SALES AND LEASESSPRING 2002

PROFESSOR ROBYN MEADOWS

I. SCOPEA. ARTICLE 2: SALES

i. Applies to transactions in goods UCC § 2-1021. Transactions

a. Sales—passing of title from seller to buyer for a price UCC § 2-106(1)i. Seller: One who sells or contracts to sell UCC § 2-103(1)(d)ii. Buyer: One who buys or contracts to buy UCC § 2-103(1)(a)

b. Exchanges2. Goods

a. Things which are movable at the time of identification of the contract for sale UCC § 2-105(1)

i. Minerals removed from realty UCC § 2-107(1)1. Removed by the seller

ii. Growing crops, building materials inside of building UCC § 2-107(2)

1. Attached to realty 2. Severed without material3. Removed by buyer or seller

b. Manufactured goods UCC § 2-105i. Specially manufactured goods

1. appear to request service of mfg. the good BUT2. the mfg of goods is covered under Article 2 (see below:

hybrid transactions)ii. Hybrid Transactions

1. Predominate Purpose Test (all or nothing: either Article 2 applies or it does not)a. If the primary purpose for entering into the contract was for the goods,

Article 2 appliesb. If the primary purpose for entering into the contract was for the service,

Article 2 does not apply: common law will applyc. Doctors—under this test, doctors are presumed to provide services;

thus, Article 2 will not apply to doctors2. Gravamen Test (Modern Law) (Both Article 2 and the common law can apply)

a. If the point of complaint is towards the good, Article 2 (and common law) applies

b. If the point of complaint is towards the service, Article 2 will not apply: common law will apply

c. Benefitsi. Draft the complaint under the UCC (because UCC and Common

law can apply)ii. Broadens the scope of the UCCiii. Fairness

1. Focus on the substance of the transaction rather than the form

d. Applies primarily in Consumer transactions, not between businesses

3. ExamplesA. goes to eye doctor for glasses. On one contract, pays 100 for exam,

175 for glasses. They break and injure . Under predominate purpose test, has no Article 2 relief because healthcare is predominately a service. Under the gravamen test, may have a cause of action under Article 2 because the point of complaint was the good—here, the glasses.

B. goes to doctor for exam. Doctor gives exam, bills , and refers him to for glasses. buys glasses from , gets billed by , and is injured by glasses. Again, the predominate purpose test would not allow recovery

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against the doctor under Article 2 because the doctor provided a service. could recover against the because mfg. the eye glasses.

iii. Article 2 applies to merchants and nonmerchants1. Merchants UCC § 2-104

a. Dealer of particular goods ORb. One with knowledge or skill peculiar to goods or practices ORc. One whom acquires knowledge or skill by hiring an agent with such

knowledge or skill2. What kind of merchant

a. Any person in business acting in mercantile capacity (lawyer or banker buying fishing tackle for own use not a merchant)

i. Statute of frauds UCC § 2-201(2)ii. Firm Offers UCC § 2-205iii. Confirmatory Memoranda UCC § 2-201(2)/2-207iv. Modifications of Contracts UCC § 2-209

b. Merchant with respect to goods of that kindi. Implied Warranty of merchantability UCC § 2-314

1. Specific and professional sellers2. Not isolated sales

a. Siemen v. Alden — was a lumber dealer and sold a saw. Held: not a merchant under 2-314 because he was not a merchant with respect to saws, but a merchant with respect to lumber.

c. Good Faith UCC § 2-103(1)(b)i. Any person in the business acting in mercantile capacity

1. Good Faith Standard for merchants UCC § 2-103(1)(b)a. Honesty in fact UCC § 1-201(19) ANDb. Observance of reasonable commercial standards of

fair dealing in the traded. New Merchants

i. Comparable to other new merchantse. ALL MERCHANTS MUST FOLLOW GOOD FAITH STANDARD FOR

MERCHANTSf. "Between Merchants" UCC § 2-104(3)

i. Both buyer and seller must be merchantsb. ARTICLE 2A: LEASES Applies to any transaction that creates a lease UCC § 2A-102

i. Definition of a Lease UCC § 2A-103(j)1. Transfer of the right to possess and use2. Goods3. For a term

a. Finite, fixed amount of time—at end of term, goods return to lessor4. In exchange for consideration (not gratuity—$$$)

ii. Security Interests (distinguished from leases)1. Whether the substance of a transaction is a true lease OR disguised sale with

lessor financing the salea. Can the lessee terminate the lease? (termination Clause)

i. Factual determinations1. If the lessee CAN terminate, then it is a true lease2. If the lessee CANNOT terminate, then it may be a security

interestb. If there is no value at the end of the term

i. Useful economic life is over at the end of the term, then it is a security interest

1. useful economic life measured in years/time2. speaks to the length of time the good has any value

a. depreciation evidenceb. expertsc. clients

c. If the lessee can buy at the end (Case-by-case determination)i. Can be a true lease if there is an option to buy

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1. must buy at the fair market value at the end of the lease to be a true lease

ii. If the lessee buys for NOMINAL consideration, it is a lease intended as a security interest

1. Nominal consideration determined bya. Comparing the consideration paid WITHb. Reasonably anticipated fair market value at the

time of the original agreementc. Rationale—what did the parties think the goods

would be worth at the end of the lease2. Summary: a security interest is created IF

a. "No Termination" clause ANDb. Either

i. Term and economic life are equalii. Lessee is bound to buy iii. Renewal for nominal consideration ORiv. Buyout at end of term for nominal consideration

II. CONTRACT FORMATIONA. STATUTE OF FRAUDS UCC § 2-201(1) *APPLY WHEN ONE PARTY DENIES EXISTENCE OF CONTRACT*

i. IF sale of goods ANDii. $500 or more (total price of the contract) THENiii. writing is required

1. Intentional writing into tangible forma. Printing, typewriting, e-records or other tangibles UCC § 1-202(46)

2. Need not be mailed, delivered, or seen by the in order to qualifyiv. sufficient to indicate the existence of an agreement

1. some objective evidence to believe an agreement was madev. signed by the party to be charged (person who claims there is no contract)

1. any symbol WITH2. present intent to authenticate UCC § 1-201(39) AND

vi. listing the quantity (code cannot fill in the quantity term, so you must have it)1. not exact quantity2. can be determined by good faith or reasonableness

B. EXCEPTIONS TO THE STATUTE OF FRAUDS i. UCC § 2-201(2) Merchant Exception

1. IF between merchantsa. both parties must be merchantsb. Any person in the business acting in mercantile capacity (2-104(3)

comments)2. writing that confirms the contract

a. probably after oral agreement; this is pretty much a given, but my darling girlfriend wanted it included in the outline, and because I lover her, I will so include said element.

b. Oral agreement followed by confirmatory memo: Bazaki. Some objective guarantee that the oral agreement rests on a real

transaction3. Sufficient against the sender (would bind the sender: requirements of 2-201(1))

a. writing b. sufficient to indicate agreement was madec. signed by sender ANDd. indicating quantity

4. Sent and received within a reasonable timea. fairness to the receiver of the memob. To determine reasonable, look to goods

i. Perishableii. Depreciationiii. Reasonable industry standards

5. Recipient has reason to know of the memo's contentsa. reason to know means the sender sent the memo to the appropriate

place3

i. recipients are expected to read mail6. THEN no statute of frauds UNLESS

a. written i. no phone calls

b. objection made to confirmatory memorandumi. must object to the contract completely "we have no contract"

1. cannot be used to get out of a deal you actually madec. Made within 10 days of receipt of the confirmation

7. The exception only eliminates the statute of fraud defense for the 8. Only gives her day in court

a. burden of proof remains with the to establish the contract and terms9. can always dispute the terms of the agreement10. Example of Merchant exception: Bazak—oral agreement between (buyer) and

(seller) followed by purchase order sent by (usually used by as a seller, but here he was a buyer). Court held that there was objective evidence of the oral agreement and the purchase orders, although normally mere offers, were sufficient against (sender) because they were specific, sent from seller, 4 orders were very detailed and the final order was a summary of the agreement and date of alleged oral agreement.

ii. Specially Manufactured Goods exception1. specially manufactured goods for the BUYER

a. seller mfg's for buyerb. items not usually in stockc. unique specifications

2. not suitable for sale to others in the ordinary course of seller's businessa. cannot by advertising or buyer list sell the goodsb. efforts madec. uniqueness of goodsd. scarcity of use for goode. how many potential buyersf. more expensive to build specific goodsg. mere fact that seller takes a loss is not enough to satisfy the elementh. there must be detriment to the seller

3. Seller has made a substantial beginning to manufacture OR made commitments for the procurement

a. Seller is bound to another party for parts specific to buyer's spec. goods4. before buyer gives notice of repudiation to seller5. Under circumstances that reasonably indicate the goods are for the buyer6. Example of exception: Golf Ball Tank: Buyer (city) orders tank to look like golf

ball. City sends check for $3000 as down payment. Seller starts to make it and nearly finishes but buyer (new administration in city) informs seller that there is no agreement. Goods were spec. mfg. (golf ball tank); not suitable for resale; they made a subst. beginning because they completed the tank before repudiation; circumstances indicated goods were for city because "c" was painted. This might not be enough, so show delivery schedule, what other projects you are working on at the time, records, etc.

iii. Admission of existence of agreement UCC § 2-201(3)(b)1. once party admits the existence of the contract, that party cannot raise SOF

defensea. must be admitted in court

i. pleading, testimony, or otherwise1. written pleading2. stipulation3. oral statement

iv. Performance, Part Performance, Part Payment Exception (Based on common law (unjust enrichment)

1. buyer makes payment AND seller accepts OR2. seller delivers, buyer receives, AND buyer accepts and retains goods3. Part payment

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a. Contract is enforceable to the extent the goods were received and accepted

i. If more than one item is involved:1. Court must apportion the goods: If buyer pays for part of

the goods, court can make seller deliver paid-for goodsii. If only one item is involved

1. Guarantees the deal BECAUSE2. Cannot apportion the goods

C. STATUTE OF FRAUDS FOR LEASES: UCC § 2A-201 (same as above unless otherwise indicated)i. Lease price must be $1000ii. Description of the goodsiii. Lease term (length of term)

1. Reasonably identifiableiv. There is no merchant exception v. There is no part performance exceptionvi. Spec. mfg. goods exception same as abovevii. Admissions exception same as aboveviii. Part performance exception applies ONLY to the goods that have been received and

acceptedD. PAROLE EVIDENCE RULE UCC § 2-202 and § 2A-202 *Parties Agree that there is a Contract But

One Party Tries to Introduce a Term Outside of the Writing*i. Determine the type of Writings (3 Types)

1. Two Confirmatory memos of the parties a. One from Buyer AND One from Sellerb. With Terms that parties agree to

2. Writing Intended as Final Expression of agreement by both parties with respect to the terms in the writing

a. Partially Integratedb. Terms agreed to in that contract, other terms are missing

3. Complete and exclusive statement of the terms agreed to by both parties a. Fully Integrated (NO PE unless COT/UOT/COP)

ii. Determining Fully or Partially Integrated 1. Negotiations

a. Length (Time)b. Arm's length negotiations or adhesion contractc. Details

2. What is the term to be added?a. Contradictory, additional, etc.b. Would it certainly have been in the writing?

3. Context of the transaction4. Completeness

a. Merger Clause—sometimes not enough to fully integrate by itself5. Performance

iii. Type of Evidence1. Contradictory Terms

a. Always excluded BUT:i. If the contract is silent, the term cannot contradict ii. Use liberal approach—try to find that it does not contradictiii. Mere ambiguity in the contract does not mean the term

contradictsiv. Court construes terms as consistent with contract if reasonable

to do sov. If unreasonable to construe as consistent, then

1. Express terms 2. Course of performance 3. Course of Dealing4. Usage of Trade

2. Supplemental/Explanatorya. Usage of Trade, Course of Dealing, Course of Performance

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i. Usage of trade UCC § 1-205(2): common understanding among everyone in the industry

1. Both parties must be privy to the industry standardsa. Requires two commercial parties

b. Course of Dealingi. UCC § 1-205(1): sequence of previous conduct between the

parties establishing a common understanding between the parties

1. Previous conduct fairly to be regarded as a common basis of understanding between the parties (it's fair to let this evidence in)

c. Course of Performance UCC § 2-208: parties dealing regarding the contract in dispute

i. Look to how strictly the parties were adhering to the terms of the K

ii. Determines what parties meant by the contractd. COP/COD/UOT ALWAYS ADMISSIBLE UNLESS CONTRADICTS THE

WRITING3. Consistent Additional Terms

a. Allowed unless writing is fully integratediv. Parole Evidence Analysis

1. Identify the type of writinga. Confirmatory Memorandumb. Writing Intended as final agreement (Partially Integrated)c. Complete and exclusive statement of the terms agreed to by both

parties (Fully Integrated)2. Confirmatory Memos

a. Contradictory Evidence is not admissibleb. Consistent Additional Terms are admissiblec. UOT/COD/COP is admissible unless contradictory

3. Partially Integrated Writinga. Contradictory Evidence is not admissibleb. Consistent Additional terms are admissiblec. UOT/COD/COP is admissible unless contradictory

4. Fully Integrated Writinga. Contradictory Evidence is not admissibleb. Consistent Additional terms are not admissibleC. UOT/COD/COP IS ADMISSIBLE UNLESS CONTRADICTORY

TYPE OF EVIDENCE TYPE OF DOCUMENT

CONTRADICTORY EVIDENCE CONSISTENT ADDITIONAL TERM

USAGE OF TRADE, COURSE OF PERFORMANCE, COURSE OF DEALING

NON-INTEGRATED WRITING EVIDENCE ADMISSIBLE EVIDENCE ADMISSIBLE EVIDENCE ADMISSIBLE IF CONSISTENTCONFIRMATORY MEMOS OR PARTIALLY INTEGRATED WRITINGS

EVIDENCE INADMISSIBLE UNDER 2-202

EVIDENCE ADMISSIBLE UNDER 2-202(a)

EVIDENCE ADMISSIBLE UNDER 2-202(a) IF CONSISTENT

FULLY INTEGRATED WRITINGS (COMPLETE & EXCLUSIVE)

EVIDENCE INADMISSIBLE EVIDENCE INADMISSIBLE UNDER 2-202(b)

EVIDENCE ADMISSIBLE UNDER 2-202(a) IF CONSISTENT

E. OFFER AND ACCEPTANCEi. Offer to make a contract shall be construed as inviting acceptance in any reasonable

manner unless otherwise unambiguously indicated UCC § 2-206(1)(a)1. If ambiguous, then any reasonable acceptance is permitted

a. Example: "reply by return mail" is ambiguous, thus, acceptance by shipment means prompt shipment

2. No need to know when acceptance formed the contract UCC § 2204(2)3. Where the beginning of performance is a reasonable mode of acceptance, the

offeree MUST notify offeror of the acceptance within a reasonable time in order to bind the offeror UCC § 2-206(2).

ii. Shipment of conforming/non-conforming goods as acceptance UCC § 2-206(b)1. Where acceptance requires prompt shipment or current shipment

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a. Construed as inviting acceptance by prompt promise to ship or prompt shipment

B. Conforming goods must be in accordance with contract requirements2. Shipment of non-conforming goods is an acceptance and a breach BUT

a. If seller ships non-conforming goods ANDb. Seasonably (Timely) notifies buyer that the goods are an

accommodation c. THEN there is no acceptance

i. Buyer can return the goods (No contract) ORii. Buyer can accept the goods (Contract formed)

iii. Formation in General1. Requires evidence of intent to make a contract UCC § 2-204(1)

a. Any manner sufficient to show agreementi. Conduct or otherwise

b. Shows the existence of a contract 2. Need not know the moment of the making of the contract UCC § 2-204(2) 3. Although terms are left open, contract does not fail for indefiniteness as long as

there is a reasonably certain basis to provide for remediesa. Gap fillers in the code to supply terms and remedies

iv. Firm Offers UCC § 2-2051. IF Offer to buy or sell goods2. Offeror is a merchant

a. Knowledge of business practices ANDb. Acting in mercantile capacity

3. Must be a signed writing a. If oral, must be supported by consideration AND

4. Assurance that the offer is held open5. THEN offer is irrevocable even without consideration

a. Offer is valid for three month maximumi. If offer is open for only twenty days, it is irrevocable for twenty

daysii. Code provides the maximum time—parties can contract for less

timeb. If offeree has the writing with the assurance by the offeror

i. The offeror must sign the assurance separately6. Example—A writes note to B in law school class on 2/7 offering to sell car by

end of summer; gives B option to buy until June 1—signed by A. 2/15 she sells to C. 4/25 B tells A he will give her 10,000 for the car (which is worth 16,000). A tells B the car is sold. B sues for 6,000 loss.

v. UCC § 2-207 *Where parties dispute the terms of the contract* 1. Oral agreement followed by confirmatory memorandum

a. If there is an additional term AND both parties are merchants (any merchants), Term is included UNLESS

i. Offer limits acceptance to the terms in the offer ii. Term is a material alteration to the contract

1. Test: surprise or hardshipa. Surprise is subjective and objective determination

i. UOT/COD/COPii. Reasonable limitations of remedies are not

material alterationsb. Hardship is a substantial economic hardship

i. Consider contextsii. Likelihood of consequential damages of the

goodsiii. Unilaterally imposing a hardship onto the

buyer with knowledge of its economic effectiv. Mandatory arbitration is a hardship unless

standard in the industryv. Disclaimer of implied warranty of

merchantability is normally a hardship7

2. If alterations are a. Reasonableb. Consistent with the UCC ANDc. Consistent with the industry, it is normally not a

material alterationiii. Party objects to the additional term

b. If there is an additional term AND one party is not a merchant, the terms are mere proposals to the contract.

i. The other party must expressly assent to the different termsc. If the terms are different: 3 approaches

i. Different terms knock each other out and supply gap filler in the code

1. Argument—lack of assent anyway so knock out the terms2. Easy, fair, and neutral

ii. Take terms of offeror 1. Offeror is the master of the offer

iii. Do what is reasonable, regardless of party1. Use facts2. UOT/COP/COD

2. Exchange of forms are offer and acceptance (Do offer and acceptance analysis: usually, buyer sends a purchase order form [offer] and seller sends acknowledgement form [acceptance])

a. Definite and seasonable acceptance including different or additional terms

i. Seasonable—within time specified in contract OR if silent, within a reasonable time

ii. Definite: Specific and express agreement to the additional or different terms

iii. If no definite and seasonable acceptance, there is no contract UNLESS

1. Parties continue to perform as if there was a contract 2-207(3)

a. Contract consists of the terms agreed upon ANDb. Any gap fillers provided in the code

b. Acceptance expressly made conditional on assent to the additional or different terms

i. Express—cannot be implied, so construe as not expressly conditional

ii. Conditional—party will not perform unless condition is metiii. Assent—from offeror to the offeree

1. If conditional, and no express assent to different or additional terms AND

2. Parties continue to perform as if there was a contract: go to 2-207(3)

a. Contract consists of the terms agreed upon ANDb. Any gap fillers provided in the code

III. WARRANTIESa. Warranty of Title UCC 2-312

i. Warranty of title attaches 1. Where there is a contract for the sale of goods UCC 2-312(1)

ii. Warranty of title can be disclaimed by 1. Specific language

a. Very difficult to disclaimi. Must be a very specific disclaimer and assent by the buyer

b. Cannot be disclaimed under UCC 2-316: only under UCC 2-312(2) OR2. Circumstances

a. Buyer has reason to know that the seller does not claim titlei. Example—buyer buys watch from seller on street corner in NYC

iii. Extent of the warranty of title1. Good title is conveyed

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a. General rule: transferee receives all that the transferor hasi. Good title—transferee receives good titleii. Voidable title

1. True owner voluntarily departs with good subject to express/implied condition. EXAMPLES:

a. Deceived as to identity of purchaserb. Bad checkc. Agreed to cash saled. Procured through fraud UCC 2-403(1)(a) – (d)

2. Transferee will get good title IFa. Good Faith

i. Merchant = honesty in fact and observance of reasonable commercial standards of fair dealing

ii. Non-merchant = honesty in factb. Purchaser

i. Voluntary transfer of interest in property (not necessarily a sale: broader—ex: gift)

c. For Valuei. Sale

iii. Void title—no voluntary transfer (compare voidable title where true owner voluntarily transfers)

1. Thieves only have void title2. Bona fide purchasers cannot clear void titles (Strict

liability)3. Person who deals with the thief only has a cause of action

against the thief (probably won't find him/her)b. Trace back to first transfer

2. Transfer rightful a. Person with good title has both the power and the right to transfer good

titleb. Person with voidable title (Good Faith Purchaser for Value) has the

power to transfer good title, but transfer may not be rightfuli. Warranty of title protects buyer from defending a clouded title

even if the clouded title becomes good title AND3. No security interest or liens of which buyer has no knowledge

a. Knowledge means "actual knowledge" therefore, notice is insufficientb. No duty to inquire

4. *Also a warranty against infringement of intellectual property rightsa. If buyer furnishes specifications from seller, buyer warranties must hold

seller harmless from any claim arising from the specificationsi. This is the only time the BUYER warranties anything

iv. Warranty of title is breached where1. No good title is conveyed2. If title has lien and seller does not disclose, the failure to disclose is the breach3. If buyer requires specifications and specifications give rise to claim against

seller, the buyer has breached the warranty of titlev. Damages

1. Generally the difference between the value of the goods as promised and goods as transferred

a. Example: goods as promised = $5,000, delivered with void title (FMV =$0), damages = 5,000

2. If GFPV receives good title, but must defend title, GFPV gets actual costs of litigation to defend title

3. Vouching in UCC 2-607(5)(a) (buyer is sued for breach of warranty and seller is answerable for that breach)

a. Expedites litigation to defend titlei. Notice to the seller of the litigation and to defendii. If refused, original seller risks being bound by all common

questions of fact in the judgment9

VI. LEASES UCC 2A-2111. Warranty against interferences

a. Warranty of quiet possessioni. Lessor only warrants that no one will interfere with the leasehold

by act or omission of lessorii. Fault matters here, whereas the warranty of title in the sale of

goods does not consider fault1. Lessors wrote the provision2. No title passes 3. No major damages

B. EXPRESS WARRANTIES UCC 2-313 (Buyer and seller have different views on what was sold)i. Express warranties are created by

1. Affirmations of facta. Present, existing facts

2. Promisesa. Future representations

3. Descriptions 4. Samples

a. Actual goods5. Models

a. Representation of the productii. Express warranties ARE NOT created if seller is engaged in mere "puffing" or states

opinions about the goods1. Opinions or puffing UCC 2-313(2)

a. Nonmeasurable/nonquantifiable statementsi. If the statements are fact intensive, quantifiable, measurable so

as to determine what the remedy can be, the statements are affirmations of fact or promises and thus not opinions or puffing

b. "I think" or "I believe" the goods are , then it may be opinion/puffing

c. Look to the reasonableness of the seller's statementi. Would the buyer really believe the statementii. Exaggerations

d. Compliments, commendations are usually opinions or puffingiii. Extent of Warranties: Good shall conform to:

1. Affirmation of fact or promisea. Made by seller to buyer 2-313(1)(a)b. Relates to the goods

i. If affirmation not related to goods, it may be a different term of the contract (affirmation of fact about aluminum siding, seller says "I'll throw in a garden hose": the hose is a different term of the K because it does not relate to the goods) AND

c. Basis of the bargaini. Courts presume that an affirmation of fact is part of the basis for

the bargain1. no reliance required BUT2. to rebut, seller must show that buyer did not rely on the

affirmation of fact/promise2. Description

a. Implied that it is from seller to buyeri. Usually are terms already in the contract AND

b. Basis of the bargain (see above)3. Sample/model

a. Basis of the bargain (see above)iv. Breach

1. Where goods do not conform to a. The affirmation of factb. Promisec. Descriptiond. Model OR

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e. Samplec. Implied Warranties

i. Introduction1. Automatically part of the K unless the seller (or circumstances) does something

affirmative to get rid of them2. Arise as a matter of law3. Seller's intention to create implied warranty is completely irrelevant

ii. Implied Warranty of Merchantability: UCC § 2-3141. Creation 2-314(1)

a. Sale of goods i. Including food or drink to be consumed on premises or elsewhereii. Comments 1 and 4 recognize that goods can be new or USED

1. If used, must be comparable to similar USED goodsb. Seller is merchant with respect to goods of that kind

i. "Goods of that kind" can be interpreted broadly or narrowly depending upon the transaction

1. In Consumer Transactions, a broad interpretation is proper2. Otherwise, a more narrow interpretation will be sufficient

ii. Express warranty of Merchantability1. Although not a merchant, a seller who expressly

guarantees the good is fit for ordinary purpose, the warranty of merchantability might attach (particularly in sale of used goods)

2. Extent of the Warranty 2-314(2)a. Must pass without objection in the trade under contract description

i. Merchant to merchant sale, must live up to merchantable expectations in the trade

b. Fungible goods (bulk, equivalent goods) must be average qualityc. Fit for ordinary purpose

i. Wine Glass Case —HELD: Agreement required wine glass (how else would you drink the damn wine). Therefore, wine glass must be fit for ordinary purpose

ii. Trunk of Car (Suicide Case)—HELD: Trunk's ordinary purpose is to store cargo and carry cargo

iii. Industry Standards —can create implied warranties of Merchantability: Comment 12

1. Compare goods with others in the industry2. Do cost-benefit analysis

a. Example—Driver side airbag—industry standards include driver side airbags BUT some mfgs. would have to RAISE the price of certain cars, and such cars would no longer be economical for certain buyers

iv. Foreseeable uses —determine whether goods are fit for ordinary purposes AND fit for ordinary, FORESEEABLE uses.

1. Example—firestone Tires: drivers can be speeding and breaking the law, BUT speeding is a FORESEEABLE use

d. Evenness of kinde. Must be adequately packaged

i. Wine glass—if agreement requires a glass, glass must be adequate

f. Must conform to labels if any3. Breach of Warranty

a. Where goods are not fit for ordinary purpose etc. (See (a) thru (e)) iii. Implied Warranty of Fitness for a Particular Purpose: UCC 2-315

1. Creation [4]a. Seller knows or has reason to know of the buyer's needs

i. Surrounding circumstances ORii. Transaction

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b. Seller knows or has reason to know the buyer is relying on seller to select or furnish suitable goods

i. Seller must actually select or furnish the goodsc. Buyer actually relies on seller's skill or judgment to select or furnish the

goodsd. MUST ALL OCCUR at time of contracting

2. Extent: Goods are fit for buyer's particular purpose3. Breach: Where goods are NOT fit for buyer's particular purpose

iv. Food Warranties1. TEST 1

a. IF Natural AND Foreseeable then no recovery UNLESSb. Goods are unwholesome

i. Allocation of risk—who bears the risk ii. Who is in the best position to prevent the injury

c. Check for express warranties: Menus all contain descriptions in some form

2. TEST 2: North Carolina Food Warranty Testa. Food contains injury causing substance AND

i. Is of size, quality, quantity OR ii. Food has been processed ORiii. Both

b. Such that consumer could not reasonably anticipate the object in the food

v. Allergic Reactions1. Determine if the UCC applies

a. Sale/Service Rulei. Predominate Purpose Test ORii. Gravamen Test

b. IF UCC applies, determine which implied warranty appliesi. Merchantability ORii. Fitness

c. Seller's burdeni. IF seller must inquire whether buyer will have allergic reaction

based on industry standards, seller may be liable1. Depends on usefulness of the product AND2. Depends on severity of the injury

2. TEST for Breach of Warranty for Allergic Reactiona. Seller has reason to know reaction was possible in some "appreciable"

class of consumers: (Product, Harm, and Seller's knowledge)d. Buyer's Burden of Proof For Breach of Warranties

Type of Warranty

Title 2-312 Express 2- 313 Merchantability 2-314 Fitness 2-315

Creation (1) Sale of Goods (1) Aff. of fact, promise, description, sample, model(2) Relates to the goods(3) Becomes basis for the bargain

(1) Sale of Goods(2) Seller is Merchant w/ respect to Goods of that kind

(1) Seller knows of buyer's needs(2) Seller knows buyer is relying(3) Buyer actually relies(4) All @ time of contracting

Extent (1) Title is good(2) Transfer is Rightful(3) No security interests or Liens on title

Goods conform to express representations of seller

Fit for ordinary purpose, etc. Goods are in fact fit for buyer's particular purpose

Breach 2-403: types of titles Buyer shows that goods did not conform to seller's representations

(1) Buyer shows that goods are not fit for ordinary purpose, etc.(2) Food: reasonable anticipation(3) Allergy: % of population

Buyer shows that goods are not fit for particular purpose

Causation Proximate Cause Proximate Cause Proximate Cause Proximate CauseInjury/Damages

2-714(2): FMV of Goods

2-714(2): FMV of Goods2-715: incidental or

2-714(2): FMV of Goods2-715: incidental or

2-714(2): FMV of Goods2-715: incidental or

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2-715: incidental or consequential damages

consequential damages consequential damages consequential damages

e. Disclaimer of Warranties: *Seller ALWAYS bears burden of proving disclaimer of warrantiesi. Disclaimer of Express Warranties: UCC 2-316(1)

1. Introductiona. Virtually impossible to disclaim express warranties

i. Usually, seller need not warrant past description of goodsii. As such, provides fairness to the buyer because seller made

representations beyond that which seller is obligatediii. HOWEVER, seller is also protected from misinterpretations by the

Parole Evidence Ruleb. There is also a presumption that negotiations have taken place and

buyer can back out of the deal2. TEST

a. DETERMINE IF PAROLE EVIDENCE APPLIESi. IF the express warranty meets the requirements of the PE Rule,

and it can become a term of the contract, the express warranty applies

ii. IF the express warranty fails to meet the requirements of the PE Rule, and it does not become a term of the contract, the disclaimer applies.

1. Merger clausesa. Between merchant and consumer, merger clause

creates a presumption of integration, but is not conclusive

b. Between merchants, merger clause merger clause is usually conclusive proof of integration

b. IF language of the contract both CREATES express warranties AND LIMITS/NEGATES express warranties

c. Court will construe both clauses as consistentd. IF the creation and limitation CANNOT be construed consistently, the

limitation/negation of warranty drops out3. Lack of Authority Clauses

a. Comment 2 recognized this clause as a protection to the seller for misrepresentations of seller's agents

i. PROBLEM: seller gets all benefits of agent's misrepresentations and it is unfair from the consumer setting

ii. Disclaimer of Implied Warranties: UCC 2-316(2) and (3)1. Introduction

a. Implied warranties are easier to disclaim because the parties did not specifically agree AND they arise by operation of law

2. Disclaimer of Implied Warranty of Merchantabilitya. Must contain the word "merchantability" ANDb. If in writing, disclaimer must be CONSPICUOUS

i. UCC 1-201(10) defines conspicuous as written in such a way that a reasonable person against whom it is to operate OUGHT to have noticed it

1. ANY reasonable person—are they going to see the disclaimer?

a. ALL CAPSb. Boldc. Underlined d. ***Set Off From the Rest of the Text ***e. Initialed gabf. Different Colorg. SIZEh. DISCLAIMER13

2. ORAL statements are by nature conspicuousii. Some courts allow "actual knowledge" of the disclaimer to

substitute the conspicuousness requirement1. COUNTER: code doesn't say "actual knowledge"

3. Disclaimer of Implied Warranty of Fitness for a Particular Purposea. MUST be in writing ANDb. MUST be conspicuous

i. No special words required (compare disclaimer of merchantability, which requires the word "merchantability")

iii. Alternative Disclaimers of Implied Warranties: UCC 2-316(3)1. Introduction

a. These disclaimers prevent surprise because the language is easier to understand

2. 2-316(3)(a): "AS IS" and "WITH ALL FAULTS" Disclaimersa. MUST be conspicuousb. Language that states "there are no express or implied warranties" does

NOT meet the requirements of (3)(a)3. 2-316(3)(b): Examination by Buyer

a. Seller demands inspection by the buyer ANDb. Buyer should have found the defect OR refuses to examinec. REASONABLENESS

i. Comment 8 provides that the level of inspection depends on who the buyer is

1. Merchant? Consumer?ii. Examination works as a disclaimer of warranties for defects that

SHOULD HAVE BEEN FOUND1. Other defects are still warranted if they could not be

found 4. 2-316(3)(c): Usage of Trade, Course of Performance, Course of Dealing

a. ALL can exclude or modify implied warrantiesiv. Disclaimer of implied warranty AFTER sent and purchased (Bowdoin)

1. Disclaimer fails becausea. Does not become part of the basis of the bargainb. Disclaimer MUST be conspicuous BEFORE the sale

i. Buyer must have the option NOT to buyii. Must be NOTICED by buyer

c. COD/COP must be MORE than one prior deal to establish regularity between buyer and seller

v. Limitation of Remedies: UCC 2-719 allows limitation of remedies and warranties (Usually limited to "repair or replace")

1. UCC 2-719(1)(a): Determine if the limitation is the EXCLUSIVE remedya. Did the parties expressly agree that the limitation would be EXCLUSIVE

OR OPTIONAL (in addition to other remedies)i. Comment 1 provides that the Code presumes the limitation is in

addition to other remediesb. IF the limitation is the EXCLUSIVE REMEDY

i. The limitation must NOT fail of its essential purpose1. First determine what the purpose of the remedy is2. Then determine whether the remedy failed to fulfill that

purposec. IF the limitation fails, the CODE remedies apply

i. Comments provide that this section ensures some remedy will exist for a breach

ii. Wilson —Where the limitation of remedy makes it impossible for the buyer to get a remedy, the limitation FAILS of its essential purpose (even when it really does serve its purpose)

2. UCC 2-719(3): Limitation of Consequential Damages (Buyers usually get consequential damages, sellers DO NOT)

a. Consequential Damages Defined

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i. Seller has reason to know of losses that flow from the buyer's need for the good

1. Examplesa. Personal Injuryb. Property Damagesc. Lost Profitsd. Inconveniencee. Loss of Use

b. Incidental Damages Definedi. Out of pocket expenses from dealing with the good itself or

replacing the goodc. Limitation of Consequential Damages

i. Seller can limit consequential damages if the limitation is not unconscionable

1. Prima Facie Unconscionablea. Limitation of damages for personal injury in

consumer contracts are presumed unconscionable2. Prima Facie NOT Unconscionable

a. Limitation of damages where the loss is commercial

3. Where exclusive remedy is repair or replace AND limitation on consequential damages

a. Consumer Contracti. Once limitation fails of its essential purpose, the ENTIRE

limitation drops out, including the limitation on consequential damages, and the code remedies apply (which include recovery for consequential damages)

b. Commercial Contracti. Once limitation fails of its essential purpose, the "repair or

replace" clause drops out, NOT the limitation on consequential damages.

f. Notice of Breach: Defense to Breach of Warranty Claims: UCC 2-607(3)(a)i. Buyer must give NOTICE to seller of the breach

1. Reasons for Noticea. Ensures that negotiations will take placeb. Gives Seller opportunity to curec. Prevents bad faith on buyer's part by allowing seller to inspect before

curing2. Content of Notice

a. Must let the seller know the transaction is "troublesome and needs to be watched"

i. No detail required BUTii. If seller is a merchant, seller has the right to request from buyer

the alleged defects under 2-605b. Third Parties (Not parties to contract)

i. Generally do not need to comply with (3)(a) BUTii. They are expected to notify the selleriii. Consumers ARE required to give notice BUT there is a BROAD

reasonableness standardii. Within a "reasonable" time

1. Merchantsa. Comment 4 provides that merchants must notify within a commercially

reasonable time2. Consumers

a. Comment 4 provides that a "reasonable time" will be extended for consumers

3. Factors in determining "Reasonableness"a. Type of Businessb. Industry standardsc. Nature of the goods

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i. Perishable goodsiii. Where Buyer resells good BEFORE giving notice

1. Takes away seller's ability to inspect and thus would be unreasonable2. Even if resale would NOT prejudice the seller

a. That is, seller could not be able to cure, inspect, etc., anyway3. Notice is STILL required

a. If buyer shows that seller would NOT be prejudiced, buyer's duty to notify seller of the breach within a "reasonable time" may be extended, but not eliminated

g. Third Party Beneficiaries of Warranties, Express or Implied (Who may sue for breach of warranty)

i. Vertical Privity1. Courts determine who can sue, not the Code

a. Consumers—courts usually allow consumers to sue mfg.b. Commercial—courts usually do NOT allow merchants to sue mfg.

ii. Horizontal: UCC 2-318 Alternatives (Left up to states to decide)

Alternative A (Narrow) (PA) Alternative B (Moderate) Alternative C (Broad)Who Can Recover

Natural Person(1) In family or household OR(2) Guest in the home

Natural Person Person, including Corporations

Standard Reasonable to expect that such person may (1) Use, (2) Consume, OR (3) Be affected by the goods

Reasonable to expect that such person may (1) Use, (2) Consume, OR (3) Be affected by the goods

Reasonable to expect that such person may (1) Use, (2) Consume, OR (3) Be affected by the goods

Recovery Personal Injury Personal Injury ANY Injury (Personal, Property)

h. LEASE Warranties under Article 2Ai. Finance Lease

1. Implied warranty does NOT apply to a finance leasea. In a finance lease, the LESSEE is the beneficiary of warranty given in

original sale2. TEST:

a. Must be a True Lease: UCC 2A-103(1)(g)b. Lessee selects the goodsc. Goods bought SOLELY to release ANDd. Lessee must know about the original sale

IV. TERMS OF THE CONTRACTa. Gap Fillers (AFTER FORMATION OF CONTRACT IS ESTABLISHED: 2-204(a)-(c))

i. Open Price Term: UCC 2-3051. Price term can be left open2. Price is a reasonable price at time of delivery IF

a. Price is not included in the Kb. Price is left to be greed by parties and they fail to agree ORc. Parties agree to let the market or other standard set the price but it is

not set3. Seller or buyer can set the price if done in good faith4. IF price is to be fixed by parties and through fault of one of the parties fails to

fix the pricea. Other party may cancel the contract ORb. Fix a reasonable price himself

ii. Allocation of Quantity: UCC 2-311(1)1. IF specifics of performance are left to one party (ex: party agrees to set

quantity at a later date)a. Specifications must be done in good faith b. Within Commercial Reasonableness

2. Where party REFUSES to perform (party refuses to set quantity at all)

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a. Other party may treat the refusal as a breach and be excused from performance OR

b. Other party may proceed to perform in a reasonable manner (ex: other party may allocate quantity himself if done so reasonably)

i. Factors:1. Course of Prior Dealings2. Demand in the market3. Amount taken on other occasions

iii. Belief that One Party will NOT Perform: UCC 2-6091. (1): Party is insecure whether the other will perform

a. Insecurity must be reasonablei. Commercial reasonableness

b. Party must make written demand of adequate assurance of performance AND

c. May suspend performance until reassurance is attained IFi. Waiting to perform is commercially reasonable UNLESSii. Even if commercially reasonable, the party may NOT suspend

performance (wait) if the other party has already paid for performance

2. (2): Between merchantsa. Insecurity and adequacy of assurance must be commercially reasonable

3. (4): Responsea. Given within a reasonable time NOT EXCEEDING 30 days

i. Must be adequate under the circumstancesii. Must indicated that the party CAN and WILL perform

b. IF NOT adequate or given AFTER 30 (or not given at all)i. Anticipatory Repudiation

iv. Landrum —Goods: limited edition corvette; price term open (14-16 thousand); buyer paid 22,000 under protest because market value went up AND seller wanted more money

1. Jury could have found that the contract price was a reasonable price or fair market value thus summary judgment precluded

a. Novation—new deal replaces old deal IFi. Must be voluntary

b. Waiveri. Must be voluntary relinquishment of known right

c. Ratificationi. Must be voluntary

2. UCC 1-207: "Under Protest" and similar languagea. Preserves rights of the party

b. Other Gap Fillers: PRESUMPTIONSi. Delivery: UNLESS OTHERWISE AGREED

1. Entire K is to be delivered at one time. UCC 2-3072. Tender of delivery is at seller's place of business. UCC 2-3083. Time for Delivery is a reasonable time. 2-309(1)4. Payment is due at the time and place of delivery upon receipt of goods. 2-

310(a)c. Unconscionability UCC 2-302

i. Defined (Not Really): Whether the contract or clause is so one-sided as to be unconscionable under the circumstances

1. One-sided2. Oppressive3. Surprising4. Unreasonable 5. Grossly Unfair6. Shocks the conscience

ii. Elements1. Substantive

a. Contract or a clause thereof is unconscionablei. Terms are outrageous

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ii. No negotiationsiii. Boilerplate, inconspicuous

2. Procedurala. Unfair processb. One-sided bargaining powerc. Capacity of buyerd. Consumer/merchant distinctione. Education of buyer

3. Court may refuse to enforce the unconscionable clause OR contract itself after hearing on evidence of unconscionability

a. NOT a jury question because all juries would find unconscionability BUT4. IF substantive or procedural unconscionability are not proved, must resort to

Common Law remediesa. Ex: IF terms are not unconscionable, but process is unfair

iii. Article 2A-108(2) Unconscionability1. Consumer Leases

a. Definedi. Lessor is merchant, lessee is individualii. Lessee (individual) leases goods for personal, family or household

purposesiii. OPTIONAL dollar value (under certain $ amount adopted by state)

2. Protects consumer from unconscionable conducta. Collection tactics ANDb. Contract creation (ex: inducement practices)

3. Remediesa. Court constructs appropriate Remedies INCLUDINGb. Reasonable attorney's fees BUT

i. IF court does NOT find unconscionability ANDii. knew the claim was groundless,iii. THEN gets reasonable attorney's fees from

d. Identification UCC 2-501i. Introduction

1. Buyer obtains limited property interest and insurable interest at time of identification

2. Title does not pass3. Determines the EXACT goods the seller will give to the buyer4. Comment 2 provides that all doubts should be resolved in favor of identification

ii. 2-501(1)(a): Existing goods—ABSENT EXPLICIT AGREEMENT1. Identification occurs at the time the contract is made2. Undivided Share in Identified Fungible Bulk (Comment 5) (E.g., corn in silo)

a. Undivided share means ownershipb. Identified fungible bulk means that whatever is containing the fungible

good (e.g., grain silo)c. Fungible means identical equivalentd. Identification of an undivided share in identified fungible bulk occurs at

the time of contractingiii. 2-501(1)(b): Sale of future goods—ABSENT EXPLICIT AGREEMENT

1. Identification occurs whena. Goods are shippedb. Marked ORc. Otherwise designated by the seller as good to which the contract refers

2. Comment 4 provides that the goods DO NOT need to be deliverablea. Seller is NOT done performing

iv. 2-501(1)(c): Crops or Unborn Young—ABSENT EXPLICIT AGREEMENT1. Crops

a. Identification occurs when crops are planted IFi. Harvested within the year ORii. End of next normal harvesting season

1. Whichever is LONGERe. Risk of Loss: NO BREACH

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i. IF neither party is in breach right before the loss ANDii. The parties did not explicitly agree on the risk of loss THEN 2-509 Appliesiii. Subsection (1): Transportation Contract: Contract requires or authorizes shipment by

the seller 1. 2-509(1)(a) deals with Shipment Contracts (Code Presumption)

a. General Rulei. Contract Does NOT require delivery to particular destinationii. Risk of loss shifts when goods duly delivered to the carrier

1. Carrier becomes agent of the buyerb. 2-319 "F.A.S." (Free Along Side named port): is ALWAYS a shipment

contract i. Risk of loss will shift to buyer once seller duly delivers to the

carrierii. "Duly Delivered"

1. 2-319(2)(a) requires the seller to deliver goods alongside the vessel

a. ON THE DOCK2. 2-319(2)(b) requires the seller to obtain a bill of lading3. 2-504 (Relating to Shipment Contracts) ALSO requires

seller toa. (a) Form a reasonable contract to ship with the

carrierb. (b) Obtain all necessary documents for shipment

ANDc. (c) Promptly notify the buyer of shipment

c. 2-320 "C.I.F." (Cost, Insurance, & Freight) is ALWAYS a shipment contract because if buyer is paying insurance on the goods, buyer MUST have the risk of loss (See Comment 1)

i. Risk of loss shifts to the buyer once seller duly delivers to the carrier

ii. "Duly Delivered"1. 2-320(2)(a) requires the seller to obtain a negotiable bill

of lading2. 2-320(2)(b) requires the seller to LOAD the goods and

obtain receipt 3. 2-320(2)(c) requires the seller to obtain insurance for the

specific good being delivered (where buyer is the beneficiary of such insurance)

4. 2-504 (Relating to Shipment Contracts) ALSO requires seller to

a. (a) Form a reasonable contract of shipment with the carrier

b. (b) Obtain all necessary documents for shipment AND

c. (c) Promptly notify the buyer of shipmentd. 2-320(3) C & F (Cost and Freight) carries the same obligations as in

C.I.F. Contracts except that C & F contracts DO NOT required seller to obtain insurance

i. Buyer will usually have a blanket policy for insurance, so buyer need not pay for insurance on the specific goods

e. 2-319 "F.O.B." (Free on board named place) can be a shipment contract IF

i. Named place is the SELLER'S locationii. Risk of loss shifts to the buyer when seller duly delivers to the

carrieriii. "Due Delivery"

1. 2-319(1)(a) requires seller to put the goods in the possession of the carrier

2. 2-504 (Relating to Shipment Contracts) ALSO requires seller to

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a. (a) Form a reasonable contract to ship with the carrier

i. Cook —"reasonable contract for delivery under the circumstances" did NOT require seller to assure the carrier had adequate insurance to cover the value of the goods. "Reasonableness" relates to the nature of the goods, e.g., fragile, perishable, etc.

b. (b) Obtain all necessary documents for shipment AND

c. (c) Promptly notify the buyer of shipmentiv. Named Place AND Named Transportation (e.g., named vessel,

truck)1. 2-319(1)(c) requires the seller to load the goods on the

named transportation type (vessel, truck, etc.)2. 2-504 (Relating to Shipment Contracts) ALSO requires

seller toa. (a) Form a reasonable contract to ship with the

carrierb. (b) Obtain all necessary documents for shipment

ANDc. (c) Promptly notify the buyer of shipment

f. Notification requirement under 2-504(c)i. Rheinberg —Int'l K for sale of wine between merchants. Before

goods were lost at sea, seller notified the seller's agent. After the goods were lost at sea, bank notified the buyer.

1. HELD: notification requirement must take into consideration the buyer's ability to protect himself before the goods are shipped before the risk of loss can pass

a. IF bank notified buyer of shipment BEFORE goods were lost, risk of loss would be on buyer

b. SINCE buyer was NOT notified until AFTER goods were lost, the risk could not pass

2. 2-509(1)(b) deals with Destination Contractsa. General Rule

i. Contract DOES required delivery to particular destination ii. Risk of loss shifts to buyer when CARRIER tenders delivery at the

particular destination1. Carrier becomes agent of the seller

b. 2-322 "Ex-Ship" (from the carrying vessel) is ALWAYS a destination contract

i. Generally, 2-509 provides that the risk of loss shifts to buyer when CARRIER tenders delivery at the particular destination BUT

ii. 2-322(2)(b) also requires the goods to be unloaded c. 2-319 "F.O.B." (Free on board named place) can be a destination

contract IFi. Named place is the BUYER'S location

1. Risk of loss shifts to buyer when CARRIER tenders delivery at the particular destination

2. "Tender of Delivery"a. 503(1) "tender of delivery" requires the seller to

i. Put and hold conforming goods at buyer's disposition AND

ii. Give buyer any notification reasonably necessary to enable buyer to take delivery

b. 2-503(1)(a) also requires i. Tender to be at a reasonable hour ii. Goods kept available for a reasonable

period of time so buyer can take possession

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iii. Ex—Two (2) days is generally a very generous time period

c. 2-503(1)(b) also requires, unless otherwise agreed,i. Seller to furnish facilities reasonably suited

to the receipt of the goodsii. Ex—goods = fish; "suitable facilities" would

require refrigeration3. 2-509(2): Deals with goods in possession of a third party bailee to be delivered

without being moved AND EITHER a. Buyer receives Document of Title

i. Subsection (2)(a) deals with Negotiable documents of title1. Risk of loss shifts to the buyer upon buyer's receipt of the

negotiable document of titlea. 2-103(c) defines "receipt" as taking actual,

physical possessionb. Once buyer has rightful possession of the

document, buyer has control over the goodsii. Subsection (2)(c) deals with Non-negotiable documents of title

1. Risk of loss shifts to the buyer upon buyer's receipt of the non-negotiable document of title, subject to 2-503(4)(b)

a. 2-503(4)(b) also requires that buyer have a reasonable time EITHER

i. To present the document of title to the bailee OR

ii. Have bailee acknowledge the buyer's rights to the goods

b. Buyer DOES NOT receive Document of Titlei. Subsection (2)(b) provides that the risk of loss will shift to the

buyer1. When bailee acknowledges buyer's right to possession of

the goods2. "Acknowledgment" must come from the bailee and given

to the buyer (Jason's Foods, Prior Uniform Law—Uniform Sales Act preserved: Uniform Sales Act required acknowledgement to the buyer)

c. Prior Law—whoever had actual title bore the risk of loss BUTi. Code rejects this notion—it is never a question of who "owns" the

goods ii. The better policy is to place the risk of loss on the party that

1. Is in abetter position to insure the goods OR2. Has control over the goods such that the party can

prevent loss4. Subsection (3): Other transactions NOT falling within subsections (1) or (2)

a. IF seller is a merchant i. Risk of loss shifts to buyer upon buyer's receipt of goods

1. 2-103(c) defines "receipt" as taking actual, physical possession of the goods

ii. Comment 3 recognizes that merchant sellers have possession of the goods and are more likely to have insurance on goods in their possession; thus the risk shifts on actual receipt by the buyer (compare non-merchant seller)

b. IF seller is NOT a merchanti. Risk of loss shifts to buyer upon seller's tender of delivery

1. 2-503(1) "tender of delivery" requires the seller toa. Put and hold conforming goods at buyer's

disposition ANDb. Give buyer any notification reasonably necessary

to enable buyer to take delivery2. 2-503(1)(a) also requires

a. Tender to be at a reasonable hour 21

b. Goods kept available for a reasonable period of time so buyer can take possession

i. Ex—Two (2) days is generally a very generous time period

3. 2-503(1)(b) also requires, unless otherwise agreed,a. Seller to furnish facilities reasonably suited to the

receipt of the goodsi. Ex—goods = fish; "suitable facilities" would

require refrigerationii. Where seller is a non-merchant, the code protects the seller by

shortening the risk of loss to "tender of delivery" because non-merchant sellers should not be required to insure their goods forever

c. Under 2-509(3), there is a presumption that the buyer will pick up goods at the seller's place of business

iv. RISK OF LOSS CANNOT SHIFT BEFORE THE GOODS ARE IDENTIFIED1. Comments to 509

v. Risk of Loss Under ARTICLE 2A1. Generally, the risk of loss will not shift to the lessee UNLESS

a. The parties agree i. If parties agree, risk of loss shifts at the time of the agreement

and is subject to 2-509OR

b. A finance lease has been createdi. Once the finance lease has been created, the risk of loss

AUTOMATICALLY shifts to the lessee even if parties do not agree on the risk of loss

V. PERFORMANCE OF THE CONTRACTa. Introduction

i. 2-301: General Obligations of the Parties1. Seller must tender conforming goods2. Buyer must accept conforming goods and pay

ii. Unless otherwise agreed1. 2-511(1) provides generally that buyer's tender of payment is a condition to the

seller's duty to tender conforming goods2. 2-507(1) provides generally that seller's tender of conforming goods is a

condition to the buyer's duty to paya. The code contemplates contemporaneous transferb. These section are here to accommodate agreements that do not have

contemporaneous transfersiii. Overview

1. When buyer receives goods, buyer inspects to assure the goods are conforming2. Buyer MUST accept or reject based on whether the goods conform or not3. Whether goods conform depends on the contract terms

a. "In accordance with the obligations under the contract" 2-106(2)4. IF the goods conform, buyer MUST accept5. IF the goods do NOT conform, buyer can reject

a. Perfect tender rule in a single delivery contract ORb. Rejection in accordance with provisions for installment contracts

i. 2-105(6): Commercial Units—good considered commercially as one unit

1. Value determined by useb. 2-511: Payment

i. Subsection (2) provides that payment is sufficient when made1. By any means OR in any manner that is generally accepted in the business

UNLESSa. Seller demands payment in legal tender (cash)

i. If seller demands cash, seller must give reasonable extension to procure payment

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1. Reasonableness depends on circumstances from buyer's perspective

2. Buyer must act with due diligence to get the cashc. Installment Contracts

i. 2-612 defines an installment contract as one which requires or authorizes1. Delivery of goods2. In separate lots3. To be separately accepted

ii. Subsection (2) provides that the buyer may reject the non-conforming INSTALLMENT IF1. Goods are non-conforming2. Non-conformity substantially impairs the value of THAT INSTALLMENT

a. Question of facti. Purpose of the goods

1. Buyer is a reseller, Aesthetic ii. Time of the essence to the buyeriii. Quantityiv. Assortmentv. Resale—are the goods damaged

b. Buyer CANNOT reject for minor defectsc. IF non-conformity substantially impairs value to buyer, buyer MUST

notify the seller to cure3. Non-conformity cannot be cured by the seller

a. "Cure" means to fix the nonconforming tender to make it conform to the contract

b. Seller has absolute right to cure in installment contractsc. If goods are cured, buyer MUST accept or else buyer is in breach

iii. Subsection (3) provides that any party can reject the ENTIRE INSTALLMENT CONTRACT IF

1. The Non-conformity (seller) OR default (buyer)2. Substantially impairs the value of the WHOLE CONTRACT

a. It is not enough to fear that there will be another nonconformity in the next tender

b. Comment 6 provides that the court must look to the contract as a wholei. Cumulative effect of the nonconformity—one or more

nonconformities 1. Factors

a. Purpose—what are the parties trying to accomplish with this contract

b. Pricec. Loss of good willd. Harm to other customers of buyere. Buyer is in breach because of seller's

nonconformityf. Reputation

3. Substantial impairment acts as a breach of the contract4. HOWEVER

a. IF a party accepts a nonconforming installment without seasonably notifying other party of cancellation OR

b. If a party sues with respect to past installments or demands performance for future installments

c. THEN the party reinstates the contract5. Presumption in court is that the nonconformity does NOT substantially impair

the value of the whole contracta. Purpose of this standard for installment contracts is to

i. Protect the seller because buyer has increased bargaining power AND

ii. General code purpose of encouraging the performance of contracts

iv. Remedies for Breach of Installment Contracts1. Buyer can cancel the entire contract under 2-711

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2. Seller can cancel the entire contract under 2-7033. 2-106(4) defines "Cancellation" as

a. Terminating the contract for future performancev. Cherwell —Installment K; Buyer paid periodically but owed 10,000 for goods received;

Buyer insecure b/c seller might not ship; buyer tells seller he will pay; buyer sends check but stops payment because truck driver told buyer that this was the last shipment; seller finally just cancels the whole deal

1. Buyer argues (1) 2-609: seller has NO right to terminate and installment contract without using his 2-609 right and (2) buyer demanded assurance that seller would pay but did not receive adequate assurance

2. HELD: 2-612(3) allows ANY aggrieved party to cancel the contract for default and does not talk about 2-609

a. Buyer's insecurity was unreasonable because it was based on (1) buyer's own failure to pay and (2) some knucklehead truck driver's comment

b. Buyer's default on payment substantially impaired value of whole contract to seller because seller lost money, will have a reputation as being one who does not care about payment, will not have money to pay bills, payroll, etc.

vi. Adequate Assurance1. Contract for the sale of goods2. Reasonable grounds of insecurity about the other party's performance

a. Between merchantsb. Reasonable commercial standards of insecurity

i. Objective financial indications1. Bankruptcy2. Reduced bond ratings

3. Insecure party must demand, in writing, assurance of performance by other party

a. Adequate assuranceb. Request a promise to perform as required by the contract

4. Party can suspend performance UNLESS party has received the agreed upon return

5. Responding party has a reasonable time, not exceeding 30 days, to give adequate assurance

a. Reasonable time might be short if goods are perishable6. If party does not respond within such time, insecure party can treat the failure

to respond as an anticipatory repudiation under 2-610a. Comment 1 Test for anticipatory repudiation

i. Overt communication of intention ORii. Action which

1. Renders performance impossible OR2. Demonstrates a clear determination not to continue with

performanced. Single Delivery Contracts

i. 2-601 is the perfect tender rule and gives the buyer the RIGHT to reject1. Buyer has the right to reject goods if tender fails "in any respect" to conform to

the contracta. Includes minor defects—buyer can reject until tender is perfect

2. Buyer maya. Reject the whole contract ORb. Accept the whole contract ORc. Accept any commercial unit or units and reject the rest

ii. 2-602 provides the MANNER of rightful rejection (failure to make an effective rejection is tantamount to acceptance under 2-606)

1. Subsection (1) provides that the buyer must notify seller of the rejection within a reasonable time

2. Subsection (2)(a) prohibits the buyer from exercising ownership of the goods rejected

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3. Subsection (2)(b) requires the buyer to hold the goods for a reasonable time and in a reasonable manner so the seller can retrieve the goods BUT

4. Subsection (2)(c) provides that the buyer has no other obligations with regard to goods rightfully rejected

iii. 2-605 may also require the buyer to make statements of defects IF1. 2-605(1)(a) Seller could cure

a. Seller has the ABSOLUTE right to cure under 2-508(1) IFi. Time for performance has not yet expired

1. Seller MUST cure by the performance date2. Ex—Delivery of nonconforming goods on the 10th;

contract asked for delivery on the 20th, seller has absolute right to cure before the 20th

b. Seller MAY have the right to cure under 2-508(2) IFi. Seller has reasonable grounds to believe that the goods or tender

would be acceptable1. BROAD interpretation—UCC encourages the performance

of contracts2. Wilson (TV Case)—Seller wanted to cure the TV, buyer

wanted a new TVa. HELD: Seller had reasonable grounds to believe the

TV was acceptable under 2-508(2) becausei. Defect was frequent back thenii. Defect came from mfg. so seller could

presume that it was acceptableb. Sellers can make reasonable adjustmentsc. Purpose of TV was to watch, not resell, etc.

ii. Seller has a reasonable time to cure1. Ramirez —After seller cures seller MUST re-tender delivery

a. Seller's time to cure cannot last forever: ex—attempt to cure 10 times and each time seller fails to cure

2. 2-605(1)(b) Between merchants, the seller demands statement of all defects3. 2-605(1) requires the buyer to disclose

a. All actual defects ANDb. Any defect that could be found upon reasonable inspection

4. If particularized statement is given where required, buyer cannot rely on those defects to show breach

iv. A merchant buyer may also have to reship the goods to seller under 2-603(1) IF1. Seller requests 2. Seller has no place of business in the market where goods were rejected AND3. If the goods are perishable

a. Buyer must make reasonable attempts to resell even if seller does not make a demand

i. Subsection (2) allows commission for such sale ANDii. Buyer is entitled to reimbursement for costs if buyer reships

goodsv. Buyer's Remedy for Seller's failure to make perfect tender under 2-711(1)

1. IF buyer rightfully rejects, revokes acceptance OR seller fails to deliver buyer can

a. Cancelb. Have the purchase price returned AND/ORc. Get damages

e. Acceptancei. Introduction

1. 2-607(1) requires the buyer to pay for the goods accepted2. 2-607(2) provides that acceptance precludes rejection

a. Buyer must give notice of breach after acceptance under section (3)(a)i. Acceptance does NOT preclude a cause of action BUT does limit

remedy to DAMAGES

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3. Under 2-607(4), after buyer accepts, buyer bears the burden of proving any breach with respect to the goods accepted

ii. Acceptance under 2-606(1) 1. Under subsection (a), after reasonable opportunity to inspect, buyer makes an

overt indication of acceptance to seller2. Under subsection (b), buyer fails to make an effective rejection OR3. Under subsection (c), buyer does any act inconsistent with the seller's

ownershipiii. Acceptance under 2-606(2)

1. Acceptance of a part of any commercial unit is acceptance of that entire unita. Cannot accept 5/6 parts of a commercial unit (example—horse statue in

5 different boxes) f. Revocation of Acceptance § 2-608

i. Requirements Needed to Rightfully Revoke Acceptance [3]1. Nonconformity (based on contract terms)2. Substantial impairs the value of goods to the buyer

a. Comment suggests that the test is the Totality of the circumstances i. Subjective Determination

1. THIS buyer's particular needs regardless if seller knows of buyer's needs or not AND

ii. Objective determination1. Reasonable person with THIS buyer's needs

iii. Temporallyiv. Aggregate

3. AND BUYER MUST EITHERa. Knowingly accepted goods with nonconformity

i. Buyer must have a reasonable assumption that the seller would cure OR

b. Without knowledge or discover of defecti. Buyer must be induced by either

1. Difficulty of discovery of defect OR2. Seller's assurances (least likely)

4. Seller can curea. 2-608(3) grants the buyer the same rights as if buyer has rightfully

rejected the goodsb. Since seller can cure for a rejection under 2-508, seller can equally cure

for revocation of acceptancec. IF SELLER CAN REASONABLY AND SEASONABLY CURE, VALUE CANNOT

BE SUBSTANTIALLY IMPAIREDi. At some point, the right to cure ends (after a reasonable time)

ii. Procedure of Revocation of Acceptance1. Buyer must notify seller of revocation of acceptance

a. Comment 5 provides several factors for noticei. Must be done in good faithii. Prevention of surpriseiii. Reasonable adjustmentsiv. Requires more than just telling seller they are in breach

2. Within a Reasonable timei. Parties can set the time for notification by agreementii. Buyer should notify when buyer knows or has reason to know of

the defect1. Typically longer than the time for notification for seller's

breach2. Code attempts to give seller time to cure

3. If goods are substantially changeda. Buyer loses right to revoke acceptance (does not lose right to sue)

UNLESSi. Substantial change is caused by the defect

4. Buyer must comply with 2-602 and 2-603a. Cannot exercise ownership over goods

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b. Must keep and hold goods with reasonable care so seller can recover5. A merchant buyer may also have to reship the goods to seller under 2-603(1) IF

a. Seller requests b. Seller has no place of business in the market where goods were rejected

ANDc. If the goods are perishable

i. Buyer must make reasonable attempts to resell even if seller does not make a demand

1. Subsection (2) allows commission for such sale AND2. Buyer is entitled to reimbursement for costs if buyer

reships goodsiii. Article 2A-407: Revocation of Acceptance in Leases

1. Finance Leasea. Revocation of acceptance is impermissible

2. Other types of leasesa. Rejection and revocation are similar to Article 2

g. Risk of Loss: BREACHi. Seller in breach 2-510(1) and (2)

1. IF goods are nonconforming AND2. Buyer has the right to reject

a. Single delivery contract = perfect tender ruleb. Installment contract = substantially impairs rule

3. THEN risk of loss is on seller UNTILa. Cure under 2-508

i. If seller cures, seller MUST retender the goods or risk of loss won't shift OR

b. Acceptance by the buyer under 2-606ii. IF 2-510(1) does NOT apply, BUYER has the risk of loss—Buyer can SHIFT the risk of

loss back to the seller under 2-510(2) 1. IF Buyer rightfully revoked acceptance

a. Three part test under 2-608 AND2. Deficiency in insurance coverage

a. Buyer does NOT have adequate insurance to cover loss3. THEN buyer can treat the risk of loss as if it never shifted to buyer

a. Risk of loss is on the seller to the extent the insurance will not cover the buyer's loss

b. Risk of loss is on the buyer for the remainderiii. IF the BUYER repudiates or breaches, 2-510(3) applies

1. IF goods conform2. Goods identified to the contract before the loss under 2-501 AND3. Deficiency in seller's insurance

a. Loss occurs within a commercially reasonable time after the breach/repudiation

4. THEN risk of loss is on the buyer for a commercially reasonable time h. Impossibility

i. Casualty to Identified Goods 2-6131. IF contract requires specific or unique goods for performance 2. Goods have been identified at the time of contracting3. Casualty WITHOUT fault of either party AND4. Risk of loss has not shifted to buyer5. THEN

a. IF total lossi. Contract can be avoided

b. IF partial lossi. Buyer has the right to inspect goods

1. Buyer can accept goods at a reduced price reflecting the loss OR

2. Treat contract as avoidedii. Substituted Performance 2-614

1. No fault27

2. Eithera. Berthing, loading, or unlading facilities failb. Agreed type of carrier becomes unavailable ORc. Agreed manner of delivery is commercially impracticable

3. Commercially reasonable substitute is available4. THEN substitute must be tendered and accepted

iii. Excuse by Failure of Presupposed Conditions 2-6151. Threshold requirements

a. Contingency or event occursb. Seller's performance has become commercially impracticable

i. Ex: orders CANNOT be filled ANDc. Party's assumed that the event would NOT occur

i. That is, neither party assumed the risk of this event2. Non-delivery in Part

a. Seller must allocate among current customers in a fair and reasonable manner

i. Comments suggests pro ratab. Seller can consider his own needs for manufacturingc. Seller can also consider regular customers not party to this particular

contract3. Notification

a. Seller must seasonably notify the buyer of the non-delivery or partial delivery

iv. Buyer's Procedure when Notified Under 2-6161. Buyer receives notice of delay or partial allocation 2. Allocation would substantially impair the value of the contract to the buyer3. Buyer can

a. Terminate the contract ORb. Modify (basically, agree to the delay or allocation)

4. Buyer must notify seller in writing within a reasonable time not exceeding 30 days

a. IF no notification by the buyer, contract is terminatedv. "Commercially Impracticable" as used in these sections

1. Comment 4 states that generally, an increase in cost is NOT an excuse making performance "commercially impracticable"

a. IF rise in price is excuse, increase in seller's cost MUSTi. Result in a loss on the contract ANDii. Loss must be severe and unreasonable

VI. REMEDIESa. Seller's Remedies

i. Buyer's Insolvency 2-7021. Goods not yet shipped 2-702(1)

a. Seller learns of buyer's insolvencyb. Seller may refuse to ship except for cash

2. Goods in possession of Buyer 2-702(2)a. Seller has right to reclaim

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b. Must make demand within 10 days of buyer's receipt of the goodsc. Goods must have been shipped and received on creditd. Buyer must be insolvent when buyer received the goodse. Remedy limited to BUYER only, not to third parties (ex—Buyer received

goods and sold to third party, seller cannot reclaim from third party)3. Goods in Transit 2-705

a. Seller has the right to stop deliveryb. Limitations: seller can stop until

i. Buyer receives goodsii. Bailee acknowledges the buyer's rights to goodsiii. Buyer receives negotiable documents of title

ii. Buyer's Breach 2-7031. Repudiation 2-610

a. Test: Comments provide threshold showing:i. Overt communication of intentionii. Action rendering performance impossible ORiii. Demonstration of clear determination not to continue with

performanceb. AND if repudiation substantially impairs the value of the contract,

aggrieved party cani. Wait for performanceii. Resort to remedies sectionsiii. Suspend its own performance

c. Doubts as to performance?i. Make a 2-609 demand of adequate assurance

2. General Remedies: 2-703—Seller Cana. Withhold delivery b. Stop delivery (stoppage) (2-705)

i. Limited to larger shipments (truckloads, plane loads, ships, etc.)c. ID goods to the contract after a breach (2-704)

i. Seller can ID goods to the contract if they are in his possession or control

ii. If goods are manufactured, seller has the choice of finishing the goods and reselling OR stopping manufacture and sell for scrap

d. Resell the goods (2-706)i. Must be done in good faithii. Sale must be held in a commercially reasonable manner

1. Two Typesa. Public (Auction)b. Private (contracting with another party)

2. Seller cannot participate in the private resale (cannot contract with himself) but can participate in the auction

iii. Seller must notify the buyer of the resaleiv. Calculation of damages is the difference between the contract

price and the resale price plus any incidental damagese. Recover Damages (general calculation under 2-708)

i. 2-708(1) Generally, where buyer fails to payii. Calculation of damages is the difference between the market

price and the contract price1. Market price is determined at the time and place for

tenderiii. 2-708(2) "Lost Volume Seller"

1. Where seller has unlimited supply of goods AND2. Market price is inadequate to make the seller whole THEN3. Measure of damages is

a. The lost "profit"i. Defined—contract price minus variable

costs (not fixed costs) b. Reasonable overhead

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i. Fixed costs associated with the sale of THIS good (anyone who worked on selling this good)

f. Bring an Action for Price (Seller's specific performance under 2-709)i. Limited to

1. Accepted Goods OR2. Conforming goods

a. Must be lost or damaged within a commercially reasonable time AND

b. After Risk of Loss has passed to the buyer OR3. Goods Identified to the contract

a. Seller must be unable to resell ORb. Circumstances make resale futile

ii. Seller DOES NOT get to keep the goodsg. Recover Incidental Damages (2-710)

i. Definition—out of pocket expenses from dealing with the goods in connection with resale or otherwise from the breach

b. Buyer's Remediesi. Insolvency 2-502

1. Buyer has right to replevinii. Rejection under 2-601 and 2-612 are remedies for buyeriii. Revocation of Acceptance under 2-608 is a remedy for buyeriv. General Remedies 2-711: Buyer can

1. Cover (2-712)a. Coverb. Reasonable substitute for goodsc. Made in good faithd. Calculation of damages is the difference between cost of cover and

contract price plus consequential and incidental damages under 2-715

i. Incidental—out of pocket costs from dealing with the goodsii. Consequential—include damages which seller has reason to know

and personal or property injury2. Recover Market Damages (2-713)

a. Calculation of damages is the difference between the market price and the contract price plus incidental or consequential damages

i. Market price determined at the time when buyer learned of seller's breach

b. Where calculation of market damages GREATLY EXCEEDS buyer's actual damages

i. Under 1-106, the general policy is to put the aggrieved party in the same position as if the contract were performed HOWEVER

ii. Market damages calculation still applies1. 1-106 is a general statute, and the specific section for

market damages trumps the general statute2. Code seeks to encourage performance of contracts—

seller's would always breach if they knew they only had to pay actual damages, which are generally less than the market damages

3. Majority of jurisdictions follow this approach 3. Specific Performance (2-716)

a. Where goods are unique ORb. Other proper circumstances

i. Where buyer CANNOT coverc. Buyer can demand that the seller deliver goods

4. Recover Damages for Goods Accepted (usually warranty claims) (2-714)a. Calculation of damages is measured by the goods as warranted and

actual worth of the goods5. Liquidated Damages

a. Reasonable prediction of damages30

b. Determined by anticipated OR actual damagesc. Generally permissible unless they are a penalty

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