Sales Outline Aw

7/25/2019 Sales Outline Aw

1/27

CHAPTER 1: BASIC CONCEPTS 02/13/2014

I. Scope of Article 2s Transactions in Goods2-102

A. Transactions: not defined in the Code; but see2-106(contract for sale:

includes both a present sale of goods and K to sell goods at future time; serves

as guiding definition)

1. Predominant Purpose Test: determine whether predominantpurpose of the transaction is to sell the goods or to provide the service;

courts apply UCC only if the sale of goods is the predominant factor

a) Milau Associates, Inc.:holding that in case of pipe burst Ds

couldnt recover under Art. 2 b/c transaction was predominantly

service oriented

b) Analyst Inter. Corp.:holding that purpose of K was for

software (considered good) and the programmers knowledge was

incidental to the dominant purpose

2. Gravaman test: look at basis of complaint rather than overall natureof transaction. If P is complaining about the goods component, Art. 2

applies; if complaining about service component, it doesnt

a) Anthony Pools: Even though K for service (building

swimming pool) court found that implied warranty applied to diving

board b/c it retained character as consumer good after completion

of performance

3. Goods: 2-105: Anything movable at the time of K; tangible goods

a) Does not include real property, transactions in paper rights

(stocks or bonds), sale of services (memberships), intangibles

(insurance)

b) BUT small exception to exclusion of real property: Art. 2

does apply to goodsattachedto realty, if severed and sold apart

from the land:

(1) Crops, timber;

(2) Minerals, ice, water, buildings,if severed by the seller

(2-107(1))

(3) Fixtures (anything else attached to the land that can

be removed w/o material harm thereto) if it is severed by

some person- can be the buyer, seller, or third party (2-

107(2))

c) Limitation on what can be goods: goods must be presently

in existence


2/27

(1) Unborn young of animals is still included in goods

(2-105(1))

(2) Goods that are specially manufactured or a work of

art to be created are subject to Art. 2 and considered goods

only when actually created or manufacturedd) Fungible Goods 2-105(4): those in which each unit by its

very nature or by mercantile use, is thecommercial equivalentof

every other unit

(1) Examples: bushels of wheal, barrels of oil, bags of

jelly beans

(2) Can be either identified (e.g., all the wheat in my

silo) or unidentified (e.g., 600 bushels from the wheat in my

silo)

(a) Ordinarily, a sale of goods requires the goodsto be identified. However, there is an exception for

fungible goodsan agreement to convey an

undividedinterest in an identified massof fungible

goods is still effective as a present sale

Transactions Covered by UCC Art. 2:

Covered: the sale of: Not Covered: the sale of:

Real estate

Goods, i.e., tangible chattels Choses in action

Investment securities

Secured transactions (stocks, bonds, etc.)


3/27

II. Scope of Article 2s Merchants2-104

A. Art. 2 applies to both businesses and individuals

B. Good faith: UCC imposes obligation of good faith in ever

performance/enforcement of K1. Good faith is defined subjectively as honesty in fact 1-201(19):

a) This is a test ofsubjectivehonestly, whether or not

reasonable. This is NOT a reasonable person test

2. Merchants are held to a higher standard than non-merchants

a) Merchants standard: 2-103(1)(b): held to a higherobjective

standard, that includes the observance of reasonable commercial

standards offair dealings in the trade

C. Merchant defined 2-104(1):

1. A party whoregularly dealsin goods of the kind sold;2. Otherwiseholds himself outas havingspecial knowledge or skillas

to the practices or goods involved; or

3. Employs anagentwho fits within these categories

D.2-104Comment 2-3: Whether a merchant depends on facts of the case

E. Certain provisions have certain definitions of merchants: ERASE

1. Implied Warranty of Merchantability2-314: deal in goods of that

kindbut notby occupation or skill (Sieman: didnt deal in goods of kind b/c

isolated incident of selling saw)

a) A merchant is held to certain implied warranties as to the

goods sold; nonmerchants have no such liability

III. Scope of Article 2A: Leases vs. Disguised Sales

A. True lease governed by 2A (if state has adopted Article 2A of the UCC)

B. Disguised sales governed by Art. 2 and 9

1. Lessor is an Art. 2 seller of goods

2. Lessor?? is an Art. 9 secured party

3. disguised sales createssecurity interestin goods

C. Lease vs. Disguised Sales 1-207(37), Determine:

1. If termination clause= true lease

2. For entire economic life of leases goods w/ or w/o renewal=

disguised sale

3. Option to purchase= disguised sale


4/27

4. Other: case by case, not necessarily disguised lease if lessee: (i)

pays consideration + or = FMV of leased goods (as long as not entire

economic life); or (ii) assumed major duties (taxes, assuming risk of loss)

IV. International Sales, CISG:

A. General:1. Covers: K formation and rights and duties of parties

2. Excludes: K validity (fraud, illegality)

B. CISG 2: Does not apply to sales

1. 2(a): goods bought for personal, family, or household use unless

seller didnt know that goods were both for these uses

2. (b): sales by auction

3. (c): authorized by law

4. (d): stocks, shares, investments, etc.

5. ships, vessels, aircraft6. electricity

C. CISG 6: Parties can stipulate in K to avoid CISG

I. The Statute of Frauds: Is there an enforceable K?2-201

A. Need a writing for some K of high value (sale: $500; lease: $5000if lease,

governed by Art. 2A)

B. Writing must:

1. Have asignatureof the party to be bound by the K (1-201 Official

Comment 39)a) Signature can be typed, stamped, or even be a printed

letterhead

2. Specify thequantityterm (K can be enforced even if a main term is

omitted or misstated)

C. Certain Exceptions:

1. Merchant confirmation letters (2-201(2)): writing can become

binding the the party to be charged even though that party never signed

anything; this is b/c merchants are held to higher standard. To determine if

exception applies:

a) 1st: make sure both parties qualify as merchants in the

goods or practices involved (look to 2-104)

b) Sender within areasonable timemust send a writing

confirming K to the other party


5/27

(1) If merchant receiving confirmation objects to its terms,

they must reject within10 daysafter it is received or else the

recipient loses any defense based on the Statute of Frauds

(a) St. Ansgar Mills: 2-201(2)

2. Part performance: evidence that a contract was in existencea) Partial acceptance: K is made enforceable by the receipt and

acceptance of goodsbut only to the extent of the quantity of goods

actually received and accepted(2-201(3)(c))

b) Partial payment: K is enforceable in respect to goodsfor

which payment has been made(2-201(3)(c))

(1) Rationale is that the payment serves as evidence of

the existence of a K, but only as to the goods paid for

3. Specially manufactured goods 2-201(3)(a): clear intention to form

contract if specifications are madea) Seller must have made asubstantial beginningon the

manufacture,or

b) Commitments for their procurement before receipt of the

buyers notice of repudiation

4. Admission in legal proceedings 2-201(3)(b)

a) If the party admits in the pleadings, testimony, or in court that

a sales K was in fact made, then that party loses the benefit of the

Statute of Frauds defenseto the ends of the quantity admitted

II. The Parol Evidence Rule: Was there an agreement, and if so, what was it?2-202

A. Operates to exclude evidence of oral representations/understandings

made prior to the signing of the K that would alter or vary the terms of a written

instrument

B. UCC: rejects the assumption that because a writing has been worked out

it is final and all matters are agreed upon

C. 1STSTEPthe courts ask is: Did the parties intend the writing to be the

complete and exclusive statement of the terms of the agreement?

1. If YES: terms of the writing may still beexplained or interpreted

a) Can look to course of dealing, usage of trade, and/or course

of performance

2. If NO: court will supplement terms by admittingconsistent,

additional terms(i.e., terms not expressly or impliedly contained in the

writing)


6/27

a) A term is NOT a consistent, additional term if it is the sort of

thing that if true would certainly already be in the writing; however, if

it is something that might naturally be left out, it is a consistent,

additional term and may be admitted (2-202 Official Comment 3)

b) ***Cant contradict w/ extrinsic terms***???D. Even though the UCC is silent on the subject, the CL exceptions to the

parol evidence rulefraud, mistake, etc.also apply in Sales transactions (see

1-103)

E. Columbia Nitrogen Corp. v. Royster: held that evidence of usage of trade

and course of dealing should be excluded whenever it cannot bereasonably

construed as consistent w/ the terms of the K(test of admissibility)

III. Offer and Acceptance: Was there an offer and was there an acceptance?2-204,

2-205, 2-206

A. Offer: In General2-2041. 2-204: sales K can be formed in any manner sufficient to show an

agreement, including conduct by both parties that recognizes existence of

such K

2. 2-204(3): A contract is created if:

a) the parties so intend, and

b) the court can fashion an appropriate remedy

B. Irrevocable Firm Offer2-205

1. Firm offers are irrevocable, even without consideration if the

following requirements are met:a) The firm offer is made in connection w/ a contract to sell

goods

b) The firm offer is made by amerchant

c) The offer is in asigned writingand states that it will be held

open

(1) Note: if the statement that the offer will be held open

is on a form supplied by theofferee, theofferorisnotbound

by it unless the statement is separately signed by the offeror

2. For how long is the offer irrevocable? Once it is determined that

there is a firm offer (the conditions above must be satisfied), the offer is

irrevocable for:

a) The period of time specified in the offer, or

b) If no period is specified, a reasonable timebut never longer

than 3 months


7/27

(1) Even if the offer specifies a period longer than 3

months, the offeror is only bound for 3 months

C. Acceptance2-206

1. 2-206: the offeror can specify the medium of acceptance (e.g.,

reply by return by mail). If the offer was limited to this medium, that use isthe only possible way to make acceptancehowever courts sometimes

read the offerors statement as still permitting similar means of

acceptance.

a) 2-206(1)(a): unless unambiguously indicated by the

language or circumstances, an offer to make a K shall be construed

as inviting acceptance in any manner and byany medium

reasonable under the circumstances

2. When a buyer offers to purchases goods forprompt or immediate

shipment, must the seller first notify the buyer that the offer is accepted, oris the actual prompt shipment a sufficient acceptance?

a) 2-206(1)(b): the offer for prompt or current shipment is

accepted either by aprompt promiseto ship [aka notifying buyer

that offer is accepted]orby theactof shipment

b) What if the seller shipsnonconforminggoods? It may be

treated as either an acceptance or as a counteroffer depending on

the sellers actions:

(1) If seller just simply ships nonconforming goods:

shipment constitutes anacceptanceof the offerand abreachof the K

(2) If seller ships nonconforming goods and alsopromptly

notifies the buyersaying that he/she is not accepting the

offer but is simply shipping the goods as an accommodation

to the buyer, then seller has made acounterofferandno

contract has been formed

(a) Buyer then can either accept or reject the

counteroffer shipment. If accepted: K is created

3. Can an offer to form a sales K be accepted through

commencement, but not completion of performance?

a) 2-206(2): commencement of the performance specified in

the offer constitutes acceptance of the offer, provided that:

(1) Offeree/acceptornotifiesthe offeror


8/27

(2) Within a reasonable time that performance has

commenced

o Note: thenoticeis not the acceptance, rather the

acceptance and thus formation of the K stems from

commencing performance.D. Counteroffers-- Battle of the Forms2-207:

1. CL mirror image rule: offerees acceptance must conform to the

exact terms of the offer (there must be a mirror image) andanyvariance

therefrom constitutes a counteroffer (i.e., a rejection of the original offer)

2. UCC rule: attempts to resolve the mirror image problem by adopting

the idea that both parties are relying on the existence of a K despite their

clashing forms

3. battle of the forms problem arises from 2 sources: 1) business

practices: negotiating deals orally and then exchanging printed forms thatnobody reads until dispute arises,ordealing at arms length w/ non-

matching purchase orders/acknowledgments 2) complexities of 2-207

4.2-207(1): an acceptance adding new terms creates a K (operates

as an acceptance) based on the original offer,unlesstheacceptance

clearly states otherwise (aka acceptance is expressly made conditional on

assent to the additional/different terms)

a) If the responding offeree specifically limits the K to these new

terms, the response is treated merely as a counteroffer a no K has

been created until the offeror expressly accepts(1) Diamond Fruit Growers v. Krack Corp.:

5.2-207(2): new/additional terms are construed as mere proposed

additional to the K (i.e., theydo notbecome part of the K); new terms must

be separately accepted to modify the original offer. However, course of

performance might show that terms were impliedly accepted by original

offeror.

a) If BOTH parties qualify as merchants (2-104) the new terms

DO become part of the K, unless 1 of 3 exceptions occurs

[nonmerchants have to expressly agree to the terms?:

(1) Original offer objected in advance to the addition of

terms-- then the new terms are not part of the K; 2-207(2)

(a)


9/27

(2) The new terms wouldmateriallyalterthe original

termsthen the new terms are automatically stricken and

dont become part of the K; 2-207(2)(b)

(a) Official Comment 4: gives examples of terms

that are material alterations(b) *NOTE: if new terms material alter the K,only

the material alterations do not become a part of the K;

the other parts of the offerees formdoact as an

acceptance and create a K!

(c) Bayway Refining Co. v. Oxygenated Marketing

& Trading:

6. DIFFERENT TERMS???

7. if parties exchange documents and there is a disagreement about a

major term of the K, no contract results and either party may back out ofdeal if that party acts prior to the beginning of performance; if performance

has begin,2-207(3)regulates the problem by creating the terms of the K

a) if performance has begun, thereisa K consisting of all terms

on which their writings agree, plus the supplementary terms

supplied by the UCC wherever the parties are silent

b) Leonard Pevar Co. v. Evans Products

c) Klocek?

E.

I. GeneralA. Warranty: a contractual obligation by the seller to remedy certain possible

defects in K

B. UCC divides warranties into 2 types :

1. Warranties of title: a warranty that seller will convey good title and

that transfer is rightful

2. Warranties of quality: express and implied warranties regarding the

goods

II. Warranty of Title2-312

A. What is warranted by the Warranty of Title? It is an automatic warranty

that:

1. Seller will conveygood titleto the goods and that the transfer is

rightful(2-312(1)(a))


10/27

2. Seller warrants that the goods will be deliveredfree of any claimof

sellers creditors of which the buyer has no knowledgei.e., no security

interests or other liens ((2-312(1)(b))

3. If seller is amerchant: Merchant sellers warrant that goods shall be

delivered free of the rightful claims of any 3rd

person against claims basedon patent/trademark infringement or the like (2-312(3))

a) Exception: If buyer makes specifications to seller, thebuyer

automatically makes warranty to seller that protects seller from

infringement claims; this is theonlysituation under UCC where

buyer is the warrantor

B. P. 56 in supplement???????

C. Moore v. Pro Team Corvette:Moore purchased car that he later found out

was stolen. Pro Team said they sold car as is which excluded all warranties, inc.

warranty of title. Court says they need to be specific w/ warranty; as is doesntshow reference to quality and needs to specifically state what buyer will receive

III. Warranty of Quality

A. Express Warranties (Was there an express warranty made?)2-313

1. Arises when seller does something affirmative (oral or writtenfact or

promise) to create buyer expectations about characteristics/performance

of the goods

a) Seller does not have to specifically state that he/she is giving

a warranty in order for the express warranty to exist (2-313(2))

2. 2-313(1)(a): Statements must:a) Have substance/be a fact or promise; must be more than

mere puffing

(1) 2-313(2): an affirmation merely of the value of the

goods purporting to be merely the sellers

opinion/commendation of the goods doesnt create a

warranty

(2) Ex: This is a good engine is an opinion and not a

warranty, but this is a 102 horsepower engine is a fact and

therefore warranted

b) Relate to the goods

c) Become part of the basis of the bargain

(1) Most courts hold that statement goes to basis of the

bargain if its natural tendency is to induce buyer to purchase

(do not require buyer to prove any specific reliance


11/27

(2) Burden is on seller to prove that buyer did not rely on

statement in making decision to purchase (2-313

Comments 3 and 8)

(3) 2-209: if a statement of fact is madeafterthe sale is

closed and becomes part of the basis of the bargain, it canbe deemed amodification of the Kand will be effective.

UNREAD WARRANTIES??? P. 59

B. Implied Warranties: (Are any warranties implied by law?)

1. Are automatically part of K, irrespective of the sellers intentions

and despite the fact that seller has made no representations/promise

unless seller does something affirmative to get rid of them. Implied

warranties arise in every sale of goods, new or used.

2. Implied Warranty of Merchantability2-314

a) Who makes the warranty? 2-314(1)(1) 1st: sale must be by amerchant

(2) 2nd: merchant mustdeal in goods of that kindsold

b) Item must be saleable and conform to the normal

expectations of the parties

(1) Warrants that the goods are of merchantable quality

c)2-314(2): When is an item merchantable/ What is

merchantability? Goods must meet at least all 6 standards:

(1) Most important part of 2-314(2) is found in (2)(c): to

be merchantable the goods must be fit for the ordinarypurposes for which such goods are used; what is normally

expected of such goods aka that the goods will work

(2) Shaffer v. Victoria Station: Shaffer- glass of wine; it

shatters; VS: claim they dont sell the glasses; claimed goods

werent fit for their ordinary purpose

(a) there is both the tort claim and the sales claim

in this case (know for exam!)

(3) Daniell v. Ford Motor Co.:

3. Implied Warranty of Fitness for a Particular Purpose2-315

a) Goes beyond fit for ordinary purpose that is a part of the

implied warranty of merchantability; instead means that the goods

will do somethingdifferentfrom their ordinary purpose

b) Arises when:


12/27

(1)Any seller(merchant or nonmerchant) has reason to

know of the use of the goods contemplated by the buyer, and

(a) Actual knowledge by the seller isnotrequired;

this is an objective test (would reasonable person in

sellers position have known?)(2) Seller is aware that the buyer isrelyingon the sellers

judgment to select suitable goods

(a) Reliance is required here, but is not required

for implied warranty of merchantability

c) Seller either selects or furnishes the goods (seller usually

does both

d) Webster v. Blue Ship Tea Room: fish chowder

4. Does warranty liability extend to abnormal reactions?

a) Ex: Seller markets a hair styling product; buyer purchasessome and after using it buyers hair falls out. Evidence indicates

that buyers scalp is unusually sensitive to chemical contained in

the product. Is seller liable for breach of warranty of fitness for that

product?

(1) Majority: warranty isnot breachedunless buyer can

show that the reaction is common to an appreciable number

of users

(2) Minority: burden is on the seller to establish that

buyers injuries were abnormal and exotic (otherwisepresume buyers reaction is normal unless otherwise proven)

IV. Disclaiming Express Warranties (Have any warranties been effectively

disclaimed?)2-316(1)

A. Disclaiming express warranty is virtually impossible; proper way to avoid

liability for express warranty is to not make it in the first place!

B. Courts will construe disclaimers narrowly so as to preserve all express

warranties made by seller wherever reasonable

C. Can express warranties be disclaimed at all?

1. 2-316(1): disclaimer shall bedisregarded(inoperative) to the

extent that it isunreasonable

D. Bell Sports v. Yarusso:


13/27

E. Example Fact Pattern: express warranty was made orally and not included

in K itself and K contains broad disclaimer of any warranties not K therein. Before

buyer can prove that express warranty was made (and thus avoid the disclaimer),

buyer must figure a way around the parol evidence rule. Courts will let evidence

in under one of 3 ways:1. Unconscionability

2. Fraud

3. Lack of agreement to merger clause

V. Disclaiming Implied Warranties2-316(2) and 2-316(3)

A. Much more easily disclaimed than express warranties

B. There is less unfairness in disclaiming implied warranties as long as the

seller or circumstances alert the buyer to the disclaimer

C. Disclaiming language must be part of the offer and acceptance process to

be effective; cannot be made after unless there is modification by agreement???D. 4 WAYS TO DISCLAIM IMPLIED WARRANTIES:

1. By specific language

a) W. of Merchantability:

(1) Mustspecificallymention merchantability

(2) Can be oral or written, but if written it must be

conspicuous(2-316(2))

(a) Conspicuous: must be noticeable

b) W. of Fitness for PP:

(1) Must be inwriting, and writing must beconspicuous(a) Cannot be an oral disclaimer!

(2) The word fitness doesnt need to specifically be

mentioned

c) Layered contracts:

(1) Sellers may include limitations and disclaimers inside

a packaged object as long as the remote buyer who objects

to such new terms is given the opportunity to reject the K if

he wishes

(a) ProCD, Inc. v. Zeidenberg:

(b) Rinaldi v.Iomega:

2. As is or similar language


14/27

a) If goods are sold as is or with all faultsno implied

warrantiesarise. The language itself is sufficient to alert the buyer

that seller assumes no risk and all implied warranties are excluded

(2-316(3)(a))

b) As is language must beconspicuous(even though ruledoesnt say it!)

3. Buyers examination of the goods

a) No implied warranties as to anything buyershouldhave

found if:

(1) Buyer either examines the goodsor

(2) Seller demands that buyer examine and buyer does

not do so

b) So, implied warranties w/ respect topatent defectsmay be

waived by buyers inspection of goods prior to salec) Buyers inspection still does not affect the existence of

express warranties!

4. Custom or usage

a) 2-316(3): Implied warranties may be excluded or modified

by:

(1) Course of dealing/performance between the parties or

(2) Custom and usage in the trade generally

5. Cate v. Dover Corp:

6. Bowdoin v. Showell Growers:7. Rinaldi v. Iomega Corp.:

VI. Limitations on the Warranty2-316(4) and 2-719

A. Applies when seller wants to give warranty to buyer but wants in some way

to limit the scope of the liability that a breach creates; Code permits this but puts

restrictions on its use

B. Parties can specify what remedy shall be available in the even of breach of

the warranty and to make such remedy exclusive (2-719(1)(b))

1. So, a provision limiting sellers liability to repair or replacement of

defective parts,in lieuofall other warranties, express or implied is

generally effective as a disclaimer of any other fitness or merchantability

warranty

C. Effective of any warranty disclaimer is limited as to:

1. Judicial constructions: courts will construe disclaimers narrowly in

order to preserve an action for breach (2-719 Comment 1)


15/27

2. Consumer protection statutes: state and federal enacted statutes

3. Tort law: a disclaimer is effective only as to warranty (K) claim, and

doesnt bar an action for negligence or strict tort liability where a defective

product has caused personal injury or property damage

4. ***INC. STRICT PRODUCTS LIABILITYD. Wilson Trading Corp. v. David Ferguson Ltd.:

E. Pierce v.Catalina Yachts:

1. Read 2-719(2) and (3) asindependentof one another, so that an

essential failure of the remedy limitations purpose doesnt automatically

create claim for disclaimed consequential damages

VII. Defenses in Warranty Actions (Sellers Defenses)

A. First, in an action for breach of warranty the buyer must always show that

the breach was the proximate cause of the loss sustained (2-715(2)(a)(b))

B. Lack of Notice2-607(3)(a)and Official Comment 41. To recover, buyer mustpleadandprovethat seller was given notice

of breach within reasonable time after breach should have been

discovered. Buyer will lose all UCC rights if there is a failure to give seller

notice.

a) This requirement preserves sellers seller the right to inspect

the goods (2-515) and the right to cure (2-508) and to facilitate

early settlement of the dispute

2. No particular form of notice is requiredcan be written or oral

3. Notice doesnt need to contain any claim/threat of litigation. It isenough to inform seller that transaction is troublesome

a) Fitl v. Strek:

C. Lack of Privity

1. Buyer must establish that there was a legal connection (some

relationship showing parties had an agreement)

2. Vertical privity: how far back up the distribution chain the buyer can

go

3. Horizontal privity2-318: deals w/ identifying to whom the retail

seller is liable other than the immediate purchaser [Who, other than the

buyer, can sue the seller for breach of warranty?]

a) Under 2-318, there are 3 alternatives:


16/27

(1)Alternative A: Sellers warrantyexpress or implied

extended not only to the actual buyer, but also to any natural

person who was a member of his household/family, or a

guest in his home wherever it was reasonable to expect that

the other persons might use or come into contact w/ thegoods, and who in fact sustained personal injuries by breach

of such warranty

(2)Alternative B:Extends sellers warranty liability to any

natural person who may reasonably be expected to use,

consume, or be affected by the goods (i.e., the innocent

bystander injured by defective car), but only for personal

injury

(3)Alternative C: extends warranty liability forproperty

damage as well; also, is not limited to the protection ofnatural persons

4. Reed v. City of Chicago:

5. East River Steamship Corp.v. Transamerica Delaval:

a) STRICT PRODUCTS LIABILITY

VIII. UCC Warranties and the Magnuson-Moss Act (p.1129 and 1139 in supplement)

A. Applies to all consumer products manufactured after 7/4/75 that are

covered by awrittenwarranty

B. FTC creates regulations under the Act

C. Purpose: created to improve adequacy of info available to consumers,prevent deception, and improve competition in the marketing of consumer

products

D. When we refer to this act, it will be referred to as definitions as written in

2301; will refer to 101, 102 etc

E. MMprohibitsa disclaimer for any implied warranty

F.101: for MM to apply, warranty must fall within its scope

1. Ventura v. Ford v. Motor Corp.:

IX. Warranties in International Sales: CISG

A. Article 41 and 42?

B. Warranty provisions of CISG for international sale of goods are very

similar to UCC

C. Major difference is the terminology

D. Express warranties: Article 35(1) and 35(2)(c); fitness for a particular

purpose: 35(2)(b) and 35(2)(d)


17/27

E.

I. Filling in the Gaps2-305 to 2-311

A. If parties leave major term out of contract, courts are more willing to save

the K by implying reasonable terms where possible by gap-filling; in the past, if

major term was left out, courts found no legally enforceable agreement1. (*****use course of dealing, performance, etc. firstthen courts will

do this??)

a) Landrum v. Davenport: purchase of Corvette, price left out of

K

II. Unconscionability2-302

A. Code provision tries to prevent adhesion Ks, which involved one party

being in the stronger position and other party is in unfair position

B. 2 types of unconscionability;bothare required before a court will make a

finding of unconscionability:1. Procedural unconscionability: unfair conduct in the formation of K

2. Substantive unconscionability: unfairness in the terms of the

resulting bargain

C. Unconscionability decided by judge b/c it is question of law, not fact SEE

CLASS NOTES OCT 26

III. Identification of the Goods2-501

A. Identifying goods important when it comes to applying risk of loss,

casualty to goods, damages, etc,

1. 2-401(1): Before title to goods can pass, goods must be identifiedB. 2-509: Goods must be identified as the specific goods to which the

contract refers; requires that the goods are the subject matter of the K have

somehow been singled out from others in the world

C. Official Comment 2: general policy favoring early identification

D. Methods of Identifying Goods:

1. Identified by making of K 2-501(1)(a)

a) Requires that the goods bein existence, and

b) Must be clear what chattels the parties mean

2. Identified by subsequent action 2-501(1)(b)

E. 2-501(2): Even though goods have been identified to the K, seller may

thereafter substitute other goods for those identified unless/until 1 of 3 events

occurs:

1. Seller defaults on K

2. Seller becomes insolvent


18/27

3. Seller notifies buyer that identification is final

IV. Risk of Loss: No Breach2-509

A. General Rules

1. Once goods are identified, title passes from seller to buyer at

whatever time partiesintendthat it should pass. Intent can be determinedfrom provisions of sales K or parties conduct (2-401(2))

2. Determining whether title has passed:

a) 1st: ask Have the goods been identified?

(1) title cant pass unless goods have been identified to K

b) 2nd: ask When did the parties intend for title to pass?

(1) if the parties didnt provide for passage of title, UCC

presumes title passed when seller has completed

performance (2-401(2))

3. Rules as to who bears ROL have nothing to do w/ who hastechnical title 2-401(1)

4. Where should good be shipped (if they are to be shipped)?

a) Shipment contract: K authorizes seller to ship goods to

buyer; delivery occurs and title passes when seller turns the goods

overto a carrier(2-401(2)(a))

b) Destination contract: K requires delivery at a destination; title

passes only when goods are tendersat that destination(2-401(2)

(b))

5. General Code rule on transfer of ROL:a) Where the seller is amerchant, the ROL passed to the buyer

on the buyers actualreceiptof the goods; and

b) Where the seller isnota merchant, ROL passes to buyer

when seller tenders delivery (2-509(3))

6. 2-509(3) applies only when 2-509(1) or 2-509(2) doesnt

7. 2-509(2): sets out rules as to when ROL passes to buyer when

bailee is involved

8. 2-509(1): applies to transportation contracts when seller is

required to shop goods by independent carrier to buyer; test as to when

ROL passes depends on whether K requires seller to deliver good at a

particular destination (see Delivery Terms)

V. Delivery Terms:

A. Shipment contract: seller only has to get goods to the carrier and then

buyer will take the ROL


19/27

1. 2-503(3) Official Comment 5: presumption made by Art. 2 is in

favor of a shipment contract where K is silent on ROL

2. 2-504: Sellers Duties under shipment K:

a) Seller must make a reasonable K w/ carrier on behalf of

buyerb) Seller must giveprompt notification to the buyerof shipment

in all cases

c) Seller must also provide buyer w/ any documents buyer will

need to take possession of the goods

B. Destination contract: goods must be delivered by the carrier before ROL

passes from seller to buyer

1. 2-503: Sellers Duties under destination K:

a) Seller must tender conforming goods to buyerat the

particular destinationagreed upon andb) Give buyer reasonablenoticeto enable buyer to take the

delivery

C. Delivery Terms: developed by merchants as shorthand methods of stating

whether sale calls for shipment or destination contract2-319 through 2-324;

these terms define the passage of ROL and also the price terms that inform

buyer that price quoted includes freight paid to the point indicated

1. C.I.F. and C.&F: shipment contracts2-320

a) C.I.F. cost, insurance, and freight

(1) Means price stated to be paid by buyer includes thecostof the goods, the appropriateinsuranceof safe delivery

for the shipment, and thefreightcharge to destination

b) C&F: cost and freight

(1) Same as C.I.F. but doesnt include insurance

c) 2-320(2): buyer bears risk of transit damage

2. F.A.S. (free alongside):2-319(2). Generally used in maritime

shipping K

a) Seller must deliver goods free of expense to the buyer

alongside (on the dock next to) the vessel on which they are to be

loaded and is to obtain a receipt therefore, in exchange for which

the carrier is obligation to issue a bill of loading

b) Buyer then bears the expense and risk of loading onto the

vessel

3. Ex-ship:2-322


20/27

a) Seller can give it to any ship as long as its unloaded

b) Seller is to bearfull risk and expenseuntil goods leave the

ships tackle (i.e., unloaded)

c) Seller is required to discharge all liens arising out of the

carriage and furnish the buyer w/ such documents as are requiredto enable buyer to take possession of goods

4. F.O.B.: free on board can be either a shipment or destination

contract2-319(1); always followed by a named place. ROL passesat the

named place. If named place is sellers warehouse, then its a shipment K;

if its buyers store, then its a destination K

a) F.O.B. point of shipment: 2-319(1)(a)

(1) Seller only required to bear ROL and expense of

putting goods into possession of the carrier

(2) Sellerdoes notbear expense or risk of loading(3) Ex: F.O.B. sellers factory

b) F.O.B. vehicle of transportation: 2-319(1)(c)

(1) Seller required to bear expense and ROL of having

goods loaded on board

(2) Ex: F.O.B. Car 4029, Union R.R. Depot, Los Angeles

c) F.O.B. point of destination: 2-319(1)(b)

(1) Seller must arrange to transport the goods to the point

of destination at the sellers own expense and risk

(2) Ex: F.O.B. buyers showroom5. Cook Specialty Co. v. Schrlock:

6. Rheinberg-Kellerei GmbH v. Vineyard Wine Co.:

I. In General

A.2-301: sellers basic obligation is to transfer and deliver (tender goods)

1. Sellers tender: 2-503 and 2-504

a) What constitutes tender of delivery?

(1) By manual transfer of possession

(2) By constructive tender

(3) Goods in possession of bailee

b) Tender= offer; seller only needs to make offer to delivery the

goods, and doesnt require actual delivery

2. Conforming: 2-106(2)

3. Acceptable means of payment by buyer: 2-511(2) and 2-511(3)


21/27

B. 2-301: Buyers basic obligation is to pay in accordance w/ K

1. What constitutes acceptance? P. 111

II. Installment Contracts2-612(1)

A. Installment K: any K that requires or authorizes the delivery of goods in

separate lots to be separately acceptedB. 2-612(2): Seller is entitled to payment even where the tender of the

goods fails to conform exactly to Kas long asit substantially conforms;

technically perfect performance of K not required, just needs to be substantial

C. 2-612(3): Only if 1 or more installments substantially impairs the value of

the whole K is there a breach of the entire K by the seller

D. Cherwell-Ralli, Inc. v. Rytman Grain Co.:

1. 2-609-assurance****

2. 2-609: party can demand adequate assurance that performance

will be forthcoming when due, if there are reasonable grounds forinsecurity with respect to the other partys performance

3. Adequate assurance:

a) Must be demanded in writing

b) Upon receipt of written demand, recipient must furnish

adequate assurances of due performance within a reasonable time

not exceeding 30 days

c) Until assurance is received, aggrieved party is entitled to

suspend any performance for which that party hasnt already

received the agreed return performance(1) At the end of reasonable time period, failure to

supply assurance is arepudiationof the K

d) If deal is between merchants, reasonableness of grounds for

insecurity and adequacy of any assurance offered are to be

determined in accordance w/commercial standards

E. In theory, substantial performance rule has never applied to single-delivery

contracts between merchants

III. Perfect Tender Rule2-601: Constitutes Sufficient Tender

A. To prevail in a single-delivery sale, seller must: make a perfect tender that

complies w/ all the terms of the K and then show that buyer refused to take the

goods (higher standard than installment K)

1. Policy: higher standard b/c buyer doesnt have same bargaining

position as a buyer in an installment K (where the seller needs to keep

dealing w/ buyer on repeated occasions)


22/27

B. 2-601: of goods or the tender of delivery fail in any respect to conform to

the K, the buyer may reject the whole, accept the whole, or accept part and reject

part

1. Commercial unit definition: 2-105(6)

IV. Cure2-508A. If seller hasnt made perfect tender and buyer has rejected goods, seller

sometimes has the right to cure the defective performance

B. If sellers original tender of delivery is rejected b/c it is nonconforming and

the time for performance has not yet expired, seller may prompty notify buyer of

an intention to cure and then within K time for performance, seller may tender a

conforming delivery

1. Notice requiredbuyer must be notified of sellers intention to cure

a) Notice must be given seasonably, which means a

reasonable time unless otherwise agreed uponb) Doesnt need to be in any particular form, but should state

approximate date by which substitution will be accomplished

2. SURPRISE REJECTIONS???????

3. PERFORMANCE BY BUYER???

C. Wilson v. Scampoli:

V. Performance by Buyer

A. Buyers first duty is to furnish facilities reasonably suited for receipt of the

goods 2-503(1)(b)

B. Buyer has right to inspect the goods before payment or acceptance 2-513(1)

1. Inspection must be made within reasonable time after receipt of

goods, or right is lost

2. Buyer is permitted to make inspection at any reasonable place

VI. Rejection and Acceptance

A. Buyers basic duty is to accept and pay for the goods 2-301

B. When seller makes a tender of the goods, buyer has 2 options:

1. Rejection2-601

a) Must reject within reasonable period of time after delivery

b) Failure to act within reasonable time results intechnical

acceptance

c) Note: buyer is entitled to a reasonabletrial useperiod to see

if goods conform (reasonable opportunity to inspect 2-513)

2. Acceptance2-606(definition) and2-607(legal consequences)


23/27

a) On acceptance, burden of proof as to defects shifts to buyer

2-607(4)

b) Prior to acceptance, seller must prove that perfect tender

was made under 2-601

(1) Ramirez v. Autosport:(2) Plateq Corp.of North Haven v. Machlett Laboratories,

Inc.:

VII. Revocation of Acceptance2-608

A. Opportunity for rejection has already passed and buyer has made

technical acceptance; buyer can make revocation of acceptance by rescinding K

and trying to get payment back if buyer then discovers something wrong w/

goods

B. ****After making technical acceptance buyer may still bring a breach of

warranty action as long as proper notice (2-609(3)(a)) has been given1. If buyer wins, damages based on 2-714 and 2-715 will be

awarded and buyer can keep goods

2. If buyer doesnt want goods, and instead wants return of the price,

he can revoke acceptance (essentially disclaiming the goods)

C. Revocation of acceptance: calledrescissionat CL but differs from

rescission b/c buyer not onlyrecovers the pricebut may recoverconsequential

damagesas well

D. Standards for revoking acceptance are more difficult to meet than

standards for rejection1. Rejection: buyer can reject if goods fail in any respect

2. Revocation of acceptance: buyer must show that defect

substantially impairs the value of the goods

a) Waddell v. L.V.R.V. Inc.: 2 part test of prove substantial

impairment:

(1) Objective element: whether the nonconformity in fact

substantially impair value of goods to buyer, considering his

particular needs

(2) Subjective element: considers the needs and

circumstances of the personal seeking to revoke, not those

of the average buyer

E. 2-608(2): buyer must give notice to seller of revocation of acceptance

within a reasonable time after buyer should have discovered defect


24/27

F. After revoking acceptance, buyer must stop using the goods, take

reasonable care of them, may claim a possessory security interest in them for

expenses, etc.

VIII. Risk of Loss: Breach2-510

A. ROL where breach has occurred: 2-510; ROL where neither party hasbreached K: 2-509

1. 2-510 deals w/ if the seller or buyer was indefaultat time of

accidental damage or destruction of goods

B. Sellers shipment of nonconforming goods:

1. If good shipped by seller so fail to conform to K as to give buyer the

right to reject them, ROL remains on seller until cure or acceptance

a) Where buyer discovers defects in the goods only after

accepting them and defect is so substantial that it justifies buyers

revocation of acceptanceROL will be treated as having been onthe seller from the beginning (2-510(2))

C. Buyers repudiation

1. Where seller has shipped conforming goods but buyer has

wrongfully repudiated and goods are damages and not covered by sellers

insurance, seller may treat ROL as resting on buyer for a commercially

reasonable time 2-510(3)

a) Only apply where seller is uninsured and has other acted in

a commercially reasonable manner!!

D.Jakowski v. Carole Chevrolet, Inc.:IX. Impossibility of Performance2-613 to 2-616

A. 4 UCC provisions designed to straighten out the legal problems created by

unexpected events that make performance of the contract impossible, aka

commercially impracticable

1. Arabian Score v. Lasma Arabian Ltd.:

2. Louisiana Power & Light Co.v. Allegheny Ludlum Industries, Inc.:

3.

I. Special Remedies: General

A. Remedies can be divided into 2 parts:

1. Sellers remedies when buyer is in breach2-703 to 2-710

2. Buyers Remedies when seller is in breach2-711 to 2-717

II. Special Remedies: Remedies on Insolvency


25/27

A. Reclamation2-502and2-702: when one party becomes insolvent while

in possession of goods that have been identified to the K, the other party may

elect to forgo damages and try to get the goods themselves

B. An unpaid seller has right to reclaim goods in 2 situations. In either

situation, seller may reclaim goods by demanding their return within 10 days afterbuyer receives them:

1. Cash sales 2-507(2): buyer pays by check at time of delivery, but

check is returned for insufficient funds

2. Credit sales 2-703(2): after delivery of goods to buyer, seller

discovers that buyer is insolvent

III. Special Remedies: Liquidated Damages2-718(1)

A. CL: if parties put liquidated damages clause in K, it was upheld by court

only if:

1. Parties truly intended the amount named to becompensatory, and2. Had made ingood faithandattempt to pre-estimate the damages

3. **If court decide parties intend amount to be penalty amount to be

forfeited in event of breach, court struck the clause and made aggrieved

party prove actual damages

B. UCC provision: similar to the CL rule except it provides that the validity of

the liquidated damages clause be tested, in part, against theactualharm caused

by the breach (amount has to correlate to actual loss; have to reasonably

estimate what your losses will be when K)

C. Art. 2A: liquidated damages provision for leasing of goods no longer refersto actual damages; now allows a formula to be used to compute damages, and

drops all reference to the effect of an unreasonably large liquidated damages

clause

IV. Special Remedies: The Breaching Buyers Restitution???

A. Problem 68:

V. Sellers Remedies2-703

A. Accepted GoodsSellers recovery of damages is measured by2-709if:

1. Buyer has made a technical acceptance of the goods, or

2. The goods are destroyed within a commercially reasonable period

of time after ROL shifts to buyer

B. Unaccepted Goods

1. If buyer repudiates [where seller has shipped conforming goods but

backs out of it wrongfully]before delivery of goods, or rejects the goods:


26/27

a) Seller can resell the goods to someone else and then2-706

applies, or

b) If seller does not resell the goods, damages are measured

under2-708

c) Teradyne v. Teledyne:VI. Buyers Remedies2-711

A. Accepted Goods:

1. Buyer can sue for breach of warranty or other breach of K when/if:

a) If buyer has made a technical acceptance of goods (2-606)

and it is not later revoked,

b) Buyer has given notice of defect to seller

c) Notice was given within a reasonable time after defect

should have been discovered (2-607(3)(a))

2. Damages are then measured by2-714and2-715B. Unaccepted Goods

1. Under2-711, buyer may recover price of goods and other

damages if:

a) Seller never delivers the goods, or

b) Where the buyer rejects or revokes acceptance

2. Other damages:

a) Generally include incidental and consequential damages

under 2-715, or

b) Buyer can seek specific performance or replevin (action to

recover the goods) under 2-716. 2-716 allows specific

performance not only when goods are unique but also in other

proper circumstances 2-716(3)

3.2-712authorizes the buyer tocover, aka purchase substitute

goods.

a) If buyer covers properly, damages are measured by

comparing theoriginal contract priceto thecost of the cover

b) If buyer fails to cover in an appropriate situation,

consequential damages that could have been avoided are denied

(2-715(2)(a)).

c) If buyer does not cover, damages may be measure under 2-

713

(1) Tongish v. Thomas:

VII. CISG Damage Provisions


27/27

A. Apply to international sale of goods

B. Articles 74-78

Sales Outline Aw

Documents