SALESLOUSIN

CLASS ONE

CANONS OF CONSTRUCTION:

1. Basic purpose of statutory interpretation is to give effect to the intent of the framers – subjective intent.

1. Ascertaining the underlying principle – why did the legislature enact the statute? What was the evil to be remedied by the legislation?

3. Plain meaning canon with golden rule exception – interpret each word of the statute according to its plain and ordinary meaning except if giving words their plain meaning would result in an absurd or manifestly unjust interpretation.4. Read each statute as a whole – presumption that the legislature intended every word to have meaning.5. Presumption that the legislature intended to change the law – corollary is the re-enactment rule – when legislature re-passes a statute or portion that has been interpreted by the courts, the legislature intends to approve the existing case law.6. Court should interpret the spirit of the law, not just the letter of the law.

HOW DO YOU READ A SECTION?Titles are very important! Then look at text. Then look at the positive statement and official comments. If text and comments do not agree, the text governs.

UCC 2-102 LAUNDRY LIST OF DEFINITIONS: deals w/ “scope”, “Certain securities and other transactions excluded from this article. Applies to transactions in goods.

UCC 2-103 “transactions” is not defined

UCC 2-105 DEF OF GOODS: Key word = movable. “Transactions in Goods.” Sales is Transactions in Goods. Transactions is a broader term. ***Algebra: (A) transactions + (B) goods. Is it a transaction in goods? Is A + B equivalent to A + B. -Any time you have a transaction like a sale and anytime you have goods involved, will it be a transaction in goods w/in the meanings of that phrase. Property itself is not goods but its components may be (see below).

Official Comments: Written by the Leg who drafted the code. Provides insight into the framers’ intent. How has the official comment been changed? It has been rephrased. They try to tell us how they changed, it tells us it has reprised (rephrased). Never let anyone rephrase a statute. Usually can’t change wording w/out changing the meaning.

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Cross Reference: definitional to tell us where we could find a definition. ***Is transactions defined anywhere? No. What about Goods? No. But, we know 2-105. The definitional cross-references were written in a funny way. In the most part, it is the same. Art I and Art II is under revision.

EXAMPLE UCC 2-105 deals w/ “definitions of goods.” + Exercises in Comments. 2-105 sub 1. Key word is goods as being “movable.” EXAMPLES:1. Sale of Blackacre is “not” w/in Art II b/c its real property, it is not moveable. It is at no other place in the universe. -C/L is embodied in the UCC (sale of real property, we will look to Art II).2. Sale of Corporate Stock (this is investment securities) but, look at last P of comment 1. Read it (Don’t Stop After the word “Analogy”). Art 8 does not have a parole evidence rule. So, Ct could use Art II parole evidence rule by Analogy if the Art doesn’t have it. 3. Sale of the Mexican Pesos: Its movable. Sub Sec 1, “the money in which the price is to be paid.” In this country, we use the US Dollar. So, somebody must be selling as a commodity, not as a payment. Therefore, it could be considered a good. However, what if it was US Coin or Dollar? It could be the purchase price and the commodity sold, right? Yes. A “price to pay” is not covered under the act.

***what if I had a 1895 buffalo nickel? (it’s a rare coin withdrawn from circulation = commodity covered under act) Pesos are not legal tender so they are commodities.4. Foal In utero – unborn young of animals. Sale of this could be a sale of goods.5. Crops: covered under act.6. What about a contract b/w mare’s next foal and the mare isn’t pregnant yet? This would still be considered unborn young even though there is nothing there yet. If you could stretch the word unborn, then O.K. (Cloning Cell for a pig? Is this unborn young? Its not unborn young, but could make the argument and it might be considered goods.)

Choice of Law§1-105. Territorial Application of the Act; Parties’ Power to Choose Applicable Law. 2 sections. 1- 301 - has this section for the 2005 revision (very controversial)(1) Parties may agree to have a state’s law govern if there is a “reasonable relation” to the state. If the 2 parties choose their law, then Cts will uphold them if a reasonable relations to the transactions. -“reasonable relation” – must be a significant enough connection like Int’l Shoe.

(2.) If the parties don’t choose , then it’s the appropriate relations test. Looks like Minimum Contacts test in International Shoe. If the parties have no such agreement, any state bearing an “appropriate relation.”. “appropriate relation” – modern trend seems to indicate a “most significant relationship test” or “grouping of interests” approach.

2 STATES THAT CAUSE PROBLEMS:

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1) LOUISIANA never adopted the code/Article 2. & 2) CALIFORNIA has a problem as well. –They have problems that look like UCC problems but they are actually Civil Procedure Issues.IL adopted the 1995 version, but also adopted an amendment.

Choice of Forum is completely different.

-Some sections of the Code vary from state to state. This section deals with the parties’ ability to choose which state’s version of the Code and case law apply to the transaction.

3.) Cases in our material show we are heading towards a “grouping of interest” test. There are quite a few cases on reasonable relations. Cts look to see if one party bullies another party.

1-105— Under old version there was 2 subsections. In the new revision it’s extremely controversial and very different. Has already been revised to include letters of creditors (Note: read paragraph she wrote on this section.) “Reasonable relation” = where significant portion of the making or performing of the K occurs

5 Basic Principles1-1021.) Liberal Construction: this is boilerplate now. Important purpose is the Uniformity of the case law. Posner, applies the majority rule in the country even though he personally disagreed. IL follows the majority rule. He’s trying to create a uniform code. -Another part is cloning of unborn young. 1-102(1)-Act shall be liberally construed...to promote its underlying purposes and policies.

-§1-102(2) sets forth the underlying purposes and policies:(a) Simplify, clarify and modernize law governing commercial transactions.(b) Permit continued expansion of commercial practices.(c) Make law uniform.

2.) Freedom of Contract, 1-102: Liberal view of Classical C/L. Parties must live up to the terms of the K. That means parties don’t have to enter into agreement, but when they do, they can also write the terms of the K. When you draft the terms, cts will uphold it. -Variation by agreement. “Implicit” in freedom of K. Parties can vary their K by agreement. They are not bound by the code unless they do not put in any provisions. -Code has several provisions that say “unless the parties agree otherwise, these are default provisions”. Freedom of Contract - §1-102(3) & (4) -Act may be varied by agreement except: good faith, diligence, reasonableness, and care. Parties can agree how to judge the factors if not manifestly unreasonable.-If section is silent as to whether it can be disclaimed, look to underlying principles for guidance.

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3.) Supplementary Principles: 1-103- this most differentiates the UCC from a European code. Euro says this is not a code since CL and equity principles continue. We have nothing comparable in the US. We have a provision that says C/L and equity principles continue to be the rule unless a provision or law has displaced them. C/L and equity principles must be remembered.

4.) Commercial Reasonableness: Reasonable time, place, price and manner. Reasonable Person Standard. How do they operate? It’s an Objective standard, the reasonable person. Permeates the entire code.

5.) Good Faith: has 2 sides: Ordinary vs. Merchant standardA.) Ordinary Good Faith, Subjective Standard (Currently “honesty in fact” = 1-

201(19), is pure heart and the empty head standard). Cts don’t have much to go on here. It’s hard for them to determine.

B.) Merchant = higher standard 2-103(1)(b) also objective standard, applies only in Art II b/c that’s how drafters intended it (1) Honesty in fact, AND (2) observance of reasonable commercial standard of fair dealing in the trade.

- Only real difference in new code is the words “in the trade”. Changing from subjective to objective does make a difference. How much of a difference does this make? We don’t know. -If there is a good argument, look at the 5 Basic Principles, and see which party has the better position. If you apply the 5 Basic Principles to any problem, you will be in the ballpark. §1-201(19) “honesty in fact”; subjective good faith.§1-203 obligation of good faith in performance or enforcement.§2-103(1)(b) Objective standard. Only in Art II and only applies to the merchant (Trade or Commercial Nature) In the case of a merchant, it means “honesty in fact” and reasonable commercial standards of “fair dealings in the trade;” objective good faith.

CLASS TWO

II. Definition of Merchant (Art II) –Merchant status is an issue of fact not issue of law!§2-104.(1) a merchant is a person who deals in goods of the kind or otherwise holds himself out as having knowledge and skill...or through his agent. Not whether he has the knowledge or not – it is holding himself out as having the knowledge. The 2 ways – deals in good of the kind OR otherwise (meaning almost anything).(3) between merchants – both parties are chargeable with knowledge and skill of.

-Concept of good faith predates the Code, thus pre-code case law is useful in getting definition.

-merchants have to use both subjective and objective good faith.-other sections where special merchant rules - §2-207, 2-209, 2-314, 2-403(2).-whether farmers are merchants is often litigated – but seen as a professional.

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-general rule is that the definition of merchant is expanding.-merchant is a question of fact, thus not often overturned on review.

-only 2-3 parts of Article 2 are questions of law so std of review for facts is important:-jury: no reasonable jury. -judge: clearly erroneous or against manifest weight of

the evidence.-A merchant is a very important person in Art II.

2 WAYS TO BE A MERCHANT under ART 2: Theoretically there are 3 but we ignore it.a.) A person who “deals in goods of the kind”…b.) “Otherwise”…

“ by his occupation holds himself out as having knowledge” (to who? Everybody) Cts focus on holds out by his occupation (Job, how he earns his living) a professional in the given business as opposed to a casual seller or buyer. Emphasis on professional in the business as having knowledge and skills

otherwise is x & non x =Y everything is Y. (parties who are merchants have “more power” to create contracts)-IL tends to regard a farmer as a Merchant. A Farmer who grows crops or animals in order to sell them to somebody else for profit is clearly a merchant.

Wis. Case. Harvest States. Farmer Case. Anderson was selling surplus corn. He was a forklift operator. He grew some corn to feed the cattle. When he grew too much corn he sold it to somebody else. -Did you agree that he was a “casual seller” of corn and not a merchant as to the corn? Yes. -Would you say he was a merchant as to “cattle”? Yes. He was deliberately growing the corn for his cattle to make a profit. His principle source of income is the forklift operator but also grows corn for cattle.

Today, merchants title is growing. -Not for profit and Gov units, are today being found as Merchants, and in the past they would not have been. These cases are questions of fact. Merchant status is a question of fact!

Joe’s Diner Problem: (pg. 20) used to be a car dealer/seller but has more recently worked in the diner. After 16 yrs of running a diner, was he a merchant as to the one used car he sold? -Holds himself out as his occupation. He worked the diner. He’s not a used car salesman. Ct held 16 yrs of going straight, he’s no longer a used car salesman. He is doing a favor for a friend. -Disagree? Key is the “merchant statute”. Facts are important.

-Question of Fact: “merchant statutes” is a question of fact. Who decides questions of fact? Jury. Usually in trials for UCC, it’s a bench trial, so judge hears it.

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-If there is a question of fact after the pleadings and the motions, will a motion for summary judgment be granted? Motion for Summary Judgment will “not” be granted if there is a Genuine/ issue of material (true) fact. Tremendous push to settle, otherwise, lots of money will be spent.

STANDARDS FOR REVIEW ON APPEAL. If the losing side takes it up on appeal, what is the standard to overturn the finding? -If it’s a “jury” trial,: App Ct will only reverse if No Reasonable Jury Could Have Made that finding. -If it’s a judge trial on issue of fact = Against the Manifest Weight of the Evidence. -If judge on issue of law = clearly erroneous. *In the context of a merchant, if you don’t win at the trial ct level, it’s not worth your time to appeal that.

3 Significant Issues of “Law” in Art II (rest are finding of “Fact”)

Which Facts are we looking at?Occupation comes into play. Is it regular vs. sporadic. Is it a habit?

Arnold Palmer’s Golf Balls. (Issue of fact) (pg. 20)Arnold sells his golf balls to Jack Nicklaus. Arnold is a golfer.He gets a commission (for the use of his name). This suggests he is a merchant. But, He has “never” sold a golf ball before. -Is he a merchant? Does he deal in goods of the kind? No. He hits them. Does he, by his occupation hold himself out? Yes. Or No. Conclusion. By putting one’s name on a golf ball, is he suggesting that he has knowledge about golf balls? Yes. Celebrity endorsements are an endorsement that the product is good. Is he a merchant? It’s important to recognize there is an issue of fact here, and a jury could go either way.

Book Seller Problem (pg. 21) combines ideas of the last 3 problems1-203 = no obligation of good faith under C/L, “before” the K relationship. 1-203 is the most important provision to look at b/c obligation of good faith. 1-203 says every K or duty w/in this act imposes an obligation of good faith for “performance” or “enforcement”. What does that exclude? Negotiation Stage. That is separate from performance or enforcement. -Difficulty arises at the “Negotiation” stage. Is there an obligation of good faith at that point? At C/L and today, there is no obligation of good faith “before” parties enter into the K. The party who has been deceived at the negotiation stage still has something to look to which is “supplementary principles” under 1-103.

1-103: “Unless displaced by the particular provisions of this act, the principles of law and equity, including the law of merchant and the law of relevant capacity to K, Principle

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and Agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause may supplement this provision.

-Would you have said that the buyer was a victim of “fraud”? Here, maybe “misrepresentation” (not so much fraud) b/c someone was selling the academic books telling the buyer they will need them. They were making representations that these books are needed. Buyer is relying on that.

-Every state allows a cause of action for intentional misrepresentation. (Seller knew and didn’t say anything). IL will allow for Negligent Misrepresentation, he failed to inform of a material fact, he just forgot.

Israel CaseUsed to be a C/L K country. Now they have a statute on K. Has adopted an obligation of good faith at the negotiation stage.

Kansas, 94, in exceptional circumstances, we may allow a good faith, not just fraud and misrepresentation, at the negotiation stage.

Pot Flash Corporation Idaho (Traditional View) Pre K events are considered outside the good faith obligation. The only thing the buyer could do here, would be to have a cause of action for fraud or misrepresentation. This is the Traditional View.

UN Convention on K’s for the Sale of Goods and the Union of Principles for Intl KWhenever the US and other C/L Countries have to come up w/ a compromise b/w Civil Law Countries and the Post Communist Country, what you have is debate. The C/L have no good faith obligation at the negotiation stage but their willing to give that up when they have to compromise. This is what they are doing. If we keep compromising, when are we going to start changing our own domestic law.

SCOPE (1 st Issue on any examination). It’s implied issue, Unless, that it is a given that the deal falls w/in Art II, you must discuss this. It’s a minimum of 5 pts. (Many people miss this issue). This is true for any statute. Based on C/L or another statute.

Key Phrase: “ Transaction in Goods” 2-102. Scope Cases can be divided into 2 Categories. 1.) Transaction that falls w/in Art II, is it the functional equivalent of a sale. 2.) Is this a deal that involves Goods? 2-105 sub 1. (See exercises). Is this particular sale a transaction in goods.

2-106 = goods are conforming when they’re on obligations of K.

2-107 = K for sale of minerals (including gas or oil) or a structure or its materials removed from realty is a K for sale of goods if they are to be severed by the seller, BUT

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until severance the purported present sale (which is not effective as a transfer in interest in land) is effective only as a K to sell.

2-102 = Scope. Certain Security & Other Transactions Excluded. Key term: “transactions in goods” (2-105 for def of goods)

Ebstein v. Pianna (Connecticut Case ) (pg. 26) This Case Features the Predominant Feature Case that is now the Predominant Factor Test. Facts: BAD HAIR COLORING CASEMiss Ebstein claims she thought she was getting a dye in a permanent waive solution. She probably said “I’m here for a cut and color.”Issue: GOOD vs. SERVICEDo You Believe her when she says that this falls under Art II (good), or is this a Service? ***What do you think that she thought? It was a Service. Obviously, she could have purchased it herself and put it on herself. -Ebstein would like to have Art II b/c it’s a warranty cause of action. Defective Goods are a Warranty Cause of Action under Art II. It’s a sale or service.-Predominant Feature Test: They came up w/ the totality of the circumstances test (which is a objective test). When service is predominant and the good is an incidental feature of the transaction. -What do you look at to see if this is a service or a sale of goods? Objectively speaking, you look at what would a reasonable person would observe. -Would you look at the cost of the component? Ex// if it cost 10 bucks. Cts also look at Evidence of their intent (but this is subjective). (pg. 28) Predominant Feature / Factor Test:1.) Whether K had a predominant purpose of selling services and; (Obj)2.) Whether the goods component of K was only incidental to main purpose of sale. (Obj)3.) Cts will also look to the evidence of the parties’ intent. (Subj.)

Transactions in GoodsEquipment

Sale/ Other Business Goods/Services = Epstein v. (pg. 26)Lease Consumer “Predominant Feature Test”

“Totality of the Circumstances, Obj.Bailment = Mieske, Carr installation. Exchange = BarterDonationInheritance

1.) Installation – if buy goods & they are installing i.e. roofing equip, then installation is incidental to sale of goods; Goods here, covered under Art II.

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2.) Construction Cases: Sale or Service? Covered under Art II. -Installation Cases, you buy something (goods) and they are installing, its still Art II b/c the installation is incidental to the purchase of the goods.

-What about an Independent Contractor? Roofer, Construction, they get it at wholesale, IL and most states have decided that construction K are a Service. Same thing as a tile service or a siding job. You could get them on your own, and then have someone put them on. Usually they want to choose their tiles, b/c then they could say at least I chose the tile, so it’s my fault (when the customer complains).

-If a high degree of skill involved (ex// licensed) at that point, it’s a service K, and the law of K will apply.

3.) -Medical field also a service. 4.) -Gas and Electricity is “not” in Art II, its under a Service. 5.) -X rays and other medical cases are a “service”. 6.) -Body parts will fall under Art II. Does not happen very often. 7.) -Blood transfusion = (Blood Shield Statute) 8.) -Computer Software = very few cases. One difficulty is that these are not sales, but they are license (box top). License is completely separate. ______________________________________________________________________Goods and Other Tangibles (pg. 31) (Real Estate)Dividing goods for purposes of applying the UCC Art II and non-goods (other tangibles) “mixed goods problems”

Dahan Case – Equipment and Gravel Pit. Applied Art 2 to the entire transaction. Predominant Feature Test was applied, it was the Sale of the Equipment (Goods). You could divide this up 2 ways, Predominant Feature Test to Sale of Goods, or divide all up and apply Predominant Feat Test to goods and Other Law for non-goods.

Foster v. Col Radio (pg. 32) – Mixed Goods ProblemSome things sold (FCC) and some “goods” sold (equipment and furnishings). Things were divided from goods and non-goods. Cost of components, the most expensive was the “FCC license”. -Art II involved here b/c Predominant Feat was the sale of a radio -Station was FCC license, not building or office furniture Art II did not apply. -The federal circuit court in the radio station case divided the sale into two parts applying contracts law to a portion and Article 2 to the equipment and furnishings.-Recent trend to apply the predominant feature test to mixed goods transactions.

Field vs. Golden Triangle. It’s a going concern. We have to sell it under Art II or Other law. They found that predominant feature of a sale radio station, was not for equipment and furnishing, and therefore FCC laws would be applied here, not Art 2.

Competing Test

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Gravaman of Action Test (pg. 33) (“Alternative” to Predominant Feat Test) More recent-Was the problem the tiles, or the way the put it on the roof?-How do you find this out? Run a trial. (Expert Testimony) Motions for Summary Judgment. The Test:The dispute should be settled by the law applicable to the aspect of the K from which the breach arose. -One commentator has proposed the Gravaman of the action test as a replacement.

JL Hooker Case: Using the Gravaman of the action test even though they did not really said they did. ____________________________________________________________________TransactionsTransactions in Goods (Sales)

Leases (3 Categories)1.) Equipment Leases – specific type of lease of machinery or other equipment. Usually an option to buy at the end of the lease. (It’s as if it’s an alternative to a sale)

2.) Other Business Lease - When a Construction Comp uses something for awhile, with no intention to buy anything at all.

3.) Consumer Leases of Goods – Outside of Art II, it is not the functional equivalent of a sale if you have an option to buy equipment. Functional Equivalent Test: applies to “sales”. Is the transaction a sale or is it a lease?Functional equivalent of a sale test – if it is, Article 2 applies either directly or by analogy.(Sale of Service for a sale of Goods, DON’T mix up with Transaction in Goods, Sales in Goods)

Bailments, Giving an object to someone else, in which the bailer transfers possession to the bailee. Do you transfer use? (That’s a lease, I have the right to possession and use it.) C/L of Bailments was put in a statute called a Personal Property Act. They statutized the C/L elements of Bailments. More favorable to Bailee. Donations, Inheritance & Exchanges & Property (pg. 35)One step away from becoming a “lease”. 2 Cases. Meske Case (FILM SPLICING CASE)Facts: Lady brought in 32 reels of developed home movie film and asked them to splice them into 8 rolls for easy viewing. Then Virginia Meseke says: “Don’t lose these, they are my life. Bartell Drugs lost them.Is film a good? Yes. Is a bailment a transaction? Not really.Bartell Drug had a thing on it, which said: “If we lose this, you’ll get 32 fresh rolls of film.” She wanted Art 2. -Wash Ct held that Article 2 applied. Applied Art II where P dropped off 32 reels of film.

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Carr Case (pg. 36) Took a role of film to be developed. Indiana Personal Property Case-Ind court came to opposite holding on almost identical facts finding that bailee has “only possession” not use of the goods.Bailment (transfer possession). Ct refused to apply Art II is a breach of K where P gave D film to develop. Ct held that there was no reason to apply the Code to a bailment in which the bailee merely has possession, not the use of the goods, and only for the purpose of performing a service for the bailer.

Is it w/in the spirit of Art II transaction in goods? Leases – and end of lease, “Functional Equivalent of a Sale”, leasee assumes title to a car. Bailment - Bailee assumes possession (not title) to the good. Bailer always wants the goods back. Consumer Leases of Cars – you bring the car back. It’s a true lease, not the functional equivalent of the sale.

Exchanges – Barter, I give you my pen, you give me your pen. It’s a transaction in goods, it the functional equivalent of a sale. Donations or Gifts – No consideration.Inheritance – By will or intestacy, no consideration.

Scope by Agreement (pg. 37) Looks like a sale, but might be a Service. Lawyer may say Art II applies, or K laws apply to Art II. Where parties, by agreements agree that Art II and not K principles will govern predominantly a K for service. -Can parties agree to have their transaction governed by the Code? Yes, says Judge Shadur in rollercoaster case in which he found to be a contract for services but allowed the parties to elect the Code under 1-105. (Is this an Adhesion K? Don’t know).

Bartell Bank, Art 9 applies. IL Ct said, it’s O.K, you could put that provision in.

Revision of Art II Big Issue w/ Computers. It seems that they are hung up on scope. ______________________________________________________________________________________PART TWO: FORMATION OF CONTRACT

[Class 4] Offer and Acceptance; The Battle of the Forms (Very Important + Hard)Are the parties really putting together a deal (agreement)? What have the parties subjectively agreed to? Looking at conduct is the best way to see this.

“Eastern” Sea board: offer, acceptance, consideration, they have that for formation of a K. As you go “Farther west”, then you get Promissory estoppel (substitute for consideration).

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“Far West”, all you need to see is if they had the intention to make a K.

Art II – Substantive Provisions. The Code is more concerned w/ what parties DO & not what they say. Triad of Substantive Provisions:1.) Offer 2.) Acceptance 3.) Consideration

§2-204. Formation in General (see next few paragraphs down)(1) Contract for sale of goods made in any manner sufficient to show agreement including conduct that recognizes the existence of a K.(2) Agreement sufficient for a K may be found even though the moment of making is unknown.

-Overrules C/L technical rule.(3) Even though one or more terms are open, a K does not fail for indefiniteness if 1.) the parties “intended” to make a K and 2.) there is a reasonably certain basis for giving an appropriate remedy. -2 requirements: i) intent to K, ii) reasonably certain basis.

Defined in the Code:§1-201(3) “Agreement” means the bargain of the parties in fact as found by language or other circumstances including C/D, U/T or C/P. (subjective test)§1-201(11) “Contract” means the total legal obligation that results from the parties’ agreement. (You have to have an agreement before you can have a K) (objective test)§1-201(42) “Term” means that portion of an agreement that relates to a particular matter. (broad definition)

***Conduct (not UCC defined) – physical act: action; inaction, verbal communication, silence (for renewals). We have to look in the dictionary.

***If both parties have committed conduct which suggests they recognize the existence of a K or that they have a K then No verbal communication is necessary. No actual offer and acceptance is necessary.

2-204(2)—TIME CASES: This section overrules the C/L rule that you technically need to know the moment of the making of the contract. YOU DON’T.2-204(3)—we don’t really know what “open terms” this section is talking about. Open Terms Provision: “Gap Fillers” but Cts will not fill in the quantity b/c of Stat of Frauds. Indefiniteness. What you have is a “term is left open”. (In old days, missing terms meant no K). - even essential terms may be left open as long as there is a way for the court to fill in the term, such as usage of trade, conduct of the parties- The UCC has default terms/gap fillers in section 3 – thus is parties leave a term open, the ct will implement the default terms. The party that wishes to deviate from the general practice of the industry (the default term) will need to argue for a change.-Intended to make a K and a reasonably certain basis for giving an appropriate remedy.

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Courts make a distinction between offer and an invitation to an offer so that parties aren’t bound against their will.

Compare and Contrast: Unilateral K: performance = acceptance; Bilateral K: offer contemplates a promise to perform as acceptance.

How can the Ct fill in the price term? Look up Market Value. Where, When, they fill in everything except the quality. Graulich Caterer v. Hans Holterbosch (pg. 41) (NY WORLD FAIR BRAT CASE: How good is the food)Seller sued for breach of K; Buyer counterclaims for merchantability (quality). Facts: Caterer (Graulich) of German food at the N.Y. Worlds Fair. It was in Flushing in N.Y. Wanted License to operate in a pavilion Holterbosch wanted to set up the Lowenbrau tent. He wanted to sell beer, but he needed food from somewhere. (He wants the fastest way to provide the minimal amount of food). Getting to the Intent of the Parties; -Why does Graulich want to get into the K? Money. Promote his cooking concept in microwaves. (Ham & Pastrami on rye) -Why is it that Holerbosh wants that catered food? (Probably b/c in N.Y. need food when you sell beer). What was it they where fighting about? Quality of the sandwiches. Analysis:-Did they have an “agreement” under 1-201(3)? Yes. They had a letter of intent (the writing, the verbal communication). It was signed. They made all the arrangements (this shows conduct_(the seller shipped the goods) necessary to conduct their transactions = CONDUCT. Ways to transport food to the pavilion. -Under C/L K, would they have a K? No, they have quantity and price, but they are missing the term of “quality”. Quality term is open.- What is the effect of the Rider? The rider evidenced that the parties had intent to make an agreement. After their conduct reflected their agreement, the had a K!- In essence, their conduct was so strong that it trumped the fact that the left the quality term open

-Cts generally take a liberal view of the key words and emphasize the importance of the parties’ agreement rather than formalistic requirements.-Reserve sales cause many problems – Nolen Ryan rookie card case; also auctions.

II. Firm Offers

§2-205. Firm Offers ProblemIf there is a question – it is an invitation to offer rather than an offer itself.

What happened under Construction K? General Contractor would win the K and get to build the building. General K would say, “Hey, I got a job for you” and the Sub K would say, “O.K. but I’m actually in need of more $.” Problem is really of service. Why is it in Art 2? K law has changed so the substantive result is essential 2-205.

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This section applies in narrow situations: btw contractors and subcontractors5 pre-requisites to use this section: 1) Offer 2) By a merchant 3) To buy or sell goods 4) In a signed writing 5) Which by its terms gives assurance that it will be held open…Result: It is not revocable, for lack of consideration, during time stated or reasonable time but not over 3 months.-This section designed to solve sub-contractor problems. But do construction contracts fall within the scope of the Code? Courts usually hold no; such are Ks for services.

i.) UCC does not define offer. iv.) Not Oral. v.) This offer is firm and will be held open for such and such a date.

-What does “is not revocable for lack of consideration mean?” It means it’s not an unconditional offer. -Why 3 month time line? To hold open the offer and accept bids. It’s a fiscal quarter. Most businesses change their price every 3 months. -What is the purpose of the 3 months and separate signing rule? To hold open the offer/accept bids. -How do we count the 30 days? From the time the merchant begins accepting.________________________________________________________________________If K calls for acceptance for performance = Unilateral K. If K calls for acceptance by exchange of promise = Bilateral K.

§2-206. Offer and Acceptance in Formation of Contract (really about acceptance)(1) Unless otherwise “unambiguously indicated” by the language (oral or written) or circumstances (establishes the principle that the offeror is the master of the offer).(a) An offer can be accepted in any manner and by any medium reasonable in the circumstances.(b) An order/offer to buy goods can be “accepted” by prompt promise to ship or by shipping conforming or non-conforming goods. Shipment of non-conforming goods does not constitute an acceptance “if” the seller “seasonably notifies” the buyer that it is an “accommodation”. (Note: this subsection turns an offer for a unilateral K into an offer for either. E.g. buyer says “ship the goods” – seller can accept by either (1) shipping, or (2) promising to ship.)

“Seasonably”—Article I, w/in a reasonable time. Notification of an accommodation needs to be made before the shipment or before itGenerally, section 2-206 works; the main arguments are on whether the notification was seasonable..

Unilateral Contract Trick (pg. 50) – prior to §2-206(1)(b), seller could ship non-conforming goods and then claim B did not accept them when buyer sues for breach.

(2) Where starting performance is a “reasonable mode of acceptance”, an offeror who is “not notified” of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

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-Starting to perform “only effective” as acceptance “if” offeror gets notice within reasonable time.

i.) Q: If A sends B an offer by telegram and is silent as to the manner and medium of acceptance, how may B accept? At C/L what is the only way an offeree can accept? Answer: §2-206 any manner, any means reasonable under the circumstances. ii.) Q: If A send B a purchase order saying “Ship at once 100 red widgets…” (Unilateral K) is the proper acceptance the performance by shipment or the promise to ship? Answer: Either method, only if shipment is conforming. Under the code - unless he says acceptance by shipment only. -Bi-lateral K is 2 people exchange promises. iii.) Q: What was the “unilateral K trick? Answer: Unilateral K Trick (pg. 50, and see above) -

B Offeror____________________ 100 red________----S = Offeree.

______________________________100 Blue_________ Options: Counteroffer 1.) Buyer can send blue back 2.) Keep blue even if wanted red originally.Under the common – he did not meet the offer. Under the code – it is a counter offer. This was a way to save face and the situation. The seller should ship back what was a non-conforming delivery. – Buyer had only 2 choices – if accepted he accepted the counter offer (which said blue widgets – which is not what he ordered and not what he wanted). If he refuses the counter offer – he has zero widgets. So you take 100 Blue or nothing.

iv). If B, a seller/offeree, ships non-conforming goods to A, a buyer/offeror, what is his situation under this section? An acceptance and its also a breach of K. -Is there a K? Yes, if buyer keeps the goods, although non-conforming goods reasonable notification of non conformity. -If so, is there also a breach of K? Under what circumstances? -If the buyer ordered 100 red widgets and the seller has only blue widgets, what would you advise the seller to do? Call him up and tell him, I only have blue widgets. Or else tell him I have 50 now, get you rest later. Call before you ship – if you don’t it is not a reasonable notice.Answer: A shipment of non-conforming goods does not equal acceptance if the seller “reasonably notifies” the buyer of the shipment offered only as an accommodation. Now it is not a counter offer- it is a breach of K b/c you are then accepting the offer.

-In regard to #iii.) Do you think it is possible for a buyer to insert a “Don’t send me any accommodation shipments clause into the purchase order? Yes. Worldwide trend is to substitute “intent to contract” for “consideration.” Offeror is still “master of the offer.” If master does not state only accepted means/manner of acceptance, than any means reasonable may serve as acceptance.

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v.) What problems do you see in the “beginning of a requested “performance provision, UCC 2-206(2)? A. Reasonable here calls for subjectivity on offeror’s part. -When does beginning a requested performance begin/commence? -Also, the giving of notice to the offeror conflicts w/ UCC 2-206 (1)(b) – prompt promise to ship or prompt delivery.

Advent of TechnologyE-Sign Act (July 2000): Fed Gov told states what the states are to consider as valid K’s. Requires that every state recognize an electronic signature as sufficient as a signature for contract purposes. Everything is done by computer nothing will be accepted in writing.

International E-Sign – international treaty on electronic signatures (will soon be acceptable if not the norm in international commerce). ________________________________________________________________________The Battle of the Forms UCC 2-207 “ MURDERERS ROW (three provisions that are very difficult)” - Have to be Express Written Terms At C/L, the acceptance had to look like the offer. This gave us the Mirror Image Rule.

Unilateral K made the order. Seller shipped the goods w/ the invoice that came along w/ the goods. Nobody reads the acknowledgment form.

Offer, Invitation, Offer, Counteroffer, Rejection and Counter Offer-Buyer is usually the offeror. -Merchantability is an implied term & protects buyers. Buyers’ employers know, unless there is a disclaimer, an implied warranty 2-314 of merchantability. ***Recall C/L mirror image ruleAround 1910, Cts began getting fed up w/ litigation. Disclaimer forms to absolve seller under theory of implied warranty of merchantability. 2 Defenses for Seller who ships goods:1.) He could insist that there was no K, since the parties’ offer and acceptance did not mirror each other. 2.) As a backup, he could maintain that his shipment of the goods and his acknowledgement form constituted a counter offer and that the buyer –offeror had accepted it by his actions in taking, using and paying for the goods.

Historical Hypo: Seller ships goods. Buyer takes, uses, and pays for shipped goods (remember 3 verbs)Problem: if buyer pays for goods or not reading disclaimer form

Estoppel Theory – if seller ships the goods, he is estopped from denying the existence of a K, and buyer is estopped from taking, using, and paying, then Issue 1: What are the terms of the K?Issue 2: Additional vs. Different Terms (referring only to express, written terms).

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§2-207 (pg. 18 – section 2 of her packet). ADDITIONAL Terms in Acceptance or Confirmation (the term itself was not there in the prior document) v. (a DIFEERENT term is where the term was there in both documents – but it is different)(1) [Route A] A definite and seasonable “acceptance/confirmation” operates as an acceptance even if it has additional or different terms from those offered or (in the case of oral K) agreed upon, [Route B] “unless” acceptance was conditional on assent to the additional or different terms

(2) [Terms of A] The additional terms are “proposals” (suggestion) for addition to the contract. [Terms of A for merchants]. “Between merchants” (if one is not a merchant, look to 1st sentence) such terms become part of the contract unless:

(a) The offer/buyer expressly limits acceptance to the terms of the offer;(b) They materially alter it; or(c) Notification of objection to them is given within a reasonable time. **Merchants are presumed to know more than non-merchants.

(3) Conduct that recognizes the existence of a contract is sufficient to establish a contract although the writings of the parties do not. In such case the terms consist of those on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. [Route C – but only if no K under A or B]

-Section is designed to determine whether there is a contract, but is used to determine what the terms of the contract are.

§1-201(42) “Term” means that portion of an agreement that relates to a particular matter.(broad definition)

Additional term – def// “An express written term” that does not appear in the first document but appears for the first time only in the second document… Term is added to the first piece of paper/writing, in a 2nd. -Battle of the forms only deals with express, written terms.

Classic merchantability example:-Offer/purchase order does not have merchantability in its express terms while acceptance/acknowledgement expressly disclaims merchantability.-Disclaimer is an additional termShipment by air freight in PO vs. shipment by truck in acceptance.-Different terms problem. (What is different from the 1st form to the 2nd form?) Is there something in the 1st form on the issue? Is it an express written term?___________________________________________________________________3 Routes under 2-207 (A,B,C)

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Route A – (Buyer Speaks) The Problem of “Definite and Seasonable Acceptance”-How can you tell if there is an acceptance? Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. This applies to dealings between merchants.-Issue is how far can it deviate and still be an acceptance? Meeting of the minds. - Under route A, a deviant acceptance (10 zebras requested; 9 delivered and one is pregnant) is an acceptance; the remaining issue is what are the terms?

“In Haec Verba” “in these words” Buyer is the Speaker in this Route.-In each of these routes there is two questions:

1) Is there a contract?2) If so, what are the terms?

(Classic Additional Terms Problem - nothing on merchantability in 1st form, but a disclaimer of merchanabiltily in the 2nd form. -Suppose the offer says nothing about merchantability, but there is a term in 2nd form. Where do we look in UCC 2-207? Sub Sec 2. (only applies to “route A”)

2 way block – I am the master of the offer so I will limit the terms of your acceptance to my offer.

Generally: You must track the language of the statute as closely as possible.

2-207 (a) “Block” “this offer (or purchase order) expressly limits acceptance to the terms of the offer (or purchase order). Do not deviate from language of the statute. Any person who comes back w/ an additional term. Acceptance must be limited to the terms of this offer.

2-207 (2 ) (c ) “Block” – Buyer hereby gives notification of objection to any additional or different terms.

-These blocks track the language of the statute (in Haec Verba).***Difference b/w the 2 is Passive vs. Active Voice.Problems:How would you block the offeree-seller by using sub-sections (a) and (c)? 1.) This offer (or purchase order) expressly limits acceptance to the terms of this offers (or purchase order). This is Active Voice. 2-A Block 2.) Acceptance of this offer is expressly limited to the terms of this offer. Passive Voice3.) Buyer hereby gives notification of objection to any additional or different terms (that seller may propose). Active Voice. 2-C Block4.) Notification of objection to any additional or different terms (that may be proposed by the Seller) is hereby given. Passive Voice.

What “materially alters” the contract? Any change in the essence of the K. Comment 3 – “Clauses that would result in “surprise or hardship” if incorporated and express awareness. BoP on party arguing that is was a material alteration.

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Comment 4 – examples of clauses that “would” materially alter:-Negating standard warranties (merchantability disclaimers)-High % cannery deliveries where usage of trade allows for large deviation.-Allowing seller to cancel when buyer fails to pay invoices when due.-Requiring that complaints be made in materially shorter time than customary or

reasonable.Comment 5 – examples of clauses that “would not” materially alter (no element of unreasonable hardship or surprise)

-Enlarging seller’s exemption due to supervening causes beyond control.-Reasonable time for complaints.-Providing for interest on overdue invoices.-Fixing seller’s credit terms if within trade practices.-Limiting right of rejection for tolerances customary within trade.-Limiting remedy in acceptable manner under 2-718 or 2-719.

New York Rule: mandatory arbitration is a mandatory arbitration…In an old exam, he added an additional dispute of arbitration. Is such an arbitration clause a material alteration? In NY, yes. We don’t know if it is or not. All business people know there is usually an arbitration clause so there is no material hardship. ______________________________________________________________________________________Route B – (Seller Speaks) The Problem of a “Conditional Acceptance” (Old Counter-Offer Rule)What you should do is have offeree reject the offer firmly and counter-offer. Exchange of forms. Acceptance or confirmation; conditional acceptance, K not formed unless offeror assents.

Example: 1.) This acceptance is expressly made conditional on your (Buyer’s, offeror’s) assent to these additional (different) terms: (list follows). Passive Voice

Ex// 2.) This acknowledgement operates as an acceptance of your purchase order only if you assent to these terms and conditions: (list follows). Active Voice

“Seller/offeree” is the speaker in this Route. 2-207(1) (last sentence) not unless offeror “assents” – proper language. “Unless acceptance is expressly made conditional acceptance is expressly made conditional on assent to the additional or different terms. -Continues the old C/L mirror image rule.

***“Route B Conditional Acceptance” – This acceptance is expressly made conditional on your assent to these additional (different) terms: (list).-What if additional acceptance comes back, and it’s assented to. At that point, do the parties have a K? NO, Only if the original offeror assents. (Don’t use words accepts). What are the terms of the K? Depends on the terms the seller/offeree stated and the offeror assented to.

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-Suppose the buyer/offeror refuses to assent? No K. So no terms. Why b/c the offeror has specifically has refused to ascend to this. -What if offeror remains silent? Courts are split as to whether silence is acceptance. (How does the offeree write the language?)

Dorton (pg. 58) – You track the language of the statute. Strict View of construction; must follow track/language of the statute. It kinda looks like an acceptance, but its not a conditional acceptance, so look to 1A. Ralph Shrader – liberal view on theory that Code is not formalistic. (Bad view b/c playing with clients $.) One could argue the languages are different.

Exp. ***This acceptance is expressly made condition upon your assent to the following terms: (list terms). Put in the proper form of disclaimer of merchantability. _____________________________________________________________________Route C – (Buyer Speaks) The Problem of “Mutual Conduct” Launda Eastinghouse ProblemIf there was no K based on forms, here’s what we do, look to see if there is conduct by both parties. (as seen in 2-204(3)). “Look at conduct”. Exchange by itself creates no K.

What are the terms of this K? 2-204(3))? Supplementary terms under the provision of this act.

“Buyer” is the speaker in this route. (if the parties have not made a K by form, they did it by Conduct; buyer shipped the goods (takes, uses, pays the goods; 3 verbs) Terms are whatever they agreed upon in writing or supplementary terms.

Sellers hate Route C.

-Code does “not” define conduct.-conduct also an issue in 2-204(3) supra.

-Cts have held that “supplementary terms” include: C/P, C/D, and U/T, Gap Fillers G/F & Implied Warranty of Merchantability

Routes B & C – The Problems of “Assent” and “Conduct”-Does assent include conduct? If so, then “taking”, “using” and “paying” would be assent.

-taking using and paying raises estoppel; B cannot deny the existence of the K.- if taking, using, and paying is assent, then there is a K under B and the seller wins- if taking, using, and paying is not assent, then there is no K under B; look for a K under C – there should be a K under C and the buyer wins b/c there is an implied warranty of merchantability

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Under route C, Have to convince the Ct that Seller shipped, & buyer took, used, and paid for the goods.

Launda-Eastinghouse Additional Terms Problem:Who is buyer/offeror? LaundaWho is the seller? Eastinghouse. In that 1st order form, there is no mention of merchantability. -I see a 2(b) block. Material Alteration. -I see a 2(a) block. This order expressly limits acceptance to the terms and conditions stated herein. -I see a 2(c) block any additional or different term proposed by the seller is objected to and hereby rejected. Is this proper language? Maybe. If yes, you’re following Shrader (broad) b/c language does not exactly follow the statute; then you follow route A – is there a seasonable acceptance? If yes, then buyer wins b/c it’s an acceptance and the offer expressly limited the acc to the terms of the offerIf no, you’re following Dorton; then what analysis? Then you go w/ route B, b/c there is no K. If there is no K b/w parties, you can still K under route A. If there is enough amount of conditional amount of acceptance language, there might be a K under A. -IF under Route A, proper Acceptance, you have an addition, sub§2 disclaimer. Are both parties merchants? Yes. Half the Cts say yes, half the Cts say no. ½ say the laundry mat are not holding themselves out as a merchant. -For Ct to say they are both merchants, go to sub sec 2, and 2A block, and possibility of 2C block, and under 2(B), is this a material alteration?-Under Route A, no disclaimer, if b/w merchants. -What if law in state says Laundra is not a merchant? -Did they assent? How did they do that? Taking, using, paying. -If they took, used, and paid, what kind of K do we have? Proper Route B K. -What if Ct says __________ and there is no assent. Where is the only place left to go? Route C. ***MUST Argue BOTH sides of the issue.

Language from Route B = seller is speaking; contrast with 2A or 2C block = buyer is speaking Facts:-Launda has chain of Laundromats – sends Purchase Order for 2 machines with no mention of warranties but did contain both (2)(a) and (2)(c) block. -Eastinghouse manufactures laundry machines – when they got the PO, they sent an acknowledgement form providing a 90-day warranty but disclaimed the implied warranty of merchantability.-Machines worked for 4 months and quit.-Launda sues for breach of merchantability; Eastinghouse defends on its disclaimer.See class notes.

Most courts treat additional terms problems and different terms problems under 2-207(2) the same because of the language in Comment 3.

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Knock-out Rule (knock out gap fillers)– if the parties disagree on a term (different) or one did not have it (additional), a majority of states refuse to let either party’s term become part of the contract.

-These courts then usually look to the 2d stc of 2-207(3) for terms.-Implied Merchant of Liability.

The Problem of Silence and Silence Coupled with Conduct -Rest. §69 – “silence and inaction not assent unless” – presumption that silence is not assent.

[Class 7 & 8]Statute of Frauds (2-201) Effect of what is written and signed (Usually in Motion to Dismiss)Lousin says that SofF should not exist, Bar Examiners test on 2-201’s exceptions.

***Word here is “enforceable”, not validity. It is assumed there is a valid K. Is this a kind of K a Ct will use all of its power to enforce. We only enforce only certain kinds of K b/c it takes up much judicial time. If this is a K that the parties have made, they should be putting it in writing. If they did not, the Ct will assume no K. Up until recently, a lot of people could not write, or write down everything. Most sales of goods did not have to be written down. However, land and marriage had to be in writing. Comment 4 of 2-201 is the difference b/w valid & enforceable K.

Why do we have a writing requirement? So you have “evidence” of a record (Past Recollection Recorded)People don’t trust their own memory, why would you trust someone else’s. -Have to have something to aid memory.

-Why don’t we regard it as a rule of Evidence? SOF is really an evidence question but it is treated as substantive contracts law.-14 states allow estoppel as a defense to the SOF; if so, there really is no SOF.-There is really 4 SOFs in the Code: 2-201, 8-319, 9-203.

-Writing need not state a price term as long as court can use §2-305 (Open Price Term) to fill in.-If SOF not met, K is not void, it is just not judicially enforceable – Comment 4.1-201(46) -Signing requirement can be met by anything that identifies a person, e.g. letterhead.

-Comment 1 – 3 requirements for “writing” to meet SOF:1) Must evidence a K for the sale of goods.2) Must be signed (by the party seeking enforcement, usually defendant).3) Must specify a quantity. (An amount) The open term provision, gap filler, will

fill in every term except the quantity term. Can’t say a reasonable amount of goods. 2-306 allows us to fill in the quatity term for certain items.

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§2-201. Formal Requirements; Statute of Frauds.(1) Contract for the sale of goods (scope provision) for $500 or more (contract price) is not enforceable by action or defense (SOF is affirmative defense/must be in D’s answer or waived 12b6) unless there is a writing (1-201(46)) signed by the party against whom enforcement is sought (1-201(39) includes symbols). Contract not enforceable beyond the quantity of goods shown in the writing.

-Comment 1 – all that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction.-Only term that must appear is the quantity (courts see outputs Ks as having a

quantity).§1-201(46) “Writing” – an intentional reduction to tangible form.§1-201(39) “Signed” – present intention to authenticate. Could include initialing,

letterhead. -Can you have a K written on a paper napkin on a swizzle stick dipped in sauce? Yes. 1-201(39) -Voice taped? Voice analysis is just as easy for, or easier than, authenticating the writing. -Voice mail system: -Email – before I print out the email, is there a tangible form? No.-Record and Writing: If you have an email, its not intended to be a record. 1-201(39)

(2)EXCEPTION (NEW) UCC 2-201(2): “Between Merchants”, (a professional in the business) a writing in confirmation that is sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies (1) unless written notice of objection given w/in 10 days.-Merchants’ exception; designed to close pre-code loophole where party sending a “confirmation” was bound but the receiver was not.

-Two requirements for merchants exception: -If both parties are merchants, they are charged with a lot about knowing the business practice. They are also charged with opening their mail and reading it. -1.) The memo must be in confirmation of the K and 2.) it must be sufficiently against the sender. Makes no difference if the sender is the buyer or seller. -IF the recipient was to sue the sender, the sender could not raise the affirmative defense of the Statute of Frauds. Has to be a written objection – and it must be sent within 10 days.-What happens to the recipient who does not give written notice w/in 10 days? He loses the protection of the Statute of Frauds.

The sufficiently against the sender – must evidence a K for the sale of goods (i.e. it must meet the 3 requirements above of 1. sale of goods 2. signed by D and 3. specify quantity).SEE EXAM EXAMPLE BELOW

2-201(3): (this was a C/L exception) A contract that does not satisfy requirements of (1) but which is valid in other respects is enforceable if: (a) EXCEPTION: if the goods and “specially manufactured” for the buyer and the seller has started to make them.

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5 Requirements:

“artisans” exception at C/L. -particularly Tool & Die guys who really sell services. Tailors, Blacksmiths, people who deal in a non-paper interest.

-Assume you go to a silversmith, and you ask him to make you a set, and then a couple of weeks later, you say, I really don’t want this. He will have to prove he has fulfilled 3(a) unless he has already fulfilled sub 1 if he got something made in writing. (All he needed was a piece of paper name, date, delivery time, and will you please sign this here.) -What if you didn’t do that though? Can he claim benefits of 3(a) exception? What if he just bought the teapot? There’s nothing about the teapot that it’s made for somebody else. He will have to prove that it was for a “Stone”, and at some point he will have to show it is for the “Stone family.” -Seller has burden to prove that he cannot “resell” the product (if buyer repudiates). Note: It is not enough that the buyer repudiates. The seller could show this through admitting his Rolodex or former business receipts to show that he has never or does not know any other persons with that last family here. Telephone list. Show that they are the only Stone Family in the area.

Dept Store Ex// (Pg. 78) “Your 5000 calendars are ready.” Nobody in the purchasing dept said that anyone ordered them. He said in Ct, “I didn’t print up those calendars for nothing.”-What would you suggest in way of procedures to make sure this never happens again? You say to the purchasing people, if you ever order anything you must send a confirmation letter that says “This is to confirm our conversation in which you confirmed to sell us…” -That little note will take care of the Merchant’s exception. This also takes care of 3(a). -This little note will go into Ct as a business record.

(b) EXCEPTION: 2-201(3)(b) (NEW) : if the party against whom enforcement is sought “admits” in court or pleadings that a contract was made; not beyond quantity of goods in writing though.Can a former agent bind a principle?In court or otherwise? (depositions count)Compulsion? Can the court direct the witness to answer the question?

-New exception that did not exist before pre-Code adopted. International Case (in supp) says an admission in another proceeding is inadmissible in current Ct proceedings where prior proceeding was “unrelated”. Ethical Considerations. Its sworn testimony so includes depositions and such, even by agent. (Basically so that you cannot admit that there was an agreement, but then get out on a technicality – that was not the purpose of the rule).

-Theta Products Case (supp 79) whereby Ct does not have to grant D’s motion to dismiss if D property assert affidavit defense b/c it would deny the P an opportunity to obtain an admission for the D.

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-D Buyer opens his big mouth, I’m glad you told me about Statute of Frauds, b/c I’m going tell you that I really made the K. Your heart sinks b/c it’s an ethical issue b/c Cannon 7. Rule 137 Ill S Ct. If you don’t admit in your answer, Rule 11 sanctions, are you making a good faith argument, and after a reasonable inquiry, you know its true. -If you admit in your answer, then it’s an admission under (3)(b) What if you remain silent? It becomes an “admission”, so you must affirmatively deny. Anything that is specifically asserted in a complaint is deemed to be admitted if you are silent.If you deny, you have a rule 11 problem. -Is there anyway out of this? 1.) Not take the case. 2.) Lie and take the case. 3.) Affirmative defense, it’s a valid K, “so what”, you didn’t sign anything. This complaint must be dismissed because the contract it made is alleged, would fall w/in the statute of frauds. This does not satisfy the SofF b/c there was no writing pursuant to 2-201(1) or does not fall under the exceptions under 2-201(3). Even if there was a K, you your honor cannot enforce it b/c it falls w/in the S of F. Usually, this will work, otherwise you vitiate the entire Statute of Frauds. If it doesn’t work, I’m in deep trouble. -What if the Ct asks your client why did you deny you made a K? He will say , “My lawyer told me to say that.” -Himmel Case: What if a buyer comes up to me on the street, and says, I found someone who will take the case? And, I told her everything I told you! Then what? Ms. Stone has presumably signed something she knew was not true.

(c) EXCEPTION: 2-201(3)(c) with respect to goods that have been accepted or paid for. (Comment 2, pg. 80) -“partial performance” exception. It is a kind of estoppel. Created by the Cts in “Equity”. Deliveries starting occurring by rope and shipment. Then came what? Pearl Harbor happened then the automobile industry, President turned auto into a defense act. Who do you think won? Dealers won on the fact that the judges knew that the local dealers were going out of business b/c of the war. -W/ respect to goods for which payment has been made & accepted OR which have been received & accepted. Ex// partial payment does not have to be cash or check; even the tender of a promissory note, if the seller accepts it, will suffice. Sample Exam Question: 2-201 Statute of Frauds

IN ANSWERING AN EXAM QUESTION – 1. Scope – does it fall under the UCC?5 Basic principlesValid K?Are the parties merchants? - argue either way.

FS = landowner, planter of corn & soybean. BB = wholesale buyer / offeror of farm products. Ben is a merchant. Ben sent the confirmation of K that he signed.

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A. Question is: Is Sam a merchant, subsection 2 (both parties are merchants) (1st time growing soybeans) If no, then under sub (1). It is an output K, specific quantity, signed by D, Ben. 1.) If Sam sues Ben, then Ben doesn’t have the affirmative defense of SoF b/c Ben signed it and enforcement is sought from him. 2.) If Ben sues Sam, Sam does have an affirmative defense of SoF b/c Sam did not sign itB. If yes. Then under sub (2)1.) Confirmation of K, Sufficient against sender, refer to comment 1 requirements:

i. If Sam sues Ben, Ben can’t raise the affirmative defense b/c Ben signed it. ii. If Ben sues Sam then he does not have an affirmative defense of SoF b/c he

did not send a written objection to it (as a merchant Sam had to open mail and read mail & send written objection) SO both are bound and neither has the affirmative defense of SOL.

I. Can Ben enforce the contract against Sam?Yes, under 2-201(2) merchant’s exception, because BB sent a confirmation letter to FS and sufficiently detailed the material terms of the contract, including quantity, and FS had reason to know of its content as he has had prior business dealings with BB and without incident. FS failed to respond within a reasonable amount of time. -Although there is no signature requirement, Comment 1 of 2-201 says that the only term which must appear to satisfy the Statute of Frauds is the quantity term. See also Paragraph 4 of Comment 1. -Sam = no affidavit of statute of frauds because Sam did not sign a confirmation letter. -BB may have an action for estoppel – promissory estoppel: induced reliance on promise though no K, in fact, has been formed; OR equitable estoppel – which arises out of a person’s statement of fact or out of his SILENCE, acts or omissions rather from a record, deed, or written contract. -Key Word: “Enforce”, triggers the Statute of Frauds.

II. Can Sam enforce the contract against Ben?Yes, (but recovery limited only to $500) under 2-201(1) because crops are goods, totaling $500, reduced to writing, including quantity, whereby the party against whom sought enforcement signed the contract for sale. -No cost of agreement for estoppel because waived written objection due to the 10 days requirement. -No affirmative defense of Statute of Frauds because Sam did not give written notice of objection. -The crops are goods within the meaning of 2-105(1) – means all things which are movable at the time of the invested securities (Art 8) and things in action. “Goods” also include unborn young and growing crops and other identifiable things attached to realty..”-Both parties are merchants as defined in 2-104.

The 5 Basic Principles of the Code are1.) Liberal construction; 2.) Freedom of K; 3.) Supplementary Principles 4.) Commercial Reasonableness; 5.) Good Faith.

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1) Is this a transaction in goods? Yes. 2) Are the parties merchants? Yes. 3) Bound by or did exercise good faith in conducting the transaction under the UCC

1-201(19) and 2-103(1)(b)? Yes. 4) Was the parties’ agreement sufficient to show the existence of a K under 2-204

and its subsections? Yes. 5) Was the agreement reduced to writing under the Statute of Frauds if the formation

of the contract was equal to or exceeded $500 under 2-201? Yes.

Go through the validity of offer, acceptance, There’s a valid contract but is it If 1 is a merchant and 1 is not then 2-201(1) applies. If both parties are merchants then 2-201 (2) applies. Do Analysis of Both (1) & (2) because Issue of whether FS is a merchant because he has never grown soybeans – only corn. [Class 9] Parole Evidence Rule2 Conflicting Philosophies of 2-202, Parole Evidence Rule. Express Terms in sub (b), Implied in Sub (a). THIS IS A QUESTION OF LAW – b/c it deals with admissibility of evidence and only the judge does that.

1) Protecting the integrity of their written K. (Bottom of 82-83)2) Finding the parties “subjective intent”

“Agreement” 1-201(3) = bargain of the parties in fact as found in their language or by implication from other circumstances including C/D or U/T or C/P as provided in the Act. The word “contract” is not mentioned in the parole evidence rule – b/c we are not talking about their total legal obligation but rather the “bargain in fact.”“Contract” 1-201(11) = the total legal obligation which results from the parties agreement – may be synonymous w/ writing in the context of 2-202. “Term”: What is the noun of the subject of the sentence? “Term”.What are the 3 Verbs: 1.) May not be contradicted. 2.) May be explained or 3.) Supplemented. “Terms” = 1-201(42) “that portion of an agreement that relates to a particular matter, more separate terms. (a) Effect of defining “term” narrowly”, less proffered evidence would be admissible. You will end up with lots of evidence being admitted. (b) Effect of defining term “broadly” most evidence. If you interpret the term broadly, you will end up w/ the result of excluding a lot of evidence.

When talking about how broadly/narrowly to define “term”, really we are talking about Admissibility (which is an evidence question) and a matter of law. Shall we admit evidence that the terms are part of the agreement. Whereby most of these cases are bench trials.

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1.) 2-202 prohibits admission of evidence of any prior agreement that contradicts the final written terms. This prohibition extends to oral agreements & written agreements. 2.) If the oral condition precedent “explains or supplements” the written terms, it can be admissible under 2-202(b) as a consistent additional term.

a. If it indicates a course of dealing, course of performance or usage of trade, it can be admissible under 2-202(a).

***Fraud, misrep, and mistake are supp principles under 1-103 and defenses continue as exceptions unless they are displaced, 2-202 does NOT displace them.

4 Corners document. In it says $100 dollars. Buyer seeks to show that Seller and he had orally agreed that he would receive a 3% discount if he paid early. If proffered evidence of the alleged oral agreement were admissible and proven, the term would read, “Price $100, less 3% discount for prepayment. -If defined narrowly, then the phrase “less 3% discount for prepayment is not part of the price term, but is an entirely separate term, a discount term. -If defined broadly, than the phrase “less 3% discount for prepayment is part of the payment term (buyers obligation to pay term) which could have several aspects. It could include such things as when the price term is to be paid, Where you send the money. How what kind of currency. But the one im really interested is if you pay in 10 days you get a discount of 3%. -Are these 5 small terms or 1 great big term w/ 5 aspects? These are 5 separate terms, defined narrowly. Or you could say this opposite and say its broadly. -Are we going to admit evidence that seller and buyer agreed to the discount.

-If you have a jury trial about admissibility, what does the judge do? Normally, jury sent out of the room. -Bench trials present troublesome problem b/c its 1 person an Parole Evidence rule, may not be admissible below blowing case. Atty. can make an offer of proof, which is then approved for appeal. Questions of law are for the judge only. In a bench trial it’s also questions of fact. -I wish to make an “offer of proof”. If you have been allowed to offer this, it should end up being on record.

4 Judicial Questions (Questions of Law for the Judge, Because these are issues of admissibility). 1st – final writing?2nd – contradicted/ explained or supplemented.3rd – consistent or add additional terms4th – compete and exclusive

§2-202. Final Written Expression: Parole or Extrinsic Evidence.Terms with respect to which the confirmatory memoranda or which are set forth in a writing intended by the

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of the parties agree parties as a final [1st] expression of their agreement, (final expression as opposed to negotiation, anything floating around papers before).

may not be contradicted [2nd] by i) Evidence of any prior agreement or (prior oral or written agreement) ii) Of a contemporaneous oral agreement (why would we allow in contemporaneous written agreements but contemporaneous oral agreements and prior written agreements are inadmissible? Written is better than Oral. Its contemporaneous vs. prior. Anything that is prior is considered part of the negotiation process and is inadmissible.)

But may be explained [2nd] or supplemented by [2nd]-What’s the difference b/w 1.) Contradicted (any prior agreement) or 2.)

Explained or supplemented. Contradicted may mean opposing views/terms/stances. Explained = clarified.

(a) By C/D or U/T (1-205) or by C/P (2-208); and

(b) by evidence of consistent additional terms [3rd] unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement [4th].{Integration/merger clause – careful lawyer will track the language of the 4th judicial question in any merger clause in order to exclude additional terms.} Final means as opposed to Neg. Excluding means excluding everything.

-Consistent Additional Terms means 1-201 (42). Is it “additional” to what is in the writing.

KM’s 3 options:1) If final, terms cannot be contradicted by i) and ii) but can be explained or supplemented by (a) and (b).2) If final, complete and exclusive, terms cannot be contradicted by i) and ii) but can be explained or supplemented by (a) and (b).

-If this, then writing alone is the contract.3) If confirmatory memoranda agree, terms cannot be contradicted by i) and ii) but can be explained or supplemented by (a) and (b).

Before the judge can invoke the Parol Evidence Rule, he must introduce the writing to the jury. If he then excludes oral evidence, he is, in effect, giving preference to written terms.He can exclude such evidence if:1) Finding of complete and exclusive.2) Finding of final and proffered evidence contradicts.

-“With respect to which the confirmatory memoranda of the parties agree” – means that a collection of writings like 2-207 (battle of the forms) or 2-201(2) (merchant exception).

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-“By evidence of any prior agreement or of a contemporaneous oral agreement” – oral and written prior agreements inadmissible. Contemporaneous oral agreements inadmissible, but contemporaneous written agreements are admissible (makes sense; they are part of confirmatory memoranda).

Comment 3 – often treated as part of the text by courts.If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact.

-this is an alternate analysis to the 4-step approach above. -courts often use this instead b/c it is easier.

Comment 2 – C/D, U/T, and C/P used to explain or supplement unless carefully negated.

express terms – can be written or oral but they are agreed to by the parties: 2-204 – 2-207.implied terms – do not appear: U/T, C/D, C/P, and gap fillers (in part 3).

§1-201(3) “Agreement” means the bargain of the parties in fact as found by language or other circumstances including C/D, U/T or C/P.

-seems to be an objective test.§1-201(11) “Contract” means the total legal obligation which results from the parties agreement.

-seems to be a subjective test.-means the same as “writing” in 2-202.

§1-201(42) “Term” means that portion of an agreement that relates to a particular matter.-if construed narrowly, then there is likely to be many terms in a given contract; thus, more evidence will be admissible in court.

-if construed narrowly, then there will be few terms and almost no admissible evidence.

-broad or narrow terms is a question of Law, therefore de novo review.

W/S §2-9. Basic Differences Between SOF and Parol Evidence Rule.Statute of Frauds Parol Evidence Rule-requires certain type of agreement to be in writing to be enforceable.

-no such requirement.

-no preference except quantity term in writing.

-gives preference to a writing in determining the terms of the agreement where there is both written and oral evidence presented.

-parties can satisfy without ever actually making a contract.

-presupposes that there is a contract and is concerned with determining what the terms are.

Hunt v. Doliner – to be inconsistent, the term must contradict or negate a term of the writing. A term or condition which has a lesser effect is admissible; 180º test.

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Snyder v. Herbert Greenbaum – inconsistent means the absence of reasonable harmony in terms of the language and respective obligations of the parties.

-Ill. uses this test.

[Class 10] Parole E vidence Rule: Hunt & Snyder: Illustrates difficulty w/ 202(b) problem. C/L parole evidence and UCC 202(b). Shows tension and conflict for reverence for “writing” (if it is in writing it is important) & parties subjective bargain in fact. Have to have an “agreement”, as opposed to a writing.

Hunt is rule, but Snyder is taking over. Both cases are likely to be brought up for the reasoning in either case. How would I decide this under 4 judicial questions analysis?

Hunt Case (matter of strategy by lawyers, apply Art ii or C/L)-What’s the “scope” issue? Is this a sale of goods? It’s a sale of investment in securities covered under Art 8, and there is no parole evidence rule in Art 8. -How do they go back to Art II then? -2-105 mechanism for getting back to Art 2 by analogy, for sale or investment securities. Their only other chance is “supplementary principles” under 1-103 (C/L). Issue: Whether option; oral condition precedent was a consistent additional term. Facts: P was buying assets of Eastern Can Co. in which D owned 73% of stock. Negotiation adjourned and P feared that D would seek an outside bidder. D claims that the oral option to buy his stocks was conditional in its terms and was to only be exercised by P if D sought an outside bidder. P contended that there was no condition and he exercised the option after the parties failed to reach an agreement. P moved for sum judgement for specific performance. Ct denied motion for Summ Judge b/c alleged oral condition precedent cant be precluded as a matter of law as factually impossible. Reasoning due to conversations in case, expectation of all the parties for further negotiations. Rule: to be inconsistent, the term must contradict or negate a term of writing. a. a term which has a lesser effect is provable, anything less than contradictory/inconsistent can be used to explain or supplement the written terms. b. proffered evidence is inadmissible only where the writing contradicts the existence of the claimed additional termc. it is not sufficient that the existence of the condition is implausible – it must be impossible. Discussion: The whole things falls apart, they can’t negotiate a deal. H was going around buying up a number of smaller food companies. What is the additional term? The option would not be… What was in writing on this issue? Restrictions or conditions on the exercise of the options Naked Option: There’s nothing their about the exercise of the option. It’s the term that you’re talking about. If you construe the term as being term as condition precedent, then it’s a separate term being offered.

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If you define the term narrowly, lots more evidence will come in.

Is it a condition precedent term and a separate term, Or is it one big K term? This is a separate term, and its also an Additional Term. So, now all you have to decide if the term is consistent. -How does the Ct defines consistent: contradicts or negates the writing. 180 degrees is opposite of 0.0. That would be inconsistent (contradiction). How much would fall b/w these two lines? How much will be the exact opposite? Very little. So the Hunt test is the 180-degree test, taker the proffered evidence and compare it to the term of the writing. Compare the 2, and are they 180 degrees opposite? Ct concludes that the evidence is admissible.

4 Judicial Questions – 1.) Do you think this was a final expression of their agreement b/w parties? Was not a final expression of the parties’ agreement b/c the negotiation was not over. **If you say a final expression of the agreement referring as to the exercise of the option, and he was possibly going to go out and solicit law firms, this was final. **If you say a final expression of the agreement by which the family sells all the shares of stock to Hunt foods, then its not final agreement.

Agreement as to the total sale – no.Agreement as to the option – yes (and therefore should be afforeded the protection under the parole evidence rule.

-2 Judicial Question, does oral agreements contradict? contradicted but may be explained or supplemented. It is as if they are merging the two together. The only evidence that will be admissible is that which is directly contradictory – 180 degrees test. Take proffered evidence – compare it (contemporaneous oral condition precedent to the option to buy) with the written terms (there was no option written).If you were to take contradicted by normal dictionary, would you have said the proffered evidence contradicted to the option in the writing? No, b/c nothing written about option K – so there can be no contradiction.

3rd Question: Is it “consistent additional term”? a.) Define term narrowly: (is the proffered evidence a “term”)

1.) One in writing is the option to buy2.) One in contemporaneous oral agreement – condition when option can be

exercised. b.) Is the contemporaneous oral agreement (the condition for option) additional to the terms of the writing (the naked option to buy)? (Is it consistent????)

1.) Nothing in writing on topic of the condition on which the option to buy can be exercised; so it is additional to the writing.

2.) If there is nothing in writing, then proffered evidence is consistent w/ nothing in the writing.

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4 Judicial Questions Merger Clause.

In justifying the reasoning of this Ct, one could rely on Comment 3 “alternative analysis of 2-202, in that if the parties would have agreed upon plus alleged contemporaneous agreement (AKA: a condition upon which the option would’ve been exercised) they certainly would have included it in the writing. -When you were applying the alternative analysis, do you think that this wasIf you were the judge, do you think this is the proper; If they have agreed upon it, they would have put it in writing. Hunt is the 180-degree test. It takes the proffered evidence & compares it with the written terms. If the proffered evidence is not 180 degree opposite of its writing, it is admissible.

Term defined is broadly defined thus a term that has a lesser effect is admissible.

Snyder Case (completely different viewpoint)Scope Issue: 1 of service (installation) and carpet but Ct holds that installation of the carpet was incidental; fall w/in the preview of Art II; Goods. -Do you think the Ct was right? Was it primarily a service K? if yes, then its under the C/L Restate law. Facts: D contracted w/ P to install carpeting in P’s apartments, contract mentioned consideration, but didn’t mention amount of the carpet. P rescinded K after D bought carpet claiming he had a right to rescind b/c D misrepresented, over-estimated amt of carpet and also tried to offer 5 prior K’s to show C/D that either party could unilaterally rescind the K. Ct held that no right to rescind b/c D’s estimation was an opinion, not fact, 5 documents are evidence of additional terms but are excluded b/c relying on Comment 3; K is complete & exclusive – it is a term that would have been in final agreement b/c D had to take preparatory steps of buying carpet, & inconsistent b/c being able to unilaterally rescind is not reasonably harmonious. The Rejected the Hunt Test.

What is the evidence proffered to show you can have unilateral cancellation? The have dealt w/ each other 5 times before. They had writing, and they had been unilaterally canceling w/out it anywhere in the K. This was course of dealing. Lawyer said he was putting in their documents, if you have nothing in the writing then the meaning in the words of the writing can be explained and supplemented by the 5 prior documents. He’s putting the documents in to show the course of action. Ct said this is not a course of dealing. This is a writing. -What would have happened if the Ct said this is a course of dealing? It would be under 2-202(a). -Why would lawyer want this under course of dealing? The conventional wisdom there is that a merger clause applied only to additional terms. It does not apply to anything in sub (a). I’ll bring it in under sub (A) and the merger clause wont be a problem here. Ct said no, you will argue it under sub (b) , consistent additional term. -the narrow holding of the case is based on the “merger clause”. (whether the merger clause in the K is considered to be sufficient to eliminate consistent additional terms)

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Under the 2nd and 3rd judicial question,-Ct says the additional terms were SNYDER TEST was a “reasonable harmony test”. Compare proffered evidence w/ the written terms and the respected obligations of the parties. (you are also comparing the terms – don’t forget this part)-What are the respected obligations of the parties? Good Faith, and 2-202(a), C/d, c/p, and u/t, gap fillers. -Subsequent Cases follow Snyder. But, Hunt is followed. More often.

P wants to avoid 2-202(b), unlike here, the was a merger clause in Snyder.

Supp materials says Merger can eliminate C/D, C/P, & U/T.

[11] Hierarchy of C/D, U/T, and C/PIn a K, we talk about express terms which could be written or oral. 2-202(b), is expressed oral, while 2-202(a) is expressed written.

Hierarchy under Article 2:1.) “express terms” – oral and written under 2-202(b). Difference is how they become part of the agreement. Once they b/c part of the agreement, they are admissible as facts, just as surely as if they had been written. So, have to go

Implied terms hierarchy: The most probative, (highest on the pole)? 2.) C/P – these parties and this agreement. (2-208 – moved over to 1-205) This is estoppel by conduct. There conduct at the time they operated under their agreements. 3.) C/D – these parties and prior agreements. (1-205(4)). How they operated in

the past. (i.e. Snyder’s 5 previous Ks)4.) U/T – these and “other” parties; this and other agreements. Ct looks at all other parties and all deals. ***If you get past #4, then you look to;5.) (rare) gap fillers/open term provisions – “implied terms”; in general, involve a reasonable something.

Hunt is our big 2-202(b) case. Unless the proffered evidence is 180 opposite of the writing, the evidence will be admissible. The chances are pretty good that if the evidence is admissible, it will then and can be construed as part of the agreement. Columbia did the same thing in that they made C/P C/d and u/t are admissible.

Columbia v. RoysterWho is Buyer? Columbia (Appellant)Who is Seller? Royster (Appealee)Who is P in original case? Royster Who is D in the original case? Columbia. There was a fixed price for a minimum amount – 3 yr. K. There was an increase and a decrease clause (to adjust the price)

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Columbia has 2 problems on appeal.: 1.) They alleged Trial Ct error; certain exclusion of evidence in support of C/D and U/T. 2.) The C/P was an issue at the Trial Level. The judge admitted the evidence of C/P, so that is not an Issue, but This judge denied admission of C/D and U/T. Why would a judge allow C/P but deny C/D and U/T? Because C/P deals w/ express terms and “this deal”. When you see C/P, you might think of the term “Estoppel by Conduct”. Conduct is very important in agreement. It occurs after a party has entered into an agreement.

What was the U/T that Columbia sought to introduce? Need to get past the first and second judicial questions. Is this a final expression of the parties agreement? Yes. It is. May not be contradicted but explained and supplemented. This means look at C/P, C/D and U/T. So, then your looking at the writing. Which had some weird stuff. Express Terms were Escalation/De-escalation Clause: Base Price, Escalation, Min Tonnage, Delivery Schedules-Some commentators think the evidence of the U/T directly contradicted what was in the writing. Do you agree? No. Because its not directly contradicted, 180 degrees opposite, so its not contradicted. -Apparently, this is a standard written K in this industry. What is this industry? Mixed fertilizer. -What does this odd written price & quality term mean? (see footnote). The government practices-You have a system says the Witness who says the K in our industry “K’s aren’t worth the paper they’re printed on.” Parties have to reduce K to writing to comply with the Statute of Frauds. -What was the C/D Columbia sought to introduce? It was Royster buying Nitrogen from Columbia.Now, its fertilizer. C/D changed roles here. Does that make a difference here? If your litigating and representing Columbia, it would because it In the previous 6 years, when they were buying fertilizer, Royster got the lower price. Why would you be thrilled that they changed roles? For 6 years I gave them the benefits. This is what everybody does in the industry. And for the very first time I ask for the same break, Royster says No. What did the Ct say about the Merger Clause? (Royster says this prevents showing C/D, U/T) Ct said this does not violate C/D or U/T because it does not they were not trying to add additional terms Is the No verbal understanding clause, good? It was not. Look at definitions of conduct. Would the no verbal understanding clause, would that have prevented the introduction of evidence under 2-202(b)? No, b/c it wasn’t drafted as 2-202(b), It would have to be more

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precise. There was no additional terms. Needed to look like something from the form books, which it does not. Why is that particular clause (no Verba understanding clause) hanging around in the 1960’s? This is pre-code law. (When you get code coming through, people need to revise/change their basic forms).

Which forms might exclude 2-202(b). If you were looking at Hunt, or Snyder. Which forms would you use to exclude evidence for consistent terms under 2-202(b). (C/P, C/D, U/T)Form #2. (bottom pg 112). It tracks the language exactly, the language of Judicial Question #1. -then go down to the 4th judicial question, complete and exclusive statement. (nail down 1st and 4th judicial question by tracking the language of the statute as closely as you can, Use the word writing, agreement, firm).

-What about using Form Books? Don’t rely on them. Read them over, and change them according to how you need to. C/D and U/T exp. (pg. 110)Which one do you like? Form 1. Shall be relevant or supplemented or explained. It mentions C/D, U/T and also supplemented or explained. You are piggy backing onto the merger clause. Pick up the language from the second judicial question.

C/P Exp (pg. 111) (2-202(b) is one category). What’s so difference about exclusion of C/P? That actual dealing therefore, actions speak louder than words so they should rely on their actions.

Can you exclude C/P by a writing? Depends. “Authors Commentary” says maybe you can. b/c appears after the writing is drafted so you don’t know what the performance will be.“Columbia v. Royster” says maybe you can’t exclude C/P. It comes in as estoppel by conduct. ***This type of action, C/P is the only kind which arises after the parties commit themselves to a writing, or time entered into the K. That means as you are drafting the writing, you may know what your prior C/D is (ask your client), you might also know your U/T, but you “will not” know the future. That’s the difficulty you face. Do you think it is wise (possible or not) to exclude C/P? No. Because you may hurt yourself. You cannot put in a CP clause that says Seller can use C/P but Buyer cannot. You may be the one needing it and wont know it b/c it will be in the future.

Biblical Reference: “those that live by the sword shall die by the sword.” Macbeth Reference:

§1-205. Course of Dealing and Usage of Trade.(1) C/D – sequence of previous conduct which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

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(2) U/T – practice or method having such regularity of observance in place, vocation, or trade as to justify expectation that it will be observed in given transaction. Existence and scope of U/T are proved as facts.(3) C/D and U/T (of which they should be aware) give meaning to, supplement, or qualify terms of agreement.(4) express terms and C/D and U/T shall be construed as consistent whenever reasonable. When construction unreasonable, express terms control C/D and C/D controls U/T.(5) U/T applicable where any performance is to occur is used to interpret that part of performance.(6) evidence of U/T not admissible unless and until notice given to other party to prevent unfair surprise.

§2-208. Course of Performance or Practical Construction.(1) where K calls for repeated occasions of performance with knowledge of nature of performance and opportunity to object, any C/P accepted or acquiesced in is relevant to determine meaning of agreement.(2) express terms and C/P (as well as any C/D and U/T) shall be construed as consistent whenever reasonable. When construction unreasonable, express terms control C/P and C/P controls C/D and U/T.(3) subject to 2-209 (modification and waiver) C/P shall be relevant to show a waiver or modification of any terms inconsistent with C/P.

§2-202, comment 2 – C/D, U/T, and C/P used to explain or supplement unless carefully negated.

U/T – problem with U/T is whether the party knew of it was aware of it; constructive knowledge.

-only needs to be observed so regularly that it justifies “an expectation...”-7th Circuit used objective test with constructive knowledge.

C/D – how many dealings it takes to make a course.

C/P – often called “modification by conduct” since it occurs after agreement.-courts find that absence of conduct is C/P as in failing to enforce provision.

Merger clause - attempt to prevent additional terms, contradictory and inconsistent terms, U/T and C/D from changing the terms of a writing.

-try to address the judicial questions from Parol Evidence Rule.C/P is difficult to exclude b/c it is conduct that gives rise to estoppel.

Modification – 2-209 – good faith is our policing mechanism. We no longer require new consideration.

No Oral modification - unless a deal between 2 merchants – that requires that the other part get another signature. NOM clauses are regular.

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[12] Open Terms Provisions (Gap Fillers) – in general, involve a reasonable something.2-204(3) & 2-207(3)

Intent Hierarchy: express terms (written or oral)(consistent additional terms are considered express terms) then C/P (implied term in sub a) then C/D (conduct from sub a) then U/T (happens in the party’s trade). Hunt Case (1963) allowed in liberal open terms provision.

Note: Gap fillers give an enormous leniency (power) whose position is to employ the gap fillers.

Usually states as “Unless otherwise agreed…” Default terms. In default of the parties making an agreement to the contrary. You don’t go to the substance of the gap fillers until you go through CD, CP or UT. Exercises (2-309(1)). (Reasonable time)When during the course of the K must the seller make delivery? 2-309(1). Read the Art. The time of shipment, not defined in the Art shall be at a reasonable time. Comment 1 says “w/in” a reasonable time.-If you say w/in a reasonable time, any point up to the extreme is O.K b/c its w/in.

#9 (pg. 114) When during the day may the seller deliver? That is the buyers reasonable time. At pre-code law, buyer is in receiving room. Sellers trucks comes up at 4 in afternoon, and says we demand payment (nothing was said, and he also demands cash). Buyer would say “O my god, I don’t have cash. It is 4 o’clock.” Problem is banks close early (3 o’clock).

Quantity Term and the Price Term is more Important2-306, this is not an open quantity term. The code will not fill in the quantity. If you leave ther quantity term blank you will fail the statute of frauds. You can fill that with C, CP, UT/

2-306(1) – output and requirement contracts (more difficult)2-306(2) - exclusive dealings – has a contract term. They are valid, but are they intelligent?

Cts employ G/F requirement to make seller deliver goods at a “reasonable time” (not super speedy). Cts try to obviate forced breaches. Wood v. Lucy, Lady Duff GordonImplied requirement that Wood use his best efforts to sell Lucy’s design. A good faith requirement. This was in fact a K with a quantity term. Mutuality of obligation existed, therefore both parties bound by use of Best Efforts to bring & promote revenues for marketing of clothing designs. Buyer = To promote sale

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Seller = To supply the goodsHow could have Lucy proved he was not using his best efforts? See Floresheim Problem.

The Florsheim Problem (pg. 124) (exam essay)Nobody was buying any of the Floresheim shoe. Floresheim can use no agent to sell its shoes in Podunk, IL but Sam’s Shoe Store. What’s the 1st thing you do? See if their advertising. Then, go to the retail store. See if the shoe is in the window. After you check that out, ask for shoe size of a product (don’t say shoe brand, see if he brings out Floresheim). If he doesn’t, say, Do you have any Floresheim? Question is the guy using his best efforts to sell the shoes. Rule: there’s a significant duty to use best efforts and good faith in exclusive dealing K’s.

OUTPUT / REQUIREMENTS CONTRACT2-306“Output K’s ” & “Requirements K’s ” and Exclusive Dealings. Outputs K’s in farms, Requirements were in other places. Normally, Requirements were far more seen then Output K. Output and Requirement K’s are very dangerous, although there is a good faith requirement, it has a separate requirement, no amount unreasonably disproportionate. Not an open quantity term, cannot have an open term in order to satisfy the statute of frauds but 2-206 tells us what an open quantity term was/is. 2-306(2) (re: again, this is not an open term quantity) 2 “Separate” Requirements must be met.

1.) No amount unreasonable, disproportionate; and 2.) Good faith.

The Leading Case in this area is (big case):

***O& R Utilities v. Amerada Hess (Oil and Gas increased substantially)Many people projected the future of their company on oil and gas and the energy cost raised high. Supplies said I cannot continue to support you at the current K price. Illustrates why you don’t want true requirements K’s very dangerous.

5 factors in determining “unreasonable disproportionate” or good faith in requirements K’s. Fact dependant standard. Here the court held that the K was unreasonable disproportionate as a matter of law.

1.) amount by which requirements exceed K estimate;2.) whether the seller had any reasonable basis which to forecast or anticipate

requested increase;3.) amount if any by which the market price of goods in question exceeds the K price4.) whether the increase in market price was fortuitous5.) the reason for increase in requirements

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Even though the H is a matter of law, it is still fact-based and determined on a case by case analysis.

What was Orange doing w/ all the gas? They were selling the gas at a lower price. They were putting themselves in competition w/ Amarda Hess. They were the grand suppliers. They should of known this would be a good faith set up?

The Apple Sauce Problem (pg. 122). Where you surprised by an order for 250 apples? (usually 50, now he wants 250) Sudden Increase! Its also not reasonably foreseeable. 2 Factors in Determining “increase or decrease” in D circumstances & enforceability of output K’s1.)sudden v. normal increase in demand, and;2.) reasonable foreseeabilityThis is a fact determination. -What if the buyer tells the seller that “I plan on becoming huge in Lincoln Park area selling organic apples. I want you to grow along with me 6 months ago” Then what, is that a surprise? No. He should have let the buyer know that the seller could not have come up with 250 bushels of apples. What is the buyers options? Can he buy himself elsewhere? Sellers response is that was not in good faith, and unreasonable amount in

Ct comes in and does Reformation of K. Ct rewrites the K. Seller, how many can you deliver? 150? OK. Buyer, then you are required to buy 150 from Seller, and you are free to go elsewhere. The Ct basically tell the parties how much they have to take, then tell them they are free to go elsewhere. If they parties had put in something like “No more than 150 bushels,” they would have realized that the buyer should not even have begun to do business.

Question #1: Do you always sell tomatoes. How long have you been doing business. That would determine if your merchant. C/P and C/D. What was the current price of the tomatoes. (trying to find out if the price is Unreasonable)Was it a reasonable price at the time of delivery.

§2-204. Formation in General(3) even though one or more terms are open, a K does not fail for indefiniteness if the parties intended to make a K and there is a reasonably certain basis for giving an appropriate remedy.-2 reqs: i) intent to K, ii) reasonably certain basis.

-loosening of strict term requirements of C/L began with Cardozo.

-If C/P, C/D, and U/T are not available to determine parties’ intent, court resorts to gap fillers.

§2-307. Delivery in Single Lot or Several Lots.

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§2-308. Absence of Specified Place for Delivery.§2-309. Absence of Specific Time Provisions; Notice of Termination.§2-310. Open Time for Payment or Running of Credit; Authority to Ship on Reservation.§2-311. Options and Cooperation Respecting Performance.§2-503. Manner of Seller’s Tender of Delivery.§2-511. Tender of Payment by Buyer; Payment by Check.

The Quantity Term – Exclusive Dealings Contracts-Two most important terms in any contract are quantity and price.§2-306. Output, Requirements and Exclusive Dealings.(1) term which measures output means actual output or requirements in G/F; except that no quantity unreasonably disproportionate to estimate or prior output.(2) exclusive dealings agreement imposes, unless otherwise agreed, an obligation by the seller to use best efforts to supply the goods and by buyer to use best efforts to promote their sale.

Comment 2 lists examples of acceptable and unacceptable reasons for increasing or decreasing the quantity tendered or required.-Two concepts here:i) G/F; and ii) commercial reasonableness.

-Five factors from Orange & Rockland (relate to 2 concepts):1) amount by which requirements exceeded the K estimate.2) whether seller had reasonable basis to forecast or anticipate the request.3) does market price exceed contract price.4) was any increase in market price was itself fortuitous.5) the reason for the increase in requirements.

-This is not an open quantity term. The Code sees these contracts as having a quantity term b/c of C/P, C/D, or U/T can fill.-Court can fill in price with reasonable/market price but can’t find reasonable quantity.-Exclusive dealings these days are franchises.-Floor/ceiling contracts are much safer than output/requirements.

The Price Term §2-304. Price Payable in Money, Goods, Realty or Otherwise.§2-305. Open Price Term.(1) If the price is not settled it is a reasonable price at the time for delivery if

(a) nothing is said as to price; or(b) price is left to be agreed by the parties and they fail to agree; or(c) price is to be fixed in terms of an agreed standard, 3rd, person or agency and it

is not set.

(2) price to be fixed by either party means fixed in G/F.-note that merchants are held to a higher standard.

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(3) when price fails to be fixed through the fault of one party, the other party may treat the contract as cancelled or himself fix a reasonable price.(4) where parties intend to not be bound without a price and there is none, there is no contract. Buyer then must return goods or pay reasonable price and seller must return any portion of payment.

Modification (herein also of waiver and estoppel)Many people change their minds during the K formation. What the code does in 2-209(1), is the only enforcement requirement needed is Good Faith. Merchant good faith in the case of a merchant, and non-merchant good faith in the case of a non-merchant.

§2-209. Modification, Rescission and Waiver. (1) agreement modifying needs no consideration to be binding.(2) a signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.-only time the form must be separately signed is when the supplier of the form is a merchant and the other party is not a merchant.

(3) the SOF must be satisfied in the contract as modified is within its provisions.-NOM (no oral modification of K problem) clause is debate between transactional

and litigators.(4) although attempt to modify or rescind does not comply with (2) or (3) it can be a waiver.(5) party who has made a waiver with respect to an executory portion of the contract may retract waiver and require strict performance by reasonable notification unless the retraction would be unjust b/c of material change of position in reliance on the waiver.

-waiver (C/L concept) and estoppel (equitable concept).-they come in as part of 1-103 but also have a statutory basis here.

International Trade LawInternational Commercial K (CISG)UN Convention or Vienna Convention. Voluntarily entered into a sale of goods agreement. Scope: a matter of sale of goods and predominant feature test. Some countries have adopted it as internal law in their countries. In the U.S., this is a treaty, law of the land. If there is a diversity amount b/w transaction say b/w Ill seller or Canadian Buyer, of 75,000. Does Fed Question doctrine expand that far? It seems to be a fed question that the Fed law will address. The treaty itself leaves open certain provisions of the K. It leaves open validity of K.-CISG says validity of K to the domestic law of each country. (we have a state based sale law)

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At this point, if this were diversity jurisdiction, we would use the substantive law of this state, here, its (ILL). Which law governs? (Toronto or ILL) It becomes a race to the Ct house. Under CISG, parties may opt out of the CISG. (lawyers are responsible for this).

Small countries have a much more incentive for the intercontinental commercial code.

CISG international, commercial, and is not limited to sale of goods. It includes services as well.

-Eastinghouse Problem (SEE CISG in your STATUTE book. 52 Fed.Reg.6262 (1987). In view of the CISG, assume both are merchants. See Art 19 & 18. What does sub (1) do? A revise to an offer is a rejection and a counter offer. A deviation looks like a counter offer. What does sub (2) do? If your reply appears to be an acceptance of an additional term, and it doesn’t materially alter the terms of the K, its O.K. It becomes part of the offer unless the offeror objects. What does this do to Eastinghouse? Are they coming back w/ a pure counter offer? Who’s law will govern? CISG does not touch that particular issue. Sub (3) tells us what a “material alteration” is. Disclaimer of merchantability is almost certainly going to be a material alteration. What do we do if it is a material alteration? Sub (1) is a general rule that says this is a counter offer. Under 19(1), we have a counter offer, and now have to see how the This is similar to 2-207. ***In International Trade, most people settle. They are professionals in the business; they are merchants. If a case is reported in another language than English, it gets translated into English.

[14][15] Documentary Transactions and Letters of Credit – the Buyer’s obligation to pay.

The Buyer has “two” principal obligations under Article 2: 2) accept conforming goods to the K; and1) to pay the contract price.

-2-301 – delivery and payment are concurrent obligations.Buyer can pay by cash, or by an instrument. Today, lots of people say you should pay by credit card. It’s a letter of credit. Why does the person ask you what is your credit card #? Because people want a letter of credit. Why might a person NOT want a letter of credit? It costs more. They charge you more.

Infrastructure: §1-201(15) “Document of title” includes bill of lading, dock receipt, warehouse receipt or order for the delivery of goods, and any other which is evidence that the holder is entitled to receive, hold and dispose of the goods. To be a document of title, it must purport to be

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issued by the bailee to cover goods in bailee’s possession (either identified or fungible portions).

§3-104. Negotiable Instrument – an unconditional promise to pay a fixed amount of money.“Draft” – check, money order, etc.

Documentary transaction – designed to minimize the risk that the buyer cannot or will not pay after the seller has already shipped the goods. Signaled by a term of the K (buyers obligation to pay).

-as long as the banking institutions are trustworthy, the risk of non-payment is low.“cash against documents” / “sight draft against bill of lading” indicate documentary transaction.

1.) Draft - embodies the right to receive payment. It’s a negotiable instrument. I am drawer, draw upon drawee is a bank. Seller wants to get his hands on the draft. 2.) Bills of Lading – embodies the right to have possession of the goods. It’s a document of title. 3.) Invoice – a bill from the seller to the buyer. Please pay this amount.

Skeleton of documentary transaction:

Seller’s Bank ---------------------------------------- Buyer’s Bank| || |

Seller -----(goods)--------- Carrier -----(goods)--------- Buyer

Draft, should begin w/ the Seller. Seller procures the goods and takes them to the Carrier. or1. Carrier picks up good from Seller; each gets copy of B/L (It’s a nonnegotiable bill of lading, S’s is negotiable; Carrier’s in not). Bill of lading is proof that Carrier should have that box, that its not stolen goods. 2. Seller takes neg. B/L to his bank which is either a:

collecting bank – gets commission based on K price (it just collects money); ordiscounting bank – gives S K price on the spot less a discount.

3. Seller’s Bank transmits documents (B/L and now draft) to Buyer’s bank.4. Buyer’s Bank debits Buyer’s bank account and gives Buyer B/L and draft.5. Carrier arrives with goods and Buyer present B/L.6. Buyer’s bank sends $ to Seller’s bank while this goes on.

Why would Seller want the $ discounted? Because if the Buyer goes Bankrupt, or a disaster occurs, the Seller is out of the transaction. And who bears the risk? Buyer. Why does the buyer need bill of lading? Pick up the items that he purchased. Bill of lading is for Goods. Why does the buyer keep the draft? To show that he paid for the goods. It’s the equivalent to a cancelled check.

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Letters of Credit: a promise by a bank or other issuer that it will honor on behalf of some of its customers demands of payment as per compliance and specific conditions. They guard against risk of insolvency & uncertainty in delivery & settlement due to Market fluctuate over time. SEE 5-103. Letter of Credit is C/L. – reinforced documentary transaction.

-managers of rock stars and boxers insist on them.-L/C is an undertaking separate from the sales K; only promise is that of the bank.

-without L/C, transactions involved: open credit (bad for seller) or pay in advance (bad for buyer).-now, seller no longer has to worry about the buyer going bankrupt; only concern is whether the issuer will honor the documents properly.

Skeleton of “Reinforced Documentary Transaction”:

Seller’s Bank (advising or confirming bank) ------ Buyer’s Bank (issuer)|

| documents (letter of credit, etc)|

|Seller (beneficiary) ------------- Carrier ------------- Buyer (customer/account party)

1. Buyer applies to Buyer’s bank for a letter of credit naming Seller as beneficiary.-note sanitary and agricultural laws if shipping good internationally.-also note industry certified inspector that buyer will have inspect goods.

2. Seller contracts with Seller’s bank. 3. Before goods arrive, Seller directs his bank to present the documents to issuer.4. Issuer has 3 business days after presentation to decide whether to honor or dishonor.

-if documents conform to the L/C, it must honor them.-note that the Seller must present documents at least 3 days before the expiry on

the L/C.-strategy used here b/c of exchange rate.

5. Upon honoring, issuer pays Seller and debit’s Buyer’s account.6. Buyer receives B/L to get goods when they are delivered.***Letter of credit will indicate which documents are part of the transaction. Always of Bill of Lading, always a Draft, and now always an invoice. You may also put in other documents. If the documents are not in the letter of credit, your stuck w/ what you said in the letter of credit. Primarily liable. If the day afterwards, the Buyer goes bankrupt, will the Seller get his $? Yes.

Independence Principle: The document is to be considered separate from the underlying sales transactions. Everything depends on what the documents say. If the documents say what the letter of credit says it does, it conforms.

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Revocable Letter of Credit: (Today this is non-issue) (L/C law in article 5 and UCP – ICC - Chamber of Commerce).§5-106(a) – L/C now presumed to be irrevocable.§5-108(a) – strict compliance standard for issuer honoring documents.

-L – courts that use substantial compliance are inviting forgeries.-courts are split as to whether C/D, C/P, and U/T are any value in interpreting L/C.-L/C are of great importance in international business transactions – the International Chamber of Commerce maintains a list of banks that are “not of good international repute.”

Strict compliance & 3 exceptions: 1.) Good Faith 2.) de minimus (spelling errors) 3.) U/T Dishonor Documents: buyers love this, because now they are in the seat. Sometimes Seller makes bad mistakes that are non-curable. Exp. Seller is required to manufacture the goods, and have industry trade inspect the goods. They allow the experts come in and check it out. Supposing the document doesn’t show the time it was inspected. Buyer sees it. It may mean that Seller forgot to put it in, or that the seller is forging something.

standby letter of credit – reverse of an ordinary L/C. Here the buyer is the beneficiary and the seller is the customer.-designed to give buyer some guarantee of performance b/c what if goods he gets are non-conforming.

-payment conditioned on receipt of inspection certificate by trade inspector.

back-to-back letters of credit – as a financing device; beneficiary can put the anticipated payment he will receive (clearly, it is an asset) up as collateral for a new L/C transaction.

[16] Seller’s Obligation to Tender Delivery of Goods That Conform to the Contract

Inspection2-513

Cure Rejection2-508 2-602 – 2-605

Acceptance2-606; 2-607

Revocation2-608

Buyer’s Right to Inspect the Goods and to Reject Non-Conforming Goods

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2 things you have to know; There is a difference in the standard of conformity; Depends on:1.) Single Shot Contract : Perfect Tender Rule. (Buyer wants this) Goods must conform to the K in every single respect 2-601. U/T help to ameliorate the stict aspect of this b/c the question becomes in this trate – would that be accepted?2.) Installment Contract: Substantial PerformanceWho want’s the substantial performance rule? The Seller. But it depends on which type of K. -Rule of Reason; Reasonably opportunity & time; Reasonable time to accept, and reject. -The only thing that might deter the Seller is that he will have to pay damages to Buyer. So, Seller will try to find away to get out w/out paying Buyer. (Exp. Market Value Rises) If Market Value plunges, then the Buyer wants out. Anytime the Market Price goes down, and the buyer starts nit picking,-Good Faith is used as a means of regulating the power of the buyer to decide whether he can reject the goods. -Standard of Review for an Issue on Appeal of a Question of Fact; Clearly Erroneous, Against the manifest weight of evidence; No reasonable jury could have came to that fact.

Alco Western Problem (pg. 157) (Inspection & Rejection)Is this an installment K or a single shot K? Installment K b/c according to the definition, under 2-612, it’s a delivery of goods and according to the case, it has to be accepted and according to the problem, they agree and understand. Why is there a little line in there about “the parties hereby agree and understand that each delivery constitutes separate contact in itself. Who wants that in? Buyer. Who wants the perfect tender rule? The Buyer. ***Payment system is completely separate here. The delivery of the 1st installment causes problems right off the bat, what happens? 1st delivery is 960 units of 1000 units. That turns out to be 96%. *Was a substantial performance/was is adequate deliver or not? Yes. If you say yes, then the only thing the buyer can do is call up the seller and say, I’ll take what I got, but I need more. – buyer cant reject b/c buyer can ask seller to ship him the other 40 units.

Suppose you say this is “not” a substantial performance, does that automatically mean the buyer can reject? If not a substantial performance 2-612(2) – buyer can’t reject? Can Seller cure it? Probably. 2 Issues1.) Buyer can only reject non-conformity if substantially impairs value of the K as a whole and can’t be cured. 2.) Substantial Impairment of K Issue: 2-612(3)

i. Course of dealing issue – the seller has in the past given shortages, but eventually made it up

ii. Market prices going down – issue of bad faith.

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What do you think the usage of trade is? All the buyers understand they have to give the seller an opportunity to make it up. Are both of the parties financial sound? Yes. That means that they probably could fix the problem. Where’s the market price going? Falling. Brings up the issue of Good Faith. What is the answer? We don’t know. This is a fact question. The statutory issues are pretty clear. The decisions give us some guidance, but no clear cut answer.

MasterCraft –ACR Problem (pg. 157)Supposed to be sending 500 consols. In the 1st, they send 495. a.) Single K, Is this a Perfect Tender, NO., May RejectInstallment K, yes, Substantial Performance 99% conformity, may not reject, can call and ask for other 5 cabinets. Can buyer reject? No. b.) Single K, not perfect tender, may reject. Installment 98% conformity, substantial performance, 10 other model’s, want to know what type of wood it is, can buyer use it. Not perfect tender, but is it substantial performance? Yes, its 98%.Would you want to know what other type of wood is used.? Yes. What if the 10 pieces of wood is better. Well, he needs a specific type of wood needed for TV consols. c.) Single K may reject installment, 1 day late, need to know buyers schedule, is time of the essence? Yes. (tremendous advantage for the buyer). Even if it is presumed to be of the essence, its still one day late, then they may be getting ready to ship the TV’s somewhere. What if it doesn’t make a difference? De minimus; usage of trade, good faithd.) -What if two arrive slightly scratched? Is this de minimus? Single K, look at circumstances, generally U/T, i.e., retail the buyer would take and use as floor models installment – may not reject. 498 w/ no scratches, and 2 with scratches. What can the buyer do? Can he accept those that are conforming and reject those that are non-conforming? Yes. Is it 1 commercial unit, or is it 500 single commercial units? Its going to be sold one at a time. Jelly beans exp. they are sold in a jar. But they are not 500 commercial unit. (its about how you buy it). It’s a fact question which means usage of trade is important. e.) Issue of partial acceptance, partial rejection and commercial unit.

Mechanics of Rejection; Speedy Notice (pg. 158)3 requirements regarding rejection. 1.) seasonably – within a reasonable time - speedy 2.) notice has to tell the seller what’s wrong (and what’s wrong may be the symptom). 3.) Duty of Care for the machine (goods) and the buyer has a duty not to perform any acts of inconsistent with his claim of the Seller’s ownership.

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If, in order to care for the goods that you have to use to a certain extent (a horse – clearly, you have to feed and water the horse until they are able to pick it up). There is an argument that if you get on the horse to exercise it – that you have used it. Approach with common sense.

I. Issues: Speedy notice goes to the issue to a reasonable time to reject.

2-602 Manner & Effect of Rightful Rejection(1) Rejection of goods must be w/in a reasonable time after their delivery and tender. It is ineffective unless the buyer seasonably notifies the seller.

Schneider Case, (pg. 159). plaintiff buying horse not a merchant and breach could not be discovered by casual inspection therefore, 6 months not unreasonably long to give notice of rejection.When did the buyer get the horse? Nov 9th, 1962. When does buyer discover defect? May 20th. Sent notification on May 27. Do you think the period of several months was a reasonable time to inspect? In the Winter, the race horse is exercised a little in the barn. What was the defect in the horse? Splint bone in the horse? -Why is it defective in a race horse? It can’t run. They shoot horses with serious problems. -Was that a reasonable time for rejection b/w Nov. and May? Yes. -reasonable time to inspect & reasonable time to reject. 7 days was reasonable for notification. Buyer was a non-merchant. Ct said splint was a latent defect. Question of fact - -Ct Holding: “We will not say this was an unreasonable time period.” Rule: Issue of time whether it was seasonable is a question of fact for the jury. a. Standard for review on appeal for a question of fact is against the manifest weight of evidence, clearly erroneous, or for jury decision-no reasonable jury.

1.) buyer only has a reasonable time to inspect and to give notice to seller that goods are defective. 2.) 1-204(2) of the 1959 UCC provides: what is a reasonable time for taking any action depends on the nature purpose and circumstances of each action. 3.) Comment to 2-607: time of notification is to be determined by applying commercial standards to a merchant buyer whereas retail consumer are judged by different standards. 4.) What is reasonable time is a question of fact for jury. 5.) 2 Variables for reasonable time:

a.) the nature of the buyer (merchant v. non-merchant-amateur) & b.) nature of the defect (patent v. latent).

Merchant Buyer Non Merchant BuyerPatent (easily discoverable) shortest time (Necho)DefectLatent (takes time to see)

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Defect_____________________________________________longest time (Schneider)_________

The Real issue here is one of expertise. This is a finding of fact. SEE BELOW to class 17

§2-513. Buyer’s Right to Inspection of Goods.(1) buyer has a right before payment and before acceptance to inspect at any reasonable place and time and in any reasonable manner.(2) expenses of inspection borne by buyer but can recover if reject non-conforming.(3) unless otherwise agreed, buyer not entitled to inspect if

(a) C.O.D.; or(b) payment against documents of title.

(4) place or method of inspection presumed exclusive but other stuff.

§2-601. Buyer’s Rights on Improper Delivery.Subject to breach in installment K’s (2-612) and unless otherwise agreed under contractual limitations of remedy (2-718; 2-719), if the tender fails in any respect to conform to the contract, the buyer may

(a) reject the whole; or(b) accept the whole; or(c) accept any commercial unit(s) and reject the rest.

§2-602. Manner and Effect of Rightful Rejection.(1) rejection must be within reasonable time after tender and is ineffective unless buyer seasonably notifies seller.(2) subject to 2-603 and 2-604

(a) after rejection, any exercise of ownership by the buyer is wrongful against seller; and(b) if buyer has, before rejection, taken possession in which he has no security interest (2-711(3)), he has a duty to hold them with reasonable care for a time sufficient for seller to remove them.

(c) buyer has no further obligations with regard to goods rightfully rejected.(3) seller’s rights with respect to goods wrongfully rejected are in 2-703.-if buyer fails to make an effective rejection, he has accepted the goods.-three concerns on whether rejection was effective:

1. what is reasonable time for inspection and rejection?2. what result from timely but incomplete notice?3. what does buyer do with the goods?

§2-612. “Installment Contract”; Breach.(1) delivery of goods in separate lots to be separately accepted even though K contains clause “each delivery is a separate contract.”(2) buyer may reject any installment if non-conformity substantially impairs the value of that installment and cannot be cured or if documents defective; but if not (3) and seller gives adequate assurance of its cure, buyer must accept that installment.

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(3) whenever non-conformity of installment substantially impairs the value of the whole K, there is a breach of the whole. But aggrieved party reinstates if accepts non-conforming installment without seasonable notification of cancellation or brings action for past or future installments.

Necho Coal – nine months unreasonably long to give notice of rejection for spare parts for mining equipment where buyer was a merchant and defect was patent.***Go through each of these 6 questions on the exam to let her know what happens if the answer to each is yes or no.

1. what were the precise goods to be delivered?-cannot know if they conform unless know terms of the K.-C/P, C/D, and U/T all help define terms.

2. single-shot or installment contract?-perfect tender or substantial performance and seller has right to cure.

3. patent or latent defect?-jury question.

4. if installment, will inspection of one unit be constructive inspection of all units?5. what is reasonable time for inspection?

-reasonable in light of the type of goods involved.6. what is the market price of these goods doing?

-has bearing on the G/F obligation.

[17] Content of Notice; Buyer’s Rights and Duties Regarding Rejected GoodsSee Mechanics of Rejection Sec I above.

The Content of Notice; buyer’s right and duties regarding rejected goods. (pg. 162)2-605 Waiver of Buyer’s Objections by Failure to Particularize. II. 2nd Issue discussed is: seller will say, send speedy or specificity. The minute the buyer says there is something wrong with my machine, the seller will jump up and read 2-605(a). §2-605. Waiver of Buyer’s Objections by Failure to Particularize.(1) buyer must state particular defect that is ascertainable be reasonable inspection or he is precluded from using that defect to establish breach

(a) where the seller could have cured if stated seasonably; or(b) between merchants when seller has requested in writing a full and final written

statement of the defects upon which the buyer proposes to rely.Buyer is under obligation so Seller could fix it, and the buyer is supposed to move fast.

Lady who bought an iron. All the electrical parts go to the hot point. What you have is a girl bought an iron telling them the point did not get hot. She got back a snide letter. After a while, she sent a letter, my iron, it not get hot. She made her point sufficient in fact. So, Ups, a new iron.

Inconsistent is absolutely a question of fact. Speed, specificity in notice, duty of care all questions of fact.

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Clark v. ZadeShe was going to renovate her dinning room. She would lay down new linoleum. She would buy new furniture. Her new furniture arrived before the linoleum. And the buffet was not what she ordered. So she called and told them it was not what she ordered. They told her they did not have a truck in the area. Then the linoleum people came in and got glue on everything. What are you doing when you file an insurance claim? What should she have done? Let them know the linoleum people they damaged the buffet. What do you want me to do? The linoleum people told me what to do. She should have talked to Zade before hand.

Rule of reason for “using the goods”. Exp. You purchase a yacht. You discover after a few days the motor is not up to par. They say bring the thing back in. In the course of bringing the yacht back in, may I use the motor? What’s the alternative to using the motor? How are you supposed to get back to the shore? Have to get Yacht back to Miami so have to use it. -More common exp. is a widget making machine. It makes 100 machines and out. It only makes 75 an hour. Can you still use it? If you continue to use the machine you make the defect worse, but if you don’t use the machine, you don’t get any widgets out. A buyer who continues to use 75 is actually mitigating damages. What are sellers choices? Give him a new machine for the duration. What might be going through the sellers mind here? Pay the damages of the missed orders. What immediately comes to mind? Haddley v. Backsindale. These are consequential damages. Buyer says to seller, I will be getting no widgets per hour unless you don’t get me another machine here. Rule of reason is

Any buyer who sells goods that he just rejected is the worse thing he could do.

§2-605. Waiver of Buyer’s Objections by Failure to Particularize.(1) buyer must state particular defect that is ascertainable be reasonable inspection or he is precluded from using that defect to establish breach

(a) where the seller could have cured if stated seasonably; or(b) between merchants when seller has requested in writing a full and final written

statement of the defects upon which the buyer proposes to rely.

(2) payment against documents without reservation of rights precludes recovery of the payment for defects apparent on the face of the document.

Three requirements for rejection:1. reasonable time notice2. specific notice

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3. buyer’s rights and duties with respect to the rejected goods.§2-515. Preserving Evidence of Goods in Dispute§2-603. Merchant Buyer’s Duties as to Rightfully Rejected Goods.§2-604. Buyer’s Options as to Salvage of Rightfully Rejected Goods.-in general, buyer’s duty is twofold:

i) care for the goods; andii) don’t commit acts that assert ownership; i.e. don’t use goods.

Seller’s Right to Cure§2-508. Cure by Seller of Improper Tender or Delivery; Replacement.(1) if time for performance has not expired, seller may seasonably notify buyer of his intention to cure and then may within the contract time.(2) where seller has reasonable grounds to believe that the goods would be acceptable with or without money allowance the seller can have a further reasonable time to substitute a conforming tender is he seasonable notifies the buyer.

This is an example of good faith and commercial reasonableness. Caveat: Seller must really be attempting to cure. -as long as seller is making a reasonable, good faith effort to cure, the buyer simply cannot reject the offer. -seller must try to cure, not just offer to cure.

Wilson v. ScampodColor TV in 1960, seller set it up in her house. She said it doesn’t work. He came back. He left. He came back again. She said this must be a defective TV. Ct said no. This requires a lot of work, this is just part of the nature of the TV. good faith opportunity to cure test – Wilson court allowed seller repeated opportunity to cure the reception of buyer’s color TV because the nature of such TVs requires delicate adjustments.

Risky Chev v. SmithDo you have sympathy for Mr. Smith? 2 and ½ miles out his transmission stops. What do they offer him? A used car transmission. Uncertain lineage. What did Mr. Smith say he wanted? A another whole new car. Why? shaken faith doctrine – applies to cars and other mechanical devices, “if the defect is such that the buyers reasonable faith in the mechanical instrument has been shaken, then the buyer is entitled into an entirely new car, or new machine. -Would you accept the transmission from a new car on the lot? No. -Would you have been willing to take a new transmission from the factory? Yes. -Usually, seller says, I will give you X. Buyer says, forget X, I want Y. Zabriskie Chevrolet court allowed buyer to reject new car after its transmission fell out after 2-1/2 miles of driving.Usually, there is a reduction in price. The seller will give you a reduction in the price. Once the buyer accepts the new delivery, or new cure, something occurs, Acceptance in 2-606 (not same as acceptance & offer). What if the buyer waits to long? Your telling seller you have accepted.

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Once you’ve accepted, then you have to go through all the hoops in 2-608.

The Meaning and Effect of Acceptance -clearly, acceptance cannot occur until the buyer has had a reasonable opportunity to inspect the goods.

§2-606. What Constitutes Acceptance of Goods.(1) Acceptance of goods occurs when the buyer(a) after a reasonable opportunity to inspect signifies to the seller that the goods are conforming or that he will take them in spite of their non-conformity; or

(b) fails to make an effective rejection (§2-602(1)); or(c) does any act inconsistent with the seller’s ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him.(2) acceptance of any part of any commercial unit is acceptance of that entire unit.

§2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over.(1) buyer must pay at the contract rate for any goods accepted.(2) acceptance of goods precludes rejection, and if made with knowledge of non-conformity cannot be revoked, unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured, but acceptance does not of itself impair any other remedy for non-conformity.(3) where the tender has been accepted

(a) buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and

(b) if the claim is one for infringement, buyer must notify seller.(4) burden is on the buyer to establish any breach with respect to goods accepted.(5) where buyer is sued for breach of a warranty for which his seller is answerable over

(a) may give seller written notice to come and defend.(b) if for infringement seller may control litigation.

(6) provisions of (3)(4)(5) apply to any obligation of buyer to hold seller harmless.

-very light burden in §2-607(4) that when seller tenders, the goods are conforming.

[18] Revocation of Acceptance

§2-608. Revocation of Acceptance in Whole or in Part.(1) buyer may revoke his acceptance of lot or commercial unit whose non-conformity substantially impairs its value (objective & subjective) to him if he accepted it. (no requirement buyer be reasonable; only G/F) (a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonable cured; or (he has already found the defect and the seller has promised to cure and upon that promise the buyer has accepted) If you were the buyer would you accept the goods if the seller promised to cure but not yet cured? Has the buyer really had a reasonable opportunity to accept and reject if the seller is still making promises. I(I wont pay you until you fix them.)

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(b) without discovery of such non-conformity if acceptance was reasonably induced either by difficulty of discovery or by seller’s assurances. (this assumes that the buyer has accepted the goods and later finds the goods).

-both reliance on cure and difficulty of discovery extend the possible length of time before acceptance can be revoked.-revocation is as innovative as cure.-“substantially impairs its value to him” – objective test governed only by G/F. Substantial Performance is conformity. If they deliver 90% of the goods, the defect does not substantially impair the buyer.

(2)Revocation of acceptance must occur within a reasonable time after buyer discovers or should have discovered and before any substantial change in condition of the goods not caused by their own defects. Not effective until buyer notifies the seller of it.(speedy/specific) Sellers want speed at rejection so they can cure. -time will vary with the type of goods involved.-court held that the discovery of pin-holes in glass bottles after the buyer had fluorinated them was not a “substantial change in condition” and made seller take them back.

Apparently Speed or time is not as important in the revocation stage. Single shot K in Rejection = Perfect Tender RuleRevocation of K installment or single shot = Substantial Impairment Rule opposite of or Substantial Performance. This favors the seller. Buyer may be able to reject for lack of perfect tender, but the buyer cannot revoke acceptance for lack of perfect tender. Things are shifting over in the standard of conformity. In rejection, speed is more important than specificity. At revocation, its more less equal specificity. Speed is not more important than specificity at the revocation stage. -Have to notice sub(3). Same duty of care and no acts inconsistent at the revocation stage then in the rejection stage.

Burden of Proof: At revocation stage, who bears the burden of proving the goods were defective when the seller tendered delivery? 2-607(4). Buyers burden of proof. At rejection, we really don’t know. The code never specifically said what the burden of proof is and who bears it. Buyer bears the burden of showing a defect, at least the burden of going forward. (Buyer must give notice to Seller that item is defective). Who bears the burden of proof in regards to the defect? Seller has a certain advantage here. When the seller delivers, it’s a mini presumption that the seller’s good was conformity.

(3) a buyer who revokes has same rights and duties as if he rejected.Same duty of care

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Race Horses Broken Splint BoneWhy is it important when the break occurs? It shits the burden, the problem is the party who bore the burden of proof will lose. Broken splint bone can occur easily.Ct said this is a Patent defect. In Schneider, the Ct said it was Latent. Do you feel this a is patent or latent defect? Depends on if you’re a merchant or not. If you’re a merchant, you would know what to look for. Horse experts or not. Whether Acceptance Occurred? Buyer said acceptance did not occur b/c at the inspection stage, I did not have my trainer or vet w/ me. If you buy that argument, he had a good chance of winning. Ct did not buy his argument. They said its up to you when you go to an auction, you not only examine the horse, but expect it as soon as you buy it. He doesn’t pick it up till later. Did the horse break the bone before delivery, or at buyers farm?Ct said it was probably a patent defect and defect occurred as he got the horse home.

Zoss v. Royal Chevrolet – this is the type of case that gave rise to lemon laws.-student claimed that he revoked acceptance because substantially impaired value.-Lousin claims that he should have claimed rejection because then it is the perfect tender rule.Do you have great sympathy? Yes. This corvette did not have one big thing wrong with it. It has a bunch of little things wrong. Seller claims he was fixing it. Do you think the seller was really fixing it? No, there is question if the seller was even using good faith. -Every time they took the car back, the old defects were not cured and new defects were showing up everyday. -they were claiming they revoked acceptance. What should they have claimed they done? Say he rejected the car, I never accepted the car, its always been in the attempt to cure stage. It’s a single shot K, they end up winning. I don’t have a merchant buyer, I’m just a law student, in good faith, I say 1,2,3, are wrong, and every time I get it back there are new defects.

If you are representing a BUYER – go for REJECTION (get perfect tender rule)If you are representing a SELLER – go for REVOCATION (you get substantial impairment)

Minsel v. El Rancho – in here for (3), facts very one-sided but wanted a “set-off” (unjust enrichment could have come in under 1-103) for rent for the time the s occupied the trailer after revocation. Court held there was nothing unjust here since seller breached.-courts disagree as to whether there should be a set-off.Gave notice that they were revoking. They said come pick up the mobile home. It took them 6 weeks to get it. The Minsels still were living in it for 6 weeks. They paid the electricity, and utilities. She swept the house out, I’ll never leave the house messy.

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El Rancho wanted a set-off in the form of a rent payment. We want the rent from the time you called us and until the time we picked it up. You were unjustly enriched for 6 weeks. -There is nothing in the code that says the seller is entitled to a set off. 1-103 supplemental principles (unjust enrichment)-There may be enrichment but its not unjust b/c the seller delivered non-conforming goods. -Some say no, there is no set-off b/c no language in the code. If the Ct allows it through 1-103, it doesn’t mean they will get it.

Lots of people claim revocation when they can claim rejection. Even if the buyer had the goods for some time, they still could have argued rejection. “We were really rejecting the goods, and we were constantly telling you what was wrong.

Rejection; you file rejection. What if he had it for 3 months. It’s a question of fact. Anytime your representing a buyer, claim rejection, unless its so far out. If your representing a seller, and you see rejection, you come back with possibility of revocation. You come back in the answer, you deny this is a rejection, this is a revocation…

X-Mas Tree problem. She wants you to do it on your own.

[19] Identification; Shipping Terms; Risk of LossPART THREE: BREACH OF CONTRACT (risk buyer and seller assume)(Pg. 180 breach) – an unexcused failure to perform a contractual obligation.Accidents happen. Especially in shipping goods. If the seller failed to deliver goods. Then its breach. “Identification” is important. We will see it later. -Issue is of whether they move from being some goods to being these goods, the goods intended for this particular buyer, (the ones identified in the K). Occurs when the goods are in the hands on the seller. Its when the Seller takes the object off the shelf and puts a stamp on it saying Send to Buyer. “Delivery” is the other concept. It’s a legal fiction, and we don’t know when it actually occurs. The Seller performance is to tender deliver of goods that conform to the K. -Sometime before delivery, identification will occur under 2-501, therefore, you have pre-identification which is always pre-delivery, then you have post identification which can go on to the post delivery stage. In damages stage, you will see as to goods already delivered, or not yet delivered. “Delivery means Seller tender of deliver. When you see the phrase Buyer taking delivery, then assume the buyer has taken delivery. Lets assume I offer my pen to Joe, you are tendering, and he is taking delivery. Usually it occurs instantaneously after delivery. It is important in shipping goods.

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2-509 Smith is at seller point in LA. He wants to ship goods to Brown (Buyer) in NY City. Kansas City is where the goods burn up. The parties neither of whom is at fault, what happens? If the Seller has tendered delivery in LA in which case the Buyer owes the Seller money?Or has the Seller not tendered delivery until it reaches NY in which case Seller breached. -Common Carrier; which is licensed to carry goods. UPS and US Postal Service. If you have a common carrier then you start moving to 2-509(1). In shipment contracts, buyers assume the risk of loss at a very early stage.

§2-509. Risk of Loss in the Absence of Breach.(1) (shipping K’s-those independent carriers allowed to ship goods) where the contract requires or authorizes the seller to ship goods by carrier (buyer bears risk of loss)(a) if it does not require him to deliver them at a particular “destination”; the risk of loss passes to the buyer when the goods are duly delivered to the common carrier even though the shipment is under reservation (2-505); but

-this is a shipment contract; it calls for shipment by a common carrier.-includes

2-320C.I.F.(cost of the goods, freight charges and insurance for when disaster occurs) C. & F (drop out the insurance, pay 1 or 2 big payments instead of a lot of little ones like CIF)., means cost and freight.§2-319F.A.S.(free along side: responsibility will be when the goods are brought to the side of the common carrier – thieves can come by and steal, rain & snow; remember not in the ship) and F.O.B. Seller’s point. Free on Board. Now they are on the train, inside the boat, it’s a delivery that occurs at the Sellers point. -F.O.B. is presumed to be a shipment contract unless parties make it crystal clear otherwise. Do a lot of disasters occur between the goods are at the dock till the time it reaches the ship? Weather, Crane breaks. -Containers: contained boxes in them. In all of these cases, the burden shifts from the buyer to the seller. There are also destination K’s. these include FOB buyers point. -so if it’s a shipment K, which party bears risk of loss? Buyer, so he owes Seller the K price. -So, its true that buyer never got the goods, but the Seller did what he was supposed to do. Seller tendered delivery of the goods. Buyer then calls up the Seller, are you carrying insurance? Insurance Comp will reimburse the buyer, and the insurance company gets subrogation. Then Insurance Comp goes against the Common Carrier. -If it’s a destination K, Seller bears the risk of loss. That means Seller is in breach b/c Seller has not yet tendered delivery in NY city. What the role of insurance company here? It is assumed in a commercial code that commercial people carry commercial insurance. It is assumed there is insurance. -What if neither party was in breach of K? 2-509. One party of the other kinda had constructive possession of the goods in Kansas and that’s the party that bears the loss.

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-In the case of 2-509(1)(a), if it does not require him to deliver to a particular destination, when does the shift occur? -What does “duly” mean? Method of describing the K for delivery. Exchange of documents. -If the Seller does not handle all the paper work duly, what happens with the risk of loss? Risk of loss stays with the seller. Seller better do it right. After that, it’s on the buyer.

(b) if it does require him to deliver them at a particular destination; Where does risk of loss shift? Risk of loss passes to the buyer when the goods are tendered so the buyer can take delivery.-What does that mean? Risk of loss happens. RR says calls up the buyer and says the Goods are here, you can pick them up after 2pm w/ your Bill of Lading. He brings the Bill and shows up at 1:59pm. What happens at 2pm? Risk of loss happens.

(2) (standing K & Bailment K) where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer (very important if you’re a warehouse)

(a) when he receives the negotiable document of title to goods; or(b) on acknowledgement by the bailee of the buyer’s right to possession of the

goods; or(c) as provided in §2-503(4)(b).

-bailments or standing contracts; goods delivered without being moved.

(3) (residue provision-everything else) in any case not covered in (1) or (2), risk of loss passes to buyer on receipt of the goods if the seller is a merchant; otherwise on tender of delivery. (seller in his own truck delivers the goods; or the buyer picks the goods up in his own truck.)

(4) (freedom of K provision) the provisions of this section are subject to contrary agreement.

-the oil industry decided to change the rules with respect to shipping.

Smith Brown Installing ProblemBuyers truck comes to pick up the goods in LA. This sounds like sub (3) residue. Buyer says his truck has bad brakes, he wants to store it in Sellers warehouse overnight. What happens when driver ask to store the goods? Its another agreement. Its not a sales K so it’s a bailment K and its outside Art 2.

One great advantage of 2-509 is there is very litigation. Insurance Comp knows what going on.

2-510, and exception to 2-509. It’s the effect of breach on risk of loss. The odd thing of 2-510 is that the only reason it has been justified is if one party breach the K, then they ought to bear the risk of loss -If the seller is supposed to ship grade A tomatoes and ships Grade B, what does that have to do with Kansas. How are they going to know? There is slight presumption that

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bill of lading was correct. If it says these are grade 1 tomatoes, then its presumed its grade A tomatoes. -CISG says that the breach on risk of loss exists only to the extent that the breach was the cause of the loss. -If the breach caused the loss, then you can have a shift of the cause of loss. §2-510. Effect of Breach on Risk of Loss.(1) (sellers delivery of non-conforming goods – pre-acceptance) where tender so fails to conform to contract; risk of loss remains with seller.(2) buyer rightfully revokes acceptance (post-acceptance); buyer can treat risk of loss as having rested with seller from the beginning.(3) (buyers breach) where buyer “repudiates” before risk of loss has passed to him (meaning buyer), seller may treat risk of loss as resting on buyer (having shifted to the buyer) for a commercially reasonable time.

-this whole section is very narrow.***Hardest issue is where they at the rejection stage b/c it was pre-acceptance or where they at the revocation stage b/c it was at the post-acceptance stage.

Bookstore problem on risk of loss.What was the 1st thing that happened? On an undetermined date, the parties entered into a K, what was it for? Torts books latest edition, 250. Plus latest edition of supplements, 250 assumed. Delivery of 15 of August. Then 215 arrive on Aug. 5. then only 125 supp arrive. How did the buyer know there was these defects? On an undetermined date the buyer inspects. -Buyer send notice and on the 8th, the Seller receives the notice. In the delivery and inspection stage, the buyer discovers that there are 250 and 125 supp and we don’t know what edition. One commercial unit.-What does the buyer say? We hereby reject the shipment received. Then he mentions the text defects. Why does he not mention the supp defects? If you sent the wrong edition of the text, who cares about the supp. What happens on the 9th? The whole store burns to the ground, and then they discover the 66th Ed was the right Edition. -What happens on the 15th of August. The delivery date arrives and that’s the time the cure expires. -What’s the analysis? Buyer had breached. Buyer rejected the goods, hadn’t given seller time to cure, and the Seller made a conforming delivery and still had time. If there had been a proper rejection, and Seller had an opportunity to cure, then Seller would have cured the real defect, sending the rest of the supp. Was the buyer making a wrongful rejection in saying the books were non-conforming was wrong? He should have picked up the phone. -Do you think (it’s a patent defect)? Yes. -In the notice, he said we reject the shipment, do you think this rejects the whole shipment? Yes. Read 2-605(1)(a).

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-Do you think the rejection notice there was any need to mention the supp defect if the text defect was correct (buyer was right the text delivered was not the latest edition)? Yes. -Some people say he’s not really rejecting the supp, he wants the 125 others delivered to him. -Would you say the text and the supp fall under a commercial unit? Yes.

§2-501. Manner of Identification; Insurable Interest in Goods(1) buyer obtains a special property interest in goods by identification of existing goods even though they are non-conforming and he has an option to return or reject them. Parties can expressly agree when identification occurs, in the absence it occurs

(a) when the contract is made if it is for the sale of goods already existing and identified;

(b) if for future goods other than those in (c), when the goods are shipped, marked or otherwise identified by the seller;

(c) when the crops are planted or young are conceived (12 mos. or next harvest season).(2) seller retains an insurable interest in goods so long as title or security interest remains with him.(3) nothing in this section impairs any insurable interest under any other law.

§2-504. Shipment by Seller.Where seller is required to send goods to the buyer, then unless otherwise agreed he must(a) put the goods in possession of a carrier and make such a contract for their transportation as may be reasonable considering the nature of the goods and circumstances of the case; and(b) obtain and promptly deliver documents allowing buyer to receive goods per agreement or U/T; and

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

[18] Excuses for Non-PerformanceBreach: an unexcused failure to perform a contractual obligation. Definition of an “Excuse”. What are the excuses. Several possibilities. One of the most famous is “unconscionability”, if its voidable on one party (usually the buyer in 2-302 in cts in equity). Unconcionability are questions of law (arose in the courts of equity). On appeal, its De Novo. “Unconscionable” = K is one no honest man would make and no sane man would except. Campbell Soup Company Case. – she thinks that it should be read as a conditions analysis. The seeds did not germinate (the seeds that they provided) and there were no crops. Campbell’s soup sued him – but the court said that since they provided the seeds – and his using the seeds that they provided was a condition of the contract – that it was not the farmer’s fault.ON EXAM; CANT USE UNCONCIONABILITY EXCEPT IF ITS IN RE: 2-719(3)

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Paradigm v. AimSomebody rented a castle, and sold crops, to pay the rent. Their was a cattle recharge, and he said that I could not have paid the rent. Ct said if you could have foreseen a disaster, it should be put in the K.

§2-302. Unconscionable Contract or Clause. – 2nd question of law (parole evidence) that we have run up against. If you cannot have a jury (since it arose in equity) – you cannot have a question of fact.(1) when court finds as a matter of law, it can enforce in whole or part.(2) parties shall be afforded reasonable opportunity to present evidence to contrary.

-really a remedy for buyers and more specifically, for non-merchant buyers.-Lousin regards it as a very minor weapon in the arsenal available to aggrieved parties under the Code..

Trend in distinguishing between an excused non-performance and a breach is foreseeability illustrated in two 1979 cases.

Buyer won when seller delivered steel late b/c his supplier was late.Seller won when state police ordered seller’s delivery truck off the road during severe weather.

Taylor v. Caldwell – lease of a music hall but the hall burned down 4 days before the lease was to being which gave rise to the defense of impossibility as an implied condition in the agreement that the hall exist.-There was an opera singer who was supposed to sing, and hall burned down. She wanted to be paid even though she did not sing.

Case: A guy was supposed to mine iron ore to a buyer. The area was bad and so was the equipment. Couldn’t get it out of the ground. It was impossible to deliver b/c of weather conditions so no K.

Krell v. Henry – King Edward VII’s “coronation” cancelled b/c of his appendectomy and the “tenant for a day” used defense of frustration of purpose. There was these hotels, a commercial establishment, and people were renting rooms to see the coronation. The commercial establishments were closed for the day, but they had rented out rooms. The difficulty there is trying to prove that an ordinary room rental had one specific purpose, so look at where room was located and if it had windows. It was expensive and only rented for one day. Majority of cases that the purpose of that rental was frustrated so the tenants did not have to pay. (put in the K , if the parade is cancelled then I don’t have to pay).

Commercial Impracticability (mostly in K, not really in sales of goods)

§2-615. Excuse by Failure of Presupposed Conditions.Except so far as a seller may have assumed a greater obligation:

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(a) delay or non-delivery by seller who complies with (b) and (c) is not a breach if performance has been made impracticable by the occurrence of a contingency, the non-occurrence of which was a basic assumption on which the contract was made. Also compliance in good faith of a government regulation.(b) where causes in (a) affect part of seller’s capacity to perform he can allocate production in a fair and reasonable manner.(c) seller must notify buyer seasonably and when allocation is required as in (b) of estimated quota for buyer.

Westinghouse Case – seller lost. Westinghouse convinced public utilities that it would be a good idea to go to Nuclear Reactors. Westinghouse had not established forwarding K for supplies in other countries. Westinghouse raised the defense of commercial impracticability. Why were the Brd of Directors eager to sue Westinghouse? Shareholders derivative suit. Directors of a corporation have a fiduciary relationship to shareholders. So they had to resist this. Alcoa Case – seller won; doesn’t happen very often. Seller was excused because it had done its best be trying to put every contingency into the price term including hiring Alan Greenspan.This was a service K. They didn’t know what the price should be, so they hired Alan Greenspan. He screwed up Alcoa. It did not take into consideration any rise in energy cost. OPEC comes in and prices of energy go up through the roof. The seller said we did everything we could do.

[19] Introduction to Seller’s and Buyer’s Remedies & Damages1.) Keep in mind, the deal has fallen apart (a good definition of breach of K). Ask yourself, what was the deal before that. Why? Because 1-106 says Measure of damages is to put the aggrieved party as if the breaching party has fully performed the K, so need to know their deal. 2.) As you look at reach remedy try to keep in mind what the policy interest was behind each remedy. For exp. when you look at Sellers resale remedy, policy was to get the goods to a buyer who wants the goods. 3.) Keep in mind the roles of identification and delivery. They are both legal fictions but work very well and have a tremendous impact on damages. 4.) Buyers remedies are analogous to Sellers remedies. Usually it’s the reverse, or it may have a difference.

“Anticipatory Repudiation”: 1. Historically, we had a problem w/ the definition, which is clear and unequivocal indication of a prospective (promisor performance will not do, in the case of the buyer he has 2 performances, one is to pay the buyers price. The other obligation is to accept goods that conform to the K, they should not wrongfully reject or wrongfully revoke.) Anticipatory Repudiation by a Buyer

Two requirements for an anticipatory repudiation:1. it must be unequivocal; and

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2. it must substantially impair the value of the contract.§2-610. Anticipatory Repudiation.When either party repudiates and loss will substantially impair value, the aggrieved party may

(a) for a commercially reasonable time, await performance; or(b) resort to any remedy for breach, even though notifying other that he will await

perf.; and(c) in either case suspend his performance.

-“substantially impair” equates to the old contracts term “material breach.”

Basic Code policy – parties to a sales contract have certain clear-cut obligations to each other, and that each party has a right to have judicially-enforceable remedies to compel performance or compensate for non-performance.-Code also encourages parties to seek non-litigation remedies and seek adequate assurances, and any reasonable means to keep goods flowing in commerce.

Remedies based on several principles:1. businesspeople assumed to want to handle problems informally with minimal expense and inconvenience.2. assumed that buyer wants the goods and seller wants purchase price both in good order and on time.3. code tries to make seller’s and buyer’s options parallel.4. code disapproves of election of remedies where if one fails you are done.5. each code remedy seeks to protect at least one of the three interests.

expectation interest – each party expected to gain something by entering contract.reliance interest – one party may have incurred expenses or obligations as a result of entering into the contract.restitution interest – if one party conferred a benefit on the other in reliance on the agreement, the benefit should be repaid.

6. many code remedies are oriented toward whether delivery has taken place.7. code remedies aimed at putting the aggrieved party in “as good a position as if the other party had fully performed.” (1-106(1)).

§2-609. (don’t have the breach yet, but Seller says I have reasonable grounds for insecurity, then the Seller can demand adequate assurance.) NOT DAMAGES FOR BREACH OF KRight to Adequate Assurance of Performance.(1) contract imposes obligation that expectation of due performance not impaired. When reasonable grounds to think no performance, demand in writing adequate assurances and suspend performance.(2) between merchants, reasonableness of grounds and assurance determined according to commercial standards.(3) acceptance of improper delivery does not preclude right to demand assurance of future performance.

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(4) after getting justified demand for assurance, failure to provide within reasonable time not to exceed 30 days is a repudiation.-courts rarely require the request for assurance to be “written.”

***Cts like to have an absolute clear breach. So what you get is the promissee forced to go through 2-609 then has to go through 2-610.

§2-611. Retraction of Anticipatory Repudiation.(1) unless next performance due, can retract repudiation unless aggrieved party has materially changed his position or indicated he considered repudiation final.(2) retraction may be by any method by must clearly indicate intent to perform and must include any assurance demanded.(3) retraction reinstates aggrieved party’s rights under the contract with due excuse and allowance to aggrieved party.

-retraction usually prevents promisee from declaring breach unless he has relied to his detriment.-code encourages retraction because the goal is to perform contracts.

Plotnick v. Penn– one of the cases the drafters had in mind when setting up these sections. Installment K and each installment was to be installed by the buyer, then he was to pay 63% w/in a few days and then the rest 37% w/in 4 weeks. Why did parties agree to 63%? Its probably what is cost Plotnick to get the materials. List of reasons the seller did not have “reasonable grounds for insecurity” includes: 1. market price rising BUT a seller isn’t really apprehensive when the market is rising, 3. Seller said he was worried about his credit, BUT no impairment of buyer’s credit so no fear of non-payment, 4. seller had chance to use “documentary transaction” (bill of lading which is better for Seller, and he refused it) but refuse twice,(Seller refused the offer of an cite draft for a bill of lading for a 2nd time which means the Seller was refusing the best system available to him a second time to guarantee that he would get payment from the Buyer.) 5. seller had the lead and was selling to other buyers.6. escrow: Buyer offered to put the money in an escrow (account held by someone who has a duty to keep it separate). Seller refused that system to. Everything the buyer offered, all of those things were refused by the Seller. 7. Finally, buyer really wanted lead. How do we know he really needed the lead? He was doing everything he could in the context of the time (battery lead had been in jeeps and tanks, not cars). 8. We also know that the Seller was selling to other people. Probably at higher prices too. Just a guess. Question today, which assurances would be adequate? 2-609 Comment 4.

§2-612. “Installment Contract”; Breach.(1) delivery of goods in separate lots to be separately accepted even though K contains clause “each delivery is a separate contract.”

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(2) buyer may reject any installment if non-conformity substantially impairs the value of that installment and cannot be cured or if documents defective; but if not (3) and seller gives adequate assurance of its cure, buyer must accept that installment.(3) whenever non-conformity of installment substantially impairs the value of the whole K, there is a breach of the whole. But aggrieved party reinstates if accepts non-conforming installment without seasonable notification of cancellation or brings action for past or future installments.

Cheese Problem (installment K) (pg. 205)They had this Cheese deal. Cicero was sometimes late. Was this good or bad? It’s a mixed record. On that alone, Repunzel probably would not be able to say I have reasonable grounds to secure. He also hasn’t made it habit to call up Repunzel and say why are you late. Would the report itself indicate sufficient grounds for insecurity on Repunzels part? 2-609, We know nothing about the report. Who do you think told Repunzel Cicero is having problems? Competitor to screw up the deal of Repunzel. -What about the 2nd part, the same history, except the source is Dun & Bradstreet? They are a good source. -Working capital has been stretched out. That combined w/ his record of not paying on time leads to a culmination of factors which lead to insecurity. Adequate Assurances. Today, adequate assurances, = telephone calls. Used to be by letters, but today, not a lot of time. Are these reasonable grounds for insecurity here? Under A. No. Under B, (Dun & Brad) then yes. **If have trustworthy info for reasonable grounds for non-performance then have reasonable assurance/grounds for insecurity.

2-611 = RetractionOne of the continuing difficulties w/ anticipatory repudiation is that on retraction by the repudiating promisor. A retraction usually prevents the promisee from declaring a breach unless he has relied upon the repudiation to his detriment.

2-703Why would it be wrong to paraphrase the first words as “when the buyer defaults” or “when the buyer breaches? For starters, what’s wrong w/ substituting the word “when” for “where”? When = time. Where = place, in the context of a statute could be a situation. What’s wrong w/ the word default? Where the buyer breaches. What are the verbs here? Rejects, Revokes, Fails, Repudiates. Is word default or breach a correct summary of rejects w/ all its modifiers, revokes, fails, and repudiates? No. Why? The word is “where”. What preposition is missing here? After. (due after delivery). Seller delivers installment and Buyer has to pay his particular installment. With respect to a part or a whole. Modifier falls into the last antecedent means.

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When you have a modifier at the end of a series, we know that the modifier modifies the last antecedent b/c it has to. Then, ISSUE does it modify all of the other preceding antecedents. What you can’t do is pick and chose. You take all four or only 1. You do this by saying, we know this modifies this, we will look at this modifier, and its adverbial b/c it modifies a verb. Can you conceive of a whole repudiation? Yes. Can you conceive a partial repudiation? Perhaps in installment K’s. (Orders 100, then anticipatory repudiates 25.)Trick Question: Can you conceive of an total rejection of the goods? Yes. Can you conceive of a total revocation of acceptance? Yes. Can you conceive of a total failure to make a payment to honor before delivery? Yes. Can you conceive of a partial failure to make a payment to honor before delivery? How can you partially fail? Assume K requires seller to deliver the goods and buyer pays 100, but upon delivery, the buyer pays 75 instead. Is that a total or partial failure? Most people would say partial failure b/c the result of saying their cannot be a partial fail means you have to throw out rejects and

-What if you have a modifier at the beginning? Does wrongfully apply just to rejects, or to rejects, revokes, fails, and repudiates? How does wrongfully modify rejects? Can you conceive of a wrongful rejection of the goods? Yes. (I changed my mind, I don’t want it = breach so has to pay damages to the seller). Can you conceive of a rightful rejection of the goods? Yes (if the goods don’t conform, the buyer rejects). Can you conceive of a wrongful revocation? Yes. Can you conceive of a rightful revocation? Yes. Can you conceive of a wrongful failure to make a payment due on or before delivery? Yes. Can you conceive of a rightful failure to make a payment due on or before delivery? NoCan you conceive of a wrongful repudiation? Yes. Can you conceive of a rightful repudiation? Maybe. He hears the seller is going to deliver non-conforming goods. When he repudiates, he repudiates as to his own obligation, to Pay the K price.

If wrongfully does not modify repudiates, don’t you have to give up How do you get out of this dilemma? You could argue that even if a repudiation is always wrongful, and a failure is also wrongful, then the word “wrongful” truly modifies wrongful and revokes and its merely surplusage (unnecessary) as to fails and repudiates. Do you think repudiates refers only to an anticipatory repudiation OR can it also be a contemporaneous repudiation (at the time the buyers obligation is due, pay or K price, he repudiates. Contemporaneous for at the time of performance)? Can it be contemporaneous and anticipatory?

May the seller march over to repudiate, the buyers failure to make a payment due after delivery is a breach? If yes, then you have to believe that repudiates includes

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contemporaneous as well as anticipatory repudiation. A contemporaneous repudiation by the buyer is a repudiation that happens at the same time that his performance is due.Wrongfully is surplusage. I believe in contemporaneous anticipatory repudiation and its strong enough to pick up.

Superman Verb: Its inherently wrongful, it Its so strong that it subsumes all these other 3 verbs.

If you believe in all these things we’ve been talking about w/ the verb repudiates, would it be wrong in saying where the buyer repudiates? Never paraphrase a statute.

These are the situations the seller will have to invoke to start going through A – F.

§2-703. Seller’s Remedies in General.Where the buyer i) wrongfully rejects, orii) wrongfully revokes acceptance of goods, oriii) fails to make a payment due on of before delivery, oriv) repudiates with respect to a part or the whole,then...the aggrieved seller may

(a) withhold delivery of such goods; (b) stop delivery by any bailee (2-705);(c) proceed under 2-704 respecting goods identified to the contract;(d) resell and recover damages under 2-706;(e) recover damages for non-acceptance (2-708) or price (2-709);(f) cancel.

(Pg. 208)-Seller’s four “greater” remedies: resale (2-706), market damages (2-708(1)), action for the price (2-709), and lost profits (2-708(2)).

-Seller’s five “lesser” remedies: 1.) withhold delivery, 2.) insolvency remedies, 3.) stop delivery, 4.) goods not identified, 5.) cancel.1.) “W/hold delivery of goods” 2-703(a) (cant do it if delivery has occurred). If you have an installment k, and seller has made a few installments and Buyer then repudiates. 2.) “Stoppage of Delivery” 2-705, Stoppage in transit, assume you have a bailee about to make a delivery. If you have a warehouse who is going to make a delivery is bailment. The Seller who hears of the buyers breach while the goods are en route may notify the carrier and stop the carriage. This remedy differs from that UCC 2-702 in that here the buyer is solvent. (As long as its around, it can be used). 3.) “Insolvency Remedies”4. “Goods not yet Identified”, 2-703(c), Good Policy Reason, we like goods to get into commerce. In a sense 2-704 and 2-705 are extensions of the seller’s right to w/hold delivery of the goods upon the buyers breach. The Seller has considerable discretion here pursuant to the exercise of reasonable commercial judgment clause.

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5.) 2-703(f) = Cancellation. It’s the most frequently used remedies. Very common in multiple installment K’s. So if cancellation is ok – is repudiation the wrongful termination? Seller’s Rights and Remedies2-709 Actions for the Price, vast majority of sellers would love to have it available everyday of the week. If fulfills their expectation interest. Seller expectation is he would get the K price. Why does buyer enter in K, to get the goods.

-Drafters limited the formula. Seller has to show certain things. 1. He can get full price if He cannot resell the goods. 2. When the buyer fails to pay the price. ***The K price means the FULL K PRICE. An installment K may be several payments. Missing those payments is not failing to pay full K price. Seller has to show Full K price is due. At that time, the seller can bring K for the price.

-(a)Remember Smith & Brown. Goods are shipped in Kansas city. Is the K price due? Yes. It was shipped at a commercially reasonable time. We are concerned with whose insurance company has to pay up here. Installment 1. Seller is to deliver and Buyer is to Pay. Installment 2. Seller is to deliver and Buyer pays after delivery. May seller sue for price? Depends on installment 3. So Seller has to put into K an Acceleration Clause. Buyer agrees that if he misses a payment, he has to pay the remainder of the K price (Acceleration Clause). Installment 3.

KP + Incidental Damages and a question of whether set off is allowed (Expenses Saved in consequence of the Buyers breach). ***That means the Seller has benefited by the buyers breach, then we will reduce the amount of damages the buyer owes the seller to the extend of the benefit because of the buyers breach.

Kp + Id (-Es?) = 2-709(1)

-note no set-off for expenses saved b/c of breach but 2-709 operates in situations where set-off precluded.-once S shows price due must also show that situation fits in one of 3 patterns in 2-709(1):goods accepted; conforming goods damaged where B has risk of loss, or goods identified to the contract that S is unable to sell.

[§2-709. Action for the Price.(1) when B fails to pay the price as it comes due, S may recover, together with any incidental damages under next section, the price(a) of good accepted; or

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of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the B; and(b) of goods identified to the contract if the S is unable after reasonable effort to resell them at a reasonable price or efforts to sell would fail anyway.

(2) Where the S sues for the price he must hold for B any goods which have been identified and are still in his control except that if resale becomes possible he may resell them at any time prior to the judgment. The net proceeds of any such resale just be credited to the B and payment of the judgment entitles B to any goods not resold.

(3) After the B has wrongfully rejected or [wrongfully] revoked acceptance of the goods or has failed to make a payment due or has repudiated (2-610), a S who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under 2-708.

-this is the “jump” provision.-action for the price is not a favored remedy – the drafters want to move Sellers to resale under 2-706 so to keep goods in market.-action for price is really kind of specific performance for Seller in that he gets K price.-note that this remedy is only available when the price becomes due so in long term installment K this is key.

-s could draft provision to accelerate at will under 1-208.

§2-710. (out of pocket expenses, not consequential damages, such as loss profits) Seller’s Incidental Damages. (remember, its on the sellers side; it’s the same on the buyers side)any commercially reasonable charges, expenses, or commissions incurred in stopping delivery, transportation, care and custody of goods after B’s breach in connection with return or resale or otherwise resulting from the breach. Some people calls this “restitution interest” – incidental damages. -Seller has to show a causal harm and the breach not an expense caused by the K. (Not b/w K and the harm). So ask yourself, but for the buyers breach, would the seller have spent this money? If the buyer had not breached, and the seller still would have spent money, then no damages.

-otherwise resulting – must be caused as a result of the breach (not of the making of the K).-courts are usually very generous in awarding incidentals to an aggrieved party.

ejusdem generis – rule of statutory construction. “Pistols, revolvers, or other dangerous weapons” the other… could only be construed to comprehend only dangerous weapons of the kind enumerated.expectation interest – consequential damages-Sellers do not get consequentials b/c their expectation is only the K price.

The Bridge Provision and Index 2-703.: 2-709(1) & market damages formula 2-708(1).

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What they did not have was 2-706, resale, and 2-708(2) loss profit. If the seller cannot obtain the action of the product, seller can remedy under 2-708. Now, 2-708 also has a loss profit provision. -If seller wants action of the price and can’t get it, then he goes to 2-708.

Look at the verbs in Bridge Provision. Are the triggering events the same in the Index? 2-703. Present Perfect Rate. 2-703 is in the present tense, 2-709(3) is in the present perfect tense. What was shifted over is the concept of “where”. They are shifting over in time. They are talking about time b/c the shift the tense. Index is in present tense, over to the bridge which is in present perfect tense. What have the done w/ the word “wrongfully” here? Has wrongfully rejected or revoked acceptance of the goods OR has failed Or repudiated. As wrongfully rejected “Has” is bringing in as a compound verb, pulls together rejected has revoked OR has failed to make payment due OR failed to repudiated. They are putting the rejected and revoked together, so now wrongfully modifies rejects and revokes and not failed and repudiates.-Failure and repudiation are inherently wrongful acts. -this clears up what was probably meant in the index. -They have dropped the phrase part or the whole. Does it mean they don’t care? It means it is not even an issue here. They chose not to repeat that language here, so don’t have to do the last antecedent game. -What are they saying in Fail to make a payment due? Is that the same as in the index? Index they say Payment do on or before and here it just says “payment due” and that means they dropped the word limitation. So on or before delivery had been dropped meaning that if fails to make a payment due whenever payment is due. They took out that issue. -What about anticipatory or contemporaneous repudiation? 2-610 which is anticipatory repudiation takes off cotemporaneous. -Do you think that means in the context in the bridge when we say repudiated it doesn’t mean contemporaneous repudiation, it only means anticipatory repudiation? Yes. Because of the presence of 2-610, whereas in the Index, we had a dispute on anticipatory and contemporaneous b/c they don’t have 2-610 nor do they have the word anticipatory in Index. -Do you think these clean ups or changes might not clean up as much as they muddy the water over here as the bridge is to be read back into the index? Some of them yes. It does not mention in 2-703 where it doesn’t apply. Exp. If they put in 2-610 in the bridge, and they don’t put it in the index, in the index it could be contemporaneous.

Doo-Dads Problem – 213 (UCC 2-709)Seller has not yet delivered the goods, but the goods are apparently identified in the K. Lets assume the price is due (so that takes care of price being due). Can the seller fit himself into one of the patterns in (1)? Has their been a goods accepted? No. Can the seller fit himself into number (2)? NO. (No loss or damages) What about (3)? Yes b/c the goods are identified.

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Has the seller attempted to resell? Yes. But was unable to do so. (sounds like seller may be in pattern 3). What’s the issue? Why do you suppose the Seller could not resell? B/c they were defective. It may be the defect may be a difference in grade quality. May the Seller maintain a price in (3) as a requirement other than a requirement that the goods have to conform to the K? The word “conforming” (in 2nd pattern) is missing here, does that tell you that they deliberately left out conforming in the third pattern? Yes. Result of that; You would be allowing the seller to sue a buyer for the K price, even though the seller had he delivered would have breached for delivering non-conforming goods. -What is the statutory construction for reading the word conforming into the statute? They didn’t take the position of conforming or the absence of conforming. By omitting a specific requirement, they left the issue of that requirement open. -How can you fill in the issue? Good faith, commercial reasonableness, Seller would be unjustly enriched if he would receive K price for non-conforming goods. As a matter of good faith, in the enforcement of a K, the Seller may not sue the buyer for non-conforming goods.

ACR v. O-C Problem – (pg. 214) (UCC 2-709) ESSAY QUESTION ON HER PAST EXAMACR has shipped the goods to O-C. O-C rejects the goods. -Why? What did they hear on TV? A report by a consumer advocate. -Did they examine the goods? No -Why are they rejecting? All of the people around have been watching the TV. They may believe it more than O-C. We wont be able to resell the goods b/c all the people believe what they saw on TV. If we cant sell them we want to send them back. -Has O-C committed a breach? Yes. It’s a wrongful rejection. (if they had a defect, it would be a rightful reject). They haven’t expected it, they didn’t send notice, just saying ACR, we don’t want the goods. ACR can sell the sets $25 less to a West Coast buyer in San Fran. -May O-C require ACR not to tell Lacy’s about the Meyerson story? Their at the negotiation stage w/ Lacy. They are at the enforcement stage w/ O-C. So they are only at the negotiation stage, so they have no good faith obligation towards Lacy’s. -Suppose ACR tells Lacy about the Meyerson report? They’ll say they don’t want the goods either. Then Lacy situation will be call up ACR for the same reason O-C wont take them. If you tell Lacy, and cleared the deal toward Lacy, is their an argument by O-C, that by tell Lacy, there is a good faith breach of enforcement at the enforcement stage with O-C? In other words, -By clearing the deal w/ Lacy has ACR breached a duty of good faith towards O-C? They have a duty to try to resell the goods in a best reasonably commercial manner. -Does the phrase “commercial reasonable” include avoiding telling the substitute buyer that something might be wrong? No.

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-Suppose ACR doesn’t tell Lacy? Lacy will then say anticipatorily repudiate (the goods haven’t been shipped and no money has been paid).

Cranberry Scandal (pg. 214)Lots of people were worried about pesticides. Nixon says nothing wrong w/ the cranberry’s. People still did not buy cranberry’s. Cranberry anything was not being sold. Today, Mad Cow Scandal.

[25] Seller’s Right to Contract – Market Damages1st Question in any damage formulas, is what are the triggering events for the damages formula? Certain breaches buy the buyer will give certain breaches to the seller. 2-708(1): Non-acceptance and repudiation. What does non-acceptance mean? A Wrongful refusal to accept. Wrongful Rejection and Revocation of acceptance. Those two together can make up non-acceptance. Repudiation picks up the one triggering event in 703. In the “Index” (2-703), the only triggering event in the Index missing is failure to make payment due on or before delivery. That can’t be worked into non-acceptance and it cannot be worked into repudiation. What do we do w/ fails to make a payment due on or before delivery. Also after delivery as well. (Failure to pay After delivery is the mystery delivery event.

Bridge, 2-709(3) we could go back to 708 if we are the seller and cant get the action of the price. Bridge repeats everything from above, the 3 triggering event AND they got Fails to Make a Payment Due. This picks up after delivery. So before, on, and after. The first two would go to the Index (on or before). Failure to make payment due “after” delivery is picked up w/ the bridge.

§2-708. Seller’s Damages for Non-Acceptance or Repudiation.(1) measure of damages for non-acceptanceor repudiation is the difference between the market price at the time and place for tender and the unpaid K price together with any incidental damages but less expenses saved by breach.

Kp – Mp + Id – Es = 2-708(1)

“Unpaid K price”. Cant have a “Market Price formula” unless its an unpaid K price. If a downpayment, then balance. Kp – larger than Mp because market falling when B breaches.“Market Price” = time and place of tender of delivery. What, when, where is tender of delivery. Mp – what a willing B would pay a willing S in an open market.

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-this assumes there is a market somewhere which could be tough to determine for a Rembrandt for instance. Fungible goods on other end of spectrum and easy to determine market for them.“Incidental damages” in 2-710. “Minus expenses saved” in consequence of the buyers breach. -Which of the 2 parties bears the burden of showing the expenses saved? Buyer. B/c he’s the one who wants to reduce the damages. Buyer wants to make sure there is a set off. -Exp of Market Price: At one extreme is a pen, sold everywhere. At the other end is a piece of art by Rembrandt, something which cannot establish a market price, and this rarely happens). ***Seller determines the basis of this formula. Exp: The unpaid K price was this. Time and Place of Tender of Delivery would be such. Plus the incidental damages and there was NO Expenses saved over the breach. Then the buyer comes back and argues. Why is it the market price at the time and place of tender is usually smaller than the K price? Usually if the Seller is suing the buyer under this formula, seller wants a positive number on the bottom. On the otherhand, when the MP rises, who has the economic incentives to get out of K? Seller. If it is a falling market, the Buyer wants out.

ACR v. MP (UCC 2-708(1)) (pg. 218)June 1st, then delivery on June 15, and then third delivery on July 3. What is the K price? $10,000 each time at the time and place of tender. Grand total of $30,000 in K price.Which is the MP? Whiting: On June 1, 10,000 and on June 15, 10,000 and on July 3, 10,000. K price is 30,000 and the 10,000 are only installment payments. Divisible Damages. If you want to emphasis MP, you have to come up w/ a MP at the time & place of tender, which will be three different prices b/c there are three different times. Suppose we have a 9 over here, instead of a 10. Going horizontally. 9-10 = -1 or 0. -Which party has the economic incentive to stick in the 0? Seller, Because he doesn’t want to start out with a negative number. He wants 0 plus something – something. Which party wants to put in –1? Buyer. Because the buyer wants to start from farther back. If you start w/ a negative number, and then add and then subtract, it will be a smaller number. -this is only one component of an entire formula. Should we use a Zero or –1? 0 is better b/c we are talking about the overall KP and MP. The ultimate goal of damages in 1-106 is to put the aggrieved party as if the breaching party has performed the K and therefore that would be the best way to put him in that position and that would be 0.

Goal = what position would he have been in if the breaching party had performed the K. He would have gotten the and he gets the rest of the K price. But then we realize he has

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not gotten the K price, so we should give him his 30,000 (b/c that’s what he had) whatever the full K price was, we manipulate the MP to get him to the full K price plus incidental damages less expenses saved. “Horizontal Approach”: If you want to emphasize the words “K Price” over MP, you should; 1.) Add the 3 installments payments due on each date and put the sum in the total column;2.) Add the 3 MP on each date of tender and put that sum under total too. 3.) Then subtract the Market sum from the K sum for the answer (the remainder).

“Vertical or Divisible Damages”: If you wish to emphasize the words MP over KP then;1.) Subtract the MP for June 1st from the installment K payment for June 1st, then likewise for the other two dates. 2.) Add the 3 remainders to get your answer.

Exception to the Rule of Market Damages§2-723. Proof of Market Price: Time and Place. (this operates only in “anticipatory repudiation” & only in Market Damages formulas & this applies to the Seller and Buyer in Market Damages Formula)(1) if trial before time of performance, Mp is taken when aggrieved party learned of breach.(2) if evidence of Mp not available as described herein, it is taken at reasonable time before or after and at place in commercial judgment or U/T would serve as reasonable substitute, making allowance for transporting goods to and from.(3) evidence of Mp by one party no admissible w/o notice to other side to prevent unfair surprise.

-see supertanker example.

Id - seller’s Incidental Damages: 2-710 - any commercially reasonable charges, expenses, or commissions incurred in stopping delivery, transportation, care and custody of goods after B’s breach in connection with return or resale or otherwise resulting from the breach.

Es – seller’s expenses saved -note that 2-709(1) (S’s market damages) does not have this b/c there, the goods are already made.

HYPO:When did the party learn of the repudiation? When the buyer notified the Seller. When the Seller heard from the Buyer. That is the point the MP we will look at. -What happened if they wanted to Resell?

-------------- class 23 Seller’s Right to “Resale” Damages (Not in favor of Sellers, they still like the action for the price). Code prefers mitigation & wants the seller to resell the goods, get the goods to someone who wants the goods and then seek any difference b/w

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expectation interest and the mitigation from the breaching parties. The expectation interest is the K price and the mitigation is the resale.

-What is the triggering event in 2-706? Look at 2-703. (Does that mean repudiates “only” anticipatory repudiation? Yes) If that’s true, then you don’t believe that 2-703 includes contemporaneous delivery, then the buyers to fail to make a payment due after delivery would not be a triggering event in the Index. Problem with the contemporaneous delivery is that The buyer already has the goods therefore you cant resell the goods b/c the buyer is in possession of the goods. However, it is possible for the Seller to demand the goods back from the buyer. ***The triggering events for the Resale formula is whatever is in the index.

There is a split in authority as to whether a contemp repud will trigger a resale??

KP (no “unpaid”) – Resale + Incidental Damages – Expenses Saved.

§2-706. Seller’s Resale Including Contract for Resale.(1) under 2-703 the seller may resell the goods. Where resale is made in G/F and in a commercially reasonable manner, seller may recover the difference between the resale price and the K price plus incidental damages under 2-710, but less expenses saved.

method for resale ↓ (2-5 deal w/ procedural questions)(2) except as in (3) or unless otherwise agreed resale may be public (auction) or private (anything less than an auction). Sale as a unit or in parcels okay even if goods not in existence or identified before the breach.(3) where public resale seller must give buyer reasonable notice.(4) where public

(a) only identified goods (b) at usual place or market for such goods and notice to B required unless

perishable.(c) if goods not in view at sale must be available for inspection; and(d) seller may buy.

(5) G/F purchaser takes free of any obligations from original buyer.(6) seller who resells for a profit is not accountable to buyer for any profit. -What does (6) mean? If K price was 100 and gets 105 he doesn’t have to give 5 to buyer. -Why is this? Buyer breached, why should we give buyer the benefit when the Seller made a profit. Seller did great salesman ship. -Why would an agent be accountable to the seller? The seller is the principle and the agent is always responsible to the principal. The agent is selling the principals goods. Not his own. Kp – RS + Id – Es = 2-706

-event in 2-703 that triggers this remedy is repudiation b/c that is the only one where the seller still has possession of the goods.

-Lousin says that any event in 2-703 triggers but how does seller get the goods back?

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Id – restitution type things like phone calls.Es – shipping would be saved b/c didn’t do it.

-G/F and commercial reasonableness encourage a seller to resell as soon as possible or lose this remedy.Comment 4 – in considering public or private sale, character of the goods considered and U/T.-seller not accountable for overage per (6) – make sense, buyer breached (see Fergusen).

-also makes sense since it encourages aggrieved sellers to use this remedy.-on market damages side, there is nothing in the statute but here we do.

-seller can employ an agent under 2-207 to resell.

Exercise p.220 problems:1. KP = 5000- RP = 4000+Incidental Dmgs = 300- 75 = 12252. 5000-4000+300-75 = 1225 but buyer paid 500 down. What’s the problem of downpayment? 500 comes out of K price (nothing to do w/ buyers breach of K). Can’t ignore it b/c of 1-103 will not allow unjust enrichment

thus: 1225 – 500 = 7253. per 2-706(6), seller not accountable for any overage so the 1000 is the seller’s:

5000-5000+300-75 = 1225

* the 500 has nothing to do with expenses saved, or incidental damages or the resale value – those values do not get touched buy the amount paid.

-Sometimes the seller has many fungible goods on hand and sells them shortly after he hears of the buyer’s breach. If he does make several sales, which one is the “resale”? Resale – if good are identified, seller usually must sell them; if not identified, the seller has some leeway as to which goods are “the sale.”

Long form notice (who, what, when, where) – if auction (public sale). The buyer ought to know that he can go there and monitor the auction.If there is a private resale – than it is any kind of reasonable notice. Not secret – usually the seller going through their customers an trying to find someone that would buy the goods.

ACR v. MP Problem (2-706) – (pg. 222)Same facts as on pg. 218 except: ACR after notifying MP, resold the 300 sets as follows. June 5th resold 1st 100 sets for $12,000. July 20th, resold the 2nd shipment (100 sets) for 7000. Oct 20, it resold the last 100 sets for 8000.

Horizontal                                                                      10,000, 10,000, 10,000 = 30,000.

                                                                              Seller claims the retail price that on            12,000,    7000,       8000    =        27,000

Vertically, it would be                             -2K           3K              2K       =             3K

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Maybe you want to put 0 instead of –2. What’s the justification for 0? Statute says that the Seller is not accountable to the buyer for any profit made on resale. Then go through incidental damages and expenses saved. If you have a 0, this adds up to 5, and w/ a –2 you end up w/ 3. Point is, 0 is a larger number than –2. This illustrates what could happen if we accept these numbers by the seller. Buyer can always come back and say these are not reasonable good sales. Buyer says on June 5th, the seller was making these in access. Is it worth it for the buyer to make that argument? No. You get 0. If the buyer is in a jurisdiction that (6) applies only at the bottom line, then will it be worth it? He would get it at –2.5. Buyer wants to start back as far as possible.

What about 2nd problem? It’s a delayed delivery. Buyer comes in and says what’s more, on or about June 20, Seller was selling TV’s for 10,000 +. That looks bad for the seller, but is their any argument for the seller? Is it odd that Seller is making sales at 7,000 and at 10500? No. He may have entered into K w/ this person in Jan. Then in Feb, TV sets had gone up in value. In March the TV has gone up. -Buyer would be justified in saying this look suspicious. -Seller is in control of identification of the goods. -Any justification for Oct. 20? These were the TV identified and this is what the market would allow. Who breached the K? Buyer can challenge what the Seller says but Buyer breached!Baseball Playoff’s began Oct 5, the sudden drop in TV sales in Chicago when the Sox lost, so thereafter. Oct 9 in Wash DC and in Philadelphia, big increase in TV there.

Remember, Time and Place of Tender is the Market Price chosen.

Seller’s Choice of Damages – “Jump Damages”Its taking the sales and choosing the Market Price Formula. (this is playing crazy quilt). Is the seller allowed to resell then take MP damages. -What if the seller resells and you end up with the loss profits?

§2-708. Seller’s Damages for Non-acceptance or Repudiation.(2) if the measure of damages in (1) inadequate to put seller in as good a position as performance, then the measure of damages is the profit (including reasonable overhead) the seller would have made plus incidental damages less costs reasonably incurred and less credit for payments or proceeds of resale.

-can seller choose to resell under 2-706 and then seek damages under 2-708(1)? -Ellen Peters argues that the Code does not favor forcing an aggrieved party into “election of remedies.”

-court in case on 227 awarded seller lower damages under 2-706 b/c breaching buyer (D) proved that the seller was not in lost volume case under 2-708(2). (true/false question on

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Exam, 2-708(2) is available only to loss profit of the Seller? FALSE). This is a “consequential damages” provision. -also applies to jobbers and component part men.

Profit + Overhead + Id (incidental damages) (2-710) + Costs reasonably incurred – Credit due (subtraction) for resale = 2-708(2)

-Credit due for resale – added for component part men who buy raw materials to make custom goods and have no reason to finish when buyer breaches; it is junk value of raw materials.-Overhead – includes (1) direct materials (raw materials); (2) direct labor; and (3) factory overhead (variable factory overhead like janitors and fixed factory overhead like rent, taxes, depreciation).

Summary of Seller’s Rights Problem – 234

Outline of Seller’s Rights (from Lousin at no extra charge):1. did the buyer breach or just respond to the seller’s breach?2. what kind of triggering event did the buyer commit?3. which of the seller’s remedies are available for this trigger?4. what is required for the remedy?5. what is the formula for remedy?6. figure out the damages.

The economic or free market basis of Article 2 damages – UCC assumes that there is a market economy, that is, there are plenty of willing buyers and also willing sellers. Keep this in mind.

[25] Introduction to Buyer’s Rights & Remedies (pg. 220)

§2-711. Buyer’s Remedies in General: Buyer’s Security Interest in Rejected Goods.(1) where the seller fails to make delivery (buyer pays), or2.) where the seller repudiates, (anticipatory only) or

↑ pre-delivery breaches by seller3.) the buyer rightfully rejects, or

↓ post-(delivery breaches by seller due to non-conforming goods)4.) justifiably revokes acceptance Remedies:then with respect to the whole if the breach goes to the whole contract (2-612) the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid (downpayment)

(a) “cover” and have damages under 2-712; or(b) recover damages for “non-delivery” under 2-713. (non-delivery means goods

that do not conform, -Seller “failing to deliver” or repudiating, the buyer does not have the goods.

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(2) where the seller fails to deliver or repudiates the buyer may also (additional remedies)

(a) if the goods have been identified recover them under 2-502 (S’s insolvency); or

(b) in a proper case, get specific performance or replevy the goods provided under 2-716.

-2-502 is when the buyer has gone insolvent and the buyer wants to buy the hoods. -2-716 is that buyer has not got the goods yet. -What do we know about the 1st two triggering events? Pre-delivery. (In Pre, Repudiates means Anticipatory Repudiation (this is only on the buyer side).

(3) on rightful rejection or justifiable revocation of acceptancea buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in inspection, receipt, transport, etc. and may hold such goods and resell them in like manner as an aggrieved seller under (2-706).-“Security interest” in goods means buyer obtains the right to repossess the goods. We know seller has already delivered. -The 2nd to triggering events are post-delivery events.

-Rejecting buyer must be careful to reject in way to preserve rights under 2-711:-When the buyer rightfully rejects or justifiably revoked, and he is reselling the goods, Who’s goods are the buyer reselling? The seller still has title on the goods, b/c buyer rightfully rejected or justifiably revoked. -Buyer who resells at a profit must turn over profit to seller 2-706(6). Buyer is acting as an agent for the seller, Its still the sellers goods. -Recover down payment, when we see K price, it means unpaid K price. On the buyers side always mean unpaid K price b/c as a separate remedy, buyer is allowed to recover his downpayment.

Buyer’s Remedies When He “Retains” Non-Conforming Goods:§2-714(1) Buyer’s Damages for Breach in Regard to Accepted Goods.(1) where buyer has accepted (and retained) goods and given notice per 2-607 he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner which is reasonable. So, b/c he’s accepted and retained, he did not reject or revoke. GENERAL PROVISION(2) the measure of damages for breach of warranty. Beginning to use the word VALUE. It’s a little more precise then (1). Value looks like an objective test, and a subjective test. Includes not only breaches of warranty includes breaches by the seller. (3) in breach of warranty, buyer can go back up to (1).

Comment 1 – section deals with remedies available when goods accepted and time for revocation has passed. Failure to notify means no remedy here.

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-this subsection allows buyer to recover for any damages suffered from a delivery that did not conform even if he can’t revoke any longer.

Buyer’s Incidental Damages.-Suppose the buyer has decided to expand his factory and come up w/ new line of goods. He orders new line of equipment from seller. In order to hold new equipment, he adds a new wing to the factory, MAY the buyer recover for the addition to the wings? He built the wings to house the equipment he bought from the seller. (Has to be a connection b/w Seller’s breach and lose). Its not an incidental damage. Statute says resulting from the breach. Their has to be a direct relationship b/w the breach by the seller and the loss. But For Test:-Suppose that the seller had delivered the equipment, would the buyer had spent the money on the wing? Yes. Then, that means their cannot be a claim for incidental damages b/c the buyer expended the money to build the wing was on “reliance” on the K.

§2-715(1). Buyer’s Incidental [covered in (1)] and Consequential Damages covered in (2)] (out of pocket)(1) Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, transport, etc. of goods rightfully rejected, and commercially reasonable charges, expenses, or commissions in connection with effecting cover and any other reasonable expense incident to delay or breach.

-incidental damages – restitution interest; pay the buyer back what he spent as a result of breach.-subsection is both a stand-alone source of damages and part of 2-712, 2-713, and 2-714.-two limits on incidentals:

1) must be causally related to breach2) same thing restated in Lousin-speak?

-inquiry – would the buyer have spent this money if seller had not breached?

Buyer’s “Consequential” Damages (lots of money here)§2-715(2). Buyer’s Incidental [covered in (1)] and Consequential Damages [covered in (2)].(2) Consequential damages resulting from the seller’s breach include(a) any loss resulting from particular requirements (consequential damages) about which the seller at the time of contracting had reason to know andwhich could not reasonably be prevented by cover or otherwise; and(b) injury (torts) to person or property proximately caused by any breach of warranty.

Comment 2 suggests that this subsection adopts the “reasonable contemplation” test from Hadley v. Baxendale.(Grandparent of consequential damages Case) reasonable contemplation test and the passive assumption test (narrower rule)Rule of Heron I: if this defendant (subjective) or a reasonable person in that position (objective) in fact knew (subjective) or should have known (objective) that any kind of damages would be the consequence of any breach by him, he is liable.

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-how much should we use interpretations of Hadley color our case law under 2-715(2)? (this was codified before Heron II). -note that Hadley, Heron I, and II all involved cartage contracts not sales of goods Ks.expectation interest – consequential damages.

3 things buyer P has to show1. Reason to know test 2.Just general damages3. Knowledge has to be at the time of contracting and not at the time of the breach.

3 restrictions on liberal version of Hadley: 3 things Seller D has to show. 1) plaintiff has a duty to mitigate – 2-715(2)(a) “cover or otherwise.”2) damages must be reasonable ascertainable and damages cannot speculative.3) harm must be proximate to breach (not to making of K) (was the fact that the

shit did not get there on time the reason why the sugar price was so poor?)

Limitation Damage is Mitigation. The reason to know could not reasonably prevented by cover or otherwise. Seller has reason to know. (Cover is the repurchase formula). If the buyer can show that he could not have mitigated, or that there was no use b/c of the circumstance, then he has nothing to fear from the penalty. -What’s the policy reason for putting this in? If the buyer doesn’t take action to mitigate and they can, they shouldn’t be able to recover consequential damages under 2(a0. Note: There is no such penalties in incidentals or in 2(B) (tort warranty consequential damages). -What if the buyer only wants incidental and 2(b) damages? Does he have anything to fear by not covering? No. B/c its not the way the statute reads.

Lost Profits – The Classic Consequential Damages are very important. §2-715(2)(a) – see above. (Do Not Ever File a claim for Lost Profits under Any section except 2-715 (2)(a) in the complaint.

Adams Plywood (reasonable contemplation test) – Facts: Somebody who has delivered machinery and it turns out the machinery is defective. Buyer sues for consequential damages and the Seller comes back, why didn’t he cover, mitigate, fix the machine himself. Argue Causation: Buyer says I was unable to complete my construction project on time b/c of your defective machinery. Seller says It was b/c of the bad weather. Buyer rejected lumber and returned goods he had already paid for but seller went bankrupt. Court held that buyer surrendered his security interest.

-UCC lost profits cases make clear that mitigation by the aggrieved buyer is a duty but that that trier of fact determines the extent and content of that duty.

[26] Buyer’s Cover Damages (2 most important damages for buyer) 2-712

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-When you get to cover, has to understand something, Buyer usually ends up w/ cover as his remedy. Buyer needs his goods, so if he can’t get them from another Seller, he’ll sue. If there is a loss, he sues. - Everything under 2-711 (the 4) are the triggering events for coverBuyer would love Specific Performance. That fulfills his expectation interest. Cts don’t like to issue these orders, and prefer money damages (have buyer go elsewhere then sue Seller for rest)

What are triggering events for cover? All 4 from 2-711 Cp – Kp (unpaid K price) + Id (2-715(1)) + Cd (s-715(2)) – Es (Seller’s burden of proof and it is a set-off) = 2-712Expenses saved needs to be proved by Seller.

§2-712. “Cover”; Buyer’s Procurement of Substitute Goods(1) after a breach within the preceding section, buyer may make G/F and without unreasonable delay and reasonable purchase of or contract to purchase goods in substitution.(2) buyer can get as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages but less expenses saved in consequence of the breach.(3) if the buyer doesn’t cover, he can get a different remedy in this section.

3 REQUIREMENTS:1. Good faith (if merchant then merchant standard)2. Without unreasonable delay (from when the buyer learns of the breach).3. Has to be substitute goods.

“G/F” – since most buyers are “merchants” must use merchant G/F reasonable standards in the trade.

-if trade standards require buyer to solicit six or seven estimates he must.“Without unreasonable delay” (reasonable time) – time will vary on facts of U/T and nature of the goods. Usually the time the buyer learns of the sellers breach. Then the buyer should then say should I cover. -Can the buyer get goods of a better quality? Depends on if they are reasonably available. Also, maybe set-off situation. -What if the only thing available is better goods or lesser quality goods? Buyer buys grade B but the only thing available is Grade A or Grade C. Is the buyer required to take Grade C? No. The purpose of damages is to put the aggrieved party as good as a position as if the breaching party had performed the K.-May buyer cover with goods that are better quality? If so, their should there be a set-off for the value the buyer got above what he would have gotten under the K; Recent case (Terex Corp. v. Ingalls Shipbuildng, Inc., 671 So. 2d 1316) - Diff is an expense saved – it could be factored in as an expense of the seller’s breach.-Can buyer cover by producing the goods “himself” or taking them out of his inventory? If the buyer could have gotten the goods substituted, he would have done so. Presumably, this is the only way he can get the components in a time frame. (who created this problem, the Seller)

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Posner (Chronister Oil Co. v. Unocal Refining and Marketing, 34 F.3d 462) – no. Damages as opportunity costs. (What does Posner fail to tell us? Doesn’t say what the buyer should have done. He can’t manufacture the component.) Cover is to be with another seller and you cannot cover yourself.

-Suppose buyer who “does not” cover can get different remedy except no Cd under 2-715(2).

Buyer’s Market Damages§2-713. Buyer’s Damages for Non-Delivery or Repudiation.(1) measure of damages for non-delivery or repudiation is difference between market price (at the time when the buyer learned of the breach) and the contract price together with any incidental and consequential damages but less expenses saved in consequence of the breach.(2) market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.-What are the triggers? Non-delivery or repudiation. (includes 1.) failure to deliver and a 2.) delivery of non-conforming goods giving rise to a rightful rejection or 3.) justifiable revocation). In addition includes repudiation (anticipatory only). -At the time the buyer learns of the breach, 2-713(2), -General Rule-this is time the buyer learned of the breach. NOT the time of tender, this is different from Sales.

Mp – Kp + Id + Cd – Es = 2-713

The Widget Problem – (pg. 2 )30 widgets. Buyer chose not to cover for 20 of them. He could not cover for 10 of them. That means that the lost profits will only apply to the 20 widgets that he could have covered for but did not. How do you establish the loss leader situation. (you buy something at cost b/c its overstock).

[27] The Relationship between 2-712 and 2-713 – The Buyer’s Possible Responses to Seller’s Non-Delivery, Particularly a Failure to Deliver.

Harvest Restaurant v. Minister Carpets Problem – 250-Starts w/ idea what the particular triggering events might have been. -What was the triggering events of sellers breach here? 1.) Fails to deliver, 2.) delivery of non-conforming goods giving rise to a rightful rejection delivery of non-conforming goods giving rise to justifiable revocation. -What specifically did the seller do here? Seller Failed to deliver on 15 of December (this tells us the reasonable time for cover & when the buyer learned of the breach, and we learned of the time for the market formula. -must know when seller breached for two reasons:

1) reasonable time to cover starts.2) that is when the market price is taken.

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____________________________________________________________________________________A. Minster K permawear 2,500 yds$25,000 (K $) installation 10-year express warranty____________________________________________________________________________________Royal permaware 2,500 yds$35,000 + 2,500 installation 15-year express warranty = $37,500____________________________________________________________________________________-Ignoring the time, was this a purchase of substitute goods? Yes. There is a 50% increase in price b/c there is a 50% increase in warranty. This is a dramatic increase in price. -How long was it from the time the buyer knew of the breach until he covered? 19 days; or 2 1/2 weeks. -Market price had been down but there is no evidence in problem that Harvest knew that.

Cp – Kp + Id + Cd – Es = 2-712

-3 Requirements for “Cover”1) G/F2) no unreasonable delay (reasonable time) = 3) substitute goods

-this looks like a “good cover” under 2-712.-Would you say the cover w/ Royal was a proper cover looking at the 3 requirements? Yes. There is evidence that they tried to cover. They reflected on the problem. _____________________________________________________________________________________B. Minster permawear 2,500 yds$25,000 installation 10-year express warranty______________________________________________________________________________________Royal not perma 2,500 yds$32,000 installation 5-year express warranty______________________________________________________________________________________-market price at time Harvest learned of the breach was $35,000. On 4th, market price drops. -Harvest will argue that they should by able to “jump” into 2-713 for damages and not be forced to elect cover damages. (damages based on the market price even though buyer covered; this is jump damages).

**MP for permawear at time buyer learned of breach? Sept 15. was 35,000. Market Damages Cover DamagesMp – Kp + Id + Cd – Es = 2-713 Cp – Kp + Id + Cd – Es = 2-712

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35 – 25 + x + y – z = $10k 32 – 25 + x + y – z = $7k

-Is restaurant losing money by having covered? Yes. -What’s the argument for saying we deserve Market Damages and should not be penalized for having covered. The only reason we covered is that we really need this carpeting and breaching seller owes us 10,000? We were desperate. We didn’t want to use a lesser quality of carpet. It’s nonpermaware so its lesser. -In order to get to that point, need to argue a good set of facts for jump damages.-Could Seller argue it really wasn’t covering? -Buyer made a repurchase of substitute goods. Now he says that wasn’t the cover. I really want Market Damages b/c I did not cover. Under 2-712(3), failure to cover is no bar, so I want my Market Dmgs under 2-713.

-Suppose you have to cover purchase and the amount K price is 25,000. Cover price is 23,000 (lesser qual)This is less 2000. PUT IN 0. -Seller will say this is really a cover so we want the –2000. -Buyer says I want to start from 0, it’s a larger number than –2000. ____________________________________________________________________________________C. Minster permawear 2,500 yds$25,000 installation 10-year express warranty____________________________________________________________________________________Royal better perma 2,500 yds$35,000 + 2,500 installation 15-year express warranty____________________________________________________________________________________-Same permawear not available in US, but could have gotten same installed from France for $30k.-We have no info about time of deliver or installations.Identical or low quality, it’s a substituted goods. -How quickly could all the competitors deliver? -Would a Ct say your always allowed to buy domestically? Free trade. -Would a Ct compel a buyer who is seeking to cover under 2-712 to take a foreign cover, for a lower price, we are not talking about lower quality? No. Because of these reasons Transnational purposes. 1.) Custom charges, 2.) Letters of Credit (buyer has to get from his bank, which is always for the benefit for the Seller). 3.) Delivery problems, and who is going to do the installation. They will probably hire an American Service Comp to do the installation. ---What’s the problem of that? It’s a service. 4.) Warranty Problems. Dealing w/ European laws. 5.) Language Difference.

-Harvest elects to buy better permaware for $35 plus installation of $2.5.-does Harvest have to cover with French company?

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[28] The Relationship between 2-712 and 2-713 – The Buyer’s Possible Responses to Seller’s Anticipatory Repudiation. -How long must a buyer wait after he learns of the seller’s anticipatory repudiation before he must begin to proceed with cover or market damages?

3 Triggering Events in 2-711Sellers Failure to Deliver, failure to deliver at all, or late delivery, or problem w/ the mechanical aspectsSellers delivery of non-conforming goods giving rise to a rightful rejection.Sellers delivery of non-conforming goods giving rise to a justifiable revocationAll these equal up to the word b/c the word Non-Delivery in 2-713. 2-713 also has the word repudiation (anticipatory on Buyers side).

How a Buyer responds to this is all in its own. 1. Buyer can 2-609 reasonable grounds for insecurity.

Oloffson v. Coomer (Ill. App. 1973) “Truly Anticipatory Repudiation Case”Facts: Corn Case. Seller is Coomer. Coomer is a farmer. Ct says Coomer is a non-merchant. Buyer is Oloffson. He merchandizing grain so clearly a merchant. At Trial Ct level, Oloffson won. He is appealing b/c he feels that the Trial Ct used the wrong standard in determining Market Damages. -Issue here is for damages. Coomer says I breached the K so this is clearly Anticipatory Repudiation. -They entered into K on April 16, 1978. -K price: “1/12 and qtr.” per bushel; and the other is for “1/12 & 3 qtrs” per bushel. -What happened on June 3rd?, Farmer had told dealer he wouldn’t be able to deliver on June 3. At that time the market price of corn was $1.16. -What is significant for purposes of damages? If he covers on that date, the Market Price is 1.16 minus K price. -Even more important, for purposes of Market Damages, this is the time the buyer learned of the breach under 2-713 (June 3rd) also, we begin to measure the time for cover, the buyer has to cover w/out an unreasonable delay, which runs from the time he learned he had the cover possibility which was the time he learned of the Anticipatory repudiation. He also knows what his market damages will be. He also know if he does not cover in a reasonable time, he will lose his right to cover. -If he losses his right to cover, what happens? Market Damages are from the time he learned of the breach. -When he covers its what? Dealer covered in Sept. with 20,000 bushels at $1.35 and 20,000 at $1.49. -When did Ct say he should have covered? June 3rd, or shortly thereafter b/c that was the day he learned of the repudiation. Ct said it was a bad cover b/c he waited to long, and he is a merchant so should know this.

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-What did Ct said about the Market Price? Ct said at the time he learned in the breach under 2-713. It gets the point across to buyers, that if they learn of the breach, and they full around w/ cover, they will be stuck w/ the date they learned of the breach.

-disagreement between Lousin/Oloffson position (cover and market price in June) and W/S (cover and market at time for delivery).

White and SummersThey prefer a reading that takes us to a time of the performance. -If the case comes to trial after performance, then the Ct can then look back to the market price at the time of performance. Ct could have looked at the performance date market prices. -As a result, there is no reason to look back at the time the buyer learned of the breach. Just look at the time of performance. Performance market prices are available. Its based on 2-723(1). Its called negative implication. -The sellers market damages are measured as of time and place of tender. -It is the seller who needs 2-723(1) b/c it is the seller who waits around to establish time and place of tender. -On the buyers side, market damages is the time the buyer learned of the breach. Now, you don’t need 2-723(1) is cast in language which applies to both the seller and the buyer. -Under 2-723(1) you have a anticipatory repudiation and only applies if it comes to trial before time of performance. ***Lousin says focus only on the time the buyer learns of the breach. This is the buyers response to an anticipatory repudiation by itself.

Ace-Tivoli Problem – 243Letter which Ace’s lawyer written to Tivoli. -The letter itself says what about the 1st installment? They will make every effort to deliver it later. Installment number one, they committed anticipatory repudiation. Installment number two, see 2-609. -Is it clear and unequivocal they wont perform the 2nd installment? No. -What do they say about installments 3-6? Nothing. We will make every effort to meet the 2nd installment. -As to installments 1 and 2, is there reasonable ground for insecurity? Yes. -Who’s fault was it? It’s the readers fault over the drafters fault. -2-612, substantial impairment issue. Facts given:-Upon close questioning you discover that delay in delivery will wreak havoc with your production schedule. Is that for substantial impairment or against? For. -Next 1 = Neutral. - Next 1 = Neutral. 50% is too high.-Probably will make it up, -Install 1 = anticipatory repudiation (will not meet but will try to make it up later).

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-Install 2= Has to be clear & unequivocal that seller’s non-performance by anticipatory repud, but 2-609 kicks in as reasonable grounds for insecurity. Install 3 = 3-6 = D says not abt. Delivery of performance. -Note: Buyer gave Seller 6 month leave time. Blue prints were misread by Sellers engineers. Buyer gave seller 25% off total cost as an advance. -Substantial Impairment = as a whole to the K, pro, against, neutral = substantial impairment. -IN writing a letter to Tivoli, consider Sellers need for immediate goods, potential loss profits if I’m selling to another party, quality of goods, if I cover, ability of D to provide assurance of 2nd installment of goods.

As a solution, I should: As Buyer, most definitely state: “You have wreaked havoc! This could trigger Hadley’s damages for lost profits. Then, approach it as if I were shocked, ask for 50% from D and 50% cover. This is an offer. Ask for assurance 2-609 on how quickly D can deliver on remaining K or make the next installments. #2-6. Re: Cts are split on the issue on how to minimize the losses and how to address the modifications of such.

For Substantial Impairment: wreak havoc on our production. Against: Demand 50% of work from someone else in 4 months; Ace will probably make up, 50% to high. Neutral: 50% cover/4mo.Ace probably make-up the difference. [29] Buyer’s Right to the Goods (and seller doesn’t want to give them)

§2-502. Buyer’s Right to Goods on Seller’s Insolvency.-analogue to 2-702.

§2-716. Buyer’s Right to Specific Performance or Replevin.(1) specific performance when good unique or other proper circumstances.(2) decree may include terms and conditions as to payment, damages, or other relief that the court may deem just.(3) buyer has a right of “replevin” for goods identified if unable to cover after reasonable effort or if circumstances indicate that he couldn’t cover even if he tried.

Comments – section seeks to be more liberal for such remedies than courts have in past.-“Replevin” – goods have to be “identified” in the K. -“Specific Performance” (equity) – no requirement of identification.; sometimes there is a lot of service involved. *Specific Performance is better when there is no identification.

-analogues: both talk about unique goods and inability to cover. .

Concluding Remarks on Code Remedies:-seek to protect one or more of: expectation interest, restitution interest, or reliance interest.-lumber mill buyer who has to talk supplier into delivering.

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The Expansion of Types of Buyer’s Damages:1.) cover, 2.) Market Damages 3.) Specific Performance

-loss of goodwill – Ill. not enthusiastic about going this way but other states have.-loss of economic opportunity (opportunity costs) – Swiss Bank case written by Posner.

Lost Economic Opportunity

Mieske – film splicing case. “don’t lose these, they are my life”-what kind of K damages can she get – cost of film.-damnum absque injuria – suffering without c/o/a.

-Punitives are difficult to get. -Cts wont allow recovery of P unless can show these 4 things;Must show 1.) Willfulness, 2.) wantonness, 3.) malice, or 4.) oppression.

“Moorman doctrine” – purely economic damages unrelated to personal injury cannot be recovered on a tort claim.“Hedonic damages” – the loss of enjoyment of the object.Argument: Statute too vague & overbroad to be a blanket prohibition on other c/o/a for hedonic damages not listed in this statute. -Suppose I buy a painting, b/c I want a masterpiece. You find out it’s a fake. -I was interested in buyers recommended. Can I recover for loss of enjoyment?

-Illinois does not recognize a cause of action for loss of goodwill or goodfaith (in remedy for consequential damages under 2-715(2).

New Developments in Lost Economic Opp Cases. P had neither a K nor privity of K. D didn’t know of the special circumstances required for recovery thereby triggering a Hadley situation. As in tort law, P cant recover if he hasn’t shown due care and prudence (doctrine of avoidable consequences).

[30] The Contraction of Buyer’s Damages.

§2-717. Deduction of Damages From the Price.Buyer on notifying the seller of his intention to do so may deduct all or any part of this damages resulting from any breach of the contract from the price still due.

§2-718. Liquidation or Limitation of Damages; Deposits. (both parties: is it a reasonable amount set at)(1) damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties or proof of loss, and the inconvenience or nonfeasibility of

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otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.(2) where seller justifiably withholds delivery of goods because of the buyer’s breach the buyer is entitled to restitution of any amount by which his payment exceeds(a) seller’s damages if they are liquidated as in (1), or(b) in the absence of such terms, 20% of the value of the total performance for which buyer is obligated under the contract or $500, whichever is smaller.(3) the buyer’s right to restitution under the subsection (2) is subject to offset to the extent that the seller establishes (a) a right to recover damages under the provisions of the Article other than subsection (1), and(b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.(4) where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of (2); but if seller has notice of the buyer’s breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this Article on resale by an aggrieved seller.

-claim for a set-off is more common by buyers than sellers although it is open to both.-parties cannot claim a set-off from one contract for breach of another contract.

§1-201(10) “Conspicuous”: (runs throughout 2-719 and is a question of law)A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals is conspicuous. Language in the body of a form is conspicuous if it is larger or other contrasting type of color. But in a telegram any stated term is conspicuous. Whether a term or clause is conspicuous or not is for decision by the courts.***Admissibility of evidence and Parole Evidence Role is also question of law. Manifest, Clearly Err, No reasonable jury.

Contractual Modification of Remedies:§2-719. Contractual Modification or Limitation of Remedy. (has to spin off 2-718, liquidated damages)(1) subject to (2) and (3) and liquidation. also see 2-316 = warranties 2-719 more than warranties, includes damages (a) agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter damages recoverable under this Article, as by limiting the buyer’s remedies to return of goods and repayment of the price or to repair and replacement of non-performing goods or parts; and(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.(2) where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act.-What does it refer to? Remedy. There has to be some kind of remedy. Put the aggrevied party he would have been in if the Seller had performed.

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Issue: conspicuousness. (3) “consequential damages” may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie “unconscionable” but limitation of damages where the loss is commercial is not.

-Loss profits in commercial situations is always a large amount. Emotional distress as well. 2-715(2)(a) general consequential damages provision. -What does prima facie mean? A little bit of evidence. -What is burden of proof for the seller? Scintilla of evidence. Any little bit of credible evidence. -2nd sentence there b/c some unfortunate incidences. Lots of unsafe toys. Toy ovens that were electric. Halloween costumes made of flammable material. Children got close to candles. On the back of the collar said limitations of damages. This is conspicuous.

-2-719 does not use the word “conspicuous” but many cases turn on whether a written limitation is conspicuous.-2-719 relates to 2-718 (liquidation of damages) and 2-316 (exclusion or modification of warranties). -note that 2-316 excludes remedies available to buyer while 2-719 merely limits the damages he can get once he has shown breach by seller.

2 Views of 2-719: Seller = freedom of K. Buyer = look carefully at 2-719 sub (1)(b)(2)(3)-Seller’s view of 2-719 – freedom of contract allows parties to agree to any limitation that does not violate the Code.-Buyer’s view of 2-719 – sub (1)(2) and (3) place limits on seller’s power to take buyer’s rights.

The Structure of 2-719:-one of the most litigated issues is whether the boilerplate language in 2-719(1)(b) is mandatory.“in haec verba” and “conspicuous”. ***Pavlak, an Ill. case came up with four instances where an exception can arise:

1) if parties are merchants2) if contract was negotiated and not an adhesion, form contract3) there was substantially equal bargaining power4) the subject is not consumer goods.

-Ill. courts look to whether a reasonable construction of the contract indicates that the parties intended a limited remedy to be exclusive citing Pavlak.IL falls into 3rd category. It depends on the facts.

3 Sentences. Does a single one of them use the phrase expressly agree? No. “ “ use exclusive? No. “ “ use sole remedy? No.

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§2-302. Unconscionable Contract or Clause.(1) if court finds contract unconscionable at time it was made it may refuse to enforce it, or enforce remainder without the offending clause, or may limit its application to avoid an unconscionable result.(2) when finding of unconscionable, parties have reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid court.

-courts are split as to whether (3) and (2) are related: if the remedy fails of its essential purpose, may the buyer claim that any limitation on consequential damages in the K automatically fails?

Drafting Clauses under 2-719 : -please track the language of the statute even if you think a Pavlak exception applies.

On exam, don’t confuse Pavlak Rule, it deals with what language to use under 2-719(1); the only thing Pavlak is the en hac verba rule; Pavlak rule does not deal any conspicuous requirement; ASKIs there a conspicuous requirement in (1) i.e. is it implied or is it not there?; if it is not there, then argue it as a cassuis omissus. “Argue this on exam”.

PART FOUR: WARRANTIES OF QUALITY: (EXPRESS AND IMPLIED)

Three points on warranty theory under the Code:1) buyer’s burden to show that the goods did not conform to the warranty. If answering charge by seller, breach of warranty is an affirmative defense.2) whether a warranty is given or excluded are questions of fact. (summ judge issues)3) CODE’S CONCEPT cubbyhole theory – you must fit facts into specific warranty; not general theory of warranty. Certain express warranties. -implied warranty of merchantability – Seller must be merchants. Must satisfy its requirements. -implied warranty of fitness for particular purpose. Very narrow but powerful. Requires buyer go through several hoops.

There are enormous “scope” issues under Warranty. (when have service issue combined w/ a quality of goods will almost always deal w/ warranty issues).

Dead Nun’s Case: Stangor v. Hertz. (all caselaw on “leases” is included in Art II, including Bailments & Services). In this case, a couple of nuns who rented a car in New Mexico. Tire blows out, one nun killed. I. Scope Issue: Ct assumes no difference b/w seller and D status as lessor. This is a lease case. -Does this go to some C/L or property law or K law, or does it remain in Art II? -Ct says about 402(a) R2d discusses whether or not it should be applicable law, and the Ct decides it should not. Ct declines to apply R2d 402(a) (spreads the risk) under small

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business (one man operation) and is best left to the legislature (policy grounds). They go into industry discussion. -***The Ct is lying because the Restatement is not meant to be statutory, but a restatement of C/L. -R2d hasn’t been adopted by NM (or most states); -Ct masks this by saying this is not good public policy. (The legislature do not adopt the R2d; the Cts do.)

**Next issue is one “Reliance” or “Basis on the bargain”. 2-313. What does Ct say on basis of bargain? Ct says that they signed the papers before the employee told them they had good tires there. Ct buyer reassures the Seller all kind of things to make sure Buyer wont back out.

Comment 7 – “post-contracting warranty” acts as a “modification” and needs no consideration. Then you could say the statement, if a warranty related back (goes back to the beginning of theK) or you could say it’s a modification. (emp. Says it’s a wonderful car, it’s a wonderful, and you got good tires – smmt made before the nuns drove away).

-Did the nuns accept the car? By signing the lease, the agreed.

Affirmation = Ct said they did not have to talk about it. -The phrase you got good tires, is that an affirmation of fact or puffing? Puffing. P’s already accepted car before realized what types of tires - Did they really accept the car before they took it? (issue really is one of modification, you’ve got good tires there sister). Good is not specific enough to create an express warranty; a.) Specificity & b.) Provability of condition of tire are factors.

-When you have tires on the cars, is that part of the warranty? yes.

Oral Express Warranty = a parole evidence rule problem.

-Policy reasons – to protect the infant industries of New Mexico.-the problem is that, under 402A, a resident of any other state can still sue so does it really protect?

-Has the Illinois adopted the 2nd Restatement? Yes. Suvado v. Ford Motor Company. 1965-It is the supreme ct of a state that adopts a certain policy.

-One guy wants to buy a cat to breed. Selling farmer make 3 statements to buying farmer. -a.) Cattle will grow up to be a breeding bull? This is puffing, we don’t know if it is great until maturity.

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-b) Cattle’s relatives on both sides were great breeders? This is an affirmation of facts, there are records, -c) Cattle will grow up to be the best…? More likely to be puffing. Cap Getter

§2-313. Express Warranties by Affirmation, Promise, Description, Sample.(1) express warranties by the seller are created as follows:(a) any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

Express Warranty by Description:“Meaning of the Warranty” what the language means. What is the meaning of new tires.

Joe Banner Problem-Did any statements seem specific enough to be warranties? Yes. (F, get 15 miles per gallon when doing 20 mph on the road). (H, the brake lining has just been replaced) (Sweetest Car on the lot ) (Creampuff) (Baby)

Gordon Case: 100% Orange Juice: I think this would mean 100% Orange Juice, not MSG, Sugar. Do you agree? Yes.

Best Buick v. Welcome: Consumer buyer “trading in” used car for a new car. Seller of the new car is anxious to pay for the trade in, say they are giving you the best price on the trade in. -Do you believe he believes it was a 1970 car? Yes. It was sold to him in the 1970. -Is it relevant to the description aspect of this case? No. He believed it. -How would he know? Papers. -Should the dealer (who is the buyer on the trade in) be estopped for arguing that he relied on consumer buyer’s representation that was a 1970 vehicle make? Yes. Dealer had the means to double check this info through decoding + bar code. -Buyer’s good faith is irrelevant here. -What if the buyer said its “I think the car is a 1980 or 1981 model, I’m not sure which?” -Is that an affirmation of fact? No. He’s not saying it’s definitely 1980, or 1981. The laws in most states require dealer to complete forms thus the seller is on is on the hook. Burden of Proof shifts. Buyer usually bears the burden of proof. The Seller nowadays has to prove that the statements he made were just puffing. -Scope: Basis of the benefit of the Bargain/Reliance – Post K Modification. -Most cases hold that statements are modifications are not part of the original K. Illinois is pretty big on reliance. -Affirmation of Fact Promise: Not puffing. You got good tires there. Either or Increase in specificity = Increase the chances its an affirmation of fact.

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-Content/Meaning/Extent = Which D do you sue? To what extent did the warranty extend to the cars and the tires or just the car (in a car rental situation).

Mass. App. court found for dealer who took a 1970 Benz in trade when it was actually a 1968 although the customer was in G/F he made an express warranty under either (a) or (b).

[35] Samples and Models; Specifications (any time you see goods being demonstrated)

§2-313. con’t(1) express warranties by the seller are created as follows:(c) any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

(2) it is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” of that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.

Comment 6 – in general, the presumption is that any sample or model is intended to become a basis of the bargain.

-sample from bulk implies goods have same values unless unmistakably denied.-model of merchandise not on hand not so strong mercantile presumption.

-sample is more likely to result in an express warranty than in a model.

Album Flaky Glue Problems – 294Sales person sitting there says “this is glue (affirmation of fact), this glue does not flake (affirmation of fact). As he was doing the representation, he was saying the glue does not flake, and it was as it was hitting the paper. He is doing the demonstration of the goods. The Visual Model. These are 2 Express Warranties b/c 1, glue does not flake, and 2, it was flaking. Could raise the Estoppel Theory b/c as the buyer was looking at the demonstration, the glue is flaking. -who do you believe the statement or your eyes seeing flaking?

When you get into samples. Buyer has asked for one red type, and Buyer says I will take them and gets blue. If the Seller has reason to know of the usage of trade, then its implied. Red indicates hot water. Blue indicates cold or shutting off electricity. -Do they have express warranty on the color red? No. If there is

-nothing on TV used to be an express warranty but that has changed.-affirmation of fact or by model.

Problems: Shut Off Valves: (Express Warranty via samples) No express warranty if buyer does not indicate reason for wanting that color of valve.

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Storm/Windows: (Express Warranty via models). Design/Manufacturer defective so window. Express warranty of a model; to merchantability as to the ease lifting the window (the window lifted w/ ease).

Vegomatic Slicer: (trad Demonstration) Express Warranty. yes, my slice should be the same as on TV.

TV Ads, Historically, until 30-40 yrs ago, ads were merely puffing, modern commercials are demonstrations. Rule of Reason: creation of what a reasonable person would expect out of the use of the commercial advertisement. Express Warranty by specificity a subset of the above warranty. Specifications – subcategory; express warranty by model for a specific purpose.

Specifications-when a buyer gives a seller specifications, including design blueprints for the goods he wants seller to construct for him, we sometimes say that the seller has given an express warranty of fitness for a particular purpose.1) buyer has burden of showing specs became part of the basis of the bargain.2) because the goods are often unique it is hard to evaluate actual fitness because there are no other buyers in that position.

Uganski v. Little Giant Crane – after observing the Lorain at work Little Giant agreed to build a crane. -What happened when then said sure, we can make that? There was a model here provided by the Seller. -Its possible for the buyer to have a model as well.

The trial court noted that if they hadn’t agreed to build a better crane there would have been no contract.-whether buyer or seller provides the model, both situations can give rise to express warranty by model.

Implied Warranty of Merchantability§2-314. Implied Warranty: Merchantability; Usage of Trade(1) unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their “sale” if the seller is a “merchant” with respect to goods of that kind. Under this section the serving for value of “food or drink” to be consumed either on the premises or elsewhere is a sale.

(2) goods to be merchantable must be at least such as (2)(a) – (2)(f) 6 min standards of merchantability).(a) pass without objection in the trade under the contract description; and (leases) (a+d go together).

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(b) in the case of fungible goods, are of fair average quality within the description; and (software)(c) Litigated most often - are fit for the ordinary purposes for which such goods are used; and (most important of 6) (c will usually be w/ 402(a))

(d) run, within the variations permitted by the agreement, of even kind, quality within each unit and among all units involved; and

(e) are adequately contained, packaged, and labeled as the agreement may require; and

(f) conform to the promise or affirmations of fact made on the container or label if any.(3) in C/D to explain what’s going on in the 6 standards. It cuts both ways. Just explains. -implied warranties not very different from express warranties – in both cases words, writings, U/T, C/D, and C/P determine whether there is a warranty.-“sale” – merchantability does not attach to leases of shopping carts -Ill. excluded cattle, swine, sheep, horses, poultry, and turkeys or the unborn young in 5/2-314(3)(d) of their statute.-“merchant with respect to goods of that kind” – applies to anyone who holds himself out as having skill.-does Comment 6 allow C/D, C/P, or U/T to augment merchantability?

Problems:Golf Ball Problem. Arnold Palmer Golf BallsWhere these Fitness for ordinary purpose? No. Balls were slicing improperly. NOT fit for ordinary purposes. Frozen Flounder Filets:What does filet mean? Bones are taken out of the fish. Would you expect the fish has no bones in it, or they did their best to industry standards. Depends on how easy to debone/filet a flounder would depend upon industry standards. (fishbones, flounder are difficult to filet 100% b/c they so flimsy). Webster v. Blue Ship Tea RmFish bone in claim chowder caused an injury to throat. Ct took to the intrinsic nature of the fish chowder. Result ruling in favor of the plaintiff would be to parse fish chowder for toothless old people. -Held: No breach of implied warranty of merchantability. Ct distinguishes ultimately in ruling on the intrinsic nature. -We should be prepared to cope with the hazards of fish bones, the occasional presence of which in chowders is, it seems to us, to be anticipated, and which, in the light of a hallowed tradition, do not impair their fitness or merchantability.

Natural v. Foreign Substances; What to Reasonably Expect (this is not the reasonable expectation test)Foreign Object Cases: (Industry Standards)The Food Cases – takes care of pre-code problem by including.Natural vs. Foreign Substance and Reasonable Expectations.Ill. has adopted the reasonable expectations of the buyer test.

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Lousins’ 2 Favorite food cases illustrating modern changes in the law.

All we are talking about is the reasonable expectations tests. Chicken bone in chicken enchilada? Yes. Chicken bone in beef enchilada? No.

Illinois has adopted the reasonable expectation test. This is a fact question, for the jury.

Also, Orange Juice problem: not 100% pure OJ? Consider the industry standards.

Anatomy of a Merchantability Lawsuitplaintiff-buyer must establish five facts:1) that a merchant dealing in “goods of that kind” sold the goods2) that the goods were not merchantable at the time of sale3) injury or damage to the plaintiff or his property4) proximate and actual cause5) that plaintiff-buyer gave defendant-seller notice of the defect

[33] §2-315 . Implied Warranty: Fitness for a Particular Purpose.where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.

Comment 1 – buyer must actually be relying on the seller.

Three requirements of successful maintenance of UCC 2-315; :1) seller at the time of the K has reason to know of buyer’s particular purpose – (objective)2) seller has reason to know that buyer is relying on seller’s skill for judgment – (objective) 3) buyer actually in fact relies on sellers skill or judgment (subjective) - (at time of contracting) (total circumstances – given those facts, did they rely?)On exams, T/F question, All elements of 2-315 are false = False. 2 obj and 1 sub.

-if buyer shows items 1 and 2 he has gone a long way toward proving consequential damages under Hadley v. Baxendale.-very narrow warranty that is hard to prove on occasion but very powerful once proven.-a certain amount of intelligence on the part of the buyer may negate this warranty because there would be no reliance.

Lewis v. Mobil Oil – sawmill operator that asked Mobil guy to recommend oil. -most famous case on 2-315. B relies for 2 yrs on S’s reliance of oil type.

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When bought oil, did S have reason to know of B’s reliance on fit for particular purpose? Yes, B continually relied. (different types of oil in different machines)B to S on S’s skill & judgment & expressed he had no knowledge timing. Buyer needed oil to run machinery (2 days past) for the seller to come up plus right oil. Reliance in fact – for 2 ½ years B used the wrong oil as a result of S’s recommendation. This relates to the consequential and incidental damages issue argument for S; buyer never called machine manufacturer to find out what kind of oil to use (this goes beyond mitigation).

-The duty to mitigate is a question of law (there is a duty here). The content of the duty to mitigate is a question of fact for the jury. -P’s conduct (note the only time have to look at whether a warranty is created look to the time of King) if so, then don’t have to litigate #3, as here. -Thinks it is the gear pump, so he cleans it, repairs it, and drains it all + while thinking it is still the oil. -D even calls home office to find out if it’s the right oil, D on multiple occasions says yes. This went on for 21/2 years. -Goes to mitigation and damages. P could have called manufacturer, used other oil, contacted S of the machine all the while P is losing profits – see discussion on lost profits.

Other Issues Surfacing in Warranties: 2-314(c) “mystery warranty” based on U/T and C/D. 2-3172-315 2-3132-314

Real Estate Cases:Implied Warranty of habitability (take off from implied warranty of merchantability). This warrant doesn’t extend past the first buyer.

The Mystery Warranty (enhancement based upon U/t or C/D, seems to be covered in big brown salt). §2-314 con’t(3) unless excluded or modified other implied warranties may arise from C/D or U/T.

Cumulation and Conflict in Warranties§2-317. Cumulation and Conflict in Warranties Express or Impliedshall be construed as consistent with each other and as cumulative; if that is unreasonable, the intent of the parties determines which is dominant. in ascertaining that intention, the following rules apply:

(a) exact displaces any inconsistent sample or model(b) sample from existing bulk displaces inconsistent general language of

description.

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(c) express warranties displace inconsistent implied warranties other than FPP.-courts prefer to find them cumulative instead of in conflict.

2-315 > 2- 313 > 2-314 > any other implied warranty (i.e. mystery warranty; does not mean the warranty of good title – since not really a warranty of good title)

False & Misrepresentation. 2-721Just b/c have warranty counts doesn’t mean cant have fraud & misrep under 1-103 (supp principles) but have to allege other facts (heightened pldg requirements) and they are to be included as separate counts; the cause of action arises out of torts & K law. Different proofs problems b/w warranties & fraud & misrep. Impact on this c/o/a. IE cases where S did disclose flooding of home to B when Selling the home.

The Cutting Edge of Warranties – Cigarettes and Guns. Tobacco Settlement. (misrep) mild cigarettes on label, not state there are associated addictions (nicotine). Cig mnfts never defended that cig are not unhealthy but rather these are adults made their own choice.

Federal Preemption Issue: rears its ugly head in gun cases. Sat. night special loses accuracy fines 50X’s. Merchantability Problems, many state legislatures now eliminate/exempt handguns from merchantability under 2-315.

Cig’s Ron Regan advertising cool mint flavor decorated in X-mas boxes. Express Warranty created.

[34] Seller’s Defenses (Usually alleges that there was a disclaimer & disclaimer was breached.) seller-defendant has three possible defenses to breach of warranty he raises in his answer:1) the warranty was “disclaimed”2) the buyer did not give proper notice3) SOL4) quasi-assumption of risk or sophisticated user defense from torts.

Disclaimer of Express Warranties – remember to talk about the 2-316(1) Relevant Questions and IssuesGenerally speaking, Cts hate disclaimer. If there is a proper one, buyer has no cause of action. Express Warranty disclaimers are even more hated. 1.) Is it possible to disclaim at all? Murray says no; but generally yes (b/c why do we have 2-316(1)?) 2.) Are the /Words/Creation & the words of negation reconcilable? Cts try to reconcile these and look to 2-202.

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-Alaska Pacific Case: (written warranty & written disclaimer) Principle of statutory construction – document must be read as a whole so cts try to reconcile so nothing is surplusage, and nothing contradictory. 3). If everything is written, (oral disclaimer & written express warranty reconcilable)? Look to 2-202? Note: there’s a possibility that a written disclaimer should be written as a proper merger clause i.e. 4th judicial question in 2-202 and then it would probably be exclude any oral express warranty. 3.) rd questions – words of creation prevail over words of negation when not consistent.-exception to the courts’ dislike of disclaimers of express warranties is the sale of experimental goods.

-Parole Evidence Code is under 2-202. (a) deals w/ c/p, c/d/ and u/t. (b) deals w/ consistent additional terms (Hunt Case which is 180 degrees test, and compare proffered evidence to written terms. almost nothing is admissible b/c any test is more likely to exclude evidence)Other Test is Snyder, “Reasonable Harmony Test” (more likely to admit more evidence), and compare proffered evidence to the written terms & respective obligations of the parties). and Snyder (reasonable harmony test; used in Ill.), in addition to the PER apply here to determine what evidence is admissible to prove warranty or disclaimer of such.Snyder test is reasonable harmony test where compare the proffered evidence w/ the writing and the respective obligations of the parties. Most likely to exclude the proffered evidence; also, 2.) g/f and …considered only under Snyder, thus allowing less evidence; under Hunt virtually nothing is inadmissible unlike in Hunt. ***Anytime there is a parole or written disclaimer, most review the Parole Evidence Rule.

Bushendorf v. Freight Liner (7th Cir) (Car Salesman) If there is a proper merger, that’s good. -Suggests that the common sales persons statement about the goods (oral express stmt) may become an oral express warranty. Thus, it is important to have a proper merger clause under 2-202(b) and to track the language properly; could then exclude c/p c/d and u/t to be a good exclusion clause. Check Mate!!!!!-Sellers Use Exclusion Clauses b/c seller is not there to monitor sales people; auto companies operate through franchises. Dealers employee people.

Note: Anti Agency clauses (not the same as merger clauses) disclaiming no responsibility or control of employees of my franchise. Could argue that have apparent authority.

If irreconcilable – the words of creation prevail, and buyer wins. So, Seller should do the following to protect himself; 1._ don’t give the lose express warranty, and 2.) protect self w/ a (4th jud ?)merger clause (consistent additional terms) and a 3.) clause excluding u/t , c/p, and c/d and also 4.) an anti-agency clause. Very careful drafting on part of the seller.

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2 Big Litigation Issues:1. Parole Evidence Rule2. Reconcilability (can we reconcile the words of negation).

Additional Issues (new) litigation issues1.) Conspicuousness – 1-201(10) must the written words of negation by conspicuous, complicated issue, de novo review on appeal, this is a question of law (implied warranty)Problem: No language included in 2-316(1), rather it says “if written”. There is nothing in 2-316(1) about written. 2.) Core Disclaimer – See Haybailor Case: where Haybailor improperly manufactured design, it can’t be fixed. Its defective, this is more than can you replace the transmission in the car. It’s designed so it will never bail hay. It created the concept of the core disclaimer. It can deny the essence (core) that is so central to the K as goods that it can never be disclaimed. Ask what the essence of the goods? -Express Warranties – c/o/a possibly for fraud & misrep3.) Anti Agency Clauses – Don’t put it in a Merger Clause. Look for language of agent, employees, ratification. 4.) Implied right to rely on written K’s – but this isn’t under Art II (says Lousin). 5.). Estoppel – (supplementary principles of 1-103) Album Graphics Case. Affirmation of fact goes to the basis of the bargain. This glue doesn’t flake. Could argue glue is a model, but even so, the buyer is estopped from asserting breach b/c saw with own eyes the glue flakes. Under Estoppel, Concept of Examination of the Goods (3)(b) goes to Estoppel. 6.) Post K-ing Disclaimer – Seller asserts this but buyer argues it was a modification These are not favored by the Cts, especially in Ill (notion that buyer relied on statements b/4 the K not after he K. -Automobile Warranty Example – (beginning of class 37 pg. 316) insert the word “Other” the reconcilable words of creation of the words of disclaiming. Under 2-316 Attempt of the Code drafters to address a deal w/ a specific type of problem. 2-316(1) attempts to overrule Alaska Pacific Case.

§2-316. Exclusion or Modification of Warranties.(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence negation or limitation is inoperative to the extent such construction is unreasonable.

-If words of creation not consistent with words of negation, the creation words control.-As in Mieske, courts construe 2-316 narrowly to favor buyers.-When words of creation are oral and disclaimer is written – Posner in a lemon law case out of Wis. held that oral express warranty created by salesman in negotiations did not survive a proper integration clause.

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-Anti-Agency Clauses – most common 2-316(1) situation involves an oral express warranty given by seller’s over-eager agent and a written disclaimer of warranties.

-Parol evidence rule problem.

[35] Disclaimer of Implied Warranties Under 2-316(2)2 Types of Implied warranties;1.) Merchantability2.) Fitness for a part purpose. (sample but not mandatory language). These are 2 distinct Warranty types – don’t confuse.

2-316(2) – the effect of a disclaimer eliminates a buyers cause of action. Must use express language to disclaim merchantability but don’t have to use express language to disclaim for particular purpose.

Exam 2-316(2)Sample language for disclaiming implied warranty for Fit for Part Purpose (this is not mandatory language) Don’t make this Mistake on the Exam!!!!! It doesn’t have to be in haec verba.

Merchantability Fit for Part PurposeWriting Requirement No writing requirement

Express Language Requirement No express Lange RequirementCan orally disclaim but if have a writing, it must be conspicuous. -If writing, then must be conspicuous. If writing, must be conspicuous

-What could you add to the sample language in (2), to have it disclaim merchantability as well as fir for part purpose? There are no warranties that extend beyond the description on the face hereof. Lousin includes {including but not limited to implied warranty of merchantability and fitness for a particular purpose.} Add this language to make sure everybody understands.

Exam 10-point Conspicuousness Question. Test for Conspicuousness: “Totality of the Circumstances Test”: Question of Law (de novo on appeal)3 prongs (to the test)Ultimate Issue: Would the buyer have noticed it? a.) Print – lots of litigation; should stand out, large print better than smaller print; Bold faced & red ink. b.) Placement – not buried in fine print. c.) Readability/Content/No misleading heading – can anyone understand it; (Consider target audience of the goods). Cts have only extended it to adhesion Ks where the buyer is a consumer; Lousin says can argue that can extend warranty to businesspersons. What is the buyer entitled to if adhesion K where the buyer is and seller is a consumer?

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B/c 1-201 person whom K intended to operate would’ve noticed it & b/c both parties are merchants.

-Car recall letter, I would take the car back immediately. What’s the error, (one misuse of the word) “Visibility”. What’s it mean? To be seen.

Examples: of Disclaimer and Examples: of Conspicuousness. -Satisfaction. Does that heading conveys the person purchasing a motorcycle helmet that this is a disclaimer of warranties? I would not expect to see a disclaimer of warranty under that paragraph. -Raspberry Hair. The talk seems to be a story about the company, Its such fine print. So I would not think this would be a paragraph of a disclaimer. -Computer Software: Cute little box, License Agreement and Legal Mumbo Jumbo. Would you look to see? No. With the cute headline, it makes it seem not important.

§1-201(10) “Conspicuous”: A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals is conspicuous. Language in the body of a form is conspicuous if it is larger or other contrasting type of color. But in a telegram any stated term is conspicuous. Whether a term or clause is conspicuous or not is for decision by the courts.

§2-316 con’t(2) To exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty or fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, the “There are no warranties which extend beyond the description on the face hereof.”-Post contracting is only if there is a post K. No reason to allow post K disclaimer here, and Cts do not like post K disclaimers. Case law on post-contract disclaimers evidences a strong trend against the seller.-Judges are well aware that most 2-316(2) disclaimers are merely boilerplate clauses in fine print delivered with the goods so they could be improper attempts to modify under 2-209.-Ill. finds that unless the disclaimer was discussed, negotiated and agreed to by the parties before they reached the agreement, there is no disclaimer.

Disclaimer of Implied Warranties Under 2-316(3) (3 separate ways to disclaim warranties) (total 4)(3) notwithstanding (2)

(a) unless circumstances indicate otherwise, all implied disclaimed by “as is” or equal; and(b) when buyer has examined good before entering agreement there is no implied warranty as to defects that could have been discovered; and(c) implied warranty can by excluded or modified by C/D, C/P, or U/T.

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Two issues: 1) which language is equivalent of “as is” and 2) must the written disclaimer be conspicuous?-parrot case indicates that a buyer who has the opportunity to “examine” and fails to do so cannot complain later.-Examination – patent vs. latent defect.

2-316 has 4 different ways to disclaim implied warranties (each one is separate):1) 2-316(2) – merchantability and FPP print, placement, readability2) 2-316(3)(a) – “as is” - usually cannot disclaim express warranty.3) 2-316(3)(b) – examine4) 2-316(3)(c) – C/D, C/P, U/T

Question of laws so far:1) Parol evidence rule2) Unconscionability (originally in courts of equity)3) Conspicuousness

Compare 2-316(3)(c) to 2-314(3)U/T, C/D/, C/P -only U/T, C/D

[36] Other Seller’s Defenses2-318, 2-607(3) and 2-725 (SoL)These defenses can also be used in conjunction with any other 2-318 c/o/a. -2-725 (read on own) SoL; 4 yrs from time of commencement tender of delivery = commencement. They can reduce it to 2 years by agreement. If future performance warranty – that tolls the running of the statute of limitations.-2-607(3) (notice of rejection); notice of breach.

Insert in Statute Book2-607(3) Warr Law. IL Law recognizes 2 exceptions to direct notice requirement. 1.) Seller has actual knowledge of the defect, and 2.) Notice by buyer filing a compliant. -Policy behind giving of notice is to give the seller time to cure.

Asbestos Cases The filing of a lawsuit does not constitute notice. (Lousin agrees) Connick Case – filing = notice requirement if suing for P.I. (See above 2 exceptions to ILL dir. Not rqmt. Lousin says filing of a lawsuit doesn’t serve as notice b/c it discourages cure.

Contributory Neg/Comparative Neg/Misuse/CausalityIll is a comparative neg state and seller will assert misuse as a defense.

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Privity(Most important defense)§2-318. Third Party Beneficiaries of Warranties Express or Implied. (talks about horizontal privity.)Alternatives A, B, and C.1.) vertical (McPherson v. Buick)– manufacturer, distributor, seller, buyer group of people. Buyer is the last person who pays money for the item.2.) Horizontal Privity – who stands in the shoes of the buyer. (pre-code rule, alternative A – applies to family, household and guests).-disclaimer is most important seller defense to warranty claim but privity is close second.-horizontal privity; code does not deal with vertical privity.-Ill. has adopted Alternative A under 2-318. As well as 25 other states. Most highly adopted conservative alternative. Has to be a natural person, who is in family, household guest of the buyer. Hemphill – not a guest or family of SIU so couldn’t sue Riddell.Whitaker – corporation cannot use a bandsaw at all unless employees can operate it.

-thus, employee fits within Alternative A.Thomas – court said in fn8 that court could expand list of P’s from A.

McPherson v. Buick (famous Vertical Privity Case)2-318 address only Horizontal privity. See pg. 205 Ruthstads Chart.

Buyer is looking at goods (Disclaimer of Implied Warranty is Big on her Exam). Know issues if seller says to B oh know don’t have to life up the hood of the car its in good condition.

2 lines of cases in Ill; 1.) Workplace cases 2.) Sports cases. -Workplace Cases: Until Whittaker, person injured can’t sue manufacturer of the machine. -Sports/Games Cases: team member can’t sue manufacturer of the ball helmet.

First National Bank of DwightIssue: Whether P properly can bring c/o/a. Ct said determined by answering whether the host purchased the arts. Determines whether a person can sue. What about social guests & day workers? (as here).

Whitaker caseP/employee sues manufacturer of machineFor first time allows employee to sue manufacturer of the machine. This case was not appealed so it will stand. Ill App Ct-Alternative A in Ill allows us through creative reading of the comments allows Cts to expand c/o/a here. -Narrow Holding of Whittaker; employee only (workplace) can sue.

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Broad holding of Whittaker suggested in a (fn) of Thomas v. Bombardier. We have left restrictive language of Alt A and have gone to Alt B. As a pure Alt B (which is anybody reasonably expected to use.

Effect of taking the broad view of Whittaker as suggested in Thomas. 1.) Ill moving to pure Alt B state. 2.) P’s in Maniville an in Hemphill would have been able to sue. ______________________________________________________________________________________So, Vertical Privity: Chain of distribution. Mfctr, wholesaler, seller, buyer. 3d party requirements relaxed Family members or household guests. All rational persons reasonably expected to use, consume, or be affected by Goods. Any Natural person or business entity to include a corporation.

Horizontal Privity: Code Standards. Family members. Household guests, additional restriction, placed on privity, parties in Alt A adopted in See. Protected beneficiaries. Alt A = pers injury for nat persons; Alt B = Nat persons, pers injury; (and anyone reasonably expected to use) Alt C = Natural & Corp, property? Personal, economic experience and relaxing personal injury, incidental and consequential damages. (dropped personal injury and naturally person – allowed corps to sue and not just for personal damages. Alt A creates categories that are not mutually exclusive i.e. a student on an athletic scholarship doesn’t really fit into Alt A categories (this is why Alt B is a better Alternative). ______________________________________________________________________________________

2-312(2) & 2-719Disclaimers of Implied Warranties 2-316(2) (note Cts, especially hate disclaimers of implied warranty)1.) Is there conspicuous requirement in 2-316(1), (written negotiation). No language requirements but au forterori argument stands here. 2.) Remedies 2-719(1) & (2): Is there a conspicuous moment?No language requiring conspicuousness but cassius ommissus arg stands rather it goes to whether the buyer has a cause of action. -In order to decide whether conspicuous requirement, go to 1-201 definition.

2-316(3)(a): Disclaimer of implied warranty under 2-316(3), also included in (2). 2-316(3)(a), (3)(b)(3)(c) operate separately on disclaimer of implied warranties.

Thus there are 4 ways a seller can disclaim the buyer’s argument for implied warranty of merchantability.

2-316(a) There is a conspicuous requirement language as is can disclaim warranty.

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2-316(3)(b) – Examination Provision. Jake the Horse Example. Horse not merchantable but buyer should’ve examined him before he bought -Subjective v. Objective Test-Latent v. Patent Defective

2-316(3)(c) – Allows for disclaimer of implied warranty by in C/d (as in 2-314(3)) or c/p , u/t in 2-316(c) – mystery warranty.

§2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over.(1) buyer must pay at the contract rate for any goods accepted.(2) if buyer accepts he cannot reject. if he knew of the non-conformity and accepted, he cannot revoke except if he accepted because seller told him he would cure.(3) where the tender has been accepted

(a) buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and

(b) if the claim is one for infringement, buyer must notify seller.(4) burden is on the buyer to establish any breach with respect to goods accepted.(5) where buyer is sued for breach of a warranty for which his seller is answerable over

(a) may give seller written notice to come and defend.(b) if for infringement seller may control litigation.

(6) provisions of (3)(4)(5) apply to any obligation of buyer to hold seller harmless.

§2-725. Statute of Limitations in Contracts for Sale.(1) 4 years. can be reduced by agreement but not less than 1 year.(2) c/o/a ripe when breach occurs regardless of lack of knowledge. breach of warranty occurs when tender is made.(3) (4) this section does not alter the law on tolling SOL.

Notice of Breach-2-607(3) plays a formidable role in warranty law. -Ill. case found two exceptions to direct notice requirement:

1) Seller has actual knowledge of the defect2) Notice by buyer’s filing a complaint.

[40] The Basic Formula for Damages for Breach of WarrantyWarranties are nothing more than a term of the K; the remedies for warranties are nothing more than the sellers delivery for non-conforming goods.

§2-714 (2) con’t (subset of “buyers remedies”, here buyer who decided to keep the goods) (3)(2) Damages for breach of warranty is difference at time and place of acceptance between the value as accepted and they value they would have had if they had been warranted, unless circumstances show proximate damages of a different amount.(3) incidentals and consequential also recoverable in a proper situation.

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Vw – Va + Id + Cd (-Es) = 2-714(2) and (3)(Value of Warranty – Value of acceptance) -courts are split as to whether expenses saved is included.

2-714(2) most buyers sue under (2) to get the relief they want back but2-608 buyer may still revoke under 2-608 and seek buyer’s damages. 2-711 under 2-711 (Alt to 2-714 damages). 2 Ill cases allow for this scenario. Buyer keeps goods under 2-714 but doesn’t want 2714(2) or (3) damages; It is possible for buyers to revoke under 2-608 and then to seek damages under 2-714, this affirms that warranty is a subset of the terms of the K price.

-Under Code case law there are three dominant methods of establishing Vw – Va.1st (most common) – cost of replacement or repair.

-Court determines how much it will cost to get goods to meet warranted stds.-Difference between this cure and 2-508 is buyer pays for it first. This is beautiful for defective machines. Full capacity to fix the machine, as warranted.

2nd – contract price used as Vw and market price as Va. (Grade A tomatoes – Grade B tomatoes = .

-(This is not a good system for defective machinery)3rd – the market price of conforming goods as Vw and market price of non-conforming goods as Va.

(market price system). Usually ends up Market price Grade A minus Grade B. In class Exp. Vw – Va = $10.

-courts often confuse “special circumstances” in 2-714(2) with “consequential damages” in 2-714(3) and 2-715(2).-Ill. cases indicate that courts will not force buyer to take damages under 2-714(2) if buyer prefers to revoke acceptance under 2-608.

Incidental Damages2-715(1) Incidentals 1.) 2-715(1) very liberal/broad list but causal requirement; theres a tendency to overcompensate the buyer. The loss must be causally related to the breach (not the K). 2.) The causation requirement is not related to the K, rather it is related to the breach3.) But for test; but for the seller’s breach, would the buyer had spent this. 4.) This is a question of law, not fact.

Lewis v. Mobil Oil case the P’s lawyer claimed some things as incidental that were clearly consequential in order to not subject them to the penalty for not covering maybe.-What was the claim for incidental damages? Here we have double Incidental Damages. 1.) excess oil used in the futile effort to repair the machine in replacing / repairing the pump, and 2.) unsuccessful attempts to repair.

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-Why will replace fixing the pump never fix this machine? -Replacing the pump will never fix it b/c its not the pump, but rather the oil is the cause of the problem, not the pump or machine. -Why do you think these were characterized as incidentals rather than (2)a (2)(b)? Injury under 2-715(2)(b) was not to “person or property” but rather excessive out of pocket expenses. -Why didn’t buyer’s lawyer go under 2-715(2)(a)? There’s a duty to mitigate & buyer didn’t; the buyer did not attempt to cover (didn’t get 2nd opinion as to why the machine was broken) but loss profits claim has to be brought under 2-715(a). So, claim has to be brought under 2-715(1) here, b/c trying to protect as many of the P/Buyer’s claims as possible b/c of his own stupidity.

Loss Profit Claim: 2-715(2)(a)2 Counts (but have mitigation of damages problem. 1.) For 1st 21/2 years. 2.) For 2nd 21/2 years. After he went to the correct oil. -When I bought the machine, I was just barely above the profit loss line. B/c he sold me the wrong oil (and when I questioned he, he phoned and they told him it was right) I quickly went into the red. When I used the correct oil, I started rising. Count IWhat does he succeed as to count I? P succeeds in Count I, but problem of this count is that the buyer didn’t mitigate; attys overcome that issue. By arguing that the Seller held self out as knowledgeable & skilled, & seller knew that B was relying on S’s skills & knowledge to overcome / fix/ the problem. -The duty to mitigate is a ? of law, the content of mitigation is a ? of fact (this was a jury trial). B didn’t go to the machine manufacturer or any other person, he kept relying on S, machine still did not work but B kept doing same thing for 2 yrs and the machine still didn’t work properly. If he lost profits that significant would’ve done something else, i.e. outside opinion or buy a new machine.

Count II. B alleges @ end of the 21/2 years, he was virtually broke/ bankrupt. Causation b/c of Mobil Oil he lost profits; he was undercapitalized Ct reasons 1.) not sure about this causation requirement; and 2.) Could’ve mitigated by getting a bank loan (the loan officer would’ve looked @ B like he was crazy. Undercapitalization cases often present causation problems.

General Statements about the subsequent cases hold that Seller absolved (under count II) based on the Reasonable Contemplation Test.

Ralston Purina Co v. Arile R Howell – Dead Pig Case2-315 warranty; (Implied Warranty of Fit for part purpose.) lost profits dmgs and huge consequential damages.

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Facts: P/Seller, sued D/B for the balance due on K for the hogfinisher plan. D/buyer counterclaimed on K arguing hogfinisher didn’t work & my pigs are dead. -App Ct & Trial Ct differed. Said Subjective. Sale was of the pigs – lousin says this is wrong. -What is the Vw? Vw [K price] = 111/428 to be served – subject of the K. -What’s the Va? 0 (b/c pigs died)-What are the Incidental damages? Veterinary costs for dead & 428 surviving pigs, cost of burial expenses or whatever for disposing the pigs. Burn the pigs, bury them. -What are the consequential damages? [111 dead pigs x MP {# of pigs x 220 lb in fed}]Lost profits. Market price per pound when B delivered/sold pigs MP per pound in Fed = 220 per pound. (-ES) cost saved on the feed that the animals did not consume later on that S would not have to buy cost saved on feed for 111 dead pigs.

R & R MethodGreat Exam QuestionIn Vw – Va calculations, what happens if the market price is greater then the K price? You would have to plug in a “o” or a “-1”. Lewis v. Mobil OilAfter buyers unsuccessful attempts to repair fails under incidental damages, but is questionable whether the successful attempts to repair would also be considered incidental damages.

Consequential Damages2-715(2) -duty to mitigate in 2-715(2)(a) is question of law; content of it is question of fact.

Fortunate Tiger Cases Exp of Tort & K damages have merged was. (This guys feels bad, therefore, we will give you damages.) In this case, in Cal, it was an express warranty that was breached. Value is a pre-code term; it is unsure whether this is a subjective or objective term. -What are the damages he asks for? 1.) cost of safari, 3 wks, loss of earnings, airplane & travel expenses and other costs = Special Damages. 6000. ******Problem of #1 this is loss of earnings, cost of the safari. The P was going to take the trip anyway. Causation (any guarantee he would hit his target). 2.) lost of honor, prestige & victory involved in killing the Bengal tigers = general damages 10,000. ********Problem is the But for test, but for Seller’s breach, would he have incurred this expense anyway? -Problem is 2 is this is reasonably ascertainable, (can you put a value on hurt feelings).

2-715 not speculative. These are not Contractual damages, these aren’t the type of damages that K law designed to compensate.

No damages b/c doesn’t have a c/o/a.

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2nd Causation Issue: there’s no guarantee that P would have hit the tiger even if the tiger would have been hit or if the rifle was working problem.

Whether anyone who manufactures & sells such rifle has it reasonable. Contemplation at the time of King that the reason anyone purchases that rifle is in order to have honor, prestige, & victory attendant in killing one of these tigers. (Rifle advertised as big game species warranty created.

P could sue if rifle misfired when P attempting to use it to fend off an attacking tiger. P I injuries/damages.

Lousin says unsure whether damages fall under; 2-715(2)(a) general all purposes consequential damages(2)(b) injury to person or propertySupp principles 1-103 bring new K & tort damages under this new trend. Molly Plaintiff problem – 354 IUD fails & bears a 5th child. Concept – mitigation by abortion 2-715(2)(a) / adoption. Damages = 1.) Expenses a bearing a child, 2.) Raising a child expenses 3.) Expenses of pain & suffering & health injury and 4.) Distress of bearing an unwanted child.

2-316(4) limitation on 2-316(4) reference to limitations on damages on liquidation of damages under 2-718 to limitations on damages on liquidation of damages on K modification of remedy.

-Some damages are remote causally; some are not reasonably ascertainable.-Other issue is whether tort damages belong in contract.

Would you give her damages for support in raising a child? Yes. What about pain & suffering and personal injury, loss of health? Yes. Limitation on Damages for Breach of Warranty§2-316. Con’t - Exclusion or Modification of Warranties.(4) Remedies for breach of warranty can be limited in accordance with liquidation or limitation of damages and on contractual modification of remedy (2-718 and 2-719).

§2-718. Liquidation or Limitation of Damages; Deposits(1) Damages may be liquidated but only at amount that is reasonable in light of anticipated or actual harm, difficulties of proof of loss, and the possibility of otherwise obtaining an adequate remedy. Term fixing unreasonably high-liquidated damages is void as a penalty.(2)-(4) deals with deposits.

§2-719. Contractual Modification or Limitation of Remedy -This section very important in warranties.

Warranty ClausesMerchant seller giving an express warranty note, absent a disclaimer, the buyer would normally get an implied warranty of merchantability. Normally, you would see this type

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of language (exp. warr) in a clause that is disclaiming the implied warranty of merchantability; most big corporations have this type of disclaimer of implied warranty of merchantability.

Steps to see if warranties have been a.) Oral express warranties b.) Written express warranty

Cookie Monster Problem – 3571.) Express Warranty (written one for 90 days). 2.) Oral Express Warranty [oven will operate in accordance of the design specs for the entire lifetime of the oven, which we estimate to be at least 15yrs. ] Merger clause [disclaimer] so would appear.

Issues:1.) Agency & Corporations concept – a general manager (under apparent auth doctrine) may bind a Corp company. 2.) Merger Clausesa.) Implied warranties (creation of warranties) b.) Seller defenses (disclaimers of warranties) address issues of a-d = c/o/ac.) Buyers damagesd.) Limitations on damages (2-719) go through sub (1)-(3)

Themes underlying issues: 1.) What is the language that needs to be used? a.) En haec verba b.) Conspicuousness

Cause of Action: Language & Conspicuousness1.) creation of implied warranties buyers damages2.) Seller’s defenses - disclaimers limitations on damages

Buyers Damages1.) Vw – Va + Id + Cd – Es = 2-7152.)Possibility of K price method3. ) possibility of Mp method4.) R & R method5.) capacity – what would be the capacity of the machine if the value is as warranted.

(a) how many lbs would the machine produce if it were operating according to “Vw” value as warranted? 300,000 lbs. (b) how many lbs made according to “Va” value as accepted? 250,000.

Aside Issue: Whether the marginal costs of production would be the same & follow a straight line?

Vw – Va = 5/6

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Kp Mp R&R Cap60 66 15,000 for aux machine Vw 300,000-50 -55 Va 250,000___________________________________________________________________________________10,000 11,000 $15,000 for cost of repair ? cheapest for S possibility of increase utility

costs. Would produce 50,000 Vw – Va = 5/6 or 25/30                                                                                                                         lb of cookies remaining 300,000Notes1.) all 3 costs have $8000 for Id (unsuccessful attempts to repair)2.) All 3 costs have 5000 for lost profits (during machine downtime)3.) Additional LP claim only for Kp & Mp of 1000 p/day for 90 days or for 15 yrs. Under R & R would get an auxiliary machine to halt Lp, if B producing 300,000 lb per cookie of aux machine given to him under R & R then he is not losing profit! (This is a stretch to say)Aux Machine = R & R (mitigation by cover or otherwise)If this is so, lose LP damages, which is a penalty under consequential damages § 2-715(2)(a).

ConclusionOn its face, r & R appears to be the most expensive but not the note 3 considered, R& R becomes the cheapest method of Sellers damages calculation.

On Exam, address this. Who is responsible for these costs: B or S. Buyer would incur additional expenses by have to make space for aux machine pay another to un it and additional utility expenses. -print, placement, misleading headings – disclaimer issues.

-good on express and implied warranties; disclaimers; damages and limitation on damages.

[42] Consumer Buyers – The Code and Non-Code StatutesArt II & Art 9 is not good to consumers. 2 unusual things about a consumer Ks;

1.) Typically a consumer sale is on a mass form & adhesion K, take it or leave it. 2.) Relatively unsophisticated decrease in bargaining power.

Blankeship Case (3rd prong of conspicuousness)Facts: P former auto mechanic working in factory. P brought 11 work orders to him when he went to atty consultation. Ford dealer made 11 attempts to repair car but

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stopped attempting to make repairs b/c going to lease $. Manufacturer tells dealer you make repairs up to ascertain point & we will reimburse you for time & parts. 2 ∆’s. (1) Immediate dealer Fordtown motors, Seller, and (2) remote manufacturer (ford motors) ford motor co & D’s interest aren’t identical nor are their liabilities. At trial, Ford Motors Co. brought in outside counsel (wouldn’t here local counsel) this upsets the judge. D’s arguing that disclaimed merchantability; lost @ trial. P did not attempt to concede to conspicuousness. Held: Manufacturer breached it, P won on appeal. 3-0. P should used Magnuson Moss Act if it were in effect when the decision came down. Magnuson Moss Act created by Congress b/c it felt the UCC not affording enough protection to consumers.

-Magnuson Moss Act (a fed Statute but usually starts out in State Ct). Act assumes that have consumer goods & express written warranties. -Magnuson-Moss Act came out as a response to sellers’ using their superior bargaining power to for 2-719 limitations on purchasers of consumer goods.

-Lousin feels that the “heady promises of the MM Act have largely gone unfulfilled.

-basically, they tried to not let sellers disclaim warranties.

-Consumer Goods – present family use SEC definition b/c consumer goods = express written warranties. 2 Type of Warranties1.) Full warranty – good for B, can’t limit duration of the implied warranties, which includes merchantability. 2.) Limited Warranty – anything less than a full warranty; can limit duration but to limit less # of yrs on 7 express warranty; competing among manufactures.

Lemon Laws (buyer’s protection act)Applies to new cars only-No litigation, but mediation used (litigation is bad, arbitration good) Issue: parties giving up their rights to Q’s of law. Can appeal rarely b/c of Ct wont touch unless can show clear bias.

Statutory Interpretation (? Of law)Lemon Law – if proceed to settle. Not get UCC protection or Magnuson Loss; cases go to arbitration. -Lemon laws go to mediation & arbitration. Panels are selected for mediation & arbitration. Classic lemon law standard where law kicks in for B’s favor. 1.) 3x’s in 1 mo = car goes to shop; or 2.) 4 x’s in 6 months = car goes to shop; then S 105 proceed & settle no UCC Cause of Action.

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State Cts cannot deny parties remedies c/o/a originating in Fed Cts going to Ct to settle – no way state statute can say by electing proceed to settle, can the state say that B gives up Magnunson losses b/c; fed preemption, it’s a federal law.

Litigation Options: 1.) Mag Moss fed/state Ct; atty feeds, removal from state to fed ct. litigation costs2.) Lemon laws; may surrender rts to UCC (decrease consumer buyer protections) arbitration/med loss of Mag Moss Rts Surrendered.

Assumptions of Congress under the Mag Moss Act1.) Open free markets in U.S2.) Consumers buy goods b/c how goods are the warranties

a.) length of the warrantyb.) strength of the warrant

This creates competition among manufacturers.

Written Express Warranty & its consumer goods then Mag Moss Act will apply. Then have either a:a.) Full warranty – cannot duration of

[43] Seller’s Power to Pass Good Title Terms of K: Sellers Obligations

1.) delivery of conforming goods2.) transfer possession of and title to the buyer

TitleUnderlying Principle: nemo dat quod nonhabet = “you can’t give more than you have”. -Importance @ C/L but little UCC importance, based in C/L. Know all C/L concepts i.e. 2-401, 2-402, 2-403. Who has title, and when will it pass.

C/L (favors 1 st party) Euro/Civil Law (favors 3d party) True Owner always win. Favors good faith purchaser - Heavy presumption, a mans home is his kitchen Purchaser in legal poss of the goods

Possession equal title. 2 kinds of title – at C/L Demand reposs’n, (SoL) 1.) Good title2.) Void/no titleLousin’s Law, the minute you divide everybody into 2 classes, you start seeing gray areas.

3 Exceptions to only 2 titles

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1.) Market Overt Exception (to C/L) even if2.) Voidable titleIf 3d party is a G/F purchaser, then got to keep the goods, void title v. voidable title = gave evidence of intent to parties and good title Person of void title never gave intent to part.

Voidable title exception (Cont.) inquiry1.) Evidence of intent to partake of good title, if so2.) Did the 3d party have G/F purchaser status?3.) Equity i.e. laches, estoppel

if abandoned – good title (has to be intent)if mislead – not good title

Basis of C/L cases i.e. Stolen art cases. If have void title, anyone who takes after me (in the chain) also takes void title). 2-403(1)(2)(3)

2 types of G/F under UCC:1.) non-merchant g/f2.) g/f merchant status

@ C/L, have voidable title, gfp = good title, gooder title, b/c GFP would win over true owner, who only had good title.

Exceptions 2-4032-403(1): 1.) GFB from voidable title exception: 1-2403: A person voidable title has power to transfer a good title to a GFP for value. 2-403(2): 2.) 2-403(1)(a)-(d) clarifies voidable title exception2-403(3); 3.) Entrusting exception (agent of jeweler takes watch to get repaired; agent = bailee watch = bailment. Bailee has no title, bailee property rt. has possession.

BOC someone who buys in G/F from someone who deals in Goods of the kind, BOC elements: buys in g/f fr. Merchant’s inventory.

Note: All buyers are purchasers; not all purchasers are buyers.

2-403Entrusting Exception (2-403(2)Problem 1: If it is a merchant who deals in good of the kind: fi the 3d party is the buyer in the ordinary course of business, then who gets to keep the stolen watch? 1-209(9) person who is taking must be taking what appears to be the inventory of the seller. Note: but if Boc buying used goods, Boc can argue that honest g/f purchaser, Boc argues that S had a right to sell the goods.

Distinction b/w Boc and G/F purchaser

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1.) BOC laundry list of definitions; uses word buyer, broader term then purchaser. 2.) G/F purchaser – uses word purchaser, purchaser is broader then buyer.

Problems: 1.) Abbie gets the diamond b/c title is void by virtue of being sold if sold to pope or mother Theresa = title is void. 2.) Abbie gets diamond “A” is true owner; Bessie just lent her, had no title, merely possession, thief and Bessie had same kind of title – Void Title. Abbie never intended to part w/ the good title, no bailment, entrusting b/c its UCC not code. 3.) No, Dimwitt was a GFP (George Wash Tobacco Except). Note bosco is a rogue, b/c Abbie intended to part of good title, Bosco had voidable title, thus making Dimwitt GFP. 4.) Abbie loses. This is a bailment of a special kind – entrusting 2nd party (Casper) is a merchant and (Dimwitt) is a BOC. b.) Abbie wins. Bessie does not have good title, dimwit only got a possesory right. Note: what happens when Bessie goes after Dimwitt? Lousin says “kill both of them”

Under 2-403(2) BOC gets good title? False, BOC gets all of the rights of the entruster, not good title.

§2-401. Passing of Title; Reservation for Security; Limited Application of This Section.§2-402. Rights of Seller’s Creditors Against Goods Sold.

§2-403. Power to Transfer; Good Faith Purchase of Goods; “Entrusting”.(1) purchaser acquires all title which transferor had. Person with voidable title has power to transfer good title to a good faith purchaser for value. when goods have been delivered the purchaser has such power even though

(a) the transferor was deceived as to the identity of the purchaser(b) the delivery was in exchange for a bad check(c) it was agreed to be a cash sale(d) the delivery was procured by fraud punishable as larcenous under criminal

law.

(2) any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights to a buyer in the ordinary course of business.

(3) “entrusting” includes and delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties and regardless if procurement was larcenous.

-at modern C/L, there were 3 types of title: good, voidable, and void.Two exceptions to T/O winning as to title.1) Voidable title – “rogue” exceptions at C/L.

-used for agents in remote location to allow T/O to win against agent but if G/F purchaser, T/O lost as to him.

2) Entrusting – lineal descendant of “market overt” exception at C/L.-T/O must have shown an intent to part with good title.

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[44] Seller’s Warranty of Title2-312 Warranty Title(1)(a) double warranty = good title and rightful transfer i.e. trustee of goods. (2) disclaimer provision = not have to be in writing(2) specific lang. requirements not expressed; no specific language requirement expressed here. (2) reason to know = objective test(2) 3rd person (includes auctioneers)(2) no requirement of conspicuousness if there’s a writing but could make an aforori requirement arguing there has to be conspicuousness requirement. If there’s a conspicuous disclaimer, fit for part purposes or merchantability – has to be conspicuous requirement for disclaimer of warranty of title, b/c warranty of title is more important than warranty of merchantability of fit for a particular purpose.

Note: Warranty of % of title only goes to immediate buyer. Each seller only liable to his immediate buyer (unlike in McPherson v. Buick) situation where can sue up the line under Vertical Privity.

Damages Breach of WarrantyVw – Va + Id + Cd (-ES) = 2-719(2) & (3)

P’s case in chief, P must establish (replevin action usually)1.) I am the T.O. (? Of fact)2.) I gave no evidence of intent to part w/ good title.

D can assert the P’s case in chief following defenses: Only 3rd party D that can assert this is one who has established G/F/P status. Lousin’s own view is that this should be a requirement b/c unclean hands.

Menzel v. ListList is a GFP. Only issue was relief of damages. P’s = TO, writ of replevin, German left receipt that they took painting evidence that P was TO. (If painting stolen, everyone else had void title). However, no thief leaves a receipt… Menzel seeks replevin wins; D list sues N.Y. art gallery who in turn bought from an art gallery in Paris. There is break in the provenance, no guarantee of good title from immediate seller.

Damages: formula 2-312, 2-714, 2-715Vw = [Kp] $ 4,000. Va = 0 [b/c no title]Cd = appreciation & value of painting; measure of increase MP up to time sheriff removed art b/c of Ct order given for writ of replevin; not commence @ time law suit was instituted. Id = 2-715(1) has to be injury to person/property (no causation: but for”)

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22,50018,5004,000 (increase in MP was 18,5000) (decrease in MP was 22,5000)Cost of “repainting” the wall b/c painted wall same color. Hedonic damages difficult to as painting colors obtain, not atty. fees, ins. Premiums = Id (this still fails but for test)

So L issue/requirement – 4 yrs statute that runs from the time of delivery

Stolen Art CasesGenerally, 3rd party purchasers don’t win; able to sue immediate seller, emotional issues b/c 3d party really wanted the painting.

2 lines of cases1.) Equity Approach (N.Y) unclean hands doctrine. (Lousin says 3d party should have to show GFP. GFP = unclean hands. 2.) Discovery – due diligence approach. O’Keefe v. Snyder – abolished adv possession. When person discovered or should have discovered who had the painting and then apply due diligence stand.

Was P T.O? Yes, was original artist. -Was evidence of intent to part w/ good title a question of fact would conclude raises issues of material fact here.

Who’s burden is it to prove that not intended to part w/ good title. D unlikely to get sum judge b/c issue of material fact. Startling facts; no insurance, not go to police, very likely just sold painting, have bad record keeping = all go to due diligence.

Defenses: P not use due diligence, not go to police, laches; P did go to other art dealers re stolen art; P eventually contacted IFAR re. Stolen art people (stolen art list).

Case remanded for findings of fact. Settled for 450,000; Ct said this case was akin to equity but not subject to equity.

Conflict of lawsTO us citizen3 party (foreign/continental) US

§2-312. Warranty of Title and Against Infringement; Buyer’s Obligation Against Infringement.(1) Subject to (2) there is in a contract for sale a warranty by the seller that

(a) title conveyed is good and its transfer rightful(b) goods delivered free from security interest or lien.

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(2) Warranty under (1) will be excluded or modified only be specific language.(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants against claim by third person.

Prior to O’Keeffe, the rule was adverse possession. Now the rule is discovery-due diligence.

-Does this bring equity into 2-403.

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