Sales Davis 2006

Shandra StoutSales Outline – Davis Fall 2006

I. Introductory Conceptsa. Scope of Article 2

2-102 SCOPE; CERTAIN SECURITY AND OTHER TRANSACTIONS EXCLUDED FROM THIS ARTICLEUnless 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

1. Applies to “transactions in goods” – very broad, more than just the sale of goods

2. “Unless the context….” Indicates that some provisions clearly only apply to sales

3. It’s both affirmative and negative in that it also specifically does not apply to certain things

ii. What are goods?2-105 DEFINITIONS; TRANSFERABILITY; “GOODS”; “FUTURE” GOODS; “LOT”; “COMMERCIAL UNIT” “Goods” means “all things”… “which are movable”…other than the money in which the price is to be paid, investment securities and things in action

1. rights to money; i.e. chose in action; e.g. insurance policy2. Goods includes unborn young of animals and growing

crops (2-107)3. Real property itself is not moveable; a “thing” is tangible

personal propertyiii. 2-106 Definitions: “contract”; “agreement”’ “contract for sale”;

“sale”; “present sale”; conforming to contract; “termination”; “cancellation”

1. “Contract” and “agreement” are limited to “those relating to the present or future sale of goods”

iv. Goods and property2-107 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

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document transferring an interest in land and shall then constitute notice to third parties of the buyer's rights under the contract for sale.

1. Contracts for the sale of minerals or a structure if they are to be severed by the seller are covered

2. Growing crops or other things attached by realty must be capable of severance without material harm and can be severed by either buyer and seller and be covered

3. (1) Things a seller must remove:a. A house - structureb. Coal – minerals and the likec. Things typically closely associated with the land

because 1) historically that’s how things were normally done; 2) the close association of these things to the land would require buyer to have some rights to come in to extract

4. (2) Things either can remove as long as no substantial harm:

a. An AC unit within a structure – “other things attached to realty”

b. Timber – moved to (2) to facilitate timber salesc. Crops – “a contract for the sale apart from the land

of growing cropsv. Examples:

1. Student sells car to dealer – yes, it’s a sale of goods2. Professor sells pen to student – yes, sale of goods; sale is

governed by Article 2 regardless of the status of the participants

3. Student sells car for equipment – yes, sale of goods; barter transactions are covered by 2-304

4. Sale of car for land – sale of car is within Article 2; sale of realty is governed by real estate law

vi. Hybrid Transactions 1. Predominant Feature Test: When service predominates, and

the transfer of personal property is but an incidental feature of the transaction, it is not covered by Article 2

2. It’s a risk allocation thing; hard to warrant results with services

a. Parties can always adopt a warranty3. Factors to consider which predominates – I’m not sure

what factors go towarda. Language of the contract

i. Does it deal with terms of sale of goods v. sale of services (e.g. warranties, description of goods, UCC terms)

b. Nature of business of the supplier

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i. Is selling goods the principal focus of the business

c. Intrinsic worth of the goods in contrast to the services

d. Other relevant factors:i. Nature of goods

ii. Mobility of goodsiii. Industry custom (typically considered

service or goods)iv. Policy implicated by applicable code section

– if the court wants to foster a policy underlying a code section, might apply it

4. Examples:a. Defective spinal plate given in operation?

Predominantly a sale of services of doctorb. Blood? Blood shield laws prevent infusions from

being covered; sale as a separate commodity is different

c. Anything offered by doctors, architects, etc.i. These people find it hard to guarantee any

result; sometimes things go wrongii. Warranty of workmanlike performance – not

really a warranty; just a negligence standardd. Membership? No, it’s a servicee. Bulk sale of inventory?

i. 6-103 Article applies to bulk sales if (a) the seller’s principal business is the sale of inventory from stock; and (b) Seller is in U.S. Must be a sale of more than ½ the inventory

ii. Also, Article 2-102 “…nor does this article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.” Intended to operate concurrently with statutes affecting these buyers

f. Sale of electricity?i. Most say it’s a good; if they don’t it’s for

policy reasons5. Gravamen Test – Exception to Predominant Factor Test

a. Not all courts have adoptedb. What’s the source of the injury/damage/complaint?

Is the cause of the injury related to the goods aspect of the transaction or the services aspect of the transaction

c. Applicable if:

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i. Consumer goodii. Good retains independent character after

completion of performance (not an integral part of another product or realty)

b. Merchant Status2-104 DEFINITIONS: “MERCHANT”; “BETWEEN MERCHANTS”; “FINANCING AGENCY”(1) “merchant” is 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 any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants

1. Cmt. 1 - the Article “assumes that transactions between professionals in a given field require special and clear rules which may not apply to a casual or inexperienced seller or buyer”

2. No time requirement – you’re a merchant with respect to goods even if you open a store the previous day; most courts don’t extend any grace period, esp. when buyer is a consumer

3. Suggests continuous merchant status; a 15 year retirement will probably destroy merchant status

ii. To establish merchant status:1. If the party is one who deals in goods of the kind (regular

sale)2. Holds himself out as having knowledge or skill peculiar to

the practicesa. Knowledge of business practices (not of goods);

doesn’t have to be actively holding outb. Some courts say you can establish expertise as to a

type of goods (all boats) but most say just with knowledge with respect to business practices

3. If you can impute the acts of an agent to particular party, same standard applies

iii. Kinds of merchant status1. Cmt. 2 - whether or not the merchant status or the type of

merchant status relevant depends on the nature of the provisions

2. Three special provisions for merchants:a. 2-201(2); 2-205; 2-207 and 2-209 – merchant status

can be established by having knowledge or skill peculiar to the (regular business) practices involved in the transactions

i. Non-specialized business practices (answering mail, etc.)

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ii. Limitation: only applies to a merchant in his mercantile capacity

b. 2-314, 2-403(2) [and 312(3)] – merchant status by establishing that they deal in goods of the kind; familiarity with business practices is not enough

i. Thus, though irrelevant to scope, the party’s status is relevant for whether particular sections apply

ii. “goods of the kind” not intended to apply to sporadic sales

c. 2-103 (good faith) – can be based on dealing in goods of the kind or familiarity with business practices (either is fine)

iv. “between merchants”1. 2-104(3) – any transaction with respect to which both

parties are chargeable with knowledge or skill of merchants2. Does not always require both to be merchants; e.g. 2-

201(2) – many courts say as long as recipient is a merchant it’s sufficient; sender does not have to be a merchant

v. Good faith and Revised Article 11. Revised Article 1 has changed the definition of good faith;

used to be a differentiation between good faith of merchants and good faith of consumers

2. Revised Article 1 may change the knowledge of business practices charged to consumers

3. Current Article 1 says “honesty”4. Revised says “honesty in fact and the observance of

reasonable commercial standards of fair dealing”vi. Farmers

1. Courts look at cases on a fact-specific basis to determine if a farmer is a merchant

c. Scope of Article 2A – Leasesi. Comments

1. Rationale for codification: aid in making a determination as to what constitutes a lease; especially important when distinguishing a lease from a secured transaction; different warranties than a seller; different remedies than a sale

ii. Relationship to other Articles1. Article 2 was the base, modified for 2A to deal with unique

characteristics of leases2. Courts often rely on interpretations of similar sections in

Article 23. Fundamental tenant is vindication of freedom on contract

(like Article 2). Both are just a set of default rules – parties can always contract around them subject to the duty of good faith, reasonable diligence and care

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a. R1-302 lists things that can’t be contracted aroundb. Authority: comments of 2A-102 and 1-102(3)

2A-103(2)(J) DEFINITIONS AND INDEX OF DEFINITIONS“Lease” means a transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including a sale on approval or a sale or return, or retention or creation of a security interest, is not a lease. Term includes a sublease.

iii. Lease v. Security Interest 1. R1-203 “security interest” v “lease”

a. Lease: A transaction where the lessor retains an interest in the goods (the residual interest) and upon completion of the lease term, the goods are returned to the lessor

b. Secured transaction: upon satisfactory completion of the transaction (payment of the underlying loan), the secured party has no further interest in the goods. The debtor has full possession and ownership of the goods

2. Economic Reality Test: Does the original agreement leave the lessor with some meaningful economic interest in the residual?

3. Steps to decide economic reality test question: R1-203(b)a. Step 1: Does the lessee have the right to terminate?

i. If yes, likely a leaseii. Termination fees may be relevant – the

higher the fee the less likely it’s a leaseiii. If no right to terminate, determine whether

the purported lessor has a reasonable expectation upon termination of the lease term acquiring use and possession of the goods to a meaningful extent

b. Step 2: Transaction is a security interest if any one of the following factors is present:

i. Lease term equals or exceeds remaining economic life of goods [or]

ii. Lessee is bound to renew lease for remaining economic life of goods or to purchase goods [or]

iii. Lessee has renewal option for remaining economic life of goods for no or nominal additional consideration [or]

iv. Lessee has purchase option for no or nominal additional consideration

a. Indicates that “lessee” already paid fmv

1. 1-201

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a. (c)(1) – It is not necessarily a security interest if the present value of the consideration the lessee is obligated to pay for the right to possession and use of the goods is substantially equal to or is greater than the fmv of the goods at the time the lease is entered into

b. (37): Three tests – v. If at the end of the lease period the lessee

becomes the owner of the property for little or no consideration, it’s a sale

vi. If the contract contains a clause that permits the lessee to terminate the lease and walk away at any time and return the leased goods, it’s a true lease

vii. If the lease is for the entire economic life of the leased goods, with or without renewal, it’s a sale

c. “Nominal”viii. R1-203(d)(2) – Consideration is not nominal

if (1) when the option to renew the lease is granted, the rent is stated to be the fm rent for the use of the goods for the term of renewal determined at the time the option is to be performed/no nominal where the additional consideration in the option to renew equals the fmv of the goods

d. “Remaining economic life” and “reasonably predictable”

ix. R1-203(e) - The “remaining economic life of the goods” and “reasonably predictable fmr, fmv or cost of performing must be determined with reference to the facts and circumstances at the time the transaction is entered into

x. Cmt. 2: Economic realities approach disregards the intent of the parties to form one or the other

d. CISG – International Salesi. Scope of Coverage

1. International transactions involving the sale of goods2. Treaty signed in 19883. Four questions:

a. Does the CISG apply by virtue of Article 1?(1) This convention applies to contract of sale of goods between parties whose places of business are in different states: (a) When the states are contracting states or (b) when the rules of private international law lead to the application of the law of a contracting state.

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(2) The fact that the parties have their places of business in different states is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract.(3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this convention. → applies to civil law countries as well

i. (a) If the parties are in counties that are signatories, the CISG applies; no choice of law analysis

ii. (b) If one party is not a contracting state, if the conflict of laws rules lead to the application of a signatory state’s law, the CISG applies

Article 95 - Any state may declare at the time of the deposit of its instrument of ratification, acceptance, approval, or accession that it will not be bound by subparagraph (1)(b) of Article 1 of this convention

iii. U.S. has opted outb. Does the transaction involve a sale of goods as

defined in Articles 2-3?i. i.e. Has it been excluded by virtue of the

nature of the transaction?Article 2 – This convention does not apply to sales:(a) of goods bought for personal, family or household use unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;(b) by auction(c) on execution or otherwise by authority of law(d) of stocks, shares, investment securities, negotiable instruments or money(e) of ships, vessels, hovercraft or aircraft(f) of electricity

ii. Seller has to be aware, either because buyer told or because the facts and circumstances are sufficient

Article 3: contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who order the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production

iii. Basically the same as any hybrid transaction case

c. Is the specific issue governed by the CISG? (see Articles 4-6)

Article 4 – The convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising fro such a contract. In particular, except as otherwise expressly provided in this convention, it is not concerned with:(a) The validity of the contract or any of its provisions or of any usage;(b)The effect which the contract may have on the property in the goods sold

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i. Doesn’t cover fraud, duress and the like challenging the validity of the contract

Article 5 – This convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person

ii. Can sue for damage to surrounding propertyiii. Can sue to recover consequential damages,

even if they are used to pay personal injury claims

Article 6 - The parties may exclude the application of this convention, or subject to Article 12, derogate from or vary the effect of any of its provisions

d. Have the parties exercised their freedom to contract out of/around the CISG? (Article 6)

4. Opting in/outa. Article 6 says they can opt-outb. Courts have held that parties of noncontracting

states can hope to have the CISG applyc. The UCC – R1-302 cmt 2 says parties can opt out

of all provisions of UCC except good faith, diligence, reasonableness and care as long as they state some other rules that apply (such as the CISG)

5. Article 7 – CISG incorporates a duty of good faith and fair dealing

Article 9 – (1) The parties are bound by any usages to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned

6. Article 11 – No Statute of Frauds; thus agreements do not have to be in writing

a. England, among others, repealed SoF; we decided it was valuable enough to leave it in R2

II. Contract Formationa. Statute of Frauds

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 part

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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 (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.

i. Within scope of Article 2 (always a requirement)ii. Quantity term is required

1. Looking for an objective basis to determine what the quantity is – doesn’t have to be exact number

a. “all my requirements” – as long as it’s possible to ascertain what that amount is/might be(?)

b. The contract is only enforceable up to the term included in the writing

c. 2-306(1) permits output contractsiii. Must be more than $500iv. Must be a “contract for sale”

1. I don’t know how we figure this outv. Signed by the party against whom enforcement is sought

1. 1-201(39) says “signed” includes any symbol executed or adopted by a party with present intention to authenticate a writing

a. Cmt. 39 – initials, letterhead2. Cmt. 1 – All that is required is that the writing afford “a

basis for believing that the offered oral evidence rests on a real transaction. It may be written in lead pencil on a scratch pad…the only term which must appear is the quantity term

3. Usually permitted to piece together writings to create an agreement

4. Cmt. 6 – Writing does not need to be delivered to anybodyvi. Missing terms

1. 2-204(3): Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy

2. 2-201 gives permission for missing terms (not quantity)

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3. 2-305: Open Price Term (what to do if parties omit a price term)

a. Price is a “reasonable price at the time for delivery”4. 1-103 – Provisions of the common law can supplement the

code where it does not address a particular issuevii. (2) Confirmations - one instance where a party can lose the SoF

defense based on a writing signed by the other party1. Requirements:

a. Must satisfy the three/four requirements in (1)b. Does not have to say confirmationc. An offer is not sufficient because it must be

evidence of a contract (needs acceptance)2. Cmt.3 – The only effect is to satisfy the SoF; the burden of

persuading the trier of fact that the contract was made orally still must be met→ still litigate about existence and terms of contract

3. Sending a letter alleging a misstatement of the quantity is not an objection; it’s a modification controlled by 2-209(3) (requiring compliance with SoF)

a. I’m not sure why this isn’t an okay objection…viii. Courts usually allow some discovery to go forward in a SoF case

to see if any evidence is revealed; hesitant to dismiss on demurrerix. (3) Other circumstances

1. (a) Goods manufactured specifically for this buyera. Protects the seller’s reliance interest

2. (c) Partial payments work if the payment can be apportioned to a certain amount of the goods

a. Individual commercial units – 2-105(6) – are indivisible and therefore partial payment doesn’t satisfy (c)

x. Supplementary General Principles under 1-1031. R1-103 cmt. 2 makes clear that supplemental principles of

common law can be incorporated into the code as long as they do not contradict the text of a code provision and are not contrary to the policies behind the code

2. Reliance provisions – drafters have clearly evidenced that if they wanted to, they could incorporate a reliance/estoppel provision; thus, where they have not done so suggests that so doing would contradict code

xi. Revised 2-2011. Increased amount to $5,0002. Adds: (4) A contract that is enforceable under this section

is not unenforceable merely because it is not capable of being performed within one year or any other period after its making

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a. UCC SoF is the only one that applies and drafters intended it to apply

3. Changes “writing” to “record” – encompasses more stuff; continues in the direction the courts are already going

4. Does not include a promissory estoppel provision (one of the comments is ambiguous)

b. Parol Evidence Rulei. Definition: provides that a final agreement entered into between

parties supersedes prior or contemporaneous agreements and negotiations

1. Governs both oral and written evidence that precedes the execution of the final written agreement between the parties

ii. Only triggered where there is a final, enforceable agreement between the parties

1. When a party is asserting no enforceable agreement (duress, etc.) then the extrinsic evidence is admissible to establish that the agreement was invalid or that there was no agreement

2. A.K.A. Exceptions to PER: fraud, illegality, duress, failure of consideration, mistake

iii. Cross references1. R1-201(3): “agreement” as distinguished from “contract”,

means the bargain of the parties in fact as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in § 1-303

2. PER has no applicability to course of performance because PER only applies to prior and contemporaneous evidence and course of performance is stuff that happens after an agreement is formed

R1-303 Trade usage, prior course of dealings, [course of performance][(a) A “course of performance” is a sequence of conduct between the parties to a particular transaction that exists if:(1) The agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and (2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.] – don’t apply to PER(b) Course of dealings is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct(c) Usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an exception that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. Interpretation is a question of law if established that it is embodied in a trade code

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(d) A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties’ agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to coccur may be so utilized as to that part of the performance.(e) the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:(1) express terms prevail over course of performance, course of dealing and usage of trade(2) course of performance prevails over course of dealing and usage of trade; and(3) course of dealing prevails over usage of trade

3. Critical question: What limitations should be imposed on the process of inference as reflected in §§ 1-201(3), 1-303 and 2-202? → these sections validate the inference of implying terms into the agreement

2-202 FINAL WRITTEN EXPRESSION; PAROL OR EXTRINSIC EVIDENCETerms 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 dealing or usage of trade or by course of performance;(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

iv. As long as they don’t contradict, they can always be used1. i.e. can’t negate an express term

v. If it’s a completely integrated agreement, even consistent terms can’t be used to supplement

vi. Contradiction1. Some courts use “reasonably harmonious” standard2. Hunt’s Foods : does not have to completely negate an

express term to be inconsistent; courts can use some discretion

vii. Cmt.1: the section definitely rejects:1. Any presumption that an agreement is completely

integrated2. Any presumption that we can understand words without

resort to context (the four corners approach)3. No need to find an ambiguity before evidence can be used

to interpret/explainviii. Prior Course of Dealings and Trade Usage

1. See R1-303 above

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2. Rule begins with the premise that the contract is more than the written language; it is entered will all the background of the surrounding circumstances

a. Cmt. 2: “such writings are to be read on the assumption that the course of prior dealings between the parties and the usages of trade were taken for granted when the document was phrased, unless carefully negated…”

b. Prior course… and trade usage is treated differently than evidence of an additional term

3. Degree of integration is irrelevantix. Additional terms

1. Cmt. 3: Additional terms can be provided unless the writing was intended by both parties as a complete and exclusive statement of all terms. If the additional term would certainly have been included, the evidence is excluded

2. Evidence of consistent additional terms is admissible to explain or supplement a partially integrated integration; such evidence is admissible to explain a completely integrated agreement

a. If partially integrated, the evidence can explain or supplement

b. If its completely integrated, additional terms can explain but not supplement

3. Steps of analysis where there is no merger clause:a. 1. Is this an additional term (and not evidence of

prior course of dealings or trade usage)?b. 2. If an additional term, is the agreement partially or

totally integratedc. 3. To determine if partially or fully integrated, apply

the certainty test – is this something that certainly would have been included in the agreement (2-202 cmt. 3)

i. Issue: does it go to the essence and the heart of the transaction?

ii. If it certainly would have been included, it’s completely integrated on this term

a. Each piece of evidence is viewed individually → work through the analysis for each piece of evidence desired to be admitted

iii. A merger clause means it’s usually completely integrated on everything, but still check as above

x. Merger/Integration Clauses

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1. To excludes prior course of dealings or trade usage, it must be specific that those are excluded – general language will not suffice

2. Not given conclusive effecta. Between two sophisticated parties a court will give

it considerable weight (close to conclusive)c. Offer and Acceptance

2-204 FORMATION IN GENERAL(1) A 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 contract(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

i. Validates the open terms conceptii. Meant to deformalize the process and get at the parties’ intent to

bind themselves2-206 OFFER AND ACCEPTANCE IN FORMATION OF A CONTRACT(1) unless otherwise unambiguously indicated by the language or circumstances(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.(2) Where the beginning of the requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance In order to require acceptance by some particular method, must be very, very clear “the only way to accept is…”

iii. (1) Nonconforming goods are acceptance and breach at once unless the seller seasonably informs the buyer they are an accommodation

iv. An accommodation is a counteroffer which the buyer can then accept

v. (2) Don’t have to be able to identify the exact moment of creationvi. Addresses two problems:

1. Mode of acceptance – eliminates the distinction between a bilateral (promise for a promise) and unilateral (promise for performance)

2. Unilateral contract trick – prevented the seller from ever being in breach; eliminates this problem

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2-205 FIRM OFFERS[1] An offer [2] by a merchant to buy or sell goods [3] in a signed writing which [4] by its terms gives assurance that it will be held open is not revocable for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months, but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror

vii. Four elements1. Offer – defined by the restatement?2. Merchant – knowledge with respect to business practices

(2-104)3. Signed writing – in whatever manner4. Assurance that it will be held open – somewhere in the

writingviii. Cmt. 3: “This section is intended to apply to current ‘firm’ offers

and not long term options”1. Options are easy to create if you want to keep something

open for a long time – separate contract2. Alternatively can be renewed repeatedly for up to three

monthsix. Does not have to say how long it will be held open: If no time

period is stated, offer is held open for a reasonable amount of time1. Reasonable is determined based on facts and circumstances

x. Arguably, 2-205 displaces the idea that an oral agreement can hold open an offer

d. Battle of the forms2-207 Additional Terms in Acceptance of Confirmation(1) A definite and seasonable expression of acceptance or 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 contract. Between merchants, such terms become part of the contract unless:(a) the offer expressly limits acceptance to the terms of the offer;(b) they materially alter it; or(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 contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such a case, the terms of the particular contract 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

i. Addresses two issues:1. 1) Has a contract been formed? 2-207(1) and (3) are

relevant2. 2) Assuming a contract has been formed, what are the

terms of the agreement? 2-207(2) and (3) are relevant

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ii. Applies to contracts that arise in the following ways:1. An oral agreement followed by a written confirmation –

207(1)2. An exchange of forms – 2-207(1)3. Conduct that recognizes the existence of a contract –

207(3) i. Contract has failed to come into existence pursuant to

an exchange of forms is the only thing that evokes (3)4. Oral offer followed by written acceptance and performance

iii. Was a contract formed?1. A written confirmation with different terms is still a

contract unless the acceptance is expressly made condition on the assent to different terms

i. “This is not an acceptance unless…”2. Conditional acceptance is a counteroffer3. Even if there is a conditional acceptance with no further

acceptance, if the parties act as though there is a contract a contract is formed with the terms the forms agree on and any supplied by the UCC (3)

i. Note: conduct following conditional acceptance is not acceptance of the additional terms; that would be the last shot rule

iv. Determining which terms are included under (3):1. If the forms disagree, the term drops out2. The written forms are evidence of what the parties agreed

to and minimize the use of default rules3. Any holes or gaps are filled by gap filler provisions,

including 2-314v. (2) Approaches to different terms when there is a contract pursuant

to an exchange of forms:1. First shot rule: different terms are not part of the contract

because (2) only applies to additional termsi. Cmt. 3: different terms should be treated like

additional termsii. Additional term analysis applies – whether it would

come in under PER, etc.? or the analysis below?iii. Cmt. 6 should read: “If not answer is received within

a reasonable time after immaterial additional terms are proposed, it is both fair and commercially sound to assume that their inclusion has been assented to.”

iv. Majority/exam approach: Different terms knock each other out

2. 2-207’s First shot rule: the terms set forth in the offer control unless there is a conflicting term in the offeree’s acceptance

i. Offeree/buyer beware

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3. An additional term will not become part of the agreement:a. If it’s not between merchants

i. Additional terms automatically drop outb. If the offeror objectsc. If it is a material alteration

i. Cmt. 4: clauses materially alter if they “result in surprise or hardship”

ii. DF Industries : surprise is the only standard; hardship flows from surprise. Most courts say either surprise or hardship is sufficient

iii. Bayway : Suprrise from a subjective position and objective position (should they have known). Trade usage of including a clause may eliminate surprise

a. Hardship : the more substantial the impact, particular financial, the more likely a court is to find hardship

d. If the offer limits acceptance to the terms set forth therein

ii. Shrinkwrapping and rolling contract formation1. Klocek : Contract formation occurred when the goods were

shipped or when the credit card was approved and the additional terms were material alternations knocked out under 2-207

2. Hill and ProCD used the “rolling contract formation” theory to hold that the final contract isn’t consummated until the buyer reviews the terms and keeps the goods and thus the terms come in

3. Jurisdictions split over these approachese. CISG

i. For the most part, CISG uses the mirror image rule because “material” is defined so broadly as to include almost all terms

ii. If you have an oral agreement and the seller sends a confirmation at most it’s a proposal for modification; can’t be a counteroffer because you already have an agreement

iii. Acceptance and additional termsArticle 19: (1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modification is a rejection of the offer and constitutes a counter-offer [common-law mirror image rule] (2) However, a reply to an offer which purports to an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance [limited exception to mirror image rule; if

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the responsive document contains additional but immaterial terms we have contract formation and term is part of agreement unless there is an objection] (3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially [definition of “material” and includes almost everything. Makes you wonder to what extent (2) actually is an exception].

iv. Termination of offerArticle 17: An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror

v. OffersArticle 14: (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and price. (2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal

1. Requires a little more specificity than Article 2 and doesn’t permit open terms

2. Like the old rule regarding advertisementvi. Acceptance, when effective

Article 18: (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence of inactivity does not in itself amount to acceptance. (2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise; (3) However, if, by virtue of the offer or as a results of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph

1. Different than the American mailbox rule2. (3) is like § 206

vii. Withdrawing an offerArticle 15: (1) An offer becomes effective when it reaches the offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer

1. Not sure I see the difference between Article 15 and 16viii. Withdrawing an offer

Article 22: An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective

ix. Revocation of an offer

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Article 16: 16(1) says it can be revoked anytime before the offeree dispatches acceptance; 16(2): However an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable, or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer

1. Whether it has to state that it will be held open is a split2. The duration of the offer is not an assurance to hold the

offer openf. 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 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.(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 Different from common law

i. Consideration was an attempt to police modification; the new mechanism is good faith (cmt. 2)

1. It is not in good faith to agree to a modification but not plan to observe it

2. You can always refuse to modify in good faith; you just can’t lie about it

3. Also requires good faith to request a modification – a “legitimate business reason”

4. It is not good faith to threaten to breach if the other party won’t modify unless the circumstances have so changed that you would be excused from performance under impracticability (very difficult to prove)

ii. (2) is a “No Oral Modification” (NOM) Clause1. Private statute of frauds

iii. (3) Public statutes of frauds; kicks you over to 2-2011. Majority: If the original contract was within 2-201, any

modification thereof must also be in writinga. Criticized because it means even if the term

wouldn’t have had to be in writing originally, it does have to be to change it

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2. Minority: A modification must be in writing if the term it adds brings the deal with § 201 for the first time (such as where the price increases to $500)

a. Everyone agrees with this position3. Minority two: The modification must be in writing if it

changes the quantity terms of the original agreement that fell within 201

a. Answers the criticism to the majority view4. Once action has been taken under the modification, the SoF

issue is resolved because of 2-201(3)(a)iv. Open question whether partial performance can also satisfy a

NOM clause (private SoF)v. If 2-201 is triggered, does a NOM clause add anything?

1. In a minority jurisdiction it adds protection because it applies to modification of any term

2. Some courts say a NOM clause requires a writing to include more essential terms than would be satisfactory under 2-201

3. A minority of courts say certain 2-201 exceptions don’t apply if there is a NOM Clause

vi. (4) waiver is waiving a requirement (as opposed to assuming a new duty)

vii. The quantum of proof for a waiver of a NOM Clause varies:1. Some courts permit virtually any evidence, including oral

testimonya. Liberal approachb. View NOM as the opposite of a merger clausec. Treat NOM as one factor to consider

2. Some say it can be waived only by course of performance/reliance

viii. If a party establishes a NOM clause was waived with respect to a particular term, the waiver is only effective for that particular instance

ix. Anti-waiver provisions – you can waive anti-waiver provisions, but the quantum of proof must be extraordinarily hight

x. (5) Once modification has been made, if a greater duty has been assumed the duty of good faith stops a party from backing out of the modification later

III. Warrantiesa. Warranties of title

2-312 Warranty of Title and Against Infringement; Buyer’s obligation Against Infringement(1) Subject to (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

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(2) A warranty under (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 to 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

i. This is an implied warranty – it arises in every transaction covered by Article 2

1. Cmt.6 says it’s not an implied warranty, but that just means with respect to 316 on disclaiming; it has it’s own disclaimer provision

2. There is always a warranty of title – it doesn’t matter if the transferor believes he has good title. Only specific language or circumstances (see later) can change that

a. Intent/knowledge is irrelevant; it’s a form of strict liability

ii. Particularly relevant with respect to 2-4032-403 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(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 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.(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(4) The rights of other purchasers of goods and of lien creditors are governed by the Articles on Secured Transactions, etc…

1. Where a transferor has voluntary delivered goods to a purchaser, the risk of fraud is placed on the transferor, rather than the innocent third party

2. Between two innocent parties, the balance is tipped in favor of the bona fide purchaser for value

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a. Note: must be for value; a giftee still has voidable title

3. The policy is to protect he marketplace; give confidence to buyers

4. (2) is the two innocent buyer’s situation – the innocent seller must be a merchant who deals in the goods of the kind and the buyer must be sold to in the ordinary course of business (normal business hours, normal buyer)

iii. Void v. Voidable: did the owner of the goods make a voluntary transfer?

1. If no = void; if yes = voidable2. A transferor with voidable title can vest its transferee with

good title3. A transferor with void title cannot pass on good title to the

transferee; once void, always voidiv. Defenses – 2-607(5)(a): 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

1. If the innocent buyer of a void title is sued, he can notice the seller, which requires the seller to come and defend or be bound by the determination against the buyer

v. Warranty of title protects against colorable claims that require the buyer to defend her title

1. Even if the buyer wins a suit, the warranty of title is breached if someone brought a colorable claim

2. To determine what is colorable, most courts look at the facts and circumstances of a particular claim

a. Possible standard: anytime the seller knew or had reason to know of a potential claim

vi. Resales and warranty of title: 9-6101. Article 9 secured resales do get warranties of title (Cmt.5

and (d))b. Warranties of Quality – Express Warranties

i. Treated just like any other term of the contract1. Can arise from words or conduct → no magical words must

be used2. Subject to contract defenses (PER is particularly important)3. Seller’s intent is largely irrelevant – objective theory of

contract

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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 good 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 the seller’s opinion or commendation of the goods does not create a warranty

ii. Must relate to the goods1. Say something about title, quality, features, description

iii. Must fall within 313(1)(a)-(c)1. Affirmation of fact or promise, or

a. These are the same thingb. Question is just how a reasonable person would

objectively view this statement → is it fact or opinion?

c. When determining if something is fact v. opinion or puffery consider:

i. Whether the phrase has any particular meaning in the industry

ii. Relative expertise of the parties (broader gap = less leeway)

iii. Whether the statement was in response to particular questions of the buyer’s

iv. “classic sales talk” = pufferyv. Specificity of the statement

vi. Whether the statement is equivocal in manner

vii. Whether the goods are experimental (indicates less likelihood of a guaranteed result)

viii. Priceix. Circumstances indicating the seller should

not be taken seriouslyx. Words like “finest” might become

affirmation if there is something to compare it to

d. Seller adding “in my opinion” does not cleanse (though greater equivocation points toward opinion)

2. Sample or model, or3. Description of the goods

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iv. Must be a part of the basis of the bargain1. Drafters wanted something less stringent than the reliance

requirement; most say it is a diluted form of reliance2. Merely has to be an inducing factor, not the predominant

factor3. Keith : If a buyer can establish that a seller made an

affirmation of fact or promise, the buyer created a presumption that it has become a part of the basis of the bargain; then the burden shifts to the seller to prove it was not part of the basis of the bargain by showing:

a. Affirmation was made after the agreement was entered

i. Some courts treat it like a rolling contractii. Some courts say it’s a modification

(weakness in that modification requires mutual assent)

iii. Another group doesn’t care and just gives the buyer protection

b. Buyer is aware that the true condition of the goods is inconsistent with the warranty

c. If the buyer inspects before purchase, she is viewed as having waived the express warranties

4. Cmt.7 says the precise time when words of description or affirmation are made or samples are shown is not material “if language is used after the closing of the deal (as when the buyer when taking delivery asks and receives an additional assurance) the warranty becomes a modification and need not be supported by consideration if otherwise reasonable”

c. Warranties of Quality – Implied Warranty of Merchantabilityi. It’s a gap-filling term; if the seller is a merchant with respect to

goods of the kind, it attaches if nothing else is said1. Can be contracted around by granting a limited express

warranty and disclaiming all othersii. Imposes a standard on sellers and a duty to provide goods that

measure up to a certain qualitative standard (listed in (a)-(f))iii. Form of strict liability – negligence does not matter

2-314 IMPLIED WARRANTY: MERCHANTABILITY; USAGE OF TRADE(1) Unless excluded or modified, a warranty that the goods shall be merchantable is implied [1] in a contract for their sale [2] 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

(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

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(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, quality

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 other implied warranties may arise from course of dealing or usage of trade.

iv. (1) places limits: Must be in a contract for sale of goods; must be a seller who is a merchant with respect to goods of that kind

1. Contract for salea. Free stuff – if it’s tied to a “purchase” (e.g.

gambling) probably is a contract for saleb. Problem before paying – as long as there is an

“intent to buy” there is a contract for sale (not just checking the price)

c. E.g. goods acquired in settlement not covered by warranty

2. Merchanta. Non-merchants have to disclose known defects,

but if no knowledge → no implied warranty of merchantability

b. This is merchant with respect to goods of the kind – must be more than just familiar with general business practices

c. Consider regularityv. Merchantability - Usually the focus is on 2(c)

1. Does not guarantee the best or a perfect product – only a fair and average quality in a particular industry

2. Consider whether the problem is outside what is usually expected from product

3. Goods with collateral issues (cigarettes, butter)a. This is a labeling (e) issue – if some kind of

warning is provided (if danger is great enough), it’s probably merchantable

b. Also misuse issues/causation issuesc. Allergies – foreseeability issue; what % of the

population has to be affected before it’s foreseeablei. Most cases require it to affect an appreciable

number of people4. Standards of merchantability will change as we become

more familiar with risks and the technology to avoid thema. Federal standards are given a lot of weight

d. Warranties of Quality – Implied Warranty of Fitness for a Particular Purpose

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2-315 IMPLIED WARRANTY: FITNESS FOR A PARTICULAR PURPOSEWhere 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 of 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. Knowledge requirement:1. Seller knows or has reason to know of two things:

a. (a) the buyer’s particular purpose; andb. (b) that the buyer is relying on the seller’s skill or

judgment to furnish appropriate goodsc. Actual knowledge is not required – seller is charged

with knowing certain facts by virtue of the circumstances she knows

d. Cmt.1: “Whether or not this warranty arises in any individual case is basically a question of fact to be determined by the circumstances of the contracting”

i. It’s contextual whether the warranty arises or has been breached

ii. Reliance requirement: the buyer has in fact relied upon the seller’s skill or judgment

1. E.g., facts suggesting the buyer is relying on his own skill or judgment = no implied warranty

iii. Seller does not have to be a merchant of goods of the kindiv. Note: disclaiming the warrant is different than 314 (see below)v. It’s contextual – the only way to know if the warranty was

breached is to look at this buyer’s needsvi. Arises in a narrower range of circumstances, but creates a broader

warranty because to satisfy:1. Goods must be fit for their ordinary purpose, and2. Goods must be fit for the buyer’s special purpose

vii. Buyer’s requests1. Cmt. 5: “If the buyer himself is insisting on a particular

brand he is not relying on the seller’s skill and judgment and so no warranty results. But the mere fact that the article purchased has a particular patent or trade name is not sufficient to indicate nonreliance if the article has been recommended by the seller as adequate for the buyer’s purpose.”

2. Seller should not acquiesce to buyer’s demands if he knows the item will not work

viii. Particular v. ordinary purpose1. Particular purpose envisages a specific use by the buyer

particular to the nature of the buyer’s business (Cmt.2)2. Ordinary purpose focuses on the uses customarily made of

the goods

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3. Goods bought for ordinary purpose that also happens to be the buyer's particular purpose and the goods fail to fulfill their ordinary purpose (e.g., tractor bought for ordinary purpose, heavy plowing, which is also buyer’s particular purpose)

a. Emerging trend is to say when particular and ordinary purpose align, the particular merges into the ordinary

4. Ordinary goods bought for a special purpose, which can perform their ordinary function but cannot fulfill their special purpose

a. Classic fitness for a particular purpose case5. Ordinary goods bought for a particular purpose that cannot

perform their ordinary purpose (e.g., air conditioning unit that produces no btu’s)

a. Breach of both merchantability and particular purpose

6. Goods designed and bought only for a special purpose that cannot fulfill this purpose (e.g., specially manufactured sunglasses to be used by baseball players that fail to function properly)

a. Special purpose was the ordinary purpose, thus only warranty of merchantability breached

ix. Food1. Old rule was the natural/foreign substance test – if item was

naturally found, no liability; if was foreign, liability2. Courts have shifted to the Webster “reasonable expectation

standard”a. Sometimes the court considers reasonable for a

person with these characteristics (age, home town)3. Standard is the same, but higher for foods from a can at

home because people expect the processing to weed out more errors

e. Warranty Disclaimers and Limitationsi. Distinguish between a disclaimer, and a limitation of remedies

1. Disclaimer reduces the ways a seller can be held liable2. A limitation of remedies assumes some liability, but limits

the remediesii. As-is = no warranties; no circumstance where the seller can be

held liable (maybe warranty of title)1. Any limitation of remedies here is totally irrelevant,

because there is no basis for liability2-316 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

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extrinsic evidence (2-202) negation or limitation is inoperative to the extent that such construction is unreasonable.(2) Subject to (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 (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.

iii. Disclaiming Express Warranties1. Cannot be disclaimed, but can be limited (1)2. Language that disclaims/negates drops out; language that

limits may be okay (see later)3. Whether an express warranty was created

a. To determine that, but go through a PER analysis4. Limiting clauses

a. Merger clausei. Same effect as any merger clause on PER

analysis (not conclusive, persuasive with two sophisticated parties

b. No express warranties createdi. If court determines one was created by

going through PER analysis, it is unreasonable to allow seller to disclaim it

c. Lack of authority clausesi. Cmt.2 says the code recognizes

ii. Generally, jurisdictions hostile to using PER to exclude evidence will recognize the warranty; jurisdictions that exclude evidence under PER frequently will likely respect clauses stating that salespeople lack authority to make express warranties

iii. Best choice

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iv. Disclaiming Implied Warranties1. Warranty of title

a. Cmt.6 says the warranty in (1) is not designated an implied warranty. Disclaimer of the warranty of title is instead governed by 2-316(2), which requires either specific language or the described circumstances

b. Buyers don’t think “as is” relates to the title, so to disclaim the disclaimer must be extremely clear as to what the buyer is not getting

c. Certain circumstances (sale in a bathroom) may also disclaim the warranty of title

2. Merchantability and fitness for a particular purposea. Must be conspicuous

i. Cmt.10: test is whether buyer’s attention can reasonably expect to be called to it

ii. 1-201(10): Conspicuous means “written so that a reasonable person against who it is to operate ought to have noticed it”

a. Putting it under a heading “Warranty” is not conspicuous

iii. Cmt.1: conspicuous language or other circumstances that “protect the buyer from surprise”

iv. This is an objective standard – doesn’t take into account the person’s status as a merchant or not

v. Actual knowledge – if the goal is to avoid surprise, seems like yes. But, you want to encourage sellers to try to comply and an actual knowledge requirement doesn’t do that

vi. Location: helps if the front page says “disclaimer on the back”; near signature line is conspicuous

a. Ask: is it in a location so that the buyer’s attention will be drawn to it?

vii. Usage of trade won’t necessarily help a seller, because entire industry may have adopted an inappropriate practice

b. Should we allow disclaimers at all, esp. of merchantability?

i. Some states say no

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ii. Rev. Article two moves toward more distinctions for merchants/non-merchants

c. Other ways to disclaim – (3)i. (3)(c) Cmt.6: “common factual situations in

which the circumstances surrounding the transaction are in themselves sufficient to call the buyer’s attention to the fact that no implied warranties are made”

a. Selling a watch in a bathroomii. (3)(a) Cmt.7: “such terms in ordinary

commercial usage are understood to mean that the buyer takes the entire risk as to the quality of the goods involved” (an RP objective standard)

a. E.g. “as-is” – Most courts require “as-is” language to be conspicuous, even though no specific requirement in (3)

b. Some courts have said the circumstances are inconsistent where “as-is” appears on a new item

iii. (3)(b) Cmt.8: buyer must refuse to examine the goods in the face of a demand, not just a request. Disclaimer by examination

a. Where seller demands an exam, or

b. Buyer actually engages in an exam,

c. They are charged with the information the examination would reasonably reveal

v. Post Sale and Shrink Wrap Disclaimers1. Bowdoin used to be the clear majority – if the buyer didn’t

see the disclaimer until after purchase, it’s not a basis of the bargain and not conspicuous

2. More current view is Rinaldi, applying the rolling contract formation theory from Hill and ProCD to find that as long as the disclaimer is clearly identified once the buyer opens the box, the disclaimer is effective

a. Focuses on 1) notice and 2) whether the buyer has the realistic and practical opportunity to return the good

vi. Warranty and Remedy Limitation1. Disclaimer of warranties is under 316 and limits what the

seller is responsible for; extent of responsibility

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2. Limitation of warranties under 719 assumes the seller has some obligation or responsibility and lists the remedies where the seller has violated or breached responsibilities

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 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

3. Any remedy is presumed to be cumulative to all the remedies unless the seller includes clear language indicating substitution

a. “buyer’s remedy is limited solely to repair or replacement” – generally works; sole and limited send a clear message

4. If the code remedies are limited, that means everything (revocation, rejection and cover)

5. “Fails of its essential purpose”a. When the seller limits remedy to repair, and has

attempted but is unable to repair, the buyer is being deprived of a remedy and the limitation is failing of its essential purpose.

b. Cmt.1 - Where a limited remedy fails of its essential purpose, all the code remedies become available to ensure minimum adequate remedies

c. Generally fails: where seller is unsuccessful in repair or replacing defective parts (regardless of good or bath faith or delay); where goods have been destroyed (if no replacement option)

d. Doesn’t fail where limit is to repair or full refund – then can just get a full refund

6. Conspicuousnessa. 719 doesn’t say anything, but most courts require

that a limitation be conspicuous in order to be effective (look at the Cmt.1 goal of avoiding surprise)

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7. (3) issue: if the remedy fails of its essential purpose, does a limitation of consequential damages continue?

a. Dependent view: consequential damages are linked to the limitation, so if the limitation falls out the consequential limit does as well

i. Plain language supportii. Assumes the buyer gives up the

consequential damages based on assumption that the limited remedies will work and minimize consequential damages → defeats the expectations of the buyer

b. Independent view: a separate provision barring consequential damages will survive under 719(3) as long as the bar itself is not unconscionable

i. Standard for assessing validity is different than with limitation of remedies – this focuses on the abilities of parties to allocation their loss

a. Consider: whether the buyer is a consumer; relative bargaining power; and whether a standard form agreement was being used

ii. However, some courts say where the seller acted in bad faith in refusing repairs, the court won’t give effect to a limitation of consequential damages, even under independent view

8. Ways to find a limitation not valid:a. Manifestly unreasonableb. Unconscionablec. Ineffective attempt to disclaim an express warrantyd. Invalid as a failure of the essential purpose

f. Defenses in Warranty Actionsi. Notice

2-607(3)(a): 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

1. Accepted = no attempt to revoke or reject2. Not just breaches of warranty – applies to any breaches3. Notice is a condition precedent – the buyer must allege

notice to recover4. Purposes: (courts will generally consider when deciding

whether notice was sufficient)

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a. 1) to prevent surprise and allow the seller the opportunity to make recommendations on how to cure

b. 2) Permit the seller the fair opportunity to investigate and prepare for litigation, and

c. 3) open the way for normal settlement of claims through negotiation

5. Four major issues:a. Reasonable timeb. Form of the notice (oral is sufficient, but hard to

prove so foolish)c. Content of noticed. Horizontal and vertical privity issues (who must

give notice and to whom must it be given)6. Each breach is entitled to its own notice7. Actual knowledge of breach by seller (e.g. late shipment) is

not sufficient; the buyer still must give noticea. Cmt.4: have to put the seller on notice that the

transaction is “still troublesome and must be watched”

b. Does not require a description of the defect, but some courts say you have to do more than express concern, especially with sophisticated commercial dealers and a really big deal

8. Filing suit is not notice, because it doesn’t promote any of the policies

9. Court treat notice requirements differently depending on: the status of the parties (consumers get more leeway); nature of the injury (economic v. personal (more leeway))

ii. Burden of Proof1. Merchantability defects

a. Improper manufacturingb. Design defectc. Presence of a foreign object in foodd. Incorrect labeling/warning

2. Elements for п to prove breach of warrantya. Creation of a warrantyb. It’s a breachc. It’s casual connection to the п’s injury

i. Defect must have something to do with a defect in the goods

d. Fact and extent of the injurye. Cmt.13 to § 314

3. NC case elements:a. A sale of goodsb. Goods were not merchantable at the time of sale

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c. Plaintiff was injured by goodsd. The defect or other condition amounting to breach

proximately caused the injurye. The plaintiff gate the seller timely notice

4. Proof of a defect – if the quantum of proof is very high, buyers could never recover

a. Don’t need expert testimonyb. Does not need to show direct proof of a defect

(couldn’t win if product was destroyed or consumed)

c. Circumstantial evidence is sufficient5. To rebut, seller tries to show misuse or failure to maintain

a. Comparative fault’s invasion – courts allow a buyer to recover for consequential damages before misuse, but not after

iii. Privity1. Cmt.5: “the reason of this section does extend to requiring

the beneficiary to notify the seller that an injury has occurred. What is said above, with regard to the extended time for reasonable notification from the lay consumer after the injury is also applicable here; but even a beneficiary can be properly held to the use of good faith in notifying, once he has had time to become aware of the legal situation.

2-318 THIRD PARTY BENEFICIARIES OF WARRANTIES EXPRESS OR IMPLIEDAlternative AA sellers’ 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 or who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.Alternative BA 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 sectionAlternative CA 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.

2. Horizontal privity – third party beneficiariesa. Who can sue? Who falls in to the class of

individuals who suffered an injury who can assert a cause of action for breach?

b. A is NC’s and most jurisdiction’s choice

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i. Requires some close, personal relationship between the plaintiff and the buyer (family member, guest; not an employee, unless there is an exception)

ii. A only allows recovery for personal injury, not economic loss

c. Bi. Only for personal injury

ii. It’s a foreseeability issued. C

i. Foreseeability againii. Courts are pretty flexible under B and C

about who might reasonably useiii. Can recover for economic loss

e. Must the third party give notice? Some courts say yes, others allow the complaint to be notice; some excuse notice requirement

3. Vertical privity – Those in the chain of distributiona. Must notice be given to the seller or the

manufacturer?i. Majority rely on “notice to the seller”

language to only require notice to the sellerii. Minority require notice to both; status of the

parties and nature of the injury becomes relevant here (no cases where a consumer with a personal injury had to give notice to both)

b. Most jurisdictions have abolished vertical privity with respect to personal injury

i. Is required for fitness for a particular purpose, because you need some representation

c. Where oral representations to a retailer are intended to be communicated to a remote buyer, the buyer can recover directly from manufacturer

4. Disclaimers and privitya. Cmt.1: 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….what this last section forbids is exclusion of liabilities by the seller to the persons to whom the warranties which he has made to his buyer would extend under this section

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i. Seller can’t exclude classes of plaintiffs, both other valid limitations of remedies will apply to all potential plaintiffs

b. Moore says a manufacturer can take advantage of a seller’s valid limitation as long as there is an express mention of the manufacturer to put the buyer on notice

c. Components parts makers – Protection created by others down the line extends to them; most don’t have the power to get their own warranties or limitations passed on and need to protect their own interest; no requirement of an express mention

iv. Strict Products Liability and the Economic Loss Rule1. Economic Loss Rule: When there is purely economic

damage (not personal or property other than the product), you can only recover under contract/warranty

a. Exception: where you have damages to the product or your person and damage to other property, you can recover the damage to other property with damage to the product in tort → once you open the door to tort recovery it’s all available

b. Arises where statute has run on the warranty claim, so the п files a claim under tort law

2. East River clarified that contract law will not be subsumed by tort law

3. Economic loss can be divided into two categories:a. Direct – loss of value in the product; cost of repair

or replacementb. Indirect – consequential damages; lost profits

4. “other property”a. Integrated systems rule: if a component causes

injury or damages things surrounding it, if it’s viewed as an integrated component the damage is not deemed damage to “other property” → ELR applies

5. Three approaches:a. Majority (Seely): apply ELR strictly

i. Where the only damage is to the product itself, the buyer could have insured against the loss

ii. “Damage to a product itself is most naturally understood as a warranty claim. Such damage means simply that the product has not met the customer’s expectations, or, in other words, that the customer has received insufficient product value.”

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b. Santori : allow recovery in tort only where damage was to product itself

c. Middle ground: look at the way the injury resulted; distinguish between the disappointed and endangered purchasers; if it posed a risk of harm to other property or persons, you have a cause of action in tort (rare to use now)

v. Finance Leasing and Warranties2A-103(1)(G) “FINANCE LEASE” MEANS A LEASE WITH RESPECT TO WHICH:(i) the lessor does not select, manufacture, or supply the goods;(ii) the lessor acquires the goods or the right to possession and use of the goods in connection with the lease; and(iii) one of the following occurs [procedural requirements](A) the lessee receives a copy of the of the contract by which the lessor acquired the goods or the right to possession and use of the goods before signing the lease contract ;(B) the lessee's approval of the contract by which the lessor acquired the goods or the right to possession and use of the goods is a condition to effectiveness of the lease contract;(C) the lessee, before signing the lease contract, receives an accurate and complete statement designating the promises and warranties, and any disclaimers of warranties, limitations or modifications of remedies, or liquidated damages, including those of a third party, such as the manufacturer of the goods, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods; or(D) if the lease is not a consumer lease, the lessor, before the lessee signs the lease contract, informs the lessee in writing (a) of the identity of the person supplying the goods to the lessor, unless the lessee has selected that person and directed the lessor to acquire the goods or the right to possession and use of the goods from that person, (b) that the lessee is entitled under this Article to the promises and warranties, including those of any third party, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods, and (c) that the lessee may communicate with the person supplying the goods to the lessor and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies.

1. Characteristics of the finance leasesa. Third party supplies the goodsb. The lessor acquires the goods at the request of the

lessee in order to lease them to the lesseei. Typically a bank or financing institution

c. The lessor finances the transaction (provides the lessee with financial resources to acquire the goods)

d. The third party that supplies the goods, not the lessor, is responsible for the quality of the goods

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i. iii(A) ensures the lessee knows who to look for if goods are nonconforming

ii. Supplier means a person from whom a lessor buys or leases goods to be leased under a finance lease (x)

e. It’s a three-party transaction involving two contractual arrangements

i. Supply contract between the supplier and lessor, under which the lessor acquires the goods, and

ii. The lease contract between the lessor and the lessee under which the lessee acquires the use and possession of the goods from the lessor

2. Four requirementsa. Lessor must not select, manufacture or supply the

goods (103(1)(g)(i);i. Must not be in a role where it would be

appropriate to make the lessor responsible for the quality of the goods

b. Lessor must acquire its rights in the goods in connection with a lease (103(1)(g)(ii))

c. Compliance with procedural requirements intended to ensure that lessee is aware that it must look to supplier for problems related to quality of goods; and

i. Four ways listed in code section that procedural requirements can be satisfied

d. Must be a true leasei. See above

3. Warrantiesa. Lessee gets the benefits of any warranties given to

the lessor by the supplier (2A-209)b. Absent any other indication, the lessee looks

entirely to the supplier for remedy; however, the lessor can undertake or perform other functions (2A-210)

4. Hell or High Water Clauses2A-407 IRREVOCABLE PROMISES: FINANCE LEASES(1) In the case of a finance lease that is not a consumer lease the lessee's promises under the lease contract become irrevocable and independent upon the lessee's acceptance of the goods.(2) A promise that has become irrevocable and independent under subsection (1):

(a) is effective and enforceable between the parties, and by or against third parties including assignees of the parties; and

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(b) is not subject to cancellation, termination, modification, repudiation, excuse, or substitution without the consent of the party to whom the promise runs.(3) This section does not affect the validity under any other law of a covenant in any lease contract making the lessee's promises irrevocable and independent upon the lessee's acceptance of the goods

5. In a finance lease, upon acceptance of the goods the lease contract becomes independent (normally, performance obligations are dependent)

6. This is self-executing and does not require a hell or high water clause

g. CISG and Warranties – Articles 35-41i. Article 41 – warranty of title

ii. Article 35(1) and (2)(c) – express warrantiesiii. Article 35(2)(a), (b) and (d) – implied warranties

1. Parties can contract aroundiv. Article 6 – parties can contract around CISG

IV. Terms of the Contracta. Filling the Gaps

2-305 OPEN PRICE TERM(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if

(a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other standard as set or

recorded by a third person or agency and it is not so set or recorded. (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith. (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price. (4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account

i. An open price term is not a basis for defeating the contract (Landrum)

ii. Turns on intent of the parties – whether they intended to enter a contract notwithstanding the existence of a price term

1. Cmt.1: “this articles rejects in these instances the formula that “an agreement to agree is unenforceable” if the case falls within subsection (1)…and rejects also defeating such agreements on the ground of “indefiniteness”…instead this Article recognizes the dominant intention of the parties to have the deal continue to be binding upon both.”

iii. Where the price term is left open and the parties can’t agree, the court sets a “reasonable price term”

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iv. Partial gaps – (1)(b); (1)(c) and (2) – where one party or an independent measure is to set the price

1. Price must be set in good faith and fair dealing2. Where the parties have a prior course of dealing, it is not in

good faith to go far above that rangea. Other party may claim it should set the price in that

circumstance3. Where this fails, the court can set a reasonable price4. Exception: Cmt.4: A particular person setting the price may

be an essential condition of the parties entering a contract at all

a. If the contract stipulates that it is conditioned on a certain person setting the price, and that person no longer exists, the obligations may be discharged

2-311 OPTIONS AND COOPERATION RESPECTING PERFORMANCE(1) An agreement for sale which is otherwise sufficiently definite (subsection (3) of Section 2-204) to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness. (2) Unless otherwise agreed specifications relating to assortment of the goods are at the buyer's option and except as otherwise provided in subsections (1)(c) and (3) of Section 2-319 specifications or arrangements relating to shipment are at the seller's option. (3) Where such specification would materially affect the other party's performance but is not seasonably made or where one party's cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies

(a) is excused for any resulting delay in his own performance; and (b) may also either proceed to perform in any reasonable manner or after the time for a material part of his own performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods

v. Two presumptions under § 311:1. 1) Buyer will select the assortment of goods

a. Where the buyer fails to make a selection, the seller is excused or may either perform in any reasonable manner (make the selection himself) or after a time treat it as a breach

b. Where the seller makes the selection herself, probably rely on course of dealings (205) where available

2. 2) seller will make the shipment arrangementsvi. Anticipatory repudiation and Retraction of

2-610 ANTICIPATORY REPUDIATIONWhen 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

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(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)

vii. Cmt.1: Anticipatory repudiation “centers upon an overt communication of intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance”

1. Issue: was there an unequivocal refusal to perform or manifestation of inability to perform?

2-611 RETRACTION OF ANTICIPATORY REPUDIATION(1) Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final. (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (Section 2-609). (3) Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation

viii. Repudiation can be retracted, but only where the other party has not relied on the 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 ubnder the circumstances of the particular case is a repudiation of the contract.

ix. Can demand clarification in writing and may suspend performance until they receive assurances; if no assurances in 30 days, can assume repudiation and seek recovery for breach

x. Other gap filler provisions2-301 GENERAL OBLIGATION OF PARTIESThe obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract

xi. “obligation → triggers the conditional aspect of dependent covenants

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xii. “accordance with the contract” is not only express terms, but also all the surrounding circumstances to determine obligations (including prior course of dealings, etc.)

2-308 ABSENCE OF A SPECIFIED PLACE FOR DELIVERYUnless otherwise agreed (a) the place for delivery of goods is the seller's place of business or if he has none his residence; but (b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and (c) documents of title may be delivered through customary banking channels

xiii. All these provisions begin with “unless otherwise agreed” → this indicates that they are just default rules

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. (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

xiv. Indefinite contracts are open-ended contracts where parties do not actually discuss the duration

1. They are valid2. There is a “reasonable notice” requirement3. (2) and (3) fill in the duration and notice requirement gap

2-306 OUTPUT, REQUIREMENTS AND EXCLUSIVE DEALINGS(1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale

xv. Cmt.2 rejects the argument that requirement contracts are too indefinite

1. Could be illusory promise if decision to purchase is “solely left up to” buyer’s discretion

xvi. SoF has an exception permitting requirement contractsxvii. Requirements for valid options contract:

1. Exclusivity somewhere – can be only for one plant2. Good faith

a. Even if demand is in good faith, it can’t be “unreasonably disproportionate” to stated estimates or normal requirements

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b. Cmt.2: some degree of flexibility is assumed (there may be some variation in amount)…the central test is whether the parties acted in good faith…similarly a sudden expansion would not be within the scope but normal expansion would be…one factor would be whether market price has risen

c. Look at why demand is being reduced – if it’s just to maintain a profit or cut losses, that’s not in good faith; to avoid bankruptcy is in good faith

d. Some courts say “unreasonably disproportionate” applies only to increases, and decreases are controlled by good faith

e. Subjective good faith standard – personal satisfaction with a product; must be honestly dissatisfied to avoid paying

f. Objective good faith standard – would a reasonable person be dissatisfied?

g. Good faith can be modified by changing which of these apply

3. Best efforts – (2) imposes an obligation on the seller to use best efforts to supply the goods and the buyer to use bets efforts to promote their sale

a. Cmt.5b. Unconscionability

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.A court can enforce or refuse to enforce the entire contract or a particular term(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.

i. “Unconscionabilty” is not defined in the code; definition comes from the common law and cases

ii. Two pronged approach:1. Substantive element

a. Terms of the contract – whether they are harsh, oppressive, or one sided

b. Are there any legitimate reasons for the term at issue?

2. Procedural elementa. Unfair surprise (fine print, boilerplate language)

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b. Lack of voluntariness (relative positions of the two parties; lack of understanding

c. Status of the parties becomes critical – it’s very hard for a merchant buyer to successfully defend on unconscionability

i. Courts will often consider the education level of the buyer

3. Most courts require at least some of each pronta. Cmt.1: “the principle is one of the prevention of

oppression [substantive] and unfair surprise [procedural]”

4. Unconscionability is a question for the judge5. 2-302(2) hearing is mandatory to allow the trial court to

find relevant facts and so the party defending the clause can offer legitimate business reasons for inclusion of the clause

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. Focuses on procedural unconscionability – if there is enough, that’s all that’s needed with respect to consumer leases

c. Identification of the Goodsi. Determines the exact goods that constitute the subject matter of the

contractii. To use sections 613-716, the goods must be identified

iii. Purpose of ID:

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1. To provide the buyer with an insurable interest at as early a stage as possible

2. To recognize the specific goods that are the subject matter of the transaction

iv. Definitions:1. “Identification to the contract is simply the act by which the

seller selects the actual goods that will be shipped to the buyer; the act by which the contract to sell a widget becomes a contract to sell a specific widget.”

2. “Identification is the process that transforms unascertained goods into specific goods so that they become the goods to which the contract refers.”

2-501 INSURABLE INTEREST IN GOODS; MANNER OF IDENTIFICATION OF GOODS(1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs (a) when the contract is made if it is for the sale of goods already existing and identified; (b) if the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers; (c) when the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve months after contracting or for the sale of crops to be harvested within twelve months or the next normal harvest reason after contracting whichever is longer. (2) The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified. (3) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law

v. Cmt.6: the growing season of crops is sufficient identification when the contract is made after planting (does not apply to fish)

vi. (b) future goods – goods must exist to be identified, but once they exist the contract can specify when they are identified

vii. Crops and animals1. Cmt.6: (1)(c) applies when young are born within 12

months from date of contractviii. Fungible goods

1. Cmt.5: undivided shares in identified fungible bulk are identified, and the seller’s duty to divide and deliver is controlled by other sections

a. Only applies where numerous merchants store things together; usually with food commodities

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b. So, where just one merchant storing things in his warehouse, ID won’t occur until actual selection (until a meeting of the minds on identification)

2. Thus, identification can occur when the contract is made3. 1-201(17): “fungible” means goods of which any unit is, by

nature or usage of trade, the equivalent of any other like unit. Goods which are not fungible shall be deemed fungible for the purposes of this act to the extent that under a particular agreement or document unlike units are treated as equivalents

d. Risk of Loss: No Breachi. Used to be tied to title; now the questions are:

1. Which party is more likely to be in a position to insure the goods, and

2. Which party is in the better position to avoid the risk of loss2-509 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); 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. (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)

ii. Cmt.3: a merchant seller cannot transfer risk of loss until receipt of goods; it remains on him until actual receipt, even though the buyer has paid and been notified to pick up goods

1. 2-103(1)(c) – “receipt” means taking of physical possessioniii. (1) and (2) apply when the seller makes arrangements to ship the

goodsiv. (3) is a residual provision that comes into play whenever (1) or (2)

don’t apply1. e.g. when seller himself (not an independent carrier) ships

the goods

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v. Sellers are not bailees unless a specific bailment is formed (independent contract)

2-503 MANNER OF SELLER’S TENDER OF DELIVERY(1) Tender of delivery requires that the seller [1] put and hold conforming goods at the buyer's disposition and [2] 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 (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

vi. For nonmerchants, risk passes upon tender of delivery1. Note that seller must put and hold conforming goods at the

buyer’s disposition and give the buyer reasonable notification

2. Goods must be kept available for a reasonable period to allow the buyer to take possession

3. Cmt.1: “tender” = “due tender” which contemplates an offer coupled with a present ability to fulfill all the conditions resting on the tendering party and must be followed by actual performance if the other party shows himself ready to proceed

vii. Delivery Terms

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2-319 F.O.B and F.A.S. Terms(1) Unless otherwise agreed the term F.O.B. (which means "free on board") at a named place, even though used only in connection with the stated price, is a delivery term under which (a) when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this Article (Section 2-504) and bear the expense and risk of putting them into the possession of the carrier; or (b) when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this Article (Section 2-503); (c) when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this Article on the form of bill of lading (Section 2-323). (2) Unless otherwise agreed the term F.A.S. vessel (which means "free alongside") at a named port, even though used only in connection with the stated price, is a delivery term under which the seller must (a) at his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer; and (b) obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading. (3) Unless otherwise agreed in any case falling within subsection (1)(a) or (c) or subsection (2) the buyer must seasonably give any needed instructions for making delivery, including when the term is F.A.S. or F.O.B. the loading berth of the vessel and in an appropriate case its name and sailing date. The seller may treat the failure of needed instructions as a failure of cooperation under this Article (Section 2-311). He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment. (4) Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

viii. FAS (2)1. Seller’s obligation ends when the goods are delivered

alongside the carrier; must get a receiptix. FOB place of shipment (1)(a)

1. Risk of loss passes when the carrier takes possession of the goods

a. When “duly delivered” by the seller; receiving a bill of lading is a good sign that they have been duly delivered, as that represents control over the goods

2. This is a shipment contract3. 2-504 outlines the obligations of the seller in a shipment

contract4. Cmt. 5 to 503: when ambiguous, presumption is of a

shipment contracta. 503 is not clear whether it’s a shipment or

destination contract

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b. Where all that appears is a ship-to point (no FOB term) the presumption is of an FOB shipment contract

x. FOB place of destination (1)(b)1. This is a destination contract2. Seller must at his own risk and expense transport the goods

to that place and tender delivery therexi. FOB vessel

1. Seller must in addition at his own expense and risk load the goods on board; buyer must name the vessel

2-322 Deliver Ex Ship(1) unless otherwise agreed a term for delivery of goods ex chip or in equivalent language is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination where goods of the kind are usually discharged(2) Under such a term unless otherwise agreed(a) the seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the carrier under a duty to deliver the goods(b) the risk of loss does not pass to the buyer until the goods leave the ship’s tackle or are otherwise properly unloaded

xii. Almost the converse of FAS2-320 CIF and C & F Terms(1) The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named destination. The term C. & F. or C.F. means that the price so includes cost and freight to the named destination. (2) Unless otherwise agreed and even though used only in connection with the stated price and destination, the term C.I.F. destination or its equivalent requires the seller at his own expense and risk to (a) put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the entire transportation to the named destination; and (b) load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the freight has been paid or provided for; and (c) obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at the port of shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by the bill of lading and providing for payment of loss to the order of the buyer or for the account of whom it may concern; but the seller may add to the price the amount of the premium for any such war risk insurance; and (d) prepare an invoice of the goods and procure any other documents required to effect shipment or to comply with the contract; and (e) forward and tender with commercial promptness all the documents in due form and with any endorsement necessary to perfect the buyer's rights. (3) Unless otherwise agreed the term C. & F. or its equivalent has the same effect and imposes upon the seller the same obligations and risks as a C.I.F. term except the obligation as to insurance.

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(4) Under the term C.I.F. or C. & F. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents

xiii. CIF means the price includes in a lump sum the cost of the goods, insurance and freight to the named destination

1. Means cost, insurance and freight2. C&F leaves out insurance, but it’s still a shipment contract

(usually because buyer already has a blanket policy)xiv. Always a shipment contract – it doesn’t matter what location is

named (cmts.)xv. Ambiguity – loading on the carrier, or delivery to the carrier

(usually not an issue) – I don’t know what happens if there is an issue

xvi. Risk of loss and identification1. Cmt.2 to 509 says goods must be identified before the risk

of loss can passe. CISG and Leasing

i. CISG1. Article 65: where a buyer fails to make specifications she

was supposed to make, the seller can make the decision and notify the buyer; the buyer is bound unless she objects

2. Risk of lossa. Article 67: if the seller is not bound to deliver to a

particular place, the risk passes to the buyer when the goods are handed over to the first carrier

i. shipment contractii. Usually parties contract around these

provisionsb. Article 68: the risk with respect to goods sold in

transit passes to the buyer from the time of the conclusion of the contract

i. Risk passes the moment the contract is madec. Article 69: (1) In cases not within Articles 67 or 68,

the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal he commits a breach of contract by failing to take delivery

i. = 509(3)’s residual provisionii. Leases

1. Risk of lossa. 2A-219 says that except in the case of a finance

lease, the risk of loss is retained by the lessori. (1) the default rule is the that the lessor

retains the risk of loss (typically contract shifts it to the lessee)

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ii. (2) if the risk of loss is to pass to the lessee per the contract and the time of passage is not stated rules…

iii. Note: under 1-102(3) Article 2 and 2A can be contracted around, subject to good faith and fair dealing standard

V. Performancea. Introduction

i. Basic Obligations1. 2-301 – basic obligation

a. Seller to tender goodsb. Buyer to tender paymentc. Cmt.1: both are conditional

i. If neither party is in a position to perform as promised, the other party’s obligations are not triggered and neither is in breach

2. 2-507 – seller’s obligationa. Tender goodsb. Conditioned on buyer performingc. Cmt.2: “Payment “according to the contract”

contemplates immediate payment, payment at the end of an agreed credit term, payment by a time acceptance or the like”

d. Contemplates simultaneous performance; allows contracting around it

3. 2-511 – buyer’s obligationii. Erosion of the perfect tender rule

1. 2-601 – “conform to contract”a. 2-106b. R1-201(12)c. R1-201(3)d. R1-303(2)(b)&(c)

2. 2-612 - installment contract3. 2-508 - cure4. R1-201(20) - good faith5. 504(c) – Notice6. Common law de minimus doctrine

b. Installment sales2-612 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

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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

i. When the described features are present, the presumption is of an installment contract

ii. To decide whether buyer can cancel, there must be a substantial impairment of the whole contract

1. First, determine if there is a substantial impairment of the individual installment

a. If it’s just of the individual installment, the seller can cure by giving adequate assurances and curing

b. Very hard to determine out of context what substantial impairment is; very contextual; consider impact, likelihood of cure, goal of the contract

2. If one is substantial impairment, then consider whether it’s a substantial impairment of the whole

a. Cmt.6: if all you have is concern that seller won’t perform the rest of the installments, that is not a sufficient basis for rejecting the shipment; in determining whether the whole contract has been substantially impaired, you have to look at the immediate and direct consequence of the seller’s nonconformance on the whole or the entire contract

b. Mere fear of future nonconformance is not enoughc. Defects are cumulative

3. Cmt.4: Parties can contract around the substantial impairment rule

4. Note: where you have separate goods not connected in any way, it’s hard to establish substantial impairment, as compared to where one installment affects the functionality of the others

a. Helps to give notice of dissatisfaction; goes to the cumulative effect

iii. 601 allows partial rejection, partial acceptance, but only of commercial units

1. 2-105(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,

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gross, or carload) or any other unit treated in use or in the relevant market as a single whole.

2. Can’t just reject one chair of a dining room set3. Rationale: to avoid undue impairment of the remaining

portion of the goodsiv. Trivial defects

1. Cmt.2 requires exact performance, but the seller has the right to cure. But does seller have to cure trivial defects?

2. Courts sometimes say no by finding no nonconformity where the defect can be cured

a. But, if there is no nonconformity the seller does not have to repair → don’t want to be too quick to label something de minimus

3. Usually, sellers just cure. If they don’t, you look at the totality of the seller’s performance obligation – whether that has been fulfilled

4. 1-103 incorporates the de minimus doctrine into the codev. Connecticut court created an exception to the perfect tender rule

for specially manufactured goods: must be a substantial impairment to reject

c. The Perfect Tender Rulei. Common law rule was that for one party to avoid performing, the

other party must have committed a material breachii. Code starts with the perfect tender rule: if the seller fails to

perform under the contract to the letter, the buyer is relieved of his obligations

1. Rationale – no unjust enrichment because the buyer actually rejects the goods; less risk of forfeiture; avoids making courts try to determine what is material breach

2. There are many exceptions that erode the perfect tender rule

2-601 BUYER’S RIGHTS ON IMPROPER DELIVERY [PERFECT TENDER RULE]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 [perfect tender rule] to conform to the contract [lessens the rigidity of the perfect tender rule – very flexible; below], the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest

iii. “conforms to the contract”1. 2-106(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”

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a. EX: Parties agree to buy coal. Sulfur is not as high as it should be, but industry recognizes up to 5% deviation. It’s okay that performance doesn’t conform to contract because the trade usage supplements and explains the obligations under the agreement – Cmt.2

2. R1-201(12): “contract” –as distinguished from “agreement”, means the total legal obligation that results from the parties’ agreement as determined by the UCC as supplemented by any other applicable laws [contract is broader than agreement]

3. R1-201(13): Agreement means the bargain of the parties in fact, as found in language or inferred from other circumstances, including course of performance, course of dealing or usage of trade

2-614 SUBSTITUTED PERFORMANCE(1) Where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted. (2) If the agreed means or manner of payment fails because of domestic or foreign governmental regulation, the seller may withhold or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the buyer's obligation unless the regulation is discriminatory, oppressive or predatory

4. 614 gives permission to vary the carrier type5. R1-303(2)(b) & (c)

iv. Good Faith – another limit on the perfect tender rule1. R1-201(20): Good faith, except as provided in Article 5,

means honesty in fact and the observance of reasonable commercial standards of fair dealing (unclear how it will be applied to a non-merchant)

a. Used to be a bifurcated standard – non-merchants had to have honesty in fact and merchants had to have honesty in fact and commercial judgment

2. If the buyer rejects in bad faith, he/she has actually accepted

v. Shipment by seller – another exception/limitation on the perfect tender rule

1. 2-504(c) – Seller must notify buyer of shipment; failure to notify is a ground for rejection only if material delay or loss ensues

d. Cure

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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

i. Where the buyer rejects nonconforming tender, the seller has a right to cure

ii. Cmt.2: 2-508 seeks to avoid injustice to the seller by reason of a surprise rejection by the buyer. Thus it contemplates the situation where the seller thinks slightly nonconforming goods will be acceptable because of prior usage of trade, etc.

1. Must be a surprise to the seller to give him/her the right to cure (protecting the seller’s reliance interest)

iii. (1) right is automatic; seller is not deemed to have anticipatorily repudiated

1. Notice requirement protects the buyer’s reliance interest2. Note: seasonable v. reasonable notice – R 1-205(b)

a. An action is taken seasonably if it is taken at or within the time agreed or, if no time is agreed, at or within a reasonable time; also controls whether the content of the notice is sufficient

1-204 TIME, REASONABLE TIME; “SEASONABLY”(1) Whenever this Act requires any action to be taken within a reasonable time, any time which is not manifestly unreasonable may be fixed by agreement(2) What is a reasonable time for taking any action depends on the nature, purpose and circumstances of such action(3) An action is taken “seasonably” when it is taken at or within the time agreed or if no time is agreed at or within a reasonable time

iv. (2) gives the seller the right to cure after the time for performance has expired

1. Requirement:a. Buyer must rejectb. Reasonable grounds to believe the goods would be

acceptedc. Seller must give seasonable notice to the buyerd. Can cure within a reasonable time

2. Contemplates two tenders: original tender of nonconforming goods (triggers right to reject); and once the buyer objects, the seller gives notice and cures, then a second tender of conforming goods

a. Buyer cannot reject second tender if the seller has followed the appropriate course of action to cure and does submit conforming goods

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b. If the goods are again nonconforming, buyer must again reject to protect his interest

3. What is conforming tender? Repair is sufficient if the circumstances are such that repair would seem to be warranted and the repairs are actually successful

4. If the seller does not reasonably believe they would be acceptable → no right to cure

a. Reasonable belief can come from past dealings, trade usage, magnitude of defect, inconvenience, risk of loss caused by the nonconformity

b. If the seller does not know of the nonconformity, the question is, if he had known, would he have had a reasonable belief that the goods would have been acceptable?

c. Courts are sometimes so eager to cure that they ignore the “reasonable grounds” language

v. “with or without money allowance” – a money allowance is one way to cure, but it isn’t mandated

vi. Late delivery cannot be cured, 508(2) doesn’t cover it1. But often courts go out of their way to make the delivery

date unessentialvii. Shaken faith doctrine – “once their faith is shaken, the vehicle

loses not only its real value in their eyes, but becomes an instrument whose integrity is substantially impaired and whose operation is fraught with apprehension.”

1. Has only been applied with respect to consumers, and2. Has to be a pretty major defect, such that it completely

undermines the faith in the productviii. These are (mostly) just default rules

1. “The seller is charged with commercial knowledge of any factors in a particular sales situation which require him to comply strictly with his obligations under the contract” . . .

2. Parties can include a “no replacement clause” and prevent this

3. Limit: “if the clause appears in a form contract evidence that it is out of line with trade usage or the prior course of dealing and was not called to the seller’s attention may be sufficient to show that the seller had reasonable grounds to believe the tender would be acceptable”

e. Rejectioni. Consequences of an effective and rightful rejection:

1. Buyer is not required to pay for the goods; consequently, the seller has no action for the price

2. If the seller is unable to cure, the buyer may cancel the contract

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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)

ii. Procedural requirements: 1. (1) imposes two procedural requirements

a. A rejection must be made within a reasonable time after delivery or tender of goods, and

b. A rejection is ineffective unless the buyer seasonably notifies the seller

2. Reasonable time (factors):a. Difficulty in discovering the defect

i. Nature and complexity of the goodsii. Sophistication of the buyer

b. The terms of the contract (e.g. if it provides a time within which defect must be reported)

c. Perishable nature of the goodsd. Parties’ course of performance after sale and before

formal rejectioniii. Substantive requirements

1. Absence of acceptance: rejection and acceptance are mutually exclusive

2. Existence of a nonconformity3. Absence of an effective and rightful cure by the seller

a. Right to cure is triggered by rejection4. Absence of a contract term prohibiting rejection

a. E.g. limitation of remedyb. Rejection is a remedy

5. Absence of bad faithiv. Notification of shipment

2-504 SHIPMENT BY SELLERWhere the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must

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(a) put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and

(b) obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and

(c) promptly notify the buyer of the shipment. Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material delay or loss ensues

1. Failure to notify is only grounds for rejection is material delay or loss ensues as a result of failure to notify

2. Cmt.5: Can be contracted around by making failure to notify a particular ground for rejection

3. 1-201(26): A person “notifies” or “gives” a notice or notification to another by taking such steps as may be reasonably required to inform the other in ordinary course whether or not such other actually comes to know of it. A person “receives” a notice or notification when (a) it comes to his attention, or (b) if is duly delivered at the place of business through which the contract was made or at any other place held out by him as the place of receipt of such communication

4. Reasonable time goes back to 1-204/R1-205 and the factors to determine reasonable time (above)

a. Rationale: the sooner the seller gets notice, the sooner he can try to cure, assist in mitigating damages, or get the goods back (return)

v. What to do with the goods after rejection?1. (2)(b) suggests that if the buyer has a security interest in the

goods, he has no obligations with respect to thema. This is usually ignored

2. If the buyer has taken and paid for the goods he has a security interest

3. Where buyer does not have a security interest, (b)(2) requires it to use reasonable care

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 forthcomingthe 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

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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

vi. 602(2)(c) says that a rightfully rejecting buyer has no further obligations. But:

vii. When 2-603 applies: 1. When the seller has no agent or place of business at the

market of rejection (necessity requirement)2. Must be a merchant buyer3. Follow reasonable instructions, or4. Make reasonable efforts to sell5. Buyer is acting as a bailee

viii. Consequences of failing to fulfill requirements under 2-603:1. Duties are only triggered once the buyer has rejected

properly under 6022. A buyer who fails to act as a bailee must:

a. Some say it nullifies the rejectionb. Depending on the nature of the contract, some say it

operates as an acceptanceix. If a buyer makes reasonable efforts to sell – good faith efforts – but

cannot do so, it has fulfilled its requirementsx. Partial acceptance

1. The buyer has the right to make a partial acceptance2-606(2) WHAT CONSTITUTES ACCEPTANCE OF THE GOODS (2) Acceptance of a part of any commercial unit is acceptance of that entire unit

2. However, accepting only part of a commercial unit is an act inconsistent with rejection

xi. Notification of defect2-605 WAIVER OF BUYER’S OBJECTIONS BY FAILURE TO PARTICULARIZE(1) The buyer's failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach (a) where the seller could have cured it if stated seasonably; or (b) between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely. (2) Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent on the face of the documents

1. If the buyer fails to state what the defect is in his notification, he cannot rely on it to establish breach because, if notified, the seller could have cured

2. Different from the notice requirement on accepted goods – 2-607(3)(a) – which does not require particularization

xii. Ineffective and wrongful rejections

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1. Effective rejection: buyer follows procedures outlined in 2-602

2. Ineffective rejection: buyer fails to follow procedures outlined in 2-602

3. Rightful rejection: buyer’s claim for rejection is substantively proper

4. Wrongful rejection: buyer does not have a substantive right to reject

5. Consequences when:a. The rejection is procedurally effective, but

substantively wrongful: the seller has no action for the price but can sue for damages (acceptance gives the action for the price)

b. The rejection is procedurally ineffective but substantively rightful: the buyer has accepted and the seller has an action for the price subject to set off for the buyer’s damages (under § 714)

c. The rejection is procedurally effective and substantively rightful: the buyer can reject the goods and sue for damages under § 711

f. Acceptancei. Consequences of effective acceptance:

1. Buyer must pay the contract price; seller has an action for the price under 2-709 per 2-607(1)

2. Acceptance precludes rejection under 2-607(2)3. Buyer must give notice of the breach within a reasonable

time or lose all remedial rights against the seller under 2-607(3)(a) (even if goods are nonconforming)

4. The burden of establishing a defect is placed on the buyer per 2-607(4)

5. Since the buyer’s pre-acceptance inspection should reveal defects, there is a greater likelihood that subsequent problems were caused by byers

6. Statute of Frauds is satisfied per 2-201(3)(c) (goods accepted)

2-606 WHAT CONSTITUTES ACCEPTANCE OF THE 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

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ii. (1)(a) - Payment is inconclusive, but it is one factor courts will consider

iii. (1)(b) – Ineffective rejection = acceptanceiv. (1)(c) – Most times when the buyer rejects the goods, the buyer

will no longer have the goods; but if he does and resells (except under 603 when acting to protect he seller’s interest) that is an act inconsistent with the seller’s ownership interest

1. Consider the circumstances and which of three circumstances:

2. 1. Use of goods without knowledge of defecta. Rejection should be effective; if it goes on for too

long the buyer accepted because of (1)(b) (reasonable notice)

3. 2. Use of goods with knowledge of defect but before rejection

a. Gray area; if the buyer is trying to resolve the issue he should not be penalized

4. 3. Use of goods with knowledge of defect and after rejection

a. Usually easy; some situations where the buyer might have to use the goods, but absent special circumstances a court is likely to find that it’s an act inconsistent with ownership interests

v. Accepting does not impair the remedy of suing for breach for nonconformity or warranty

2-607(2) EFFECT OF ACCEPTANCE, BURDEN OF ESTABLISHING BREACH AFTER ACCEPTANCE(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

vi. To preserve rights after acceptance:1. Buyer must notify the seller that he considers the problem

to be a breach and give opportunity to cure2. If he fails to give notice, he loses all remedial rights

a. To prevent surprise and give the seller an opportunity to cure

g. Revocation of Acceptance2-608 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

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(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. (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them

i. Requirements1. Existence of a nonconformity

a. Rester authorizes the use of the cumulative effect to establish nonconformity

2. The buyer’s acceptance must have been reasonable – the buyer accepted because he expected the seller to cure or due to difficulty in discovering the defects

ii. Acceptance with knowledge of the defect1. Relevant evidence

a. Oral or written assurances that cure will be made;b. Express warranty of repair or replacementc. Course of dealing, usage of trade, circumstances

2. Buyer must demonstrate:a. Difficulty in discovering the defect (if reasonable

inspection would have revealed and buyer failed to inspect, revocation is unavailable, or

i. Especially if the seller tried to convince the buyer not to inspect

b. Assurances by the seller that what appeared to be a defect was not a defect or induces the buyer not to make a careful inspection

iii. Substantial impairment of the goods to the buyer1. Has a subjective and objective component2. Two step process:

a. 1. Is there a nonconformity? Objectiveb. 2. Does the nonconformity result in a substantial

impairment to this buyer? Subjectivei. Have to determine the buyer’s needs and

whether the nonconformity substantially impairs the value of the goods to a reasonable buyer with these needs

c. Cmt.2: “for this purpose the test is not what the seller had reason to know at the time of contracting; the question is whether the nonconformity is such as will in fact cause a substantial impairment of value to the buyer though the seller had no advance

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knowledge as to the buyer’s particular circumstances”

d. Advance knowledge does not matter – test is subjective

e. Subjective + objective = personally impairs the value and a reasonable person in the same position would react in the same way

f. Can produce somewhat absurd results, especially because seller has no right to cure (see below)

iv. Notice1. Reasonable time relevant factors:

a. Difficulty of discovering defectb. Perishabilityc. Course of performanced. Status of the buyere. Terms of the contract

2. Must convey that the buyer wants the seller to take the goods back, revoking the acceptance (no exact words required)

a. Between 607 and 605 requirementsv. No substantial change in the goods not caused by the defect

(608(2))vi. Buyer’s rights

1. Same rights as with rejection (including 711(3) giving the buyer a security interest in the goods)

a. If no security interest, same rights and duties as rejection

b. 2-602 and -603 are triggered2. Continued use – issue: is it inconsistent with the seller’s

ownership?a. Prevailing view: use does not forfeit the right to

revoke; whether the buyer loses the right depends on whether the use was reasonable under the circumstances (reasonable use doctrine)

b. Five elements to consider:i. Instructions the seller provided concerning

return of the rejected goodsii. Buyer’s business or personal needs

compelling continued use (reasonableness/necessity)

iii. Did the seller persist in assuring that all nonconformities would be fixed

iv. Did the seller act in good faith?v. Was the seller unduly prejudiced by the

buyer’s continued use

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c. Does not necessarily undermine substantial impairment

vii. Sellers rights1. Setoff? 1-103 incorporates the idea

a. Courts are split – i. Yes – fairness to the seller

ii. No – would have to give a credit to buyer for use of money; just easier to call it a wash

iii. Emerging trend is to allow a setoff recovery2. Cure?

a. Yes in (1)(a) revocationb. Most courts say no right to cure in (1)(b); makes

sense because usually it’s a cumulative effect that causes the revocation and seller has already had the chance to cure, many times

c. A minority of courts read 2-508 to give a right to cure or rely on policy reasons to permit

d. No right to cure in (3) because it preserves buyer’s rights, and cure is a seller’s right

viii. Limitations of remedies1. Revocation is a code remedy, so if the limitation does not

fail, revocation is not available2. 719 says the limitation can’t deprive either party of the

substantial value of the bargain, and there is a point where cumulatively, enough is enough (Durfee)

ix. Revocation against a remote seller1. Because revocation replaced rescission (and is thus meant

to put parties back in their original positions) you need two parties – a buyer and a seller – to restore

2. Difficult to revoke when you had no relationship with the seller

3. Five circumstances that some courts allow revocation with a remote seller:

a. Durfee – to avoid the buyer being remediless; where the privity seller is gone

b. Where there’s been a direct contractual relationship with the buyer and remote seller

c. If the retailer was an agent for the remote seller*d. If the manufacturer passed title directly to buyers*e. Where there has been a statutory limitation of

privityf. * Most commonly recognized exceptions

h. CISG and Leasesi. CISG

1. Article 25 – Fundamental breacha. Substantial impairment rule

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b. Acceptance is irrelevant; same standard applies whether accepted or not

c. Buyer can reject if it constitutes a fundamental breach; if the buyer says it will reject, that triggers the seller’s opportunity to cure

2. Article 30 – Obligations of sellera. Same as 2-301

3. Article 35 – Warranty provisions(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:(a) are fit for the purposes for which goods of the same description would ordinarily be used;(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgment;(c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.

a. Buyer can reject the delivery as deficient under 35(1), but that does not mean he has avoided the contract

i. Doesn’t always want to avoid under 46(1) – avoidance is inconsistent with demanding specific performance

4. Article 37 – Cure before time for performance (2-508(1))If the seller has delivered goods before the date for delivery, he may, up to that date, deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods delivered, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention

5. Article 39 – Buyer’s notice requirement (2-605)(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. (2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from

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the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee

6. Article 45 – Outlines buyer’s remedies(1) If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may: (a) exercise the rights provided in articles 46 to 52; (b) claim damages as provided in articles 74 to 77. (2) The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies. (3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to a remedy for breach of contract

7. Article 46 – Select buyer’s remedies when no avoidance(1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement (2) If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter(3) If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter(1) – specific performance is the first option; often preferred in CL countries(2) Replacement goods

i. Article 82(1): The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them

ii. Before demanding replacement goods, the buyer has to return the goods

b. (3) Repair; no fundamental breach requirement because less onerous (normally there’s a reasonableness limitation)

c. Article 28 limits remedy under (1) and (2)i. If, in accordance with the provisions of this

Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgment for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention

8. Article 47 – Nachfrist principlea. Means “extension”

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(1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.(2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance

b. If the buyer got no goods, and gave an extension, then it’s a fundamental breach

i. Article 47 helps the buyer out by giving them a fundamental breach in this situation

c. If it’s deficient delivery, you have to go through the fundamental breach analysis

9. Article 48 – Cure after time for performance (508(2))a. Subject to Article 49 – if the buyer avoided, seller

does not have right to cure(1) Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention.(2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.(3) A notice by the seller that he will perform within a specified period of time is his decision.(4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer

10. Article 49 – Avoidance(1) The buyer may declare the contract avoided:(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.(2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so:(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made;(b) in respect of any breach other than late delivery, within a reasonable time:(i) after he knew or ought to have known of the breach;(ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or

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(iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performance

a. Once there has been avoidance, the seller can no longer cure

11. Article 51 – Inadequate deliverya. If one delivery is nonconforming, the buyer does

not have the right to avoid unless it substantially impairs; like 612

12. Article 52 – Early deliverya. (1) If the seller delivers the goods before the date

fixed, the buyer may take delivery or refuse to take deliver

13. Article 53 – Obligations of the buyer14. Article 82 – Risk

a. If the goods are conforming, the buyer has the risk; if they are nonconforming, the risk stays with the seller (same as 510)

(1) The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them.(2) The preceding paragraph does not apply:(a) if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission;(b) if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38; or(c) if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity

ii. Leases2A-407 IRREVOCABLE PROMISES: FINANCE LEASESIn the case of a finance lease that is not a consumer lease the lessee's promises under the lease contract become irrevocable and independent upon the lessee's acceptance of the goods(2) A promise that has become irrevocable and independent under subsection (1): (a) is effective and enforceable between the parties, and by or against third parties including assignees of the parties ; and (b) is not subject to cancellation, termination, modification, repudiation, excuse, or substitution without the consent of the party to whom the promise runs. (3) This section does not affect the validity under any other law of a covenant in any lease contract making the lessee's promises irrevocable and independent upon the lessee's acceptance of the goods

1. Same effect as a hell or high water clause2A-505 ACCEPTANCE OF GOODS

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(1) Acceptance of goods occurs after the lessee has had a reasonable opportunity to inspect the goods and (a) the lessee signifies or acts with respect to the goods in a manner that signifies to the lessor or the supplier that the goods are conforming or that the lessee will take or retain them in spite of their nonconformity; or (b) the lessee fails to make an effective rejection of the goods (Section 2A-509(2)). (2) Acceptance of a part of any commercial unit is acceptance of that entire unit

2. Once goods are accepted, there is a self-executing hell or high water clause; does not arise if goods are not accepted

2A-516 EFFECT OF ACCEPTANCE OF GOODS; NOTICE OF DEFAULT; BURDEN OF ESTABLISHING DEFAULT AFTER ACCEPTANCE; NOTICE OF CLAIM OR LITIGATION TO PERSON ANSWERABLE OVER(1) A lessee must pay rent for any goods accepted in accordance with the lease contract, with due allowance for goods rightfully rejected or not delivered. (2) A lessee's acceptance of goods precludes rejection of the goods accepted. In the case of a finance lease, if made with knowledge of a nonconformity, acceptance cannot be revoked because of it. In any other case, if made with knowledge of a nonconformity, acceptance cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. Acceptance does not of itself impair any other remedy provided by this Article or the lease agreement for nonconformity. (3) If a tender has been accepted: (a) within a reasonable time after the lessee discovers or should have discovered any default, the lessee shall notify the lessor and the supplier, if any, or be barred from any remedy against the party not notified; (b) except in the case of a consumer lease, within a reasonable time after the lessee receives notice of litigation for infringement or the like (Section 2A-211) the lessee shall notify the lessor or be barred from any remedy over for liability established by the litigation; and (c) the burden is on the lessee to establish any default. (4) If a lessee is sued for breach of a warranty or other obligation for which a lessor or a supplier is answerable over the following apply: (a) The lessee may give the lessor or the supplier, or both, written notice of the litigation. If the notice states that the person notified may come in and defend and that if the person notified does not do so that person will be bound in any action against that person by the lessee by any determination of fact common to the two litigations, then unless the person notified after seasonable receipt of the notice does come in and defend that person is so bound. (b) The lessor or the supplier may demand in writing that the lessee turn over control of the litigation including settlement if the claim is one for infringement or the like (Section 2A-211) or else be barred from any remedy over. If the demand states that the lessor or the supplier agrees to bear all expense and to satisfy any adverse judgment, then unless the lessee after seasonable receipt of the demand does turn over control the lessee is so barred. (5) Subsections (3) and (4) apply to any obligation of a lessee to hold the lessor or the supplier harmless against infringement or the like (Section 2A-211)

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3. Once accepted, the lessee’s only rights are against the selleri. Risk of Loss: Breach

i. Risk of loss does not pass when seller fails to deliver conforming goods

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.

ii. Always start by determining where the risk of loss would be but for the breach

iii. Where the buyer is in breach, and the risk has not yet shifted from the seller, the risk is on the buyer for a commercially reasonable amount of time to the extent of the seller’s insurance deficiency (3)

1. Risk shifts because of the breachiv. Where the seller was in breach, and the risk has not yet shifted, the

risk is on the seller (1)1. The burden of proving whether the goods are

nonconforming or were damaged in transit is on the sellerv. Where the seller is in breach, the risk is with the buyer and the

buyer has begun the revocation process, the seller is responsible for the goods to the extent of any buyer’s insurance deficiency

vi. Cmt.3: deficiency referred to means such deficiency as exists without subrogation; this section is not intended to be disturbed by any subrogation of an insurer

1. Parties cannot contractually allow subrogation or contract around the insurance-related provisions with respect to (2) or (3)

1-207 PERFORMANCE OR ACCEPTANCE UNDER RESERVATION OF RIGHTS(1) A party who, with explicit reservation of rights performs or promises performance or assets to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as “without prejudice,” “under protest” or the like are sufficient. (2) Subsection (1) does not apply to an accord and satisfaction

vii. If one party continues to perform under a contract where the other party has breached, it is always wise to reserve the right to sue for the breach

j. Impossibility of Performancei. Impossibility (613) – the party seeking to be discharged can

objectively not perform whether or not it wants to

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ii. Requires identification when contract is made → bumps you into 2-501; the only kind of ID that works for 613 is 501(1)(a) or (c) (crops to be grown on X’s land)

iii. Casualty must not have been the fault of either party, because negligence would put a party at fault (does not have to be intentional conduct)

iv. Only applies before the risk of loss if passed from the seller to the buyer

2-613 CASUALTY TO THE GOODSWhere the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case under a "no arrival, no sale" term (Section 2-324) then (a) if the loss is total the contract is avoided; and (b) if the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller

v. Frustration of purpose – Whether or not the underlying purpose behind the contract has been substantially frustrated (something beyond the ability to make money or profit

1. You have to go to great extremes to show frustration of purpose

2. In the past few years there has been a shift in focus to ask to what extent it might be viewed that the parties claiming excuse assumed the risk (e.g., implied assumption)

vi. Impracticability (615) – something has happened that has made performance impracticable; something has made one party’s performance much more expensive, burdensome, risky

vii. Under (b), the seller can allocate among current contracts and regular customers not currently under contract; controlled by good faith

viii. Cmt.1: Must be a true commercial impracticability to excuse the agreed performance

ix. Cmt.4: Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance

1. Even an increase of 50-58% is not impracticable2. If basis for impracticability is reduction in profits, you will

always lose3. Courts will look beyond the profitability of one unit/office

to the entire companyx. Cmt.5: Where a particular source of supply is exclusive under the

agreement and fails through casualty, the present section applies. The same if true where a particular source of supply is shown by

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http://www.law.cornell.edu/ucc/2/2-324.html


the circumstances to have been contemplated or assume by the parties at the time of contracting

xi. Three conditions:1. Contingency must occur2. Performance must thereby be made impracticable, and3. the non-occurrence of the contingency must have been a

basic assumption on which the contract was made4. Cmt.1: This section excuses a seller from timely delivery of

goods where his performance has become commercially impracticable because of unforeseen supervening circumstances not within the contemplation of the parties

2-615 EXCUSE BY FAILURE OF PRESUPPOSED CONDITIONSExcept 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

xii. Substituted performance: If the seller offers a substituted performance, the buyer must accept under 614

xiii. 614 deals with incidental and collateral matters; intended to keep the contract in force

2-614 SUBSTITUTED PERFORMANCE(1) Where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted. (2) If the agreed means or manner of payment fails because of domestic or foreign governmental regulation, the seller may withhold or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the buyer's obligation unless the regulation is discriminatory, oppressive or predatory

xiv. Notice (616) – When seller needs to modify under one of the preceding sections:

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1. First, seller must give buyer notice that part have been destroyed but some are available

2. Buyer can request modification of the agreement3. Buyer can either accept the modification and the seller

must deliver that amount or reject and both parties are excused

4. If the buyer does not respond, it is assumed the buyer has rejected the modification

5. (3)/Cmt. Denies effect to any contract clause made in advance of trouble which would require the buyer to stand ready to take delivery whenever the seller is excused from delivery by unforeseen circumstances (can’t agree in advance that buyer will accept seller’s attempt to modify)

2-616 PROCEDURE ON NOTICE CLAIMING EXCUSE(1) Where the buyer receives notification of a material or indefinite delay or an allocation justified under the preceding section he may by written notification to the seller as to any delivery concerned, and where the prospective deficiency substantially impairs the value of the whole contract under the provisions of this Article relating to breach of installment contracts (Section 2-612), then also as to the whole, (a) terminate and thereby discharge any unexecuted portion of the contract; or (b) modify the contract by agreeing to take his available quota in substitution. (2) If after receipt of such notification from the seller the buyer fails so to modify the contract within a reasonable time not exceeding thirty days the contract lapses with respect to any deliveries affected. (3) The provisions of this section may not be negated by agreement except in so far as the seller has assumed a greater obligation under the preceding section

VI. Remediesa. Function of damages

i. 1-106; R1-305 Remedies to be liberally administered… must 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

1. These are expectation damages from common law – don’t want to put them in a better position

ii. Neither consequential, special nor penal damages can be had unless specifically provided for

1. No provision allowing recovery of consequential damages by sellers (715(2) only allows for buyers)

2. Sellers often disclaim consequential damagesb. Liquidated Damages

2-718 LIQUIDATION OR LIMITATION OF DAMAGES; DEPOSITS(1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is [1] reasonable in the light of the anticipated or actual harm caused by the breach, the [2] difficulties of proof of loss, and the [3] inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.

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(2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds (a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or (b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller. (3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes (a) a right to recover damages under the provisions of this Article other than subsection (1), and (b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract. (4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this Article on resale by an aggrieved seller (Section 2-706)

i. Issue: is it an enforceable damages provision, or a penalty1. Cmt.1 test: whether the agreed-to amount is reasonable

under the circumstances of the case2. When the buyers damages are set very low, the question

arises whether it’s a liquidation clause or a limited remedies provision

ii. Factors to consider (1):1. Anticipated or actual harm caused by the breach

a. If it’s similar to actual damages, courts will likely validate; if there’s a huge disparity, that is suspect

2. Difficulties of proof of lossa. The greater the uncertainty, the less available other

remedial options, the greater the likelihood of validation

3. Inconvenience of nonfeasibility of otherwise obtaining an adequate remedy

a. This factor eliminated in Revised Article 24. If the liquidated damages provision fails, all code remedies

become availablea. Always implicit, explicitly stated in R2

iii. Typical view is that a valid liquidated damages provision is exclusive; it doesn’t matter if the seller can show greater actual damages

c. The Breaching Buyer’s Restitutioni. Still under 2-718 (see above); now looking at (2)

ii. At one point in time, a breaching party couldn’t recover anything, but that was extremely unfair

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iii. (2)(b) Recovery is the amount paid minus the lesser of $500 or 20% of the contract price

1. Criticized because it is unknown where this standard came from; omitted in R2

iv. Two views of recovery:1. Cumulative view

a. Rights under (2) and (3) are cumulative2. Alternative view

a. Seller has to make a choice and can recover under either (2) or (3), but not both

b. He prefers this viewv. If the seller can prove actual damages, that supercedes 718

remedies (2-708)d. Seller’s Remedies

i. 2-703 outlines remedial options available to the sellerii. Accepted Goods

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 non-acceptance under the preceding section

1. Equivalent of specific performance for the seller; only available in three circumstances (cmt.6: this section is intended to be exhaustive in enumeration of cases where an action for price lies

i. Seller is presumed to have a presumptively greater resale ability – each of the three is a circumstance where resale ability is diminished

b. 1. Where buyer has accepted goods under 606i. Where effectively rejected, the seller has no

action for the price because the seller usually maintains possession of the goods

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c. 2. Conforming goods lost or damaged within a commercially reasonable time after the risk of loss has passed to the buyer

d. 3. 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

i. Identified to the contract = where they are already accepted or lost or damaged, we know what they are; with this situation we need the goods to have been manufactured to a point or identified so the seller is in a position to tender goods to the buyer before it can sue on the price

2. (2) Where the seller sues for the price he must hold for the buyer any goods which have been identified

a. If the seller sues and gets a judgment, and the buyer pays, the buyer is entitled to the goods

3. Cmt.5: goods “lost or damaged” are covered by the risk of loss section. “goods accepted” means no rightful rejection or revocation

a. Seller has two grounds to sue for the price:i. 1) goods have been accepted

ii. 2) since goods have been destroyed, this is the second action for the price

4. Price “as it becomes due” limits the seller’s right; it arises where a buyer is paying on installments

a. Doesn’t really matter because most installment contract have an acceleration clause

iii. Unaccepted Goods2-706 UNACCEPTED GOODS(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 existence or that any or all of them have been identified to the contract before the breach.

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(3) Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell. [notice requirement – just of intention, not actual resale](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 [heightened notice requirement](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)

1. Cmt.8: heightened notice requirement in (b) relates to auctions, enables the buyer to attend and encourage others to attend and increase the price

2. Formula = contract price – resale price (+ incidental damages, less expenses saved)

3. Companion to § 712, the buyer’s cover remedy4. True resale v. low volume seller

a. 706 section only really works with a “true resale” where the resale is only possible as a result of the breach

b. Lost volume seller:i. Sellers who can supply more buyers than

they haveii. By resale, the seller loses the change to have

two buyers and two profitsiii. 706 will result in zero recovery for lost

volume sellers, but that doesn’t make sense5. Assuming it’s a true resale, the seller must:

a. Identify the goods to the resale contractb. Give notice to the buyer

i. Notice requirements differ depending on the nature of the resale

c. Resale must be made in a commercially reasonable manner and in goods faith

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6. Failure to comply with the notice requirement loses the right to damages under 706

a. Some courts permit actual knowledge to replace notice; others require the seller to follow procedural requirements

b. Really, despite Cmt.1, notice is a condition precedent to 706

7. Cmt.5: reasonable time depends on the circumstances8. Cmt.2: Resale must be commercially reasonable; flexible

approach looking at circumstances. Greater standard than reasonable care and judgment

a. If seller does not comply, he can only recover under 708

b. Seller resells on his own behalf9. § 704 permits an aggrieved seller to identify goods after

the breach if they are not already identified2-708 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

10. Under 708, an aggrieved seller can collect the difference between the market price at time and place for tender and the unpaid contract price, plus any incidental damages, less expenses saved

a. Lost value/profit + Incidental - Cost incurred – Cost avoided – loss avoided = 708(2) recovery

11. Fallback provision when seller can’t use 70612. Controversial, because it doesn’t really accurately measure

a seller’s damages and will likely either over or undercompensated

13. 706 v. 708 choicea. Most courts say a seller cannot choose whether to

use 706 or 708i. 1-106 tells courts to use the remedy that best

compensates the partiesii. 1-305 says that if a seller knows actual

damages, the seller should not be entitled to more

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iii. Cmt.1 suggests otherwise (but most don’t follow it): Article rejects any doctrine of election of remedies; they are cumulative; whether the pursuit of one bars another depends on the facts

b. If the seller elects not to try to resell at all? Most courts characterize as a mitigation of damages issue

14. Overhead v. Variable costsa. Variable – labor, wages of testerb. Overhead – rentc. This is often where a lot of conflict arises

2-710 SELLER’S INCIDENTAL DAMAGESIncidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach

15. Incidental damages are generally things incurred dealing with the other party’s breach

2-704 SELLER’S RIGHT TO IDENTIFY GOODS TO THE CONTRACT NOTWITHSTANDING BREACH OR TO SALVAGE UNFINISHED GOODS1) An aggrieved seller under the preceding section may (a) identify to the contract conforming goods not already identified if at the time he learned of the breach they are in his possession or control; (b) treat as the subject of resale goods which have demonstrably been intended for the particular contract even though those goods are unfinished. (2) Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner

16. Whether to finish unfinished goods is a fact-specific inquiry; Cmt.2; sellers can pretty much do whatever is commercially reasonable

a. Cmt.1: Under 709(1)(b), when a seller completes goods and it is commercially reasonable, it retains it’s action for the price under 709

R1-305 REMEDIES TO BE LIBERALLY ADMINISTERED(a) The remedies provided by the Code must 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 but neither consequential or special damages nor penal damages may be had except as specifically provided in the Code or by other rule of law.(b) Any right or obligation declared by the Code is enforceable by action unless the provision declaring it specifies a different and limited effect

17. Sellers cannot recover consequential damages → these damages are incorporated into lost profit

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18. Note: Revised Article 2 has a provision to allow sellers to recover consequential damages in some circumstances

a. Eg: seller purchased product from large company, seller sold to multiple buyers. Buyer 1 breached, as a consequence seller’s profits were reduced because seller was given a discount from large company based on volume

19. Who can recover lost profits:a. Sellersb. Components manufacturersc. Jobber or middleman

iv. Leasese. Buyers’ Remedies

i. 2-711 Buyer’s remedies in general; buyer’s security interest in rejected goods

1. (3) gives the buyer a security interesta. 717 allows the buyer to deduct from the price its

damages, but under (3) the buyer’s security interest does not extend to its damages → damages are unrecoverable out of the sale of the security interst

b. Can take out incidental damagesii. 2-714 Damages where the buyer has accepted

1. Buyer does not relinquish right to sue for breach when the goods are nonconforming

iii. Accepted Goods2-714 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

1. (1) is not meant to cover breach of warranty claims; (2) covers this

a. (1) covers breaches of contract, dealing with deficiencies, quantities and delay

2. (2) damages is the difference between value as warranted and value as accepted

a. Value as warranted is not the same as contract price; we give the buyer credit for having entered a good bargain or a bad bargain

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3. Short hand formulas – not the standard, just ways courts determine the difference

a. Reasonably incurred cost of repair by the buyeri. Buyer gets cost + the remaining difference

ii. If repair efforts are made in good faith, they are incidental or consequential damages

b. Cost of replacement (difference between resale and replacement cost)

4. Where buyer is getting more than originally had (new engine in 1 year old car) most courts give the seller a credit

5. Special circumstances and proximate damages: courts might use this language to bring a (2) breach of warranty under (1) to allow a court to fashion a creative remedy

a. E.g. where there is a limitation of consequential damages but almost all damages are consequential (harm caused by the product), or

b. Cmt.2 says you look at the value at the time warranted, but courts will use (1) to go to time of discovery

6. Overall basic requirements:a. Buyer must have accepted the goodsb. Goods must be nonconformingc. Buyer must give notice

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

7. Often the biggest fights are over consequential damages because the requirements to establish incidental damages are much less, but under 714 (accepted goods) you don’t have a lot of incidental damages (only inspections fees, etc.) and consequential damages arise whether or not there is acceptance

8. Incidental – expenses incurred in dealing with the breach9. Consequential – everything else; expenses, costs, etc., that

come from dealing with third partiesa. E.g. lost profits, good will, atty’s fees, interest ratesb. Cmt.4: The burden of proving the extent of loss

incurred by way of consequential damages is on the

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buyer, but the section on liberal administration of remedies rejects any doctrine of certainty which requires almost mathematical precision in the proof of loss. Loss may be determined in any manner which is reasonable under the circumstances

i. Modern courts allow a lot of flexibility in how you establish the amount of damage, as long as the fact of damage is established

10. Mitigation: there isn’t really a duty to mitigate, but under (2)(a) if you fail to mitigate you can be prohibited from certain recoveries

11. Tacit agreement test rejecteda. Tacit agreement test required showing that the seller

impliedly agreed that the buyer could recover consequential damages

b. Cmt.2: The “tacit agreement” test for recovery of consequential damages is rejected; “reason to know in advance” is followed, but the seller is not liable unless the buyer could not reasonably have prevented the loss

12. Hadley v. Baxendale two aspects of foreseeability:a. Special damages that naturally arise from the breachb. Must show that the seller knew or should have

known13. (2)(a) is the Hadley v. Baxendale rule

(causation/foreseeability)a. Note: there is no foreseeability issue in (2)(b)

14. Other argued consequential damages:a. Attorney’s fees? Most places no

i. CL said no, and 1-106 incorporates other rules of law into the code

ii. BUT: CISG – Atty’s fees are recoverable for (1) personal injury or (2) where a third party sues you because of other party’s breach

b. Emotional distress? No2-717 Deduction of Damages From the PriceThe 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

15. Typically occurs where the buyer accepts nonconforming goods → seller has an action for the price, buyer has an action under 714 for the difference in value and wants to deduct from the price the damages

iv. Unaccepted Goods2-712 COVER; BUYER’S PROCUREMENT OF SUBSTITUTE GOODS

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(1) After a breach within the preceding section the buyer may "cover" by making in [1] good faith and [2] without unreasonable delay any [3] reasonable purchase of or contract to purchase goods in substitution for those due from the seller. [sets forth basic requirements](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 breach. (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy

1. Cmt.2: 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. The “without reasonable delay” requirement is not meant to limit the time necessary for him to look around and decide as to how he may best effect cover. Same test as reasonable time and seasonable action

2. Formula: cover price – contract price + incidentals and consequentals – expenses saved

3. Was there “unreasonable delay”?a. Cmt.2 says at a minimum you get time to look

around and decide how best to cover4. Was the cover reasonable? I.e. was the good a “substitute

good”?a. Does not have to an identical good, but must be the

closest thing available to be a reasonable substituteb. E.g. same class, same family of goodsc. If reasonable cover can’t be obtained, that’s a strong

case for specific performance or for use of market price

5. What are expenses saved? Costs the buyer would otherwise have incurred, but now will not

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 non-delivery 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

6. 713 is the market differential measure of damages7. It’s a hypothetical cover where the buyer does not cover8. Circumstances where 713 is available are very limited

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a. 712 is the preferred approach and specific performance further limits

b. Would be appropriate where, for example, the buyer no longer wants the goods

c. If the buyer has consequential damages but foregoes cover to recover under 713, he will lose his consequential damages → buyer loses consequential damages if he could have covered

9. Formula: Market price – contract price + incidentals + consequentials – expenses saved

a. Market price – contract price are direct damagesb. Consequentials in a resale contract will always be

resale price – market price because that’s the only way to make the seller whole

c. Expenses saves are strange because without actual cover, we don’t know what is or is not saved

i. Cmt.1: The general baseline adopted in this section uses as a yardstick the market in which the buyer would have obtained cover had he sought that relief. So the place for measuring damages is the place of tender (or the place of arrival if the goods are rejected or their acceptance is revoked after reaching their destination) and the crucial time is the time at which the buyer learns of the breach

ii. EX: FOB seller’s plant SF. Goods arrive in W-S before buyer pays shipper. Expense saved because we assume buyer will purchase in W-S.

iii. EX: FOB seller’s plant SF. Goods are never shipped. No expense saved because we assume buyer will purchase in W-S

iv. EX: FOB buyer’s place of business. This is a destination contract and buyer would never bear the cost of shipping, so no expenses saved.

10. In the choice between 712 and 713, 1-305 says the buyer should be compensated however best compensates him for his losses → Buyer can’t just chose 713 because it’s higher

11. Capping damages under 713?a. EX: where the buyers are just buying to resell –

should damages be limited to amount of profit.b. Tongish says no; Allied says yes (he agrees with

Allied)2-716 BUYER’S RIGHT TO SPECIFIC PERFORMANCE OR REPLEVIN

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(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

12. Right to Specific performance has been broadened – “other proper circumstances”

13. “unique” is no long limited to goods already ascertained (Cmt.2) so it now incorporates fungible goods if the circumstances call for specific performance

v. CISG1. Nachfrist – Article 47

(1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.(2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance

2. Sellers ability to extend – Article 48(1) Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention.(2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.(3) A notice by the seller that he will perform within a specified period of time is his decision.(4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer

a. If the buyer has already avoided on the grounds of fundamental breach, the seller can no longer cure under 48(1)

b. Also, seller cannot cure if it would result in an unreasonable inconvenience or delay to the buyer

3. Specific performance – Article 46(1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement (2) If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if

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the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter

a. Unlike 716, the buyer can only get specific performance if there is a fundamental breach

f. Anticipatory Repudiation

2-610 ANTICIPATORY REPUDIATIONWhen 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)

i. Cmt.1: Anticipatory repudiation centers upon an overt communication of intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance

1. Can be inferred indirectly where circumstances reasonably allow

ii. Something immaterial does not constitute anticipatory repudiation – something that does not substantially impair the value of the transaction (Cmt.1)

iii. Cmt.2: a demand by one or both parties for more than the contract calls for is not in itself a repudiation; a mere request for a modification is not repudiation unless it is coupled with an intention not to perform without the modification (when a fair reading reveals this intention)

iv. If you have independent contracts, breach of one is not necessarily repudiation of the others but if they’re related it may create reasonable doubt so the party can demand assurances under 609

v. Damages under 708 or 713 are appropriate2-609 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.

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(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.

vi. Failure to provide adequate assurances is a breach by repudiation under (4). This will trigger sections 610 and 611

2-611 RETRACTION OF ANTICIPATORY REPUDIATION(1) Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final. (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (Section 2-609). (3) Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation

vii. Party can generally retract a repudiation unless the other party relies by:

1. Accepting the repudiation2. Changing their position in reliance on the repudiation

viii. Damages for repudiation are available under 713 or 7082-723(1) Proof of Market Price; Time and Place(1) If an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or all of the goods, any damages based on market price (Section 2-708 or Section 2-713) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation.

ix. Courts follow three different options to determine when the market price is measured from:

1. When the buyer learns of repudiationa. Used to be majority

2. When he learns of the repudiation plus a commercially reasonable time (majority)

a. Consistent with 610 and R2 has adopted this approach

3. When performance is due under the contractg. Statute of Limitations

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

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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. (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

i. 725 provides a four-year statute of limitationsii. Cause of accrues at either:

1. For late delivery, inadequate delivery: when the breach occurs

2. Warranty (including implied warranties): When tender of delivery is made, whether or not the buyer has knowledge of it UNLESS the warrant explicitly extends to future performance of the goods, then when the buyer has knowledge (see (2)) (discovery rule)

a. Obviously, conformance requirement for tender does not apply here

b. A statement of future performance is explicit if it does not arise by implication, but is distinctly stated

iii. In a lease, the cause of action accrues when the flaw is discovered or at tender, whichever is later

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Sales Davis 2006

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