COMMERCIAL TRANSACTIONS

▼CHAPTER 1: INTRODUCTION▼ Law of sales and leases must answer (4) basic contract questions and (1)

property question:• (1) How are contracts formed?• (2) Once formed, what are their terms?▼ (3) How are those terms formed?

• What things must the parties do in the proper performance of those terms?

▼ (4) What happens if they are not properly performed?• What remedies are available upon breach?

• [Property Question] Who has the title to the goods and what are the rights of bona fide purchasers and creditors?

▼B. Background and History of the UCC▼ 3. Scope of the Uniform Commercial Code

▼Originally contained (9) Articles:▼Article 1: No specific transactional coverage

• Definitions and general rules• Article 2: Sales of goods▼Article 3: Negotiable instruments

• Notes and checks▼Article 4: Bank handling of checks and other items

• Rights and duties of banks between themselves and as against customers as they take checks for collection and pay checks drawn on the account of their customers

• Article 5: Rules applicable to letters of credit• Article 6: Imposes obligation on buyers of a major part of the

inventory of certain types of business to notify creditors of the seller so that the creditors can take steps to see that the seller pays his debts

• Article 7: Rules applicable to the issuance and transfer of warehouse receipts and bills of lading

• Article 8: Issuance and transfer of stocks, bonds and other investment securities

▼Article 9: Security instruments in personal property• Rules on creation of the interest and rights of the debtor to

foreclose on the property if the debtor defaults on the second obligation

• Priority rules as between secured parties and as between a secured party and buyers or lien creditors

• Article 2A: Leases of personal property• Article 4A: Systems for the transfer of funds in which the

transferor directs its bank to transfer the funds to a third party

▼C. The Code as "Code"▼A "code" is a pre-emptive, systematic and comprehensive enactment of

a whole field of law• Pre-emptive: displaces all other law in its subject area save only that

which the code excepts▼Systematic: all of its parts, arranged in an orderly fashion and stated

with a consistent terminology, form an interlocking, integrated body• 1) Provisions be logically presented and coordinated• 2) Means be made available to handle competing and conflicting

rules• 3) Means be provided to fill the gaps• 4) Super-eminent provisions be present to mitigate harshness

• Comprehensive: sufficiently inclusive and independent to enable it to be administered in accordance with its own basic policies

▼D. Scope of Article 2▼UCC §2-102:

• Applies to transaction in goods▼UCC §2-106(1):

• Present or future sale of goods• "Sale": passing title

▼UCC §2-105:• (1) Things• (2) Movable▼ (3) At the time of ID to the contract for sale

• Must be existing and identified before interest can pass• Note: § 1-103: CL supplements UCC▼ 1. The Sales-Service Hybrid

▼ (2) Tests for determining the applicability of Article 2 to a mixed K:▼ (1) Predominant Factor Test:

▼ If the service aspect dominated, no warranties of quality can be imposed on the transaction▼Ask: what is the "thrust" of the K? goods or services

• Which one is incidental?▼ (2) Gravamen Test:

• (1) Do the consumer goods retain their character as consumer goods after completion of performance?

• (2) Monetary loss or injury claimed to have resulted from a defect in the consumer good?

▼Case : Anthony Pools v. Sheehan: Sheehan sustained injuries when he fell from the side of the diving board of his new backyard swimming pool. Swimming pool designed and built by Anthony Pools. Theory of liability: skid resistant material built onto the surface of the top of the diving board did not extend to the very edge of the board on each side and this condition breached an implied

warranty of merchantability. TC: directed verdict for Anthony Pools. Written K between the parties conspicuously provided that the express warranties were in lieu of any other warranties. Court of Appeals: reversed. Swimming pool package purchases by Sheehan constituted "consumer goods" and cannot limit implied warranty of merchantability.▼ I: Whether there is an implied warranty of merchantability

regarding the diving board?• Does Article 2 apply to create a warranty of merchantability?

Does it apply to a mixed K? What is the appropriate test?• H: Implied warranty of merchantability applies:▼R: Gravamen test anaylsis: (predominant factor test cannot apply

in this case)• Diving board retained its character as a consumer good after

completion of the installation of the pool• Monetary loss claimed to have resulted from a defect in the

diving board, not the installation▼Hypos:

▼ Landscaping sale and installation K• Ultimately want plants = goods

▼Bowling or basketball floor sale and installation K• Floor costs more than installation = goods

▼Carpet sale and installation K• Carpet costs more = goods

▼Food and drink sale/service K• Going into restaurant for food = goods

▼ 2. Computer Software• KEY: Is info/program on software used as means to end (more IP) or

as end in itself (more "good")?▼Substance over form: Lease or sale Hypo:

▼A enters into a lease with B for a computer. A pays B $200 per month for 2 year period. A can then keep the computer for 2 years fee of $20.▼Article 2 transaction?

• Sale with installment payments▼UCC guidelines (§ 1-201(37))

▼Even if called a "lease" really a sale where:• Term is equal to or greater than the remaining

economic life of the good; or• Lessee can become owner of good at end of lease

term for no or nominal consideration ▼Case : Advent Systems Ltd. v. Unisys Corp.: P supplies computer

software. D user/purchaser of sotfware. Dispute arose• I: Whether software is a good or intangible IP?

• H: Software is a good• R: In form of disk = tangible and movable▼D pro-Article 2 argument:

• Want SoF to apply• Software = goods

▼P anti-Article 2 arguent• Software = intangible IP

▼Case : Architectronics, Inc. v. Control Systems, Inc.: P and D entered into a licensing K under which D's had the right to use P's software as one component of a CAD system. Two licenses: (1) P gave D the tool necessary for the development of the derivative work, a new display driver; (2) D granted P the right to use, copy and distribute the derivative work (centerpiece of the K). D's would pay O a royalty on any of the systems using O's design which D's sold.▼ I: Is the K governed under Article 2?

• Sale of goods or transfer of IP rights?• H: No; K for transfer of IP rights▼R: Predominant feature of the K was a transfer of IP rights

▼D's pro-Article 2 argument:• Software = goods = predominant factor• Per Article 2 4 year statute of limitations, lawsuit barred

▼P's anti-Article 2 argument:• Software = mostly IP rights = predominant factor• Per NY's 6 year statute of limitations, lawsuit timely

▼CHAPTER 2: FORMATION OF THE SALES CONTRACT▼A. Offer and Acceptance

▼UCC versus CL approach to contract formation:• UCC: more flexible, non-technical, liberal and informal; vs.• CL: more inflexible, technical, strict and formal

▼Requirements Contract:• Sell you all I can make• Promise to buy all that I need

▼Case : Unique Designs, Inc. v. Pittard Machinery Company: D attempted to sell to P a Mori Seiki lathe. P instead decided to purchase a less expense lathe from a competitor. P subsequently contacted D and requested D's assistance in disposing of the less expensive lathe. P indicated that in return for D's assistance, P would purchase the Mori Seiki lathe from D. Pursuant to a telephone conversation between P and D, parties agreed to a price and arrangements were made for delivery. Day after telephone conversation, P contacted D and cancelled the order for the lathe. TC: granted D's motion for summary jugment on the grounds that the oral contract between the parties was valid.

▼ I: Did the parties intend to enter into a contract despite the open terms?• Was the oral telephone contract between D and P valid and

enforceable?▼H: Oral contract valid and enforceable

• Confusion over the price and open terms were not sufficient to negate the clear intent of the parties to enter into an enforceable agreement

▼R: D argument:▼Because essential terms of the agreement were in dispute, the

contract was rendered unenforceable• No: even though one or more terms are left open a contract

for sale does not fail for indefiniteness if the parties have intended to make and contract and there is a reasonable basis for giving an appropriate remedy

▼Case : Bacou Dalloz USA, Inc. v. Continental Polymers, Inc.: D manufactured foam earplugs. P was a customer of D. P presented a letter to a rep of D stating that P agreed to purchase its requirements of prepolymer from D for a period of 5 years provided that the quality and price of such raw materials are equivalent to that which is then used. Subsequently, P requested a price reduction on prepolymer. Negotiations ended up breaking down over price. DC: granted P's motion for summary judgment as to the contract claim on the grounds that the letter was an unenforceable "agreement to agree" and was not binding because it did not set out all material terms, and no reasonable criteria existed for supplying the missing terms of quality and price.▼ I: Was the letter a valid contract between the parties?

• Despite open terms, was requirements contract still formed between P and D under Article 2

▼H: Letter was a valid contract• Sufficient intent to establish mutuality of obligation

▼R: Letter set forth reciprocal promises in the form of the supply agreement's material terms▼ Letter specifies that the quality must be as goods as the

prepolymer then used by D and available from 3P vendors• Comparability to products available from 3P vendors creates

an objective and reasonable definite measure of quality▼P anti-contract argument:

• Illusory "agreement to agree"; no contract if indefinite terms▼D pro-contract argument:

• § 2-204: intent to enter contract; reasonable basis to form remedy

▼B. Statute of Frauds▼UCC § 2-201:

▼Requirements for a writing:• Evidence of a contract for the sale of goods▼Signed

• Any symbol executed or adopted by a party with present intention to authenticate a writing

• Specify quantity▼Three criteria for determining merchant status:

• (1) Dealer who deals in the goods of the kind involved; or• (2) One who by his occupation holds himself out as having

knowledge or skill peculiar to the practices or goods involved in the transaction, even though he may not actually have such knowledge; or

• (3) A principal who employs an agent, broker, or other intermediary who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction

▼Promissory Estoppel:• Show there is a valid and enforceable contract between the

parties▼Conduct of the promisor must be more than a mere refusal to

perform the oral contract• Promise made under circumstances where the promisor

intended and reasonably expected that the promise would be relied upon by the promisee; and

• Promisee acted reasonably in relying on the promise▼Elements:

• (1) Promise• (2) Reasonably/foresee induce action/forebearance• (3) Actual action/forebearance• (4) Injustice

▼Case : Southwest Engineering Co., Inc. v. Martin Tractor Co., Inc.: P contacted rep from D asking for a price on a standby generator to be used in a U.S. Corps of Engineers project. D rep quoted P a price of $18,500. P put in a bid to the Corps using the quoted figured from D; bid was accepted. At Springfield meeting, D upped its asking price for the generator to $21,500. Created a handwritten memo comparing the cost of each generator. D subsequently withdrew all verbal quotations for generators. TC: awarded P damages of $6K (difference between the price of the generator P actually purchased and the quoted price of $21,500• I: Whether the meeting and memo between the parties resulted in an

enforceable agreement▼H: Memo satisfies the writing provisions of the UCC

▼ § 2-201:

• Writing: memo• Evidence of sale of goods: agreement reached for generator• Signed: affixed name• Specific quantity: 1 generator

▼R: D argument:• SoF: contract for goods over $500 = need writing• § 2-204: no contract because no intent

▼Case : Decatur Cooperative Association v. Urban: P owned and operated a grain elevator. As soon as it purchased grain from a farmer it placed a call to a terminal elevator at the prevailing price. P contends they entered into an oral contract with D to purchase 10K bushels of wheat at $2.86 per bushel. P subsequently sent a written confirmation of the order to D. D gave no notice of objection to the written confirmation. Upon reliance on the oral contract, P sold the wheat to a 3P grain elevator for $3.46 per bushel. D then notified P that he would not deliver the wheat.▼ I: Whether the alleged seller, a farmer, was a "merchant" within the

meaning of the UCC so as to remove the oral contract from operation of the SoF• Whether the seller was equitably estopped from relying on the

SoF as a defense to an action on the oral contract▼H: D not a merchant

• P was entitled to invoke the doctrine of promissory estoppel so as to bar application of the SoF

▼R: D neither "deals" in wheat nor does he by his occupation hold himself out as having knowledge or skill peculiar to the pratice of goods involved in the transaction▼Promissory estoppel:

• P changed its position in reliance on D's conduct: went and found buyer

• D was or reasonably should habe been aware of its practices in the particular type of situation

• It would be unjust and a fraud upon P to permit D to speculate and profit on a risen market at P's expense (injustice)

▼D's SoF defense:• Contract over $500• Writing: not signed

▼P response under § 2-201(2)• "Between merchants": both parties are merchants• Writing to confirm• Sufficient against P• Received by D and not rejected within 10 days

▼Case : Lige Dickson Co. v. Union Oil Co. of California: P purchased all of its liquid asphalt from D. P telephoned orders to D, P was invoiced, and

bills were paid. Parties never executed a written contract. 1970: all suppliers of liquid asphalt raised their prices. P requested and D provided an oral guaranty against further price increases. D promised that any upward price changes would be applicable only to contracts which P entered into after the price increases. 1973: D wrote P to inform him that the price of liquid asphalt was rising and that the new price was applicable to all purchases made after December 1973; D was abandoning the parties' price protection agreement. TC: found there was an oral contract between the parties, but the SoF rendered the contract unenforceable• I: May an oral promise otherwise within the SoF nevertheless be

enforceable on the basis of promissory estoppel?• H: No; an oral promise within the SoF may not be enforceable on the

basis of promissory estoppel• R: If the Court was to adopt promissory estoppel in the context of the

sale of goods, it would allow parties to circumvent the UCC• Note: compare this case to Decatur

▼C. The Battle of the FormsSee Flowchart

▼ § 2-207: Analysis:▼Step 1: k via writings in light of "additional" or "different" terms

• Acceptance = "true" acceptance▼Exception:

• Acceptance expressly conditional subject to additional or different terms

▼Step 2: Applied to additional/different terms▼Additional terms: Introduced brand-new

• If not between merchants, terms = mere proposals▼ If between merchants, term = k if

• Offer not expressly limit acceptance to offers terms; and▼Terms not materially alter k, and

• Materially alter = result in surprise or hardship• Not materially alter = ex. fixing reasonable time for

complaints• Offeree not subject to term

▼Different terms:▼Majority = knock-out rule

• Differing terms cancel out• UCC gap fills

▼Step 3: Applies to expression of acceptance▼ If no true acceptance, k via conduct and if so, what terms

• Terms = those in which forms agree + UCC supplementary terms

▼Case : C. Itoh & Co., Inc. v. Jordan International Co.: P submitted a PO

for steel coils to D. In response, D sent its acknowledgment form, on the back of which was an arbitration clause (P never expressly assented nor objected to the additional arbitration term). P entered into a contract to sell the coils to Riverview. Contracted contained an arbitration term ("except as to quality). After the coils had ben delivered by D and paid for by P, Riverview advised P that the coils were defective. P brought suit against D alleging D had sold P defective coils and made a later delivery. D filed a motion requesting a stay of proceedings pending arbitration.▼ I: Whether a contract has been formed by the exchange of forms

between P and D• Whether the additional term of arbitration is to be included in the

contract▼H: Exchange of form did not create a contract

• D's form became a counter-offer▼Subsequent performance of both parties constituted conduct by

both parties which recognizes an existence of a contract▼But the additional arbitration term is not included in the

contract• Not a term that can be supplied by the Code's gap-filler

provision▼R: D's argument for the additional arbitration term:

• CL: last shot doctrine = last form on the table is the one that controls

▼Case : Northrop Corporation v. Litronic Industries (Different Terms): P sent a request to D to submit an offer to sell P customized print wire boards. D mailed an offer to P to sell boards to be delivered in 6 weeks. Offer contained a 90-day warranty. P's order form provided for a warranty that contained no time limit. D began manufacturing the boards, but did not deliver the first 3 until more than a year later. 5 or 6 months after delivery, P returned the boards claiming they were defective. D refused to accept the returned boards on the ground that the 90-day warranty had lapsed• I: What were the terms of the warranty in the contract?▼H: Majority view: P gets a warranty of "reasonably duration"

• 5 to 6 month return of boards considered reasonable▼R: 3 different ways to treat "different terms"

▼ (1) Majority view:• Discrepant terms in both the non-identical offer and

acceptance drop out and default terms found elsewhere in the Cose fill in the resulting gap

▼ (2) Minority view:▼Discrepant terms in the acceptance are to be ignored

• Warranty in D's offer (90 day) would be the contractual warranty because the unlimited warranty contained in P's

acceptance was materially different▼ (3) Other view (CA)

▼Outcome turns on whether the new terms in the acceptance are materially different from the terms in the offer• 90 day warranty would apply

▼Case : Klocek v. Gateway, Inc.: P purchased a computer and scanner from D. In the box with the computer was a statement for the Terms of the Sale, including an arbitration clause: by keeping the computer for 5 days, the buyer accepted the terms (silence as acceptance). Scanner would not work and P sued for breach of warranty and breach of an agreement that the computer would work with certain peripherals.• I: Whether Terms of the Sale received with a product become part of

the parties' agreement• H: Act of keeping the computer past 5 days was NOT sufficient to

demonstrate that P expressly agreed to the Terms of Sale▼R: Flowchart analysis:

▼Expression of acceptance?• Yes

▼Magice Langauge?• No

▼Additional term▼Between merchants?

▼No - proposal▼Expressly accepted?

• No = not k term▼Gateway argument:

▼P demonstrated acceptance of the arbitration provision by keeping the computer more than 5 days• Gateway did not inform P of the 5 day review-and-return

policy as a condition of the sales contract▼D. Contract Modification

▼Cl: need consideration for modification• UCC: no consideration necessary

▼Case : Wisconsin Knife Works v. National Metal Crafters: P manufactured spade bits for Black & Decker. P contracted with D as a supplier for spade blanks. P sent D a series of POs. Back of PO: "no modification of this contract shall be binding on P unless made in writing and signed by P's authorized rep. Contract left delivery dates blank, P later filled them in after receiving acknowledgments from D. D missed delivery deadlines. P termined the contracted when 50% of the blanks had been delivered. P brought breach of contract suit alleging D had violated the terms of delivery. D replied that the delivery dates had not been intended as a firm offer and counterclaimed for damages. Jury: found contract had been motified and awarded D $30K on counterclaim

▼ I: Could the contract be modified notwithstanding the provision prohibiting modification?• Was there some other way to modify?

• H: Clause forbidding modifications other than in writing was valid▼R: D argument allowing modification:

▼Delivery dates were oral modifications▼P counterargument: § 2-209(2)

▼Excludes oral modification▼D rebuttal: § 2-209(4): waiver

• Unsuccessful modification attempts = waiver▼Posner's Majority:

▼Rule: § 2-209 waiver only if D detrimentally relied on oral modification• Policy: requiring reliance lessens danger of fabrication

▼Easterbrook's Dissent:▼Rule: If P intentionally relinquished right then reliance is not

required• Policy: don't need reliance; statutory requirement of

commercial good faith addresses concern ▼Case : BMC Industries, Inc. v. Barth Industries, Inc.: P decided to

become the first company to automate the production of eyeglass lenses. P entered into a contract with D under which D would develop and install an automated production line. Contract required all modifications to be in writing. Original delivery date: June 1987; written modifications extended delivery date to October 1987. D finally tendered the production line in 1989, but P rejected delivery.▼ I: Whether P waived the contract's October 1987 delivery date

• Whether under the UCC waiver must be accompanied by detrimental reliance

▼H: P waived October 1987 delivery date• UCC does not require detrimental reliance for a waiver of a

contract term▼R: Distinguish Wisconsin Knife:

▼Majority view: there must be some difference between modification and waiver in order for both subsections (2) and (4) to have meaning▼Difference: waiver has detrimental reliance

• No: fact that waivers may be unilaterally retracted provides the difference

▼P's waiver of the delivery date:▼D's parent company promised that D would perform

▼For the parent company's promise to have meaning, P must have given D more time to perform• I.e., P waived the delivery date

▼P continued to act through 1989 as though both parties were bound by the contract and that D was not in default of its obligations• P engineers provided advice or assistance• P execs visited production facilities

▼E. Option Without Consideration (Firm Offers)▼ § 2-205:

• An offer in a signed writing which by its terms gives assurance that it will be held open is not revocable for lack of consideration during the time stated

▼Case : Friedman v. Sommer: Appellant sponsored an offering plan to convert 360-unit residential apartment building to cooperative ownership. Provision: "each tenant is granted the non-exclusive right to purchase his or her apartment at the price set forth for 30 days". Sponsor in oral communications to respondent tenant withdrew the offer to her with respect to her apartment. Tenant sought to accept the offer and purchase her apartment at the lower price.• I: Whether the sponsor's offer was irrevocable so as to render

sponsor's revocation invalid?• H: Offer was revocable and was properly withdrawn prior to the

tenant's purported acceptance▼R: Sponsor explicitly reserved the right to sell the tenant's apartment

to others at any time during the 30-day period• Precisely the opposite of an assurance that the tenant would

have the right at any time during that period to purchase the apartment for herself

▼Tenant § 2-205 argument:• Landlord = merchant• Writing: yes• Signed: yes• Assurance: finite time period

▼ Landlord § 2-205 argument:• Assutance: expressly stated offer was non-exclusive

▼Notes:▼Same result is "non-exclusive" language omitted?

• No: needs to be specific to rise to the level of assurance

▼CHAPTER 3: TERMS OF THE SALES CONTRACT▼A. Terms of the Agreement

▼ 1. The Concept of Agreement▼ § 1-201(3): "agreement"

• Bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance

▼Agreement contains:• Express terms: written or otherwise• Implied or inferred terms (COD, COP, TU)

▼ 2. Express Terms and Limitations on Them▼Unconscionability:

▼Courts refuse to enforce agreements that are so extreme in nature as to appear unconscionable; dramtically one-sided k• Limit enforcement if: substantive overreaching and process-

related component• In most commercial cases, Courts have rejected claims of

unconscionability▼Buyers in consumer transaction have more success arguing

unconscionability• Most frequently raised issues of unconscionability have

concerned arbitration clauses▼Factors in considering unconscionability focus on the extent to

which the agreement:• Imposes costs on the consumer that are higher than the costs

to litigate• Removes CL or statutory remedies• Shortens the period for asserting a claim• Specifies an arbitration mechanism that is biased in favor of

the merchant▼Obligates the consumer to arbitrate

• Ask: how dramatically one-sides is the provision▼ 3. The Hierarchy of the Various Components of Agreement

▼ a) The Parol Evidence Rule (§ 2-202)See Chart

▼Terms:• Completely integrated: complete and exclusive agreement of

the parties on all terms• Integrated: allow consistent additional terms

▼Case : ARB, Inc. v. E-Systems, Inc.: Contract re-procurement provisions between P and D: "If it is necessary to procure any of the products or services elsewhere, D will be liable for any re-procurement charges which exceed the amount which would have been due D if he had satisfactorily completed the order". Court: D breached the contract• I1: Was the written contract intended as a complete and

exclusive statement of the terms of the agreement such that no evidence is admissible to explain or supplement it?

• H1: Contract intended as a complete and exclusive integration of the terms of the agreement

▼R1: Written agreement contained an integration clause:

"Contract constitutes the entire agreement between the parties"▼Circumstances surrounding making of contract: length,

exhaustive detail, prolonged period of negotiation• Indicative of the intention of the parties to finalize their

complete understanding in the written contract• I2: If the contract was the final expression of their agreement

with respect to such terms as are included, should the specific evidence considered by the Court be barred as contradictory or as not constituting a consistent additional term?

• H2: re-procurement provision is non-consistent additional term

• R2: Consideration of the additional term would disrupt the delicate balane and harmony that the written contract establishes among the respective obligation of the parties

▼Case : Noble v. Logan-Dees Chevrolet-Buick, Inc.: D sold P a 1972 Buick Electra for the following consideration: trade-in of two other cars, delivery of the proceeds of an insurance check, and payment of cash. D delivered the Buick to P and P promised to deliver the insurance check ASAP. P failed to turn over the insurance check. Contract between the parties: "order comprises entire agreement"; insurance check not mentioned in the contract. Court: judgment for D in the amount of insurance check. Appeal: P contends that Court erred by permitting parol testimony contradicting the terms of the agreement of the parties as expressed in the contract.• I: Should D have been permitted to introduce parol testimony?• H: No▼R: Evidence offered:

• Does not disclose course of dealing, trade usage, or course of performance

• Not consistent additional term• Contract was a complete and exclusive statement of the

agreement between the parties▼ b) Trade Usage, Course of Dealing, Good Faith

• PE Rule: course of performance, trade usage, and prior dealings are important enough to be admitted always

▼Trade Usage:▼Any practice or method of dealing having such regularity of

observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question• Reach the commercial meaning of the agreement▼Commonly practiced in a locality

• TU = other ks = different parties

▼Course of Performance▼Action of the parties in carrying out the contract at issue

• COP = same k = same parties▼Course of Dealing

▼Relations between the parties prior to signing the contract• COD = different ks = same parties

• KEY: Intent > express terms > COP > COD > TU ▼Case : Nanakuli Paving & Rock Co. v. Shell Oil Co., Inc.: P had

bought "all of its asphalt requirements" from 1963-1974 from D under 2 long-term supply contracts. Price was Shell's posted price at the time of asphalt delivery. P charged D with breach of the 1969 contract. Jury verdict for P: D failed to price protect P and raised prices for asphalt. P's theory: price protection, as a trade usage of the asphalt paving industry in Hawaii, was incorporated into the 1969 agreement. DC: set aside verdict and granted D's motion for jnov.• I: Did trade usage (price protection) exist as to create inferred

contract terms• H: D breached the contract by failing to provide protection for

P▼R: All material suppliers to asphalt paving industry in Hawaii

followed the trade usage of price protection and thus it should be assumed under the UCC that the parties intended to incorporate price protection in their agreement• D should have been aware of the usage of P and other

asphalt pavers to bid for projects at fixed prices and therefore receive price protection

• D was obliged to protect P because price protection was the commercially reasonably standard for fair dealing the asphalt paving trade in Hawaii

▼D trade usage argument:• Definition of trade was too broad• Practice itself was not sufficiently regular to reach the level

of a usage▼B. Terms Outside the Agreement: The "Statutory Terms"

▼Rationale for using statutory terms:• Represent ordinary understanding about common matters and

therefore most likely would have been used by the parties had they considered the term when they made their arrangement

▼Open term:▼Parties are fully aware of the importance of a term that they omit it

with the intention of adding it at a later time• Statutory terms should be used to fill open terms when the

parties themselves were unable or unwilling to do so

▼ 1. Price▼Why do parties leave price term open?

• Seller: prior to entering into a fixed-price contract the seller has the risk that the price of his goods will decline before he can sell them

• Buyer: risk that the price will increase before he can buy the goods

▼Output and requirements contracts▼ Leave one of the parties free to fix the amount of goods to be

sold▼Advantages to the Seller:

• Assures him that he will have a market for all the goods he produces

▼Disadvantages to the Buyer:• May end up buying more goods than he needs

▼Requirements contracts▼Advantages to Buyer:

• Assures the Buyer of having just the right amount of goods in inventory

▼Disadvantages to Seller:• Not knowing the quantity to be sold• Likely to sell fewer goods to the Buyer than would be the case

under a contract that fixed the amount of quantity at a definite amount

• Large or unpredictable deviations▼Exclusive-dealing contracts (§ 2-306(2)):

▼Sller and buyer must use "best efforts":• Seller to supply goods• Buyer to promote sale of goods

▼Good faith:▼ Implied duty of good faith in any contract with an open price term

▼Standards:▼Subjective "honesty in fact" (§ 1-201(19)): actual state of

mind of the party rather than the state of mind of a reasonable man• Tied to the actual belief of the participant in the

transaction• Objective "commercial reasonableness" (§ 2-103(1)(b)):

observance of reasonable commercial standards of fair dealing in the trade

▼Case : James Mathis v. Exxon Corporation: Exxon markets its commercial gas bound for retailers through 3 arrangements: (1) Franchisee contracts: enters into a sales contract for the purchase of Exxon-brand gas which allows Exxon to set the price that must be

paid; (2) Jobber contracts: requires the purchaser to pay the rack price which is usually lower than the price charged to franchisees. Since 1994 franchisees have been barred from purchasing their gas from jobbers. Exxon argument for setting gas price for franchisees: arrangement is the industry standard and almost all franchisor-franchisee sales of gas are governed by similar price terms. P reponse: Exxon acted in bad faith when they set the price to drive them out of business. Jury: awarded damages to P.• I: What constitutes a breach of the duty of GF?• H: "Honesty in fact"; "commercial reasonableness" = standards▼R: Exxon acted in bad faith; planned to replace a number of its

franchisees with its own stores by making the price higher▼Exxon argument that it has satisfied the duty of GF:

▼Charged the P's a price within the range of its competitors price• Satisfies the "commercial reasonableness" meaning of

GF▼ 2. Payment

• Deals with "where, when, and how" payment is to be made▼Hypo: Petco promises to buy from LL Bean 120 dog beds at $10/bed

to be delivered on 10/31/09.• Time: when is payment due?• Place: where is payment sent?• How: method of payment?• Effect of non-payment?

▼Constructive conditions:• Seller's obligation to deliver is conditional on the Buyer's tender

of payment• Buyer's obligation to pay is conditional on the Seller's tender of

delivery▼ 3. Delivery

▼ § 2-207: An additional term in an acceptance to a contract between merchants becomes part of the contract UNLESS:▼Additional term materially alters the contract

• Cmt 4: "material alteration: term that would result in surprise or hardship if incorporated without express awareness by the other party

▼Hypo: Ridge Farms promises to buy 5 large apple-picking machines from Farm Supply, Inc.▼K silent on what terms?

• Place or location• Size of delivery: all at once or in stages?• Time at which delivery to be made

▼ "Mercantile" Delivery Terms:

▼F.O.B.: free on board + shippment location/destination• Free of charge/risk to buyer up until stated location

▼F.A.S.: free along side + vessel and port• Shipping contracts

• C.I.F./ C.F.: Costs of goods, Insurance charges, Freight charges + shipment destination

▼Case : Luedtke Engineering Co., Inc. v. Indiana Limestone Co., Inc.: Army Corps of Engineers submitted bids for repair of breakwater. Approved 2 sources from which bidders could purchase stone: D and another quarry. D sent P a letter containing a price quotation (form #1) 70K tons of stone at $10.15 per net ton. P issued a PO to D for $70K tons of stone at $5.50 per ton (form #2). Contract provided for shipment at 1500 tons/day (additional term). D did not ship at the specified rate. P alleges D breached the contract by failing to ship at the specified rate. D responded that it believed the shipping rate was a goal. DC: judgment for D; quote form #1 was an offer to sell and form #2 sent by P was an acceptance of that offer; P's specific delivery requirement was a material alteration; based on COD and TU D had shipped the stone in a reasonable time▼ I: Was the delivery term a "material alteration" of the contract

• Did D breach the contract?• H: Delivery date a material alteration; D did not breach the

contract▼R: Enforcing a delivery rate of 1500 tons/day would have resulted

in surprise and hardship for D▼Absence of a specific delivery term in the contract required D

to deliver the stone within a reasonable time• D delivered the stone in time for P to finish the project

before the Corps deadline▼Material alteration factor analysis:

• Delivery rate was based on P's intention to complete the project by a certain date, but D did not know of P's intentions

▼Prior dealings between the parties:• Intervening factors had prevented P from receiving prompt

shipment from D in the past▼ 4. Risk of Loss

▼Hypo: LSU/UT Flag K. Sports Authority promises to buy 500 LSU and UT car flags from College Stuff, Inc. (AZ warehouse)▼No term describing who bears the risk of loss

• While at AZ warehouse? While in transit? After shipment arrives but before accepted

▼ § 2-509: Risk of loss• Determined by the manner in which the delivery is made▼Risk of loss passes to the Buyer when:

• Contract authorizes the Seller to ship by carrier• Where contract requires Seller to deliver goods to a specific

location, risk of loss passes upon tender of the goods at that location

• Where the contract does not require the Seller to deliver the goods to a specific location, it passes upon their delivery to the carrier

• Where the contract provides for delivery at the Seller's place of business, risk of loss passes upon actual receipt by the Buyer

▼ § 2-510• Where the goods fail to confrom to the contract of sale the risk of

loss remains on the seller until the buyer accepts the goods or until the seller cures the defect

▼Case : Silver v. Wycombe, Meyer & Co., Inc.: P ordered custom furniture from D. Delivery terms: ship to P's home w/ truck prepaid. P tendered payment in full and directed D to ship one room of furniture but to hold the other until instructed further. One room of furniture was shipped, but before any more instructions were received, all the furniture was destroyed in a fire. P seeks to recover proceeds from D's on the theory that the risk of loss never passed to the P.• I: Should the risk of loss be placed on the P Buyer or the D

Seller?• H: Risk of loss did not pass to the P▼R: Risk of loss remains upon a merchant seller until he

completes his performance with reference to the physical delivery of the goods• Agreement clearly contemplated delivery at the Buyer's home

▼D's argument that P assumed risk of loss under § 2-509(b):▼ Invoices informing P that the furniture was ready for shipment

constitute acknowledgment of the Buyer's right to possession• No: D failed to establish delivery of furniture to P• § 2-509 anticipates the passing of title and physical

possession more or less simultaneously ▼Case : Jakowski v. Carole Chevrolet, Inc.: P entered into a contract

of sale with D seller for the purchase of a 1980 Chevy Camaro. Parties agreed that the car would be undercoated and that its finish would have a polymer coating. Car was delivered without the coatings on May 19. Next day, Seller contacted buyer and informed him that the car delivered to him lacked the coatings and seller instructed buyer to return the car so that the coatings could be applied. May 22, buyer returned the car to the seller for the coatings. May 23, car was stolen from the seller's premises. Seller refused to either provide a replacement auto or to refund the

purchase price.▼ I: Should the risk of loss fall upon the P buyer or the D seller?

• Did the car "so fail to conform" as to give the buyer the right to reject it?

• If so, did the buyer "accept" the car despite the nonconformity• Did the seller cure the defect prior to the theft of the auto?

▼H: Car without undercoatings was non-conforming▼Buyer did not "accept" car because he was not afforded a

reasonable opportunity to inspect it▼Defect was never cured

• Risk of loss remained on the seller▼R: Seller's risk of loss argument under § 2-509(3):

• Risk of loss passes to the buyer upon his receipt of the goods▼Buyer's risk of loss arugment under § 2-510(1):

• GR of 2-509 are subject to the more specific provisions of 2-510

• Where a tender of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance

▼CHAPTER 4: EXPRESS AND IMPLIED WARRANTIES▼A. Introduction

• Merchant seller has an obligatio that, unless the parties otherwise agree, the goods be of a certain quality

▼Warranty of Merchantability (§ 2-314)▼Arises independently of any overt representation by the seller

concerning the goods• Implied warranty

▼Warranty of Fitness for a Particular Purpose (§ 2-315)• Arises if the seller has reason to know that the buyer is relying on

the seller to select for the buyer goods that are suitable for the buyer's purposes

▼Express Warranty (§ 2-313)▼Arises if the seller makes promises or representations as to the

goods in such a manner as to become a part of "the basis of the bargain"• Buyer is entitled to have the quality that the buyer reasonably

expects under the contract▼B. Express Warranties

▼ § 2-313: Express Warranties• (1) affirmation of fact: part of description of goods• (2) by the seller• (3) to the buyer• (4) relates to goods: specifically relate to quality, capacity or

characteristics of performance

▼ (5) become basis of the bargain: parties relative knowledge and experience• Example: Buyer experienced/savvy and can judge accuracy of

seller's statement: basis of bargain; less likely to rely on statements of seller

▼Other relevant facts:• Extent of negotiation• Specificity of representation• Qualifying langauge as to representations

▼Case : Doug Connor, Inc. v. Proto-Grind, Inc.: P was in the land clearing business and became interested in purchasing a large commercial grinding machine from D. P attended a demonstration by D; P told the President of D company his needs for the machine and the particular types of clearing he needed done. President assured P that the machine would do whatever he needed it to do. P experienced repeated difficulty with the machine. P filed a complaint that D breached an express oral warranty that the machine purchased would grind organic materials effectively. TC: granted D's motion for a directed verdict. ▼ I: Do the statements made by D constitute an express warranty or

mere puffing?• Whether D made the express warrnaty that the machine could,

without modification of its basic components, reduce organic materials on a regular basis

▼H: Statements made by D were express warranties• D specifically understood the buyer's needs and represented to P

that those needs would be met▼R: D argument:

▼Express warranty arises only where the seller asserts a fact which the buyer is ignorant prior to the beginning of the transaction, and on which the buyer reasonably relies on as part of the basis of the bargain• P knew that a competitor was not satisfied with the machine;

P knew the D's machine could not do the job and therefore could not have relied on the representations by D

▼Case : Royal Business Machines, Inc, v. Lorraine Corp.: D purchased 120 photocopiers from P which included 8 statements▼ I: Whether P made and breached express warranties to D

• Whether the warranties made up the basis of the bargain• H: Remand to determine whether P's representations were part of

the basis of the bargain▼R: Analysis of 8 express warranties:

▼ (1) Copiers and component parts are of high quality:• No express warranty; statement of opinion (1)

▼ (2) Experience and testing has shown that frequency of repair was very low• No express warranty; lack of specificity of affirmation (1)

▼ (3) Replacement parts were readily available:• No express warranty; assertion of fact but not a fact that

relates to the goods sold (4)▼ (4) Future cost of supplies 1/2 cent per copy

• No express warranty (4)▼ (6) Assurances that purchase of machine would bring D

substantial profits• No express warranty; does not describe goods sold (4); (1)

▼ (7) Assertion that machine would not cause fires• Express warranty: assertion of fact relating to the goods (1);

(4)▼ (5) Machines were tested and ready to be marketed

• Express warranty; affirmation of fact (1)▼ (8) Matinenance; 7,000-9,000 copies

• Express warranty; statements related to predictions for the future

▼C. The Implied Warranties of Merchantability and Fitness▼ 1. The Standards

▼Merchantable:• Pass without objection in the trade• Fair average quality• Fit for ordinary purpose

▼Case : Ambassador Steel Co. v. Ewald Steel Co.: P sold a certain amount of steel to D who resold the steel to a railroad company. D claimed that P breached its implied warranty of merchantability in that P failed to supply D with "commercial quality" steel: carbon content 1010 or 1020. Defect came to light when the company to whom D sold the steel informed D that the steel cracked after being welded. Railroad company charged its losses to D. TC: judgment for P in the amount of the balance due P.▼ I: Whether or not the steel sold by P to D was subject to the

implied warranty of merchantability• Did P breach the implied warranty of merchantability?

▼H: P breached the implied warranty of merchantability▼When an order is placed without specification as to the

particular quality desired, custom and usage of the steel business is that a "commercial quality" steel is to be used• Steel sold by P to D was not within this commercial range

▼R: D implied warranty argument:• P is a merchant• k for sale; warranty not excluded

• Steel: not within fair average quality and would not pass without objection in the trade

▼P argument against implied warranty:▼Not notified about D's purpose of use

▼Not argument at issue in this case• No knowledge required for implied warranty of

merchantability ▼Case : Bethlehem Steel Corp. v. Chicago Eastern Corp.: 2 D buyer

purchase orders: (1) D ordered sheet steel of a type designated as "446 Grade C"; (2) Specified a certain chemical composition and maximum yield strength. D buyer concedes that it received steel that complied with both purchase orders. D claims that the warranty of merchantability had been breached due to an addition not contracted for that was applied to the steel. TC: verdict for P seller.• I: Whether D buyer introduced evidence from which a reasonable

juror could conclude that steel which admittedly conformed to the contract was also less then fair average quality within the contract and not fit for the ordinary purposes for which such goods are used

▼H: Steel merchantable▼D buyer could not show that the renitrogenization process

applied to the steel made it unfit for the ordinary purposes for which it is used• No evidence that type of steel and use in grain bins was

"ordinary use"▼R: D buyer argument:

• Steel fails § 2-314(4): steel possessed additional properties as a result of the renitrogenization process that made the steel unmerchantable

▼P seller argument: no implied warranty of merchantability breach:▼Not at issue

• Goods contained in contract description conformed to that description

▼Notes:▼ If implied warranty of fitness for a particular purpose was

claimed, would it have shown breach?• No: P stil would not have know about the particular

purpose for the steel▼ 2. Warranty and Strict Liability

▼Relationship between warranty and product liability:▼ If "good" defective; possible legal claims and theories:

▼Contract-based:• Warranty: express, IWM, IWFPP• Damages: expectation

▼Tort-based:• Product liability: design/production defect• Damages: pain and suffering

▼Case : Tyson v. Ciba-Geigy Corp.: P buyer approached D seller about ordering the chemical herbicides Lasso and Lorox. P buyer described the characteristics of his land and indicated that he wanted to plant no-till soybeans. D seller told P buyer that Dual 8E mised with Paraquat would be as good and cheaper than Lasso and Lorox. Recommended mixture did not kill crabgrass and as a result, P buyer had a low yield of soybeans.• I: Did D seller breach the implied warranty of fitness for a

particular purpose?• H: Yes▼R: P buyer arguments:

▼D seller breach express warranties:• No: salesman's expression of his opinion that the mixture

of herbicides would "do a good Job" was a "puffing of his wares" and did not create an express warranty

▼D seller breached the implied warranty of fitness for a particular purpos; 2-315:▼Seller had reason to know of particular purpose:

• Yes: cultivation of soybeans▼Seller had reason to know buyer relying on seller's skill or

judgment:• Yes: P relied on D's recommendation; changed

purchase from Lasso/Lorox to Dual 8E/Paraquat▼Warranty not excluded or modified by k:

• No disclaimer▼Notes:

▼Hypo: assume valid contract disclaimer of all implied warranties▼Express warranty claim?

• Affirmation of fact: No; "do a good job" = puffery▼Any other statements?

• Mix Dual 8E with Paraquat; expression of opinion or fact?

▼Basis of bargain?• Sophistication of parties? P's mind changed by sales

rep ▼Case : A. S. Leavitt v. Monaco Coach Corporation: P buyer

purchased a motor coach. P buyer informed D seller of his plans to use the coach exclusively for travel in mountainous areas; wished to avoid problems he had experienced with rented vehicles that lacked sufficient engine and braking power. P buyer complained that his

coach could not maintain ordinary highway speeds going up steep hills. Jury: verdict for P buyer.• I: Did D seller breach the implied warranty of fitness for a

particular purpose?▼H: Yes

• P buyer's statement to D were sufficient to support a finding that P articulated to D seller his particular braking needs

▼P buyer relied on D seller's expertise• Choice of engine, etc.

▼R: D seller argument:▼P buyer did not explain his special needs for engine power

with sufficient particularity to establish a warranty of fitness for a particular purpose• Evidence that P buyer communicated his wish to traverse

moutain roads while keeping up with commercial buses was sufficiently speciic to support a finding that P buyer articulated to D seller his particular needs for the engine power

▼Notes:▼Hypo: assume P buyer claimed the implied warranty of

merchantabilty?• Warranty excluded or modified? No• K for sale of goods: Yes• D seller merchant: Yes▼Goods not:

• Objectionable in the trade? No• Fair average quality? Yes• Fit for ordinary purpose? Yes

▼Hypo: assume valid k disclaimer of all implied warranties; viable claim for express warranty?• Statement: "no problem with engine"▼Statement: "brakes fine with no supplementation"

• No: no affirmation of fact or promise: puffery

▼CHAPTER 5: DISCLAIMERS AND OTHER LIMITATIONS ON WARRANTIES▼A. Disclaimers

▼Must be "conspicuous"▼Clause is so written that a reasonable person against whom it is to

operate ought to have noticed it• Note: not simply a matter of measuring type size or placement of

the disclaimer▼Test: whether attention can reasonably expected to be drawn to it;

reasonable person in the buyer's position would not have been surprised to find warranty disclaimer

▼Factors:• Sophistication of the parties• Circumstances of the negotiation and signing• Type size/boldness and placement

▼Case : Sierra Diesel Injection Services, Inc. v. Burroughs Corporation: P approached D to purchase a posting machine. D salesmen told P they should buy a B-80 computer instead of a posting machine. P decided to purchase the computer and signed various contracts for the sale of hardware, software, and for maintenance service. P was not considered a sophisticated party in the transaction. B-80 computer did not perform the functions for which it was purchased. D moved for summary judgment on the grounds that warranties had been excluded. TC: warranty clauses were not conspicuous to P.▼ I: Whether the warranty disclaimers on the hardware and software

agreements were effective• Disclaimers conspicuous?

• H: Warranty disclaimers not effective; not conspicuous▼R: D's defense:

▼ IWM disclaimers:• expressly mentions "merchantable"? Yes▼ If in writing: conspicuous? No

▼Type/size/boldness/placement• Tie: size/all caps/bold vs. printed on back of page

▼Sophisticaton of parties• Lack of sophistication

▼B. Privity and Warranty▼Horizontal non-privity:

▼Not a buyer of the product, but one who consumers or is affected by the goods• Extends to any person who is in the family of household of the

buyer or who is a guest in his home if it is reasonable to expect that the person may use, consumer or be affected by the goods

▼Vertical non-privity:• Buyer who is in the distributive chain, but who did no buy the product

directly from the D• Remote seller/mfr -- distributor/reseller/wholesaler -- remote

buyer/consumer▼Privity of contract; implied warranty claims:

▼ Jurisdictional split:• Traditional rule: no viable claim▼Modern rule: viable claim

• Morrow, Patty Precision▼Damages available:

• PI losses

▼Economic losses:• Direct "out of pocket"• Consequential: lost profits

▼Other defenses:▼Assumption of Risk: defense?

▼Example: blender: purposefully leave top off• Bar to P's recovery for breach of contract

▼Contributory/comparative negligence: defense?▼Example: tire: negligently fail to notice defect and drive off

▼ Jurisdictional split:• #1: Can't borrow contributory/comparative negligence from

tort and apply it to contracts• #2: equal treatment to negligent breacher and innocent

breacher ▼Case : Randy Knitwear, Inc. v. American Cyanamid Co.: D manufactures

chemical resins that prevent clothes from shrinking. Apex and Fairtex manufacture fabrics treated with D's chemical resins. P purchases large quantities of fabrics from Apex and Fairtex. P claims that ordinary washing caused fabric to shrink. Representations relied upon by P: written statements expressed in numerous advertisements and in direct mail pieces and on labels and garment tags. D moved for summary judgment: no privity of contract with P. TC: denied D motion for summary judgment.• I: Whether privity of contract is necessary in an action for breach of

an express warranty by a remote purchaser against a manufacturer• H: No privity necessary▼R: Warranty given by advertisement:

▼Against public policy to limit a purchaser's protection to warranties made directly to him by his immediate seller• Protection that is needed is against the manufacturer whose

published representations caused him to make the purchase• Manufacturer should not be permitted to avoid responsibility

when the expected use leads to injury and loss, by claiming that he made no contract directly with the user

▼Case : Tex Enterprises, Inc. v. Brockway Standard, Inc.: D manufacturer makes steel containers. Shelton Company is a distributor of D's products. P buyer purchased containers. On the back of an invoice to Shelton, D placed terms and conditions that disclaimed all warranties. P buyer began to receive complaints from retail customers about the containers. P buyer sued both Shelton and D. TC: dismissed all claims based on the disclaimers printed on the D manufacturer invoices and lack of privity. Court of Appeals reversed: direct representations to purchaser can create express and implied warranties that run to the purchaser independent of any contract between the manufacturer and distributor.

• I: Can an implied warranty arise from a manufacturer's direct representations to a remote commercial purchaser, absent privity?

• H: No▼R: Allowing implied warranties to arise without reliance on an

underlying contract is inconsistent with the court's prior approach to implied warranties:• Arise only out of contractual relationships• Allowing implied warranties to arise out of express

representations could leave a manufacturer unable to adequately predict when implied warranties will attach

▼Case : Morrow v. New Moon Homes, Inc.: P's bought a mobile home from Golden Heart Mobile Homes. Mobile home was manufactured by D. P's noticed defects in the mobile home. Golden Heart's salesman told Ps that the mobile home was a "good trailer" and was as warm as "any other trailer". Ps filed suit against Golden Heart and D for breach o implied warranties. TC: granted Ps default judgment against Golen Heart but dismissed the claim against D for failure of privity of contract.• I: Do the implied warranties of mechantability and fitness run from a

manufacturer only to those with whom the manufacturer is in privity of contract

• H: Yes▼R: D argument against privity of contract:

• Complaint asserted a theory of strict liability in tort• Strict liability is not a defense to strict liability in tort

▼Case : Patty Precision Products Co. v. Brown & Sharpe Manufacturing Co.: P was awarded a contract for the manufacture of bomb racks. P contracted with D about purchasing a vertical hydrotape machining center capable of producing the side plates for bomb racks. Product of D's included GE controls. Machines failed to perform in accordance with P's expectations. Warranty between D and GE only extended to D.• I: Whether GE's disclaimer applied to P• H: No▼R: GE knew of the intended use of the machines by P

• IWM applied and was not "excluded or modified" by a conspicuous writing

▼P argument:• GE's disclaimer was disclosed only to D and could not, as a

matter of law, be considered effective against P▼C. Federal and State Statutes Applying Special Rules to Consumer

Transactions▼ 1. Magnuson-Moss Consumer Warranty Act

▼Motivation for Act: deceptive impact on consumers:• Seller extend warranty to buyer vs. seller disclaim all warranties

▼Act invalidates disclaimers of express and implied warranties, but

only if the supplier makes a written warranty• No M-M coverage if no written warranty

▼Covered contracts:▼ "Consumer": includes buyers who purchases for use rather than

resale• Includes persons to whom goods are transferred during

warranty period▼ "Consumer Product": any goods that are normally used for

personal, family or household purposes• Even if purchaser is a commercial entity

• "Written Warranty"▼Obligations:

▼Section 103 requires suppliers of consumer goods who give written warranties to label those warranties either "full" or "limited"• Requires "full and conspicuous" disclosure of the terms of the

warranty▼Section 108 sweeps away disclaimers of implied warranties

▼ If a supplier gives a written warranty, the supplier may not disclaim implied warranties• Cannot limit warranty to first purchasers

▼ If the warrantor breaches a written warranty of an Article 2 implied warranty, the consumer has a federal cause of action• May recover attorney's fees

▼CHAPTER 7: SELLER'S REMEDIES FOR BREACH BY THE BUYER▼A. Remedies on Wrongful Rejection or Repudiation

▼Article 2 Seller's Remedies Roadmap:▼Remedies relate to:

• (1) Manner of Buyer's breach; and/or▼ (2) Seller post-breach act

▼ (a) Buyer not pay after accept goods:• § 2-709 action for k price

▼ (b) Buyer not pay after ROL passed to Buyer:• § 2-709 action for k price

▼ (c) Buyer not pay after wrongful:• (i) Rejection of conforming goods• (ii) Revocation of acceptance▼ (iii) Repudiation of k:

▼With valid resale:• § 2-706 action for damages per resale formula

▼Without valid or attempted resale:▼ § 2-708 action for damages per "default" market

formula

▼When would Seller want resale vs. default market formula?• k price < market price < resale price

▼When would seller who resells want default market formula vs. resale formula?• k price > resale price > market price

▼ 1. Action for the Price ▼Case : Industrial Molded Plastic Products, Inc. v. J. Gross & Son,

Inc.: P manufactured plastic clothing clips. D wholesaler in retail clothing business went to P and said they might be able to market P's plastic clothing clips. President of D authorized son Peter to purchase a "trial" amount of clips from P. Peter held himself out as VP of D and signed an agreement obligating D to purchase from P 5M clips. D began manufacturing clips. Peter picked up and paid for 772K clips, only amount paid for or picked up. TC: awarded P damages representing lost profits because P did not make a GF or reasonable effort to resell the goods▼ I: Was P limited to lost profits for damages?

• P wants contract price + incidental damages▼H: No; P entitled to full unpaid balance of the contract price

notwithstanding its failure to atempt to resell the clips• Clips were adequately accepted by D; Seller had no obligaton

to resell accepted goods (§ 2-709(1))▼R: P performed its obligations under the contract

• D had ample opportunity to inspect the goods, never rejected the goods

▼ 2. Action for Damages ▼Case : Tesoro Petroleum Corp. v. Holborn Oil Co., Ltd.: D buyer

contracted with P seller to purchase 10M gallons of gasoline at $1.30 per gallon. P seller had acquired the gasoline for $1.26 per gallon. D buyer repudiated the contract. P seller resold the gasoline to Esso Sapa for $1.10 per gallon. P seller sued D buyer to recover the excess of the contract price ($1.30) over the market price at the time for tender ($0.80)▼ I: What should the P seller's damages be?

• Contract price over market price = $0.50 per gallon (§ 2-708)• Contract price over the resale price = $0.20 per gallon (§ 2-

706)▼H: Contract price over the resale price = $0.20 per gallon (§ 2-

706)• Resale to Esso Sapa was clearly a substitute for the one P

claims it actually contracted for with D▼R: D argument: P seller only entitled to the excess of the contract

price over the resale price• P's damages should be limited to its actual loss

• Granting the P the profit it seeks would result in a windfall▼P argument for contract price over the market price:

▼Since gasoline is fungible, a dealer could have made a profit not only on a sale to the D but also could have purchased gasoline on the open market at $0.80 per gallon and made a second profit on the resale to Esso Sapa• By recovering $0.50 per gallon it would be in the same

position as if D had complied with the contract and accepted the gasoline for $1.30 per gallon

▼ 3. Contracted-for Damages▼ Liquidated damages:

▼Reasonableness:• (1) Anticipated or actual harm caused by the breach• (2) Difficulty of proving loss• (3) Difficulty of obtaining an adequate remedy

▼Case : Kvassay v. Murray: P contracted to sell 24K cases of baklava to Great American at $19 per case. Liquidated damages clause: if D Buyer refuses to accept or repudiates delivery of the goods sold to him, Seller shall be entitled to damages at the rate of $5 per case. After P produced 3K cases, Great American refused to purcashe any more of the product. TC: liquidated damages clause was unenforceable; compared P's previous yearly income ($20K) with the claim for liquidated damages ($105K) and found the disparity so great as to make the clause unenforceable.• I: What is the proper comparison for measuring liqudated

damages?▼H: Liquidated damages under the contract must be measured

against the anticipated or actual loss under the baklava contract• Compare $5 per case per § 2-718 factors

▼R: No basis for contrasting income under a previous unrelated employment arrangement with liquidated damages sought under a manufacturing contract-impermissible factor▼ If each case sold for $19 per case, P would earn a net profit

of $3.55 per case• Compare $3.55 per case lost in net profit withthe

liquidated damages of $5 per case, it is evident that P would collect $1.45 per case, or 41% over projected profits if D Buyer breached the contract

▼CHAPTER 7: BUYER'S REMEDIES FOR BREACH BY THE SELLER▼A. Introduction

▼Basic obligations of the parties:• To transfer and deliver• To accept and pay• In accordance with the contract

▼Buyer's remedies relate to:▼ (1) Manner of Seller's breach

▼Seller either not deliver or repudiate:• With valid cover: 2-712: damages per cover formula▼Without valid cover: 2-713: default market formula

• 2-716: action for specific performance▼Seller nonconforming tender/delivery:

• With Buyer's acceptance: 2-714: damages per value formula▼ (2) Propriety of Buyer's rejection of revocation of acceptance

• Same remedies as cover• Without Buyer's justified rejection/revocation: Buyer initial

breacher: seller has action for price• (3) Buyer's post-breach act

▼B. Rejection, Cure, and Revocations of Acceptance▼ 1. Single-Delivery Contracts

▼Substantial Performance Doctrine:▼Substantial, not complete or perfect, performance triggers the

obligation of the other• NOT for single delivery contracts; perfect tender rule applies

▼Case : D.P. Technology Corp. v. Sherwood Tool, Inc.: D Buyer entered into a written contract to purchase a computer system which included hardware, software, installation, and training from P Seller. Delivery term: delivery period was to end April 18, 1989. Hardware delivered May 4, 1989. May 9, 1989 D buyer returned the merchandise to the P seller• I: Under the traditional perfect tender rule, did D buyer breach the

contract by wrongfully rejecting delivery?• H: No: D buyer properly exercised right to reject untimely

shipment per perfect tender rule• R: Perfect tender rule: tender must be perfect, must conform to

contract in every way▼ 2. Installment Contracts

▼Case : Midwest Mobile Diagnostic Imaging, LLC v. Dynamics Corporation of America: P Buyer contracted to purchase 4 trailers from D Seller. D was to outfit each trailer to accomodate an MRI unit to be supplied by Phillips, who was to certify that the trailers were satisfactory. Upon inspection, Phillips determined that the trailer did not meet the specifications. D attempted to cure the nonconformities. Cure consisted of a system of large steel beams that were aesthetically unpleasing. P Buyer cancelled the contract and sued for damages.▼ I: What standard of conformity applies to cure under an

installment contract?• Perfect tender or substantial impairment

• Does the rejection of one installment justify the cancellation of the entire contract

▼H: Tender of cure should be required to meet the higher perfect tender standard; cure did not meet this standard▼Nonconformity of first trailer justified cancellation of the entire

contract• Primary purpose of the contract was to provide P with a

trailer so it could meet the growing demand for its services▼R: P's contention of non-conformity:

▼Bracing structure did not conform to the parties agreement:• Could not be certified by Phillips▼ Interior design did not conform with the parties' agreement

▼Parites intended that the trailer was to function as extension of the hospital services, and therefore had to be aesthetically pleasing• Defect reduced the value of the trailer: purpose

substantially impaired▼ 3. Cure

▼Case : Zabriskie Chevrolet, Inc. v. Smith: D buyer signed a purchase order for a new Chevy. Paid deposit of $124. D buyer tendered P seller his check for the balance and delivery of the car was made to D buyer's wife. While en route home (2 1/2 mils from showroom), car stalled every time it stopped due to a defective transmission. D buyer immediately stopped payment on check. P seller replaced transmission with another one removed from a vehicle inthe showroom. D buyer refused to take delivery of the vehicle as repaired and reasserted his cancellation of the sale.• I1: Whether the D buyer had accepted the car prior to the return

of the car to the P seller• H1: D buyer did not accept the car• I2: Whether the breach by the P seller was substantial to justify

the D buyer's rejection of the car▼H2: Breach by the P seller was substantial

• Car inoperable• I3: Whether the P seller had a right to cure the nonconforming

delivery▼H3: Attempted cure by the P seller was ineffective

• Vehicle with substituted transmission instills "shaken faith" in car's dependability

▼R:▼P seller argument 1:

▼D buyer had accepted the car b/c had reasonable opportunity to inspect by the privilege to take the car for a "spin around the block"

• No: D buyer discovered the nonconformity within 7/10 of a mile of showroom which is within the "reasonable opportunity to inspect"

▼P seller argument 2:▼Rejection was given without affording P the right to cure

• No: P had right to cure, cure was ineffective and insufficient

▼ 4. Revocation of Acceptance ▼Case : Jorgensen v. Pressnall: P Buyer's purchased a mobile home

from D Seller. Mobile home delivered to P's and soon after P's discovered several defects. D attempted to repair defects, but was not successful. P's rejected D's further efforts to make repairs and decided to rescind the contract. P's tendered back the modible home and demanded return of the down payment as well as consequential damages.▼ I: Did the P Buyer's adequately revoke acceptance of the mobile

home• Whether P's proved nonconformities sufficiently serious to

justify revocation of acceptance• H: P's successfully revoked their acceptance of the mobile home▼R: Analysis of 5 elements of valid acceptance revocation:

▼ [1] Non-conformity substantially impairs good's value?• Purpose: to use mobile home as residence• P deprived of benefits of comfortable home

▼ [2] Acceptance either on:▼ (a) Reasonable assumption of known non-conformity

• Reason to believe D would cure• (b) Difficulty of discovery of nonconformity

▼ [3] Revocation within reasonable time• Revoked within weeks after discovery and futile cure

efforts by D• [4] No substantial change in condition of goods▼ [5] Notice to Seller

• Letter from P "decision to rescind K"▼D seller arguments that P Buyers did not prove rescission:

• No evidence that the uncorrected defects were material or that they rendered the trailer unfit for use as a dwelling

• Rescission not proper reemdy because P's refused to allow reasonable efforts to repair

• P's continued possession and use of the mobile home constituted an assertion and exercise of the right of ownership consistent with their attempted revocation of acceptance