived as to the identity of the purchaser, or (2) the delivery was in exchange for a check which is later dishonored, or (3) it was agreed that the transaction was to be a “cash sale”, or ii. (4) the delivery was procured through fraud punishable as larcenous under the criminal law. 1. Thus, when you buy with a check that bounces, this fraudulent purchase, allows one to transfer title to another as long as the original transaction was performed voluntary (although fraudulently). 2. Thus, 2-403(a)(4) provides that purchaser can obtain voidable title to the goods even if “delivery was procured through fraud punishable as larcenous under the criminal law. iii. “Transaction of purchase” not defined within code. 1. “Purchase” (§ 1-201(32)) is a “taking by sale, discount, negotiation, mortgage, pledge, lien, issue or reissue, gift or any other voluntary transaction creating an interest in property.” a. Thus, only voluntary transaction can constitute “transactions of purchase.” i. A thief who wrongfully takes goods is not a purchaser. ii. A swindler who fraudulently induces the victim to deliver goods voluntarily is a purchaser. b. Where the goods are delivered in a transaction of purchase, if the transfer is voluntary the owner can get the product back where the fraudulent purchaser still has the product (voidable title), however, the fraudulent purchaser can transfer the title as good title to a BFP. c. NOTE: The 2nd Purchaser has to purchase in good faith from the 1st Purchaser/B (person with voidable title) i. Under § 2-403(a), a transferor with voidable title can transfer good title to a good faith purchaser. 1. Good faith means honesty in fact in the conduct or transaction concerned. a. The test for good faith is the actual belief of the party and not the reasonableness of the belief. i. Here, the buyer was found not to be a good faith purchaser for value. 1. The buyer purchased the item for well under the price of the item a. The buyer was not a GFP for value so he didn’t win.

27

d.

e. III. Thorn a. b.

Theory: Between the original seller and second buyer, where the item is stolen we will protect original seller. However, if the owner voluntary parts with the goods we will shift the risk to the original seller/owner who voluntarily put his goods into the market. Buyer would have a right against the seller under § 2-312 where the buyer loses the goods back to owner--i.e., where the goods are stolen.

Facts: P brings car to dealership, while there dealership sells car to D. P sues to get car back from D. What title did the dealer have? The dealer never had title to the goods, good title or voidable title. i. However, under 2-403(2) the “entrustment principle,” the good faith purchaser is protected. Adams entrusted possession to the car dealer, and that gave the car dealer the power to transfer the goods under 2-403(2). 1. Normally, the thief (the dealer) cannot pass good title. But, to facilitate commerce, we are going to protect the BFP who bought in good faith from a merchant who was voluntarily entrusted with those goods. c. P argued that D was not entitled to judgment because she was not a buyer in the ordinary course of business. i. “Buyer in the Ordinary Course of Business:” a person who in good faith and without knowledge that the sale to the person is in violation of the ownership rights of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind. See § 1-201(9) 1. Court disagrees and found that the buyer acted in good faith in the ordinary course of business. a. “Good faith:” honesty in fact in the conduct or transaction concerned. See § 1-201(19) d. Three basic rules, stolen goods, bouncing check, and entrustment. e. It is important that for the purchaser to be protected the purchaser has to be a good faith purchaser for value. IV. Jefferson a. Facts: D sold motorcycle to P. P having his motorcycle repaired in the shop, when police asked him to prove his entitlement to the vehicle. P produced his title certificate but its identification number did not correspond to the one embossed on the frame of the bike. The police then seized the vehicle. P sued Jones for the attorney fees incurred in getting the bike back on the theory of breach of warranty of title. b. Issue: Whether a purchaser of goods must prove that a third party has a superior or paramount title to those goods in order to substantiate a claim that a seller’s warranty of title as established by § 2-312 has been breached. i. No, there is no requirement that the buyer proves superior or paramount title in a third party before a breach of warranty of title is established. 1. This court says that the buyer is entitled to quiet possession. Thus, protection applies to third party claims of title no matter whether they have superior title. ii. However, (caveat), although proof of superior title is not necessary, not all claims result in a breach of warranty. 1. “Good title” is “usually taken to mean that the title which the seller gives to the buyer is “free from reasonable doubt, that is, not only a valid title in fact, but also one that can again be sold to a reasonable purchaser or mortgaged to a person of reasonable prudence.” a. Thus, for a third party’s claim against the title of another to result in a breach of warranty of title, the claim must be colorable, nonspurious and of such a nature as to produce a reasonable doubt as to the title’s validity. i. Colorable claim: a claim that is of a substantial nature that it may reasonably subject the buyer to serious litigation. 2. You cannot allow breach of warranty of title for just any frivolous claim. The idea is that once you own goods you are not free from frivolous lawsuits. c. The buyer’s damages are the attorneys fees. i. Section 2-714(3) conveys upon the P the ability to sue for attorney s fees in this case. ii. American Rule: You cannot recover the cost of suing someone for damages. That is why the cost of legal services for the middle class, withstanding personal injuries, is not worth it. iii. Here, P could not recover the money he paid his attorney to sue D. However, he could recover the money in the replevin action, because he was defending himself. 1. Ex. GE sells to retailer. Retailer sells to buyer. Buyer sues retailer. Retailer defends. Retailer now sues manufacturer for breach of warranty. Retailer’s damages would include attorney’s fees to defend themselves. But, retailer cannot recover cost of suing the manufacturer. Extension of Warranty, and the Relationship Between Tort and Warranty § 2-318. Third Party Beneficiaries of Warranties Express or Implied. Alternative A A seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section. Alternative B

28

A seller's warranty whether express or implied extends to any natural person who may reasonably be expected to use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section. Alternative C A seller's warranty whether express or implied extends to any person who may reasonably be expected to use, consume or be affected by the goods and who is injured by breach of the warranty. A seller may not exclude or limit the operation of this section with respect to injury to the person of an individual to whom the warranty extends. Comment 3. The first alternative expressly includes as beneficiaries within its provisions the family, household and guests of the purchaser. Beyond this, the section in this form is neutral and is not intended to enlarge or restrict the developing case law on whether the seller's warranties, given to his buyer who resells, extend to other persons in the distributive chain. The second alternative is designed for states where the case law has already developed further and for those that desire to expand the class of beneficiaries. The third alternative goes further, following the trend of modern decisions as indicated by Restatement of Torts 2d § 402A in extending the rule beyond injuries to the person. I. Privity--Overview a. At CL warranty only extended to persons in direct privity of K. b. The UCC warranty sections §§(2-312 - 2-315) are understood generally as creating warranties only between themselves and the immediate purchaser. i. Thus, they are premised on a privity of K existing. 1. However, the code and caselaw have extensions and exceptions. c. § 2-318 i. UCC basis for extension of warranty to someone who is not in privity of K. ii. There are three different alternatives. 1. A: The most restrictive. Majority rule. At the time the code was promulgated it was the only version. It the least permissive of the exceptions. 2. B & C are the most liberal. d. NOTE: The need for § 2-318 only kick in where you lack privity. For instance if B is attempting to sue retailer, we have no problem, there is privity. II. Alternative A--Overview a. Relaxation of privity, but the least permissive of extensions. i. HYPO: buyer buys car, buyer is out driving, defect in car, breach of warranty, spouse of buyer is injured, spouse wants to sue seller. 1. Spouse is not in privity with seller, but may sue. a. The spouse is a “natural person” (not a legal entity) in the “family” who is a foreseeable user. i. Only protects persons in the family or household of the buyer who is a foreseeable user. 1. Horizontal Privity granted (to the extent listed). 2. Vertical Privity (up the line sellers) is not. III. Alternative B & C--Overview a. More liberal, but exist in far fewer states. b. GE  retailer  B. i. Under B 1. Can B sue GE? a. Yes, but only for personal injury. b. NOTICE: It is not limited to purchasers (foreseeable users, consumers, or affected by goods) i. B buys TV and spouse is injured. 1. Horizontal Privity allowed. 2. Some vertical privity. ii. Under C 1. Is not limited to personal injuries, does not require a “natural person.” a. Thus, vertical privity is farther increased. c. “A seller may not exclude or limit the operation of this section.” (there is a variant of this line in C) i. If a jurisdiction uses Alt. B (or C) the seller cannot deny someone who has the right to sue under Alt. B from suing. 1. However, the seller can put in a disclaimer or limitation of remedy. ii. The provision in C has the same effect, it limits its use to personal injuries, which is in-line with B (because B itself is limited to vertical privity for personal injuries). d. B and C are the minority, thus the UCC does not have a great effect on reducing the privity requirement. IV. Comment 3--Overview

29

Courts have taken the language as an invitation to extend warranty. i. Caselaw extends warranties way beyond Alternative A, without adopting B or C. 1. The majority of states say that where personal injury is involved we are going to alone a purchaser to sue anyone up the chain. a. Based on policy reasons. i. The buyer thus, gets an implied warranty of merchantability from all persons up the line when they have personal injuries. ii. Many other courts allow persons, not purchasers, who are foreseeably injured to also sue up the line when injured in person. b. Extensions of Alternative A: i. Type 1: Some type A states follow Alternative A strictly. (southern states) ii. Type 2: There can be recovery for personal injury from up the line sellers who breached warranty of merchantability.(majority--IL) 1. Reason: Policy--public safety. a. It is true for buyers and non-buyers. 2. We will depart for purposes of personal injury; we will not depart for purposes of economic loss. iii. Type 3: Exception to privity requirement for injuries other than personal injury (PA). 1. No privity required at all, for anything. V. Szajna (Alternative A, Type 2 IL) a. P bought a 1976 Pontiac, he sought damages on behalf of himself and other who bought the car with a Chevette transmission based solely on economic loss alleged to have resulted from receipt of the “inferior” transmission. b. Can they sue M when they were they lack privity because the good was less than what they paid for? i. Illinois clearly held that privity was no consequence, makes an exception to permit lawsuit for breach of warranty without privity of K. 1. However, recovery is not permitted for Economic Loss. a. We will not make an exception to the privity requirement to permit a lawsuit for breach of implied warranty of merchantability where what is sought is economic loss. c. We will make an exception to privity for personal injury because we are willing to protect. VI. Nobility (Alternative A, Type 3 PA) a. All damages are recoverable, privity of K is gone for a down the line purchaser. b. Court says privity is not a requirement for a UCC implied warranty action for economic loss. i. We will permit a down the line purchaser to sue in this type of case. c. Any type of damage the UCC permits to be recovered can be sued for without privity. i. § 2-714(2): The value of the goods had they been in the condition as warranted (the value you paid) subtracted from the value of the goods in their defective condition. d. No privity requirement for a down the line purchaser. i. PA follows this. e. Would the Nobility rule permit a non-purchaser from suing for Economic Loss? i. PA law seems to say that privity is dead completely (thus horizontal privity would not limit brining a suit) f. The one caveat here is that the injured party has to be foreseeable to bring the suit (but does not need privity). VII. Economic Loss Doctrine a. Originally, it provided that no cause of action could be maintained in tort for negligence or strict liability where the only injury was “economic loss” -- that is, loss that is neither physical injury nor damage to tangible property. i. The quintessential economic loss was lost profits. When a product purchased by a commercial entity failed to perform, that entity’s business could be disrupted, resulting in loss of customers, sales, and profits. The economic loss doctrine precluded recovery in tort from the product’s manufacturer for these purely economic damages. ii. Generally, economic loss is (1) the good is not worth what you paid for it; (2) any damage to the good if the damage is caused by its own defects (even traumatic). VIII. Tice (economic loss doctrine--strict liability) a. Facts: P, buys “building in a box” from D. The building collapses. The express warranty and implied warranty had run, thus 2-J seeks to recover damages for loss of the contents of the warehouse (not the warehouse itself). It asserted negligence and strict product liability tort claims against Tice as well as a breach of contract claim based on the warranty. b. Issue: Whether, under PA law, a purchaser of a pre-engineered warehouse may recover in tort from the manufacturer or the warehouse for damage caused to its contents (“other property”) when the warehouse collapsed. c. The Court indicated that, for purposes of applying the economic loss doctrine, “the product” is no more and no less than whatever the manufacturer placed in the stream of commerce by selling it to the initial user. d. General tort and contract law applicable in the context of commercial sales characterizes as “other property” both property added to a defective product by the initial user/owner as well as property used by the initial user/owner in connection with the defective product. e. The analysis ultimately established the time of sale to the initial user as the critical point for determining whether added features are part of “the product itself” or “other property.”

a.

30

The Court recognized the prevailing rule to be that “the product itself” includes all components added before the sale to the initial user. g. “Other property” is not considered economic loss for strict liability purchases; therefore, it would not be considered economic loss for warranty theories. Thus, it would not require privity. i. We are not going to consider damage to additional property to fall under the economic loss doctrine when it is foreseeably injured by the primary property’s defect. 1. The purpose of the building was to house other items; therefore the damage resulting to the goods were foreseeably damaged where the building collapses. h. The Courts take two views: i. View 1: The good itself includes not only the purchased good, but goods foreseeably damaged if the good itself were damaged. ii. View 2: As long as property is different then the property purchased then it is other property recoverable under strict liability in tort. i. NOTE: Strict Liability in Tort, B can sue anyone no privity requirements; however, you cannot sue for economic loss. IX. Lennox (economic loss doctrine “other property” a. Facts: City was interested in constructing a public works building for its maintenance vehicles. When the building was being put up all of its trusses failed. The City subsequently brought suit against Mitek based on theories of breach of implied warranties and negligence. Part of the damages claimed were the expenses involve in removing old insulation, sheet metal, and having to disconnect heating, plumbing, and electrical connections before replacing the trusses. b. Issue: Whether the losses claimed under the negligence causes of action are recoverable in tort or whether the UCC provisions are exclusive. i. Suit under UCC was time-barred. ii. City contended that when the damage is to “other property” as opposed to the specific goods that were part of the transaction. iii. “Other property” has been defined as damage to property collateral to the product itself. 1. “Economic loss” is specific. It is defined as that loss resulting from the failure of the product to perform to the level expected by the buyer and the consequential losses resulting form the buyer’s inability to make use of the ineffective product, such as lost profits. 2. Examples of damage to other property include: a. (1) defective heater that exploded and destroyed a major portion of a refinery; b. (2) defective brakes that hypothetically caused truck to run into home. iv. When a defect in a component part damages the product into which that component was incorporated, economic losses to the product as a whole are not losses to “other property” and are therefore not recoverable in tort. c. The defective trusses forced the City to remove insulation, sheet metal, etc., which all were part of the whole product that the defective component part damaged, in order to replace the trusses. The damages the City is claiming are in reality repair costs that fall under consequential damages. Therefore, the economic damages are not recoverable under the tort theory of negligence and instead are governed by the UCC. d. The 3rd Cir. (Tice) would probably agree with this. X. AKA (distribution Ks and the UCC) a. AKA enters into a distribution K with Whirlpool. Is that covered by the UCC? i. Court says that it is a sale of goods K where you are actually purchasing the items and then reselling. 1. NOTE: There are distributorship Ks where you do perform a primarily services K. 2. The question is what predominates. a. Here you are buying the product then reselling, so the predominant purpose test says this a sales K. i. UCC is N/A because the SOL has run. b. NOTE: If you are only an agent for the manufacturer then you are performing only services for them, it is a contract case, UCC is N/A. i. With a distributorship the middleman buys the goods and resells them. c. The Tort Claims (fraud, constructive fraud(unintentional deception resulting in injury), and negligent misrepresentation) i. A fraud claim independent of the contract is actionable; it must be based upon a misrepresentation that was outside of or collateral to the K, such as many claims of fraudulent inducement. 1. In a suit between merchants, a fraud claim to recover economic losses must be independent of the Art. 2 K or it is precluded by the economic loss doctrine. a. §2-721 “Remedies for material misrepresentation or fraud include all remedies available under this article for non-fraudulent breach.” i. The fraud claim is that Whirlpool lied when it said AKA would be a distributor for a longtime. But duration was a term of the K, and breach of that term was the basis for AKA’s time-barred k claim. 1. This claim is not independent of the K and its performance, thus it is limited by the ELD to the UCC SOL. f.

31

d.

Cases are beginning to say that we will apply the ELD where the fraud relates to specific items of the K (similar to strict liability), since the misstatements go to the quality of the goods and relate to the K.

XI. Alberti a. P, purchases from a retailer, a mobile home produced by D, manufacturer. The floor of the home did not conform to certain representations made about it. P received a one-year manufacturer’s limited warranty covering defects in material and workmanship. i. There are additional assertions of fact made by M clearly expressing an express warranty. b. Why sue the manufacturer instead of the distributor? i. The manufacturer makes the statements to the retailer with the intent that it be transmitted to the purchaser. c. Court holds that manufacturer is liable. i. This is a departure from Alt. A. d. The damage the buyer claimed was the damage to the good itself. i. When talking about express warranty, it might not be better to talk about a departure from privity under 2-318. It may be better to view it as the establishment of a direct relationship that creates a direct liability to the manufacturer. 2-318 is not needed there was an expressly created warranty from manufacturer to buyer. 1. So you can look at these cases in two ways. a. There was an express warranty from manufacturer to seller, no § 2-318 analysis needed. b. Others can look at it as a § 2-318 situation and examine how that jurisdiction treats such departures. i. Professor favors it as the establishment of direct privity through EW between the M and the B. Written or oral warranties from manufacturer to seller become part of the basis of bargain and can be sued upon. 1. New Art. 2, § 2-313A talks about liability of M for EW that is transmitted down the line (kind of restates the argument above, we will not be held liable for that new part of the code, but we should know that exists). 4. MODIFICATION § 2-209. Modification, Rescission and Waiver. (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (voluntary relinquishment or abandonment of a known legal right) (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. Comment 2. Subsection (1) provides that an agreement modifying a sales contract needs no consideration to be binding. However, modifications made thereunder must meet the test of good faith imposed by this Act. The effective use of bad faith to escape performance on the original contract terms is barred, and the extortion of a "modification" without legitimate commercial reason is ineffective as a violation of the duty of good faith. Nor can a mere technical consideration support a modification made in bad faith. The test of "good faith" between merchants or as against merchants includes "observance of reasonable commercial standards of fair dealing in the trade" (Section 2-103), and may in some situations require an objectively demonstrable reason for seeking a modification. But such matters as a market shift which makes performance come to involve a loss may provide such a reason even though there is no such unforeseen difficulty as would make out a legal excuse from performance under Sections 2-615 and 2-616.

I.

Requirements of § 2-209 a. The term “modification” means a mutually agreed upon contractual change. b. Consideration: i. Not needed under 2-209(1). ii. Comment 2 explains that although no consideration is necessary the C/L was concerned w/extorting modifications. Thus there is a requirement of “good faith” in the performance of enforcement of a K. c. “Good faith:”

32

i. Required. You cannot extort consideration. See Comment 2. 1. Very few cases on this issue. ii. Definition--“Honesty in fact” Old standard 1-201 1. It is a factual question whether it is purely “honesty in fact,” we are only looking at honesty. Very debatable factual issue. iii. In new Art. 2--Honesty in fact and "observance of reasonable commercial standards of fair dealing in the trade" (Section 2-103)”. 1. This is the new articles definition of good faith. However, courts following old definition have most likely adopted the new definition. a. If you are looking at reasonable commercial standards and honesty in fact then you are looking at the reasonable commercial standards--objective. d. Assuming that there is good faith, we then must determine whether, under 2-209(3), the modification conforms to the statute of frauds in that it is not in writing. II. Costco (examining (3)) a. Facts: Costco contends that the price it agreed to pay Worldwide was modified when W’s agent agreed, in writing, to rebate part of the purchase price. W alleges Costco orally modified the K by promising to buy more jewelry. Each party contends that the modification alleged by the other is barred by the statute of frauds, which requires certain Ks to be written. C sues for benefit of the bargain. Rebate of 16K+. b. The plain language of § 2-209(3) explains that a modification to a contract which initially satisfied the SOF does not require a new writing, except where that modification alters a SOF requirement. c. Assuming the contract in this case was modified to include a rebate (a price modification) and an additional purchase (a quantity modification), the pass-through power of the original contract's satisfaction infuses the contract as modified with the characteristic of enforceability. The rebate, which modified the price, did not require an additional writing to satisfy the statute of frauds. But, under the statute of frauds, a contract can only be enforced up to the quantity shown in the writing. § 2-201(1), (3) i. U.C.C. § 2-209, comment 3 (an authenticated "memo is limited in its effect to the quantity of goods set forth in it"). d. Held: The K’s initial satisfaction of the statute passes through to the modification, but that the K as modified can only be enforced up to the quantity stated. Thus, the statute of frauds bars the oral promise to purchase additional jewelry, but not the rebate claim. e. This court takes a very liberal view. The majority says that all modifications must be in writing (See Wisconsin Knife). f. 2A-208 (p. 1309)--for leasing 2-209(3) is not utilized/adopted. i. 2-209(2) says you can have a signed agreement that excludes modification except by writing. III. Wisconsin Knife (two views of “waiver” in (4) and (5)) a. VIEW 1: Attempted modification is a waiver only if there is reliance. THUS, attempt to modify that fails = nothing unless reliance by other party. i. § 2-209(4) It does not say that an attempted modification "is" a waiver; it says that "it can operate as a waiver." It does not say in what circumstances it can operate as a waiver; but if an attempted modification is effective as a waiver only if there is reliance, then both sections 2-209(2) and 2-209(4) can be given effect. 1. Reliance, if reasonably induced and reasonable in extent, is a common substitute for consideration in making a promise legally enforceable, in part because it adds something in the way of credibility to the mere say-so of one party. ii. § 2-209(5) Allows a waiver to be withdrawn while the contract is executory, provided there is no "material change of position in reliance on the waiver." 1. The whole point of the section is that a waiver may be withdrawn unless there is reliance. b. VIEW 2: the attempt at modification is a waiver, and may be retracted only if there is not reliance by the other party on the orally agreed upon modification terms. THUS, attempt to modify = waiver, which can only be retracted if there is no reliance by other party. i. The subsections read well together if waiver means "intentional relinquishment of a known right" in both. Section 2-209(4) says that a failed attempt at modification may be a waiver and so relinquish a legal entitlement (such as the entitlement to timely delivery); § 2-209(5) adds that a waiver cannot affect the executory portion of the contract (the time of future deliveries, for example) if the waiving party retracts, unless there is also detrimental reliance. 5. TERMINATION § 2-309. Absence of Specific Time Provisions; Notice of Termination. (1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time. (2) Where the contract 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.

33

(3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable. I. Liebel (examines (2) and (3)) a. Not usually an issue, normally a K terminates after a K is complied with. Comes up where the K calls for successive performances with an indefinite duration. i. Facts: Infinite duration dealer/distributor K. M unexpectedly cancels K with dealer, dealer sues, P argues that the he was entitled to reasonable notice of D’s intention to terminate the K. b. Subsection (2) explains that Ks of infinite duration may be terminated at any time by either party. i. The litigation occurs where M cut-offs D (“distributor”) and D screams, this is unreasonable. c. Subsection (3) explains that termination by one-party requires that reasonable notification be received by the other party. d. Following §§ 2-309(2), (3) it is clear that the requirement of reasonable notification applied to this K. e. Under Comment 8: i. It is quite clear that the requirement of a reasonable notification does not relate to the method of giving notice, but to the circumstances under which the notice is given and the extent of advanced warning of termination that the notification gives. 1. "In some states, it is implied that a dealership contract which may be terminated upon notice must be allowed to continue for a sufficient period to enable the franchisee to recoup his investment." 2. "Under Minnesota law 'a reasonable duration will be implied in franchise agreements where a dealer has made substantial investments in reliance on the agreement.'" II. Blalock (examines (3)) a. The Court decides that where the Code gives a specific right to terminate, 2-309(2), termination can occur at any time without cause as long as there is reasonable notification. i. This supersedes any argument about good faith or unconscionability. This is the substantial majority. b. If you are a distributor and you want to be protected you could ask for a clause that prohibits the termination of a K without cause. i. What may M want in return? 1. Under 2-309(3) termination can occur upon an “agreed event.” M could say that you have to purchase a certain amount; if not then termination will occur. I will give you this exclusive distributorship but you have to meet certain performance goals. 2. If the K states that the distributor will purchase X amount and that amount is met then the K could be terminated upon the happening of an agreed event. a. In that case there would be no need for reasonable notice. c. Summary i. Subsection (2): any party can terminate at any time, takes precedence over good faith and unconscionability--but you need reasonable notice. ii. Subsection (3) reasonable notice has two caveats: (1) no need for notice if termination occurs upon the happening of an agreed event; or (2) justifiable cancellation for breach. CHAPTER 5. RISK OF LOSS § 2-509. Risk of Loss in the Absence of Breach. (1) Where the contract requires or authorizes the seller to ship the goods by carrier (a) if it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation (Section 2-505) [this is a “ship to” K, i.e. a common carrier will be used]; but (b) if it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery[this is a “destination K”]. (2) Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer (a) on his receipt of a negotiable document of title covering the goods; or (b) on acknowledgment by the bailee of the buyer's right to possession of the goods; or (c) after his receipt of a non-negotiable document of title or other written direction to deliver, as provided in subsection (4)(b) of Section 2-503. (3) In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery. (4) The provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on approval (Section 2-327) and on effect of breach on risk of loss (Section 2-510). I. As between the buyer and seller who bears the financial burden when goods are destroyed without the fault of either party.

34

II. F.O.B.: (free on board) A trade term requiring the seller to deliver goods on board a vessel designated by the buyer. The seller fulfills his obligations to deliver when the goods have passed over the ship's rail. When used in trade terms, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier. III. Eberhard (shipment versus destination K for risk of loss) a. S agrees to deliver goods to a common carrier, while goods are en route in common carrier they are destroyed. i. Has risk of loss passed to buyer? 1. The CL made risk of loss depend on title. Code rejects this--title is irrelevant, unimportant. a. Section 1-201 provides that: "The arrangement of the present Article is in terms of contract for sale and the various steps of its performance. The legal consequences are stated as following directly from the contract and action taken under it without resorting to the idea of when property or title passed or was to pass as being the determining factor. b. Section 2-401 provides: "Each provision of this chapter with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other provisions of this chapter and matters concerning title become material the following rules apply . . ." c. Section 2-509 is an “other provision” and provides: "the underlying theory of these sections on risk of loss is the adoption of the contractual approach rather than an arbitrary shifting of the risk with the 'property' in the goods." d. THUS, No longer is the question of title of any importance in determining whether a buyer or a seller bears the risk of loss. 2. Instead, the code has established 2-509 and 2-510. a. § 2-509 risk of loss where goods damaged without the fault of either party. b. § 2-510 risk of loss where one party is in breach. The goods are damaged without fault, but one party is in breach during the destruction of the goods. b. (1) Risk of loss where the K requires or authorizes that the goods be shipped by carrier. i. Under 1(b) If the K requires the seller to deliver at a particular destination and goods are tendered there then risk of loss occurs at the point to the buyer and not until that point. “Destination K” ii. Under 1(a) where the K is a “shipment” K, the risk of loss passes to the buyer where the goods are duly delivered to the carrier. c. Question becomes what is the difference between a shipment and destination K? i. The Case comments 5, § 2-503. Under Article 2 of the Uniform Commercial Code, the "shipment" contract is regarded as the normal one and the "destination" contract as the variant type. The seller is not obligated to deliver at a named destination and bear the concurrent risk of loss until arrival, unless he has specifically agreed so to deliver or the commercial understanding of the terms used by the parties contemplates such delivery. § 2-503 (Official UCC Comment 5). 1. Shipment is assumed unless destination is explicitly stated. d. What kind of language makes it into a destination K? i. If the K says “ship to” buyer in Philly, is that enough to create a “destination K?” 1. Court says no, it is only a direction and that does not make it a destination K. ii. § 2-319 discusses F.O.B. Under 2-319(1)(b) when the term is F.O.B. to place of destination the seller must at his own expense and risk ship the good to buyer. 1. Ex. if the K said F.O.B. Pittsburgh then risk of loss is on seller. Seller ships and bears risk of loss in carrier’s hand. iii. The 2003 revision eliminates § 2-319 and other defining terms K. Commercial terms will not be defined by UCC. The trade will define those terms. e. An agreement of the parties would control as to who has the risk of loss. See § 2-509(4). Here, the parties did not expressly agree on who was to bear the risk of loss. IV. Martin (title passes, but seller still has possession when item is destroyed) a. P enters K to buy new truck from D. P would trade in his old truck. The agreement provided that P “mail or bring title” to the old truck to D “this week.” P mailed the certificate of title to D pursuant to the agreement, but was allowed to retain the use and possession of the old unit “until they had the new one ready.” During this time period the seller performed minor repairs on the trade in truck and did not charge P while he used it. Fire then destroyed the truck. The parties did not have any agreement regarding insurance or risk of loss on the truck and P’s insurance on the trade in unit had lapsed. D refused Martin’s demand for his new truck and Martin brought suit. b. Who has the risk of loss, title has passed, but the previous owner still had control. c. This is not a 2-509(1) case because goods are not being shipped by carrier. d. P argues that 2-509(2)(b) applies. P sees himself as a bailee. He says he does not own truck and when the goods are held by the bailee to be delivered without being moved the risk of loss passes to the buyer on acknowledgement of the bailee of the buyer’s right to possession of the goods.

35

e.

i. P argues that I acknowledged your possession (I let you come in and work on truck) and the goods are not being moved. 1. Court says no, a bailee is a warehouseman--someone in the professional business of storing goods. ii. Can the seller be a bailee? 1. No. It is inconsistent with the whole idea of risk of loss. The key to risk of loss is that the person who is more likely to have insurance on the item should carry the risk of loss. D argues 2-509(3) (this is the default rule). i. The risk of loss is on the seller until delivery is tendered, where the seller is not a merchant. ii. If the seller is a merchant then risk of loss is on seller until buyer is in receipt of goods (physical possession 2103). iii. Here, the seller is not a merchant. Thus, has delivery been tendered? 1. “Tendered”-- 2-503 defined tendered as: (1) Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this chapter, and in particular: (a) tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but (b) unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods." 2. No. So risk of loss remains with seller.

§ 2-510. Effect of Breach on Risk of Loss. (1) Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance. (2) Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning. (3) Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time. V. Multiplastics a. § 2-510--where one of the parties is in breach. Breaching party did not have to cause the damage to the goods. The point is that damage occurs after one of the parties is in breach. b. Here, the K says that the manufacturer will make and hold for release. D will give orders as to how they want the items delivered. The M finishes production and pressures D to issue release orders. D does not give orders. Court says this puts D in breach. One month later M’s plant is destroyed by fire. M sues D for the purchase price. i. Neither party is at fault for the destruction of the goods, but the D is in breach. 1. Risk of Loss: Under 2-509 it would be with M, because a. For exam show: under 2-509(1)(a) would apply because this is a “shipment K.” Under (a) you have to deliver goods to carrier to shift risk of loss. Under 2-509(3) although it appears to be n/a here, the risk of loss does not shift to the B until receipt. 2. 2-510 is a shifting rule, it shifts risk of loss. Here, 2-510(3) is applicable. a. Under (3) the buyer is in breach where: i. Requirements: 1. “Goods identified to the K”--the K refers to the particular goods. 2. “Repudiates or is breach”--Court said yes. 3. “Does the seller lack effective insurance”--yes. 4. “Must recover in a commercially reasonable time” c. The issue here is that the buyer was in breach (p. 275) for a period that was not commercially reasonable time to allow recovery (he had been in breach to long to still hold him liable). That is a factual issue, the court determines commercial reasonability. Risk of loss does not remain on buyer forever; it only remains for a commercially reasonable period. d. The time limitation is designed to enable the seller to obtain the additional requisite insurance coverage. e. 2-510(1) and (2) deals with situations of revocation. § 2-401. Passing of Title; Reservation for Security; Limited Application of This Section. Each provision of this Article with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other provisions of this Article and matters concerning title become material the following rules apply: (1) Title to goods cannot pass under a contract for sale prior to their identification to the contract (Section 2-501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this Act. Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the Article on Secured Transactions (Article 9), title to goods passes from the seller to the

36

buyer in any manner and on any conditions explicitly agreed on by the parties. (2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title [under 1-201(15)(p.1168) an automobile certif. title is not considered a document of title] is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading (a) if the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but (b) if the contract requires delivery at destination, title passes on tender there. (3) Unless otherwise explicitly agreed where delivery is to be made without moving the goods[applies only to a bailee situation], (a) if the seller is to deliver a document of title, title passes at the time when and the place where he delivers such documents; or (b) if the goods are at the time of contracting already identified and no documents are to be delivered, title passes at the time and place of contracting. (4) A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller. Such revesting occurs by operation of law and is not a "sale.” VI. Passage of Title a. While the role of title has been diminished under the U.C.C., it has not been entirely excluded. § 2-401 U.C.C., provides the rules for passage of title when title is relevant. Generally, it is still necessary to consider title in two broad contexts: (1) For purposes outside the law of sales, e.g. criminal law, taxation, and public regulation; and (2) where the final question is ownership, not merely some incident of the sale, e.g. liability insurance coverage. CHAPTER 6. TRANSPORTATION, DELIVERY AND INSPECTION 1. TRANSPORTATION 1-201. GENERAL DEFINITIONS (6) "Bill of lading" means a document evidencing the receipt of goods for shipment issued by a person engaged in the business of transporting or forwarding goods NOTE: Straight (non-negotiable): provides for delivery of goods to the person named in the bill of lading. The bill must be marked "nonnegotiable." Shipper's Order (negotiable): provides for delivery of goods to the person named in the bill of lading or anyone designated. 7-104. NEGOTIABLE AND NONNEGOTIABLE WAREHOUSE RECEIPT, BILL OF LADING OR OTHER DOCUMENT OF TITLE (1) A warehouse receipt, bill of lading or other document of title is negotiable (“shipper’s order”) (a) if by its terms the goods are to be delivered to bearer or to the order of a named person; or (b) where recognized in overseas trade, if it runs to a named person or assigns. (2) Any other document is non-negotiable (“straight”). A bill of lading in which it is stated that the goods are consigned to a named person is not made negotiable by a provision that the goods are to be delivered only against a written order signed by the same or another named person. 2. DELIVERY AND INSPECTION § 2-503. Manner of Seller's Tender of Delivery. (1) Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this Article, and in particular (a) tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but (b) unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods. (2) Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions. (3) Where the seller is required to deliver at a particular destination tender requires that he comply with subsection (1) and also in any appropriate case tender documents as described in subsections (4) and (5) of this section. (4) Where goods are in the possession of a bailee and are to be delivered without being moved (a) tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer's right to possession of the goods; but

37

(b) tender to the buyer of a non-negotiable document of title or of a written direction to the bailee to deliver is sufficient tender unless the buyer seasonably objects, and receipt by the bailee of notification of the buyer's rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the non-negotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender. (5) Where the contract requires the seller to deliver documents (a) he must tender all such documents in correct form, except as provided in this Article with respect to bills of lading in a set (subsection (2) of Section 2-323); and (b) tender through customary banking channels is sufficient and dishonor of a draft accompanying the documents constitutes non-acceptance or rejection. § 2-507. Effect of Seller's Tender; Delivery on Condition. (1) Tender of delivery is a condition to the buyer's duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract. (2) Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due. I. Tender of Delivery a. Tender of delivery is a condition for buyer to demand payment. Seller’s right to be paid, seller has to tender delivery. i. “Tender of delivery”--2-503(1) 1. Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. 2. Theoretically, it creates the buyer’s obligation to pay. It is only when seller tenders delivery properly that the buyer has an obligation to pay. 3. If the seller fails to make proper tender of delivery they breach their K. a. BOC--breach of the written agreement between parties or breach of an obligation that the code imposes on a party even though not specifically spelled out in a K. i. Ex. K says seller has to arrange for refrigeration of the K. This is a breach of the written K. 1. Even if is a F.O.B. K. You still are required to refrigerate. 2-503(2), you have to comply with 2-504. a. Not a proper tender of delivery by the buyer. ii. § 2-503(2)--Explains that when examining “Ship to” Ks, look to § 2-504. iii. § 2-503(3) -- Special Rules for tender of delivery where there is a destination K. II. Kingston a. D shows up after closing to deliver goods, no one is at store to help D unload. D, thus, refuses to deliver and returns goods to factory, and will not deliver goods unless Kingston pays for storage. b. Court examines, 2-503(1)(a). i. A carrier is required to give the consignee adequate notice to enable him to take delivery. 1. NOTE: Although D is a carrier and not a seller, the requirements for delivery are the same. ii. We hold, therefore, as a matter of law that D did not make a proper tender of delivery. iii. It was the seller’s duty to contact the restaurant, make sure they are open, and make sure there were people there to help. III. “Gap Fillers” on Delivery Ks a. § 2-307--Delivery in single lot: (one-shot shipments), tendered in single delivery unless notified differently. b. § 2-308--Absence of Specified Place for Delivery: Buyer’s place of business, if none, then residence. c. § 2-309--Time Period to Deliver: Reasonable Time. IV. La Casse a. P, buyer, seeks damages from the seller for loss of a shipment in transit. The B bought calculators from seller. It was left to the Ds discretion as to the manner of shipment and selection of the carrier to be used. P, however, stated in part: “please find endorsed a blank check to cover postage. This is a special account set aside for this purpose and has only $50. Please ship to my residence.” D packed the calculators into cartons, labeled them and delivered them to post office. D paid to have packages sent via 4th class mail. D only insured boxes for $200 each, though worth 2K. The cost of the postage and insurance was $10, to send first class and to full ensure would have been $16, each under the $50 dollars. One box was lost on delivery. b. The K itself was a “shipment” K, not a destination K. The seller was authorized to ship (hence the offer of postage), not deliver. See 2-503, comment 5. i. The risk of shipment is on the buyer, P. c. Was this a reasonable shipment K under 2-503, which incorporates 2-504? i. Court says no. A K which cuts off buyer’s right by underinsuring is not reasonable.

38

d. e.

Is the failure to ensure or offer to ensure a failure to make a proper K? i. We are not sure, here it is. NOTE: Where a buyer repudiates, then the seller does not have to tender delivery.

§ 2-511. Tender of Payment by Buyer; Payment by Check. (1) Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery. (2) Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it. (3) Subject to the provisions of this Act on the effect of an instrument on an obligation (Section 3-310), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment. V. 2-511 a.

(2) Check is okay, it is not in breach to offer to pay check, but seller can demand payment by reasonable tender as long as he gives buyer a reasonable period to pay it.

§ 2-513. Buyer's Right to Inspection of Goods. (1) Unless otherwise agreed and subject to subsection (3), where goods are tendered or delivered or identified to the contract for sale, the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner. When the seller is required or authorized to send the goods to the buyer, the inspection may be after their arrival. (2) Expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected. (3) Unless otherwise agreed and subject to the provisions of this Article on C.I.F. contracts (subsection (3) of Section 2-321), the buyer is not entitled to inspect the goods before payment of the price when the contract provides (a) for delivery "C.O.D." or on other like terms; or (b) for payment against documents of title, except where such payment is due only after the goods are to become available for inspection. (4) A place or method of inspection fixed by the parties is presumed to be exclusive but unless otherwise expressly agreed it does not postpone identification or shift the place for delivery or for passing the risk of loss. If compliance becomes impossible, inspection shall be as provided in this section unless the place or method fixed was clearly intended as an indispensable condition failure of which avoids the contract. VI. Right to Inspect a. There is an absolute right to inspect goods before payment, this right can only be eliminated where there is a contractual provision that does away with inspection. i. § 2-513(3)--gives no right to inspect. ii. § 2-512--gives no right to inspect before payment, but payment does not constitute acceptance. b. § 2-513(1) i. Buyer has a right to inspect before payment. That right can only be surrendered by explicit K language stated in subd. (3). You have to K to lose/surrender the right to inspect before acceptance. ii. (3) (a)COD--If you are paying COD you have to pay first, then you get goods. 1. The K has to say COD, not you make a K, then the seller upon shipment says COD. This does not create a loss of the opportunity to inspect. COD has to be in the K. 2. Seller cannot unilaterally alter the K, the K has to be an agreed upon COD. a. Modification (2-209) takes mutual agreement. iii. (3)(b)--Payment against documents of title (cash against documents) 1. This is an alternative way of saying that buyer pays first before receiving goods and inspecting goods. a. “Cash against documents” i. Some carriers do not want the burden of collecting cash and sending it to seller, thus, cash against documents of title was created. 1. Normally, Seller delivers goods to RR, seller gets bill of laden (receipt that carrier got goods). Carrier will then deliver goods to buyer. RR. 2. Cash against documents--Seller delivers goods to RR (carrier). Seller gets negotiable bill of laden. It is transferable. The Carrier cannot give goods to buyer without in return receiving the bill of laden. It is to ensure the right person is receiving the goods. The seller basically sells the negotiable bill of laden in return for payment on the goods. Thus the buyer pays first for the bill of laden, then gives bill of laden to carrier, carrier then gives goods to buyer. 2. If the K says “cash against documents” or “site draft against bill or laden” then the buyer has to pay first and loses right of inspection before payment.

39

c. d.

Inspection can be an important right. The reason why inspection can be important is that if the buyer can inspect first the buyer can withhold from paying for defective goods. If the seller cannot inspect until after taking physical inspection he has already paid out, now he needs to get that money back somehow.

CHAPTER 7. PERFORMANCE AND BREACH 1. RIGHT TO ASSURANCE AND ANTICIPATORY REPUDIATION § 2-301. General Obligations of Parties. The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract. § 2-610. Anticipatory Repudiation. When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (a) for a commercially reasonable time await performance by the repudiating party; or (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and (c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704). Comment 2: 2. It is not necessary for repudiation that performance be made literally and utterly impossible. Repudiation can result from action which reasonably indicates a rejection of the continuing obligation. And, a repudiation automatically results under the preceding section on insecurity when a party fails to provide adequate assurance of due future performance within thirty days after a justifiable demand therefor has been made. Under the language of this section, a demand by one or both parties for more than the contract calls for in the way of counter-performance is not in itself a repudiation nor does it invalidate a plain expression of desire for future performance. However, when under a fair reading it amounts to a statement of intention not to perform except on conditions which go beyond the contract, it becomes a repudiation. § 2-609. Right to Adequate Assurance of Performance. (1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. (3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance. (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract. I. Tenavision (anticipatory repudiation) a. Facts: P agrees to lease 140 tv sets with an offer to buy to D. P explained that he made numerous calls to D, concerning delivery and he was advised the sets were not needed. There was a provision, however, in the agreement that explained that P agreed not to file a UCC-1 form covering the agreement. Despite the agreement P said that they couldn’t deliver without the UCC-1 form. The D then refused to accept delivery when P asked to set a delivery date. The agreements were thus never carried out, D brought suit. b. Held: COA is reversed. P did not breach. c. Analysis: Although it was conceded by P at trial that it requested UCC-1 forms from Ds, the mere asking for these statements would not constitute repudiation of the agreements. Without D complying with the request, P offered delivery. d. While ordinarily a tender of the goods is required (see Uniform Commercial Code, §§ 2-301, 2-503), the repudiation of a contract by the buyer eliminates the need for further performance by the seller (see § 2-610 subd [c]). e. Referred to as an anticipatory repudiation, a disavowal of the contract can be determined to have occurred whenever there is an "overt communication of intention" not to perform (see Official Comment 2 to § 2-610). However, for these principles to operate, it should be shown that the announcement of an intention not to perform was positive and unequivocal i. The decision whether there was an “overt communication of intention” is very fact sensitive. ii. A seller was relieved of the obligation to make a tender where the buyer stated that he would not receive or pay for the goods. Ds may not escape liability by asserting a failure to tender by the seller.

40

The New Code has language in there that was designed (p. 151) to help out innocent parties (whether it does so is questionable). i. Adds a “reasonable party” component. g. The question of repudiation is factual and can be ambiguous. i. Comment 1 states that it centers on an over communication of intention not to perform. ii. § 2-609 (new version, 2003) has added language to determine what an anticipatory repudiation is, but it still it not certain, it is factual. h. TO KNOW: i. There can be an anticipatory repudiation. ii. The innocent party has to be correct in determining that there is an anticipatory repudiation, if not the innocent party may themselves breach. iii. Repudiation is a factual determination. 1. Was it an “overt communication not to perform?” iv. New draft does have language in it designed to define repudiation in more detail. 1. But, it is questionable how much the new language helps us. II. Right to Adequate Assurance a. Where the B appears to be on unsound footing, but has not made an “overt communication not to perform,” then use § 2609. i. However, if you are under 30 days, you may just have to wait to see if they breach in this circumstance. b. To use § 2-609 S must have “reasonable grounds” for insecurity with respect to the performance. i. “Reasonable Grounds” is meant to connote some change, or at least an objective reason to suspect change, in the probability that the other party will perform from what would have been true at the time the agreement was entered into. c. Does the buyer always have to use 2-609 where there may be a possible repudiation of the K? i. No. Where the seller has made an “overt communication not to perform” then you can go ahead and treat it immediately as a breach. d. What else could you do if you were worried about B paying? i. Mutually agree to alter the K. Go to B and ask to alter K, make it COD. e. § 2-609 grants three measures to the S that it is unsure whether B will repudiate: i. Suspend his own performance ii. Request adequate assurance 1. Defined by commercial standards. iii. Treat the K as repudiated if the grounds for insecurity are not cleared up with a reasonable time. 1. Defined by commercial standards. III. § 2-611 a. Grants a limited right to retract the anticipatory repudiation in the case of an installment K. § 2-702. Seller's Remedies on Discovery of Buyer's Insolvency. (1) Where the seller discovers the buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery under this Article (Section 2-705). (2) Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within ten days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three months before delivery the ten day limitation does not apply. Except as provided in this subsection the seller may not base a right to reclaim goods on the buyer's fraudulent or innocent misrepresentation of solvency or of intent to pay. (3) The seller's right to reclaim under subsection (2) is subject to the rights of a buyer in ordinary course or other good faith purchaser under this Article (Section 2-403). Successful reclamation of goods excludes all other remedies with respect to them. VII. § 2-702 a. Gives the S the right either to refuse delivery except for cash, stop delivery entirely before it occurs, or even in some instances to reclaim goods already delivery in the event of a buyer’s insolvency. b. The operative definition of insolvency is given at § 1-201(23). 2. REJECTION AND REVOCATION OF ACCEPTANCE I. Structure a. Buyer receives defective goods. There are two separate tracks to follow: i. 2-714 (buyer’s damages with respect to defective goods) (BOW damages). In this scenario you sue for damages and keep goods. I want benefit of the bargain. ii. Seller does not want goods, they want recission and they want damages (§ 2-711). 1. § 2-601 right of rejection. a. Here are the conditions for rejection. i. Timeline: First you have the offer to reject (before acceptance). 2. § 2-608 revocation of acceptance.

f.

41

Here are the conditions for revocation of acceptance i. Timeline: Then you have the offer to revoke (briefly after acceptance). iii. There is no such thing as a “recission” in the code, but those two §’s allow for basic recission. Rejection § 2-601. Buyer's Rights on Improper Delivery. Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest. § 2-602. Manner and Effect of Rightful Rejection. (1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. (2) Subject to the provisions of the two following sections on rejected goods (Sections 2-603 and 2-604), (a) after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and (b) if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this Article (subsection (3) of Section 2-711), he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; but (c) the buyer has no further obligations with regard to goods rightfully rejected. (3) The seller's rights with respect to goods wrongfully rejected are governed by the provisions of this Article on Seller's remedies in general (Section 2-703). § 2-612. "Installment Contract"; Breach. (1) An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent. (2) The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment. (3) Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments. II. § 2-601 a. You have the right to reject non-defective goods if the delivery does not conform to the K. i. If the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may: (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest [items that can be subdivided/divisible]. 1. This is the “perfect tender rule.” Ex. S must deliver 16 suits; instead delivers 12, all 16 can be rejected. 2. Buyer is entitled to expect and demand that the goods perfectly conform to the K. 3. If there is any deviation for what the K said then the buyer can reject. ii. Exceptions, under § 2-601 [found in § 2-601(1)(a)]: 1. § 2-612. In installment Ks, which requires or authorizes the delivery of goods in separate blocks. The buyer may reject any nonconforming K if the contract is not “substantially” conforming. Thus, you can only reject if the nonconformity substantially impairs the K and cannot be remedied. 2. § 2-718, 2-719. a. Normally you are entitled to perfect tender or you can reject. However, if the parties agree to limit remedies under 2-719 then that is a limitation on the right to reject. i. 2-719(1)(a) you can limit the remedies by providing remedies in addition to or substituting for the normal remedies of the K. 1. You can contract out of your right to reject and/or revoke, your only remedy may be to repair and replacement of defective parts. Ex., auto sales. b. Limitations to rejection: i. “if the goods or the tender of delivery fail in any respect to conform to the contract”

a.

42

Normally, M gives express warranty--repair/replace, seller (dealer) disclaims IWM. a. Under § 2-601 can you reject the car for failure of perfect tender. i. No, there is nothing to conform to. If there is a disclaimer to the IWM (your guarantee that the goods are merchantable, fit the ordinary purpose, etc.) then you have no contractual protection. Your quality protection no longer exists, it is gone. ii. There is no such thing as a nonconforming good when you lack IWM, there is no applicable quality term in the K. b. NOTE: there is some bad law out there that does not follow this. ii. 2-612(2) installment K. The right to reject a particular installment exists only if the nonconformity substantially impairs the value to the buyer. iii. 2-719, the parties can otherwise agree to the right of rejection. 1. Parties can agree to limit the buyer’s ability to reject. 2. (1)(a) gives the parties the right to make such an agreement. i. There are also two limits to the right to reject not explicitly stated in 2-601. In certain circumstances where the B has the right to reject the S has a right to cure. Implicitly, where S offers to cure and B denies that right, the B loses the right to reject. 3. § 2-504 (p. 1239). Seller’s obligations under a shipment K. Thus, under a shipment K you need material delay or material loss before being allowed to reject under § 2-601. 4. § 2-508. The seller has the right to cure [see provisions (2)] a nonconforming tender following a buyer’s rejection of tender. Essence, if seller offers to cure nonconforming tender, if the buyer refuses and wants money back, the buyer is found in breach. This is a limitation on the right to reject. § 2-508. Cure by Seller of Improper Tender or Delivery; Replacement. (1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. III. § 2-508 a. Subsection (1)--Very little used, the right to cure where the time of performance has not yet expired. Normally the B does not even know about the goods or get goods until time of performance has come. b. Subsection (2)--Significant, applies where buyer has gotten the goods. IV. Wilson a. B buys tv. B turns it on, the picture is off. S fails to fix on site. S offers to repair at service site. B says I do not want a new tv, she wants money back (possibly a new tv). B refuses right to cure. B sues. B wants to reject. Rejection under 2601 and under 2-711 get money back. S argues the right to cure under 2-508. b. Interpretation of 2-508(2). Court finds for seller i. The seller to be able to exercise the right to cure had to have reasonable grounds to believe the tender would have been acceptable. 1. At one point it was argued that this “reasonable ground to believe” engenders only a situation where a seller knew of defect but thought that B would accept anyway. a. This court does not adopt that view. The court says (p. 299), under 2-508(2) the seller has a right to cure where the seller had no reason to know of the defect because the seller would have a reasonable belief that the good was okay. ii. The court, in addition, explains that the seller may have a further reasonable time to substitute a conforming tender where they had a right to cure. 1. Some argue (B here) that to substitute a conforming tender the seller can give a different good that is conforming (a substitute good), but repaired goods do not have to be accepted. 2. This court says that it is okay for the seller to substitute a conforming tender by making minor repairs and reasonable adjustments in the goods, but if the goods are substantially repaired (subjecting the buyer to any great inconvenience) then the B does not have to accept because that is not a conforming good. There can be reasonable repairs and minor alterations. a. This is widely accepted. Reasonable minor repairs. b. This is always a factual question, as seen in the application here. c. Applied: In this case the S was allowed to take good back to factory. There are a line of cases, however, that say that taking something back to the factory is a major repair, confidence is lost upon taking an item back to the factory. That argument is not accepted here. V. Conditions Necessary for an Effective Rejection a. 2-602(1): Rejection must be within a “reasonable time” after the delivery or tender. i. A “reasonable time”-- determined by a few things. ii. Factors:

1.

43

The difficulty in discovering the defect is a factor in determining whether a reasonable time has passed. How easy is it to discover the defect? 2. Industry practice. 3. Is the defect patent/latent. Obvious nature of defect. Deals again with difficulties in discovery. 4. Communications between the parties. b. § 2-602(1) Rejection is ineffective unless the buyer “seasonably” notifies the seller. i. 2-602(1). You have to reject clearly, let the seller know you are rejecting. As a lawyer you want to use the terms “reject” or “revoke” acceptance. B has to let S know they want their money back and are rejecting the goods. ii. Rejection does not have to be in writing. As a matter of good practice you should put it in writing. iii. Is there a duty to let S know of the defect? There is no duty as such, but 2-605(1) says that failure to state particular defects only matters where the S is prevented from the opportunity to cure. iv. Thus, there is no need to particularize generally. However, where the defect was curable you have to particularize and between merchants the S can ask for a list of defects that B rests on in rejecting. c. § 2-602(2)(a) i. After rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller 1. You cannot exercise ownership. a. Caveat: In some cases, use after rejection or revocation may be considered okay if reasonable under the circumstances. i. See Andover. 1. It acts almost as a form of cover, mitigation of damages. 2. This is subject to the case law. d. § 2-602(2)(b)-- If the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this Article (subsection (3) of Section 2-711), he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them i. B must use reasonable care in holding S’s rejected goods, but you cannot exercise ownership. i. If the B contacts the seller and says I reject or revoke and S says okay do X (send the goods back to me). The B is subject to S’s instructions. Where there is no security interest then B is subject to S’s instructions. ii. CAVEAT/BUT, if there is security interest then under 2-711(3) the buyer has a security interest allowing it to secure repayment or expenses that B has undertaken to care for the goods. 1. The B has to follow S’s instructions, but does not have to do so until S pays him back the security interest. “If S does not give instructions within a reasonable time, then look to 2-604. If the seller gives no instructions within a reasonable time after notification of rejection the buyer may (1) store the rejected goods for the seller's account or (2) reship them to him or (3) resell them for the seller's account with reimbursement as provided in the preceding section. Such action is not acceptance or conversion.” iii. You have options as the buyer; these options must be pursued in a commercially reasonable time. iv. § 2-603 notwithstanding § 2-604, you the B must resell to the seller’s account. It is a limited rule, under certain limited circumstances the B must resell to S. 1. The B must resell to S “when the seller has no agent or place of business at the market of rejection a merchant buyer is under a duty after rejection of goods in his possession or control to follow any reasonable instructions received from the seller with respect to the goods and in the absence of such instructions to make reasonable efforts to sell them for the seller's account if they are perishable or threaten to decline in value speedily.” a. Merchant buyer and goods are going to speedily perish and the Seller has no person/agent in the place of rejection/business to represent him. e. 2-606(1)(b) ii. The antithesis of rejection is acceptance. Once you accept, you can no longer reject. iii. Acceptance is a legal concept. iv. If you don’t reject within a reasonable time then you have accepted. Thus, 606 and 601 basically say the same thing. VI. Borges (right to resell after rejection) a. Facts: B buys potatoes from S. The potatoes have a slight defect, however, B agrees to purchase potatoes anyway with an agreement that the k is null and void if state health officials consider the potatoes unfit for packaging. That is what occurs, B and S meet they agree that B will try to pack defective potatoes up with good ones and sell them that way. It doesn’t work. Then B, without notify S, processes the potatoes into flakes. S demands full K value, B refuses and offers less than 1/2. b. Analysis: i. A buyer must pay the contract rate for any goods accepted. 2-607(1). Generally, a buyer is deemed to have accepted defective goods when, knowing of the defect, he resells the goods without notifying the seller.

1.

44

ii. A buyer accepts goods whenever he does any act inconsistent with the seller's ownership. § 2-606(1)(c). Respondents assert that Magic West's processing of the remaining potatoes into flakes and the subsequent sale constituted acts inconsistent with the respondents' ownership. iii. Magic West argues, however, that their processing of the potatoes into flakes and their subsequent sale did not constitute an acceptance, but rather was a permissible resale under the provisions of either § 2-603(1) or § 2-604. 1. The duty to resell under § 2-603(1) is triggered by an absence of instructions from a seller. Here, given the state of the record and its lack of clarity and the conflicting evidence, the jury could have reasonably found that the respondents did instruct Magic West to attempt to blend the potatoes, but did not instruct them to process the potatoes into flakes. 2. § 2-604 allows a buyer an option to resell rejected goods if the seller gives no instructions within a reasonable time after the notification of rejection, the jury could have reasonably found that respondents' instructions were only to blend the potatoes in hope of accomplishing fresh pack grade and that Magic West's processing of the potatoes into flakes and subsequent resale thereof was a precipitate action taken before the lapse of a reasonable time within which respondents could give further instructions. 3. In addition, even if a reasonable time had elapsed, thus permitting Magic West to resell the potatoes, the jury properly could have concluded that processing of the potatoes by Magic West was an acceptance rather than a resale as an act inconsistent with the seller's ownership § 2-602(a), constituting an acceptance of the goods. 2-606(1)(c). § 2-603. Merchant Buyer's Duties as to Rightfully Rejected Goods. (1) Subject to any security interest in the buyer (subsection (3) of Section 2-711), when the seller has no agent or place of business at the market of rejection a merchant buyer is under a duty after rejection of goods in his possession or control to follow any reasonable instructions received from the seller with respect to the goods and in the absence of such instructions to make reasonable efforts to sell them for the seller's account if they are perishable or threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming. (2) When the buyer sells goods under subsection (1), he is entitled to reimbursement from the seller or out of the proceeds for reasonable expenses of caring for and selling them, and if the expenses include no selling commission then to such commission as is usual in the trade or if there is none to a reasonable sum not exceeding ten per cent on the gross proceeds. (3) In complying with this section the buyer is held only to good faith and good faith conduct hereunder is neither acceptance nor conversion nor the basis of an action for damages. § 2-604. Buyer's Options as to Salvage of Rightfully Rejected Goods. Subject to the provisions of the immediately preceding section on perishables if the seller gives no instructions within a reasonable time after notification of rejection the buyer may store the rejected goods for the seller's account or reship them to him or resell them for the seller's account with reimbursement as provided in the preceding section. Such action is not acceptance or conversion. § 2-606. What Constitutes Acceptance of Goods. (1) Acceptance of goods occurs when the buyer (a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or (b) fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or (c) does any act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him. (2) Acceptance of a part of any commercial unit is acceptance of that entire unit. VII. § 2-606 a. (a) The buyer says okay I will keep the goods. b. (b) 2-602 Reasonable rejection, seasonable notification. c. (c) Cannot be applied literally. i. Ex. B buys car and takes it out of lot, driving 2 blocks, B hears a clunking noise, B takes back to lot and there is a serious defect. B rejects. Under 2-606(1)(b) that is a reasonable time. 2-601(a) he has never accepted. Why would you argue the could not reject under 2-606(1)(c)? Any act of dominion over the good would be acceptance. If applied literally, the B could never reject. 1. See Intervale VIII. Intervale (explaining 2-606(1)(c) a. P and D agree to a sale of 22 coils of steel. P accepts D’s purchase order, in return P granted express and implied warranties of merchantability for the purpose intended. D checks the steel for dimensional accuracy and criminal content. D then began to use the steel in its fabrication process. The steel turned out to be defective; only found out through performing actual fabrication process. P admitted that the steel was defective and authorized D to scrap the steel. P sued for the price of the steel less the scrap value realized by Borg. It is P’s argument that D accepted the steel and was not

45

b.

c.

entitled to revoke that acceptance and is precluded from maintaining an action or asserting the defense of breach of warranty. The court explains that it was not industry practice for P to perform the testing required that would have allowed them to find the defect before running the steel through fabrication. Also, B’s do not run a sample through the manufacturing process (too expensive). Court says not you cannot read (c) literally. i. FN8. Court says we adopt the view that 1(c) only applies where B acts with knowledge of defect. 1. The fact that goods were taken and stamped out is not inconsistent with seller’s ownership because the B would have to act with knowledge. That is not in code’s language that is the interpretation. a. Thus, S cannot argue acceptance under (1)(c).

Revocation § 2-608. Revocation of Acceptance in Whole or in Part. (1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it (a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or (b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances. (2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. [Time and Notification Requirements] (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them § 2-608 a. Subsection (1) i. You need nonconformity (does not meet quality term) and the nonconformity has to substantially impair its value to him. Technically, that would be purely subjective. ii. This is tougher than the rejection test. II. § 2-608 Elements: a. Nonconformity i. A nonconformity includes breaches of warranties (implied and express) as well as any failure of the seller to perform pursuant to his contractual obligation. b. “Substantially impair”--Is the standard subjective or objective. i. We do not use a purely subjective standard, if you used that test you are a back to a pure perfect tender rule (used for rejection), any defect would result in a revocation. 1. Revocation is supposed to be more limited. ii. Thus we use a test that ultimately rests on a commonsense perception of substantial impairment, akin to the determination of a material breach under traditional K law. iii. The Hemmert test is the one really used now. 1. Substantial impairment. a. 2-608(1) provides that the buyer may revoke acceptance of goods 'whose nonconformity substantially impairs its value to him, the value of conforming goods to the plaintiff must first be determined. i. This is a subjective question in the sense that it calls for a consideration of the needs and circumstances of the plaintiff who seeks to revoke; not the needs and circumstances of an average buyer. b. The second inquiry is whether the nonconformity in fact substantially impairs the value of the goods to the buyer, having in mind his particular needs. i. This is an objective question in the sense that it calls for evidence of something more than plaintiff's assertion that the nonconformity impaired the value to him; it requires evidence from which it can be inferred that plaintiff's needs were not met because of the nonconformity. 2. What they are basically saying is that you first look at the particular buyer and what the buyer needs the goods for. Then look at the defect, would the defect substantially impair the value of the goods for a person in the position of the buyer. (prevailing view) a. This test is used today because it gives weight to both subjective and objective tests. iv. Minor defects do not constitute grounds for revocation. They normally do not substantially impair the value of the goods. I.

46

v. On the other hand, if the defect substantially impairs the operation of the product then it impairs the value. Or substantial impairment is shown if the impairment of the product shakes the effect of the buyer in the integrity of the good that was purchased even if the seller says I will fix it and it is fixable. 1. Ex. New car with faulty transmission. c. B must either meet (1)(a) or (1)(b) i. What if a driver drove the car for 6,300 miles before revocation, does that per se mean that the defects did not substantially impair the value to him. 1. Sometimes you have to do it, the fact that you have been able to use it the defect is not totally disabling does not meant the value of the good has been substantially impaired. d. 2-608(2) requires that “Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.” i. Applied to Durfee 1. The buyer had the car for 8 months, the time period however was reasonable because the B was giving S an opportunity to fix it. a. Reasonable period of time extends beyond the period of time allowed for rejection. 2. What is the seller’s argument that there has been a change in condition not caused by its own defects? The car has 6,300 miles on it and much wear and tear. a. If you applied the rule literally a return would be impossible. The court here says that the mileage is not substantial, the court decides however to offset the fair use of the car (the 6,300 miles) by deducting it from B’s recovery. This permits recovery while still taking 2-608(2) into account. ii. There is also the same no substantial change requirements as found in Intervale, courts will attempt to work around this. Sometimes a B will not find a defect until the product is substantially changed. iii. Notice is also required 1. The notice does not have to be in writing. 2. The notice does not have to use any magic words (it is desirable to do so) a. Just say the product is no good and I want my money back. iv. Applied to Intervale 1. In intervale the manufacturing process caused a substantial change in condition under 2-608(2), many courts will attempt to work around such limitations though. e. In Sum: Section 2-608 prescribes the following requirements for an effective revocation of acceptance: (1) the goods must be nonconforming; (2) the nonconformity must substantially impair the value of the goods to the buyer [essentially subs. (1)]; (3) the buyer must have accepted the goods on the reasonable assumption that the nonconformity would be cured; (4) the nonconformity must not have been seasonably cured [essentially subs. (1)(a)]; (5) the buyer must notify the seller of his revocation; (6) revocation must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects[essentially subs. (2)]; and (7) the buyer must take reasonable care of the goods for which he has revoked acceptance [essentially subs. (3)]. f. Is revocation of acceptance barred against M from a down the line buyer? i. Here, the court says that if lack of privity is not a bar to suing M for warranty damages then it is not a bar for getting revocation of acceptance against M. g. Remedy i. When a buyer rightfully revokes his acceptance, he may recover pursuant to 2-711 a refund of the purchase price paid and incidental and consequential damages, which may include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods and any other commercially reasonable charge or expense in effecting cover or caused by delay or other breach. III. Sumner (analyzing § 2-608(2) Notification) a. § 2-608 provides that a revocation "is not effective until the buyer notifies the seller of it." The superior court concluded that, in light of Fel-Air's statement to Sumner in December 1976 that it would cancel the contract if the bill of sale was not forthcoming, and the fact that the bill of sale was not delivered between January and April 1977, the discontinuation of monthly payments after April 1977 clearly constituted adequate notice to Sumner that Fel-Air was revoking its acceptance of the Navajo. b. Notice of a revocation of acceptance under § 2-608 of the U.C.C. need not be in any particular form to be effective; it is sufficient if it informs the seller that the buyer is dissatisfied with the goods and does not wish to retain them. c. The notification may be either oral or in writing and is adequate if it informs the seller of the general nature of the difficulty encountered with the warranted goods. IV. The right to cure under § 2-608? a. Is their a right to cure following revocation of acceptance. 2-508 only speaks about rejection. 2-608(3) seems to say that there is a right to cure following revocation of acceptance. i. However, the black letter law is that there is no right to cure following revocation of acceptance.

47

It does not matter either way though . . . you cannot revoke for fixable minor problems… a. The bottom line, even though revocation gives you no right to cure, there is also no right to revoke based upon minor defects. 2. …and if the defect is substantial there would be not right to cure anyway. The substantial impairment is what allows revocation. a. the right to cure means minor repairs not major repairs V. Andover (privity in S revoking against M) a. IN TOTAL: Thus, where state law permits a suit against a M under 2-714 without privity, then some states will allow revocation of acceptance against M as well (Durfee), while others will still demand privity (Andover). i. This creates the need for lemon laws. They permit revocation of acceptance against M. 1. Lemon laws are great in states that do not permit B to revoke against M. b. There are four differing views as to the buyer’s ability to revoke acceptance against the manufacturer: i. (1) Ms are considered “sellers” for purposes of revocation. This is a liberal view that seeks to ensure that buyer will be protected. ii. (2) Ms are considered “sellers” for purposes of revocation only where a statutory provision that eliminated privity as a requirement for breach of warranty actions brought under the provisions of the Code. iii. (3) When a M offers a warranty to consumers it creates a direct contractual obligation to the B making revocation an appropriate remedy, at least where both the limited warranty provided for in the warranty and the IWM fail. iv. (4) The majority requires privity between the buyer and seller before allowing revocation. The only exception is when the buyer demonstrates that the retailer/seller acted as the agent of the M. VI. Revocation After Use: a. 2-608(2) requires that revocation of acceptance “occur within a reasonable time after the buyer discovers the ground for it and before any substantial change in condition of the goods which is not caused by their own defects.” i. This is a question of fact. VII. Use After Revocation: a. § 2-608(3)--once a party revokes, it has “the same rights and duties with regard to the goods involved as if he had rejected them.” Upon rejection, “any exercise of ownership by the B with respect to any commercial unit is wrongful as against the seller.” §2-602(2)(a) i. A fact finder determining the reasonableness of use after revocation may consider the following factors: the seller’s instructions to the buyer after revocation of acceptance; the degree of economic and other hardship that the buyer would suffer he discontinued using the good; the reasonableness of continued use after revocation as a method for mitigating damages; the degree of prejudice to the seller; and whether the seller acted in good faith. 1. This is a question of fact. a. Majority view. ii. Often, the issue comes up, can the seller be given credit for the B’s use after revocation where the S refuses to honor revocation. Courts seem to say yes, this is questionable. b. New version of 2-608 (p. 146) adds a paragraph that essentially repeats what we just said. Looks at use after revocation. 1. 3. BUYER’S REMEDIES § 2-711. Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods. (1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (Section 2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid (a) "cover" and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or (b) recover damages for non-delivery as provided in this Article (Section 2-713). (2) Where the seller fails to deliver or repudiates the buyer may also (a) if the goods have been identified recover them as provided in this Article (Section 2-502); or (b) in a proper case obtain specific performance or replevy the goods as provided in this Article (Section 2-716). (3) On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (Section 2-706). § 2-712. "Cover"; Buyer's Procurement of Substitute Goods. (1) After a breach within the preceding section the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller's

48

breach. (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy. § 2-713. Buyer's Damages for Non-delivery or Repudiation. (1) Subject to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for nondelivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller's breach. (2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival. § 2-715. Buyer's Incidental and Consequential Damages. (1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach. (2) Consequential damages resulting from the seller's breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty. I. § 2-711 -- Overview a. Applies in any case where B does not have goods due to seller’s breach. i. Ex. Seller (1) repudiates or fails to deliver, (2) rejection, (3) revocation. 1. NOTE: Under 2-610 the other party has the right to immediately resort to any remedy under 2-610(b). b. If the B gets goods and wants to sue under a warranty theory we are thinking about 2-714 c. Cancellation (1): “Cancel” 2-106(4) (p. 1189)--termination of the K except the B retains the remedy for breach. i. Cancellation is not really important unless there are portions of the K yet unperformed besides the breached performance. Cancellation is normally only important during an installment K. 1. One installment/part is being rejected and the B can recover as to those goods. a. With respect to the entire K, under 2-711/2-612(3), installment K’s can only be cancelled in their entirety where when installment is breached, if that one breach results in substantial impairment of the value of the entire K. i. B must prove this, that the whole has been substantially impaired in its value. 1. This is a factual issue. d. Repayment Damages (1): “Recover so much of the price as been paid”--similar to recission (however recission should never be used when discussing Art. 2). That is, get his price back. e. Replacement Damages (1)(a) or (b) (and incidental and consequential damages): B can also recover under 2-711(1)(a) or 2-711(1)(b)--replacement damages. i. Situation: B does not have goods, B is entitled to damages because the buyer does not have the goods the B was entitled to get under the K. 1. Under 2-713(1) B goes into market place and B will determine price of goods in current market place, B is entitled to get back as damages the difference between the market price at the time when the B learned of breach and the K price (“benefit of the bargain”). B will also get incidental and consequential damages. 2. 2-712(1), alternative to 2-713, B may cover and receive differences between actual purchase price (cover) and contract price. a. Conditions of cover: i. Made without unreasonable delay. ii. Has to be a reasonable purchase. iii. The actual goods have to be in substitution of the goods promised in the K. b. Often the B cannot get the same goods, it will be a little better, is that a reasonable replacement. Usually, yes, just get as close as possible. 3. You also get incidental and consequential damages. a. Sometimes there is an issue where B sues for damages under 2-713(1), but there is proof that B covered and actually made money based on the cover. Does the B have the right to choose which one they want to sue under (712 or 713 where the S can prove that the B covered)? i. Under 2-711(1) the language says “or.” So B can do what they want. However, Comment 5 says no, § 2-713 only applies where there hasn’t been a cover. 1. Courts are split here. Under 2-711 the buyer has the option of choosing whichever one benefits them the best. The seller would argue Comment 5, which prevent B from gaining a windfall.

49

Incidental and Consequential Damages (ex. cost of warranty, cost of interest on loan used to pay for item) i. Assume there are no cover damages (price exactly the same/the purchase/market price is the same) can B still get incidental and consequential damages. 1. The argument is that 2-711 does not mention incidental and consequential damages, but the policy is that even if you have no replacement damages (under 712 or 713) you can still get incidental and consequential damages. ii. § 2-715: Determines incidental and consequential damages. 1. Contains three categories of damages. a. “Incidental” very narrow (3 categories). i. Expenses incurred in taking care of goods rightfully rejected (once you have rejected the costs in taking care of that) 1. What does this include? a. Warranty costs? No. ii. Any commercially reasonable charges expenses or commission in connection with effecting cover 1. very narrow iii. Any other reasonable expense incident to the delay or any other breach 1. Seems very broad. a. Comment 1 has a very narrow focus. So this could be read as very narrow in light of rest of section. iv. We have to know that incidental has 2 narrow clauses and 1 very broad. The question is whether that clause should be interpreted as broadly as it reads. You argue differently depending on whether you are B or S. Professor would see it as narrow read in the context of the first two. It can be read as narrow b. “Consequential”--Much broader. i. (2)(a)--Very broad. Any loss resulting from general or particular requirements and needs of which the S at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise 1. Ex. Lost profits. This is the most common or “classic” consequential damages. 2. Courts generally say that this includes any loss that is reasonably foreseeable in light of the breach. Lost profits are easy to see. You could argue that a warranty clause is reasonable foreseeable in light of the breach. ii. (2)(b)--Very broad. Injury to person or property proximately resulting from any breach of warranty. iii. The only time it matters whether damage is called incidental or consequential for B is where B has a limiting phrase in K, like “no consequential damages.” 1. Also, the Code at times provides that the S can only get incidental damages were the B breaches. g. § 2-711(3). Security Interest Clause i. Basically, I am the buyer and I revoke, I previously made a down payment on the goods. B can say I will not ship goods back until I get my money back. § 2-711(3) legitimizes that position. The B is entitled to his payment back, or he does not have to give goods back. II. Dangerfield (§ 2-712) a. “Without unreasonable delay” i. Very favorable to the B, reasonable is very liberal, pro buyer. 1. Without unreasonable delay is a factual question. 2. It is a question of fact (circumstantial) and a question of good faith (which is a question of fact). b. Under 2-712 you can recover immediately via 2-610(b), if you put it off then there is a question of unreasonable delay, which is a factual question. c. The official comment to Section 2-712, U.C.C., states that "the test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective." III. Cosden (§ 2-712 “reasonable time”) a. Facts: Cosden argues that damages should be measured when Helm learned of the repudiation. Helm contends that market price as of the last day for delivery -- or the time of performance -- should be used to compute its damages under the contract-market differential. b. Held: The DC correctly measured damages at a commercially reasonable point after Cosden informed Helm that it was canceling the three orders. When a buyer chooses not to cover, but to seek damages, the market is measured at the time he could have covered -- a reasonable time after repudiation. c. Analysis:

f.

50

i. Certain aspects of the Code's overall scheme have proved troublesome in application. The interplay among sections 2.610, 2.711, 2.712, 2.713, and 2.723, represents one of those areas. The aggrieved buyer seeking damages for seller's anticipatory repudiation presents the most difficult interpretive problem. ii. Courts and commentators have identified three possible interpretations of the phrase "learned of the breach" in § 2-713. If seller anticipatorily repudiates, buyer learns of the breach: (1) When he learns of the repudiation; (2) When he learns of the repudiation plus a commercially reasonable time; or (3) When performance is due under the contract. iii. We do not doubt that market price at the time buyer learns of the breach is the appropriate measure of 2.713 damages in cases where buyer learns of the breach at or after the time for performance. iv. In the relatively rare case where seller anticipatorily repudiates and buyer does not cover the specific provision for anticipatory repudiation cases, 2.610, authorizes the aggrieved party to await performance for a commercially reasonable time before resorting to his remedies of cover or damages. v. In the anticipatory repudiation context, the buyer's specific right to wait for a commercially reasonable time before choosing his remedy must be read together with the general damages provision of section 2.713 to extend the time for measurement beyond when buyer learns of the breach. Comment 1 to section 2.610 states that if an aggrieved party "awaits performance beyond a commercially reasonable time he cannot recover resulting damages which he should have avoided." This suggests that an aggrieved buyer can recover damages where the market rises during the commercially reasonable time he awaits performance. vi. The buyer's option to wait a commercially reasonable time also interacts with section 2.611, which allows the seller an opportunity to retract his repudiation. vii. Allowing the aggrieved buyer a commercially reasonable time, however, provides him with an opportunity to investigate his cover possibilities in a rising market without fear that, if he is unsuccessful in obtaining cover, he will be relegated to a market-contract damage remedy measured at the time of repudiation. § 2-716. Buyer's Right to Specific Performance or Replevin. (1) Specific performance may be decreed where the goods are unique or in other proper circumstances. (2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just. (3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered. IV. Right of Specific Performance or Replevin a. B contracts with dealer for replica of Indy 500 pace car. M’s make a limited edition car for B. B arranges with dealer to purchase car. b. As soon as the car comes in, everyone wants it. B wants the Corvette, S sells to another. c. § 2-716 gives the B to specific theories to the car. i. 2-716(1) Specific Performance for unique goods or other proper circumstances. 1. Court, here, says that the corvette here is not unique. However, this is an “other proper circumstance” because it is highly unlikely that B can get the car from any other dealer due to the current demand. 2. The general term "in other proper circumstances" expresses the drafters' intent to "further a more liberal attitude than some courts have shown in connection with the specific performance of contracts of sale." § 2-716, Comment 1. 3. The specific performance was the proper remedy for a plaintiff because a new car "could not be obtained elsewhere except at considerable expense, trouble or loss, which cannot be estimated in advance and under such circumstances [P] did not have an adequate remedy at law." This follows the broad and liberalized language of § 2-716(1) and exemplifies one of the "other proper circumstances" contemplated by this subsection for ordering specific performance. § 2-716, Comment 1. a. So, even though the car is not unique in any way you can still get SP. ii. 2-716(3) Right of replevin where cover is unavailable. 1. Once the dealer gets the one corvette, if after reasonable time the B is unable to get cover, B receives SP. 2. If the B does not get the goods, the B does have a limited right for SP or replevin. a. SP is made broader. Damages re Accepted Goods I. Proof of Defect a. Worthey--Deals with proof of defect. i. B does not have to prove defect, B has to prove that the goods did not work, that they were not fit for their ordinary purpose. ii. The B has the burden to produce substantial evidence that the good was not merchantable. 1. The showing of specific defects in goods is obviously one way in which a buyer can establish that a seller has sold goods that are not merchantable and thus, breached this implied warranty. This, however,

51

is not the only way in which a buyer may show a breach of this implied warranty. Circumstantial evidence may also be used. § 2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over. (1) The buyer must pay at the contract rate for any goods accepted. (2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity. (3) Where a tender has been accepted (a) the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and (b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation. (4) The burden is on the buyer to establish any breach with respect to the goods accepted. (5) Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over (a) he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound. (b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred. (6) The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (subsection (3) of Section 2-312). II. The Notice Requirement (only deals with accepted goods) a. § 2-607(3)(a): Where a tender has been accepted the B must within a reasonable time notifies the seller of breach or be barred from remedy. i. This is where the UCC disadvantages the B, where strict liability in tort would not. There is no tort law analog. 1. There is no notice of defect under the SL. ii. In the UCC privity may be an obstacle that is another problem. b. No notice=no remedy. Failure to notice is an absolute bar to recovery, it assumes prejudice. An irrebuttable presumption. i. The question becomes, what are the reasons for notice? Why require notice when we have a SOL: 1. It permits the seller the opportunity to cure. 2. Gives S the opportunity to negotiate. 3. Gives the S the opportunity to refute stale claims. ii. This is all separate and distinct from the SOL. c. So you have to meet notice and SOL requirements. d. Courts generally say that even where B knew why the goods were rejected, S must still give notice. e. Revised UCC (p. 144) i. With respect to accepted goods, the B must give notice, but the failure to timely notice bars the B from a remedy only to the extent that the S is prejudiced by the failure to give notice. 1. What does that concept mean? a. The S must in some way be substantially impaired to have case dismissed based on notice. b. How is this shown? This is an extremely difficult burden to meet. 1. Probably cannot. S would have to show that the seller did not do something that they could have done to protect themselves due to lack of notice. ii. Some Courts may have adopted the 2003 revision of 2-607(3)(a) by caselaw and therefore say that the notice requirement is only used where there is prejudice. f. Southeastern Steel (content of notice requirement) i. What is the content of the notice requirement? 1. Two tests: a. The lenient test (p. 352) i. Derives from the first two sentences of Comment 4 (second paragraph). 1. Comment 4 makes it clear that the notice was not required "to be a claim for damages or of any threatened litigation or other resort to remedy;" instead, the comment states that "the notification need merely be sufficient to let the seller know that the transaction is still troublesome and must be watched." 2. Essentially, the courts that adopt the lenient test say that as long as the S lets B know there is a problem then they have met the test.

52

g.

h.

b.

The Strict test (p. 352) i. The Court says that the purpose of the notice is to advise the seller there will be a claim of damages against them. ii. This derives from the last sentence of Comment 4. You have to let S know that as far as you are concerned the defect amounts to a breach of K. iii. Comment 4 states further that the notification must inform the seller "the transaction is claimed to involve a breach." 1. It does not require the B to use the word “damages,” but requires more than notification of defective goods. 2. There are problems and potential legal consequences are probable. 3. The B has claimed breach. ii. Some Courts will often treat consumers and business purchasers differently. 1. Consumer: Someone who buys for personal, family or household purposes. a. Lenient standard. i. Less likely to under standard requirements of UCC. 2. Business: Someone who buys for business. a. Strict standard i. Merchants who know of UCC and trade. iii. L has to argue what was said was sufficient to constitute notice. iv. If a client comes to you and notifies you of problems (assuming client will keep goods), you want to write a letter stating that there are defects and clearly indicating that as far as B is concerned there is a breach of K and S is responsible. Cooley (to whom is notice given) i. B v. M, lack of privity here was not a problem. ii. B did not give M proper notice. 1. B argues that he has no obligation to notify M, because his only obligation is to notify the S, not the M. a. You are not the seller so I never have to notify you. 2. M argues that I am the “seller.” If you can sue, if lack of privity is not a bar, then I should be viewed as a “seller” for notice purposes under 2-607(3)(a). a. If you can sue me for breach of warranty then I should get notice. i. Some courts accept this. 3. There is a middle view, Cooley adopts: a. If the B gives notice to the S, then that is enough because the S would notify the M (in most situations) to cover their own rights. b. If you give notice to S that is sufficient because we assume that S will give notice to M. i. Many times B does not know M, only knows S. Mattos (Non-B v. M and Notice) i. Non-B v. M. 1. NB works for a body shop and is injured by defective equipment, sues M. Why does he not sue his employer? a. He would not get worker’s compensation if he sues the employer. 2. ISSUE: a. Privity? Horizontal. Personal Injury Case. Courts, in the majority, would extend IWM here. 3. NOTICE: a. Must NB give notice? i. NB argues that the only notice required is by B to M. ii. M argues that if you can sue me then I should get notice. b. Comment 5 (p. 1258) suggests that the M should win. “The reason of this section does extend to requiring the beneficiary to notify the seller that an injury has occurred.” i. Court does not follow this. Primarily makes policy arguments to rule other way: 1. The SOL is a sufficient protectorate for stale claims. 2. Notice does not grant M a chance to minimize or defect damages to NB, the situation has occurred, and that’s it. 3. The word “seller” often encloses both R’s and M’s. c. Often, courts will rule this way. Shooshanian (Can a complaint ever be notice?) i. Suppose B is injured by defective product and goes to attorney and attorney immediately files the complaint, two days after the injury occurred. No contact with the S/D in any way prior to the filing of the complaint. ii. As a D you would then move to dismiss for failure to give notice. iii. B did not give notice to M. 1. The assumption seems to be in this case that the B has an affirmative duty to inform/give notice to M.

b.

53

Technically, under the view of the majority, the M (the entity that should have been given notice--R or M if M is eligible in the jurisdiction) would win. Notice is absolutely required, a complaint is not notice. i. Under the new 2-607(3)(a) B would win because there is no prejudice. The M got notice of the injury within days after the injury. There is no prejudice or resulting injury. ii. In this case, the court makes an exception to the absolute notice rule. The Complaint can satisfy notice where we are dealing with a consumer (less likely to know of obligations or UCC) purchaser. Small Minority. 1. True Minority view. a. In Suzuki the court holds that a complaint is sufficient where a consumer who has personal injury uses only a complaint as notification. Shooshanian is actually even broader than the minority view. iv. If the complaint is notice, remember, the complaint would have had to have been received in a reasonable period of time. This is a question of fact. c. Suzuki i. Class Action in Illinois against Suzuki because there is a potential of a roll-over effect. 1. Consumer class actions are really big news. The lawyers will pursue them. ii. ISSUE (hot): 1. Some courts say that you cannot sue for damages under the IWM where there is a design defect that has not manifested itself in any specific harm. a. That does not deal with manufacturing defects or cases where there is an injury, you can then sue. b. The situation here is that persons are suing for the diminution of value in their vehicle because of the design defect. i. Cases have gone on both ways on this though. 1. If there is no injury why should we be put out of business due to a design defect that may not manifest itself in damages in the future? a. That is the argument. § 2-714. Buyer's Damages for Breach in Regard to Accepted Goods. (1) Where the buyer has accepted goods and given notification (subsection (3) of Section 2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable. (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under the next section may also be recovered. 2-714: Buyer’s Right to Damages for accepted goods. This follows the acceptance of goods, where a breach of warranty occurs and rejection or revocation is not the course of action used. As a matter of terminology, rejection and revocation are remedies for nonconformity. B must prove breach of warranty and damages. II. Measure of Damages a. Failure to prove damages results in a verdict for D. See Settell’s (P will have to sue L). i. Damages need not be proved with mathematical certainty, but the evidence must be sufficient to enable the trier of fact, in this case the jury, to estimate with a reasonable degree of certainty and exactness the actual damages. ii. It is the duty of the TC to refrain from submitting to the jury the issue of damages where the evidence is such that it cannot determine that issue without indulging in speculation and conjecture." b. Class of Damages recoverable under § 2-714(2) i. Diminution of value because the goods are not worth what you paid for them. Subsection (2). 1. Formula: V of goods as warranted less V of goods when tendered in defective condition, the difference is the damages (at time and place of acceptance). 2. "Subsection (1) of 2-714, notably, provides an alternate rule allowing the computation of buyer's loss 'in any manner which is reasonable.' Thus, e.g., if the goods can be made to conform to the warranty by a reasonable expenditure, the cost of such expenditures may be the measure of damages for the breach. 3. Subs. (1) and (2) leave room for the B to use several methods to determine the value of the good as received in its defective condition. a. V of goods if they were received as warranted=Purchase Price (K price). i. Sometimes the Court may engage in a discussion on what the V of goods are (a theoretical discussion). There is a theoretical argument that the purchase price is not

a.

54

c. d.

e.

b.

the value of the goods. It is worth more or less, etc. That, however, could produce a windfall, so it is not used. b. V of goods in the defective condition as accepted: i. How do you prove that? 1. Court suggests you could show the repair costs. The cost it took to get the product up to the warranted value. 2. You could also get an expert to testify 3. If P sold the good and got a lesser price than the K price. Argument would be that the sale price of good in defective condition represented value of good in defective condition. 4. You could use scrap value if you show that the goods were worthless. You need to show that the item was totally non-operative, it was worth nothing except salvage value. B could not really testify to this, they would need an expert to testify as to salvage value. Sometimes the court will allow this to happen where the good is essentially worthless and B is just testifying to salvage value. § 2-714(3) allows for incidental and consequential damages under § 2-715. Settell’s i. Even though the plaintiff has not proven general damages under § 2-714, it still may recover damages under § 2715 as incidental and consequential damages. ii. B tries to argue consequential damages for labor costs in using item in defective condition. 1. This is not sufficient as a matter of proof. a. It is clear that even if the good had worked perfectly you would have still needed labor. B would have to have proved the extra time spent due to the defective collator. You have to prove the loss, the loss resulting directly from breach. The loss has to be result of the breach; the B here did not prove a cognizable loss resulting from the breach. iii. Attorney’s Fees--Under the American Rule you cannot recover as damages what you pay to attorney to sue D (English Rule permits such recovery). You can, however, recover filing fees, deposition fees, etc. You can also sue to recover the costs of previous litigation, money spent as a result of a breach. If another’s breach forces me to litigate on behalf then I can later sue to recover those fees. Attorney’s fees have to be proven to be fair and reasonable. Intervale (§ 2-714 formula) i. P buys steel. Steel is defective. B does not reject or revoke acceptance. ii. Issue: Examining § 2-714(2) formula. K’s purchase price is usually (almost always) the value as warranted. Here, the steel was defective, but suitable for various kinds of other uses. Thus, although unmerchantable to B, it was worth something to others. iii. Thus, S wants the court to view the value of the steel as sold in its defective condition as the price it was before it was scraped, not the salvage value. 1. B used steel; it was defective, thus scrapped. At time accepted however, before used (processed), was worth more than the scrapped value. § 2-714(2) says look at the value of goods in defective condition at time and place and acceptance--that is a time before the steel was processed, when it became worthless. a. Thus, S is essentially looking to have the defective still valued higher. i. S Loses. 1. Court relies on “special circumstances” clause to show that the court is permitted to look at some later point to determine value of defective good after the time of acceptance. a. Here, the special circumstances clearly are that the B has no way of knowing condition of goods during acceptance, not until acceptance. iv. That is the prevailing interpretation. AGF (lost profits under § 2-715) i. Lost Profits: a recoverable consequential damage under § 2-715(2)(a). They are foreseeable losses that flow from a breach. It is foreseeable that if you sell something for resale the B will lose profits. Even if they are foreseeable, AGF deals with the proof you need to show. 1. Lost profits may be recovered by the plaintiff in a breach of contract action if: a. (1) profits were within the contemplation of the parties at the time the contract was made, b. (2) the loss of profits is the probable result of the breach of contract, and c. (3) the profits are not remote and speculative and may be shown with reasonable certainty." i. In order for a plaintiff to recover lost profits in a breach of contract action, the amounts of lost profits, as well as their existence, must be demonstrated with reasonable certainty. ii. The P must prove the loss.

55

c.

d.

e.

At times it easy to prove lost profits: a. Where the P has a K to resell goods (business of buying and selling) and cannot resell due to defective goods. b. Where the P buys goods for manufacturing operation to fulfill a specific order, due to defective goods I am unable to fulfill a specific order. c. Where the P has an established heat-treating operation, makes 30K a month in gross sales, furnace breaks down, buys new furnace, furnace is defective, I only make 10K because I am unable to turn out the same quantity/volume of work. iii. Here, the business is a new business. More difficult to prove. iv. The Court says that lost profits do not have to be demonstrated with exact specificity, but rather with reasonable certainty. 1. Exact certainty is not required. 2. Restatement § 352, Comment b, states as follows: "The difficulty of proving lost profits varies greatly with the nature of the transaction.” a. Where the business is a new one or if it is a speculative one that is subject to great fluctuations in volume, costs or prices, proof will be more difficult. Nevertheless, damages may be established with reasonable certainty with the aid of expert testimony, economic and financial data, market surveys and analyses, business records of similar enterprises, and the like. i. Expert testimony is likely to be needed here. v. Here, the B has an expert. The expert is a CPA, as a general proposition do not use CPA’s as experts. They are not guaranteed to have the training to evaluate businesses. 1. The CPA is not considered an expert here. a. There was not sufficient proof of damages here, the evidence lacked, need to meet some of the above requirements. Lewis River Golf (good will as a consequential damage) i. B grows sod and sells to Golf courses. They purchase seed from S. The sod is defective, production falls, and customers are pissed. ii. The issue is that B wants to recover for loss of goodwill. They ended up selling the company and had to do so at a lower price because of the defective sod they sold--gained a bad reputation. iii. Lost reputation/goodwill is separate and apart from lost profits. 1. What is their difference? a. You can get back lost profits, which encompasses failed present contracts. b. Loss of good will deals with lost business in future. That is a lot harder to prove, loss of repeat business or business in the future. Hard to prove/speculative. However, it is recoverable. i. Harder to prove (at one time state’s refused to recognize loss of goodwill-stating it was too speculative--PA was one of the last state’s that refused to recognize loss of goodwill) 2. Here, Lewis sold business to 1 million; the business should have been sold for two million. a. As shown by experts. Thus, that was shown as the loss here (goodwill loss). This type of situation often occurs in family law. i. How do experts prove this? ii. Expert calculates net earnings after taxes, then says that a business of this nature should sell for 9.5 times its earnings. Here, it didn’t so that is the damages. The 9.5 is a value judgment based on the expert’s opinion of what people should be willing to pay for such a business. 1. D’s expert used 4 as the value. The Jury was left to decide between the two. 3. To Know: Good will damages are compensable, have to be proven with reasonable certainty, what is the difference between goodwill and profits, how do you determine goodwill value. NOTE: § 1-106(1) (Remedies to Be liberally applied) provides: the remedies provided by this Title shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed i. This section is consistently relied in caselaw to allow the courts to find such items as “good will” to be consequential damages. Kwan (emotional distress as a consequential damage) i. Issue: Are emotional distress damages recoverable as Consequential Damages? ii. 2-715(2)(a)--No, not consequential damages. iii. There can be consequential damages for emotional distress under 2-715(2)(b) if there is physical/personal injury and emotional distress comes along with the physical injury then it is recoverable. 1. The Restatement provides: "Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result." § 353.

1.

56

f.

g.

h.

iv. There is an exception to (2)(a)--the funeral casket case. Defective casket. Courts generally permit emotional distress damages in that case. 1. The only time the professor thinks that emotional distress should be allowed under 2(a) (beside casket case, is consumer cases where you buy car or condo to take trip and now you cannot go. Vacation casesyou have invested time and money and pet cases, defective food, kills pet. The emotional distress would have to be foreseeable. Carrier (finance charges/taxes/punitive damages) a. New car bought, the car is totally defective. i. She pays 7360 for the car, 210 in sales tax, and 1600 in taxes. She wants to get all three back. ii. The problem here is that she has to sue under § 2-714. She is not entitled to purchase price. She can only get the difference in value under § 2-714. iii. What is her proof to the value of the car, in its defective nature? 1. P testifies that the car is worth 500 dollars. a. P admits that this is what the car is valued in her opinion. i. Court says that the jury could have inferred that P believed the car to be worth only 500 dollars and considering the fact that the jury could have found it was mere worthless they may have accepted the argument. b. She is not an expert, but some courts are willing to cut the buyer a break and testify to value where the goods are mere worthless even though she is not an expert. iv. Sales Tax and Finance Charge 1. Argument 1: S could have argued that under § 2-714 the buyer does not get either as any kind of damage. S could say that the whole theory is the B accepted the goods, thus the B is keeping the goods and thus get money back to make up difference in value, but no more. a. She kept the goods and is made whole through cash, so she pays taxes and finance charge. i. Under rejection and revocation you would get that money back, but not here we you keep the good and are made whole. ii. If you keep the good anything associated with the completed purchase is your responsibility. 2. Second argument, you pro-rate everything, give them back sales tax and finance charge equal to the value of the goods (the benefit) they actually received. a. This is probably the best argument. 3. 3rd argument, court gives B back both. Says you consider the two part of the purchase price. The court is just wrong here. a. This is not really a viable argument, although it wins here. v. Punitive Damages--You do not normally get them for BOK. If the conduct of the party who breached the K is an independent tort, then punitive damages may be recoverable in some jurisdictions. Some other jurisdictions say that if the conduct of D is unconscionable then there may be recovery. NOTE: Opportunity to Cure: 2-508 is not available to BOW damages under 2-714. However, you need to mitigate damages, there is a CL duty to mitigate damages, so if the D wants to cure you have to allow it even under 2-714. They must ask to cover under 2-714. Nachazel (interest and installation) i. B bought pig homes from D. D sold and installed pig homes for P. P sued under §§ 2-714 & 2-715. ii. Whether the B may recover consequential damages for interest on a purchase price loan and costs of installation of the defective product. 1. Interest charge and installation cost. a. The Court says that § 2-714 is different than § 2-711 i. Here, the Court emphasizes that these are recoverable damages for revocation or rejection under § 2-711. In cases where you accept and retain, sue under 2-714 you cannot gain such damages. 1. The Court’s holding, however, seems very restrictive. They accept argument 1 from above for the interest. a. The buyer accepted the goods and did not revoke acceptance (or reject the goods). The buyer retained the value of the goods accepted. Expenses arising therefrom can not be said to be the result of the seller's breach. If the buyer had revoked acceptance due to the seller's breach, then the finance and insurance expenses are the result of the breach. However, where the buyer retains the goods, the expenses are actually the result of the retention of the goods. b. The only interest the buyer is entitled to is interest on this recovery (judgment) from the date of the commencement of the action. 2. But for the installation they follow argument 2 (pro-rate).

57

iii. To Know: § 2-711 does not impose problems, you get purchase price back, and money put in an anticipation to keep goods, but you are no longer keeping goods so you get back everything. iv. § 2-714(2) where you are keeping goods--being made whole--the money you get back for expenditures made in keeping the goods is restricted. 1. Arguments 2 and 3 from above dominate here. i. De La Hoya (attorney’s fees) i. P bought gun from D. The gun ended up being stolen which resulted in a brief prison term for P. P sued D for breach of warranty and the legal costs associated with defending himself against criminal prosecution. 1. B sues S for breach of warranty of title. a. The transfer was not rightful because the gun was stolen. b. Can B recover damages for expenses paid in extricating himself from criminal liability. i. The recovery here is permitted, you cannot recover damages for what your attorney was paid to sue the D in that suit, but you can recover the damages from a prior lawsuit--the money spent on protecting himself from criminal liability. ii. Consequential Damage? II. Causation a. In re Certified Questions i. 2-714(2) Cases--the Code does not deal much with causation. ii. Facts: P was injured when the terminal of an industrial air conditioner manufactured by D, a foreign C, blew out. After a verdict for P, the federal trial judge reduced P’s damages by the corresponding amount that P was negligent. 1. P was 95% negligent. State has comparative negligence. Thus, under negligence he can only recover 5%. iii. So he sues for breach of IWM. Why? iv. The CL rule says that contributory negligence was completely irrelevant to BOW, but voluntary assumption of risk was a complete bar. v. When talking about injury to person or property, § 2-715 talks about injury proximately resulting from any breach of warranty. vi. Essentially, the UCC says that where injury to person or property is concerned a test similar to comparative negligence is concerned. 1. How much of the fault is D’s, how much is Ps, P can recover for the percentage D is liable for. vii. TO KNOW: 1. Contributory negligence irrelevant to BOW, assumption or risk is complete bar. 2. § 2-715 uses “proximately” some have interpreted that as changing common law to allow UCC to use a form of comparative negligence. III. Vouching In a. Applicable to 2-714(2) BOW context i. P. 1257 of statutory supplement, 2-607(5)(a) has a specific mechanism used (very little). 1. Example a. B sues R. What situations develop? i. R can join M (as additional M--joinder). ii. R can fight B. iii. Vouching In. B sues R. M is actually liable through R. R sends notice to M, allowing M to come in and defend. 2-607(5)(a) envisions at situation where seller (M) is given notice that R is being sued. M has two choices: (1) come in defend; or (2) do nothing-if M does nothing, they are bound by findings of fact that are in common to R and M. b. Ford i. Bendix makes steering mechanism for Ford. B buys Ford, B gets hurt while driving Ford car. The steering mechanism is the case. Ford vouches Bendix in. Ford explains to Bendix that they should come in and defend. Bendix refuses. Ford loses trial. Ford sues Bendix for indemnity. Ford wins. Ford is the Buyer from Bendix. Ford is liable to buyer because they breached warranty to that person, but Bendix breached warranty to Ford. Thus, Bendix is liable for the BOW to buyer (in reality), so Bendix was offered to come and defend. Bendix chose not too. Result, in subsequent lawsuit the seller (Bendix) was bound by all issues of fact in common to the two litigations. Here, the issue of fact found by the court in the Ford v. individual suit was that Bendix breached their warranty. Under 2-607(5)(a), Bendix was bound by their common issue of fact. 1. Not used a lot by retailers. The great disadvantage of it for a retailer is that you are giving up your own right to a defense. § 2-717. Deduction of Damages From the Price. The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract. IV. Buyer’s Right to Offset

58

a. b.

c. d.

Linked to §§ 2-711 and 2-714 B buys good for 30K and has 30 days to pay. 15 days in B finds defect. S refuses liability. It cost B 5K to fix defect. S has a security interest in the goods to protect the seller’s interest (If B defaults S has a right to repossess). 30th day comes, B says I don’t want to pay. This guys owes me 5K, so I won’t pay the 30. The B realizes that there is going to be litigation. Should the B just refuse to pay and let S sue him? i. No. Pay 25K. § 2-717 allows that. 1. P. 423, right to deduct damages to breach of K. That also includes unliquidated damages. In addition, B would be defaulting; S could repossess the goods and collect interest. 2. B has the ability to offset from what is due on any damages, but there is a danger in coming up with an inflated figure. This is meant to help the buyer out. You can only deduct damages from a price due under the contract. See Hellendall (you cannot offset damages with monies owed under another K).

Disclaimer and Limitation of Remedy § 2-316. Exclusion or Modification of Warranties. (1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. (2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof." (3) Notwithstanding subsection (2) (a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and (b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. (4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy (Sections 2-718 and 2-719).

§ 2-719. Contractual Modification or Limitation of Remedy. (1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and (b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act. (3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not. I. Overview--Disclaimer a. A disclaimer says that there is no warranty. The validity of a disclaimer is governed by § 2-316. If the disclaimer is valid it eliminates the warranty term of the K. i. There, thus, cannot be nonconformity. No ability to sue for BOW because there is no quality standard. b. A limitation of remedy is governed by § 2-719. It says that there is a warranty but your remedies for breach are limited in the following way. i. Common limitations of remedy are: 1. Return of purchase price if goods are defective (thus consequential damages are denied) 2. Repair and replacement of defective parts (no right to revoke and reject, no right to purchase price) 3. No responsibility for consequential damages.

59

ii. It recognizes the warranty, but undercuts its remedy. Structure: i. First question: What is necessary to disclaim. 1. Language. Is the term “merchantability” stated? 2. Conspicuousness--is the entire disclaimer conspicuous (not just the term “merchantability”)? ii. 2nd question: Must be part of the K. Is the disclaimer part of the K? iii. 3rd question: Assume 1 and 2 is it attackable under § 2-302 as unconscionable? II. Pemberton (EW and disclaimers) a. EW is made and breached. The K B signs contains an “as is” clause. b. What is the effect of the “as is” disclaimer on the EW that was given? i. Court says, look to § 2-316(1), a seller cannot negate an express warranty that is given. 1. You interpret words of express warranty and words of negation as consistent where possible, where impossible, words of negation lose. ii. When a written K provides that goods are “as is” the EW will predominate and inconsistent provisions are inoperative. See § 2-316(1). You cannot construe the EW and the “as is” clause as consistent. When this happens the disclaimer falls and the EW survives. 1. CAVEAT: 2-316(1) also suggests that you cannot limit an EW. 2-316(4) states, however, that remedies for BOW (including EW) can be limited by 2-718 and 2-719. a. That allows for the repair and replacement statements. c. Suppose: B is on a lot and S says “this car is perfectly suitable for snow plowing” and the K says that “this K represents the sole agreement of the parties and represents their final expression.” What argument can the seller make to keep out the EW? i. § 2-202 Final Expression, PER. The EW would be an inconsistent conditional term excluded by a K that is intended by the parties as a full and complete statement by the parties. They have a valid and final agreement. This would be a merger clause. 1. What wins? Merger clause or 2-316(1) clause? a. S will argue that 2-316(1) does not ban a PER application. That is conceptually not the same of an entire disclaimer. It is not an absolute negation of an EW, it is the use of the PER to entirely to keep out the disclaimer. This is the majority rule. i. Some courts have, however, held that the merger clause is a negation under 2-316(1) under found that the merger clause is invalid--only used in consumer cases to help out consumers. d. Accordingly, when a written contract for the sale of goods provides that the goods are sold "as is" and also disclaims all warranties, either express or implied, and such provisions cannot reasonably be construed as consistent with the seller's oral express warranty, the express warranty will predominate and the inconsistent provisions are inoperative to the extent they are unreasonable. III. Hartwig (requirements of § 2-316(2) and (3)) a. This language does not work under § 2-316(2) to invalidate an IWM. The two requirements are that the language must mention merchantability and in the case of writing must be conspicuous. i. Whether a particular disclaimer is conspicuous is a question of law to be determined by the following definition: A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NON-NEGOTIABLE BILL OF LADING) is conspicuous. Language in a body of a form is conspicuous if it is larger or of other contrasting type or color. But in a telegram, any stated term is conspicuous. § 1.201(10). Merely saying that implied warranties are invalid does not knock out IWM. In a consumer K the language must state the word merchantability and extra language. § 1-201(10). 1. Look to contrasting type, color, placement in the document--before or after the signature, any identifying logo or headliner, look for things that make it stand out. 2. 2003 version has an expanded definition of conspicuous. a. It also calls for an expanded warning in consumer cases. “The S has no responsibility for the quality of the goods.” b. Consumer--someone who buys goods for personal, family, or household purposes. ii. Merely saying that implied warranties are invalid does not knock out IWM. In a consumer K the language must state the word merchantability and extra language. b. § 2-316(3)(a) i. The disclaimer does not qualify under subsection (2). Can it still qualify under subsection (3)? 1. (3)(a)--S tries to use (3)(a), “other language which in common understanding calls the B’s attention to the exclusion of warranties …” In this type of situation S always loses on this argument. a. If Court were to grant S’s argument here, subsection (2) would be null and void. i. The term merchantability is required. ii. What then is (3)(a) left with, when does it apply. When you use the language “as is” or “with all faults.” 1. Lecates says that there may be other language, but we have not found any. c.

60

Does a disclaimer under § 2-316(3)(a) have to be conspicuous? i. The statute does not answer this question. Courts, however, have required this. Normally, this argument is not made because the language is made conspicuous. So, it really doesn’t matter. d. If a disclaimer is inconspicuous as a matter of law can S still win (disclaim IWM) by proving that B had knowledge of it? i. § 2-316(3)(a)--Very few cases, very difficult for S to prove that. Just because B received a document with the disclaimer does not mean that B had knowledge of it. 1. S would have to prove that he called B’s attention to the disclaimer. Explained it to him and then the court would have to find that the statute’s requirement of conspicuousness is not absolute. a. Opinions are split, if B knows then the disclaimer works. ii. § 2-316(2) If all you are relying is on § 2-316(2) then conspicuousness is required by a matter of law, if the disclaimer is inconspicuous the disclaimer is invalid as a matter of law. e. § 2-316(3)(c). IWM can be excluded or modified by course of dealing/performance or usage of trade. Defined in § 1-205 i. Course of dealing/performance: 1. D urges that because P had accepted the invoices containing the disclaimer for approximately 15 years, there was a course of dealing between the parties to exclude warranties. 2. Here, however, there was no discussion of or agreement to the disclaimer. There was nothing in the dealings between D and P from which an assent to the disclaimer could be inferred, and no course of dealing to which to refer to establish one. ii. Trade Usage 1. The existence and scope of trade usage must be proved as a fact, i.e., a party relying on trade usage may go to the trier of fact when a dominant pattern has been fairly evidenced. UCC, Official Comment 9, 1205. a. No dominant pattern was shown. IV. NOTE: The disclaimer has to be part of the K a. Think back to the shrink wrap cases. b. In K law, the black letter has generally been that the disclaimer or limitation has to be part of the K in order to be binding. i. Keep in mind §§ 2-202, 2-207, 2-209. V. Lecates a. Assume you have a valid § 2-316(2) disclaimer, but B suffers personal injuries as a result of breach of IWM. S invokes disclaimer. B argues that it is unconscionable. i. Can an otherwise valid disclaimer be held unconscionable under § 2-316(2)? 1. § 2-719--Limitation of Remedies. Disclaimer says there is no implied warranty. Limitation says that there is a remedy of some sort but they are limited. a. (3) You cannot limit injuries for personal injuries. i. This applies to limitations, NOT to a § 2-316(2) disclaimer. 1. They are different subjects. You cannot import terms of a § 2-719 limitation into a § 2-316 disclaimer. 2. What about finding unconscionability under § 2-302? a. Can § 2-302 be used to invalidate a § 2-316 disclaimer? i. Under strict view the answer is always going to be no. You need procedural and substantive unconscionability. In this case, it is going to be hard to find procedural unconscionability (absence of meaningful choice--which examines the circumstances upon which the agreement was entered into). ii. This court says that it is even hard to show substantive fairness. The legislature has allowed for harsh results. b. Two Outlooks: i. Strict View--You can apply § 2-302 test, but it will almost never work. Minority view relies on § 2-302 solely. ii. (p.446) Courts have applied a very liberal view of unconscionability where there is a disclaimer that has caused personal injuries for new goods (consumer or commercial), that means that if there is personal injuries they will hold the disclaimers unconscionable. This is a majority view. 1. New goods. 2. Personal Injuries 3. § 2-316(2) disclaimer 4. Whether or not an “as is” disclaimer against personal injuries (3)(a), it is much more up in the air. You normally only see “as is” for used goods, so it wouldn’t apply anyway. 5. NOTE: If requirements 1-3 are not met then courts revert to old § 2-302 test. VI. Overview--Limitation of Remedy a. Does not disclaim warranty, rather limits recovery on damages.

c.

61

§ 2-719: Focus on the three structural points we previously applied to disclaimer, now apply them to limitation of remedy: i. Language: § 2-719(1)--Compared to § 2-316 you see that you do not have to use the word “merchantability,” it just says that you can use the remedy. You can limit the remedy for an express warranty (§ 2-316(4)), but you cannot disclaim it (2-316(1)). You do not have a conspicuousness requirement. 1. The seller has to make it clear that the remedy that the seller is providing is the sole and exclusive remedy, under 2-719. a. Ex. S says that if there is any defect “S will repair/replace any defect for one year.” i. This is insufficient, it is not shown as the sole and exclusive remedy. ii. “This remedy is the sole and exclusive remedy for breach of warranty, the buyer will have no rights other than what is offered herein.” 1. This is sufficient. 2. Sole and exclusive means that the buyer cannot reject (that remedy is gone), revoke, sue for damages, the buyer’s only remedy to do as the agreement provides. 3. You are contractually limiting your rights. 4. NOTE: You have to use words of limitation. ii. Has to be part of the K. 1. You ask: is it a confirmation, does it materially alter the K. 2. If B sends an invoice after the deal and there is a limitation of remedy. a. You ask: is it a confirmation, does it materially alter the K. i. A disclaimer is per se a material alteration. Courts are split as to whether a limitation of remedy is a material alteration. Some courts say it is necessarily a material alteration because it limits contractual rights. Others say it is a question of fact (per situation). Others say it is not, the Code allows this, thus it is legal, there is a comment that makes reference to that. iii. Is it attackable: 1. 2-719 has its own provisions setting out when its own provisions can be attacked. a. § 2-719(2) LOR is ineffective where it fails its essential purpose. i. Ex. P’s new car burns up in parking lot. The car was a total wreck. Their only obligation was to repair/replace effective parts. P says that is ridiculous the car is burnt to hell. P wins. ii. Ex. Found in consumer and commercial cases. The LOR says breach of warranty is repair/replace. There is BOW and B brings car to R. B says here it is fix it. S cannot repair. This occurs repeatedly. S cannot fix defect, failing several times. In that case the limited remedy fails effective purpose. When the S has been afforded enough times (which is a question of fact) to fix the defect and is unable to do so the limited remedy has failed its essential purpose. If the S refuses to fix the limited remedy fails of its essential purpose. 1. Where it deprives party of the substantial value of the bargain. b. 2-719(3): Two parts: i. [second sentence]--where there is a consumer good you cannot limit personal injuries. Prima facie unconscionable. How do you rebut? You can’t. 1. What about non-consumer goods? 2. Prima facie or two-prong test. Courts are split, probably prima facie. ii. [first sentence]--where it is not a consumer good, consequential damages may be limited or excluded unless unconscionable. Two prong test under § 2-302. VII. Rispens (essential purpose) a. Seed case b. What is the limited remedy? i. The limited remedy that you want as S is to limit remedy to return of purchase price. You cannot repair/replace defective parts; you don’t want to pay for the entire crop. c. Hall Farms argues that limiting recovery to the cost of the seed fails of its essential purpose because: (1) the presence of the bacteria was a novel circumstance not contemplated by the parties; and (2) Hall Farms bargained for seed which would produce a money crop, it will be deprived of the substantial value of its bargain if the limitation is enforced. i. No it doesn’t. S said I will take risk where the product isn’t good; you take risk for consequential damages. ii. Commentators have suggested that § 2-719, as it relates to failure of essential purpose, is not concerned with arrangements which were oppressive at the inception which is a question of unconscionability, but with the application of an agreement to "novel circumstances not contemplated by the parties." In addition, they have suggested that this provision should be triggered when the remedy fails of its essential purpose, not the essential purpose of the UCC, contract law, or of equity. The method used to decide whether a particular limitation fails of

b.

62

its essential purpose is to identify the purpose underlying the provision and determine whether application of the remedy in the particular circumstances will further that purpose. 1. Essential Purpose--Look at agreement; what was basis of limitation in that context? a. Here it was simply to allocate risk. b. Petoseed’s limitation of liability provision clearly states that liability is limited to the purchase price of the seed, and does not allow any amount for incidental or consequential damages such as Hall Farms' lost profits. Obviously, the purpose of the limitation was to limit contract liability to the purchase price of the seed. The contract term has not failed of its essential purpose; rather, enforcement of the limitation will serve precisely the purpose intended. d. Was it part of K? i. Petoseed had the limitation of remedy on the label on the side of the can. When does something become part of K? 1. Is the buyer responsible for all printed matter on packaging? a. No clear resolution. i. Some courts assume that it is B’s responsibility; on side of package is binds buyer. 1. This is probably the majority. ii. Here, the B said I did not read side of can. Court says okay, that is a question of fact. 1. Problem: B will always argue that they did not read it. VIII. Wilson v. Smith (what happens when the LOR fails its essential purpose--consequences) a. Here, there is the same defect and D cannot repair. Limited purpose fails. What are the consequences? b. There are three possible results: i. B can recover anything if remedy fails of its essential purpose. Once limited remedy fails of its EP then the entire limitation is struck. 1. This is very pro-B. 2. B gets everything code permits including consequential damages. 3. Comment 1 “essence of a sale contract” approach. ii. In Cole: If remedy fails essential purpose B gets direct damages under 2-714(2) (difference between K price and price in defective condition). But no consequential damages unless unconscionable (tested on two-prong test). 1. Pro-S 2. The parties should remain free to contractually allocate risks and benefits as they see fit. iii. Even though limited remedy fails of its essential purpose the consequential damages provision still applies unless it is unconscionable. 1. B gets 2-714(2) and whether or not B gets consequential damages is determined on a case-by-case basis looking at such factors as: whether both parties were sophisticated, whether the quality standard was clear, or whether the risk was allocated. Was there a knowing exclusion between sophisticated parties or was there a consumer (an unsophisticated party). 2. Majority--adopted by Wilson and Cole. IX. Cole (majority rule--consequences when K fails its essential purpose) a. Whether the particular exclusion of consequential damages should be enforced depends on the characteristics of the transaction and how the parties sought to allocate the risks. i. (1) In one instance, the transaction may involve a consumer sale in which the warranted goods consist largely of standardized parts. The exclusion of consequential damages along with the failure of the limited remedy may also have left the buyer without any remedy at all. In addition, the seller may have been willful or dilatory in living up to its warranty obligations. 1. Here, a court would be more inclined to strike the consequential damages exclusion. ii. (2) At the other end of the spectrum, the case may involve two commercial entities of equal bargaining power. The goods may be complex and their performance may be dependent upon diverse factors. Finally, the contract may provide additional remedies beyond those specifically excluded. 1. Here the exclusion would probably be deemed to stand independent of the failure of the limited remedy. X. Hill a. Insecticide Case. i. Damages are huge--he loses crops. b. Attached to each can are statements including a limited remedy provision. i. Courts seem to assume that if it is printed on the outside of the can then it is the B’s responsibility. This is the majority view. ii. Consequential damages are thus excluded. c. Anyway, Court says crop loss is not consequential damages, but rather direct [court gets slick here to help out B]. d. The measure of actual damages is the value of the crop had the herbicide worked correctly-the value of the crop in its defective condition. e. The limitation of remedy is fine, but we find that the loss was direct.

63

a. XI. Clark a.

Another argument you could make was that these crops are incidental damages--If you are going to try to be a good lawyer.

Suppose M sells to wholesaler and wholesaler sells to retailer, R sells to B. Can B sue M when there is not personal injuries, only lost profits. i. Some courts eliminate privity entirely. ii. Some say that we can eliminate privity because M can protect themselves by using a disclaimer or limitation of remedy. Noble iii. IL--said in this situation we will not eliminate privity because an M cannot protect themselves through a disclaimer or limitation of remedy to a down the road B. b. Does the limitation of remedy from M to R, protect M from suits by B? i. Here, the R disclaimed B, but M did not disclaim B. So the court let B sue M. 1. Court said that M needs to explicitly disclaim B. c. How would M disclaim B? i. M puts note in box, serving as a disclaimer or imitation of remedy. 1. This will not work. Not part of B’s K. They do not know about this remedy. If they use the product they are entitled to use the product they are not accepting an additional provision by using the item. ii. M puts disclaimer on box. 1. Some courts indicate that that is okay. Essentially, they seem to assume that B is bound by the label on the outside. 2. Majority says it is okay. iii. Some courts say no, you are only bound when you see it on the side of the box. 1. Rispens 2. Professor favors this one. iv. Shrinkwrap case, box said the limitation was inside. 1. This is very controversial. Majority says binding, Prof says this is wrong. v. The M may force R to put something in K to be placed in R’s K with B to cover themselves. XII. Patty (extension of disclaimer from M to B) a. M puts into K with R (no IWM), when sued by B, the B says I cannot be bound by disclaimer or LOR I did not see. i. Court agrees. Don’t see then not bound. 1. Majority. ii. Other courts say that when M disclaims IWM when it leaves its hand (although it goes to R), the M is always protected. Once you disclaim you disclaim. There is no quality protection. 1. Minority. 2. Buettner--when lack of privity is no defense to an action against a M by B for sale of goods, if M disclaims IWM to S then M does so to B. a. The Official Comment provides: "To the extent that the contract of sale contains provisions under which warranties are excluded or modified, or remedies for breach are limited, such provisions are equally operative against beneficiaries of warranties under this section." § 2318, Official Comment 1. According to this rationale, P can enjoy no more contractual rights than are enjoyed by the purchaser, SHS. b. We likewise reject P’s suggestion that an S must negotiate a warranty disclaimer with an individual foreseeable user despite the inclusion of an otherwise valid disclaimer in the contract of sale. Were we to hold otherwise, a S would be virtually incapable of disclaiming any implied warranties as to all foreseeable users, contrary to the clear intent of § 2-316. Recognizing that any warranty runs through the purchaser to foreseeable users is sound policy: remote users enjoy no fewer contractual rights than do the purchasers, while employer-purchasers, who bear the major portion of costs of employee injuries and are in the best position to evaluate risks to employees who will be using the goods, are given appropriate incentives to negotiate warranties with vendors. iii. Third View: The M’s disclaimer only works against a remote is where the good the M sells is a component part meant to be integrated into a larger item. There is no way for M to reach ultimate purchaser. Thus, if the M sells component part with a disclaimer to R, then B would be stopped from suit. 1. Middle View b. NOTE: Even if the disclaimer is found effective, the B can still attack its validity. XIII. Brokke v. Williams (disclaiming § 2-312--or inability) a. Pawn shop has disclaimers plastered all over inside of store. The basic section that controls ownership in this type of situation is 2-403 (deals with the ability to transfer title of goods from seller who does not own item). If in fact the B does not have title then the B can sue the seller under § 2-312 (remedy provision) under a breach for warranty of title. b. Can the S disclaim his obligations under warranty of title by disclaiming under § 2-316? i. No, §2-316 deals with implied warranties. IWM and IWFPP.

64

c.

ii. Here, § 2-312 is not called an implied warranty (which are quality provisions), it is warranty of title. It has its own disclaimer provision. It is very general. iii. § 2-312(2) [the court quotes (3) but that is wrong], section (2) creates a factual question, was the situation such that the B would know that the S was selling goods that they did not have title too. 1. S’s “as is” signs did not qualify under § 2-312, it does not signify to B that the S is not claiming title in themselves. a. “As is” goes to quality warranties, not title warranties. You really cannot disclaim the warranty of title, doing so results in the sale of illegal goods.

4. SELLER’S REMEDIES § 2-703. Seller's Remedies in General. Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract (Section 2612), then also with respect to the whole undelivered balance, the aggrieved seller may (a) withhold delivery of such goods; (b) stop delivery by any bailee as hereafter provided (Section 2-705); (c) proceed under the next section respecting goods still unidentified to the contract; (d) resell and recover damages as hereafter provided (Section 2-706); (e) recover damages for non-acceptance (Section 2-708) or in a proper case the price (Section 2-709); (f) cancel. § 2-709. Action for the Price. (1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price (a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and (b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. (2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold. (3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for nonacceptance under the preceding section. I. Kelly v. Miller a. Principle from case: If the B does not pay the S, S does not have the right to reclaim the goods. This is a basic proposition. You sell goods and the B has a period of time to pay. If payment is not completed. S can sue for price of goods under § 2709. If you recover judgment and B still does not pay then you can execute on the goods. Sheriff will reclaim goods and sell them for you. b. Here, B fails to pay S for purchase price. At this point S could have sued for price of goods under 2-709. S simply reclaimed tractor and disposed of it as he wished. There is no provision for the “self-help” remedy that S chose; reclamation for the tractor. The B owned the tractor, thus replevin does not exist. There is no independent right for self help reclamation. i. What can seller do to protect against non-payment, which will give them the right of reclamation if there is a failure to pay? 1. Get a security interest--this is not Article II law--if the K provides a security interest--Article IX--gives S the right to repossess if there is nonpayment. a. You have to create a security interest. c. Thus, there is no legal right to repossess under Art. II, if you do so then the S can be liable in a tort action. d. Caveat: 2 exceptions i. § 2-507(2)--Essentially provides that if the B pays with a bouncing check on delivery the S has the right to reclaim the goods. 1. See also 2-511(3)--Payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment. a. When the check bounces the S in effect still owns the goods because B did not pay, thus S can reclaim. 2. Caveat of 2-507(2) May be defeated in bankruptcy. Bankruptcy Code may have an independent provision denying reclamation.

65

a. Goods are also subject to control of a 3rd party BFP. ii. 2-702(2)--Where S discovers that B received goods on credit while insolvent the B can reclaim by demanding w/in 10 days. II. Gulf a. b. 2-703(b) not responsible for this or 2-705 i. If the goods are in possession of bailee the S can demand delivery to be stopped because they were not paid. Cancellation i. 2-703(f) 1. Usually practically important only in case of installment K. [B only has limited opportunity to cancel under § 2-711 via § 2-612(3)] ii. Here you have unjustified nonpayment by B. S refuses to deliver the rest. When you have breach of one installment the ability for the other party to delivery the remaining portion of the K depends upon whether there has been a breach of the whole under 2-612(3). 1. We look to see whether the value of the K has been so impaired by the breach that the K as a whole is valueless. iii. Here, Court holds S in breach of K for failing to deliver later installments. 1. S lacked evidence to show that the value of the entire K was substantially impaired due to B’s failure to make one payment. a. How do you show substantial impairment as an S? That due to lack of payment you no longer have funds to continue. iv. What is the remedy for the S in such a case? 1. You can request assurances under § 2-610 [reasonable grounds for insecurity allows the request of assurances]. a. What assurances would be reasonable? i. Possibly, COD. Payment before inspection and receipt of goods.

III. § 2-709 a. Key part of S’s remedies. § 2-709, right to sue for K price. The right is limited. i. If goods have been accepted by B then S has full right to purchase price 1. § 2-709(1)(a)--B has to have had accepted the goods or conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer [ex. § 2-509] (shipment K, shipment burns up on way to B, risk of loss passed to B when goods were placed onto common carrier)(normal assumption is that goods use a shipment K). ii. If goods have not been accepted by B and B is in breach (repudiation, refusal to accept, B fails to pick-up): 1. In this situation, the S’s right to get the price is severely limited. a. § 2-709(1)(b) [B does not have goods because B has breached K]. Goods are identified to the K. S can full K price only if S is unable to resell after reasonable effort to resell at reasonable price (some established market price/not necessarily the K price) or the circumstances reasonably indicate that such effort will be unavailing. i. If you resell you sue B for difference. 2. Proving resale: testimony. Corroborating evidence. Make person credible. iii. § 2-709(2) where goods are identified to the K (goods to which the K refers). Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. 1. The S has gone into the marketplace and sold goods for a reasonable price, if unable to then S can sue. a. S naturally would prefer to simply sue for K price following repudiation. i. This section does not allow that. You can only sue after B accepts, risk has passed, or you tried to resell. b. § 2-709 says you get price plus the incidental damages (NOT consequential). IV. § 2-703 a. General Index of seller’s remedies (p. 1271) i. (a) Seller can withhold delivery if B breaches. § 2-706. Seller's Resale Including Contract for Resale. (1) Under the conditions stated in Section 2-703 on seller's remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach. (2) Except as otherwise provided in subsection (3) or unless otherwise agreed resale may be at public or private sale including sale by way of one or more contracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parcels and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable. The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be in

66

existence or that any or all of them have been identified to the contract before the breach. (3) Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell. (4) Where the resale is at public sale (a) only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and (b) it must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and (c) if the goods are not to be within the view of those attending the sale the notification of sale must state the place where the goods are located and provide for their reasonable inspection by prospective bidders; and (d) the seller may buy. (5) A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section. (6) The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (Section 2-707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subsection (3) of Section 2-711). § 2-708. Seller's Damages for Non-acceptance or Repudiation. (1) Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach. (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. V. § 2-706 and 2-708(1) a. Suppose that the goods were not accepted or that the risk of loss had passed and that the goods could not be identified to the K. The other two sections that provide the S with a route to money damages are § 2-706 and § 2-708. b. § 2-706. Gives the S the right to resell. It is the analog to B’s right to cover under § 2-712. i. S gets difference between K price and resale price, plus S gets incidental damages under § 2-710. 1. In addition, under § 2-709 the seller can recover incidental damages. a. In 2003 revision S can get consequential damages, this version does not grant conseq. damages ii. Rules: 1. 2-706(2) says that every aspect of the resale has to be commercially reasonable. 2-706(5) someone buys in the resell in good faith takes good free of any claims of defaulting B. You buy at resell you are protected. 2. 2-706(6) if S makes profits, S keeps profit. 3. 2-706(1) if S does not make a profit then the S can sue for difference. iii. Two types of resale: 1. Private sale: Ex. The B has breached the S lines up another B to buy goods as a result of direct negotiation. a. Condition: 2-706(3) the S must give the B reasonable notification of intent to resell. i. Purpose of notification is to protect the defaulting B; maybe the B can do something to protect his or her rights. ii. This is an absolute requirement, no notification = failure to comply with § 2-706. b. Condition: Reasonableness of resale price (2-706(2) every aspect of resale has to be reasonable). i. Factually a private sale gives rise to reasonableness questions. S is seeking out someone; there is concern that the new purchaser will get unfair sweetheart deal. 2. Public sale: Not specifically defined. A sale that is open to public and advertised enough so that the public is aware of it and anyone can bid. Ex. public auction. a. Conditions: § 2-706(4)(b) it must be made at a usual place or market for public sale and (except for perishable goods or the goods threaten to decrease in value speedily) the S must give notice. i. What can B do if it has notice? Bid up the item. b. Condition: Reasonableness is not really a big deal here. The aspect of the sale is assumed reasonable therefore the price is assumed to be reasonable. c. § 2-708(1) contains the word “unpaid,” we should read that out. i. Difference between the MP at the time and place for tender and the K price together with any incidental damages. 1. If unpaid was left in this language we could have unfair results. VI. Sprague

67

a. b.

c.

d. e.

f. VII. Neri a. b.

S contacts with B to sell logs. B breaches/repudiates before performance. S mitigates by reselling through private sale. S uses private sale route, he resells less, seeks difference. He loses under § 2-706 theory because a critical importance is the requirement of reasonable notification of intent to resell. i. You cannot use § 2-706 if you do not give notice. ii. The notice requirement cannot be satisfied by the fact that B knew or should have known that B was going to resell. 1. You have to give reasonable notice of intent to resell. a. What type of letter would S draft and send to B to notify them of failure to resell. i. You would think the notice would have to say that, “please be advised that on or after date X I will resell the goods.” 1. Every aspect has to be reasonable, like the date with which you intend to resell. § 2-708(1). S can sue under this. There is no election of remedy problems. It is your choice. i. So you resell or you don’t resell and use § 2-708(1) 1. To resell gives you a more precise measure of damages. ii. The problem with § 2-708(1) here, is that S has to sue the prevailing MP at the time of the sale. The court cuts him a break and says that resale price will serve as MP because it was at the same time. It is a substitute for more appropriate evidence. Do you have the option to pick and choose what to do when there is a chance of windfall? i. You can argue the code gives you an option. Others will argue you cannot allow a windfall. Incidental Damages--the code does not allow Consequential Damages, thus what are incidental damages? i. See § 2-710. It raises the same issues as incidental is defined in 2-715(1). 1. Incidental appears to include anything connected with inspection or care. a. Ex. expert to determine if goods are defected 2. “Expenditures otherwise resulting from the breach” a. Can be interpreted broadly, what prevails. i. You should probably interpret this narrowly. 1. A lot courts define consequential damages as losses incurred in dealing with third parties. To Know: S cannot recover consequential, incidental has differing definitions, and some courts define consequential as dealing with 3rd parties.

VIII.

Lost Volume Seller S is in the business of selling standard items i. Ex. In Neri it is a boat ii. Ex. In Van Ness it is a car. c. B repudiates before acceptance. B backs out. If this is a signed K then S gets damages. d. Exemplary Hypothetical: Sale for Car. K price is 20K. MV is 20K. If S were to resell he would get 20K. In this situation 2-708 and 2-706 would not give remedies because there is no difference between K price and retail price. Nonetheless, S has damages. What is the S’s damage? i. S has lost the profit to the sale. 1. Ex. Toyota dealership sells Camry to B. B signs K and then backs out of deal. K price and retail price are the same, but S has lost out on the sale, the money he could have made, the profit. a. § 2-708(2) deals with the lost profit (the lost volume seller). Rule is even applied in building K cases. Where the building was standard. S could have done a number of other sales in that time, so they lost out on the profit. e. If dealer only has one car, then he is not a lost volume seller. Cesco a. Issue: goods that are unfinished at the time of the breach. b. § 2-704(1)(a). If the B breaches the S can, if the goods are manufactured but not yet identified to the K [when they are set aside as being goods to which the K refers/the goods for the K], the S can now identify goods to the K. c. 100 shares are made, the S can take 10 shares and say that these are the 10 shares that I would have sold to B had he not breached. d. What is the advantage of identifying goods to the K? You can now cover under § 2-706. [Maybe you can cover under 2709(b)] e. Gives you the rights that you had with the rights to the goods. f. Suppose the goods are unfinished at the time of the breach, 2-704(2), the S can complete the manufacture and then identify the goods of the K if it would mitigate damages (if it was commercially reasonable to do it). i. You also have the opportunity to cease manufacture. Cesco was creating raw materials and ceased following the breach, as the general rule you now have no goods identified to the K. Your rights are now found under 2-708(2).

68

g.

The S’s remedies are what would the S’s profits had been, what expenses have S avoided by manufacturer, then come to a net amount. ii. So you recover profit less expenses saved (including amount you would get from salvage value). It is a computation of net profit after all is said and done. 2-704(b) [tricky]--if you have goods in front of you that are identified enough to the K, where you can say that these were the goods that were close enough to be identified to the K, you can treat these as subject to resale and identification to K.

§ 2-615. Excuse by Failure of Presupposed Conditions. Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance: (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. (b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable. (c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer. IX. Excuse for nonperformance--§ 2-615 a. (a)--delay in delivery or non-delivery is not a breach by the seller when impossibility of performance occurs. If performance is impossible then it is excused. i. The use of “impracticable” instead of “impossible” has resulted in courts applying a broad test that restricts the doctrine. 1. If you want to argue that something is unforeseeable you want to address all of the events, making it seem as unforeseeable as possible. 2. If you do a broad test you just ask whether the basic situation could occur. Just lay out the basic situation and ask if it could occur. ii. The courts will use the broad test, if something is broadly foreseeable then § 2-615 will not be applied. 1. Ex. Price increase will not allow S to argue that nonperformance was impossible due to price increase. 2. Courts say that it is foreseeable that price will go up. b. (b)--assuming impracticability and it affects only a portion of the K. c. This version of the UCC exists only for the seller. The new draft does. d. Common law doctrine of frustration of purpose is not in the UCC. e. Ex. K is for a specific collector’s version of a car. It requires identified goods. The K itself requires identified goods. If the goods suffers casualty before risk of loss to B, if the good is destroyed before risk of loss to B then the K is simply avoided (see (a)). f. Why does it say that the K is avoided, is it necessary [risk of loss has not passed to B yet anyway?]. It is used to protect the S. They cannot sue B, but could not anyway; risk of loss has not passed. However, where B had agreed to subsequently sell good to buyer X. B can no longer sue S for breach under consequential damages because the K is avoided. That means that the S cannot recover price, but B cannot sue S for anything. X. Consumer Protection Laws a. Often allows for treble damages and attorney fees. b. The key is what is statutorily prohibited by protection laws to allow for treble damages and attorney fees. i. Ex. X buys Honda. Brings it back to dealer several times to have it fixed. B cannot fix. B sues, S holds car for 6 years. Right before trial S fixed. B brings action under consumer protection law, because breach of EW damages would be shit here, instead consumer protection laws allow for fail to honor a written warranty. The state courts say that when S is recklessly indifferent to B, then the Court will award treble damages. Here there is recklessly indifferent conduct. ii. Ex. S makes misrepresentations to B. B buys, car sucks. B sues under UCC and in alternative under CPL. This deceptive practice by S allows B to receive treble damages. iii. If S commits some form of prohibited conduct and it falls under a CPL then you can get treble damages and attorney fees. XI. Magnuson-Moss (only consumer cases): Permits you to sue for BOW and get attorney fees. BOW is determined by state laws. It does not really help, it was supposed to. It says that S had to label warranties. What occurs is that S labels it in a limited capacity. It also says that if you are S and you make EW or agree to service under an EW you cannot disclaim the IWM, not a big deal. The M will grant the length of the IWM to the same amount as the EW. Does not give you a lot. a. So you make EW, limit IWM to same period of time, and you limit remedy for breach of either to the same thing. b. What it does, § 110(d)(1), a consumer who is damaged by failure of supplier or warrantor to meet obligations of any written warranty or IWM you can sue and B may be able to recover attorney fees.

69

It codifies a UCC right of action to get attorneys fees. It does not apply to personal injury cases. Applies to economic loss cases where attorney’s fees would be otherwise unavailable. i. So make UCC claim, Magnuson-Moss (no personal injury), and consumer protection claim (if applicable to case) XIV. Lemon Laws a. State Lemon Laws. b. Deal only with automobiles. i. The normal auto deal: M makes express warranty and limits it to repair/replace. The IWM will be out of the picture. It will be disclaimed or limited to the same thing as EW. R will disclaim everything. 1. Legislatures felt that the power to limit the remedy to repair/replace parts too much favored M/R. c. § 1954. The definition of “new motor vehicle” seems as though it is limited to consumer goods. Thus, it is consumer goods only. i. What does non-conformity mean? Does not conform to M’s EW. You have to repair breach of EW. d. § 1955 is the key. If the M fails to repair or correct a non-conformity after a substantial # of attempts, the seller shall at option of P replace the car or take the car back and refund the money less a reasonable amount for use. i. How is that different to UCC? 1. Isn’t this just like the remedy failing its essential purpose under 2-719? a. No. The Lemon Law defines a substantial number--same defect worked on 3 times or the car out of use for more than 30 days. i. 2-719 does not tell us how you fail your essential purpose. b. Also, it tells you who you get your money back from--M. Essentially, this is revocation of acceptance against M. i. Under UCC we are not sure whether a B can revoke acceptance against a remote M. Under Lemon law we can clearly revoke against M. e. § 1958--B can get reasonable attorney fees. You sue to get money back and if you win, you get attorney fees. Under UCC if you win you get money back-attorney fees. XV. PA Unfair Trade Practices and Consumer Protection Law a. Count 1: UCC b. Count 2: Magnuson i. Gives the P attorney fees if P wins. c. Count 3: Consumer Protection statute i. It can give attorneys fees plus treble damages. XVI. Leases a. Two things we may need to know: i. IIA is essentially the same as Art. II. The only real difference that we have gone over is SOL and how Art. IIA treats finance leases (the implied warranty of merchantability).

c.

70


				
DOCUMENT INFO