UCC Sales

a. ISSUE: Whether the sale of a group of assets, some of which are non-goods, but others of which are statutory goods is subject to the provisions of UCC article 2.

b. This bifurcation approach is not utilized that often. Look at which state you are litigating and look at cases closely and develop argument carefully.

4. That does not mean to say that courts will only apply article 2 to a sales transaction. Any statutory provision, if the provisions are right, might be applied by analogy, but that is a sophisticated argument to develop.

5. What do I have to do to get the court to apply provisions of article 2 by analogy?

a. Establish that transaction itself is analogous to a sale.

b. Alternative approach is to address the policy implications under article 2, and ascertain whether or not that particular provision should be applied to the case at hand.

6. Wivagg v. Duquesne Light Co.

a. ISSUE: Whehter the courts will imply a warranty of fitness or merchantability in a sales-service hybrid transaction.

b. What was the policy that underlies an implied warranty of merchantability under article 2? Does this make sense to apply to electric? Yes.

c. COURT: The imposition of warranty liability upon Duquesne Light flows naturally from its position of total responsibility for its electrical service.

7. Glen Dick Equipment Co. v. Galey Construction, Inc.

a. ISSUE: Whether Article 2 of the UCC should be extended to this lease transaction.

b. COURT: A lease transaction is analogous to a sales transaction.

c. The lease of a golf cart was very much like the sale of a golf cart, and the analogy is not rebutted by additional circumstances.

8. I.LAN Systems

a. This case focuses solely on the question of which law should be applicable to govern software licensing, Article 2, or the common law.

b. Professor: Article 2 does not govern this transaction because it is for a license agreement, and is not a sale of goods. The Court doesn’t even try to make an argument. The Court is simply going to assume that Article 2 applies. How do they rationalize? Law or article 2, is more consistent with the expectations o the parties at the time they entered into the contract. This is a huge problem area.

9. Goods to be Severed from the Land

a. §2-105

i. states that, “Goods” also includes…growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (§ 2-107).

b. §2-107:

i. Goods to be severed from the land

c. In order for UCC §2-107(1) to apply, the seller must remove the good from the land. A sale of minerals, or a structure or its materials…

d. UCC §2-107(2) everything not named in UCC §2-107(1), does not depend on whether or not the buyer or the seller severs.

e. Distinction:

i. If it is growing from the ground, the buyer or the seller can sever.

ii. If it has to be extracted from under the ground, the seller must sever.

10. Rev. §1-103: Construction of UCC to promote its purposes and policies

a. The UCC must be liberally construed and applied to promote its underlying purposes and policies.

b. Contract formation was probably not the motivating and driving force behind article 2. Article 2 is not the exclusive body of law governing contracts specifically.

c. Unless a Code provision displaces a principle of law or equity, however, those principles are equally relevant to transactions covered by the Code.

B. Offer and Acceptance

1. Why so little sections on formation?

a. There is a lot of law in the common law. It would be tough to codify all the holdings of contract law and reduce it to several provisions.

2. §2-204: Contract Formation in General

a. How is a contract for the sale of goods formed? Are offer and acceptance required?

b. According to §2-204 of the UCC, a contract for the sale of goods may be made in any manner sufficient to show agreement. On its face the UCC does not require offer and acceptance per se, as long as there is an agreement.

3. §2-206: Offer and Acceptance in Formation of Contracts

a. If S sends a telegram to B offering to sell B specified goods, does B have to respond by telegram in order to accept? By a means of transmission at least as fast as telegram service?

i. No, according to UCC § 2-206(1)(a), “an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.”

ii. As long as the medium which the buyer chooses is deemed as ‘reasonable’ then there is offer and acceptance.

b. If an offeror indicates that an acceptance must be by a return promise by telephone to the offeror in two days, can the offeree nevertheless create a contract by other means?

i. If the terms of the contract are unambiguously indicated by the language of the circumstances, then no, offeree cannot create a contract by other means. §2-206(1)

ii. Offeror has unambiguously indicated. What if these two parties have dealt with each other in the past and the buyer never complies and never pays any attention to the two day limitation and the seller always goes along with it. The circumstances do not suggest that this is an unambiguous demand

4. §2-204: Formation in General

a. The UCC has liberalized the requirements for contract formation.

b. Does a contract for the sale of goods fail if the parties do not specify the price to be paid for the goods?

i. Not necessarily, §2-204(3), a contract will not fail for indefiniteness.

ii. Must convince the court of two things:

1. The parties intended to make a contract

2. There is a reasonably certain basis for giving an appropriate remedy. The court has to have an appropriate basis for determining what the term is.

5. §2-205 Firm Offers

a. The issue has to do with irrevocable offers by the seller.

b. For the most part the seller who extends an offer maintains a power of revocation.

c. When you extend an offer of which you know is likely to lead to detrimental reliance, the power to revoke the bid is extended for a reasonable amount of time to give the offeree a chance to accept.

d. §2-205 Firm Offers

i. Under the UCC a firm offer can only apply to an offer from a merchant. See §2-104 for the definition of “merchant.”

ii. A firm offer must be a signed writing, see §1-201 for the definition of a writing.

iii. A firm offer is not valid if it exceeds 3 months.

iv. Any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

6. Cases Ask professor if we can omit these cases because they fall under 2-207.

a. Hill v. Gateway

i. Under the Hill court’s view, where was the acceptance? Acceptance occurs when the consumer fails to return it within the allotted 30 days. Easterbrook is just outcome driven on this one.

ii. What is the practical effect of Easterbook’s holding?

1. Even though you have a contract already, the seller gets to unilaterally add terms to the agreement. And most of these terms are not going to be favorable to you and you will be left between a rock and a hard place.

b. Klocek v. Gateway

c. Klocek v. Gateway

d. Specht v. Netscape

7. §2-209 Modification

a. 2-209 is the modification provision. Modification needs no consideration to be binding. 2-209(1), no consideration, consideration is not an element involved with a modification. You must be very careful to refer to comment 2. It says that modifications there under must use good faith.

C. Statute of Frauds

1. §2-201: Formal Requirements; Statute of Frauds (SOF)

a. §2-201 is a substantial departure from common law requirement to include material terms.

b. Failure to include price does not cause contract to fail.

c. The only requirement you have to have is a quantity term.

d. This does not require that all of the terms of the agreement be in writing. It does not even require that all express terms be in writing. All that is explicitly required for an effective writing is:

i. the signature of the party against whom enforcement is sought (or his authorized agent or broker);

1. Doesn’t have to be signature exactly. Can be symbol, letterhead, printed name, etc.

2. UETA (Uniform Electronic Transactions Act)

3. Electronic signatures are OK

4. Computerized contracting, where one person’s computer contracts w/ another. This can form a contract even though no one reviews the contract or its terms. One can’t use the defense that machines can’t make contracts, b/c the fact that you programmed the machine is your manifestation of assent.

5. E-Sign Act – provides that the documents are legally effective even though the electronic signature is not in paper format.

ii. sufficient information to identify the parties and show that a contract for sale exists between them;

iii. a quantity term;

1. The quantity term requirement is not stated in the rule, but was implied by the courts.

2. A contract will not be enforced beyond the quantity shown in the writing.

3. The reason why quantity is so important (but not price) is that quantity varies more than price (which can be gap-filled by court). Also, quantity also affects the price (Costco style).

iv. Description of the item (hereafter added by Prof. Lawrence) – since SOF only applies to sale of goods, a description will indicate that we are dealing w/ goods; AND

v. Must suggest that this is a sales transaction.

1. What happens instead of “sold two machines to Lawrence,” it says “loans two machines to Lawrence?”

2. This is not a sale of goods, article 2 does not apply.

e. How the SOF Works in Litigation

i. 2-201 is extremely limited in what it seeks to accomplish.

ii. Must make this assertion early before parties start getting into testimony.

iii. If you plead SOF and win, the case is over. The contract is not enforceable.

f. §1-201(37) General definitions—“signed”

g. §2-104(1)—definition “Merchant”

II. TERMS OF THE CONTRACT

A. Express Agreement; Parole Evidence Rule; Interpretation

1. §1-201(b)(3): General Definitions—“Agreement”

a. What was the deal between the parties. What did the parties promise each other, what was the totality of their communications, what was their conduct?

2. §1-201(b)(12): General Definitions—“Contract”

a. This becomes the total legal package. There are a lot of agreements that aren’t enforceable.

3. §2-202: Final or Written Expression: Parol or Extrinsic Evidence

a. If a writing is final, it cannot be contradicted by evidence of any prior agreement (including both oral and written agreements) or any contemporaneous oral agreement, but it can be supplemented by evidence of consistent additional terms.

b. You can’t contradict an integrated agreement.

c. If those terms of writing are considered to be final by the parties, you can’t introduce evidence to contradict those terms.

d. Terms may be explained or supplemented.

	Partial Integration	Complete Integration
Add To	Yes	No
Contradict	No	No

e. Just because parties reduce a contract to a written agreement, doesn’t mean they intended a full integration or what they wrote.

f. The Code Test for Completeness

i. Parole evidence rule in 2-202 does not say anything about the standard to be used to infer what the actual intention was, but it does state a standard in the comments.

ii. Comment 3, certainly included test: unless the term would “certainly” have been included in the writing, extrinsic evidence goes to the jury. This is a higher standard. Gives the courts an out.

B. Trade Usage, Course of Dealing, & Course of Performance

1. TU, CD, CP, can be used to interpret terms in a contract.

a. Trade Usage

b. Corollary concept would have been the concept of custom, but this is pretty limiting. We now speak in terms of trade usage, it is something that business people practice. A trade usage, by being members of the trade, they know and will observe these particular practices, unless they agree to the contrary. Can’t be unilateral. I.e. if a tourist buys an item from a store, and the store has a policy that the item can only be returned for store credit, the store needs to make the tourist aware of this. The store cannot rely on the fact that all other stores in the tourist business do this.

2. Course of Dealing

a. not flowing from the fact that both are members or a trade, they are going to flow from a sequence of conduct between the parties. Must show that it is not the first time we have entered into a contract like this. Must look for prior relevant contracts between the two parties. How does the legitimate expectation arise? We have 10 previous agreement just like this, and now you are trying to pull the plug over the contract. This is a much narrow scale.

3. Course of Performance

a. narrower still, like course of dealing, like a sequence of conduct, now instead of being based on a prior series of comparable contracts, we are talking about a sequence of conduct under this contract. Probably looking at an installment contract. Repeated performance by a party.

4. What if there is a contradiction between an express term and TU, CD, or CP?

a. You can’t contradict a final term in an integrated agreement, but you can use it to supplement consistent additional terms.

b. § 1-303(e) includes a hierarchy provision.

i. Express terms prevail over everything

ii. Course of performance prevails over CD, TU

iii. Course of dealing prevails over TU

iv. Trade usage is at the end

c. What controls is the term that the parties intended to control.

d. 1-303(e) - if you can’t make a reasonable construction to reconcile express term and trade usage, express terms prevail.

5. Columbia Nitrogen v. Royster

a. Columbia nitrogen appellant court seems to suggest that any evidence that is offered that is based upon trade usage or course of dealing should be admissible unless the terms forbid it.

6. Southern Concrete Services v. Mableton Contractors

a. Southern concrete suggest no terms can come in if they contradict express terms. These are the two polar problems. It is a really difficult area with an aweful lot of bad case law on this and the drafters are at fault.

7. Columbia Nitrogen and Southern Concrete were decided on comparable fact patterns and they represent polar extremes with regard to trade usage and express terms.

C. Gap Filler Provisions

1. Gap filler is a term that is the standardized statutory term.

2. There are a number of provisions in article 2 that we refer to as gap fillers.

3. §1-302(a)—UCC provisions varied by agreement

a. “Except as otherwise provided in this subsection (b) or elsewhere in the UCC, the effect of provisions of the UCC may be varied by agreement.”

4. §2-301: General Obligations of Parties

a. “The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.”

b. §2-319: F.O.B. and F.A.S. Terms

c. §2-319 governs the general meaning of what FOB will mean, unless the parties agree otherwise.

5. §2-309 Absence of specific time provitions

a. The gap filler on time is 2-309.

b. “Reasonable time” doesn’t help me that much.

c. §1-205(a). Whether it is reasonable depends on the nature, purposes, and circumstances of the action. That is it as far as the statutory terms; it is kind of a broad standard.

d. You need to be real careful under §2-309, you need to understand that the comments, specifically 5 and 6 expand substantially from what is in the provision.

6. §2-308 Absence of place of delivery

a. The gap filler for specified place for delivery.

7. §2-503(1)-(3) Manner of seller’s tender of delivery

a. §2-503 is the section with respect to manner of delivery in a destination contract.

b. §2-503(1): Sales you generally engage in yourself, i.e. You go to Vons and you buy your groceries. This doesn’t cover face to face transaction, 2-503-1 does.

8. §2-504 Shipment by seller

a. §2-319(1)(a) is how we trigger §2-504

b. §2-504 is not drafted as well as it should be, but courts have no problem with it.

c. Read as put the conforming goods in the hands of the carrier. Make an appropriate contract for the carriage of goods by the carrier, and notify the buyer that this is done.

9. §2-513(1),(2) Buyer’s right to inspection of goods

a. 2-513 cross-reference to section 3. C.O.D. parties must agree on this.

10. §2-310(a) Payment due

a. “payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery;”

11. §2-305 Open price term

a. 2-305 is a pricing term, appropriate remedy, reasonable price AT THE TIME OF DELIVERY. If you can’t comply with the provisions of 2-305 then the contract may fail for indefiniteness.

12. §2-306 output requirement

a. Requirements or output contracts. Commit to buy from you exclusively. Rememeber 2-201(1). What happens with SOF in a requirements contract? This satisfies the quantity requirement, it is not a precise quantitiy, but it is a measurable quantity under 2-306.

D. Supereminent Contract Terms

1. Typically, if parties don’t like particular provisions, they can agree otherwise.

2. There are certain fundamental principles, however, that cannot be disclaimed.

3. You cannot use express terms, CD, CP, or TU to get around it.

4. §1-302(b) Variation by Agreement

5. §2-302 Unconsionability

a. Unconcsionability is never a jury issue. It is not an issue of fact. Unconcsionability is purely a decision for the court to make.

b. Unconsiconable at the time it was made.

i. Court should not find something to be unconscionable just because events have changed.

c. As applied by the courts 2-302 has not been a very good weapon for merchants. It is very difficult to convince courts to apply a claim based on 2-302 in favor of a businessperson.

d. Poor, uneducated, disadvantaged are the most successful.

e. Procedural and substantive aspects of unconcsionability.

i. Procedural is basically improper bargaining. Buyer’s inability to read, lack of education, fine print, designing the language so that it appears to communicate on one thing, etc.

ii. Substantive, what did we end up with. Overly harsh terms. I.e. if you forfeit this contract, you will give me your first born child.

6. §1-201(20) Good faith

a. “Good faith,” except as otherwise provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing.

b. Good faith does not apply to the negotiation, only to its enforcement and performance.

7. §1-304 Obligation of Good Faith

a. Every contract or duty within the UCC imposes an obligation of good faith in its performance and enforcement.

8. §2-103(1)(b) Good faith…

a. “Good faith” in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.

III. RISK OF LOSS

A. In Absence of Breach

1. §2-509 Risk of Loss in Absence of Breach

a. §2-509(a) is the shipment contract.

b. §2-509(b) is destination contract.

c. Same results on ROL allocation under §2-319(1)(a)(b) as §2-509.

d. Why do we have them both? Because §2-319 is an Express Term and §2-509 is a gap filler. Distinction is the source of the contract.

2. §2-503(1) Manner of Seller’s Tender of Delivery

3. §2-503(2)

4. §2-503(3)

5. §2-504 Shipment by Seller

a. §2-504 is going to have relevance for §2-503(2), and also will have relevance for §2-509(1)(a).

6. §2-709(1)(a)

a. What are the consequences of ROL? If ROL has passed to the buyer, the buyer is obligated to pay the price of those goods.

7. 2-103(1)(c) “Receipt of Goods”

8. Eberhard Manufacturing Case:

a. Carrier never tendered delivery of goods to me. There was an express term that indicated where the goods were to be sent, it said ship the goods to my client in Burmingham. The court says no, the instructions on where to ship the goods is not sufficient for a destination contract.

b. Law will always imply shipment. Destination contract imposes considerably greater obligations on the seller. Can’t implicitly impose this on the seller. Only way to impose is through agreement, i.e. express terms, CD, CP, TU.

9. Consolidated Bottling Co.

a. The issue before the court is whether or not the risk of loss has passed.

b. Provision to govern ROL has to come out of 2-509.

c. 2-509(1)-(3) are the gap fillers. (1) out, there is no authority whatsoever. (2) Not a bailee, a seller. So we are in the residual provision. 2509(3)—Merchant standards, receipt means actual physical possession, clearly the buyer was never placed in actual physical possession. Seller is selling used equipment. Can quality as a merchant, see definition, hold themselves to have special knowledge, etc. Using non-merchant standard when they will probably he held to the merchant standard. Even if they are not considered a merchant, they will still fail because they did not hold the goods on the buyers disposition. This is a real weak case.

10. Caudle Case

a. Seller, selling mobile homes, and buyer purchases. Comes to the seller’s lot and the buyer agrees to purchase it. Buyer would take possession, but he was called away on business. Before buyer can pick it up, somebody steals the Mobile home. What was the first argument with respect to ROL that the court says that the plaintiff seller advanced? 2-509(2). Applicable ROL provisions is 2-509(2)(b), I held the good so that I was a gratuitous bailee. Drafters are clearly after an independent true 3^rd party bailee.

b. 2^nd Argument, ROL goes to the buyer by an express term in contract. Apply express provision that was in the contract. Court, language used here is not clear enough. Clause to affix responsibility of loss on buyer, after buyer had taken possession. Court: Your interpretation is nothing more than a trap for an unwary buyer. Prof likes the reasoning in this case. Courts are very consistent, they say, yes you can pass ROL, but we need clear and convincing evidence.

c. What is the applicable legal standard to 2-509? 2-509(c), seller a merchant, so risk of loss stays with him until physical delivery occurs.

B. Effect of Breach on Risk of Loss

1. §2-510 Effect of Breach on Risk of Loss

a. if the buyer or seller has breached. Doesn’t say if parties breach, says effect of breach on ROL. If a party breaches it may or may not have a ROL impact.

b. It may or it may not change that risk around from what it otherwise may be.

c. 1), and (2) is breach by the seller. (3) is the only section that covers the effect of breach by the buyer.

d. Subsection (2):

i. -contract obligation on the buyer is to accept the goods.

ii. If the buyer refuses to accept conforming goods, it is a breach for the buyer to reject.

e. Revoke Acceptance. If you do not actually reject within a reasonable period of time you will have waived the right and legally accepted. This is pre-contractual.

2. Multiplastics, Inc.

a. Why we are in 2-510, instead of 2-509? It’s a breach. Obligation of the buyer is two-fold. Buyer has the obligation to pay for the goods and also to ACCEPT the goods. That is where the seller screwed up here, the acceptance.

b. ROL will stay on the buyer, but only for a commercially reasonably time. What is the purpose of this requirement? What constitutes a standard of commercial reasonably time? This is the question the court has to grapple with. The time is reasonably necessary to obtain insurance. Risk of loss is on the buyer, you can’t just leave the buyer on the hook indefinitely. The buyer is on the hook for the breach, but not for the loss. The seller should insure them. Do you think it takes more than 5 weeks to get proper insurance? Wasn’t an out an out repudiation, it was continual ongoing delays. Commercially reasonable time seems to be a really short period of time.

c. Multiplastics isn’t only the best analysis, but it one of the few analysis’s. What are the drafters talking about when they use that commercially reasonable criteria in this section.

IV. WARRANTIES

A. Express Warranties

1. §2-313 Express Warranties

a. 2-313(2), what words are sufficient for purposes of any contract? Words or act that would reasonably lead the other party to believe… FROM THE SELLER TO THE BUYER

b. Subsection 2 also goes on and says that, mere sales talk or puffing doesn’t lead to a warranty.

c. Subsection 1(b)—the more generic the description, the tougher the scope question.

d. The area of sample and model: The commentary isn’t very well conceived in this particular instance. It is a classic case of substituting categorization for analysis. Is it a sample or is it a model. Professor doesn’t see that it makes an awful lot of sense to worry about this, not clear.

e. Puffing, and opinion in and of itself is a very inartful defense. Subsection 2 of 313 does not say that just because it is an opinion, it cannot constitute an express warranty. Much more difficult job to do, must establish that it was merely an opinion. To a certain extent those expressions that are merely opinions are not express warranties, but once they start shading out of that, they are. Just because it is an opinion, it is no defense, it has to be merely an opinion. Did it become part of the basis of the bargain?

2. Autzen case

a. Seller, ‘that’s not an express warranty, Mr. Huhta said it was well intended for it’s purpose, I did not make these statement and therefore I did not extend an express warranty.’ The court said your defense would work beautifully if the buyer had to rest its case on 2-313(1)(a). But the buyer is not limited to 2-3131(a), 2-313(1)(b) says that any description of the goods can create an express warranty.

B. Implied Warranties

1. The fact that we have an express warranty and implied warranty, these are both warranties. One is not better than the other. Measure for recovery whether warranty breach was express or implied is the same

2. §2-314 Implied Warranty; Merchantibility

a. The most important implied warranty is 2-314.

b. 2-314 is limited to a certain extent, you need to get past the scope provisions (unless excluded or modified 2-316)…Seller must be a merchant with respect to goods of that kind. We impose liability on you simply because of your status. Strict tort is limited only to injuries of personalty or property. Where should we leave the ultimate loss.

c. The warranty itself is not really defined, it lists 6 different standards joined by the conjuctive ‘and.’ These are all standards that must be satisfied, subsection ‘c’ by far the most dominant. Minimal standards, it defines the floor of what must be met.

3. §2-315 Implied warranty: Fitness for a particular purpose

a. 2-315, implied warranty for a particular purpose.

b. In reality 2-315 is a very narrow warranty. Most of the claims under 2-315 fail. The critical point to understand is that it has to be a particular purpose. Why do we buy goods? Most people purchase goods for an ordinary purpose, this is 2-314. Particular means extraordinary.

c. Example, you want to buy heavy equipment, but you want to use it for arctic temperatures. If a seller gives advice and you take it and use it, then you get the implied warranty. Most of the time this won’t work because the reason why we buy goods is for the ordinary argument.

4. §2-312 Warranty of Title Against Infringement

a. Signature feature is a transfer of title from the seller to the buyer. 2-312 is all about warranty of title, goes to the property essence of what a sales transaction is about.

5. Webster Case

a. Does the UCC even apply to this case? Yes it does, it applies to food and the food was sold on the premises.

b. The courts have followed different rules with respect to a breach with a food product.

i. Test, natural v. foreign test. Since fish bones are natural to the fish used in the chowder, it is not a breach.

ii. Smarter analysis, court says a reasonable person should expect fish bones in fish chowder.

6. The Testo case

a. The first defense asserted by the seller says that the implied warranty of merchantability doesn’t apply to used goods. Applicability question-no implied warranty, this is the sale of a used car.

b. §2-314(1) this states the standard governing the applicability of the warranty of merchantability. “If the seller is a merchant with respect to goods of that kind.” No exclusion in 2-314(1) for used goods. The buyer is going to be able to anticipate less in terms of quality in respect to goods that are used compared to goods that are new. See comments.

c. What standards of merchantability did the court apply to this case? 2(a) and 2(c), an excellent job. How is that 2(c) is violated in this case? This vehicle was not fit for ordinary transportation purposes.

d. 2(a) was also breached, how—what was the contract description? It was a used car, if it had been described as a used car modified for racing purposed, it may have passed muster. What if the seller could demonstrate that the modifications increased the value of the car. No difference, you go out and buy a car, you are not interested in how fast you can burn a quarter mile, you are probably going to be very angry once you find out about these modifications. Measure of damages will be the difference in value of what you were promised and what you received.

7. Lewis Case

a. Did the seller have reason to know? Yes, the buyer told him. So he has reason to know, most of the time it is because he communicated such a need.

b. Did the buyer rely on the seller’s recommendation? Yes, he did. The court does a good job here, applies the facts to each of those necessary elements to 2-315. This would not work under 2-314, because it was an ordinary purpose. The oil delivered was fit for its ordinary purpose, the problem was that it did not fit for this particular hydraulic system.

C. Privity

1. §2-318 Third party beneficiaries of Warranties

a. UCC doesn’t really say a great deal about privity, 2-318, they have provided 3 alternatives, A, B, and C.

b. A is the most restrictive, A is far and away the one that has been enacted by most of the states.

c. We must have had a situation where the buyer has a remedy from the seller. If the seller didn’t give any express warranties, there are no warranties to move out on the horizontal chain. What it does is say that whatever warranties express or implied, the parties listed in this chain of horizontal privity are beneficiaries. A seller may not restrict or limit 3^rd parties beneficiaries (last sentence). Whatever warranties flow through, be they express or implied, also go to the parties in this horizontal privity chain.

d. These provisions basically address only the horizontal privity chain. This is just a promulgated version of a model statute. A lot state legislatures fashion their own version of 2-318.

e. A-the most conservative, C is the most liberalized.

f. Each alternatives has 3 separate components:

g. 1^st component-based upon identifying the individuals or entities that can qualify as the plaintiff

h. 2^nd-same in all 3 versions, requires that such an entity can reasonably be expected to use or consume or be affected by goods

i. 3^rd—type of element of loss we are talking about.

A	B	C
Natural person in family ,home or guest in home	Any natural person	Any person
It is reasonable to expect that such a person will use, consume or be affected by the goods	that suck a person will use, consume or be affected by the goods	that such a person will use, consume or be affected by the goods
Require that designated person who can reasonably be assumed, must be injured in person	Require that designated person who can reasonably be assumed, must be injured in person	Injured

j. What is the difference between a person and a natural person? A natural person is a human being, and a ‘person’ can be a corporation. Under C these corporations can recover under 3^rd party beneficiary.

k. A—the proverbial innocent bystander is not going to be covered.

l. Alternative C is not limited to injury in person, it requires just injury. Not so much for this, but it is partly related, identify 4 different types of loss for which we can see products liability loss broadened.

i. Person—direct physical harm

ii. Property—direct physical harm

iii. direct economic loss

iv. consequential economic loss

2. Vertical Privity

a. Vertical privity, whom other than the immediate seller of goods is focused on the claim. Most of the time for breach of warranty you are going to work with the immediate person you bought it from.

b. In comment 3—the section in this form is neutral…we’ll let case law evolve on that one. The case law has been undergoing an evolutionary process.

c. Most courts have dropped the barrier for requiring privity where there is personal injury.

d. Courts are more divided when the plaintiff’s claim is for economic loss.

e. With primary economic loss (loss of value to the product itself), the recent trend it towards allowing recovery.

f. Secondary economic recovery (consequential damages), the courts have a profound split.

3. Randy Knitwear case

a. Kansas statute simply abolished vertical privity. Must get past the Hadley v. Baxendale foreseeability

b. There are 2 basic ways in which a seller can limit its exposure with respect to quality of the product. Sometimes sellers don’t want to go that far. To the extent that I breach a warranty, you don’t get all of the warranties afforded by the UCC, instead we will have an exclusive warranty provided by the agreement. The other remedy is that you are limited to the purchase price, i.e. significant factor is getting rid of claim for consequential damages.

c. Get into a problem when the manufactures exclude all the code remedies and say that they will fix or replace any defective parts or labor. Technically it can’t be a warranty, at best it would fit under 2-313(1)—promise that relates to the goods. That is not what is involved in this repair situation, this is not anything that relates to the quality or characteristic of the good. That problem is addressed in the amended version of article 2.

d. Advertising promises: The remote buyer can receive these, the buyer must have reasonable knowledge of the existence of the claims and a reasonable expectation that the seller will comply.

e. Buyer must be aware. No -313B where the buyer wasn’t aware of the advertisement. Attached to the garmet it is different, i.e. a tag, then it is different.

D. Economic Loss Doctrine

1. Under what circumstances would a buyer of goods seek to turn to tort liability? If he has no warranty claim, or if the defendant has viable defenses against the warranty claim. In this case, forget the warranty claim, I want to shift over to the tort claim.

2. Why might I be motivated to say, I want to jump over to the tort claim?

a. I never bargained for a warranty. Description is so broad or basic I won’t be able to establish breach.

b. Express warranty has expired. I.e. a 30 day warranty and you widget breaks after 60 days.

c. Disclaimer of warranties

d. The type of remedy for the breach of warranty may be limited.

e. Viable defense due to lack of privity

f. failed to require adequate notice of breach of warranty

g. statute of limitations, article 2 is from date of sale (6 years), strict tort is only 4 years but generally measured from the date of discovery of defect.

E. Disclaimer of Warranty

1. §2-316 Exclusion or Modification of Warranties

a. allows parties to disclaim warranties. But it is very hard to disclaim express warranties. It is simplistic to disclaim implied warranties, you just have to follow the rules. Why is it tough, but not impossible?

b. 2-316(1)-Disclaimers of express warranties

i. Provides rule of interpretation, provides rules of conduct that create it and negate it.

ii. Subject to the parol evidence rule. It doesn’t change the basic rule in there.

iii. I don’t want some sales person making a high and dry sales offer. Contract that says no salesperson can make any warranty, then the sales person takes you to the management office, where the manager gives you a huge contract.

c. 2-316(2)-

i. provides a predominant basis for which most of these warranties are disclaimed.

ii. 2-316(2)-recognizes that you don’t have to do it just through express language. You can also do it by having a disclaimer that is provided by TU, CD, CP, CU.

d. Advice, make sure that the disclaimer is in writing. Irrespective of whether it is in writing or not, it must mention the words “merchantability.”

e. If they are in writing they must always be conspicuous, or they will fail.

f. §2-316(3)

i. Subsection (b)—this is just a sensible approach to get rid of cases in which people can buy into a lawsuit. I want to buy a ladder and I see that the bottom step is cracked through, I see this and I think “this is my ticket out.” Policy we are not going to encourage you to purchase a product with a knowing defect. Very rare kind of case.

ii.

2. Dorman v. International Harvest Case:

a. Deals with issue of validity of disclaimer of implied warranty.

b. 2 Questions:

i. Disclaimer not enforceable because it is not conspicuous.

ii. Disclaimer not enforceable because it is unconscionable.

c. Court is dealing with §2-316(2).

d. Only dealing with first question

e. What did the drafters mean when they used the term conspicuous.

i. “In which a reasonable person out to have noticed it.”

f. The test of conspicuous is whether attention can reasonably be called to it. The more attention grabbing factors you use, the more likely you are going to pass muster on a conspicuous standard.

g. The basic criteria here, is that there is nothing wrong with a disclaimer, but we are not going to allow one party to slip it in past the other party.

h. Court has two different lines of reasoning:

i. Court says that there is no heading for the disclaimer. A provision is not conspicuous when there is only slight contrast from the balance of the form.

ii. you have used so much legalese that even a lawyer would have trouble understanding what you are saying.

F. Modification of Remedy

1. Cannot disclaim express warranties…how can I limit my ultimate exposure to my buyers? The buyer contracted a lot of things article 2 provides away. Contract away the warranty side and the remedy side of things. Often what you see is both of them in tandem.

2. §2-719 Contractual Modification or Limitation of Remedy

a. 2-719(1)(b)—first problem. Sloppy drafting on the part of the seller would be to indicate your remedy of repair or replacement of the part, and stop it at that. Assumption under article 2 that all remedies are cumulative and this would just add to it. You have to make it absolutely clear, expressly clear that it is the EXCLUSIVE remedy available to the buyer.

b. Revolving door problem, you buy a car and it has problems but your remedy is to return the car to the dealer. People have to return the car to the dealership 10-15 times. The court is basically saying that it has failed its essential purpose.

V. PERFORMANCE AND BREACH

A. Acceptance

1. After inspection 3 possibilities:

a. Buyer is obligated to accept

b. Alternatively he can inspect the goods and reject them

c. Alternatively he accepts the goods but then later rightfully/wrongfully revokes the goods

2. Look at the relationship, the concept of acceptance is the pivotal concept.

a. Rejection is pre acceptance behavior.

b. By definition revocation is post acceptance behavior. So acceptance is a big deal.

3. §2-301 General Obligations of Parties

a. Obligation of parties

i. Duty of the seller is to deliver goods and transfer title.

ii. Focus on buyer’s obligation to accept.

4. §2-606 What Constitutes Acceptance of Goods

a. When we talk about acceptance you have to mentally shift gears. We are not talking about offer and acceptance formation here. No room for formation offer and acceptance, we are talking about the performance side.

b. 2-606 Acceptance as the seller has imposed a duty upon the buyer. The duty of the buyer is to accept the goods and to pay them.

c. 2-606 3 different alternatives:

i. (a) acceptance through affirmative response from the buyer

ii. (b) is acceptance through passive response of the buyer. Failure to make an effective rejection.

iii. (2-601 covers right to reject, 2-602 covers how to do it.)

iv. Subsection (c)—does any act inconsistent with the seller’s ownership. Hold off on this for a while.

5. §2-607 Effect of Acceptance

a. §2-607-Acceptance is a hugely significant consequence and it spelled out in 2-607, effect of acceptance.

b. (1) The buyer must pay at the contract rate for any goods accepted. If you don’t accept you can’t be forced to pay the contract price.

c. §2-607(2)- precludes rejection of the goods accepted. No such thing as accepting and then rejecting. You have waived the right to reject once you accept.

d. §2-607 (4)-burden on the buyer to establish breach. Ball is in the buyer’s court to a further degree.

e. There are some significant consequences of acceptance. Do not overlook significance of §2-607.

6. 2-709(1)— Action for the price

a. spells out a total 3 circumstances in which a cause of action will lie to recover the full purchase price. If he accepts and doesn’t pay, the seller has a cause of action for the full purchase price under 2-709(1)(a). Connection between 2-709 and 2-607.

7. Zabrinksi Chevrolet v. Smith

a. On what basis did the seller contend that it was entitled to recover here? The seller claimed that he bought the car and left the lot, so that was acceptance. If there is acceptance, 2-606(1)(a), so he can’t reject and he must pay.

b. If acceptance then can only sue for breach of warranty, will probably be the cost of repair.

c. The court found that there was no acceptance. No reasonable opportunity to inspect, does this make any sense? Reasonable opportunity to inspect means just that, an opportunity that is reasonable.

d. What if the buyer had signed a receipt at the time of delivery that said it has received the car in perfect mechanical condition? Courts probably will not allow this. What if what he had signed said that the consumer had inspected the goods himself? Courts are likely to say that is okay, we want to make sure that it is a meaningful waiver.

8. Can-Key Industries Case:

a. After the contract, the leasee has to have an opportunity to inspect. What subsection of 2-606 is the one that is ultimately at issue here?

b. §2-606(1)(c). Clearly not 1(a), or 1(b). We are still on 1(c) it is just that the lease itself did not consist of an act inconsistent with the seller’s owner ship.

B. Rejection

1. Common law: You cannot cancel the contract unless it is material breach. UCC is a quite radical departure.

2. Reality for the most common method of rejection, that is 2-601 and that is perfect tender.

3. §2-601—Perfect Tender (remember right to cure)

a. Keep in mind good faith too!

b. No way to provide cure for a late tender.

c. 601 the perfect tender rule—if the goods or the tender of delivery fail in ANY respect…

d. Parade of commentators that have lamented the perfect tender rule, saying that there are so many exceptions that it isn’t really a rule.

e. What are these exceptions?

i. Installment contract and party wants to reject an installment contract that is governed by 2-612.

f. There are limitations on 2-601 and by the time you get through with those limitations there really isn’t much left.

g. It will suspend the seller’s effectiveness of the tender of delivery. Just because you suspend rejection, it puts the ball in the seller’s court.

h. What is behind the parade of complaints against the perfect tender?

i. 2-601 creates an atmosphere in which we can have great unfairness towards sellers. Such critics have ignored the most important limitation. That limitation is the DUTY OF GOOD FAITH.

ii. The reality of the situation, if you are an attorney representing a buyer and the buyer wants to avoid the contract, you need to advise that party whether they can withstand strict cross examination to have a valid commercial reason for rejection, but if that market price has fallen you better really have that base covered.

i. Doctrine of substantial performance.

i. No question he breached, but it was not a serious enough breach to justify non-payment.

ii. Although it is a breach of the promise the contract is satisfied.

j. So long as you are acting in good faith you have the substantive right under 2-601 to reject.

k. That right is never self executing. If you have the right, but you don’t exercise it you are going to be held to an acceptance under 2-606(1)(b).

l. If you want to exercise is you need to follow 2-606(1).

m. 1-205(b) action is taken seasonably if it is taken at or upon the time agreed upon.

n. What happens if only 1 or the other is satisfied? I have the right to reject, but I don’t act in a timely fashion, or I do it and I don’t notify the seller? You will be held to an acceptance down the road. I incur all the consequences of 2-607 and I have lost my right to reject.

o. What if the goods are perfectly conforming, I have no right to reject under 2-601, but I reject anyway. Now, there is a wrongful but effective rejection. 2-301 says that I am obligated to accept the goods. 2-607 doesn’t apply to me here, but I have breached the contract and the code remedies under the UCC will be totally available to the aggrieved seller.

4. §2-602 Manner and Effect of Rightful Rejection

5. §2-603 Merchant Buyer’s Duties as to Rejected Goods

6. §2-604 Buyer’s Options as to Salvage of Rejected Goods

7. §2-605 Waiver of Buyer’s Objections by failure to Particularize

8. §2-508 Cure by Seller of Improper Tender or Delivery; Replacement

a. Seller’s right to cure under section 2-508

b. Subsection (2) goes beyond common law, may give breaching seller additional time. It is a second bite at the apple. Courts and commentators have not done well with this section. They try to shove every cure case into 2-508. 2-612 installment contract. 2-608 1 (a) has some aspects.

9. §1-304 Obligation of Good Faith

10. §2-612 Installment Contract breach

a. Not covering 2-612(3), not covering transfer of goods

11. §2-504 Shipment by Seller

12. Myron v. Yonkers Raceway Case: 3 legged race horse.

a. Which provision of 2-606 is in issue here? 2-606(b)

b. As soon as his trainer discovers the problem with the leg he is on the phone immediately.

c. Issue: Did he reject within a reasonable amount of time? This is less than 24 hours after the sale. It is going to be really difficult to establish that it is not a reasonable amount of time.

d. Court, you can’t reject if you are too late.

e. 2-714 is a remedy available, cause of action for breach of warranty. Difference of what was promised and what was delivered.

13. Shaken Faith Doctrine (affecting cure)

a. Rear axle example. Likely that the failure of the rear axle will affect some other components of the vehicle

b. If there is a cure provided that doesn’t measure up under 2-601. Zabriskie the attempted cure by the dealer was ineffective. The dealer substituted a transmission not from the factory and from an unknown lineage of a vehicle in its possession.

C. Revocation

1. §2-608 Revocation of Performance

a. 2-608 revocation of performance.

b. Non conformity substantially impairs its value to him: 3 elements, non conformity, substantial impairment (pretty much the same as material breach), to him.

c. Must also establish non-conformity

i. Measured based upon the impact to this particular buyer, not to a reasonable person. Substantial impairment to him.

ii. IF buyer accepts goods while aware of defect, (a) goes.

iii. If buyer accepts goods without having discovered defect then (b) goes.

iv. (b) can exert a revocation of acceptance.

2. §2-607(2) Effect of Acceptance

D. Breach and Impaired Expectations

1. Impairing party’s expectation. Classic: anticipatory repudiation.

2. If you can’t show that it is clear that you repudiated, then you can get relief but it is not as expansive.

3. §2-609 Right to Adequate Assurance of Performance

a. 2-609 replaces prospective inability to perform. You have a duty to not impair the other parties expectations of performance. As long as you have commercially reasonable grounds for insecurity you can say, ‘clear that up.’ I’m entitled to not have my expectations impaired, but you are doing it, so clean it up. I demand adequate assurance that you will clean it up.

4. §2-610 Anticipatory Repudiation

a. 2-610 covers the right of anticipatory repudiation and it basically codifies common law. Must be clear that it is a repudiation.

b. If they don’t clear it up by providing adequate assurances, that allows what would be an anticipatory breach ripens into one.

c. Section 2-610 on anticipatory repudiation comes into play. Aggrieved buyer can resort to any remedy, but can do so only when performance not yet do will substantial impair the buyer’s expectation.

5. §2-611 Retraction of Anticipatory Repudiation

6. §2-612(3) Installment Contract Breach

7. §2-703 Seller’s Remedies in General

a. 2-703—seller’s remedies in general.

8. §2-711 Buyer’s remedies in General

a. 2-711—events of breach spelled out: seller doesn’t make any delivery at all, seller repudiates, this is anticipatory repudiation, seller delivers or buyer rightfully rejects because goods to not conform to the contract or buyer rightfully revokes. Circumstances which giver rise to a breach by the seller, the seller’s breach triggers the buyer to have the following remedies.

VI. REMEDIES FOR BREACH

A. Remedies of Buyers

1. Cover

a. §2-712 Cover—Buyer’s procurement of substitute goods

i. 2-712 is the preferred remedy. 2-712 + 2-715.

ii. Section 2-712—Buyer’s right to cover—preferred remedy for an aggrieved buyer.

iii. Preference is cover under article 2. You want the goods, buy them somewhere else and have the seller pay the difference. Place the aggrieved buyer in the same economic position he would have enjoyed had the contract been performed.

iv. If you pay more, the basic measure will be increased cover price minus the K price, end up for the same goods, but pay more for the goods, then we give you the difference plus incidentals, however all this must be made in good faith.

v. First requirement of cover price: must be reasonable and made in good faith, buyer behaves honestly and observes reasonable standards of good friend. If it can be established that the motivation that induced them was punitive, the buyer must show a rational commercial reason to support this change.

vi. Without unreasonable delay. If the know the price of carpet increasing is imminent, then the reasonable time just shrank.

vii. In substitution, this is the tough part. Buyer doesn’t make perfect substitute even though one is available, or buyer doesn’t have a perfect substitute. Was carpeting with a 10 year and 15 year warranty available? What constitutes the cover price may take some adjustments.

viii.What the court will do is back out the difference of value. Courts, if you can prove that the increase in quality will benefit them, then we will listen to evidence to back out the cost, but if you can’t prove this, we will just use the cover price as is.

b. §2-319(1)(a),(b)

2. Market Price/Contract Price Differential

a. §2-713 Buyer’s damages for non delivery or repudiation

i. Cover does not qualify then, 2-713-K price market price differential, and again take on 2-715, recovery for other loss, incidental damages. Remedies available in absence of acceptance of goods.

ii. 2-713, at least it provides some answers. 2 huge variables, place, and time.

iii. 2-713(1)-provides that market price at time of breach. What about an anticipatory repudiation? It has never been resolved. Most of the time it is place of tender, but it can also be place of arrival as the marketplace.

3. When Buyer Accepts the Goods

a. §2-714 Buyer’s damages for Breach in Regard to Accepted Goods

i. If buyer accepts the goods, then the remedy is 2-714 and add on 2-715.

ii. Buyer doesn’t accept, do not use 2-714, use 2-712 or 2-713.

iii. If the buyer accepts the goods, you can’t apply 20712 or 2-713. Your measure of damages will be determined under 2-714(1). Will be applied to any deficiency except breach of warranty.

4. Incidental and Consequential Damages

a. §2-715 Buyer’s incidental and Consequential Damages

i. Most action is under 2-715(2) (b)- injury to person or property, put to one side.

ii. (a)—basic requirement here is causation. Must have certainty, can’t speculate, foreseeability (Hadley v. Baxendale), mitigation of damages (if you could have taken other action and reduced other losses you can’t sit on your hands). Is no duty to mitigate.

5. Specific Performance

a. §2-716 Buyer’s right to specific performance

i. UCC: Specific performance may be declared where goods are unique or in other proper circumstances. Expands the common law.

ii. Other proper circumstances is the inability to cover.

iii. The court does not have to grant it to you, the UCC says “may.”

B. Remedies of Sellers

1. Resale

a. §2-706 Seller’s resale Including K for resale

i. Seller does have corollary monetary damage provisions, 2-706—if the buyer breaches, go out and sell the goods to somebody else.

2. Contract Price/Market Price Differential

a. §2-708(1) Seller’s damages for non acceptance or repudiation

3. Lost Profits

a. §2-708(2)

i. 2-708(2)—sometimes measure of damages would be inadequate to put seller in position as if performance has occurred.

4. Action for Price

a. §2-709 Action for the price

5. Incidental Damages

a. §2-710 Seller’s incidental damages