KTM

Advanced Sales Outline

3 main goals for Article 2

A. Provide answers for common reoccurring problems

B. Uniformity

C. Raise American business ethics.

Scope of Article 2 ( what does it apply to and repercussions of it being applied )

a. We are still talking about agreements like common law. First of all we have to look to
what the contract actually says and apply its facts to Article 2.

b. The rule narrowing in this class is done with the code not case law

c. In doing our analysis we want to look at the actual contract, the code, cases
interpreting the code, and finally common law.

d. American code law differs than foreign code law like the CISG. The American code
system reads statutes narrowly and does not like to broaden the scope so we have
holes in the code due to the narrowness of our interpretation The holes are filled in
by court interpretation and common law

Fundamental aspects of sales

a. The code is only one part of the sales system

b. Sales system is bigger than article 2

c. 3 reasons why the sales system is bigger than article 2

a. Business culture: People act in certain ways to gain more business and have a
strategy when conducting business, but in the back of their minds is the law.
The law is the business cultures dispute resolution. We are their last resort and
we try to make decisions to maintain relationships among business people

b. Legal environment creates a back drop to how people conduct business. We

can alter the environment. As a lawyer I need to be aware of other options.
Litigation is not always the best option.

c.
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Gap filler Provision

a. The role of the common law in Article 2 has 3 of them

a. Definitional: There are lots of places the code does not supply definitions.
Like bargain and consideration

b. Common law serves a positive function: If Article 2 does not address

something common law will address it

c. Common law serves a complimentary function: Common law fills out things
and makes it broader than the code

There is truly not a uniform code. Many states enact pieces of a code and court
interpretation.

8/20/2018 Class notes:

- mostly merchant to merchant interactions covered in class

- Review of form 10-K

- Review of management’s discussion and analysis of financial condition and results of

operation

๏ Question: to contract or not to contract?

a. Economic basis for contract vs non-contractual agreement between

companies

b. In a “thick market” where supply and demand both are high, there is not
as much of a need for companies to protect themselves with Ks -
example: iphone

c. However, in a market that is not as “thick” as the market for iPhones,

companies may want reassurance and to be able to lock in prices and
business from a specific company - reassurance is created in Ks

Explanations for incomplete Ks

a. Transaction costs of writing complete Ks too high

1. Cost and time to negotiate

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2. Possibility of mistake

3. Cant think of everything to include

b. Private or hidden info exists

Question assigned 1.1:

Country coming out of communism into free market - in regard to UCC, it is helpful to fill
in gaps in sales but it does not provide definitions and is not complete as an independent
commercial code

- you would want to inform the country of the course of dealings’ role in the formation of
default usage of UCC

- *** exam question - study

Intro to UCC article 2

- History

a. Law merchant

b. National conference of commissioners on Uniform laws NCCUSL now Uniform Law

Commission - ULC - purpose of this commission was to pitch their ideas back to states
to adopt

Arguments against their code: not in the best interest of all businesses that would be
impacted by federal code and mandates

In 1940s they revised the Sales Act and attempted to implement Llewlellen’s vision-gap
fillers, that reduce expected contracting costs, by mimicking the arrangement most
commercial parties would have made for themselves

1951 - adoption of UCC began by states

-Values embodied in UCC

Simplify, clarify and modernize

Permit expansion of commerce

Make law uniform

UCC’s commitment to freedom of contract often called “private ordering “

- Intro to the convention on Ks for the international sale of goods

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- 1988 - approx. 89 nations approved/accepted convention

- UK is not in convention

-CISG - article 1

1. This convention applies to Ks of sale of goods between parties whose places of business
are in diff countries

a. When the countries are contracting countries

b.

- Scope of CISG

1. International - K must be between parties whose places of business are in DIFF

countries - not CISG if both are in same country

2. Contract for sale - signature features are comparable to domestic contracts for sale -
consist of the transfer of ownership of goods for the price of the good

3. Sale of goods - excludes goods bought for personal, family, or household use because
these are Ks with individual consumers - this is excluded because no country wants to
sign on to a treaty that would force it to bid against its own citizens’ interests by
appearing not to protect their consumers in their country - tangible and moveable -
traits of goods which are applicable to CISG scope

4. Have a sufficient relationship with a contracting country

- CISG article 1
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- (1) This Convention applies to contracts of sale of goods between parties whose
places of business are in different States:

- (a) when the States are Contracting States; or

- (b) when the rules of private international law lead to the application of the law of a
Contracting State.

- EX: seller place of business - usa vs buy place of business - Germany = both
contracting countries so article 1a applies

- Ex 2: seller usa buyer uk - uk is not contracting country - CISG applies per Art.
1(1)(b) if P-I-L requires application of usa law (or law of another Contracting
State).

CISG article 95

Any state may declare at the time of the deposit of its instrument of ratification,
acceptance, approval or accession that it will not be bound by subparagraph 1b of article 1
of this convention

- CISG article 6

Parties may exclude the application of this convention or - subject to article 12 , derogate
from or vary the effect of any of its provisions

- CSIG article 2

This convention does not apply to sales:

A. Of goods bought for personal, family, or household use, unless the seller, at any
time before or at the conclusion of the K, neither knew nor ought to have known that the
goods were bought for any such use

- CISG article 5

This convention does not apply to the liability of the seller for the death or personal injury
caused by the goods to any person - this is for political purpose - not popular to use
international law for personal matters - especially when the personal matter involves injury
or death

CISG article 4b
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This convention governs only the formation of the contract of sale and the rights and
obligations of the seller and the buyer arising from such a contract. In particular, except as
otherwise expressly provided in this Convention, it is not concerned with . . . the effect
which the contract may have on the property in the goods sold.

- Phelps v mcquade :

Walter gwynne pretends to be Baldwin gwynne fraudulently used Baldwin gwynee’s credit

Dennis had No knowledge that Walter did not own the ring and obtained fraudulently -
Dennis mcquade bought the ring from Walter who fraudulently took ring - so when phelps
jewelry store discovered fraud, they went after Dennis, despite his lack of knowledge of fraud
when purchasing ring from Walter

- Jewelry store was in best position to prevent the loss in the first place - did not detect
initial instance of fraud

Place of business usa and factory in Mexico and buyer in usa - probably would not use
CISG because if buyer has no reason to know the factory was in Mexico then it probably
will not use CISG and also if good is for personal use then not apply - if seller knew of
personal use then even more reason not to apply CISG but CISG does not tell us if seller
did not know whether it matters on application

8/27/18

A. Velero company place of business is usa - buyer

B. Greeni place of business is Finland - seller

C. Finland to ship product to NY by certain date and velero announces this deal will be
subject to NY law and Greeni does not object

a. Hurricane occurs

b. 9/11 attacks occur

- CISG article 6 - parties may exclude application of this convention or subject to article 12
derogate from or cary the effect of any of its provisions

- however - because the K said NY law applies, the issue is whether the CISG
should apply or NY apply

- because the CISG provision says it must be explicitly/expressly stated that a

different law applies and ALSO expressly stated that CISG does not apply - the court holds
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that Greeni is not subject to NY law and CISG applies because they did not expressly state
that CISG does not apply even though they did agree the K was under NY law

- Fed law trumps NY state law and because CISG is a treaty, it is = to fed law - therefore, a
treaty to US is NY law

- This is the reason that the court upholds the requirement for both countries to expressly
state CISG will not apply - because if you want it excluded and solely use NY law then
you must expressly state this in the K

- Why is Velero wrong in arguing article 1b? - because they are both contracting
countries so only 1a would apply

- American court sides with Finland in this case

- American biophysics place of business usa seller

- Dubois marine place of business Canada buyer

- Both Canada and usa are contracting countries contract say rhode island law governs

- Article 6 - court finds the parties did expressly agree to rhode island law to govern but didn’t
really expressly state CISG doesn’t apply but court does not hold in same way as it did in Finland
case - Velero decision is probably correct

- these two court decisions contradict one another

- The importance of the contract’s express language is important - because the two
decisions are inconsistent, there is room to argue your position

- TOPIC B

- Scope of article 2

- Whether UCC article 2 will actually apply to given parties under a given situation - what is
covered under these provisions

- K where k itself specifies what term is

- K covers only services - goods and services

- Where another body of law may control

- 1. A K where the K itself specifies what a term is also contains:

- a. Course of performance

- b. Course of dealing
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- c. Usage of trade

The gap fillers ought to reflect to the extent possible what the parties would have done if they had taken
the time/done without error

- how these two parties have interacted in the past and or how other similar parties have
interacted under the K’ing question in this field

- problem 1.2 a - lumber works place of delivery is not specified

- first three deliveries go to buyers place of business

(Unless otherwise agreed:)

- the place for delivery of goods is the seller’s place of business or if he has none his
residence; but

- in a K for sale of identified goods which to the knowledge of the parties at the time of
K’ing are in some other place that place is the place for their delivery and

- documents of title may be delivered through customary banking channels

- course of performance would suggest that they already had established a place where goods would be
delivered but the “unless otherwise agreed” language states that the agreement does not need to be
expressly stated but instead, an agreement can be based on the course of performance which is the
act of consistently delivering it to the same place 3 times prior to this - this trumps the gap filler -
repeated actions of performance - amounts to a course of dealing

- If there is no course of dealing, then delivery would have gone to seller’s place of business

- Express terms of parties’ agreement controls

- course of performance which controls

- course of dealing which controls

- usage of trade

- construe whenever reasonable as consistent with one another -

- Ragus co. v City of Chicago

- “24 to a case”

- In this industry this means 24 pairs to a case

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- Order 150 cases - 24 per case - the city refuses to accept delivery

- Ragus argues they upheld their side of K so they should be compensated

- Chicago argues they can reject because they did not conform to usage of trade - under UCC 1
303c

- [T]he express terms of an agreement and an applicable course of dealing, course of

performance, or usage of trade shall be construed wherever reasonable as consistent with each
other.

- If such a construction is unreasonable:

- (a) express terms prevail over course of dealing and course of performance;

- (b) course of performance prevails over course of dealing and usage of trade; and

- (c) course of dealing prevails over usage of trade.

Scope of article 2 includes not only express terms of a K and gap fillers but also a,b, and c

- where the K covers only services - both goods and services

- Insul mark midwest v modern materials

- Kor it sued modern materials for breach of warranty when their product did not work -
nothing about this in the K - apply a rust prevention product

- Plaintiff Kor it argues it should be able to recover because reasonable expectation

for product to work

- implied warranty - fitness for particular purpose

Where the seller at the time of contracting has reason to know any particular purpose for which the
goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish
suitable goods, there is, unless excluded or modified under IC 26-1-2-316, an implied warranty that the
goods shall be fit for such purpose.

modern materials argues that the implied warranty should not apply because the UCC does not
apply to services - only applies to sale of goods - therefore it is governed by common law rather than
UCC - in common law Ks, you must expressly state if there is a warranty, which was not done in this K

- modern materials does not want to be governed by UCC because then they are subject to the
implied warranty, which would make them liable for damages

Court holds that an agreement for sale of services is not UCC but then says many modern day Ks for
services are a blend of both goods and services - the coating material plus the service of application
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Precedent case vary in outcome - predominant thrust test applicability of UCC is determined by
analyzing whether the service is the primary part of the K or if the good is the primary part of the K and
the bifurcation approach separates the service and the goods - IN court applies predominant thrust test

Factors determining predominant thrust of transaction:

-Language of k

-Circumstances of the parties and the primary reason they entered into the K

-The costs involved for the goods and services whether the purchaser was charged only for a
good or a price based on both goods and services

Court holds that UCC should not apply

- TOPIC C

- Problem 1.3

- Transferring old film to dvds - q of service v good

- UCC would not apply if it was a service and implied warranty is only in UCC

- Scope - unless the context otherwise requires, this article applies to transactions
in goods

- IC - SELLER is the party who creates warranties no just ppl who engage in
transactions

- Transaction in services not transaction in sale of goods

Where another body of law may control:

a. Real property - one way to look at real prop K is to use predominant thrust test

Problem 2.6 a - IC goods to be severed from realty

26 1 2 107 - A k for the sale of minerals or the like or a structure or its materials to be removed from
realty is a k for the sale of goods within ic 26 1 2 if they are to be severed by the seller but until
severance of a purported present sale thereof which is not effective as a transfer of an interest in land is
effective only as a K to sell

2-land of growing crops or other things attached to realty

8/29/18
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UCC article 2 - sale of goods

UCC article 2a - leasing of goods

Example q: summer social - beer kegs rented and beer bought - one explodes and injures someone - is
this the sale of beer or a K for the leasing of kegs - if lease then UCC 2a and if considered beer purchase
then UCC 2 - USE PREDOMINANT THRUST TEST

- Real prop continued :

- Touseley biller construction co v Colgate enterprises

- Touseley was supposed to dig any remove clay for colgate - did not fulfill obligation and Colgate sues

- ISSUE[1] Did the trial court commit reversible error in instructing the jury under the provisions of the
UCC?

- PARTIES' CONTENTIONS According to Tousley-Bixler, the sale of clay soil is not a sale of goods within
the meaning of Ind. Code subsection 26-1-2-107(1) or XX-X-X-XXX(2) [hereinafter cited by UCC
numbers only], because the clay soil is to be removed by the buyer, not the seller, and because such
soil is part of the realty.

- Colgate counters that the UCC is a codification of the common law, so no error or prejudice could
result from the giving of instructions under both the common law and the UCC. In any event, the UCC
is applicable.

- CONCLUSION Giving instructions under the UCC was reversible error.

- IC 26-1-2-105

- Definition of goods - goods means all things including specially manufactured goods which are
movable at the time of ID to the k for sale other than the money in which the price is to be paid
investment securities (IC 26-1-8.1), and things in action. "Goods" also includes the unborn young of
animals and growing crops and other identified things attached to realty as described in the section on
goods to be severed from realty (IC 26-1-2-107).

- IC 26 1 2 107 goods to be severed from realty…. Above “if they are to be severed by the SELLER”

- The distinction here is the buyer was going to be the party who was doing the severing not the seller
as the statute requires - touseley’s argument

- Colgate’s argument: remind judge trial court ruled with side -

- IC 26 1 2 107 (2)

(2) A contract for the sale apart from the land of growing crops or other things attached to realty and
capable of severance without material harm thereto but not described in subsection (1) or of timber to
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be cut is a contract for the sale of goods within IC 26-1-2 whether the subject matter is to be severed by
the buyer or by the seller even though it forms part of the realty at the time of contracting, and the
parties can by identification effect a present sale before severance.

Court of appeals holds this is a subsection 1 not subsection 2 - real estate law not within scope of UCC

- if buyer is severing - more resemble lease

- If seller is severing - more resemblance to real estate sale

2009 - Shell sues power company for violation of K in 2001 - K for sale of coal - plaintiff is shell
equipment severed but shell equipment was the seller so the severance was not by the seller - statute of
limitations under common law is ten yrs and sol under UCC is 4 years so court agrees with power
companies and says it is a k for sale of goods because severing party or party responsible for the
severing was seller

Tort law

1.4 dr keller contact lenses - if not sale of goods then it would fall under tort law and have to prove
negligence instead of violation of K

9/10/18

Seller takes three boxes of 2,000 units each to flea market

Where the buyer wrongfully rejects the

Seller’s resale, including contract for resale IC 26 1 2 706

Under the conditions stated in 703 on seller’s remedies

Notes in notebook

9/12

- Ic 26 1 2 715-2: Buyers incidental and consequential damages

- Consequential damages resulting from the sellers breach include any loss resulting from gen or
particular requirements and needs of which the seller at the time of contracting had reason to
know and which could not reasonably be prevented by cover or otherwise and b- injury to the
person ——

- When buyer wrongfully

- Rejects or revokes or
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- fails to pay or

- Repudiates

- There are certain remedies for each prob - mapped out in 2-709 - price/ 2-708-recover damages
for nonacceptance etc

TOPIC E

- lessor’s and seller’s remedies with leases and international sales

IC 26 1 2.1 523

Lessor’s remedies § 2a -253

Gen rule of 1-305a put the aggrieved party may be —-

- problem 23.1 used Cadillacs

- OG lease - 3 years 400 mo 10 months paid 10 mo car wash

- Replacement lease - leases to another -

2.1-527

- except as otherwise provided with respect to damages liquidated in the lease agreement - 504- or
otherwise determined pursuant to agreement of the parties IC 26-1-1-102(3) and 2.1-503 if the
disposition is by lease agreement substantially similar to the original lease agreement and the new
lease agreement is made in good faith and in a commercially reasonable manner the lessor may
recover from the lessee as damages I accrued and unpaid rent as of the date of the commencement of
the term of the new lease agreement

- Official comment 7 to UCC 2a-527

- 7. A new lease can be substantially similar to the orig lease even its term extends beyond the
remaining term of the orig lease so long as both a the lease terms are commercially comparable eg -

- time value of money

- Money is worth less in the future than it is today

- Future value - measuring the value of a sum of money in your possession today at a time in the
future

- This value is determined by the interest rate at a certain point in time

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- 1000 after 2 years at 5% interest = 1102.50

- But $1000 at 5% = $50

- And $50 x $2———

- Exponent on comparing future dollars to current dollars is the number of years

- The discount rate is the second number in denominator which is added to the first number -
surrounded by parenthesis and exponent outside of parenthesis

‣ Problem 23.2

➡Ind. Code § 26-1-2.1-527(1): lessor’s rights to dispose of goods

1)After a default by a lessee under the lease contract of the type described in IC 26-1-
2.1-523(1) or IC 26-1-2.1-523(3)(a) or after the lessor refuses to deliver or takes
possession of goods (IC 26-1-2.1-525 or IC 26-1-2.1-526), or, if agreed, after other
default by the lessee, the lessor may dispose of the goods concerned or the undelivered
balance thereof by lease, sale, or otherwise (3)

IC § 26-1-2.1-527(3): lessor’s rights to dispose of goods:

If the lessor's disposition is by lease agreement that for any reason does not
qualify for treatment under subsection (2), or is by sale or otherwise, the lessor may
recover from the lessee as if the lessor had elected not to dispose of the goods and IC
26-1-2.1-528 governs.

Ind. Code § 26-1-2.1-529(1)

(1) After default by the lessee under the lease contract of the type described in IC 26-1-
2.1-523(1) or IC 26-1-2.1-523(3)(a) or, if agreed, after other default by the lessee, if the
lessor complies with subsection (2), the lessor may recover from the lessee as damages:
(a) for goods accepted by the lessee and not repossessed by or tendered to the lessor,
and for conforming goods lost or damaged within a commercially reasonable time after
risk of loss passes to the lessee (IC 26-1-2.1-219): (i) accrued and unpaid rent as of the
date of entry of judgment in favor of the lessor; [continued]

- Ind. Code § 26-1-2.1-528(1) **

CISG art 25
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A break of K committed by one of the parties is fundamental if it results in such detriment to the other
party as substantially to deprive him of what he is entitles to expect under the contract unless the party
in breach did not foresee and a reasonable person of the same kind in the same circumstances would
not have foreseen such a result

Sellers remedies cisg

When buyer 1. Wrongfully rejects or revokes or 2. Fails to pay or 3. Repudiates 4. AND THE BREACH IS
FUNDAMENTAL

Then we can consider all of these remedies

CISG art 62 -

CISG art 77 - a party who relies on a breach of k must take such measures as are reasonable in the
circumstances to mitigate damages —

CISG art 28 - if in accordance with the provisions of this convention one party is entitled to require
performance of any obligation by the other party, a court is not bound to enter a judgment for specific
perf unless the court would do so under its own Law in similar ks of sale not governed by this convention

Do the remedies in article 2 cover the buyer

covers fully with one exception - - consequential damages

Gen rule of 1-305a - put the aggrieved party may be put in as good a position as if the other party had
fully performed

buyer has accepted and may no longer revoke — then § 2-714 for warranty breaches OR buyer
has no goods bc seller never delivered or buyer rightfully returns under 2-711 - § 712 cover and § 2-713
market

714 buyers damages

VCG conforming goods

VNCG - nonconforming goods

Goods carry with them warranties of fitness and warranties of merchantability - intended
purpose

ANTICIPATORY REPUDIATION ** possibly on exam

- ex before the delivery of a product, you know you are no longer interested in
fulfilling the K - what was the motivation of the breaching party?

- Was the repudiation communicated reasonably

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- Law helps sort out the legitimacy for backing out of contract

- Ic § 2-610 - when either party repudiates the k with respect to a performance not
yet done the loss of which —

- IN RE Beech Systems 94

- 2-609 right to adequate assurance of performance

- A K for sale imposes an obligation on each party that the other’s expectation
of receiving due performance will not be impaired. When reasonable grounds
for insecurity arise with respect to the performance of either party the other
ay in writing demand adequate assurance of due performance and until he
receives such assurance —

- If someone repudiates then you the non breaching party would have remedy
under 2-610

- CONSEQUENTIAL DAMAGES

- Seller’s cannot receive consequential damages

- Buyers can

- 2-715 2 buyers incidental and consequential damages

- 3 limitations

- Foreseeability, cause and fact, and duty to mitigate - duty to mitigate is most
important

- On exam**

- VCG - value of conforming good

- VNCG - value of nonconforming good

- 10/1

- 2207 is mirror image rule under common law

- parties to a commercial transaction are seldom aware of all the small print and details of
the contract

- The UCC recognized that the contract should still be a contract even if they are not
mirror image of one another - even if the understanding of the K is not mirrored by
buyer and seller - the K shall remain a K
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- However there are rules for Ks that fall in this category

- These rules are found in section 2207!

- Think of 2207 like this - a written acceptance or confirmation that contains additional or
different terms:

- Not expressly conditional on assent then contract

- If expressly conditional on assent then NOT contract

- Where a contract is formed under 2207 the terms will be determined by § 2207(2)

- Even if writings dont establish a K - conduct can still establish a contract under §
2207(3)

- If no assent is forthcoming - then no contract is formed at this point

- Even where the writings dont est a contract, the conduct by both parties can
establish a contract - the conduct that legitimizes a K are found in § 2207-3

- Additional terms in acceptance or confirmation

- The additional terms are to be construed as proposals for addition —

- Each supplementary terms

- The court has to establish if conduct est K

- 2207-3

- 2207-3: Conduct by both parties which recognizes the existence of a K is

sufficient to est a k for sale although the writings of the parties do not
otherwise est a k in such case the terms if the particular k 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

- Distinction between additional term and different term within 2207 is important

- 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
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10/3

- Terms additional to or different from those offered or agreed upon:

- 1. Disclaimer of consequential damages.

- DIFFERENT TERMS^

- 2. Compulsory arbitration clause.

- ADDITIONAL TERMS^

- *2-207-3 is only used when K is not formed

- Distinction between acceptance and confirmation:

- Oral K regarding consequential damages

- after oral k made, written statement sent to confirm and changes

consequential damages agreement made orally

- 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

- If theres a true confirmation theres already an existing contract and if theres

already an existing contract then theres no reason to send a written K

- Once you’re at the point of writing a confirmation, you have already entered
into a K so you cant unilaterally alter or try to get out of it

- Official comment 6 of 2-207

- Where clauses on confirming forms sent by both parties conflict each party
must be assumed to object to a clause of the other conflicting with one on the
confirmation sent by himself. As a result the requirement that there be notice
of objection which is found in subsection 2 is satisfied and the conflicting
terms do not become a part of the k - the k then consists of the terms
originally expressly agreed to, terms on which the confirmations agree and
terms supplied by the act including subsection 2

- Acceptance and confirmation **

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- Acceptance and confirmation charts are in slides from class 13 - slides 35-43 ish

-
10/15

- International sales

- Problem 4.2

- Seller usa - buyer Canada - buying weight machine

- Acknowledgment form no consequentials and arbitration clause

10/17

Express warranties

Implied warranty of merchantability

Personal injury litigation alleging breach of warranty

Warranty for a particular purpose

- problem 8.2

- Used car seller asks about car - she’s a humdinger all right - owner says about car

- IC 2-313(1) express warranties by affirmation promise description and sample

- Express w by the seller are created as follows:

- Any affirmation of fact or promise made but he seller to the buyer which
relates to the goods and becomes part of the basis of the bargain creates and
express w that the goods shall conform to the affirmation or promise

- 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.

- 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.

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

8.2 b

same facts but asks about gas mileage

seller says they are like camels - gas mileage is like camels

8.3 c

your mom goes along and knows a lot about cars and says these cars get good gas
mileage and the seller gives same camel line

reliance is the key of this q

is reliance part of the express w for it to be enforceable

The present section deals with affirmations of fact by the seller,

Comment 3 of 2-313

The present section deals with affirmations of fact by the seller, descriptions of the goods or

exhibitions of samples, exactly as any other part of a negotiation which ends in a contract is

dealt with. No specific intention to make a warranty is necessary if any of these

factors is made part of the basis of the bargain. In actual practice affirmations of fact made
by the seller about the goods during a bargain are regarded as part of the description of

those goods; hence no particular reliance on such statements need be shown

in order to weave them into the fabric of the agreement. Rather, any fact which

is to take such affirmations, once made, out of the agreement requires clear affirmative

proof. The issue normally is one of fact.

Petoseed case watermelon case

The label on the cans say top quality seeds with high vitality cigar and germination
 KTM

the court cant determine this as a matter of law if these were breached because how
do you define these things?
court says issue of material fact

Rispens warranty

the seller agrees to deliver such seeds in good merchantable condition as hereinafter
defined of good germination for the crop of the current year the phrase in good merch
condition is defined as seeds properly fitted for seeding purposed by thorough screening
and where necessary by hand picking approx freee from foreign seeds distinguishable by
their appearance

express warranties can arise through promise of sellers the

IMPLIED WARRANTY OF MERCHANTABILITY

goods being sold will work the way they are supposed to work

2-312

unless excluded or modified a warranty that the goods shall be merchantable is

implied in a K for their sale if the seller isa merchant with respect to goods of that kind
under this section the serving for call of food or drink to be consumed either on the
premises or elsewhere is a sale

what constitutes merchantability

2-214 2 tells us

goods to be merchantable must at least be such as

a-f —-

Goods that are merchantable must

"Pass without objection in the trade" - within the trade of clothing sales and tailoring the
clothing, a pin left in the clothing could likely be viewed as an objection and also are likely
not “fit for ordinary purpose for which such goods are used” - clothing should not cause
you harm when you sit down

Plaintiff must show breach of warranty was the proximate cause of the loss sustained

The defendant can refute this with an affirmative showing that the harm or loss resulted
after delivering the product to the buyer
 KTM

Or seller can also defend himself by obtaining evidence that shows seller exercised care in
the manufacture, processing or selection of the goods is relevant to deciding if warranty
was actually broken

Goods to be merchantable must

at least be such as:
a. pass without objection in the trade under the contract description; and
b. in the case of fungible goods, are of fair, average quality within the description; and
c. are fit for the ordinary purposes for which such goods are used; and
d. run, within the variations permitted by the agreement, of even kind, quality, and
quantity within each unit and among all units involved; and
e. are adequately contained, packaged, and labeled as the agreement may require; and
f. conform to the promises or affirmations of fact made on the container or label if any

10/31

**Grading rubric for final exam on slides from class 19

- Magnuson-moss warranty act : departure from the UCC

- MMWA is a fed statute 15 USC § 2301 since 1975

- MMWA regulates the quality and character of WARRANTIES themselves

- The warranty sections of the UCC regulate the character and quality of GOODS
- Express warranties are often written to be restrictive - takes away all implied
warranties - only remedy is a replacement of this product for example : express w
on coach purse and laptop falls out bc bag rips - consumer cannot sue for laptop -
only remedy is new bag
- Because of these warranties that were so restrictive, the MMWA was enacted to
both disclaim more clearly what the warranty will actually cover and also make
sure warranties’ quality and character is sufficient
- Protection of consumers
- FTC - fed trade commission - has promulgated regulations that require written
warranties to contain various info - for ex:
- Parts or products covered
- Parties to whom warranty extends
- Commencement and duration of warranty
- Step by step explanation for obtaining warranty service
- Info on informal dispute settlements
- What warrantor will do in event of claim
 KTM

- Private right or cause of action - when private citizen has right to bring a lawsuit
under a fed statute or state statute - private cause of actions can be brought under
federal securities act if they meet the factors
- MMWA says on its face that there is a private right or cause of action in

- MMWA Applies to written warranties

- Applies to FULL and LIMITED warranties
- If FULL w - it must meet § 2304 requirements:
- One of § 2304 says the limits on consequential damages must be conspicuous
and clear
- Remedies: refund or replace without charge
- If written warranty, the MMWA says it cannot be disclaimed or modified
although its duration can be limited - then it is a LIMITED warranty
- MMWA applies to states and UCC applies to fed law - so supremacy clause
will have UCC control if conflict in the two
- MMWA does NOT require a warranty though
- Applies only to written warranty -
-
- 11/5
- MMWA § 2308a implied warranties
- No supplier may disclaim or modify except as provided in § 2308 b any
implied warranty to a consumer with respect to such consumer product if 1
such supplier makes any written warranty to the consumer with respect to
such consumer product or 2 at the time of sale or within 90 days thereafter
such supplier enters into a service contract with the consumer which applies
to such consumer product
- MMWA § 2310d1 remedies in consumer disputes
- Subject to § 2310 a 3 and e a consumer who is damages by the failure of a
seller to comply with any obligation under this chapter or under an implied
warranty - or service contract - may bring a suit for damages and other legal
and equitable relief a- in any court of competent jx in any state or DC or b -
in an appropriate district court of the US subject to § 2310 d 3
- Difference in court interpretations on implied warranties -
- If you’re in a McCurdy (v texar) jx then implied warranties apply under MMWA -
if you’re in a McNamara (v nomeco building specialties inc) jx then
only written warranties apply under MMWA
- so if there is no written warranty, you can only get into court with a cause of action in a
mccurdy jx because mccurdy allow implied warranties
- If in a McNamara jx then you do not meet threshold to get into court ??
- Under MMWA warranties - remember that you want to bring your case under this
because you can get attorney’s fees under MMWA
- MMWA § 2301 1 definitions: consumer product means any tangible personal prop
which is distributed —
- Mcniff v Mazda
- Settlement of 30k $
- Court awarded 26k for attorney
 KTM

- Contingency fee agreement was 1/3 so should attorneys get 10k

- Court says no because contingency fee agreements should not control - the
court order should control
- So Defendants have to pay 56k
- The k said the amount the plaintiff had to pay would be reduced by a certain
amount
- ? Ethical reason for attorneys not being entitled to taking more money -
conflict between lawyer’s own interest and the interest of the client
- Rules of professional conduct say that an attorney cannot take more than
what is deemed a reasonable fee 1
- Anderson v gulf stream coach
- Gulf Stream warranty disclaims state law
- IC § 26 1 2.1 212 1
- Except in a finance lease a warranty that the goods willl be merchantable is implied
in a lease contract if the lessor is a merchant with respect to goods of that kind
- Finance lease means a lease with respect to which
- The lessor does not select manufacture or supply the goods
- The lessor acquires the goods or the right to possession and use of the goods
in connection with the lease and
- One of four specified things occurs
- The point here is that the lessor is not connected with the goods at all
just to flip to lessee
- To be a finance lease one of these requirements must also be met ]
- If the lease is not a consumer lease before signing lease the lessee informed buy the
lessor in writing:
- Of the identity of the supplier unless the lessee has selected the supplier
- That lessee is entitled to the promises and warranties provided tot the lessor
by the supplier and
- That lessee may communicate w the supplier and receive
- For a transaction to qualify as a finance else it must first qualify as a lease - § 2a
103 1 j unless the lessor is comfortable that the transaction will qualify as a finance
lease the lease agreement should include provisions giving the lessor the benefits
created by the subset of rules applicable to the transaction that qualifies as a
finance lease under this article
- In a true lease the finance lessor will receive the leased goods back at a time when
there is significant economic life remaining
11/7
- Class 21
- Topic N
- Finance lease means a lease with respect to which
- The lessor does not select manufacture or supply the goods
- The lessor acquires the goods or the right to possession and use of the goods
in connection with the lease and
- one of four specified things occurs
- 1 before signing lease, lessee receives copy of lessor’s k acquiring the
goods
 KTM

- 2 lessee’s approval of lessor’s k acquiring goods is a condition to the

lease
- 3 b4 signing lease, lessee receives statement designating all warranting
and any disclaimers or limitations of warranties or remedies or
- 4 if lease is not a consumer lease, b4 signing lease, lessee informed by
the lessor in writing
- Of the ID of the supplies unless the lessee has selected the supplier
- That lessee is entitled to the promises and warranties provided to
the lessor by supplier and
- That lessee may communicate w the supplier and receive
statement of the promises and warranties including any
disclaimers and limitations of them or of remedies
- Roadmap to ucc § 1 203 definition of lease
- Whether lease - determined by facts of each case
- When transaction creates a security interest - the BRIGHT LINE
- Characteristics that do no by themselves create a security interest MERELY
- When additional consideration
- Is nominal - it is a disguised sale and not a lease - ex: if you only
have to pay $1 - obviously nominal
- Is not nominal - it is a lease
- To determine if nominal - look at fair market value of
the equipment or good
- Determined at time transaction entered into
- Remaining Econ life of the goods
- Reasonably predictable fair market rent fair market value and
cost of performing
-
- SALE DISGUISED AS A LEASE IS A SECURITY INTEREST*
- Ucc § 1-2013b IC 26 1 201 37
- A transaction in form of a lease creates a security interest IS A DISGUISED
SALE if consideration that lessee is to pay the lessor for the right to
possession and use of the goods is an obligation for the term of the lease and is
NOT subject to termination by lessee and :
• Original term is equal to or greater than remaining Econ life- REL - of the goods
• The lessee is bound to renew for the REL or become owner of goods
• Lessee has option to renew lease for the REL of the goods for no
additional consideration or for nominal additional consideration
upon compliance with the lease agreement; or
• the lessee has an option to become the owner of the goods
for no additional consideration or for nominal additional
consideration upon compliance with the lease agreement.
- Ucc 1-203c
- Transaction in form of lease doesn’t create a security interest merely bc
 KTM

- Present value of consideration the lessee is obligated to pay lessor for

right to possession and use of goods is substantially equal to or is
greater than fair market value of goods at time transaction entered into
- *Whether a k is for sale of goods or lease use roadmap to ucc § 1 203
- In a true lease
- The finance will receive the leased goods back at time when there is
significant Econ life remaining
- If its a finance lease the lessor doesn’t make any implied warranty of fitness or
merchantability
- Irrevocable promises - finance leases
- Official comment 2 ic 26 1 2.1 407
- the section requires -

- Finance leases are common with large pieces of equipment - ex

airplanes
- Ic § 26 1 2.1 103g iii definition of a finance lease
- To be a finance lease one of these requirements must also be met
- A before signing lease the lessee receives copy of lessor’s k acquiring the
goods
- B lessee’s approval of lessor’s k acquiring the pods is a condition tot he lease
- C before signing lease lessee receives statement designating all warranties and
any disclaimers or limitations of warranties or remedies or
- Ic § ic 26 1 2.1 4071
- Irrevocable promises finance leases
- In the case of a finance lease that is not a consumer lease the lessee’s promises
under the lease k become irrevocable and independent upon the lessee’s
acceptance of the goods
- 2 a promise that has become irrevocable and independent under subsection 1
- A is effective and enforceable between the parties and by or against 3rd
parties including assignees of the parties and
- B is not subject to cancellation termination modification repudiation
excuse or substitution without the consent of the party to whom the
promise runs
- Belt and suspenders - double up on safety/cautionary mechanisms
to make sure no loopholes - things written into ks to make sure
super cautious
- Official comment
- G - finance lease
- If a transaction does not qualify as a finance lease the parties may achieve the
same result by agreement; no negative implications are to be drawn if the
transaction does not qualify
-
- CISG article 35
-
 KTM

Breach of the implied warranty for purpose under CISG - virtually identical to it under
UCC - BUT CISG doesn’t apply to consumer transactions

- topic O
- Particularly in commercial transactions there is tension when it comes to
warranties -
- Tension occurs when:
- seller and buyer do not agree on consequential damages
- Also do not agree freedom of k vs oppression of customers - the
protections offered
- FULL 90 day warranty on missing or defective parts
- Seller will promptly - on handout
- Magnuson moss warranty requires this anyway
- These 90 day w make the warranty begin on the date of purchase
- MMWA § 2308 implied warranties
- Restrictions on disclaimers or modifications.
- No supplier may disclaim or modify except as provided in subsection b of this
section any implied warranty to a consumer with respect to such consumer
product if 1 such supplier makes any written warranty to the consumer with
respect to such consumer product or 2 at the time of sale or within 90 days
thereafter, such supplier enters into service k w/ the consumer which applies
to such consumer product
- FULL vs limited warranty - full - seller cannot cut back on implied w of merch?
- Limited - Seller can cut back on implied warrant of merchantability with
disclaimer?
- So if you say its a full warranty then it has to come with an implied w of
merchantability
- If you want to say its limited then you can w a disclaimer
- Magnuson moss does not prohibits a seller from disclaiming or limiting damages
but does prohibit a seller from disclaiming or limiting warranties *
- Dont confuse the warranty language and the damages language in ks * - did this in
q 3 homework
- FULL 90 DAY WARRANTY ON MISSING OR DEFECTIVE PARTS
- Seller will promptly supply without charge any missing part provided that a description
of the missing part in the model number of the product is given to Seller during the 90-
day warranty period, which begins on the date of purchase. Seller will promptly repair or
replace without charge any defective part provided the part is returned to Seller during
the 90-day warranty period, which begins on the date of purchase. The warranty does not
apply to defects discovered after purchase which were caused by damage (not resulting
from defects) or which were caused by unreasonable use. — SELLER MAKES NO
OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO ITS
PRODUCTS, THEIR MERCHANTABILITY, OR FITNESS FOR A PARTICULAR
PURPOSE. IN NO CASE SHALL SELLER BE LIABLE FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES FOR BREACH OF THIS OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED, WHATSOEVER, EXCEPT THAT DAMAGES
FOR PERSONAL INJURY SHALL NOT BE PRECLUDED. —SOME STATES DO
 KTM

NOT ALLOW THE EXCLUSION OR LIMITATION OF CONSEQUENTIAL OR

INCIDENTAL DAMAGES, SO
-
- * UCC § 2-317: Cumulation and conflict of warranties express or implied
- Warranties whether express or implied shall be construed as consistent with each
other and as cumulative, but if such construction is unreasonable the intention of
the parties shall determine which warranty is dominant. In ascertaining that
intention the following rules apply: (a) exact or technical specifications displace an
inconsistent sample or model or general language of description; (b) a sample from
an existing bulk displaces inconsistent general language of description; and c.
express warranties displace inconsistent implied warranties other than an implied
warranty of fitness for a particular purpose.
- Magnuson moss -

READ AND UNDERSTAND 13.3 class #22 and #23

11/14
Topic O
- Ucc § 2-719 contractual modification or limitation remedy
- Where circumstances cause an exclusive or limited remedy to fail of its essential
purpose, remedy may be had as provided in this act
- Official comment 1 - inder this § parties are left free to shape their remedies to
their particular requirements and reasonable agreements limiting or modifying
remedies to their particular requirements and reasonable agreements limiting or
modifying remedies are to be given effect
- However it is of the very essence of a sales k that at least min adequate remedies be
available - if the parties intend to conclude a k for sale within this article they must
avvepv the legal consequence that there be at least a fair quantum of remedy for
breach of the obligations…
- Seller sells to buyer - k makes something hard for buyer in k - make arguments for
buyer - or both sides - sample scenario on final ** 13.3 reference
- Topic P
- Reject - buyer refused to accept goods at all/ revoke - after acceptance, change
mind and returns or tries to undo acceptance
- UCC 2-206
- Acceptance of goods occurs when buyer
- After a reas opp to inspect the goods signifies to the seller that goods
are conforming or that he will take or retain them in spite of their non
conformity or
- Fails to make effective rejection § 2 602 but such acceptance does not
occur until buyer has had a reas opp to Inspect them or
- Does any act inconsistent w seller’s ownership but if an acceptance only
if ratified by him - for example - buy a sweatshirt has a rip but buyer
wrote name on tag and ripped off the tags
- Acceptance of a part of any commercial unit is acceptance of that entire unit
 KTM

- UCC § 2 513 buyer’s right of inspection of goods …

- North American lighting inc v Hopkins manufacturing corp
- § 2-601 - perfect tender rule
Subject to the provisions of this Article on breach in installment contracts (§ 2-612) and
unless otherwise agreed under the sections on contractual limitations of remedy (§§ 2-718
and 2-719), if the goods or the tender of delivery fail in any respect to conform to the
contract, the buyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.

- Installment k - 2-612 - breach

- Is one which requires or authorized delivery of goods in separate lots to be
separately accepted, even though the k contains a clause “each delivery is a separate
k” or its equivalent

- buyer may reject any installment which is non conforming if the non conformity
substantially impairs value of that installment and cannot be cured or if the non
conformity is a defect in the required docs; but if the non conformity does not fall within §
2 612 3 and the seller gives adequate assurance of its cure the buyer must accept that
installment

- 2-508 cure by seller of improper tender or delivery; replacement

- “Shaken faith doctrine” - seller cannot decide what cure is acceptable if a

reasonable person would find the good inadequate - example - extreme malfunction
like computer explodes - the buyer’s faith in the good is shaken after this

- SINCO INC v metro north commuter R co

Two major repercussions

a. There is an abstract notion within article 2 that it has a bunch of dispute resolution
provisions which are in favor of the court and defined remedies so makes things
easier for courts.
 KTM

1. Implied warranties: The P’s are favored in implied warranties because they do not
have to bargain for these in the contract they are implied. D’s will not favor these

2. Statute of limitations: In a normal contract SOL’s are 6-10 years. In Article 2 the
statute of limitations are 4 years, but no tolling meaning if you have a latent defect
which means a P fails to discover a defect in the product within the 4 years they are
out of luck and cannot bring the claim. In a normal contract the statute begins to run
once the P discovers the defect, but in Article 2 the statute begins to run from the day
you buy the item whether or not you discover the defect. The D will be in favor in
this part

Ragus Co. v. City of Chicago

a. City of Chicago purchased rat traps from P

b. The problem in this case was the interpretation

c. The contract said the city would get 24 per case and 12 per case. Does this mean 24
pairs or 12 individual traps.

d. What does the interpretation have to do with the scope of article 2

a. We have to first to look to the contract term, but the contract does not answer
it, next look to trade usage, and constructive knowledge

e. First thing we have to look to is 2-102: This code states article 2 applies to
transactions in goods. The word transaction is not identified, but good is. Goods are
defined in 2-105; which states goods which are movable at the time of identification
to the contract. Goods are not money, investment securities, and things in action
which are like legal rights that are intangible.

f. 1-205(4): The express terms of an agreement and an applicable course of dealing or

usage of trade shall be construed wherever reasonable as consistent with each other;
but when such construction is unreasonable[ a] express terms control both course of
dealing and usage of trade and [b] course of dealing controls usage of trade (this is
the hierarchy among interpretation of contract )

g. Look to contract first which is 1-102(3) then 1-205(1): A course of dealing is a

sequence of previous conduct between the parties to a particular transaction which is
fairly to be regarded as establishing a common basis of understanding for interpreting
their expressions and other conduct. Also turn to 1-205(3): A course of dealing
between parties gives particular meaning to and supplements or qualifies terms of an
agreement. In course of dealing the parties can look to contracts other than the one at
dispute to see what the parties did in those contracts. Finally we can look to 1-205(2):
 KTM

A usage of a 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 at hand.

Dakota Pork Indus. v. City of Huron

a. P suing the city because water the city as suppose to provide was
contaminated, which screwed up the pork the P were selling.

b. This case deals with implied warranty of fitness for a particular purpose.

c. This case is a scope issue because if we fall under Article 2 we deal with gap
fillers and warranties.

d. If we were dealing with the common law there would not be any implied
warranties because the parties would have to bargain for them.

e. The issue at hand in this case was whether water was a good. The court
reasoned water could be measured by a device so it constituted a good. The
water can be measured by flow. Due to the courts reasoning 2-105 applies
which is the scope code.

f. The analysis of implied warranty is different

i. First you have to look to whether or not we fall into the scope of
article 2 which would be 2-102. We then have to decide whether or not
we are dealing with a good which is defined in 2-105, the courts
emphasized if the good was measurable it would be classified a good.
Finally we go to 2-315: this is the implied warranty of fitness for a
particular purpose, which states where the seller at the time of
contracting has reason to know any particular purpose for which the
goods are required and that the buyer is relying on the sellers skill or
judgment to select or furnish suitable goods, there is unless excluded
or modified an implied warranty that the goods shall be fit for such
purpose.

ii. How does the seller become aware of the particular purpose

1. One is if the buyer expressly tells

2. The buyer has to rely on the sellers skill or requirement

 KTM

3. An exception to the rule is if you are an expert in some field

and you say you relied on what the seller said, but you know
this is not true do to your knowledge in the field you cannot
claim that.

Cook v. Downing

a. This case deals with the scope because if we assume article 2 applies we have to see
if D violated implied warranty of merchantability.

b. 2-314: An implied warranty of merchantability says unless excluded or modified a

warranty that the goods in question shall be merchantable is implied in a contract for
their sale if the seller is a merchant with respect to goods of that kind.

c. The threshold requirement in 2-314 is the seller has to be a merchant. A merchant is

defined in 2-104(1): a merchant means a person who deals in goods of the kind or
otherwise by his occupation holds himself out as having knowledge or skill peculiar
to the practices or goods involved in the transaction.

d. The question in this case is whether or not a dentist is a merchant. If the court
determines the dentist is not a merchant than no implied warranty.

e. The court ruled a dentist is a professional and not a merchant.

f. Another issue the court deals with is the contract is a services and goods contract in
essence a hybrid contract because the dentist is making the dentures but is providing
the service of installing them and performing the work to make sure they all fit which
is a service.

Review

a. Last weeks class was about scope of Article 2

b. Todays lecture deals with formation

c. The first thing in our analysis we should look to is 2-102 which defines the scope of
article 2 is transactions and goods. A good is defined by 2-105.

d. We want to know the scope because of applicability and the gap fillers. If article 2
applies it comes with strings attached like gap fillers and implied warranties.
 KTM

Article 2 is supplemented by the common law 1-103: unless displaced by the particular
provisions of this Act, the principles of law and equity shall supplement its provisions.\

The city of Huron case defined what was movable, something movable does not have to be
something you can physically pick up and move, IT JUST HAS TO BE MEASUREABLE

Gap fillers can only be used if there is a gap, if the contract address the issue then a party cannot
insert gap filler

Hill v. Gateway 2000, Inc.

a. Time of formation can be determined by context

b. This case followed the ProCD case in terms of time

c. The issue in this case is if contract was formed at the time of purchase of the
computer then the arbitration clause not a part of the deal

d. This case deals with whether 2-207 can apply because only one form involved in this
case

e. 2-207 does not say there has to be 2 forms.

f. Contract formation depends on the sale you are getting involved in. If you go to a
hardware store to buy a rake the moment of contract formation is when you hand the
money to the clerk and the clerk takes it

g. If you go buy a car the contract formation is longer and more formal. The example
about the rake and car deal with one merchant and one consumer

h. If we have two merchants who wish to buy and sell copy machines the parties may sit
down and draft a detailed contract. This is a rare occurrence because usually the sale
would take place as an open account sale, where the buyer will make some
communication with the seller about what the buyer wishes to purchase.

i. The buyers communication may be by phone or use purchase orders. Purchase orders
are used in at least 2 different ways

a. The purchase order might serve as the offer to the seller. This way we have to
determine whether or not a deal has been made
 KTM

b. The purchase order might be used by the buyer as a way to confirm an oral
agreement that has already been reached in a phone call prior to the written
purchase order being sent. In this situation we are reiterating the key terms
and key issues of the contract.

j. After the seller receives the buyers order in an open account sale the seller will check
the buyers credit. If the buyers credit checks out the seller will forward the buyers
order to the sellers shipping department.

k. There can be inconsistencies in the deal

a. The buyer can say he wants all the warranties available and all the damages

b. The seller can say limited warranties and damages.

c. In common law the acceptance would have to mirror the offer (mirror image
rule). If the offeree gives a acceptance with additional terms then this would
be a counteroffer and no contract. Article 2 does not work this way because or
we enforce the mirror image rule in sales we will never have a contract in
commerce because merchants will always be going back and forth.

d. Article 2 has 4 rules they use

i. 2-204

ii. 2-205

iii. 2-207

e. 2-204: Anything that will show an agreement even conduct will prove there
is a contract. This rule is liberal because Article 2 promotes contract
formation. This rule is for definiteness requirement in offer

f. 2-205: This is the firm offer rule; an offer by a merchant to buy or sell goods
in signed writing is not revocable for a lack of consideration. If offeror is a
merchant and makes offer to leave open cannot revoke for lack of
consideration during the time stated or if no time is stated than a reasonable
time, but not to exceed 3 months. The firm offer rule is opposite from
option contracts.

g. 2-206: This rule deals with offer and acceptance in formation of contract. In
common law when the offeror makes an offer the offeree uses the same
method to accept. In article 2 it is any reasonable method of acceptance. The
rule operates this way because Article 2 promotes contract formation.
 KTM

h. 2-207(1): This rule gets involved with additional terms in acceptance. This
rule is the opposite of mirror image rule. A party can add additional terms
unless party imposes a requirement. Ultimately much of the acceptance of the
additional term will depend on whether the additional term is common to the
buyers and sellers industries.

i. 2-207(2): Additional terms are considered proposals. Between merchants such

terms become a part of the contract unless

a. The offer expressly limits acceptance to the terms of

the offer

b. They materially alter it

c. Notification of objection to them has already been

given or is given within reasonable time after notice
of them is received -

i. Sullivan says it’s probably fair to use 2-207 c

J. If we are dealing with different terms from the buyer and seller the knock
out rule comes into play and both terms cancel each other out, but if both
sides are dealing with different warranty terms it will not get canceled out
because the gap filler of implied warranties will keep it in. The mere fact that
the terms are contrary to a particular terms in the offer should mean that the
offeror has in effect objected to them in advance.

k. 2-315: Implied warranty of fitness for a particular purpose. This one deals with
a non merchant seller. Where the seller at the time of contracting has reason to
know any particular purpose for which the goods are required and that the buyer
is relying on the seller’s skill or judgment to select or furnish suitable goods, there
is unless excluded or modified an implied warranty that the goods shall be fit for
such purpose.

l. 2-314: Implied warranty of merchantability. This one deals with merchants.

Unless excluded or modified a warranty that the goods in question shall be
merchantable is implied in a contract for their sale if the seller is a merchant with
respect to goods of that kind.

J. A proposal for additional terms by non merchants are not binding

k. The last shot doctrine is when a the buyer sends its terms and seller sends
its terms after, but they are different and the parties proceeded to perform
the contract the acceptance with the different terms would be considered a
 KTM

counteroffer that was accepted by the buyers performance. Thus the sellers
form would control the terms of the contract since it was the last form sent
prior to performance.

K. 2-207(3): You only go here when the writings of the parties do not otherwise

establish a contract. The court has to decide what to do when a buyer wants all

the remedies and warranties but the seller says the opposite and both parties

say acceptance is conditional on each parties acceptance of terms. This is the

Rodo case. When both parties do this they are kicked out of article 2 and go to

Common law. We only use 2-207(1) and 2-207(2) if there is an agreement. In the

Rodo case the court said the parties CONDUCT shows there was an agreement

So we do not have to totally default to the common law. The writing said no deal

But the actions of the parties showed there was a deal. The court said retain the

Terms that were in writing and use gap fillers. The court says the parties conduct

Shows there was a deal so we do not have to completely default to common law.

The writing of the parties shows no deal, but the conduct shows the party

Intended to get into a deal. The court says retain the terms that were in writing

And include gap fillers. Usually if both parties have opposite terms meaning

Buyer says warranties and seller says no warranties there will usually be no deal,

But like the Rondo case where actions show a contract existed the 2-207(3)

Analysis is done

The big picture with the battle of the forms is we want to encourage contract formation
unlike the old common law mirror image rule where the acceptance has to mirror the offer
or else no deal.

Review

a. 2-201: Statute of Frauds

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b. 2-207: Deals with contract formation

c. 2-204, 2-205, 2-206 all deal with contract formation

d. 2-102 and 2-105 deal with the scope of article 2 and the definition of goods

Definition of what a merchant is

a. 2-104: Merchant means a person who deals in goods of the kind or otherwise by his
occupation holds himself out as having knowledge or skill peculiar to the practices or
goods involved in the transaction or to whom such knowledge or skill may be
attributed by his employment of an agent or broker or other intermediary who by his
occupation hold himself out as having such knowledge or skil

Statute of Frauds

a. Many businesses do not adjust their behavior to UCC. They make business reasons
based on time and money

b. They rely in the sanctioning approach. If a party screws up they will not do business
with them again it the party will be known in that trade of business for what he has
done

c. The dialectic in the statute of frauds is the absence of writing increases fabrication
and fraud versus making things in writing. If things are in writing people will start
denying oral agreements

d. The balancing act is resolved in two ways

a. Evidenciary approach: Requires some tangible evidence to show agreement

was made. You do not need to much evidence

b. Liberal provision of compliance: If a party cannot meet the minimal

requirement there are five other ways to meet

i. 2-201(1): Except as otherwise provided in this section a contract for

the sale of goods for the price of 500 dollars or more is not enforceable
by way of action or defense unless there is some writing sufficient to
indicate that a contract for sale has been made between the parties and
signed by the party against whom enforcement is sought or by his
authorized agent or broker
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ii. Statute of frauds is not worried about fraud when the stakes are
low meaning under 500 dollars

iii. 2-201(3)(A): This provision deals with special custom manufactured

goods that cannot be otherwise sold then the court will lean to
enforcing the contract because the good is to custom.

iv. 2-201(3)(B): If the party trying to get out of the deal admits in
pleadings, testimony, or in court that there was a contract then the
court then there is no need for the Statute of Frauds

v. 2-201(3)(C): This is the part performance provision. The UCC version

is more restrictive than common law and restatement definition

vi. 2-201(2): This is the merchants exception which deals with

confirmatory memorandum. Between merchants if within a reasonable
time a writing in confirmation of the contract 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.

Consequences of not complying with 2-201

a. The agreement is unenforceable

b. The fact that it is so severe of penalty and that consequences of not enforcing
the statue are minimal

c. Nothing is really lost if the courts are liberal with it

d. If we want to be lose with what happens with the original goal of preventing
fraud

e. Today we have other tools to evaluate the parties intentions, unlike back in the
days

DF Activities Corp v. Brown

a. The applicable section in this case is 2-201 because the good is over 500
dollars.
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b. We first start with 2-102 which is the scope rule. Then we go to 2-105 which
is the definition of goods. Then we go to 2-201 because it is a statute of frauds
issue

c. There is no writing in this case, but there is an oral agreement

d. Three things are needed to satisfy statute of frauds

a. Signature

b. Quantity term

c. Words of agreement

e. Because 2-201 is not available we go to 2-201(3)(B)

f. 2-201(3)(B) deals with the deficiency of writing and if the party against whom
enforcement is sought admits in his pleading, testimony or otherwise in court
that a contract for the sale of good existed.

g. The issue in this case is under 2-201(3)(B) is how far should one party be able
to go based on speculation to illicit an admission of a contract. Judge Posner
says P cannot go on with the case because if a person already stated under
oath that no contract existed, the chances of getting a different answer at trial
will be slim and it will causing the D to perjur himself. Also the costs,
inconvenience, and unpleasantness. It is a valid policy argument that people
get relief at some point, D already denied a contract exited once. Another
reason to not let the case go on is the ability in having lawyers twist a
deponents words. Finally court and jury error is another policy to not let this
case go on.

h. According to Judge Posner the benefit is low and cost is high.

i. Dissent: Dissent wants the P to go fishing and there should be a case by case
individualized approach when a P wants to go beyond a sworn affidavit. The
dissent says the TC has discretion to determine how much discovery the P can
do

j. The dissent got to their argument by doing a statutory analysis; Every word in
a statute has meaning so every word must be given effect. The language that is
given interpretation TESTIMONY OR OTHERWISE IN COURT this is
the language that if you follow a cost/benefit analysis you are erasing the part
of the statute. Judges cannot do this when interpreting
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a. An alternative means to satisfy to SOF an admission why do u need

writing if we have an admission, How flimsy of basis will we allow on
party to go on an admission if the writing says otherwise so this means
the party will perjure themselves.

b. An answer is signed by an attorney not signed by the D. The majority

says there should be some discovery under oath for the D. After the D
denies under oath P cannot go further.

K . In this case there is dialectic between somebody given a sworn denial versus if
something less is given like a statement of I do not remember. Which one will P
have more wiggle room to do discovery.

M. Another dialectic is protecting parties from fraudulent contracts versus making

people bear costs and time.

n. The dissent points out there was no unequivocal denial in the affidavit that was
signed, but in the answer it is not denied which is not under oath. In affadavits the
lawyers are drafting them and they can twist and turn words and feed testimony.
This is one reason why the dissent says there should be more discovery.

General Trading Int’s v. Wal Mart Stores

a. The original agreement was in writing

b. Since we are fighting over the writing requirement we go to 2-201(1)

c. This is not a writing dispute because we have a written agreement which says no oral
modifications, everything has to be in the contract

d. The issue in the case deals with the 9/30 agreement and 2-201(2)

e. The court says 9/30 agreement does not meet the requirement of 2-201(2)

f. 2-201(2): This provision deals with merchants. If a buyer or seller makes an oral
agreement of some sort and sends a confirmatory response. The signature that is
needed to enforce the contract is the person trying to enforce the contract not the
party trying to get out. If the party sends the confirmatory response the other party has
10 days to object to the oral agreement. This is the otherside or the balance so people
cannot just send fake oral agreements. All this can satisfy the writing requirement.
There is a content requirement which means the confirmatory response has to be
precise and informative
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g. The 9/30 agreement does not meet 2-201(2) because of content requirement is what D
said. The terms of the agreement are not specific. The confirmatory memorandum,
does not confirm a deal was made

h. The court says the 11/19 agreement does not satisfy 2-201(2). Not because of content,
but because Walmart objected to the confirmatory memorandum

i. Confirmatory Memorandum Requirements

a. Form in writing

b. Content has to be sufficient to indicate that a contract has been formed as

opposed to mere negotiations (a signature and quantity term can satisfy this)

c. No signature by the party to be charged

j. The objection to the confirmatory memorandum has to be in writing not over

the phone

Review

a. Week 1: 2-102 and 2-105 deals with Scope of Article 2

b. Week 2: 2-207 deals with battle of the forms

c. Week 3: 2-201 deals with Statute of Frauds

d. Week 4: 2-202 deals with Parol Evidence

Parol Evidence

a. This and Statute of Frauds are related because both effect enforceability of oral
evidence

b. For Statute of Frauds the oral agreements have to be in writing, the parol evidence
rule is a evidentiary bar. This rule stops somebody from saying we also agreed to this

c. A merger clause and a no oral modification clause are usually accompanied together.
The merger clause says we intend the writ v ing to be it and anything before the
agreement was signed and merged into the written contract and anything else that is
not in the written contract is gone.

d. The merger clause must be the intent of both parties to be final

 KTM

e. Parol evidence rule must be in writing, but there can be things in writing that are not
the final expression of the parties. If parties do not agree on what is written look to
the intent of the parties. If there is no writing and no intent then no 2-202 problems.

f. Supplementary evidence. If there is evidence subsequent to writing 2-202 does not

deal with it. Evidence may be used to supplement and explain if by cause of
performance, course of dealing, or usage and trade which can supplement writing.

g. The common law parol evidence is different by no explaining and no supplementing.

The UCC parol evidence rule is more liberal allows oral testimony to come in to
supplement what is written. Restatement 1 rule says nothing comes in Restatement 2
says sometimes we have to look to the context of the deal and we may let things come
in. Attorneys can argue to the judge the trend in the law has been to move away from
the legalistic way to more liberal view of parol evidence.

h. The idea of a merger clause if both parties are going to take all the time to hammer
out all the terms of what they want then it does not make sense to leave room for side
deals

Betaco Inc. v. Cessna Aircraft Co.

a. In this case there is a written contract which is the only way there can be a parol
evidence problem

b. The written contract was supplemented by the spec sheet

c. The P wanted out because they wanted the plane to have more gas range

d. The more range information was not in the contract it was in a letter from a
representative of the D which came before the written contract so that is the parol
evidence

e. 2-201 says we can’t use the letter to contradict the written contract. The letter says the
plane has more range, but the contract does not have this information.

f. The contract also contained a merger clause

g. The court says intent is analyzed with objective evidence. 5 ways

a. The inclusion of the merger clause

b. The disclaimer of warranties ( the contract stated no implied warranties all

the express warranties were all written in the contract. There was nothing
coming from the outside )
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c. Whether the extrinsic term is one that the parties would certainly have
included in the document had it been part of their agreement ( If there
was a term the parties agreed to it would have made its way into the written
contract )

d. The sophistication of the parties ( The seller is sophisticated because he is in

the market of making and selling planes and he knows his product, The buyer
is sophisticated because it is a big deal which involves a lot of money, he had
purchased planes before and he runs an airline business)

e. The nature and scope of both prior negotiations between the parties and
any purported extrinsic terms. (The extrinsic term in this case which is the
more range is really one sided which favors the P

h. The intent in sophistication can be a problem if we toy with it like everybody is not
sophisticated in legal contract dealing. Also if evidence of

i. A disadvantage of a merger clause is you cannot add more terms. Sometimes

parties will give more than is legally obligated

C-Thru Container Container Corp v. Midland Mfg. Co.

a. The D receives the equipment to make bottles and sends a letter to P to let
them know there ready to make the bottles the P wanted

b. Some time passes by and P places no order so D sends a letter rescinding the
contract because P placed no orders

c. There is a written contract and the D wants to rescind

d. The real question is who breached

e. P says they are not liable because D was suppose to send samples to the P
before P would place an order. This was customary in the trade. This was no
where written in the contract.

f. If this is true D’s are saying there is a term contradicting what is written in the
contract, but P is saying it is implied because it is custom

g. P is claiming the samples are customary in the trade

h. The outside terms that are trying to come in must not contradict what is
written in the contract unless they are custom and trade usage
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i. The common law will say we do not care about custom trade usage only
four corners of the contract, but the UCC will allow looking outside the
contract only if it fits into one of the two categories

i. If the term is custom in the trade

ii. Evidence of consistent terms

j. The customary conduct should be assumed in the parties minds because

everybody in the industry knows it should be done so the term is really not
contradicting anything in the written contract.

k. The UCC allows more oral testimony to come in

l. The justification for allowing additional terms

a. Consistent terms are not contradictory

b. 2-209(1) Which says an agreement modifying a contract within this

Article needs no consideration to be binding.

m. Determining what is consistent and what is contracdictory

a.

n. If the term being disputed would have certainly came in the written contract the
court would not allow it in

1-203: This is the obligation of good faith provision

a. This is a helpful argument for a litigator. This argument is used to explain good faith
and duty in dealing between parties. In common law there is no moral dealing, but in
UCC there is

1-102: Purposes of this act

a. The UCC is supposed to throw away formalities of common law and work with
business. The code instructs to liberally construe the facts to make things efficient and
stray away from the mechanalistic common law
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2-202 analysis

a. The nature of the written contract is what is used as the basis to exclude parol
evidence

b. If there is no merger clause 2-202 does not apply

c. The two ways additional information can come in is

a. If the term is consistent

b. Custom trade usage

d. The fact that a written contract is silent in regards to a term does not necessarily mean
it does not come in

e. A modification to a contract does not need consideration to be binding is what 2-209

says

Warranties with sales of goods

Warranties from the buyers perspective

a. The buyer is concerned that the good performs a certain way

b. Concerned with regard to disclaimers of implied warranties

Warranties from the sellers perspective

a. The seller is concerned with limiting liability as much as he can

b. This is accomplished by limit the definition of non performance, limit scope of

remedies (generally limited to repair, replacement, or refund of purchase price), and
finally limit the duration of exposure to liability

Buyers Perspective

a. Buyers get express warranties which are based in the contract by making promises
that this product does certain things, through samples, and through spec sheets
 KTM

b. Implied warranties are created through the operation of law imposed by article 2
unless disclaimed. The two main implied warranties are 1. Implied warranty of
merchantability ( 2-314 ) 2. Implied warranty of fitness for a particular purpose
(2-315).

Article 2 is geared toward consumer protection not just rich companies arguing

2-314 Implied warranty of merchantability

a. This section is a default position that can be altered by private law

b. Applies were the seller is a merchant the buyer does not have to be a merchant. This
is different than 2-207 which talks about between merchants

Phillips v. Cricket Lighter

a. A 2 year old got ahold of a lighter that was in his mothers purse on top of the frige.
The lighter had no safety feature so the house caught on fire and three people died
including the child and his mother and another sibling.

b. P sued under strict liability, negligence, negligent infliction of emotional distress

c. The TC came out for D and there SJ was granted

d. TC granted the SJ because ordinary purpose of the lighter was to produce a flame and
it did what it was suppose to do. This is an instrumental definition. TC said the lighter
did not malfunction. The two main questions when analyzing a problem that deals
with 2-314 is did it malfunction and did it fulfill its purpose

e. The Pennsylvania supreme court reverses and reasoned the TC abused its discretion.
The supreme court of PA got to their analysis through a rule narrowing

a. Defining what is merchantable and what is not

b. The implied warranty of merchantability arises out of operation of law. So it is

not bargained for. Then the goal of the warranty is to protect buyers from loss
where two things occur 1. The goods are below commercial standard 2.
Unfit for the buyers purpose.
 KTM

c. As soon as this court altered the language of the warranty the scope of the
warranty is also altered which either widens the scope or narrows it

f. The implied warranty of merchantability is triggered by a sale by a merchant. Cricket

the D is a merchant.

g. The merchantability is satisfied if the good is fit for the ordinary purposes for which
such goods are used

h. 2-314(2) defines merchantable

a. Pass without objection in the trade under the contract description

b. In the case of fungible goods are of fair average quality within the description

c. Are fit for the ordinary purpose for which such goods are used

d. Run within the variations permitted by the agreement of even kind, quality,
and quantity within each unit and among all units involved

e. Are adequately contained, packaged, and labeled as the agreement may

require

f. Conform to the promise of affirmations of fact made on the container or label

i. A product does not need to be defective to breach this warranty

j. The D makes two arguments

a. One was the lighter was not defective

b. The kid who started the fire was not an intended user. Usually warranties are
extended from seller to buyer. The kid was not the buyer the mother ways, but
2-318(A) makes the kid a 3rd party beneficiary which warranties the kid. For
example say A and B enter into a contract to give A’s family member piano
lessons. The family member is the intended beneficiary. This court construed
2-318(A) liberally, by hanging onto the words AFFECTED BY. This court
says the kid was an intended user

k. The TC said the lighter did not malfunction so no defect, but there was a defect in the
design which was there was no child safety feature. The defect was not in terms of
malfunction, but defect in unsafe functioning. This court expanded the defect
definition

l. Who is covered by this warranty

 KTM

a. The scope of implied warranty of merchantability to third parties other than

the buyer is addressed in 2-318. Although there are 3 alternatives of this
section, each provides that protected third party beneficiaries includes persons
who May use, consumer or be affected by the goods and who is injured in
person by breach of the warranty

b. The implied warranty also applies to used goods, A contract for the sale of
second hand goods involves only such obligation as is appropriate to such
goods as sued

c. 2-314(3): unless excluded or modified other implied warranties may arise

from course of dealing or usage of trade

j. The Second issue of punitive damages

a. These are awarded to deter outrageous acts

b. A malfunctioning lighter is not an outrageous act

c. What is an outrageous act

i. Acts done with bad motive and reckless disregard. P in this case has
supporting evidence of this from their experts who stated D was aware
and had knowledge of personal injury occurring because there was no
safety device, death also occurred. The D’s also had knowledge
children were attracted to flames. Finally it was economically possible
for D to fix the problem

k. As far as broader terms about this case there is comparative negligence on the part of
mom who left the kid unintended, this is a tort theory. From a warranty theory there is
an intended user and intended use of product

l. To what extent should we have our judicial branch be a market place to decide what
is a safe product and what is not

m. This court used 2-319(A) to say the kid was affected by the lighter

Leal v. Holtvogt

a. This case deals with 2-315 which is the implied warranty of fitness for a
particular use.

b. The statute has the language KNOW so we are dealing with actual and
constructive knowledge
 KTM

c. In this case the P wanted to get into the horse industry and would frequently
visit D’s horse farm and would learn about the trade through D who were
horse experts

d. P and D went into a business adventure and purchased one of D’s horses with
the potential of using it as a stud

e. The horse had a lamness problem so it was prone to injury and limping

f. Nobody wanted to breed with P’s hoirse

g. The P’s purpose for buying the horse was to breed it

h. The D’s knew this because the P told them they wanted to start breeding
program and other conversations.

i. The D revealed he had actual knowledge. The other type of knowledge is

constructive knowledge which can be shown by observation, trade usage, and
conduct.

j. The part of the warranty which states; buyer is relying on the skill and
judgment is satisfied by

i. Satisfied by business relationship and the student teacher relationship

of P and D. The P relied on the D because D was an expert.

k. The element of buyer actually relying on the seller is satisfied by

i. The P was a non expert relying on the D who is an expert and all the
other reasons stated above

l. The element of buyer reasonably relying is satisfied by

i. The P was relying on the D’s statement of horse being ok

m. The element of breach is satisfied because

i. The horse was not fit for breeding which was what the P wanted

n. When we define the purpose of the deal we can define it narrowly or broadly

The narrow purpose would be to buy a horse to make babies. The broad

Purpose would be to make babies that have a high profit sale and this

Will not be satisfied because our horse has a genetic problem

 KTM

The elements of 2-315

a. Unless excluded or modified by 2-316

b. Where the seller at the time of contracting

c. Has reason to know any particular purpose for which the goods are required

d. Has reason to know that the buyer is relying on the sellers skill or judgment to
select or furnish suitable goods

e. There is an implied warranty that the goods shall be fit for such purpose

Why non merchants are not in a place to satisfy 2-314

a. It will not promote commerce because if a buyer purchases something from a non

Merchant that fails to work, the buyer does not have any way to return the product

b. Non merchants are not experts

c. Non merchants do not have remedys to offer

d. Expections are different from buyers perspective because they are buying from a non
merchant which is not the same as buying something from a big company like dell

e. If you are a non merchant and you sell a computer with a problem and don’t disclose
the problem you are not liable under 2-314, but may be liable under 1-203 which is
the obligation of good faith.

f. There are two standards of good faith 1-201(19) and 2-103(B) which deals with
merchants who have a higher standard.

g. At some point a party goes from being a non merchant to a merchant. If a party is
making an isolated sale like selling one computer you are not a merchant, but if you
are holding an annual sale where you sell computers you turn into a merchant because
you are annually selling computers and the party is always selling computers

Notice and Privity

Privity

a. Privity of a contract means the parties to a contract

b. Privity says there is a contract relationship. People who are not apart of the contract
are not in privity
 KTM

c. Third party beneficiary is the exception to privity

d. Under traditional common law contract law only people in privity are the contract
party, others are not.

Notice

a. One way to simplify commercial transactions is to regulate how one party gets notice
of breach

b. A core concept of notice requirement is to prevent prejudice to D

Review from law week

a. Implied warranty or merchantability and Implied warranty for a particular purpose

b. These two warranties are imposed by article 2

Requirements for a breach of warranty claim ( P must prove )

a. That a warranty was made or imposed

b. That the warranty was breached

c. That the breach of warranty caused P’s harm

d. The extent of damages

e. P’s ability to overcome affirmative defenses including

a. Disclaimers of warranties

b. Statute of limitations

c. Lack of notice to the manufacturer

d. Lack of privity with the manufacturer

e. Assumption of the risk ( this is like if you use a chainsaw there is an

assumption of risk )

f. Alteration or misuse of the product

f. Lack of notice and lack of privity are two big affirmative defenses
 KTM

Hebron v. American Isuzu Motors, Inc.

a. P’s car an suv rolled and she incurred permanent damages

b. P’s theory of the case was D breached implied warranty of merchantability

c. The case is about P’s failure to give D reasonable time of notice

d. D files SJ and they raise the affirmative defense that P did not give notice

e. The notice rule is 2-607(3); 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

f. Tender means turning over the right of the good

g. There is a time period to reject the goods after delivery. The language within a
reasonable time depends on the context of the transaction.

h. If buyer fails to give reasonable notice P barred from recovering damages.

i. The notice requirement applies to buyers, which is defined at 2-104(1) as a

person who buys or contracts to buy goods

j. The buyer does not need to be a merchant to be subject to the notice

requirement. Ordinary persons are subject to the requirements

k. The time of the accident and P giving notice to the D was two years

l. The time in this case is unreasonable because the truck had been destroyed
before notice was given so D had no chance to prepare a defense and inspect
the vehicle. Two reasons why the P may have disposed of the truck would be
emotional reasons ( the P was permanently injured and does not need to be
reminded of the accident over and over again ) and the insurance may have
gotten rid of it.

m. Another bad thing about the truck being destroyed is preservation of evidence
for examination.

n. A policy reason for notice is if there is a warranty issue giving prompt notice
to the warrantor will give them a chance to fix the problem, in this case the D
cannot cure the problem because the car is totaled, but there can be cases
where the warrantor can cure the problem like if there was broken toaster.
 KTM

o. Another policy reason to give notice is it facilitates deterrence

p. Another policy reason is the manufactures interest in repose. The

manufacturer does not have to worry that the product is bad so they are
relieved

q. Functions served by the notice requirement

i. Notice promotes the voluntary resolution of disputes

ii. Notice minimizes prejudice to the seller from the passage of time

iii. Notice enables the seller to cure the breach of warranty

r. Content of Notice

i. Notice need only be such as informs the seller that the transaction is
claimed to involve a breach.

Privity

a. There are two types of privity horizontal privity and vertical privity.

b. Vertical privity is

a. Manufacturer

Wholesaler

Retailer

Consumer

c. Technically the consumer and the manufacture do not have privity. One way to get
around this is the vouch in process which is if the manufacturer does not get
involved in the law suit the fact findings between retailer and consumer in their
dispute stand. So it is in the manufactures best interest to get involved. State law is
the other way to get around this.

d. Horizontal Privity

a. Manufacturer
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Consumer affected 3rd part

b. When a manufacturer sells directly to consumer, but the consumer sells it to a

3rd party . The original seller transfers warranty rights as well

c. 2-318 comes into play when dealing with third party beneficiaries and how far
it will go. There are three options under 2-318. A is the narrowest and C is the
broadest

d. 2-318 importance in privity is how far will a court go

Crews v, W.A. Brown &, Son, Inc.

a. P was a 13 year old girl who got locked in a freezer

b. This is a horizontal privity case

c. Brown (manufacturer) sells to Food Craft (assemblers) which then sells to Church
(consumer) then Crews (P) gets injured

d. Foodcraft received the parts to assemble a walk in freezer for the church

e. There was a sign inside the frezer that said you will not get locked in and foodcraft
had a safety latch that if you pressed door would open. Foodcraft employees checked
it out and made sure it worked

f. The button got frost around it after a few days so when the girl walked into the frezer
and the door closed behind her she tried to press the button but it did not work.

g. The girl lost numerous toes due to frost bite because she did not have any shoes when
she walked into the frezer

h. P suing foodcraft because they were negligent and breach of express warranties and
breach of the two implied warranties.

i. The D’s defense is P’s claims are barred because of privity

j. The court initially says we have to first establish context analysis

k. There is no privity requirement for express warranty that is directed to the ultimate
user

l. In this case there was no express warranty

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m. The court talks about privity requirements and warranties is the starting point. If there
is no privity then there is no claim unless legislative or judicial removal of this
barrier.

n. A legislative removal is section 2-318, but the court reasons P does not fall under the
category of this because she is not a member of the family of the church and a church
cannot be considered a home

o. This court is restricting the scope of privity

p. One way to get around family, household, and guest language in 2-318 is by saying
she is a guest of the church, but the home language is hard to get around because a
church is not a home, but we can say it is gods home

q. Usually the language of family in 2-318 is defined using the nuclear family, there has
to be a balance because what a court does will set precedent and you do not want to
be to broad

r. 3rd party beneficiaries do not have to give notice

Magnuson Moss Act

a. This is a federal act that applies to warranties

b. The major goal of this act is to protect consumers from unscrupulous warrantors

c. This act says if you give a warranty there are federal minimal standards to what the
warranty must include

d. This act gives consumer protection and a consumer remedy

Scope of coverage

a. The act applies to warranties relating to CONSUMER PRODUCTS which 1-101(1)

defines as any tangible personal property which is distributed in commerce and which
is normally used for personal, family, or household purposes

b. Goods that are not customarily available to the ordinary person are not consumer
products

c. Medical devices that are surgically implanted are not consumer products; the
consumer has no access to such products
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Kemp v. Pfizer

a. Is a heart valve a consumer product is the issue in this case

b. Court said no not available to the consumer and not distributed through commerce
and medical devices are not covered

c. The way to analyze what a consumer product is you have to look to consumer access
and consumer use

d. The court said a heart valve was not a consumer product

e. What happens if you have a consumer product and you fall under Magnuson
Moore act

a. P is able to recover attorneys fees

b. This act radically shifts settlement talks

c. The attorneys fee provision is important to the vindication of warranty rights

as the

d. Usually small amount in controversy makes it unlikely that consumers would

file suit if they had to pay their own attorneys fees

Jordan v. Transnational Motors, Inc.

a. The court has discretion to award attorneys fees

b. In this case P had 27K in attorneys fees, but the court awarded 7K

c. The court has to determine whether to award and how much

d. The appeals court said TC abused its discretion when they awarded the 7K and the
elements that have to be looked at are

a. Dollar value of the case

b. Result obtained

c. Lawyers time spent on the case

d. Lawyers hourly fee

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e. The appeals court said you have to look to the remedial goal of MMA. The court
wanted to encourage usage of the act even on small claims. If courts will not award
attorneys fees people will not bring cases because disproportion among recovery and
attorney fees which will give manufacturers a free pass

f. The second issue is the MMA has a jurisdiction issue. Even though the act is a federal
question act if the claim is not over 50,000 the federal court will not here it

g. What does MMA do

a. If we are dealing with express warranties we follow what has been stated
above

b. If we are dealing with implied warranties you have to follow state law

c. The judiciary did not want all MMA cases to be brought in federal court
because there will be to many nickel and dime cases

Commercial Impracticality

a. 2-615 is the rule for commercial impracticality

b. At the bottom of the principle of commercial impracticality is the concept of risk,

specifically differentiating between risks that are allocated between the parties
consciously or not in the consideration they exchange. In this there is a difficult idea
of differentiating between which risks people should be relieved of and which they
should not be relieved of

c. All sales transactions include an allocation of risk

a. The risk the seller takes is they will be able to product the goods or acquire
them from a third party and that the cost of raw materials and labor will not
rise tremendously

b. The risk the buyer takes is that the buyer will continue to need the ordered
goods and that the market price for similar goods will not fall dramatically

d. Sometimes things happen that are thought to be sufficient to excuse non performance
by the affected third party

e. Commercial Impracticality usually arises in two situations

a. An unexpected failure of the sellers source of supply

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b. A dramatic price fluctuation affecting either the seller or buyer

f. Commercial impracticality relates to events that happen after contract

formation

Resource Investment Corp v. Enron

a. Action for breach of K

b. The contract assured the seller of cash flow

c. The contract was a take or pay type. D undertook to purchase gas each year
even if the D’s did not want the gas they had to pay for it

d. Enron says they f onto have to pay for the gas and are excused because market
price of gas went up, people were not using it, foreign competitors are selling
to who they sold to so they do not need as much gas, less demand for gas, the
change in the regulations

e. We go to 2-615

i. There can be a delay in delivery of the goods or total non delivery to

trigger this.

ii. For a risk to support a claim of commercial impracticability, it must

not have been foreseeable at the time of contract formation.

f. Most of the excuses D was asking for was dealing with price fluctuation and D
was getting the short end of the stick. The court says to bad to D, these types of
issues are inherent in every contract. The price that was negotiated in the contract
has both parties intention of what will happen in the marker. Market price
fluctuation is rarely the basis for a excuse claim

g. The enactment of the new federal regulation is one good excuse for Enron

h. One situation where price fluctuation will give excuse to get out of K

a. These would be in situations like the trash case from last semester

where it was not forseeable the city would have an increase in

population of 40 pecent.

b. The pain has to be severe enough

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Alamance County v. Bobby Murray

a. The D’s defenses are commercially impracticability 2-615

b. The presupposed condition in this case was GM would provide the chasis so D can
sell them to P

c. D says he should not be liable because he didn’t get the chasis from GM which means
he cannot sell to the buyer

d. This argument does not work for D because there was other suppliers he could have
gotten the chasis from. It was not impossible for D to perform

e. The K did not provide GM would be the only source of supply for the chasis

f. There were alternative suppliers because the P was able to get the chasis on their own.
They were able to cover

g. The government argument regulation fails because

a. The D did not notify P which is what D is suppose to do. This is important
because P needs as much time as they can get to cover. The earlier P covers
the cheaper it may be for them to find an alternative

b. Also the governmental argument fails because there was an affirmative clause
for D that even if regulatory law changes occurred D would be responsible for
it. Private law negated the general provision.

h. Force Majeure

a. This is boiler plate language. It is a private agreement that parties will lay out
what they consider impartibility and impossibility

b. The parties are trying to plan ahead if something like this were to come up

c. The problem with having clauses like these are they are vague and unclear

d. It is humanly possible to plan for all the intricacies that can occur

e. More than likely we will end up in 2-615

Unconscionability
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a. Allows consumers to get out of deal

b. Even though there is no question that the parties agreed to the K when we look back
we say we cannot enforce these type of contracts

c. Unconscionability is a subjective analysis

d. There is nothing wrong with hard bargaining like the two brother case from last
semester

e. Oppression is not ok

f. Procedural and Substantive Unconscionability

a. Substantive: Goes to the terms of the K they are groosly so inadequate

b. Procedural: Goes to the process of the bargain, like the parties

intelligence, age, etc. Bargaining Naughtiness. People use bargaining trick
like fine print and bury harmful language

g. Once we find unconscionability 2-302 tells us what to do

Maxwell v. Fidelity Financial

a. There are 2 deals. One in 1984 and one in 1988

b. In 1984 D sells the water heater to P

c. The water heater never worked so National the company who sold the water
heater are in breach of K. The fact that National went out of business has
nothing to do with the K between Fidelity Financial. The P’s have to keep
paying the loan. The P’s have to keep paying unless they have an excuse

d. The basis of 2-302

i. This is decided by a judge. This is a policy decision because we do not

trust juries. We want predictability and stability in contract law

e. Unconscionability can have different outcomes

i. Either the entire K will not be enforceable or a clause

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ii. The unconscionability has to be at the time K was made. This is

different than 2-615 which occurs after the K and deals with things
that occur after contract formation

iii. The court can insert language of their own to re construct, but
American Law does not like this other courts around the globe will
do this more often

iv. The court has to have a hearing on unconscionability because this

theory has to be applied with particularity because it is so fact specific
every time

f. Some of the facts about this case that help us determine

Unconscionability

i. Value of the house was only 40,000, but they were buying a water
heater for 16,000. These are excessive terms of the price

ii. The security fee deal was oppressive. If P did not pay the D, D can
foreclose on their house, keep the money, and take the water heater
away. There is cross collaterization that is excessive

g. There is no requirement that you need Substantive and procedural

unconscionability.

h. What is the relevance of Procedural Unconscionability

a. If we do not have this then we only rely on what is on the paper which

are the terms the partys agreed to so it will abolish this principle

i. An argument for P is the very fact that somebody entered into an irrational

deal will prove there was some tricky procedural stuff going on

j. At the same time we want stability in K formation, but there is needs to be

a safety valve.

Our epistemology is the way we see the world is what determines our ethics which is how
we will act in the world. Posner says if we allow people to get out of their deals, people
whose credit or income level is not as high will not have access to these deals. The reason
why terms are groosly high for people with bad credit is because creditors are taking a
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chance on these people and the probability is high they will default. Once these deals are
gone for these people many things will be stripped away and take away from the economy.
Judge Martone says who cares about creating deals we care about fairness. I do not agree
with the law and economic theory because we should care about being human instead of
economically efficient. Do we want people to live in vermin infested places with no running
water because it promotes economic efficiency.

Risk of loss

a. It is not unusual for items to get lost.

b. These rules define which party is responsible to the destruction or damage of goods. Who has
the risk of loss if something happens in between from getting the product form the sellers
warehouse to the buyer

c. Article 2 gives a set of default rules. These rules only apply if the parties have not other wise
agreed to something else. Once again we see this private law distinction coming in

d. These default rules apply when neither party buyer nor seller is at fault but some third party
usually a carrier is at fault

e. FOB sellers place of business is a shipment contract

f. FOB buyers place of business is a delivery contract

g. FOB means when the risk of loss shifts

h. If it is a shipment contract the buyer is usually responsible for the damaged goods if due
delivery is satisfied

i. If it is a delivery contract the seller is responsible if due tender is satisfied.

j. If the parties do not include this in the contract the default rule is a shipment contract so
they buyer will responsible.

k. Who bears the burden if something happens from getting the product from the sellers
warehouse to the buyers place.

a. In a shipment contract the risk is shifted at delivery to the carrier.

This analysis is origination focused.

b. In a delivery contract risk is shifted at tender. Tender is not to

to the carrier but to the buyer. This is destination focused.

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l. We start of with 2-509(1)(A)

a. There is a due delivery requirement

j. 2-509(1)(B) has a due tender requirement

k. The main question is we have to decide is it a delievery contract or a shipment contract

l. Delivery is defined in 2-504: Delivery has to be reasonable so there is a reasonable component

to it. The seller has to 1. Put the product with a reasonable carrier 2. Is the carrier contract a
reasonable contract meaning are they a new company or are they like UPS 3. We have to look to
the goods we are shipping if they are perishable goods the seller has to make sure the carrier has
a frezzor. If this reasonable component is not meet the risk of loss stays with the seller

m. 2-503 deals with what tender means

n. 2-510 deals with if the seller or buyer breach

Cook Specialty Co. v. Schrlock

a. This was a shipment contract

b. The goods were under insured

c. The question in this case was whether the machine was duly
delivered. The seller is duly delivering to carrier at sellers place of
business. As soon as carrier loads the product on the truck risk of
loss shifts to the buyer.

d. The carrier does not secure the product and it falls of the truck and
gets damaged

e. The buyer is arguing the seller did not verify the insurance so the
seller did not duly deliver so the risk of loss is with the seller not
buyer

f. What does it mean to duly delivery: If the seller fails to protect the
goods like if the seller sends a product that needs to be frozen with a
non frozen carrier he did not duly deliver. Also if a seller is shipping
plants that need to be watered and the sellers does not make sure the
carrier is capable of watering the plants the seller is not duly
delivering
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g. What is undue delivery: One way to do this is if the seller has an

under declaration of value like if the seller lies and tells the carrier
the goods are only worth 500 dollars but they are really worth 5,000.
Another way is if the sellers activities make it an invitation to theft
which is like putting a label that says contents easy to sell and really
expensive. The act by the seller has to be reckless. This is a difficult
standard to get passed. The risk of loss will try to stay status quo to
the buyer

h. The more investigation you do as a seller the more you keep your
liability down to have the risk of loss shifted back to you

i. Additional requirements under 2-504: The seller has to notify the

buyer the stuff is in transit and give a bill of landing to the carrier.
These things give the buyer a chance to get insurance

What does it mean to due tender under 2-503

a. The goods have to be conforming. This means the good have to be

the ones the buyer ordered and are in reasonable appropriate
condition. If a good is non conforming the buyer can reject the
goods, repudiate the acceptance (when you have the stuff in your
possession and you find out the goods are non conforming.

b. The seller will not satisfy due tender if the goods are non conforming

c. In a due tender case we are looking for this idea of conforming goods

2-510(1) and (2) is when the seller breaches

2-510(3) is when the buyer breaches

Design Data Corp v. Maryland

a. This was a delivery contract

b. The risk was shifted to the buyer because it was untimely

c. The court said the rejection was not timely because a representative
of the sellers was going to come a week later to install the product
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d. This case comes down to how the right to reject ties in with
conformity or non conformity

e. The delivery contract risk of loss remains on the seller provided that
there is due tender. Due tender means conforming goods are given to
the buyer

Review

a. Risk of loss key buzz words

a. Due tender

b. Due delivery

c. Shipment contract

d. Delivery contract

b. A shipment contract the risk of loss shifts when due delivery is made

c. A delivery contract the risk of loss shifts when due tender is made

Sellers Remedies for Buyers Breach

a. These are in 2-701 through 2-710

b. In the sellers remedy analysis we always start with 1-106: this is the spirit of the
remedies section which has two principles

1. the goal of all remedy provisions in the UCC is that the non breaching

Party may be put in as a good a position as if the other party had fully

Performed. This is the equilibrium theory of damages Breach + damages =

Performance

2. Consequential damages are not allowed unless there are specific provisions
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Made for them in the code. These damages are not allowed because sellers rarely

Suffer. Also we are dealing with goods that are almost always fungible so sellers

Have cover. The seller cans resale

c. After the 1-106 analysis we go to 2-703: which is the catalogue of sellers remedies and

the catalogue of the various ways in which a buyer might breach its contract with the
seller.

1. The four ways a buyer can breach

1. wrongfully rejects goods

2. wrongfully revokes acceptance

3. fail to make a payment when due

4. anticipatory repudiation

2. The remedies for a non breaching seller\

1. Withhold delivery

2. Stop delivery by a bailee

3. identify goods to the contract in the case of an anticipatory

Repudiation

4. Resell and recovery damages under 2-706

5. Recover contract market damages (lost profits) under 2-708

6. Sue for the contract price under 2-709

7. cancel the contrat

3. Numbers 1-4 are actions a seller can take to limit damages; 5-7 are

Measures of damages

Resale Damages

a. If the seller has to sell products that buyer does not want and if the resale value
different than the original contract price the seller can recover
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Contract market value damages

a. If the seller cannot find a buyer this is the route the seller will take, basically
using the market value of the item and the seller recovers that price

Sue for K price

a. This is the simplest to apply

Lost profits

a. When the seller had a buyer who was going to buy over market price but this

buyer is gone because he purchased the goods from another buyer and the original buyer

breached.

Cancel the K

a. Once the buyer breaches the seller can say the K is terminated

2-709 ( Suing for the contract price )

a. The action for the price is essentially an action for specific performance

b. The seller has to satisfy this to use this ( the seller can use under these conditions )

1. When the buyer fails to pay the price as it becomes due to the seller may

Recover with any incidental damages under the next section the price

1. Where the buyer has accepted goods

2. Where conforming goods whether or not have been accepted, have

Been lost or damages “within a commericialy reasonable time after risk

Of their loss has passed to buyer”

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3. Where the seller has identified goods to the contract and there is no

Reasonable prospect of reselling them to a third party for a reasonable

Price

c. In a case involving the breach of a contract for the sale of goods, a seller may recover

the entire contract price if the seller is unable to resell the goods at a reasonable price

or the circumstances reasonably indicate that such effort will be unavailing. Sack v

Lawton

d. 2-709(2): These are obligations the seller has to do

1.The seller has to hold onto the goods that are the subject of the contract and that

He has identified

2. Also the seller while holding the goods is able to resale them he must deduct

The resale from the damages

Sack v. Lawton

a. P was selling art work to D for 12,000,000

b. D failed to pay

c. P is seeking the money he would have received if the buyer purchased the painting

d. This was a valid contract for the sale of the painting between P and D

e. The buyer anticipatory repudiated because he had no money

f. D also offered to sell P a painting for 10,000,000 but did not sell it

g. P is brining a lost profit claim for 5,000,000 because P was going to sell the painting to

another person for more money and now he cannot

h. P is also seeking 3,000,000 in consequential damages.

i. Requirements for seller to recover contract price

a. The seller has to identify the goods which the P in this case did and the P in this
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case tried every think to resale the painting but nobody wanted it. The P tried to

sell the painting publicly at a gallery but failed to do so ( this is the third clause

under 2-709 the P can recover on this case )

j. Consequential damages

a. No provision allowing for these types of damages because legislature did

not draft this in Article 2

b. In common law and other countries judges have more room to germinate and

grow and interpret

c. Article 2 is read narrowly

d. One way sellers try to get around this is say these damages are incidental

damages.

e. Apart from the UCC some statutes allow non breaching sellers to recover

pre judgment interest

1. Which is where P’s damages are reasonably known P can recover

Interest from the date of the breach to the date of judgment at a rate

Set by the legislature. There is also post judgment interest which is

Interest from date of judgment to when the buyer pays.

k. 2-710: defines incidental damages as commercial reasonably charges, expenses,

or commissions incurred in stopping delivery in the transportation, care and

custody of goods after the buyers breach, in connection with return or resale or

otherwise resulting from the breach. ( these are limited and related specifically

to the breach of the contract which are the out of pocket expenses )

Formula for contract price

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a. K+ID

Formula for Resale Damages

a. KP+RP+ID-ES - contract price - repudiation price - incidental damages - expenses

saved

Resale damages (2-706)

a. First determine how the buyer breached through 2-703. Then we have to determine
whether or not the resale was made in good faith and a commercially reasonable manner. For
example it was not unduly delayed

b. The seller has to asking for a fair resale value

c. The seller has to give notice to the buyer so the buyer can drum up interest to have

people purchase products.

d. 2 issues that come up in commercially reasonable

a. The passage of time was it reasonable; the longer the passage of time the less

reasonable it will be because the value is usually calculated at time of breach. If

sellers wait to sell the good there is a time lag so things change like market prices.
The longer seller weights the less there is a relationship between the time of

breach to resale day

Firmwood Mfg. Co. v. General Tire

a. The P waited 3 years to resale the goods.

b. The market price obtained for the good 3 years out has nothing to do with the market

price during breach

c. The courts says the delay was not unreasonable because P mad significant strives to

resale. Also there were ongoing consistent good faith efforts to resale.

d. One theory is maybe P was negligent and lazy which is why there was a delay
 KTM

so P should not get any damages

e. If the market was volatile and P keeps waiting they are in a win win situation. P would

be manipulating the market and not consisted with 1-106

f. There was no suspicion the court found P was driving up market value

g. Reasonable means: Depends on the nature of the goods and condition of the market,

who are the parties, how are they behaving

h. Even though the machine is a specially manufactured some of parts inside the machine

can be sold separately and then the seller can put in another piece.

1. This is a problem because the seller is making a double sale

i. When there is an extended period of time between the date of the breach and the

date of the resale, will the seller be compensated for the time value of money lost due

to delay

a. Does the term commercially reasonable charges include interest on the lost

use of money? US Circuit Courts do not answer this question consistently

b. Because the purpose of making incidental damages available to a seller

is to put the seller in as god a position as performance would have done (1-106)

incidental damages are limited to out of pocket expenses.

Another way a seller can recover is 2-708(1) Contract market difference

a. Market price is measured as of the time and place of tender, both of which should be

defined in the contract

1. time is contract performance date

2. place of tender depends on whether the contract is a shipment contract

Or delivery contract

2-708(2) is the lost profits analysis for sellers to recover.