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Transcript
SALES AND LEASES
SPRING 2002
PROFESSOR ROBYN MEADOWS
I.
SCOPE
a. ARTICLE 2: SALES
i. Applies to transactions in goods UCC § 2-102
1. Transactions
a. Sales—passing of title from seller to buyer for a price UCC § 2-106(1)
i. Seller: One who sells or contracts to sell UCC § 2-103(1)(d)
ii. Buyer: One who buys or contracts to buy UCC § 2-103(1)(a)
b. Exchanges
2. Goods
a. Things which are movable at the time of identification of the contract for
sale UCC § 2-105(1)
i. Minerals removed from realty UCC § 2-107(1)
1. Removed by the seller
ii. Growing crops, building materials inside of building UCC § 2-107(2)
1. Attached to realty
2. Severed without material
3. Removed by buyer or seller
b. Manufactured goods UCC § 2-105
i. Specially manufactured goods
1. appear to request service of mfg. the good BUT
2. the mfg of goods is covered under Article 2 (see below: hybrid
transactions)
ii. Hybrid Transactions
1. Predominate Purpose Test (all or nothing: either Article 2 applies or it does not)
a. If the primary purpose for entering into the contract was for the goods,
Article 2 applies
b. If the primary purpose for entering into the contract was for the service,
Article 2 does not apply: common law will apply
c. Doctors—under this test, doctors are presumed to provide services; thus,
Article 2 will not apply to doctors
2. Gravamen Test (Modern Law) (Both Article 2 and the common law can apply)
a. If the point of complaint is towards the good, Article 2 (and common law)
applies
b. If the point of complaint is towards the service, Article 2 will not apply:
common law will apply
c. Benefits
i. Draft the complaint under the UCC (because UCC and Common law can
apply)
ii. Broadens the scope of the UCC
iii. Fairness
1. Focus on the substance of the transaction rather than the
form
d. Applies primarily in Consumer transactions, not between businesses
3. Examples
1
a.
 goes to eye doctor for glasses. On one contract,  pays 100 for exam, 175
for glasses. They break and injure . Under predominate purpose test,  has
no Article 2 relief because healthcare is predominately a service. Under the
gravamen test,  may have a cause of action under Article 2 because the point
of complaint was the good—here, the glasses.
b.  goes to doctor for exam. Doctor gives exam, bills , and refers him to 
for glasses.  buys glasses from , gets billed by , and is injured by glasses.
Again, the predominate purpose test would not allow recovery against the
doctor under Article 2 because the doctor provided a service.  could
recover against the  because  mfg. the eye glasses.
iii. Article 2 applies to merchants and nonmerchants
1. Merchants UCC § 2-104
a. Dealer of particular goods OR
b. One with knowledge or skill peculiar to goods or practices OR
c. One whom acquires knowledge or skill by hiring an agent with such knowledge
or skill
2. What kind of merchant
a. Any person in business acting in mercantile capacity (lawyer or banker buying
fishing tackle for own use not a merchant)
i. Statute of frauds UCC § 2-201(2)
ii. Firm Offers UCC § 2-205
iii. Confirmatory Memoranda UCC § 2-201(2)/2-207
iv. Modifications of Contracts UCC § 2-209
b. Merchant with respect to goods of that kind
i. Implied Warranty of merchantability UCC § 2-314
1. Specific and professional sellers
2. Not isolated sales
a. Siemen v. Alden— was a lumber dealer and sold a saw.
Held: not a merchant under 2-314 because he was not a
merchant with respect to saws, but a merchant with
respect to lumber.
c. Good Faith UCC § 2-103(1)(b)
i. Any person in the business acting in mercantile capacity
1. Good Faith Standard for merchants UCC § 2-103(1)(b)
a. Honesty in fact UCC § 1-201(19) AND
b. Observance of reasonable commercial standards of
fair dealing in the trade
d. New Merchants
i. Comparable to other new merchants
e. ALL MERCHANTS MUST FOLLOW GOOD FAITH STANDARD FOR
MERCHANTS
f. "Between Merchants" UCC § 2-104(3)
i. Both buyer and seller must be merchants
b. ARTICLE 2A: LEASES Applies to any transaction that creates a lease UCC § 2A-102
i. Definition of a Lease UCC § 2A-103(j)
1. Transfer of the right to possess and use
2. Goods
3. For a term
a. Finite, fixed amount of time—at end of term, goods return to lessor
4. In exchange for consideration (not gratuity—$$$)
2
II.
ii. Security Interests (distinguished from leases)
1. Whether the substance of a transaction is a true lease OR disguised sale with lessor
financing the sale
a. Can the lessee terminate the lease? (termination Clause)
i. Factual determinations
1. If the lessee CAN terminate, then it is a true lease
2. If the lessee CANNOT terminate, then it may be a security
interest
b. If there is no value at the end of the term
i. Useful economic life is over at the end of the term, then it is a
security interest
1. useful economic life measured in years/time
2. speaks to the length of time the good has any value
a. depreciation evidence
b. experts
c. clients
c. If the lessee can buy at the end (Case-by-case determination)
i. Can be a true lease if there is an option to buy
1. must buy at the fair market value at the end of the lease to be
a true lease
ii. If the lessee buys for NOMINAL consideration, it is a lease intended
as a security interest
1. Nominal consideration determined by
a. Comparing the consideration paid WITH
b. Reasonably anticipated fair market value at the time of
the original agreement
c. Rationale—what did the parties think the goods would
be worth at the end of the lease
2. Summary: a security interest is created IF
a. "No Termination" clause AND
b. Either
i. Term and economic life are equal
ii. Lessee is bound to buy
iii. Renewal for nominal consideration OR
iv. Buyout at end of term for nominal consideration
CONTRACT FORMATION
a. STATUTE OF FRAUDS UCC § 2-201(1) *APPLY WHEN ONE PARTY DENIES EXISTENCE OF CONTRACT*
i. IF sale of goods AND
ii. $500 or more (total price of the contract) THEN
iii. writing is required
1. Intentional writing into tangible form
a. Printing, typewriting, e-records or other tangibles UCC § 1-202(46)
2. Need not be mailed, delivered, or seen by the  in order to qualify
iv. sufficient to indicate the existence of an agreement
1. some objective evidence to believe an agreement was made
v. signed by the party to be charged (person who claims there is no contract)
1. any symbol WITH
2. present intent to authenticate UCC § 1-201(39) AND
vi. listing the quantity (code cannot fill in the quantity term, so you must have it)
1. not exact quantity
3
2. can be determined by good faith or reasonableness
b. EXCEPTIONS TO THE STATUTE OF FRAUDS
i. UCC § 2-201(2) Merchant Exception
1. IF between merchants
a. both parties must be merchants
b. Any person in the business acting in mercantile capacity (2-104(3) comments)
2. writing that confirms the contract
a. probably after oral agreement; this is pretty much a given, but my darling
girlfriend wanted it included in the outline, and because I lover her, I will so
include said element.
b. Oral agreement followed by confirmatory memo: Bazak
i. Some objective guarantee that the oral agreement rests on a real
transaction
3. Sufficient against the sender (would bind the sender: requirements of 2-201(1))
a. writing
b. sufficient to indicate agreement was made
c. signed by sender AND
d. indicating quantity
4. Sent and received within a reasonable time
a. fairness to the receiver of the memo
b. To determine reasonable, look to goods
i. Perishable
ii. Depreciation
iii. Reasonable industry standards
5. Recipient has reason to know of the memo's contents
a. reason to know means the sender sent the memo to the appropriate place
i. recipients are expected to read mail
6. THEN no statute of frauds UNLESS
a. written
i. no phone calls
b. objection made to confirmatory memorandum
i. must object to the contract completely "we have no contract"
1. cannot be used to get out of a deal you actually made
c. Made within 10 days of receipt of the confirmation
7. The exception only eliminates the statute of fraud defense for the 
8. Only gives  her day in court
a. burden of proof remains with the  to establish the contract and terms
9.  can always dispute the terms of the agreement
10. Example of Merchant exception: Bazak—oral agreement between  (buyer) and 
(seller) followed by purchase order sent by  (usually used by  as a seller, but here
he was a buyer). Court held that there was objective evidence of the oral agreement
and the purchase orders, although normally mere offers, were sufficient against 
(sender) because they were specific, sent from seller, 4 orders were very detailed
and the final order was a summary of the agreement and date of alleged oral
agreement.
ii. Specially Manufactured Goods exception
1. specially manufactured goods for the BUYER
a. seller mfg's for buyer
b. items not usually in stock
c. unique specifications
4
c.
2. not suitable for sale to others in the ordinary course of seller's business
a. cannot by advertising or buyer list sell the goods
b. efforts made
c. uniqueness of goods
d. scarcity of use for good
e. how many potential buyers
f. more expensive to build specific goods
g. mere fact that seller takes a loss is not enough to satisfy the element
h. there must be detriment to the seller
3. Seller has made a substantial beginning to manufacture OR made commitments for
the procurement
a. Seller is bound to another party for parts specific to buyer's spec. goods
4. before buyer gives notice of repudiation to seller
5. Under circumstances that reasonably indicate the goods are for the buyer
6. Example of exception: Golf Ball Tank: Buyer (city) orders tank to look like golf ball.
City sends check for $3000 as down payment. Seller starts to make it and nearly
finishes but buyer (new administration in city) informs seller that there is no
agreement. Goods were spec. mfg. (golf ball tank); not suitable for resale; they made
a subst. beginning because they completed the tank before repudiation; circumstances
indicated goods were for city because "c" was painted. This might not be enough, so
show delivery schedule, what other projects you are working on at the time, records,
etc.
iii. Admission of existence of agreement UCC § 2-201(3)(b)
1. once party admits the existence of the contract, that party cannot raise SOF
defense
a. must be admitted in court
i. pleading, testimony, or otherwise
1. written pleading
2. stipulation
3. oral statement
iv. Performance, Part Performance, Part Payment Exception (Based on common law (unjust
enrichment)
1. buyer makes payment AND seller accepts OR
2. seller delivers, buyer receives, AND buyer accepts and retains goods
3. Part payment
a. Contract is enforceable to the extent the goods were received and accepted
i. If more than one item is involved:
1. Court must apportion the goods: If buyer pays for part of the
goods, court can make seller deliver paid-for goods
ii. If only one item is involved
1. Guarantees the deal BECAUSE
2. Cannot apportion the goods
STATUTE OF FRAUDS FOR LEASES: UCC § 2A-201 (same as above unless otherwise indicated)
i. Lease price must be $1000
ii. Description of the goods
iii. Lease term (length of term)
1. Reasonably identifiable
iv. There is no merchant exception
v. There is no part performance exception
vi. Spec. mfg. goods exception same as above
5
vii. Admissions exception same as above
viii. Part performance exception applies ONLY to the goods that have been received and accepted
d. PAROLE EVIDENCE RULE UCC § 2-202 and § 2A-202 *Parties Agree that there is a Contract But One
Party Tries to Introduce a Term Outside of the Writing*
i. Determine the type of Writings (3 Types)
1. Two Confirmatory memos of the parties
a. One from Buyer AND One from Seller
b. With Terms that parties agree to
2. Writing Intended as Final Expression of agreement by both parties with respect to
the terms in the writing
a. Partially Integrated
b. Terms agreed to in that contract, other terms are missing
3. Complete and exclusive statement of the terms agreed to by both parties
a. Fully Integrated (NO PE unless COT/UOT/COP)
ii. Determining Fully or Partially Integrated
1. Negotiations
a. Length (Time)
b. Arm's length negotiations or adhesion contract
c. Details
2. What is the term to be added?
a. Contradictory, additional, etc.
b. Would it certainly have been in the writing?
3. Context of the transaction
4. Completeness
a. Merger Clause—sometimes not enough to fully integrate by itself
5. Performance
iii. Type of Evidence
1. Contradictory Terms
a. Always excluded BUT:
i. If the contract is silent, the term cannot contradict
ii. Use liberal approach—try to find that it does not contradict
iii. Mere ambiguity in the contract does not mean the term contradicts
iv. Court construes terms as consistent with contract if reasonable to do
so
v. If unreasonable to construe as consistent, then
1. Express terms
2. Course of performance
3. Course of Dealing
4. Usage of Trade
2. Supplemental/Explanatory
a. Usage of Trade, Course of Dealing, Course of Performance
i. Usage of trade UCC § 1-205(2): common understanding among
everyone in the industry
1. Both parties must be privy to the industry standards
a. Requires two commercial parties
b. Course of Dealing
i. UCC § 1-205(1): sequence of previous conduct between the parties
establishing a common understanding between the parties
6
1.
Previous conduct fairly to be regarded as a common basis of
understanding between the parties (it's fair to let this
evidence in)
c. Course of Performance UCC § 2-208: parties dealing regarding the contract in
dispute
i. Look to how strictly the parties were adhering to the terms of the K
ii. Determines what parties meant by the contract
d. COP/COD/UOT ALWAYS ADMISSIBLE UNLESS CONTRADICTS THE
WRITING
3. Consistent Additional Terms
a. Allowed unless writing is fully integrated
iv. Parole Evidence Analysis
1. Identify the type of writing
a. Confirmatory Memorandum
b. Writing Intended as final agreement (Partially Integrated)
c. Complete and exclusive statement of the terms agreed to by both parties
(Fully Integrated)
2. Confirmatory Memos
a. Contradictory Evidence is not admissible
b. Consistent Additional Terms are admissible
c. UOT/COD/COP is admissible unless contradictory
3. Partially Integrated Writing
a. Contradictory Evidence is not admissible
b. Consistent Additional terms are admissible
c. UOT/COD/COP is admissible unless contradictory
4. Fully Integrated Writing
a. Contradictory Evidence is not admissible
b. Consistent Additional terms are not admissible
c. UOT/COD/COP is admissible unless contradictory
TYPE OF EVIDENCE
TYPE OF DOCUMENT
CONTRADICTORY EVIDENCE
CONSISTENT
TERM
NON-INTEGRATED WRITING
CONFIRMATORY MEMOS OR PARTIALLY
INTEGRATED WRITINGS
FULLY
INTEGRATED
WRITINGS
(COMPLETE & EXCLUSIVE)
EVIDENCE ADMISSIBLE
EVIDENCE
INADMISSIBLE
UNDER 2-202
EVIDENCE INADMISSIBLE
EVIDENCE ADMISSIBLE
EVIDENCE
ADMISSIBLE
UNDER 2-202(a)
EVIDENCE
INADMISSIBLE
UNDER 2-202(b)
e.
ADDITIONAL
USAGE
OF
TRADE,
COURSE
PERFORMANCE, COURSE OF DEALING
OF
EVIDENCE ADMISSIBLE IF CONSISTENT
EVIDENCE ADMISSIBLE UNDER 2-202(a) IF
CONSISTENT
EVIDENCE ADMISSIBLE UNDER 2-202(a) IF
CONSISTENT
OFFER AND ACCEPTANCE
i. Offer to make a contract shall be construed as inviting acceptance in any reasonable manner
unless otherwise unambiguously indicated UCC § 2-206(1)(a)
1. If ambiguous, then any reasonable acceptance is permitted
a. Example: "reply by return mail" is ambiguous, thus, acceptance by shipment
means prompt shipment
2. No need to know when acceptance formed the contract UCC § 2204(2)
3. Where the beginning of performance is a reasonable mode of acceptance, the offeree
MUST notify offeror of the acceptance within a reasonable time in order to bind the
offeror UCC § 2-206(2).
ii. Shipment of conforming/non-conforming goods as acceptance UCC § 2-206(b)
1. Where acceptance requires prompt shipment or current shipment
7
a.
Construed as inviting acceptance by prompt promise to ship or prompt
shipment
b. Conforming goods must be in accordance with contract requirements
2. Shipment of non-conforming goods is an acceptance and a breach BUT
a. If seller ships non-conforming goods AND
b. Seasonably (Timely) notifies buyer that the goods are an accommodation
c. THEN there is no acceptance
i. Buyer can return the goods (No contract) OR
ii. Buyer can accept the goods (Contract formed)
iii. Formation in General
1. Requires evidence of intent to make a contract UCC § 2-204(1)
a. Any manner sufficient to show agreement
i. Conduct or otherwise
b. Shows the existence of a contract
2. Need not know the moment of the making of the contract UCC § 2-204(2)
3. Although terms are left open, contract does not fail for indefiniteness as long as
there is a reasonably certain basis to provide for remedies
a. Gap fillers in the code to supply terms and remedies
iv. Firm Offers UCC § 2-205
1. IF Offer to buy or sell goods
2. Offeror is a merchant
a. Knowledge of business practices AND
b. Acting in mercantile capacity
3. Must be a signed writing
a. If oral, must be supported by consideration AND
4. Assurance that the offer is held open
5. THEN offer is irrevocable even without consideration
a. Offer is valid for three month maximum
i. If offer is open for only twenty days, it is irrevocable for twenty days
ii. Code provides the maximum time—parties can contract for less time
b. If offeree has the writing with the assurance by the offeror
i. The offeror must sign the assurance separately
6. Example—A writes note to B in law school class on 2/7 offering to sell car by end of
summer; gives B option to buy until June 1—signed by A. 2/15 she sells to C. 4/25 B
tells A he will give her 10,000 for the car (which is worth 16,000). A tells B the car is
sold. B sues for 6,000 loss.
v. UCC § 2-207 *Where parties dispute the terms of the contract*
1. Oral agreement followed by confirmatory memorandum
a. If there is an additional term AND both parties are merchants (any
merchants), Term is included UNLESS
i. Offer limits acceptance to the terms in the offer
ii. Term is a material alteration to the contract
1. Test: surprise or hardship
a. Surprise is subjective and objective determination
i. UOT/COD/COP
ii. Reasonable limitations of remedies are not
material alterations
b. Hardship is a substantial economic hardship
i. Consider contexts
8
ii. Likelihood of consequential damages of the
goods
iii. Unilaterally imposing a hardship onto the buyer
with knowledge of its economic effect
iv. Mandatory arbitration is a hardship unless
standard in the industry
v. Disclaimer
of
implied
warranty
of
merchantability is normally a hardship
2. If alterations are
a. Reasonable
b. Consistent with the UCC AND
c. Consistent with the industry, it is normally not a
material alteration
iii. Party objects to the additional term
b. If there is an additional term AND one party is not a merchant, the terms are
mere proposals to the contract.
i. The other party must expressly assent to the different terms
c. If the terms are different: 3 approaches
i. Different terms knock each other out and supply gap filler in the code
1. Argument—lack of assent anyway so knock out the terms
2. Easy, fair, and neutral
ii. Take terms of offeror
1. Offeror is the master of the offer
iii. Do what is reasonable, regardless of party
1. Use facts
2. UOT/COP/COD
2. Exchange of forms are offer and acceptance (Do offer and acceptance analysis:
usually, buyer sends a purchase order form [offer] and seller sends acknowledgement
form [acceptance])
a. Definite and seasonable acceptance including different or additional terms
i. Seasonable—within time specified in contract OR if silent, within a
reasonable time
ii. Definite: Specific and express agreement to the additional or
different terms
iii. If no definite and seasonable acceptance, there is no contract
UNLESS
1. Parties continue to perform as if there was a contract 2207(3)
a. Contract consists of the terms agreed upon AND
b. Any gap fillers provided in the code
b. Acceptance expressly made conditional on assent to the additional or
different terms
i. Express—cannot be implied, so construe as not expressly conditional
ii. Conditional—party will not perform unless condition is met
iii. Assent—from offeror to the offeree
1. If conditional, and no express assent to different or additional
terms AND
2. Parties continue to perform as if there was a contract: go to
2-207(3)
a. Contract consists of the terms agreed upon AND
9
b. Any gap fillers provided in the code
III.
WARRANTIES
a. Warranty of Title UCC 2-312
i. Warranty of title attaches
1. Where there is a contract for the sale of goods UCC 2-312(1)
ii. Warranty of title can be disclaimed by
1. Specific language
a. Very difficult to disclaim
i. Must be a very specific disclaimer and assent by the buyer
b. Cannot be disclaimed under UCC 2-316: only under UCC 2-312(2) OR
2. Circumstances
a. Buyer has reason to know that the seller does not claim title
i. Example—buyer buys watch from seller on street corner in NYC
iii. Extent of the warranty of title
1. Good title is conveyed
a. General rule: transferee receives all that the transferor has
i. Good title—transferee receives good title
ii. Voidable title
1. True owner voluntarily departs with good subject to
express/implied condition. EXAMPLES:
a. Deceived as to identity of purchaser
b. Bad check
c. Agreed to cash sale
d. Procured through fraud UCC 2-403(1)(a) – (d)
2. Transferee will get good title IF
a. Good Faith
i. Merchant = honesty in fact and observance of
reasonable commercial standards of fair
dealing
ii. Non-merchant = honesty in fact
b. Purchaser
i. Voluntary transfer of interest in property (not
necessarily a sale: broader—ex: gift)
c. For Value
i. Sale
iii. Void title—no voluntary transfer (compare voidable title where true
owner voluntarily transfers)
1. Thieves only have void title
2. Bona fide purchasers cannot clear void titles (Strict liability)
3. Person who deals with the thief only has a cause of action
against the thief (probably won't find him/her)
b. Trace back to first transfer
2. Transfer rightful
a. Person with good title has both the power and the right to transfer good title
b. Person with voidable title (Good Faith Purchaser for Value) has the power to
transfer good title, but transfer may not be rightful
i. Warranty of title protects buyer from defending a clouded title even
if the clouded title becomes good title AND
3. No security interest or liens of which buyer has no knowledge
a. Knowledge means "actual knowledge" therefore, notice is insufficient
10
b. No duty to inquire
4. *Also a warranty against infringement of intellectual property rights
a. If buyer furnishes specifications from seller, buyer warranties must hold
seller harmless from any claim arising from the specifications
i. This is the only time the BUYER warranties anything
iv. Warranty of title is breached where
1. No good title is conveyed
2. If title has lien and seller does not disclose, the failure to disclose is the breach
3. If buyer requires specifications and specifications give rise to claim against seller,
the buyer has breached the warranty of title
v. Damages
1. Generally the difference between the value of the goods as promised and goods as
transferred
a. Example: goods as promised = $5,000, delivered with void title (FMV =$0),
damages = 5,000
2. If GFPV receives good title, but must defend title, GFPV gets actual costs of
litigation to defend title
3. Vouching in UCC 2-607(5)(a) (buyer is sued for breach of warranty and seller is
answerable for that breach)
a. Expedites litigation to defend title
i. Notice to the seller of the litigation and to defend
ii. If refused, original seller risks being bound by all common questions of
fact in the judgment
vi. LEASES UCC 2A-211
1. Warranty against interferences
a. Warranty of quiet possession
i. Lessor only warrants that no one will interfere with the leasehold by
act or omission of lessor
ii. Fault matters here, whereas the warranty of title in the sale of goods
does not consider fault
1. Lessors wrote the provision
2. No title passes
3. No major damages
b. EXPRESS WARRANTIES UCC 2-313 (Buyer and seller have different views on what was sold)
i. Express warranties are created by
1. Affirmations of fact
a. Present, existing facts
2. Promises
a. Future representations
3. Descriptions
4. Samples
a. Actual goods
5. Models
a. Representation of the product
ii. Express warranties ARE NOT created if seller is engaged in mere "puffing" or states opinions
about the goods
1. Opinions or puffing UCC 2-313(2)
a. Nonmeasurable/nonquantifiable statements
11
c.
i. If the statements are fact intensive, quantifiable, measurable so as to
determine what the remedy can be, the statements are affirmations
of fact or promises and thus not opinions or puffing
b. "I think" or "I believe" the goods are
, then it may be opinion/puffing
c. Look to the reasonableness of the seller's statement
i. Would the buyer really believe the statement
ii. Exaggerations
d. Compliments, commendations are usually opinions or puffing
iii. Extent of Warranties: Good shall conform to:
1. Affirmation of fact or promise
a. Made by seller to buyer 2-313(1)(a)
b. Relates to the goods
i. If affirmation not related to goods, it may be a different term of the
contract (affirmation of fact about aluminum siding, seller says "I'll
throw in a garden hose": the hose is a different term of the K because
it does not relate to the goods) AND
c. Basis of the bargain
i. Courts presume that an affirmation of fact is part of the basis for
the bargain
1. no reliance required BUT
2. to rebut, seller must show that buyer did not rely on the
affirmation of fact/promise
2. Description
a. Implied that it is from seller to buyer
i. Usually are terms already in the contract AND
b. Basis of the bargain (see above)
3. Sample/model
a. Basis of the bargain (see above)
iv. Breach
1. Where goods do not conform to
a. The affirmation of fact
b. Promise
c. Description
d. Model OR
e. Sample
Implied Warranties
i. Introduction
1. Automatically part of the K unless the seller (or circumstances) does something
affirmative to get rid of them
2. Arise as a matter of law
3. Seller's intention to create implied warranty is completely irrelevant
ii. Implied Warranty of Merchantability: UCC § 2-314
1. Creation 2-314(1)
a. Sale of goods
i. Including food or drink to be consumed on premises or elsewhere
ii. Comments 1 and 4 recognize that goods can be new or USED
1. If used, must be comparable to similar USED goods
b. Seller is merchant with respect to goods of that kind
i. "Goods of that kind" can be interpreted broadly or narrowly depending
upon the transaction
12
1. In Consumer Transactions, a broad interpretation is proper
2. Otherwise, a more narrow interpretation will be sufficient
ii. Express warranty of Merchantability
1. Although not a merchant, a seller who expressly guarantees
the good is fit for ordinary purpose, the warranty of
merchantability might attach (particularly in sale of used
goods)
2. Extent of the Warranty 2-314(2)
a. Must pass without objection in the trade under contract description
i. Merchant to merchant sale, must live up to merchantable expectations
in the trade
b. Fungible goods (bulk, equivalent goods) must be average quality
c. Fit for ordinary purpose
i. Wine Glass Case—HELD: Agreement required wine glass (how else
would you drink the damn wine). Therefore, wine glass must be fit for
ordinary purpose
ii. Trunk of Car (Suicide Case)—HELD: Trunk's ordinary purpose is to
store cargo and carry cargo
iii. Industry
Standards—can
create
implied
warranties
of
Merchantability: Comment 12
1. Compare goods with others in the industry
2. Do cost-benefit analysis
a. Example—Driver side airbag—industry standards
include driver side airbags BUT some mfgs. would have
to RAISE the price of certain cars, and such cars
would no longer be economical for certain buyers
iv. Foreseeable uses—determine whether goods are fit for ordinary
purposes AND fit for ordinary, FORESEEABLE uses.
1. Example—firestone Tires: drivers can be speeding and
breaking the law, BUT speeding is a FORESEEABLE use
d. Evenness of kind
e. Must be adequately packaged
i. Wine glass—if agreement requires a glass, glass must be adequate
f. Must conform to labels if any
3. Breach of Warranty
a. Where goods are not fit for ordinary purpose etc. (See (a) thru (e))
iii. Implied Warranty of Fitness for a Particular Purpose: UCC 2-315
1. Creation [4]
a. Seller knows or has reason to know of the buyer's needs
i. Surrounding circumstances OR
ii. Transaction
b. Seller knows or has reason to know the buyer is relying on seller to select or
furnish suitable goods
i. Seller must actually select or furnish the goods
c. Buyer actually relies on seller's skill or judgment to select or furnish the
goods
d. MUST ALL OCCUR at time of contracting
2. Extent: Goods are fit for buyer's particular purpose
3. Breach: Where goods are NOT fit for buyer's particular purpose
iv. Food Warranties
13
1.
TEST 1
a. IF Natural AND Foreseeable then no recovery UNLESS
b. Goods are unwholesome
i. Allocation of risk—who bears the risk
ii. Who is in the best position to prevent the injury
c. Check for express warranties: Menus all contain descriptions in some form
2. TEST 2: North Carolina Food Warranty Test
a. Food contains injury causing substance AND
i. Is of size, quality, quantity OR
ii. Food has been processed OR
iii. Both
b. Such that consumer could not reasonably anticipate the object in the food
v. Allergic Reactions
1. Determine if the UCC applies
a. Sale/Service Rule
i. Predominate Purpose Test OR
ii. Gravamen Test
b. IF UCC applies, determine which implied warranty applies
i. Merchantability OR
ii. Fitness
c. Seller's burden
i. IF seller must inquire whether buyer will have allergic reaction based
on industry standards, seller may be liable
1. Depends on usefulness of the product AND
2. Depends on severity of the injury
2. TEST for Breach of Warranty for Allergic Reaction
a. Seller has reason to know reaction was possible in some "appreciable" class of
consumers: (Product, Harm, and Seller's knowledge)
d. Buyer's Burden of Proof For Breach of Warranties
Type of
Warranty
Creation
Title 2-312
Express 2- 313
Merchantability 2-314
Fitness 2-315
(1) Sale of Goods
(1) Aff. of fact, promise,
description, sample, model
(2) Relates to the goods
(3) Becomes basis for the
bargain
(1) Sale of Goods
(2) Seller is Merchant w/
respect to Goods of that kind
Extent
(1) Title is good
(2) Transfer is
Rightful
(3) No security
interests or Liens on
title
2-403: types of titles
Goods conform to express
representations of seller
Fit for ordinary purpose, etc.
(1) Seller knows of buyer's
needs
(2) Seller knows buyer is
relying
(3) Buyer actually relies
(4) All @ time of
contracting
Goods are in fact fit for
buyer's particular purpose
Buyer shows that goods did not
conform to seller's
representations
Proximate Cause
2-714(2):
FMV
of
Goods
2-715: incidental or
consequential damages
Proximate Cause
2-714(2): FMV of Goods
2-715: incidental or consequential
damages
(1) Buyer shows that goods are
not fit for ordinary purpose,
etc.
(2) Food: reasonable
anticipation
(3) Allergy: % of population
Proximate Cause
2-714(2): FMV of Goods
2-715:
incidental
or
consequential damages
Breach
Causation
Injury/Damages
14
Buyer shows that goods are
not fit for particular
purpose
Proximate Cause
2-714(2): FMV of Goods
2-715:
incidental
consequential damages
or
e.
Disclaimer of Warranties: *Seller ALWAYS bears burden of proving disclaimer of warranties
i. Disclaimer of Express Warranties: UCC 2-316(1)
1. Introduction
a. Virtually impossible to disclaim express warranties
i. Usually, seller need not warrant past description of goods
ii. As such, provides fairness to the buyer because seller made
representations beyond that which seller is obligated
iii. HOWEVER, seller is also protected from misinterpretations by the
Parole Evidence Rule
b. There is also a presumption that negotiations have taken place and buyer can
back out of the deal
2. TEST
a. DETERMINE IF PAROLE EVIDENCE APPLIES
i. IF the express warranty meets the requirements of the PE Rule, and
it can become a term of the contract, the express warranty applies
ii. IF the express warranty fails to meet the requirements of the PE
Rule, and it does not become a term of the contract, the disclaimer
applies.
1. Merger clauses
a. Between merchant and consumer, merger clause
creates a presumption of integration, but is not
conclusive
b. Between merchants, merger clause merger clause is
usually conclusive proof of integration
b. IF language of the contract both CREATES express warranties AND
LIMITS/NEGATES express warranties
c. Court will construe both clauses as consistent
d. IF the creation and limitation CANNOT be construed consistently, the
limitation/negation of warranty drops out
3. Lack of Authority Clauses
a. Comment 2 recognized this clause as a protection to the seller for
misrepresentations of seller's agents
i. PROBLEM: seller gets all benefits of agent's misrepresentations and
it is unfair from the consumer setting
ii. Disclaimer of Implied Warranties: UCC 2-316(2) and (3)
1. Introduction
a. Implied warranties are easier to disclaim because the parties did not
specifically agree AND they arise by operation of law
2. Disclaimer of Implied Warranty of Merchantability
a. Must contain the word "merchantability" AND
b. If in writing, disclaimer must be CONSPICUOUS
i. UCC 1-201(10) defines conspicuous as written in such a way that a
reasonable person against whom it is to operate OUGHT to have
noticed it
1. ANY reasonable person—are they going to see the disclaimer?
a. ALL CAPS
b. Bold
c. Underlined
d. ** *S e t O f f F r o m t h e R e s t o f t h e T e x t ** *
e. Initialed gab
15
f.
g.
h.
Different Color
SIZE
DISCLAIMER
2. ORAL statements are by nature conspicuous
ii. Some courts allow "actual knowledge" of the disclaimer to substitute
the conspicuousness requirement
1. COUNTER: code doesn't say "actual knowledge"
3. Disclaimer of Implied Warranty of Fitness for a Particular Purpose
a. MUST be in writing AND
b. MUST be conspicuous
i. No special words required (compare disclaimer of merchantability,
which requires the word "merchantability")
iii. Alternative Disclaimers of Implied Warranties: UCC 2-316(3)
1. Introduction
a. These disclaimers prevent surprise because the language is easier to
understand
2. 2-316(3)(a): "AS IS" and "WITH ALL FAULTS" Disclaimers
a. MUST be conspicuous
b. Language that states "there are no express or implied warranties" does NOT
meet the requirements of (3)(a)
3. 2-316(3)(b): Examination by Buyer
a. Seller demands inspection by the buyer AND
b. Buyer should have found the defect OR refuses to examine
c. REASONABLENESS
i. Comment 8 provides that the level of inspection depends on who the
buyer is
1. Merchant? Consumer?
ii. Examination works as a disclaimer of warranties for defects that
SHOULD HAVE BEEN FOUND
1. Other defects are still warranted if they could not be found
4. 2-316(3)(c): Usage of Trade, Course of Performance, Course of Dealing
a. ALL can exclude or modify implied warranties
iv. Disclaimer of implied warranty AFTER sent and purchased (Bowdoin)
1. Disclaimer fails because
a. Does not become part of the basis of the bargain
b. Disclaimer MUST be conspicuous BEFORE the sale
i. Buyer must have the option NOT to buy
ii. Must be NOTICED by buyer
c. COD/COP must be MORE than one prior deal to establish regularity between
buyer and seller
v. Limitation of Remedies: UCC 2-719 allows limitation of remedies and warranties (Usually
limited to "repair or replace")
1. UCC 2-719(1)(a): Determine if the limitation is the EXCLUSIVE remedy
a. Did the parties expressly agree that the limitation would be EXCLUSIVE OR
OPTIONAL (in addition to other remedies)
i. Comment 1 provides that the Code presumes the limitation is in
addition to other remedies
b. IF the limitation is the EXCLUSIVE REMEDY
16
f.
i. The limitation must NOT fail of its essential purpose
1. First determine what the purpose of the remedy is
2. Then determine whether the remedy failed to fulfill that
purpose
c. IF the limitation fails, the CODE remedies apply
i. Comments provide that this section ensures some remedy will exist
for a breach
ii. Wilson—Where the limitation of remedy makes it impossible for the
buyer to get a remedy, the limitation FAILS of its essential purpose
(even when it really does serve its purpose)
2.
UCC 2-719(3): Limitation of Consequential Damages (Buyers usually get consequential
damages, sellers DO NOT)
a. Consequential Damages Defined
i. Seller has reason to know of losses that flow from the buyer's need
for the good
1. Examples
a. Personal Injury
b. Property Damages
c. Lost Profits
d. Inconvenience
e. Loss of Use
b. Incidental Damages Defined
i. Out of pocket expenses from dealing with the good itself or replacing
the good
c. Limitation of Consequential Damages
i. Seller can limit consequential damages if the limitation is not
unconscionable
1. Prima Facie Unconscionable
a. Limitation of damages for personal injury in consumer
contracts are presumed unconscionable
2. Prima Facie NOT Unconscionable
a. Limitation of damages where the loss is commercial
3. Where exclusive remedy is repair or replace AND limitation on consequential damages
a. Consumer Contract
i. Once limitation fails of its essential purpose, the ENTIRE limitation
drops out, including the limitation on consequential damages, and the
code remedies apply (which include recovery for consequential
damages)
b. Commercial Contract
i. Once limitation fails of its essential purpose, the "repair or replace"
clause drops out, NOT the limitation on consequential damages.
Notice of Breach: Defense to Breach of Warranty Claims: UCC 2-607(3)(a)
i. Buyer must give NOTICE to seller of the breach
1. Reasons for Notice
a. Ensures that negotiations will take place
b. Gives Seller opportunity to cure
c. Prevents bad faith on buyer's part by allowing seller to inspect before curing
2. Content of Notice
a. Must let the seller know the transaction is "troublesome and needs to be
watched"
17
g.
Who
Recover
Standard
Recovery
Can
i. No detail required BUT
ii. If seller is a merchant, seller has the right to request from buyer the
alleged defects under 2-605
b. Third Parties (Not parties to contract)
i. Generally do not need to comply with (3)(a) BUT
ii. They are expected to notify the seller
iii. Consumers ARE required to give notice BUT there is a BROAD
reasonableness standard
ii. Within a "reasonable" time
1. Merchants
a. Comment 4 provides that merchants must notify within a commercially
reasonable time
2. Consumers
a. Comment 4 provides that a "reasonable time" will be extended for consumers
3. Factors in determining "Reasonableness"
a. Type of Business
b. Industry standards
c. Nature of the goods
i. Perishable goods
iii. Where Buyer resells good BEFORE giving notice
1. Takes away seller's ability to inspect and thus would be unreasonable
2. Even if resale would NOT prejudice the seller
a. That is, seller could not be able to cure, inspect, etc., anyway
3. Notice is STILL required
a. If buyer shows that seller would NOT be prejudiced, buyer's duty to notify
seller of the breach within a "reasonable time" may be extended, but not
eliminated
Third Party Beneficiaries of Warranties, Express or Implied (Who may sue for breach of warranty)
i. Vertical Privity
1. Courts determine who can sue, not the Code
a. Consumers—courts usually allow consumers to sue mfg.
b. Commercial—courts usually do NOT allow merchants to sue mfg.
ii. Horizontal: UCC 2-318 Alternatives (Left up to states to decide)
Alternative A (Narrow) (PA)
Natural Person
(1) In family or household OR
(2) Guest in the home
Reasonable to expect that such person
may
(1) Use,
(2) Consume, OR
(3) Be affected by the goods
Personal Injury
Alternative B (Moderate)
Natural Person
Alternative C (Broad)
Person, including Corporations
Reasonable to expect that such person
may
(1) Use,
(2) Consume, OR
(3) Be affected by the goods
Personal Injury
Reasonable to expect that such person
may
(1) Use,
(2) Consume, OR
(3) Be affected by the goods
ANY Injury (Personal, Property)
h. LEASE Warranties under Article 2A
i. Finance Lease
1. Implied warranty does NOT apply to a finance lease
18
a.
2. TEST:
a.
b.
c.
d.
IV.
In a finance lease, the LESSEE is the beneficiary of warranty given in original
sale
Must be a True Lease: UCC 2A-103(1)(g)
Lessee selects the goods
Goods bought SOLELY to release AND
Lessee must know about the original sale
TERMS OF THE CONTRACT
a. Gap Fillers (AFTER FORMATION OF CONTRACT IS ESTABLISHED: 2-204(a)-(c))
i. Open Price Term: UCC 2-305
1. Price term can be left open
2. Price is a reasonable price at time of delivery IF
a. Price is not included in the K
b. Price is left to be greed by parties and they fail to agree OR
c. Parties agree to let the market or other standard set the price but it is not
set
3. Seller or buyer can set the price if done in good faith
4. IF price is to be fixed by parties and through fault of one of the parties fails to fix
the price
a. Other party may cancel the contract OR
b. Fix a reasonable price himself
ii. Allocation of Quantity: UCC 2-311(1)
1. IF specifics of performance are left to one party (ex: party agrees to set quantity at
a later date)
a. Specifications must be done in good faith
b. Within Commercial Reasonableness
2. Where party REFUSES to perform (party refuses to set quantity at all)
a. Other party may treat the refusal as a breach and be excused from
performance OR
b. Other party may proceed to perform in a reasonable manner (ex: other party
may allocate quantity himself if done so reasonably)
i. Factors:
1. Course of Prior Dealings
2. Demand in the market
3. Amount taken on other occasions
iii. Belief that One Party will NOT Perform: UCC 2-609
1. (1): Party is insecure whether the other will perform
a. Insecurity must be reasonable
i. Commercial reasonableness
b. Party must make written demand of adequate assurance of performance AND
c. May suspend performance until reassurance is attained IF
i. Waiting to perform is commercially reasonable UNLESS
ii. Even if commercially reasonable, the party may NOT suspend
performance (wait) if the other party has already paid for
performance
2. (2): Between merchants
a. Insecurity and adequacy of assurance must be commercially reasonable
3. (4): Response
a. Given within a reasonable time NOT EXCEEDING 30 days
i. Must be adequate under the circumstances
19
ii. Must indicated that the party CAN and WILL perform
b. IF NOT adequate or given AFTER 30 (or not given at all)
i. Anticipatory Repudiation
iv. Landrum—Goods: limited edition corvette; price term open (14-16 thousand); buyer paid
22,000 under protest because market value went up AND seller wanted more money
1. Jury could have found that the contract price was a reasonable price or fair market
value thus summary judgment precluded
a. Novation—new deal replaces old deal IF
i. Must be voluntary
b. Waiver
i. Must be voluntary relinquishment of known right
c. Ratification
i. Must be voluntary
2. UCC 1-207: "Under Protest" and similar language
a. Preserves rights of the party
b. Other Gap Fillers: PRESUMPTIONS
i. Delivery: UNLESS OTHERWISE AGREED
1. Entire K is to be delivered at one time. UCC 2-307
2. Tender of delivery is at seller's place of business. UCC 2-308
3. Time for Delivery is a reasonable time. 2-309(1)
4. Payment is due at the time and place of delivery upon receipt of goods. 2-310(a)
c. Unconscionability UCC 2-302
i. Defined (Not Really): Whether the contract or clause is so one-sided as to be unconscionable
under the circumstances
1. One-sided
2. Oppressive
3. Surprising
4. Unreasonable
5. Grossly Unfair
6. Shocks the conscience
ii. Elements
1. Substantive
a. Contract or a clause thereof is unconscionable
i. Terms are outrageous
ii. No negotiations
iii. Boilerplate, inconspicuous
2. Procedural
a. Unfair process
b. One-sided bargaining power
c. Capacity of buyer
d. Consumer/merchant distinction
e. Education of buyer
3. Court may refuse to enforce the unconscionable clause OR contract itself after
hearing on evidence of unconscionability
a. NOT a jury question because all juries would find unconscionability BUT
4. IF substantive or procedural unconscionability are not proved,  must resort to
Common Law remedies
a. Ex: IF terms are not unconscionable, but process is unfair
iii. Article 2A-108(2) Unconscionability
1. Consumer Leases
20
a.
Defined
i. Lessor is merchant, lessee is individual
ii. Lessee (individual) leases goods for personal, family or household
purposes
iii. OPTIONAL dollar value (under certain $ amount adopted by state)
2. Protects consumer from unconscionable conduct
a. Collection tactics AND
b. Contract creation (ex: inducement practices)
3. Remedies
a. Court constructs appropriate Remedies INCLUDING
b. Reasonable attorney's fees BUT
i. IF court does NOT find unconscionability AND
ii.  knew the claim was groundless,
iii. THEN  gets reasonable attorney's fees from 
d. Identification UCC 2-501
i. Introduction
1. Buyer obtains limited property interest and insurable interest at time of
identification
2. Title does not pass
3. Determines the EXACT goods the seller will give to the buyer
4. Comment 2 provides that all doubts should be resolved in favor of identification
ii. 2-501(1)(a): Existing goods—ABSENT EXPLICIT AGREEMENT
1. Identification occurs at the time the contract is made
2. Undivided Share in Identified Fungible Bulk (Comment 5) (E.g., corn in silo)
a. Undivided share means ownership
b. Identified fungible bulk means that whatever is containing the fungible good
(e.g., grain silo)
c. Fungible means identical equivalent
d. Identification of an undivided share in identified fungible bulk occurs at the
time of contracting
iii. 2-501(1)(b): Sale of future goods—ABSENT EXPLICIT AGREEMENT
1. Identification occurs when
a. Goods are shipped
b. Marked OR
c. Otherwise designated by the seller as good to which the contract refers
2. Comment 4 provides that the goods DO NOT need to be deliverable
a. Seller is NOT done performing
iv. 2-501(1)(c): Crops or Unborn Young—ABSENT EXPLICIT AGREEMENT
1. Crops
a. Identification occurs when crops are planted IF
i. Harvested within the year OR
ii. End of next normal harvesting season
1. Whichever is LONGER
e. Risk of Loss: NO BREACH
i. IF neither party is in breach right before the loss AND
ii. The parties did not explicitly agree on the risk of loss THEN 2-509 Applies
iii. Subsection (1): Transportation Contract: Contract requires or authorizes shipment by the
seller
1. 2-509(1)(a) deals with Shipment Contracts (Code Presumption)
a. General Rule
21
i. Contract Does NOT require delivery to particular destination
ii. Risk of loss shifts when goods duly delivered to the carrier
1. Carrier becomes agent of the buyer
b. 2-319 "F.A.S." (Free Along Side named port): is ALWAYS a shipment contract
i. Risk of loss will shift to buyer once seller duly delivers to the carrier
ii. "Duly Delivered"
1. 2-319(2)(a) requires the seller to deliver goods alongside the
vessel
a. ON THE DOCK
2. 2-319(2)(b) requires the seller to obtain a bill of lading
3. 2-504 (Relating to Shipment Contracts) ALSO requires seller
to
a. (a) Form a reasonable contract to ship with the carrier
b. (b) Obtain all necessary documents for shipment AND
c. (c) Promptly notify the buyer of shipment
c. 2-320 "C.I.F." (Cost, Insurance, & Freight) is ALWAYS a shipment contract
because if buyer is paying insurance on the goods, buyer MUST have the risk
of loss (See Comment 1)
i. Risk of loss shifts to the buyer once seller duly delivers to the carrier
ii. "Duly Delivered"
1. 2-320(2)(a) requires the seller to obtain a negotiable bill of
lading
2. 2-320(2)(b) requires the seller to LOAD the goods and obtain
receipt
3. 2-320(2)(c) requires the seller to obtain insurance for the
specific good being delivered (where buyer is the beneficiary
of such insurance)
4. 2-504 (Relating to Shipment Contracts) ALSO requires seller
to
a. (a) Form a reasonable contract of shipment with the
carrier
b. (b) Obtain all necessary documents for shipment AND
c. (c) Promptly notify the buyer of shipment
d. 2-320(3) C & F (Cost and Freight) carries the same obligations as in C.I.F.
Contracts except that C & F contracts DO NOT required seller to obtain
insurance
i. Buyer will usually have a blanket policy for insurance, so buyer need
not pay for insurance on the specific goods
e. 2-319 "F.O.B." (Free on board named place) can be a shipment contract IF
i. Named place is the SELLER'S location
ii. Risk of loss shifts to the buyer when seller duly delivers to the
carrier
iii. "Due Delivery"
1. 2-319(1)(a) requires seller to put the goods in the possession
of the carrier
2. 2-504 (Relating to Shipment Contracts) ALSO requires seller
to
a. (a) Form a reasonable contract to ship with the carrier
i. Cook—"reasonable contract for delivery under
the circumstances" did NOT require seller to
22
assure the carrier had adequate insurance to
cover the value of the goods. "Reasonableness"
relates to the nature of the goods, e.g., fragile,
perishable, etc.
b. (b) Obtain all necessary documents for shipment AND
c. (c) Promptly notify the buyer of shipment
iv. Named Place AND Named Transportation (e.g., named vessel, truck)
1. 2-319(1)(c) requires the seller to load the goods on the named
transportation type (vessel, truck, etc.)
2. 2-504 (Relating to Shipment Contracts) ALSO requires seller
to
a. (a) Form a reasonable contract to ship with the carrier
b. (b) Obtain all necessary documents for shipment AND
c. (c) Promptly notify the buyer of shipment
f. Notification requirement under 2-504(c)
i. Rheinberg—Int'l K for sale of wine between merchants. Before goods
were lost at sea, seller notified the seller's agent. After the goods
were lost at sea, bank notified the buyer.
1. HELD: notification requirement must take into consideration
the buyer's ability to protect himself before the goods are
shipped before the risk of loss can pass
a. IF bank notified buyer of shipment BEFORE goods
were lost, risk of loss would be on buyer
b. SINCE buyer was NOT notified until AFTER goods
were lost, the risk could not pass
2. 2-509(1)(b) deals with Destination Contracts
a. General Rule
i. Contract DOES required delivery to particular destination
ii. Risk of loss shifts to buyer when CARRIER tenders delivery at the
particular destination
1. Carrier becomes agent of the seller
b. 2-322 "Ex-Ship" (from the carrying vessel) is ALWAYS a destination contract
i. Generally, 2-509 provides that the risk of loss shifts to buyer when
CARRIER tenders delivery at the particular destination BUT
ii. 2-322(2)(b) also requires the goods to be unloaded
c. 2-319 "F.O.B." (Free on board named place) can be a destination contract IF
i. Named place is the BUYER'S location
1. Risk of loss shifts to buyer when CARRIER tenders delivery at
the particular destination
2. "Tender of Delivery"
a. 503(1) "tender of delivery" requires the seller to
i. Put and hold conforming goods at buyer's
disposition AND
ii. Give buyer any notification reasonably
necessary to enable buyer to take delivery
b. 2-503(1)(a) also requires
i. Tender to be at a reasonable hour
ii. Goods kept available for a reasonable period of
time so buyer can take possession
23
iii. Ex—Two (2) days is generally a very generous
time period
c. 2-503(1)(b) also requires, unless otherwise agreed,
i. Seller to furnish facilities reasonably suited to
the receipt of the goods
ii. Ex—goods = fish; "suitable facilities" would
require refrigeration
3. 2-509(2): Deals with goods in possession of a third party bailee to be delivered
without being moved AND EITHER
a. Buyer receives Document of Title
i. Subsection (2)(a) deals with Negotiable documents of title
1. Risk of loss shifts to the buyer upon buyer's receipt of the
negotiable document of title
a. 2-103(c) defines "receipt" as taking actual, physical
possession
b. Once buyer has rightful possession of the document,
buyer has control over the goods
ii. Subsection (2)(c) deals with Non-negotiable documents of title
1. Risk of loss shifts to the buyer upon buyer's receipt of the
non-negotiable document of title, subject to 2-503(4)(b)
a. 2-503(4)(b) also requires that buyer have a reasonable
time EITHER
i. To present the document of title to the bailee
OR
ii. Have bailee acknowledge the buyer's rights to
the goods
b. Buyer DOES NOT receive Document of Title
i. Subsection (2)(b) provides that the risk of loss will shift to the buyer
1. When bailee acknowledges buyer's right to possession of the
goods
2. "Acknowledgment" must come from the bailee and given to the
buyer (Jason's Foods, Prior Uniform Law—Uniform Sales Act
preserved: Uniform Sales Act required acknowledgement to
the buyer)
c. Prior Law—whoever had actual title bore the risk of loss BUT
i. Code rejects this notion—it is never a question of who "owns" the
goods
ii. The better policy is to place the risk of loss on the party that
1. Is in abetter position to insure the goods OR
2. Has control over the goods such that the party can prevent
loss
4. Subsection (3): Other transactions NOT falling within subsections (1) or (2)
a. IF seller is a merchant
i. Risk of loss shifts to buyer upon buyer's receipt of goods
1. 2-103(c) defines "receipt" as taking actual, physical possession
of the goods
ii. Comment 3 recognizes that merchant sellers have possession of the
goods and are more likely to have insurance on goods in their
possession; thus the risk shifts on actual receipt by the buyer
(compare non-merchant seller)
24
V.
b. IF seller is NOT a merchant
i. Risk of loss shifts to buyer upon seller's tender of delivery
1. 2-503(1) "tender of delivery" requires the seller to
a. Put and hold conforming goods at buyer's disposition
AND
b. Give buyer any notification reasonably necessary to
enable buyer to take delivery
2. 2-503(1)(a) also requires
a. Tender to be at a reasonable hour
b. Goods kept available for a reasonable period of time so
buyer can take possession
i. Ex—Two (2) days is generally a very generous
time period
3. 2-503(1)(b) also requires, unless otherwise agreed,
a. Seller to furnish facilities reasonably suited to the
receipt of the goods
i. Ex—goods = fish; "suitable facilities" would
require refrigeration
ii. Where seller is a non-merchant, the code protects the seller by
shortening the risk of loss to "tender of delivery" because nonmerchant sellers should not be required to insure their goods forever
c. Under 2-509(3), there is a presumption that the buyer will pick up goods at
the seller's place of business
iv. RISK OF LOSS CANNOT SHIFT BEFORE THE GOODS ARE IDENTIFIED
1. Comments to 509
v. Risk of Loss Under ARTICLE 2A
1. Generally, the risk of loss will not shift to the lessee UNLESS
a. The parties agree
i. If parties agree, risk of loss shifts at the time of the agreement and
is subject to 2-509
OR
b. A finance lease has been created
i. Once the finance lease has been created, the risk of loss
AUTOMATICALLY shifts to the lessee even if parties do not agree on
the risk of loss
PERFORMANCE OF THE CONTRACT
a. Introduction
i. 2-301: General Obligations of the Parties
1. Seller must tender conforming goods
2. Buyer must accept conforming goods and pay
ii. Unless otherwise agreed
1. 2-511(1) provides generally that buyer's tender of payment is a condition to the
seller's duty to tender conforming goods
2. 2-507(1) provides generally that seller's tender of conforming goods is a condition to
the buyer's duty to pay
a. The code contemplates contemporaneous transfer
b. These section are here to accommodate agreements that do not have
contemporaneous transfers
iii. Overview
1. When buyer receives goods, buyer inspects to assure the goods are conforming
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2. Buyer MUST accept or reject based on whether the goods conform or not
3. Whether goods conform depends on the contract terms
a. "In accordance with the obligations under the contract" 2-106(2)
4. IF the goods conform, buyer MUST accept
5. IF the goods do NOT conform, buyer can reject
a. Perfect tender rule in a single delivery contract OR
b. Rejection in accordance with provisions for installment contracts
i. 2-105(6): Commercial Units—good considered commercially as one unit
1. Value determined by use
b. 2-511: Payment
i. Subsection (2) provides that payment is sufficient when made
1. By any means OR in any manner that is generally accepted in the business UNLESS
a. Seller demands payment in legal tender (cash)
i. If seller demands cash, seller must give reasonable extension to
procure payment
1. Reasonableness depends on circumstances from buyer's
perspective
2. Buyer must act with due diligence to get the cash
c. Installment Contracts
i. 2-612 defines an installment contract as one which requires or authorizes
1. Delivery of goods
2. In separate lots
3. To be separately accepted
ii. Subsection (2) provides that the buyer may reject the non-conforming INSTALLMENT IF
1. Goods are non-conforming
2. Non-conformity substantially impairs the value of THAT INSTALLMENT
a. Question of fact
i. Purpose of the goods
1. Buyer is a reseller, Aesthetic
ii. Time of the essence to the buyer
iii. Quantity
iv. Assortment
v. Resale—are the goods damaged
b. Buyer CANNOT reject for minor defects
c. IF non-conformity substantially impairs value to buyer, buyer MUST notify
the seller to cure
3. Non-conformity cannot be cured by the seller
a. "Cure" means to fix the nonconforming tender to make it conform to the
contract
b. Seller has absolute right to cure in installment contracts
c. If goods are cured, buyer MUST accept or else buyer is in breach
iii. Subsection (3) provides that any party can reject the ENTIRE INSTALLMENT CONTRACT
IF
1. The Non-conformity (seller) OR default (buyer)
2. Substantially impairs the value of the WHOLE CONTRACT
a. It is not enough to fear that there will be another nonconformity in the next
tender
b. Comment 6 provides that the court must look to the contract as a whole
i. Cumulative effect of the nonconformity—one or more nonconformities
1. Factors
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a.
Purpose—what are the parties trying to accomplish
with this contract
b. Price
c. Loss of good will
d. Harm to other customers of buyer
e. Buyer is in breach because of seller's nonconformity
f. Reputation
3. Substantial impairment acts as a breach of the contract
4. HOWEVER
a. IF a party accepts a nonconforming installment without seasonably notifying
other party of cancellation OR
b. If a party sues with respect to past installments or demands performance for
future installments
c. THEN the party reinstates the contract
5. Presumption in court is that the nonconformity does NOT substantially impair the
value of the whole contract
a. Purpose of this standard for installment contracts is to
i. Protect the seller because buyer has increased bargaining power AND
ii. General code purpose of encouraging the performance of contracts
iv. Remedies for Breach of Installment Contracts
1. Buyer can cancel the entire contract under 2-711
2. Seller can cancel the entire contract under 2-703
3. 2-106(4) defines "Cancellation" as
a. Terminating the contract for future performance
v. Cherwell—Installment K; Buyer paid periodically but owed 10,000 for goods received; Buyer
insecure b/c seller might not ship; buyer tells seller he will pay; buyer sends check but stops
payment because truck driver told buyer that this was the last shipment; seller finally just
cancels the whole deal
1. Buyer argues (1) 2-609: seller has NO right to terminate and installment contract
without using his 2-609 right and (2) buyer demanded assurance that seller would pay
but did not receive adequate assurance
2. HELD: 2-612(3) allows ANY aggrieved party to cancel the contract for default and
does not talk about 2-609
a. Buyer's insecurity was unreasonable because it was based on (1) buyer's own
failure to pay and (2) some knucklehead truck driver's comment
b. Buyer's default on payment substantially impaired value of whole contract to
seller because seller lost money, will have a reputation as being one who does
not care about payment, will not have money to pay bills, payroll, etc.
vi. Adequate Assurance
1. Contract for the sale of goods
2. Reasonable grounds of insecurity about the other party's performance
a. Between merchants
b. Reasonable commercial standards of insecurity
i. Objective financial indications
1. Bankruptcy
2. Reduced bond ratings
3. Insecure party must demand, in writing, assurance of performance by other party
a. Adequate assurance
b. Request a promise to perform as required by the contract
4. Party can suspend performance UNLESS party has received the agreed upon return
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d. Single
i.
ii.
iii.
5. Responding party has a reasonable time, not exceeding 30 days, to give adequate
assurance
a. Reasonable time might be short if goods are perishable
6. If party does not respond within such time, insecure party can treat the failure to
respond as an anticipatory repudiation under 2-610
a. Comment 1 Test for anticipatory repudiation
i. Overt communication of intention OR
ii. Action which
1. Renders performance impossible OR
2. Demonstrates a clear determination not to continue with
performance
Delivery Contracts
2-601 is the perfect tender rule and gives the buyer the RIGHT to reject
1. Buyer has the right to reject goods if tender fails "in any respect" to conform to the
contract
a. Includes minor defects—buyer can reject until tender is perfect
2. Buyer may
a. Reject the whole contract OR
b. Accept the whole contract OR
c. Accept any commercial unit or units and reject the rest
2-602 provides the MANNER of rightful rejection (failure to make an effective rejection is
tantamount to acceptance under 2-606)
1. Subsection (1) provides that the buyer must notify seller of the rejection within a
reasonable time
2. Subsection (2)(a) prohibits the buyer from exercising ownership of the goods
rejected
3. Subsection (2)(b) requires the buyer to hold the goods for a reasonable time and in a
reasonable manner so the seller can retrieve the goods BUT
4. Subsection (2)(c) provides that the buyer has no other obligations with regard to
goods rightfully rejected
2-605 may also require the buyer to make statements of defects IF
1. 2-605(1)(a) Seller could cure
a. Seller has the ABSOLUTE right to cure under 2-508(1) IF
i. Time for performance has not yet expired
1. Seller MUST cure by the performance date
2. Ex—Delivery of nonconforming goods on the 10th; contract
asked for delivery on the 20th, seller has absolute right to
cure before the 20th
b. Seller MAY have the right to cure under 2-508(2) IF
i. Seller has reasonable grounds to believe that the goods or tender
would be acceptable
1. BROAD interpretation—UCC encourages the performance of
contracts
2. Wilson (TV Case)—Seller wanted to cure the TV, buyer wanted
a new TV
a. HELD: Seller had reasonable grounds to believe the TV
was acceptable under 2-508(2) because
i. Defect was frequent back then
ii. Defect came from mfg. so seller could presume
that it was acceptable
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e.
f.
b. Sellers can make reasonable adjustments
c. Purpose of TV was to watch, not resell, etc.
ii. Seller has a reasonable time to cure
1. Ramirez—After seller cures seller MUST re-tender delivery
a. Seller's time to cure cannot last forever: ex—attempt
to cure 10 times and each time seller fails to cure
2. 2-605(1)(b) Between merchants, the seller demands statement of all defects
3. 2-605(1) requires the buyer to disclose
a. All actual defects AND
b. Any defect that could be found upon reasonable inspection
4. If particularized statement is given where required, buyer cannot rely on those
defects to show breach
iv. A merchant buyer may also have to reship the goods to seller under 2-603(1) IF
1. Seller requests
2. Seller has no place of business in the market where goods were rejected AND
3. If the goods are perishable
a. Buyer must make reasonable attempts to resell even if seller does not make a
demand
i. Subsection (2) allows commission for such sale AND
ii. Buyer is entitled to reimbursement for costs if buyer reships goods
v. Buyer's Remedy for Seller's failure to make perfect tender under 2-711(1)
1. IF buyer rightfully rejects, revokes acceptance OR seller fails to deliver buyer can
a. Cancel
b. Have the purchase price returned AND/OR
c. Get damages
Acceptance
i. Introduction
1. 2-607(1) requires the buyer to pay for the goods accepted
2. 2-607(2) provides that acceptance precludes rejection
a. Buyer must give notice of breach after acceptance under section (3)(a)
i. Acceptance does NOT preclude a cause of action BUT does limit
remedy to DAMAGES
3. Under 2-607(4), after buyer accepts, buyer bears the burden of proving any breach
with respect to the goods accepted
ii. Acceptance under 2-606(1)
1. Under subsection (a), after reasonable opportunity to inspect, buyer makes an overt
indication of acceptance to seller
2. Under subsection (b), buyer fails to make an effective rejection OR
3. Under subsection (c), buyer does any act inconsistent with the seller's ownership
iii. Acceptance under 2-606(2)
1. Acceptance of a part of any commercial unit is acceptance of that entire unit
a. Cannot accept 5/6 parts of a commercial unit (example—horse statue in 5
different boxes)
Revocation of Acceptance § 2-608
i. Requirements Needed to Rightfully Revoke Acceptance [3]
1. Nonconformity (based on contract terms)
2. Substantial impairs the value of goods to the buyer
a. Comment suggests that the test is the Totality of the circumstances
i. Subjective Determination
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1.
THIS buyer's particular needs regardless if seller knows of
buyer's needs or not AND
ii. Objective determination
1. Reasonable person with THIS buyer's needs
iii. Temporally
iv. Aggregate
3. AND BUYER MUST EITHER
a. Knowingly accepted goods with nonconformity
i. Buyer must have a reasonable assumption that the seller would cure
OR
b. Without knowledge or discover of defect
i. Buyer must be induced by either
1. Difficulty of discovery of defect OR
2. Seller's assurances (least likely)
4. Seller can cure
a. 2-608(3) grants the buyer the same rights as if buyer has rightfully rejected
the goods
b. Since seller can cure for a rejection under 2-508, seller can equally cure for
revocation of acceptance
c. IF SELLER CAN REASONABLY AND SEASONABLY CURE, VALUE CANNOT
BE SUBSTANTIALLY IMPAIRED
i. At some point, the right to cure ends (after a reasonable time)
ii. Procedure of Revocation of Acceptance
1. Buyer must notify seller of revocation of acceptance
a. Comment 5 provides several factors for notice
i. Must be done in good faith
ii. Prevention of surprise
iii. Reasonable adjustments
iv. Requires more than just telling seller they are in breach
2. Within a Reasonable time
i. Parties can set the time for notification by agreement
ii. Buyer should notify when buyer knows or has reason to know of the
defect
1. Typically longer than the time for notification for seller's
breach
2. Code attempts to give seller time to cure
3. If goods are substantially changed
a. Buyer loses right to revoke acceptance (does not lose right to sue) UNLESS
i. Substantial change is caused by the defect
4. Buyer must comply with 2-602 and 2-603
a. Cannot exercise ownership over goods
b. Must keep and hold goods with reasonable care so seller can recover
5. A merchant buyer may also have to reship the goods to seller under 2-603(1) IF
a. Seller requests
b. Seller has no place of business in the market where goods were rejected AND
c. If the goods are perishable
i. Buyer must make reasonable attempts to resell even if seller does not
make a demand
1. Subsection (2) allows commission for such sale AND
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2. Buyer is entitled to reimbursement for costs if buyer reships
goods
iii. Article 2A-407: Revocation of Acceptance in Leases
1. Finance Lease
a. Revocation of acceptance is impermissible
2. Other types of leases
a. Rejection and revocation are similar to Article 2
g. Risk of Loss: BREACH
i. Seller in breach 2-510(1) and (2)
1. IF goods are nonconforming AND
2. Buyer has the right to reject
a. Single delivery contract = perfect tender rule
b. Installment contract = substantially impairs rule
3. THEN risk of loss is on seller UNTIL
a. Cure under 2-508
i. If seller cures, seller MUST retender the goods or risk of loss won't
shift OR
b. Acceptance by the buyer under 2-606
ii. IF 2-510(1) does NOT apply, BUYER has the risk of loss—Buyer can SHIFT the risk of loss
back to the seller under 2-510(2)
1. IF Buyer rightfully revoked acceptance
a. Three part test under 2-608 AND
2. Deficiency in insurance coverage
a. Buyer does NOT have adequate insurance to cover loss
3. THEN buyer can treat the risk of loss as if it never shifted to buyer
a. Risk of loss is on the seller to the extent the insurance will not cover the
buyer's loss
b. Risk of loss is on the buyer for the remainder
iii. IF the BUYER repudiates or breaches, 2-510(3) applies
1. IF goods conform
2. Goods identified to the contract before the loss under 2-501 AND
3. Deficiency in seller's insurance
a. Loss occurs within a commercially reasonable time after the
breach/repudiation
4. THEN risk of loss is on the buyer for a commercially reasonable time
h. Impossibility
i. Casualty to Identified Goods 2-613
1. IF contract requires specific or unique goods for performance
2. Goods have been identified at the time of contracting
3. Casualty WITHOUT fault of either party AND
4. Risk of loss has not shifted to buyer
5. THEN
a. IF total loss
i. Contract can be avoided
b. IF partial loss
i. Buyer has the right to inspect goods
1. Buyer can accept goods at a reduced price reflecting the loss
OR
2. Treat contract as avoided
ii. Substituted Performance 2-614
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1. No fault
2. Either
a. Berthing, loading, or unlading facilities fail
b. Agreed type of carrier becomes unavailable OR
c. Agreed manner of delivery is commercially impracticable
3. Commercially reasonable substitute is available
4. THEN substitute must be tendered and accepted
iii. Excuse by Failure of Presupposed Conditions 2-615
1. Threshold requirements
a. Contingency or event occurs
b. Seller's performance has become commercially impracticable
i. Ex: orders CANNOT be filled AND
c. Party's assumed that the event would NOT occur
i. That is, neither party assumed the risk of this event
2. Non-delivery in Part
a. Seller must allocate among current customers in a fair and reasonable manner
i. Comments suggests pro rata
b. Seller can consider his own needs for manufacturing
c. Seller can also consider regular customers not party to this particular
contract
3. Notification
a. Seller must seasonably notify the buyer of the non-delivery or partial delivery
iv. Buyer's Procedure when Notified Under 2-616
1. Buyer receives notice of delay or partial allocation
2. Allocation would substantially impair the value of the contract to the buyer
3. Buyer can
a. Terminate the contract OR
b. Modify (basically, agree to the delay or allocation)
4. Buyer must notify seller in writing within a reasonable time not exceeding 30 days
a. IF no notification by the buyer, contract is terminated
v. "Commercially Impracticable" as used in these sections
1. Comment 4 states that generally, an increase in cost is NOT an excuse making
performance "commercially impracticable"
a. IF rise in price is excuse, increase in seller's cost MUST
i. Result in a loss on the contract AND
ii. Loss must be severe and unreasonable
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VI.
REMEDIES
a. Seller's Remedies
i. Buyer's Insolvency 2-702
1. Goods not yet shipped 2-702(1)
a. Seller learns of buyer's insolvency
b. Seller may refuse to ship except for cash
2. Goods in possession of Buyer 2-702(2)
a. Seller has right to reclaim
b. Must make demand within 10 days of buyer's receipt of the goods
c. Goods must have been shipped and received on credit
d. Buyer must be insolvent when buyer received the goods
e. Remedy limited to BUYER only, not to third parties (ex—Buyer received goods
and sold to third party, seller cannot reclaim from third party)
3. Goods in Transit 2-705
a. Seller has the right to stop delivery
b. Limitations: seller can stop until
i. Buyer receives goods
ii. Bailee acknowledges the buyer's rights to goods
iii. Buyer receives negotiable documents of title
ii. Buyer's Breach 2-703
1. Repudiation 2-610
a. Test: Comments provide threshold showing:
i. Overt communication of intention
ii. Action rendering performance impossible OR
iii. Demonstration of clear determination not to continue with
performance
b. AND if repudiation substantially impairs the value of the contract, aggrieved
party can
i. Wait for performance
ii. Resort to remedies sections
iii. Suspend its own performance
c. Doubts as to performance?
i. Make a 2-609 demand of adequate assurance
2. General Remedies: 2-703—Seller Can
a. Withhold delivery
b. Stop delivery (stoppage) (2-705)
i. Limited to larger shipments (truckloads, plane loads, ships, etc.)
c. ID goods to the contract after a breach (2-704)
i. Seller can ID goods to the contract if they are in his possession or
control
ii. If goods are manufactured, seller has the choice of finishing the
goods and reselling OR stopping manufacture and sell for scrap
d. Resell the goods (2-706)
i. Must be done in good faith
ii. Sale must be held in a commercially reasonable manner
1. Two Types
a. Public (Auction)
b. Private (contracting with another party)
2. Seller cannot participate in the private resale (cannot contract
with himself) but can participate in the auction
33
e.
f.
g.
iii. Seller must notify the buyer of the resale
iv. Calculation of damages is the difference between the contract price
and the resale price plus any incidental damages
Recover Damages (general calculation under 2-708)
i. 2-708(1) Generally, where buyer fails to pay
ii. Calculation of damages is the difference between the market price
and the contract price
1. Market price is determined at the time and place for tender
iii. 2-708(2) "Lost Volume Seller"
1. Where seller has unlimited supply of goods AND
2. Market price is inadequate to make the seller whole THEN
3. Measure of damages is
a. The lost "profit"
i. Defined—contract price minus variable costs
(not fixed costs)
b. Reasonable overhead
i. Fixed costs associated with the sale of THIS
good (anyone who worked on selling this good)
Bring an Action for Price (Seller's specific performance under 2-709)
i. Limited to
1. Accepted Goods OR
2. Conforming goods
a. Must be lost or damaged within a commercially
reasonable time AND
b. After Risk of Loss has passed to the buyer OR
3. Goods Identified to the contract
a. Seller must be unable to resell OR
b. Circumstances make resale futile
ii. Seller DOES NOT get to keep the goods
Recover Incidental Damages (2-710)
i. Definition—out of pocket expenses from dealing with the goods in
connection with resale or otherwise from the breach
b. Buyer's Remedies
i. Insolvency 2-502
1. Buyer has right to replevin
ii. Rejection under 2-601 and 2-612 are remedies for buyer
iii. Revocation of Acceptance under 2-608 is a remedy for buyer
iv. General Remedies 2-711: Buyer can
1. Cover (2-712)
a. Cover
b. Reasonable substitute for goods
c. Made in good faith
d. Calculation of damages is the difference between cost of cover and contract
price plus consequential and incidental damages under 2-715
i. Incidental—out of pocket costs from dealing with the goods
ii. Consequential—include damages which seller has reason to know and
personal or property injury
2. Recover Market Damages (2-713)
a. Calculation of damages is the difference between the market price and the
contract price plus incidental or consequential damages
34
i. Market price determined at the time when buyer learned of seller's
breach
b. Where calculation of market damages GREATLY EXCEEDS buyer's actual
damages
i. Under 1-106, the general policy is to put the aggrieved party in the
same position as if the contract were performed HOWEVER
ii. Market damages calculation still applies
1. 1-106 is a general statute, and the specific section for market
damages trumps the general statute
2. Code seeks to encourage performance of contracts—seller's
would always breach if they knew they only had to pay actual
damages, which are generally less than the market damages
3. Majority of jurisdictions follow this approach
3. Specific Performance (2-716)
a. Where goods are unique OR
b. Other proper circumstances
i. Where buyer CANNOT cover
c. Buyer can demand that the seller deliver goods
4. Recover Damages for Goods Accepted (usually warranty claims) (2-714)
a. Calculation of damages is measured by the goods as warranted and actual
worth of the goods
5. Liquidated Damages
a. Reasonable prediction of damages
b. Determined by anticipated OR actual damages
c. Generally permissible unless they are a penalty
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