UCC Sales Outline Fall 2024 PDF

UCC Sales Outline Angelo D. Spataro Fall 2024 **[Chapter I -- Formation]** - **UCC --** A model statute that has been enacted with variations in every state. A. **Fundamental Aspects of Sales** - Sales includes all of the people, institutions, laws, and practices that are involved...

UCC Sales Outline Angelo D. Spataro Fall 2024 **[Chapter I -- Formation]** - **UCC --** A model statute that has been enacted with variations in every state. A. **Fundamental Aspects of Sales** - Sales includes all of the people, institutions, laws, and practices that are involved in the transfer of ownership for a price. - Four functions that facilitate the transfer of ownership from seller to buyer. - **Formation**-- Sales systems bring buyers and sellers together and enable them to create legally enforceable transfers of ownership. - **Terms** -- Sales systems provide a set of standards that govern the transfer of ownership unless the buyer and seller choose to modify the standard terms. - Sometimes there are gaps in the contract that can be filled by the UCC (Uniform Commercial Code); common law; or standard form contracts of certain sales industries. - **Performance** -- Sales systems facilitate performance. - What is being transferred and to whom; there can also be a selection of performances. - **Remedies/Enforcement** -- Sales systems enforce agreements to transfer ownership by giving the aggrieved buyer or seller various remedies for breach by the other. - Article 2 applies to the transactions of goods - **§ 2-102. Scope; Certain Security and Other Transactions Excluded From This Article.** - This article applies to transactions involving goods. It does not cover contracts that are meant only as security agreements. It also doesn\'t override any laws that regulate sales to specific groups like consumers or farmers. - **§ 2-105. Definitions: Transferability; \"Goods\"; \"Future\" Goods; \"Lot\"; \"Commercial Unit\". (DEFINES A GOOD)** 1. \"Goods\" means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale. - Does not include the money in which the price is to be paid, investment securities (Article 8) and things in action. Does not include contracts. 2. Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are \"future\" goods. A purported [present sale](https://www.law.cornell.edu/ucc/2/2-106#present%20sale_2-106) of future goods or of any interest therein operates as a [contract](https://www.law.cornell.edu/ucc/2/2-106#contract_2-106)to sell. 3. There may be a [sale](https://www.law.cornell.edu/ucc/2/2-106#sale_2-106) of a part interest in existing identified goods. 4. An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the [seller\'s](https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103) interest in the bulk be sold to the [buyer](https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103)who then becomes an owner in common. 5. \"Lot\" means a parcel or a single article which is the subject matter of a separate [sale](https://www.law.cornell.edu/ucc/2/2-106#sale_2-106) or delivery, whether or not it is sufficient to perform the [contract](https://www.law.cornell.edu/ucc/2/2-106#contract_2-106). 6. \"Commercial unit\" means such a unit of [goods](https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105) as by commercial usage is a single whole for purposes of [sale](https://www.law.cornell.edu/ucc/2/2-106#sale_2-106)and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole. - **§ 1-103(b) -- When Gap Fillers Apply** - Unless displaced by the particular provisions of the UCC, the common law applies, eg: - If the UCC does not have a rule, the common law applies. - Capacity to contract - Principal and agent - Estoppel - Misrepresentation, duress, coercion, mistake - Predominant Purpose Test (When UCC Applies) -- Look at the predominant factor in the contract to see if it is more like a sale of goods or a service contract, by looking at the contract, price/cost, nature of business of supplier. - If the predominant purpose is to provide goods, then UCC applies in a dispute - If the predominant purpose is to provide a service, then common law applies in a dispute. - Gravamen of the Action Test (When UCC Applies) -- Is the problem with the contract a problem with the goods or the services that was provided? Focuses on the problem itself, i.e. why the plaintiff is suing. - Is there a problem with the goods? If so, then article 2 applies to solve that dispute. - But if there is a problem with the services then common law applies to solve that dispute - Hybrid Transactions (When there is a sale of good but also services) (2-102) - If the Sale of Good aspects predominate (To determine if the UCC Applies) (2-102): - Article 2 applies to the transaction (e.g. contract formation), but, - Law and equity can supplement those aspects that do not involve the sale of goods. - If the Sale of Goods aspects do not predominate: - Article 2 applies only to the provisions relating to the sale of goods and not the transaction as a whole. - **Hierarchy of Terms**. When a problem arises, go in order of this hierarchy to determine how to settle the issue. 1. **The agreement** (2-208) a. What did the parties agree to in the contract? 2. **Course of Performance** (1-303, 2-208) a. The previous performances within the same contract can show what the parties meant. The parties should do the same thing they did in the previous performances of the same contract. b. (1-303) A \"course of performance\" is a sequence of conduct between the parties to a particular transaction that exists if: (1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and (2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection. c. (2-208(1)): Where the [contract for sale](https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106) involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the [agreement](https://www.law.cornell.edu/ucc/2/2-106#agreement_2-106). 3. **Course of Dealing** (1-303, 2-208) a. The parties have worked together in the past, they should do what they did during the last contract. b. A \"course of dealing\" is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. 4. **Trade Usage** (1-303, 2-208) a. What is meant in the ordinary course of business? b. What is the normal definition in the trade or business. The parties should follow what their trade ordinarily does. c. A \"usage of trade\" is 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. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law. 5. **UCC Article 2 Gap Fillers** found throughout the code B. **The Process of Sales Contract Formation** I. **Was a Contract Formed?** **§ 2-204. Formation in General.** 1. A contract for sale of goods **may be made in any manner sufficient to show agreement**, including **conduct** by both parties which recognizes the existence of such a contract. - Agreement may be shown in any reasonable manner, including performance, as long as the parties show they recognize the contract. 2. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. - A contract is good even if the moment the contract was made is undetermined. 3. 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 a contract and there is a reasonably certain basis for giving an appropriate remedy. - A contract is formed despite their not being all of the terms, as long as the parties intend to have a contract, and there is a reasonable basis for giving an appropriate remedy for breach. - 2-204 Explanation - Contract may be made orally, in writing, or by conduct (O.C.) - Even if moment of making is undetermined. - Even if basic terms left open. - **Only need a reasonable basis for determining a remedy.** - Still need offer and acceptance - **A reasonable basis for determining an appropriate remedy is the only thing needed to form a contract under UCC.** **§ 2-206. Offer and Acceptance in Formation of Contract.** 1. Unless otherwise unambiguously indicated by the language or circumstances a. an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances; b. an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. 2. Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. - **2-206 Explanation** - Offer - an invitation to accept in any manner or medium reasonable under the circumstances. (flexible to allow for changes in means of communication (O.C. 1)). - Acceptance- what manner? - If offer is for prompt or current shipment, it is an invitation to accept by prompt or current shipment of conforming or nonconforming goods - If seller sends nonconforming goods - There is acceptance and a breach of contract, unless - Seller informs buyer only offered as an accommodation- then not acceptance - no contract - Beginning of performance is an acceptance if offeree gives notice to offeror within a reasonable amount of time. Not performing is a rejection **§ 2-205. Firm Offers.** An offer by a merchant to buy or sell goods 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 or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. - **Explanation**: If a merchant offers to into an agreement to buy or sell a good, and the terms say the offer will be held open, that offer is not revocable. Either for the term the contract says it will be open, or within a reasonable time which does not exceed three months. - **The offer does not require consideration** - 2-205 Explanation - Applies to a merchant who makes the offer (can be Buyer or Seller) - Merchant Definition: 2-104 - A person who deals in goods of that kind (goods merchant), or - A person who holds themselves out as having knowledge or skills related to the practices or goods of that kind (practices merchant), or - A person to whom such knowledge and skill is attributed by the person's employment as an agent or broker or intermediary who holds themselves out as having such knowledge and skill. (you hire a professional antique appraiser to negotiate the purchase of antiques). - In a record (writing/contract) - Singed by offeror - the merchant - If requested by the offeree - must be signed by offeror- the merchant) - Assures that it will be held open (not revocable) - For a reasonable amount of time - Not to exceed three months - If these factors are met, the offer is not revocable. - **2-207 -- A Written Form of Acceptance** - **When there is a written contract, there is an acceptance even if the offeree offers new terms. The terms become part of the contract unless in the written offer, the offeror says their cannot be additional terms. UCC has no mirror image rule, it has 2-207.** 1. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. 2. The additional terms are to be construed as proposals for addition to the [contract](https://www.law.cornell.edu/ucc/2/2-106#contract_2-106). [Between merchants](https://www.law.cornell.edu/ucc/2/2-104#Between%20Merchants_2-104) such terms become part of the contract unless: a. the offer expressly limits acceptance to the terms of the offer; b. they materially alter it; or c. notification of objection to them has already been given or is given within a reasonable time after notice of them is received. \(3) Conduct by both parties which recognizes the existence of a [contract](https://www.law.cornell.edu/ucc/2/2-106#contract_2-106) is sufficient to establish a [contract for sale](https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106) although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. - There is a written offer, with an acceptance form. - **Applies when:** 1. One party\'s **written form** itself constitutes acceptance (2-207 (1)) 2. There is a **written confirmation** with new terms following an oral contract (2-207(1)), or 3. Where the **written acceptance** did not constitute acceptance, (not a definite or seasonable expression of acceptance) but the parties perform anyway. (2-207(3)). - **[Only two ways a written acceptance will not form a contract:]** 1. It is not a definite and seasonable expression of acceptance. Apples instead of oranges, or Late sending of acknowledgement form, or 2. Acceptance is made conditional on assent to additional or different terms. One party is trying to add terms when the offer said they could not add new terms. - [A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.] - **Battle of the Forms** - Under the mirror image rule in common law, the acceptance must be the same as the offer. However, under the UCC acceptance does not need to include the same terms, unless it is a condition of acceptance. - If there is a contract through the writings, 2-207(2) governs the terms - If [not between merchants], the terms are mere proposal for additions (Because it is governed by common law) - If [between merchants,] - *Additional terms* become part of the contract unless - The offer expressly limited acceptance to the offer terms - The additional terms are a material alteration of the contract - The recipient of the terms objected to them already or does so in a reasonable amount of time - **Statute of Frauds with Sales of Goods** - Statute of frauds prevents fraud. It requires a contract for the sale of goods over \$500 to be in writing. **§ 2-201. Formal Requirements; Statute of Frauds.** \(1) Except as otherwise provided in this section a [contract](https://www.law.cornell.edu/ucc/2/2-106#contract_2-106) for the [sale](https://www.law.cornell.edu/ucc/2/2-106#sale_2-106) of [goods](https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105) for the price of \$500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a [contract for sale](https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106) has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of [goods](https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105) shown in such writing. \(2) [Between merchants](https://www.law.cornell.edu/ucc/2/2-104#Between%20Merchants_2-104) if within a reasonable time a writing in confirmation of the [contract](https://www.law.cornell.edu/ucc/2/2-106#contract_2-106) and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received. \(3) A [contract](https://www.law.cornell.edu/ucc/2/2-106#contract_2-106) which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable - **SOF Requirements** - Applies to the sales of goods for over \$500. The contract must be in writing and signed. - Be Sufficient to Show the Existence of a Contract - Comment 1: - A reasonable basis for believing that the oral agreement existed; - Need not identify who the buyer and seller are; - Need not include, time, place, price or quality. - Be Signed by the Party to be Charged - Comment 1: Any authentication identifying the party to be charged - Have a Quantity Term - Comment 1- need not be accurately stated but the contract is only enforceable up the amount stated. - Four Exceptions to SOF 1. **2-201(2) -- Merchants Exception** - Both parties qualify as merchants - One of the parties sends a written confirmation, within a reasonable time - And be sufficient against the sender: 1) identifies who the sender is, 2) the quantity, and 3) signed by the party to be charged (sender)(A letterhead is a signature) - Basically, the requirements of 2-201 (1) - Include the sender's own signature - Indication that a contract was made - Quantity - The writing is actually received by the recipient - Recipient has reason to know what it was about - Recipient can object to confirmation in writing within 10 days - Objection needs to be to the very existence of the contract -- unequivocal 2. **Specially Manufactured Goods** - 2-201(3) -- If goods are to be [specially manufactured] for the buyer and are [not suitable for sale to others in the ordinary course of the seller's business] and the seller, before notice of repudiation is received, and under circumstance which [reasonably indicate that the goods are for the buyer], has made either a [substantial beginning] of their manufacture or commitments for their procurement. - Elements: - Specially manufactured - A substantial beginning of manufacture - RELIANCE EXCEPTION- Policy - The general nature of the goods indicates that a contract has been formed - Substantial hardship on the aggrieved party 3. **Judicial Admission Exception** - If the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond quantity of goods. 4. **Partial Performance** - Part of the goods are paid for and have been accepted, showing there was an enforceable contract. - **Parol Evidence with Sales of Goods** - Parol Evidence asks whether the court consider evidence outside the four corners of the agreement. - There has to be some writing for Parol Evidence to apply. - It only applies to the terms of the contract; not the contract as a whole. **§ 2-202. Final Written Expression: Parol or Extrinsic Evidence.** Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented a. by course of dealing or usage of trade (Section 1-205) or by course of performance (Section 2-208); and b. by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement. - Parol Evidence only applies to situations where there is a writing and there is no merger clause. If the contract is not supposed to be the final terms, the rule does not apply. - If it does reflect the final terms you can examine outside evidence **before the formation** that is both oral and written. - If the evidence is **contemporaneous** then only oral evidence is admissible. - If the evidence comes **after the formation**, neither written nor oral evidence is admissible. - **2-202 Parol Evidence** -- Extrinsic evidence is not admissible to contradict the terms. - 2-202(a) However, they may be supplemented by course of performance, course of dealing or Usage of Trade; and (If non-integrated) - 2-202(b) By consistent additional terms, unless the contract contains a merger clause (final expression), or the term is one that would certainly be included because it is so important. - A merger clause is an agreement that the contract is complete and final and there are no other additional terms or side deals included. - An integrated contract means there is a merger clause, and thus it is the final contract and there are no other agreements between the parties. - When the contract is fully integrated, you can consider no additional terms, even if it supports. - Non-integrated contracts, evidence of additional consistent terms is admissible, contradictory terms are not. - Course of Performance and dealing can be used to interpret terms of contract for non-integrated contracts. **[Chapter II -- Terms]** A. **The Effects of Warranty Law on Business Practice** - Warranties are promises from seller to buyer of goods that accompany a sale. - The manufacturer and merchant can both provide warranties. - Warranties of Title - Warranties of Quality - Express Warranty -- 2-313 - Implied Warranties -- 2-314 and 2-315 - **Express Warranties 2-313** \(1) *Express warranties by the seller are created as follows:* - Can be oral or written, the warranty relates to the good, and is part of the reason the buyer enters into the agreement/purchase of the good. The goods are promised to conform to a certain promise made by the seller. b. **[Any]** **description of the goods** which is made [part of the basis of the bargain] creates an express warranty that the goods *shall conform to the description*. - The goods are described and are part of the reason the buyer entered into the agreement/purchase. c. [Any] **sample or model** which is made [part of the basis of the bargain] creates an express warranty that the whole of the goods shall *conform to the sample or model*. - If the seller provides a model that is part of the reason for the agreement/purchase, the good must conform to the model. - An **opinion** does not create an express warranty. Neither does puffery. - Puffery is an exaggeration or just an opinion or a way to convince you to buy. - **UCC 2-314 Implied Warranty of Merchantability --** - Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale **if the seller is a merchant** with respect to goods for that kind. - The two key promises of the Warranty of Merchantability are: 1. The goods being sold are at least as good as other, similar goods in the trade; and 2. That the goods are fit for the ordinary purposes for which goods of that description are used. - Used goods if sold by a merchant still have a warranty of merchantability. They are not warranted to perform as though they are new goods though. - A claim for breach of an implied warranty of merchantability will not stand if the good was used for an improper purpose that does not constitute an ordinary use. - "Ordinary" is most often defined as "common." - This also applies for 2-315. - Ex. A lighter's ordinary purpose can be described as giving an adult user the ability to create a flame. The ordinary purpose does not include use as a toy by a child. So if the child is injured, the warranty is not breached. - **UCC 1-304 Good Faith and Fair Dealing** -- Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement. (Ex. Selling a good knowing it is defective/does not work.) - **UCC 2-315 Warranty of Fitness for a Particular Purpose** -- Only applies when the seller knows the buyer is selling the good for a particular purpose, and the buyer is relying on the seller's expertise in the area, there is an implied warranty that the goods shall be fit for such purpose. - When does it apply?  - [Step 1]: Does there need to be a contract for sale? Yes - [Step 2]: Does the seller need to be a merchant? NO---any sales transaction - [Step 3]: **Objective Test:** - Seller must only have "reason to know," any particular purpose for which the goods are required, and that the buyer [is relying] on the seller's skill or judgment to select or furnish suitable goods. - Actual knowledge is not required. *Faulhaber v. Petzl Amercia,Inc* A buyer of a product may bring suit against the seller under the implied warranty of fitness for a particular purpose if the buyer relies on the seller's skill to purchase the product for a particular purpose. - Step 4: **Particular Purpose:** The goods will do something *different from their ordinary purpose*. [Does not apply to buyers whose use of the goods is ordinary.] *Williams v. Amazon, Inc (Ordinary purpose)* - Step 5: It is not excluded or modified. 2-316 (later) B. **Notice** - In order to recover on a warranty theory, a plaintiff needs to show: - \(1) the warranty was made - \(2) the warranty was breached; - \(3) the breach of warranty caused the harm complained of; - \(4) the extent of damages; and - \(5) the plaintiff can fend off any possible affirmative defense, including disclaimers, statute of limitations, lack of notice, lack of privity, and assumption of the risk. - **When the buyer discovers a defect in the goods, they must notify the seller within a reasonable period of time or lose all right to a remedy for the breach. (UCC 2-607(3)(a))** - **UCC § 2-607(3)(a) Notice of Breach --** Where a tender has been accepted, the **buyer** must within a reasonable time after he *discovers or should have discovered* any breach notify the **seller** of the breach or be barred from any remedy. - The notification must only put the seller on notice that the transaction is troublesome. There is no requirement that the buyer put the seller on notice of all defects - You must tell the seller the good is defective and why it does not conform. - The amount of time must be reasonable. - Ex. Hebron v. American Isuzu Motors, Inc. The PL waited two years to notify the seller of the defect. C. **Privity** - **Privity** -- There is a relationship between the parties with respect to a transaction. - **Vertical Privity** -- Buyer v. Manufacturer - The ability of a buyer to sue a seller other than its immediate seller. The buyer's ability to sue the manufacturer, rather than the merchant. - Most states have eliminated the need for vertical privity. - This means the Consumer is able to sue the manufacturer - 2-607(5) Vouching In the Manufacturer -- When the seller is sued by the consumer, the seller can ask the manufacturer to come in and defend the lawsuit. The Manufacturer does not have to, but If the manufacturer fails to come in and defend, then they are bound by the findings of the court and will be forced to pay any judgement against them. - Because most states have eliminated the need for vertical privity, this is not really needed or important. The consumer may sue the manufacturer. - **Horizontal Privity** -- Third Party (Non-buyer) v. Seller - The ability of a non-buyer who uses or is affected by a product to sue a seller for breach of warranty. - This third party could be someone who did not buy the good, but was injured by it. This party may bring a lawsuit against the seller. - UCC 2-318 has three alternatives for Horizontal Privity. - Alternative A removes the horizontal privity barrier for family members or household guests of the buyer in cases where the non-buyers have suffered personal injury due to the seller's breach of warranty. - Alternative B gives the privity removing benefit to any natural person who may reasonably be expected to use, consume, or be affected by the goods and who suffers personal injury by the seller's breach of warranty. - Alternative C is the same as B, but it removes the requirement that the injury suffered be a personal injury. - **Florida has adopted Alternative A.** - In Florida **family members** and **household guests** of the buyer may bring a suit against the manufacturer for a **personal injury**. - Disclaimers for whom the benefits are extended: - Selective disclaimers that target just the third-party beneficiary- those to whom the warranty is extended -- are not allowed under A or B. - Disclaiming warranties to anyone other than the purchaser-buyer not allowed. - Selective disclaimer for damages other than personal injury damages are allowed in C. - Broad warranty disclaimers that affect the buyer and the third-party beneficiaries are effective against the third-party beneficiaries. D. **Defenses to Warranties: Disclaimers** - The event or time at which a warranty period begins must be clearly and conspicuously stated in a written warranty. - **Exclusion or Modifications of Warranties 2-316(1) ([Disclaiming Express Warranties])** - Words or conduct relevant to negate or limit an express warranty are inoperative if unreasonable to see them as consistent. - Once a seller makes an express warranty as part of a contract, the seller cannot then limit or negate the warranty in the same contract. - **You cannot negate/disclaim liability and give a warranty** - Ex. Seller makes an express warranty in the contract, then includes a provision that states, "Seller disclaims all warranties express or implied." Golds gym example. - **Contractual Modification or Limitation of Remedy 2-719** - If an exclusive or limited remedy fails to meet its purpose, other remedies in the Act may apply. - Consequential damages (indirect losses) can be limited or excluded unless doing so is unfair. Limiting damages for personal injury in consumer goods is generally considered unfair, but for commercial losses, it is not. - **Four Ways to Disclaim Implied Warranties** - **[Specific Language]** - Implied Warranties of Merchantability: - The language of the disclaimer must specifically mention the words "merchantable" or "merchantability." - If the warranty is disclaimed in writing, the writing must be conspicuous. - Conspicuous: A reasonable person should have noticed it -- it is usually larger or bold. - Implied Warranties of Fitness for a Particular Purpose: - Disclaimer must be in writing and must be conspicuous. - Does not have to specifically mention "fitness." - Sufficient to use the words "there are no warranties which extend beyond the description on the face hereof." -- the language can be general. - **[As-Is Clause]** - All implied warranties are excluded by expression similar to "as is" or "with all faults." - The language is sufficient by itself to alert the buyer that the seller is assuming no risk and all implied warranties are excluded. - Nothing in § 2-316(3)(a) requires that an "as is" disclaimer must be conspicuous, but courts have held that a fine print "as is" clause is not effective. - **[Conduct]** - When the buyer has examined the goods or refused to examine the goods after asked by the seller, *no implied warranties exist to defects that should have been discovered*. - The seller must demand the buyer inspect the good. - Ex. The Seller demands the buyer to inspect, but then the buyer doesn't, the buyer has no warranty. - Ex. The seller demands inspection, the buyer inspects but does not find an obvious defect. - **[Course of Performance, Dealing or Trade Usage]** - There can be an implied disclaimer based on past behavior between the parties or the norms of the industry of the parties. - **[Warranty of Title 2-312]** - There is a default warranty to the seller that the buyer has good title to what they buyer is selling. - The seller is strictly liable if it does not have good title. Even if they did not know they did not have good title. - There is no warranty of good title if the buyer knows the seller does not have good title. - If a buyer buys stolen goods, they must take the loss. The actual owner takes possession of their stolen property. The buyer would have void title. - **Title Transferred 2-403** - If the transferrer had no title, then the purchaser gets no title- void title - The purchaser of goods purchases the title the seller has. So, if the seller does not have good title, neither does the buyer - A person with voidable title has the power to transfer good title to a - Good faith - Purchaser - For Value - **Entrustment** -- The merchant who deals with goods of the kind has voidable title, but if they sell the good in the ordinary course of business they are transferring good title to the buyer. - **Voidable Title** -- A person who tricks someone/commits fraud against someone with good title to give them possession of their good has voidable title. - Those with a voidable title do not have title but can transfer it validly to someone else, as long as the purchaser does so in **good-faith for value**. **[Chapter III -- Performance]** A. **Closing the Deal** - **Perfect Tender Rule 2-601** - If the goods or tender of delivery fail **in any respect** to conform to the contract, the buyer may - Reject the whole of the goods - Accept the whole of the goods - Accept any commercial unit or units and reject the rest. - **A buyer who receives non-conforming goods may accept, reject, or accept and reject in part.** - Tender **--** The seller delivering the goods to the buyer. - Exceptions - Installment contracts -- 2-612 -- Contracts that have multiple deliveries. - Can reject only that non-conforming installment, - Only if it substantially impairs the value of that installment, and - Only if it cannot be cured. - **So if it is an installments contract, the buyer can reject only the non-conforming part if the defect only impairs the value, and it cannot be cured.** - May be subject to contractual limitation on remedies - Seller may have right to cure - Course of performance, course of dealing or usage of trade may protect the Seller from "surprise" (2-106 C.2) - **2-606 Acceptance** - Acceptance Occurs when: - After a reasonable time for inspection the buyer signifies to the seller that goods are conforming or that buyer will retain non-conforming goods, or - Buyers signifys he will take the goods. - Buyer fails to make an effective rejection after a reasonable time to inspect the goods, or - Buyer fails to reject the goods after a reasonable time. - Buyer does any act inconsistent with seller's ownership. - Buyer acts in a way to show ownership. - **2-602 Manner of Rightful Rejection** - Rejection can be made within a reasonable time with seasonable notice. - The buyer has the right to make a reasonable inspection of the goods before acceptance or rejection, within reasonable time. - Any exercise of ownership by the buyer is wrongful against the seller, because the seller still owns the goods. - After buyer rejects the goods, they have a duty to hold goods with reasonable care at time sufficient to permit the seller to remove them. - If merchants there is a higher duty, requiring the buyer to follow reasonable instructions from, the seller so the seller may recover the goods and resell. - **2-605** -- The buyer waives the right to rejection if they fail to explain why the goods are defective. - If between merchants the right to rejection is waived if the seller requests for a written statement of defects, and it is not provided. - **Sellers Right to Cure 2-508** - The Seller has the right to cure after rejection if: - The time for performance has not yet expired, **or** - Ex. May 1^st^ delivery, but performance was due May 5^th^ - If the seller had reasonable grounds to believe the tender would be accepted with notice to the buyer, the seller may have a reasonable time to substitute conforming tender. - Ex. The seller delivers a better product to the buyer or, Course of performance/dealing, or usage of trade. - The right to cure can be subject to the **Shaken Faith Doctrine** -- If one installment in an installments contract is so defective, it results in complete loss of confidence of the seller by the buyer, and they believe the seller cannot cure due to the defect. - **Revocation of Acceptance 2-608** - When a buyer accepts goods, but then wants to revoke, they may do so when: - the non-conformity substantially impairs the value of the lot or unit (not the perfect tender rule), and - Buyer reasonably assumed the non-conformity would be cured and it was not; - The non-conformity was too difficult to discover before acceptance; or - Buyer did not discover the non-conformity because of seller's assurances. - Revocation must occur within a reasonable time after the buyer discovered or should have discovered the non-conformity, and - Buyer must give notice of the seller before the revocation is effective - If properly revoked, then buyer has same rights and duties as if rejected the goods. B. **Risk of Loss with Sales of Goods** I. **Steps** - Risk of Loss -- Which Party, between buyer and seller, is responsible for the destruction of or damage to goods that occurs between the time that the contract is entered into and the time the buyer receives possession of goods. - Risk of loss rules generally do not come into play if the buyer or the seller causes the damage to the goods. Whoever causes the damage in such as case will bear the burden of the loss. - Meaning, risk of loss provisions only kicks in when a third-party damages goods. - Only applies to situations in which the contract has been formed. When does the risk of loss pass from seller to buyer. - 2-709 (1) tells us generally: - If risk of loss passes to buyer, buyer must pay seller for goods. - If risk of loss has not yet passed, buyer does not have to pay for goods. - The risk of loss rules are subject to three qualifications: - The parties specifically agree when the risk of loss will pass, the agreement controls; - If one of the parties causes the loss in question, the negligent party assumes that loss; and - If one of the parties is in breach of its obligations under the contract, 2-510 will determine when the risk of loss passes to the buyer. - **Steps for Risk of Loss** - Step 1: - Did buyer and seller agree on anything regarding risk outside of ucc? - If yes---apply what they agreed on--- - If no---apply UCC gap filler - Step 2: - Is there a breach of contract regarding the goods? - If no, apply 2-509 - If yes, apply 2-510 - Step 3: 2-509 -- When there is no breach of contract - Figure out how goods get from seller to buyer. Three choices: - **Common carrier 2-509 (1)** - Delivery required or authorized by independent third-party carrier - Must distinguish between the TYPE of delivery contract - SHIPMENT contract; or - DESTINATION contract - Shipment Contract -- Risk of loss shifts to the buyer when the goods are delivered to the carrier, and the buyer is responsible for paying the cost of freight. - Destination Contract -- Risk of loss does not shift to the buyer until the goods are tendered to the buyer at the stated destination, and the seller is responsible for paying the cost of freight. - **Warehouse (bailee) 2-509 (2)** - \(2) Goods are not to be physically moved from seller to buyer, but seller has put goods into storage with an independent commercial warehouse. - Risk of loss passes to buyer on: - a\. buyer's receipt of a negotiable document of title - b\. acknowledgement by the bailee of the buyer\'s right to possession of the goods, or - c\. after buyer's receipt of a non-negotiable document of title or other written direction to deliver as provided in 2-503 (4)(b) - **Direct Seller to Buyer 2-509 (3)** - \(3) the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant, otherwise, the risk passes to the buyer on tender of delivery - Step 3: 2-510 -- When there is a breach of Contract - 2-510 -- Covers the effect of a breach by either the buyer or seller on when the risk of loss passes from the seller to the buyer. - Seller Breach: 2-510(1) -- Where a tender or delivery 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. - Seller Breach: 2-510(2) -- When a buyer rightfully revokes acceptance, the buyer may treat the risk of loss as if it had rested on the seller from the beginning, but only to the extent of a deficiency in the buyers insurance coverage. - Buyer Breach: 2-510(3) -- Covers the effect of breach by the buyer on risk of loss. Where a buyer repudiates to the conforming goods already identified to the contract, risk of loss will be in the buyer for a commercially reasonable time to the extent of any deficiency in the seller's insurance coverage. II. **Defenses: Commercial Impracticability** - Impracticability is a defense for Seller- it provides an excuse. It allows Seller to avoid liability to the buyer for breach of contract damages that Seller would otherwise be liable for without excuse. - There are some unanticipated contingencies that are so are out of the realm of what either party could reasonably anticipate, that we might have an excuse for performance\-- because of something that happened ***after contract formation*** - **Two Scenarios to consider**: Sections **2-613 through 2 -616** - **1.** **General Impracticability** - **2. Casualty to Identified Goods** - Where the contract requires for its performance g*oods identified when the contract is made*, and the goods suffer casualty without fault of either *party before the risk of loss* passes to the buyer. - \(a) if the loss is [total] the contract is [avoided]; and - \(b) if the loss is [partial] or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller - Risk of Loss passes to buyer when: 1. If the *seller is a merchant*, the risk of loss passes when the buyer [receives the goods]. (2-509(3)) 2. If seller is NOT a merchant, the risk passes on *tende*r of delivery (which may mean when shipped, and not received) (2-509(3)) **[Chapter 4 -- Remedies]** - Basic Principles - **§ 1-305** Two Basic Principles Regarding Remedies (The Point of Remedies) - **(1) Put aggrieved party in position they would have been had the contract been performed** - **Protects the expectation interest** - **Makes the seller whole** - \(2) But neither consequential or special nor penal damages are allowed for seller unless they are specifically provided for **in the code.** - Incidental damages Definition: - Seller: 2-710 - Any commercially reasonable charges, expenses or commissions incurred in stopping delivery, the transportation, care and custody of goods after the buyer's breach, in connection with the return or resale of the goods or otherwise resulting from the breach. - Buyer: 2-715: - Expenses reasonably incurred in the inspection, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in correction with effecting cover and any other reasonable expenses incident to the delay or other breach. - Consequential Damages Definition - Seller: none - Buyer: 715 - Any loss resulting from general or particular requirements or needs of which the Seller had reason to know at the time of the contracting and which could not reasonably be prevented by cover or otherwise, and - Injury to person or property proximately resulting from any breach of warranty. A. **Sellers Remedies with Sales of Goods** - Steps for Remedies - Step 1: Is there a breach? - (anticipatory repudiation or just insecurity?) - Step 2: Do we have a general breach or buyer insolvency (later). - Step 3: Evaluate what remedies are possible based on the circumstances - Step 4: Who wants what remedy and what is the best argument - The best way to determine the remedy is to put the parties in the position they would have been if the contract had been performed. - Ask: What is the best outcome for your client? - 2-703 -- Four ways for the Buyer to **Breach**: - \(1) wrongfully rejecting goods; - \(2) wrongfully revoking acceptance; - \(3) failing to make payment when due; and - \(4) anticipatory repudiation. - 2-703 -- Provides Seven **Remedies** for the Buyer: - \(1) withhold delivery; - \(2) stop delivery by any bailee; - \(3) identify goods to the contract in the case of an anticipatory repudiation; - \(4) resell and recover damages; - \(5) recover contract-market damages; - \(6) sue for the price; and - \(7) cancel the contract. - There are not mutually exclusive, and the seller can use multiple remedies. - **[Breach] -- Anticipatory Repudiation** - 2-609 -- provides the process for contracting parties to clarify if there is a reasonable ground for insecurity/ belief of anticipatory repudiation. - Reasonable grounds: "either the willingness or the ability of a party to perform declines materially between the time of contracting and the performance." - If the seller has reasonable grounds for an anticipatory repudiation, the seller can demand assurances and suspend performance - If buyer does not provide assurances within 30 days then Seller may proceed with 2-610 options - If he receives assurance he must wait for the buyer to perform. - **Remedy -- 2-610 Anticipatory Repudiation Remedies** - The seller may - a\. for a commercially reasonable time *await performance* by the repudiating party OR - b\. RESORT TO *ANY REMEDY* FOR BREACH, 2-703-2-711 even though he has notified the repudiating party that he would await the latter's performance and has urged retraction **AND** - c\. In either case suspend his own performance or proceed in accordance with the provision of article - **Remedy -- 2-709 Sue for the Price** - After there has been a breach, 2-709 allows the seller to sue for the price of the contract as a remedy. This is effectively specific performance, because this is what the parties entered into the contract for. - The seller may sue for the price [only under the following circumstances:] - Where the buyer has accepted the goods, or - Where conforming goods have been lost or damaged within a commercially reasonable time after risk of loss has passed to the buyer, or - Where seller has identified goods to the contract and there is *no reasonable prospect of reselling them* to a third party for *a reasonable price*. - If the seller sues for the price, the seller must hold the goods for the buyer unless he is able to sell them prior to collection of judgment (then deduct the proceeds of the sale). - If the buyer ultimately pays the price, the buyer is entitled to the goods. - A seller who sues for the price is eligible to recover **incidental damages**. - **Remedy -- 2-706 Resell** - Seller is eligible for resale damages where: - The buyer breaches; - The seller reasonably identifies the goods being resold as referring to the broken contract; - The seller gives buyer notice of the resale; and - \*(If no notice of resale, use the § 2-708 formula) - **Contract Price -- Resale Price + Incidental Damages -- Expenses saved as a consequence of buyer's breach** - **[KP -- RP + ID - ES]** - The seller resells the goods at either a public or private sale. - **Remedy Contract Market Damages 2-708(1)** - The measure of damages if the Buyer wrongfully fails to accept the goods or repudiates is - the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages from 2-710, but less expenses saved in consequence of the buyer's breach. - Market price is measured as of the [time and place for tender], defined in the contract - The time for tender will be the stated performance date - The place of tender will be determined by the delivery terms - FOB Shipment: Market price at Seller's location - FOB Destinate: Market price at Buyer\'s location - **Contract-Market Difference Formula 2-708 (1)** - **[KP -- MP + ID -- ES]** - KP: Contract Price - MP: Market Price (at time and place of tender) - ID: Incidental Damages - ES: Expenses Saved as a consequence of the breach - Sellers Remedy: The Lost Volume Profits Seller - **§ 2-708(2):** Special Relief - If the measure of damages provided in subsection (1)(the remedies above) are [inadequate] to put the seller in as good a position as performance would have done, then the measure of damages is: - \(1) the profit (including reasonable overhead) which the seller *would have made from full performance by the buyer,* - \(2) [together with any incidental damages] provided in this Article (Section 2-710), - ***Incidental damages**: due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.* - In order to be a lost volume seller, the seller must show: - **(1)** **It would ultimately have sold the goods if the buyer had not breached, and** - **(2) The seller's ability to sell the goods was greater than the current buyer demand for them**. - In other words, the seller would need to sell the swing set to a new buyer and show they would have sold the same swing set to that new buyer even if the original buyer would not have breached the contract. - **[General Formula (LV)]** - **[KP -- DC + ID]** - KP: Contract Price - DC: Direct Costs - ID: Incidental Damages - Direct Costs are the costs the seller will save directly as a result of the buyer's breach (i.e. the cost of materials to produce the item). - **Remedies in Case of Buyers Insolvency 2-702** - persons are insolvent - if they are not paying their debts as they come due (the \"equity\" insolvency test) or, - if they are insolvent under the Bankruptcy Code, - **2-702. Seller\'s Remedies on Discovery of Buyer\'s Insolvency.** - \(1) If the seller learns that the buyer is insolvent, the seller can **refuse to deliver** goods, or stop a delivery in progress, unless the buyer pays **in cash** for the goods. - The seller can also demand payment for any goods that have already been delivered under the contract. - \(2) If the seller discovers that the buyer received goods on credit while insolvent, the seller has the right to **demand the return of the goods** (reclaim the goods) under the following conditions: - **Timing**: The demand must be made **within 10 days** of the buyer receiving the goods. - **Exception to 10-day rule**: If the buyer **misrepresented** their solvency in writing to the seller **within three months** before the delivery of the goods, then the **10-day limit does not apply**, and the seller can reclaim the goods at any time. - **No Reclamation for Misrepresentation of Solvency**: The seller cannot reclaim the goods based on a fraudulent or innocent misrepresentation of solvency or the intent to pay. This means that even if the buyer lied about their ability to pay or their financial situation, the seller cannot use this to reclaim the goods, unless the buyer\'s representation was made within the specific time frame mentioned. B. **Buyers Remedies with Sale of Goods** - [Approach to Buyers Remedies:] - [Step 1]: Did they accept the non-conforming goods or not receive them? - If yes: remedies limited to Breach of Warranty 2-714 - If No, or rightfully rejected 2-711, 2-712 Cover, 2-713 Contract Market - [Step 2]: Apply appropriate formula - **Buyer Accepts -- Limited to Breach of Warranty 2-714** - Formula VCG -- VNCG + ID + CD - VCG -- Value of Conforming Goods - VNCG -- Value of Non-Conforming Goods - ID -- Incidental Damages - CD -- Consequential Damages - For [breach of warranty] damages, the buyer *[must]* give *seller [notice] of the breach [within a reasonable time] after:* Buyer discovers breach or Should have discovered the breach. 2-607 - **Buyer Rejects -- Consequential Damages 2-715**: - 2-715(a): Buyer may recover for **any** loss, including economic loss - Foreseeable: the seller knew of or had reason to know of the buyers general or particular requirements - Proximately caused - Could not be prevented by cover or otherwise - 2-715(b): injury to a person or property proximately caused by the breach - No foreseeability requirement - **Buyer Does not Receive goods --Cover (2-712)** - **Cover 2-712** -- Cover is the ability of the buyer to purchase goods in *substitution* of those due from the seller - RBPP + CC -- KP + ID + CD -- ES - RBPP -- Return of Purchase to Buyer; - CC -- Cost of Cover Price; - KP -- Contract Price; - ID -- Incidental Damages; - CD -- Consequential Damages; and - ES -- Expenses Saved by Seller's breach. - Cover 2-712 Issues: - A good faith effort? - Did buyer turn down reasonable options to cover? - If so, cannot recover - Without unreasonable delay? - Did buyer wait too long? - If so not recover? - A reasonable purchase of goods in substitution? - Were the cover goods the same as the contract goods? - If no, no recovery. - **Buyer Does Not Receive Goods -- Contract Market Price (2-713)** - "Market price" is in cases of **non-delivery** or repudiation by the seller, the market price is: - The price at the time the *buyer learned of the breach*, and - Market price at the place of tender - If the buyer ***rejects or revokes acceptance**, [the market price is measured at place of arrival.]* - Formula: RBPP + MP -- KP + ID + CD -- ES - RBPP -- Return of purchase price to buyer; - MP -- Market Price; - KP -- Contract Price; - ID -- Incidental Damages; - CD -- Consequential Damages; - ES -- Expenses Saved - **Buyers Remedy -- Specific Performance (2-716)** - **Buyer's Remedy: A buyer's right to specific performance (to receive the goods) when the seller breaches a contract for the sale of goods**. - Under the common law, the aggrieved buyer is entitled to specific performance only when it can demonstrate that its remedies at law are inadequate. - Remedies at law are inadequate when: - **2-716(1**) says that "specific performance may be decreed when the goods are - ***Unique, or*** - ***in other proper circumstances***. - ***Inability to cover is strong evidence of other proper circumstances.*** - 2-716 (3) Buyer's right to replevin (to get the goods) if - The buyer has an Inability to cover, and - The Goods have been identified to the contract. - **Buyers Remedy -- Liquidated Damages (2-718)** - **The damages must be reasonable in light of anticipated [OR] actual harm caused by the breach, the difficulties of proof of loss and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. 2-718 (1)** - Two ways to get liquidated damages: - \(1) If the parties agreed to it in the contract. Cannot be so large to cause a penalty. Just make the party whole. Or - \(2) 2-718(2)(b) Formula to calculate damages. - We use this formula when the buyer makes a prepayment and then the buyer breaches. - Formula: - **R= P -- (lesser of: 20% total obligated performance OR \$500 OR PP) -- SD -- BB** - R-Restitution (how much can buyer get back from deposit) - P-Prepayment by Buyer - SD-Seller's Actual Damages (lost profits) - BB-Buyer's Benefits