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Course: Sales Outline Fall 2002
School: unknown
Year: 2002
Professor: unknown
Course Outline provided by Legalnut.com


  1. Scope of Article 2

    1. 2-102 scope provisions

      1. “applies to transactions in goods

        1. 2-105(1) defines “goods” as “all things which are movable at the time of identification

          1. 2-501(1) defines when “identification” occurs as:

            1. at contract formation for goods already existing and identified

            2. when the goods are shipped, marked, or otherwise designated

      2. does not apply to security transactions

      3. in hybrid transactions, (i.e. goods and intangibles such as goodwill) it applies to at least the “goods” and perhaps the rest if the “primary purpose” of the transaction is the sale of goods, according to local case law.

        1. some courts divide transaction into goods and non-goods and deal with each separately.

          1. ex: in Foster, court argued that Art. 2 applied only to the furniture and other movables, even though the transaction involved the sale of a whole radio station, including real property, goodwill, FCC license, etc.

        2. other courts treat contract as a whole by determining “primary purpose” by looking at:

          1. intent of parties, or

          2. value of the goods in relation to the intangibles.

      4. code may be applied by analogy to non-goods transactions if:

        1. the same considerations that gave rise to the code are applicable, and

        2. no rebutting analogy is successful

        3. ex: in Wivagg, the court applied 2-314 strict liability warranty theory to a hybrid service/sale transaction.

        4. ex: in Glenn Dick, court applied art. 2 to a lease transaction.

    2. 2-106(1) - “contract” and “agreement” in Article 2 are limited to “present or future sale of goods”.

      1. “present sale” is a sale which is accomplished by contract formation

      2. “sale” is “passing of title from the seller to the buyer for a price.”

    3. 2-103(1) defines “buyer” and “seller” as:

      1. buyer is person who contracts to buy “goods”

      2. seller is person who contracts to sell “goods”

    4. 2-104(1) defines “merchant” as “person who deals in goods of the kind”

    5. 2-107 - Goods to Be Severed From Realty

      1. sale of things fixed to realty such as buildings, minerals, oil, gas, etc., is a sale of “goods” only if they are to be severed by the seller

      2. sale of crops, timber, or things removable without material harm is a “sale of goods”, regardless of who is to sever, and even though it still forms part of the realty at the time of contracting.

    6. 1-103 provides continuing applicability of common law unless displaced by a particular provision.

  2. Contract Formation

    1. 2-204 contract formation in general is very flexible

      1. 2-204(1) - contract “may be made in any manner sufficient to show agreement, including conduct.”

      2. 2-204(2) - even if the moment of contract formation is undetermined.

      3. 2-204(3) - even if some of the terms are left open

    2. 2-206 Offer and Acceptance

      1. Definition of “offer” and “acceptance” is not found in the code because their definition is incorporated from the common law by 1-103.

      2. Acceptance is very flexible unless unambiguously indicated by language or circumstances:

        1. in any manner and by any reasonable medium

        2. by shipment (actual performance) of either conforming or non-conforming goods, unless the seller indicates that the shipment is only an accommodation.

          1. avoids unilateral contract trick of seller denying contract formation if buyer rejects goods, and insisting on contract price if buyer accepts goods.

        3. beginning performance prevents revocation for a reasonable time, but the performer must notify the offeror of acceptance within that reasonable time.

      3. 2-205 Firm Offers are irrevocable during their stated term (or for a reasonable time) not to exceed three months if:

        1. made by a “merchant” under 2-104(1) definition.

        2. made in a “signed writing” signed by the offeror

        3. give assurances that it will be held open.

          1. ex: an offer having an express term of 6 months may be revoked after 3 months, but the offeror must take affirmative action to do so because the common law “dispatch rule” is incorporated by 1-103.

    3. 2-209 Modification and Waiver

      1. An agreement modifying an contract needs no consideration to be binding.

      2. private statute of frauds - parties can expressly require that any modification may be in writing.

      3. the statute of frauds of 2-201 must be satisfied for a modification to be effective - for the same reason as contract formation

      4. even if the modification attempt does not satisfy the statute of frauds, it may still operate as a waiver if relied upon by the other party.

      5. waivers are retractable by reasonable notification in the absence of reliance on the waiver by the other party.

  3. Statute of Frauds

    1. 2-201(2) requires a “skeleton” of the contract (if $500 or more) exist in writing to be enforceable:

      1. “sufficient to indicate that a contract for sale has been made between the parties”

        1. not a high standard, only requires that the writing provide “a basis for believing that the offered oral evidence rests on a real transaction.”

        2. ex: in Southwest Eng. Co. v. Martin Tractor, a memorandum of cost breakdown for different generators was sufficient.

      2. “signed by the party against whom enforcement is sought or his authorized agent”;

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

          1. ex: letterhead, typed name, company name on a sales brochure

          2. ex: in Southwest Eng. Co. v. Martin Tractor, the printed name of the salesman was sufficient authentication.

      3. “not enforceable...beyond the quantity of goods shown in the writing.”

        1. quantity is critical baseline in a contract from which other terms can be inferred.

    2. 2-201(2) is a limited exception to the signature requirement for merchants, which has the effect that the merchant ignores his mail at his own peril, if:

      1. a merchant sends a written confirmation sufficient against the sender

        1. must be sufficient signed writing with quantity term

        2. recipient not bound unless sender is bound

      2. the receiving party merchant has reason to know its contents; and

      3. it is not objected to within 10 days of receipt.

      4. ex: In Harry Rubin & Sons, a purchase order confirmation was sufficient even though not signed by the seller.

    3. 2-201(3) creates exceptions based on partial performance or conduct of the parties recognizing the existence of a contract:

      1. 2-201(3)(a) - the beginning of manufacture of making commitments for procurement of specially manufactured goods is sufficient to overcome the statute of frauds if:

        1. the goods are not suitable for sale to others,

        2. circumstances reasonably indicate that the special goods are for the specific buyer

      2. 2-201(3)(b) admissions in judicial proceedings

        1. must be made in “pleading, testimony, or otherwise in court”

      3. 2-201(3)(c) with respect to goods paid for or accepted.

        1. ex: in Lockwood, a $100 downpayment on a Rolls Royce was sufficient evidence of a contract.

    4. Satisfaction of the statute of frauds does not prove existence of a contract, it is only a threshold bar that must be satisfied in order to proceed with other evidence (including oral evidence) to prove that a contract did exist.

      1. First step: satisfy the statute of frauds by showing a sufficient signed writing with a quantity term, or otherwise by conduct

      2. Second step: argue that a contract did exist, based on all the evidence, including oral evidence.

  4. Terms of the Contract

    1. Contract and Agreement distinguished

      1. 1-201(3) an “agreement” is “the bargain of the parties in fact as found in their language or by implication”

        1. consists of express understandings plus trade usage, course of dealing and course of performance

      2. 1-201(11) a “contract” is the “total legal obligation which results from the parties’ agreement” as affected by the code and common law.

        1. may contain more terms than the agreement, as in the case of omitted terms which are supplied by gap-filler provisions

        2. may contain fewer terms than the agreement due to unenforceability of terms due to parol evidence rule, fraud or mistake (for example).

    2. 2-202 Parol Evidence Rule

      1. terms intended to be a “final expression” of the parties’ agreement may not be contradicted by other parol evidence, but may be explained or supplemented:

        1. by course of dealing or usage of trade or course of performance whether or not the document is “complete”;

          1. these implied-in-fact terms are incorporated unless carefully negated by express language.

          2. ex: in Royster, the court allowed evidence of usage of trade and course of dealing even though the contract was unambiguous on its face.

        2. evidence of additional consistent terms unless the writing was also intended to be complete and exclusive.

          1. “complete” means that evidence of omitted terms that would “certainly” have been included in the document is excluded.

          2. a “merger clause” expressly stating that the document is complete and final, might not be enforced against an unsophisticated party.

        3. “final” terms are terms that agree, or terms that both parties have otherwise assented to.

    3. 1-205 Course of Dealing and Usage of Trade

      1. Usage of trade is a “practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.”

        1. what is fairly expected by parties in the given locality involved.

          1. ex: in Royster evidence was allowed that price terms in farming fertilizer contracts are viewed in the trade as projections and not fixed terms.

      2. Course of Dealing is a “sequence of previous conduct between the parties” which establishes the basis for interpreting their conduct.

        1. ex: in Royster, evidence of past renegotiations of contract terms was allowed.

        2. counter-ex: however, in Southern Concrete v. Mableton, the past evidence of renegotiation was excluded as being inconsistent with the express terms.

    4. 2-208 Course of Performance

      1. Course of performance occurs when the contract “involves repeated occasions for performance...with knowledge of the nature of the performance and opportunity for objection to it by the other.”

    5. Hierarchy of Terms

      1. 1-205(4) -where inconsistent, the terms of the contract shall be construed in the following order:

        1. express terms of agreement

        2. course of performance (2-208(2) adds this here)

        3. course of dealing

        4. usage of trade

    6. Gap-Filler (Implied in Law) Provisions

 

      1. 2-305 Open and deferred price terms - if parties intend to be bound

        1. The price, if not agreed upon, is a reasonable price at the time of delivery.

          1. “reasonable price” is typically the market price.

        2. if a price is to be fixed by one party, he is limited by good faith

      2. 2-301 Obligations of the buyer and seller

        1. “the obligation of the seller is to transfer and deliver”

        2. the obligation of the buyer is to “accept and pay in accordance with the contract.”

      3. 2-308 - place of delivery

        1. if not specified is the seller’s place of business, or if none exists, the seller’s residence.

        2. if the parties know that the goods are located elsewhere at contract formation, then that place.

        3. when shipment by the seller is “required or authorized” then 2-504 applies, not 2-308.

      4. 2-309 - Time for performance is a reasonable time

        1. both parties have a continuing responsibility to communicate in good faith

          1. buyer can not merely treat the contract as canceled after a reasonable time, he must notify the seller that delivery time is expiring.

          2. silence may be treated as extending the reasonable time

    1. 2-319 Shipment Contracts and Destination Contracts

      1. 2-319(1)(a) Shipment Contract - “F.O.B. seller’s place of business” - this is the default if the contract is for shipment to the buyer and no F.O.B. term is supplied.

        1. seller must bear the expense and risk of putting them into the carrier’s possession and ship them under 2-504:

          1. make a “proper” contract with the carrier for delivery taking into account the nature of the goods and the circumstances

          2. deliver documents necessary for buyer to take possession (perfect tender of docs. req’d).

          3. notify the buyer of shipment

        2. buyer bears the risk of loss in transit once seller has complied with 2-504

      2. 2-319(1)(b) Destination Contract - “F.O.B. buyer’s place of business”

        1. seller must bear the risk and expense of transporting the goods and tendering delivery under 2-503:

          1. must “put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable him to take delivery” and

          2. deliver any necessary documents to enable buyer to take possession

        2. seller bears the risk of loss in transit until tender of delivery under 2-503

    2. Payment Terms

      1. 2-310(a) - payment is due “ at the time and place at which the buyer is to receive the goods” even in a shipment contract (so that buyer can inspect before payment).

      2. 2-513(1) the buyer has the right to inspect goods before payment or acceptance

        1. the buyer is not required to make the inspection in the distant city in a shipment contract, but may wait until arrival.

        2. 2-513(2) buyer must pay for inspection, but may charge cost to seller if goods are properly rejected.

    3. 2-306 Output and requirements contracts (open quantity term)

      1. requirement of actual output or requirements in good faith -

        1. if market price rises, buyer can not demand excess to sell on the spot market

        2. if market price falls, seller can not force buyer to take more than required

      2. except that “no quantity unreasonably disproportionate to any stated estimate or...to any normal or otherwise comparable prior output or requirements”

        1. if buyer’s business booms, seller must try to keep up in good faith, but is not absolutely bound

        2. if buyer’s business falls off, seller can not force buyer to take more than required

    4. 2-302 Unconscionability

      1. If court finds the clause unconscionable it may:

        1. refuse to enforce the contract

        2. enforce the remainder of the contract without the clause

        3. limit the applicability of the clause

      2. the parties may introduce evidence to explain the clause, but it is a question of law for the court

      3. Procedural and Substantive Unconscionability must both be present:

        1. procedural - defect in contract formation preventing “meaningful choice”

          1. ex: inability of buyer to read, small print, fraud, coercion, etc.

        2. substantive - defect in the terms themselves which shocks the court

          1. ex: excessive price, undue restriction/expansion of rights, un-bargained-for terms

      4. not usually successful unless there is an extreme difference in bargaining power

    5. 1-203 Duty of Good Faith

      1. Every contract imposes a duty of good faith in its performance and enforcement (but not negotiation).

        1. problems during negotiation must be handled through other doctrines such as fraud, duress, and unconscionability.

      2. Good Faith is a question of fact for the jury

        1. 1-201(19) general definition for non-merchants - “honesty in fact” - a subjective standard

        2. 2-103(1)(b) definition for merchant includes “observance of reasonable commercial standards of fair dealing in the trade.”

  1. Risk of Loss

    1. Underlying principle - in absence of express allocation, allocate risk of loss to party most likely to have insured against loss.

    2. 2-509 Risk of Loss in the Absence of Breach

      1. 2-509(4) - the parties may expressly allocate risk of loss as they see fit.

        1. ex: 2-319(1)(a) - express F.O.B. terms- shipment contract - seller bears the risk of putting the goods into the possession of the carrier, and complying with 2-504 but buyer bears risk of loss thereafter.

        2. ex: 2-319(1)(b) - express F.O.B. terms - destination contract - seller bears the risk of transporting the goods to the destination and tendering delivery under 2-503.

          1. ex: in Consolidated Bottling, “F.O.B. purchaser’s truck” meant that the risk of loss remained on the seller until they loaded the goods into the purchaser’s truck.

      2. 2-509(1) - shipment by carrier

        1. shipment contract - risk of loss passes to buyer when the goods are duly delivered to the carrier under 2-504

          1. ex: in Eberhard, the “ship to” address was insufficient to create a destination contract, and so the default shipment contract placed risk of loss on the buyer when the goods were placed with the carrier.

        2. destination contract - risk of loss passes to the buyer when the goods are duly tendered at the destination under 2-503

      3. 2-509(2) -if goods are held by bailee, risk of loss passes to the buyer:

        1. upon receipt of title documents from the bailee

        2. acknowledgment by the bailee that the buyer may possess the goods

          1. counter-ex: in Caudle, a salesman who held a motorhome for a late pickup by a customer was not a bailee.

      4. 2-509(3) in any case not covered by shipment or destination contract, or bailee, the risk of loss passes to the buyer:

        1. upon “receipt” of the goods if the seller is a merchant

          1. 1-203(1)(c) “receipt” is defined as “taking physical possession” of the goods

          2. ex: in Caudle, the seller was liable for the loss of the motorhome stored on his lot because the buyer had not yet taken delivery.

        2. upon “tender of delivery” if the seller is not a merchant

          1. 2-503 defines “tender of delivery” as to “put and hold conforming goods at the buyer’s disposition.”

          2. counter-ex: in Martin, a farmer (as seller) retained the risk of loss of a trade-in tractor that he continued to use because he never tendered delivery.

      5. 2-709 Action for Price of lost or damaged goods:

        1. Buyer must pay for “conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer.”

    3. 2-510 - Effect of Breach on Risk of Loss

      1. If the tender or delivery is non-conforming so as to give a right of rejection to the buyer, the risk of loss remains on the seller until cure or acceptance

        1. the buyer does not actually have to reject, the mere right of rejection prevents the risk of loss from passing

          1. ex: the risk of loss of non-conforming goods that are lost in transport under a shipment contract remains on the seller, due to the buyer right of rejection, regardless of whether the buyer was aware that the goods were non-conforming when they were lost.

        2. if the cure consists of replacing the non-conforming goods, the risk of loss remains on the seller for those non-conforming goods so long as they have not been accepted.

      2. If the buyer accepts but then rightfully revokes, he can pass the risk of loss back to the seller to the extent of any deficiency in his effective insurance coverage.

        1. buyer must actually (and rightfully) revoke prior to the loss.

        2. the “anti-subrogation” provision prevents the buyer’s insurance from having a claim against the seller

      3. The seller may pass the risk of loss to a repudiating buyer for a commercially reasonable time (long enough to obtain his own insurance rider) to the extent that:

        1. the goods are conforming

          1. otherwise the buyer’s right to reject keeps the risk of loss on the seller under 2-510(1).

        2. the goods are already identified to the contract under 2-501

          1. the buyer does not have an insurable interest in the goods until they are identified to the contract.

        3. there is a deficiency in the seller’s insurance coverage (anti-subrogation).

        4. ex: in Multiplastics, the risk of loss of the specially manufactured goods passed to the buyer upon repudiation since the seller did not have enough effective insurance.

  2. Warranties

    1. 2-313 Express Warranties - are created if they are “part of the basis of the bargain” and they are either:

      1. an “affirmation of fact or promise” that the goods will conform to the affirmation or promise

        1. empirically testable facts - “this car will get 15 mpg”

        2. seller more sophisticated than buyer - “this painting is an original Salvador Dali”

        3. made in the context of other facts

        4. made near end of negotiations

      2. a “description of the goods” that the goods will conform to the description

        1. ex: “this car is a 1970 Mercedes” creates a warranty that it is not a 1969 or other year model.

      3. a “sample or model” that the whole of the goods will conform to the sample or model.

        1. a “sample” is drawn from the lot of the goods and therefore, if it is a good one, creates a high standard for the rest of the lot (higher than implied warranties).

        2. a “model” is not one of the goods but a representation of them so it creates a less strict standard than a sample.

      4. but an affirmation “merely of the value of the goods” or “the sellers opinion” does not create a warranty.

        1. but the seller does not need to have the specific intent to create a warranty.

      5. the “basis of the bargain” is a low threshold, at most requiring that the buyer know of the statement or representation made by the seller.

 

        1. ex: in Autzen, the court found breach of express warranty even though the favorable inspection report occurred after contract formation because the report was still part of the “bargain” even though it did not affect formation of the “contract” (different concepts).

    1. 2-314 Implied Warranty of Merchantability

      1. Seller must be a “merchant with respect to goods of that kind”

        1. not just any merchant - requires a “professional status” as to that particular type of goods.

        2. does not apply in the absence of a “contract for sale of goods” (i.e. non-contract or non-goods).

          1. ex: exploding bottles on a grocery shelf injure a customer walking by - no contract for sale, 2-314 is inapplicable.

      2. Standards of Merchantability:

        1. fungible goods “are of fair average quality”

        2. “fit for the ordinary purposes for which such goods are used.”

          1. based on consumer expectations

          2. ex: in Webster, a bone in fish chowder is not a breach of implied warranty because it is fit for its ordinary purpose.

          3. counter-ex: in Robert Carr & Sons, the court held that using a “log chain” as a towing chain may not be an ordinary use.

          4. ex: in Testo, the court held that to be fit for the ordinary purpose of driving, an expensive car must be free from defects which render it inoperable (such as being used as a race car previously).

        3. “are adequately contained, packaged, and labeled.”

          1. ex: failure to warn of dangers of operation

      3. Also applies to used goods, but the warranty is less stringent.

    2. 2-315 Implied Warranty of Fitness for a Particular Purpose

      1. seller must have “reason to know” of the “particular purpose.”

        1. “particular purpose” is different from the “ordinary purpose” for which the goods are used

        2. the goods need not be defective to breach the warranty of fitness

          1. ex: non-defective lubricating oil is not fit for the particular purpose of hydraulic fluid.

      2. buyer must be “relying on the seller’s skill or judgment to select or furnish suitable goods”

        1. buyer can not select the goods himself.

    3. 2-318 Privity

      1. Seller may not disclaim how far the warranty extends (i.e. to whom it extends horizontally) but may still completely disclaim all warranties under 2-316

      2. Horizontal Privity (who is a proper plaintiff?) -

        1. Alternative “A” any natural person in the family or guest who is injured in person

        2. Alternative “B” any natural person who is injured in person

        3. Alternative “C” an person (including corporation) who is injured (whether or not personally).

        4. all must reasonably be expected to use, consume or be affected by the goods.

      3. Vertical Privity (who is a proper defendant?)

        1. not addressed by the code.

        2. ex: in Western Seed, the buyer of defective seed was not allowed to sue a remote distributor out of state.

        3. ex: in Randy Knitwear, the court held that a buyer could sue a remote manufacturer even though there was no direct contractual relationship because the manufacturer relied heavily on advertising to generate sales through the retail stores.

    4. 2-316 Disclaimer of Warranties

      1. 2-316(1) disclaimer of express warranties is inoperative to the extent that it is inconsistent with the express warranty itself.

        1. ex: a blanket disclaimer of “all warranties express or implied” is ineffective to negate an express warranty.

        2. however, the parol evidence rule of 2-202 still applies and the buyer must overcome it to get in evidence of oral express warranties.

          1. ex: contract for purchase of a car might claim to disclaim all express warranties and that it is the final and exclusive representation of the contract.

      2. 2-316(2) disclaimer of implied warranties:

        1. of merchantability must mention the word “merchantability” and, if in a writing, be “conspicuous”

          1. 1-201(10) - “conspicuous” is defined as written such that “a reasonable person against whom it is to operate ought to have noticed it.”

            1. ex: capital letters, larger type, set off.

        2. of fitness must be in a conspicuous writing.

          1. stricter standard due to reliance of buyer.

          2. ex: in Dorman, even though the disclaimer was set off, it was not “conspicuous” because it was not in capital letters, and it was ambiguous.

      3. 2-316(3) - other disclaimers

        1. “as is” or other language that calls the buyer’s attention to the disclaimer and makes plain that there is no implied warranty

        2. when the buyer has or should have inspected the goods before contract formation, there is no implied warranty with respect to defects that should have been revealed by inspection

        3. course of dealing or course of performance may operate to waive implied warranties.

      4. Post-Contractual disclaimers of warranty are, of course, generally invalid as unilateral attempts at contract modification after the buyer has already relied on the presence of the warranty.

    5. 2-719 Modification of Remedies

      1. Different than disclaimer of warranty.

      2. The parties can expressly provide to:

        1. add or substitute remedies

        2. alter the measure of damages

          1. ex: refund of the purchase price

        3. limit the buyer’s remedies

          1. ex: return or replace defective part

      3. The alternate remedy is optional unless agreed to be exclusive.

      4. A modified remedy that “fails of its essential purpose” is invalid, allowing the party any remedy otherwise provided for in the code.

        1. ex: warranting party either refuses to honor the substitute remedy or is unable to honor it.

        2. restores all of the code remedies to the damaged party.

      5. Consequential damages may be limited or excluded subject to the unconscionability doctrine

        1. limitation of personal injury damages is prima facie unconscionable

        2. limitation of property damages is not prima facie unconscionable

  1. Acceptance, Rejection and Revocation

    1. 2-606 Methods of Acceptance

      1. Statement of buyer

        1. after a reasonable opportunity to inspect;

          1. ex: in Zabriskie, a spin around the block at the new car dealership was deemed not to be a “reasonable opportunity to inspect”

        2. buyer “signifies” to seller that:

          1. the goods are conforming; or

          2. he will take them in spite of their non-conformity.

      2. Silence of buyer

        1. after a reasonable opportunity to inspect;

        2. buyer fails to make an effective rejection under 2-602(1)

          1. buyer does not reject goods “within a reasonable time” or

          2. buyer does not “seasonably notify the seller”

          3. ex: in Miron, the buyer of an injured racehorse was held to have accepted because he had an opportunity to inspect the horse at the auction but waited 24 hours.

      3. Conduct of buyer

        1. buyer acts inconsistent with seller’s ownership

          1. buyer uses the goods for his own benefit

            1. however, there is still the statutory duty to mitigate damages and act in good faith

          2. buyer changing the goods irreversibly

            1. ex: changing raw metal into blanks

          3. counter-ex: in Can-Key, the turkey farm was allowed to experiment with trying to make the defective hatchery work, and such acts were not “inconsistent” with the seller’s ownership of the hatchery.

        2. if buyer acts wrongfully then it is only acceptance if seller ratifies such wrongful action

    2. 2-607 Effect of Acceptance

      1. buyer must pay the contract price for any goods accepted.

      2. acceptance precludes rejection

      3. buyer must notify seasonably seller of any breach or be barred from any remedy

      4. the buyer bears the burden of proof to establish breach

    3. 2-601 Rejection - Perfect Tender Rule for Sale of Goods

      1. “if the goods or tender of delivery fail in any respect to conform to the contract” the buyer has three choices

        1. reject the whole

        2. accept the whole

        3. accept any commercial unit and reject the rest.

      2. does not have to be a “material breach” as in the case of construction contracts

        1. however, 1-203 requires that the rejection (which is the enforcement of a contract right) be made in good faith.

    4. 2-602 Manner of Rejection

      1. must be within a reasonable time after delivery

        1. ex: in Zabriskie, the buyer notified the seller of the defects in the car immediately after it broke down on the way home.

        2. counter-ex: in Miron, an attempted rejection after 24 hours of an injured racehorse was ineffective because an opportunity to inspect at the auction was available, and thus the rejection was not within a reasonable time after tender.

      2. rejection is not automatic- buyer must take some action -rejection is ineffective unless buyer seasonably notifies seller

        1. 2-605 provides that failure to identify the defect to the seller precludes rejection if the seller could have cured if the defect were identified seasonably.

      3. the buyer has the duty, upon rejection, to hold the goods with reasonable care at the seller’s disposition for a time sufficient for the seller to remove them.

        1. 2-603(2) the buyer is entitled to reimbursement for reasonable expenses incurred in caring for the goods after rejection.

    5. 2-508 Seller’s right to Cure - suspending rejection

      1. if the time for performance has not yet passed, the seller may

        1. seasonably notify the buyer of intent to cure

        2. make a conforming delivery within the contract time

        3. this prevents the buyer from treating the early defective tender as anticipatory breach.

        4. if no time for performance is stated, 2-309 provides that it is a reasonable time.

      2. if the time for performance has passed, AND the seller “had reasonable grounds to believe” that the non-conforming tender would be accepted, the seller may

        1. seasonably notify buyer of intent to cure

        2. have a further reasonable time to substitute a conforming tender

        3. ex: in Wilson v. Scampoli, the seller had reasonable grounds to believe that an unopened TV box from the manufacturer would be acceptable, and the buyer prevented the seller from examining the TV, thus denying his further reasonable time to cure.

      3. money allowance - if the seller had reason to believe that the tender would have been acceptable at a discount in price, then he has the opportunity to cure.

      4. the seller may be limited in the amount of repair work that he can do to cure a defective product

        1. the cured item must “conform” to the contract, meaning that the repairs can not substantially change it’s nature or value

        2. the “shaken faith” doctrine limits a seller from curing by making major repairs to new goods when a major reason that the buyer bought the new goods was for reliability - such repairs destroy the buyer’s faith in the products reliability.

      5. The seller is still limited by the good faith requirement of 1-203 in enforcing his right to cure.

 

    1. 2-612 Installment Contract Exception - NOT Perfect Tender Rule

      1. the buyer has a right to reject any installment which has a defect which substantially impairs the value of that installment AND the defect cannot be cured

        1. but if the seller gives adequate assurances of cure, then the buyer must accept the installment.

          1. the seller does not have to have reasonable grounds for believing the tender would be acceptable - absolute right to cure (limited by good faith).

    2. 2-504 Shipment Contract Exception - NOT Perfect Tender Rule

      1. 2-504 last sentence - failure of notification of the buyer, or failure to make a proper contract is a ground for rejection only if material delay or loss ensues.

      2. however, failure to properly tender the documents is still subject to the perfect tender rule.

    3. 2-608 Revocation - NOT Perfect Tender Rule

      1. buyer may only revoke if the non-conformity “substantially impairs its value to him.”

        1. subjective standard

      2. if the defect is discovered before acceptance, the buyer may revoke only if:

        1. he reasonably assumed the defect would be cured; and

        2. it has not been seasonably cured

          1. the seller has no further right to cure to preclude revocation because that would be a third chance at performance

      3. if the defect is discovered after acceptance, the buyer may revoke only if:

        1. his acceptance was reasonably induced by the difficulty of discovery; or

        2. by the seller’s assurances

        3. ex: in Zabriskie, the court held that even if the buyer had accepted the car, the latent defect was undiscoverable before acceptance and substantially impaired the cars value to the buyer.

      4. revocation must occur within a reasonable time AND before he has made any substantial change in the condition of the goods.

  1. Breach and Impaired Expectations

    1. 2-711 - Actions amounting to breach by the seller

      1. failure to make delivery

      2. repudiation

      3. the buyer rightfully rejects

      4. the buyer rightfully revokes

    2. 2-703 - Actions amounting to breach by buyer

      1. wrongful rejection

      2. wrongful revocation

      3. failure to make a payment due on or before delivery

      4. repudiation

    3. 2-610 Anticipatory Repudiation - NOT Perfect Tender Rule

      1. repudiation must “substantially impair the value of the contract to the other”

        1. material damage will result if the party is forced to wait until time for performance

      2. requires overt communication or actions which demonstrates clear determination not to continue with the contract.

      3. aggrieved party has the option to:

        1. await retraction for a commercially reasonable time

        2. resort to any remedy for breach even if still urging retraction

        3. suspend his own performance

        4. identify goods to the contract for purposes of damages and possible risk of loss under 2-510

        5. salvage unfinished goods

    4. 2-611 Retraction of Anticipatory Repudiation

      1. retraction must occur:

        1. before the repudiating party’s next performance is due; and

        2. before the aggrieved party has:

          1. canceled

          2. materially changed position

          3. otherwise indicated that he considers the repudiation final.

      2. the aggrieved party has a right to demand assurances under 2-609

    5. 2-612(3) - Breach of the whole in Installment Contracts - NOT Perfect Tender Rule

      1. if the non-conformity of one or more installments substantially impairs the value of the whole contract, then there is a breach of the whole.

        1. same test as anticipatory repudiation

        2. ex: in Graulich Carter, the seller’s tender of two non-conforming food deliveries, and his inability to cure them, substantially impaired the value of the contract to the buyer who needed good food on a daily basis.

    6. 2-609 Demand of Adequate Assurances of Performance

      1. when “reasonable grounds for insecurity arise with respect to the performance” the other may:

        1. in writing demand adequate assurance of performance

          1. ex: escrow funds, letter of credit, performance bond, security interest, assignment of receivables

        2. if commercially reasonable, suspend any executory portion of his performance.

      2. other party has a reasonable time not to exceed 30 days to provide such assurance as is adequate.

        1. failure to provide adequate assurance is repudiation.

  2. Buyer’s Remedies

    1. 2-711(1) - Return of purchase price paid

      1. upon breach by the seller, the buyer may:

        1. cancel the contract, and

        2. recover any amount of the purchase price paid, whether or not he has canceled the contract.

    2. 2-712 - Cover

      1. To qualify as a proper cover, the purchase:

        1. Must be made in good faith

          1. doesn’t matter if hindsight proves that the purchase could have been had for less.

          2. purchasing from oneself requires good documentation to prove good faith

        2. without unreasonable delay

          1. depends on the nature of the volatility of the market

        3. be a reasonable substitute

          1. if the cover goods are either superior or inferior, the court should adjust the recovery accordingly.

      2. The measure of damages is cover price - contract price + incidental & consequential - expenses saved.

    3. 2-713 Market Price - Contract Price Differential

      1. measure of damages is market price - contract price + incidental & consequential damages - expenses saved

        1. the market place is the place of tender in the case of

          1. failure to ship under a shipment contract; or

          2. repudiation

        2. the market place is the place of arrival in the case of

          1. failure to ship under a destination contract; or

          2. rightful rejection or revocation after arrival

        3. the market time is “when the buyer learned of the breach”

          1. in the case of repudiation, this should be a commercially reasonable time after the buyer learns of the repudiation because he is entitled, under 2-610(a) to await performance for a commercially reasonable time after repudiation.

    4. 2-714 Damages for Accepted Goods

      1. 2-714(1) Recovery of Ordinary Losses

        1. after notifying seller of the defect, the buyer may recover the loss resulting “in the ordinary course of events” from the breach

          1. determined in “any reasonable manner.”

      2. 2-714(2) Breach of Warranty Damages

        1. difference between :

          1. “value of goods as accepted”; and

            1. typically cost of repair

          2. “value they would have had if they had been as warranted”

            1. usually the contract price, but may be market price if contract price is inadequate.

        2. value measured “at the time and place of acceptance.”

        3. unless special circumstances show damages of a different amount

          1. ex: if buyer does not discover defect until after acceptance, and the value has depreciated in the meantime.

      3. 2-714(3) Incidental and Consequential damages are also available.

    5. 2-715 Buyer’s Incidental and Consequential Damages

      1. Incidental damages include those incurred in fulfilling rights and obligations under the contract:

        1. inspection, receipt, transportation

        2. care and custody of goods

        3. charges or expenses in effecting cover

      2. Consequential damages are additional injuries that occur as a consequence of the breach and include:

        1. general requirements that the seller at the time of contracting had reason to know and could not have been prevented by cover or otherwise (mitigation).

        2. personal injury or property injury proximately caused from breach of warranty (limited by 2-318 options)

          1. “proximate” turns on whether it was reasonable to use the goods without such prior inspection as would have revealed the defects.

    6. 2-716 - Specific Performance

      1. may be decreed:

        1. “where the goods are unique”; or

          1. broader than “one of a kind”.

        2. “in other proper circumstances”

          1. inability to cover is “strong evidence” of other proper circumstances.

  3. Seller’s Remedies

    1. 2-706 Resale

      1. measure of damages is resale price - contract price + incidental damages - expenses saved, provided that:

        1. sale is made in “good faith”

        2. in a “commercially reasonable manner”

        3. seller must give “reasonable notification” to the buyer

          1. additional req.’s for public resale include:

            1. only identified goods can be resold

            2. made at usual market place

            3. seller may buy

      2. not necessary that the goods be in existence or all have been identified to the contract

        1. 2-704 when goods are unfinished, seller may exercise reasonable commercial judgment in completing the goods and reselling them, or scrapping or salvaging them.

      3. good faith purchaser gets good title free of the breaching buyer even if the seller fails to comply with one or more requirements of this section.

      4. seller is not accountable to the buyer for any profit made on resale

    2. 2-708 Contract - Market Damages

      1. measure of damages is market price - contract price + incidental damages - expenses saved

        1. market time and place is the place for tender regardless of when the seller learned of the breach (contrast w/buyer’s market damages).

      2. if the standard measure of damages would not put the seller in as good a position as performance would have done, then he is entitled to lost profits.

        1. ex: seller is a “lost volume” seller, then the measure of damages is

          1. the profit which the seller would have made from full performance by the buyer;

          2. plus incidental damages;

        2. a seller is a lost volume seller if:

          1. he has the capacity to make the additional sale

          2. the additional sale would have been profitable

          3. the seller probably would have made the additional sale even if the buyer hadn’t breached.

        3. ex: manufacturers of uncompleted goods where no resale market exists.

          1. ex: if under 2-704, seller decides to scrap or salvage, then he is entitled to lost profits, minus the proceeds from resale of the scrap.

    3. 2-709 Action for Price

      1. seller is entitled to the price of:

        1. goods accepted

          1. failure to make an effective revocation entitles seller to recover contract price

          2. however, a wrongful rejection still precludes acceptance (under 2-607) and seller is relegated to other remedies

        2. goods lost or damaged within a commercially reasonable time after risk of loss has passed to the buyer

        3. goods identified to the contract that can not be resold

      2. seller may resell at any time prior to collection of judgment.

    4. 2-710 Seller’s Incidental Damages

      1. as contrasted to buyer, the code only expressly provides for incidental damages for sellers, and not consequential damages.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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