Advanced Sales and Leases – Fall 2014 - Wellman

Plan of Attack
1. Does Article 2 apply?
2. Is there a K? (Offer & Acceptance)
a. Destination; shipment; warehouse
3. Is there a Statute of Frauds issue?
4. Is there a BOF issue?
5. Is there a vague or ambiguous term that parties need clear definition for?
a. Extrinsic evidence analysis
6. Is there a party wanting to add supplementary/contradictory terms?
a. PER
7. Does a party want to modify the K at all, or limit modifications?
8. Are there any warranties on the goods?
9. Did the Seller tender? (ID; deliver; ship; docs/title)
10. Is it a carrier or a warehouse K? (ROL)
11. Did the buyer tender? (Accept; Reject; Revoke)
12. Was there a breach of K or warranty?
13. What are the remedies? (Sellers vs. buyers)
14. Any random defenses? (Unconscionability; Impossibility)

Introduction: The Scope of Articles 2 & 2A; Merchanthood p. xvii-xxii, 3-51

Note on Article 1 (Good Faith)
 Has been revised, but Michigan has not adopted the revision.
 Most Changes are small (i.e. numbering)
 One substantive Change: the Concept of Good Faith
 §1-201(20) Revised Code: everyone held to honesty in fact and the observance of reasonable
commercial standards
oSubjective: Honesty in fact
oObjective: Observance of Reasonable Commercial Standards
 §1-201 Original Code:
oNon-merchants: Honesty in fact (subjective)
oMerchants: Honesty in Fact AND observance of reasonable commercial standards (subjective and
objective)
oNow the same standard is held for both
 Good faith cannot be disclaimed, BUT parties can determine standards in a contract so long as it is not
manifestly unreasonable
 Subjective standard: aesthetic, complex or discretion
 Objective standard: quantifiable or simple
 MN: Adopted revised Article 1: Good faith is applicable to everyone (merchants and non-merchants)
 Has to meet both arms of the good faith definition (subjective and objective)
 MI: Has not adopted the revision. §2-103 is not still binding only on merchants
 If one party is a non-merchant then the only standard of good faith that he has to meet is the standard of
honesty in fact
Scope of Article 2/Does Article 2 Apply?
 Question 1 of the analysis will always be what body of law governs
 Common Law or Article 2?
 It does NOT cover:
 Gifts
 Loans/Bailments
 Leases
 What kind of contract is this? Sale of Goods?
 Predominant factor test: Goods or Service? Hybrid contract?
oAre we talking about a sale of goods with ancillary services or vice versa?
oMichigan has perverted this test:
1
  If the contract and the relationship ONLY exist because of the goods, then the predominant
factor of the contract is goods (VW hates this rule)
 Gravamen test: What is the subject of the dispute that we are paying attention to right now?
oIs it the goods and their qualities or is it something related to the services of the transaction
oThis is not an all-or nothing test (like PFT): applies dispute by dispute
 Note: Under Article 2, minerals when sold after being removed from the land are good (§2-107)
 Contract to remove the minerals isn’t covered
 Fish Chowder with bones in it: Goods, Warranty of Merchantability
 Buying foreign currency: Good
 Oil/Natural Gas
ANALYSIS – Is this a transaction in goods? Work through the definition of goods
 §2-105(1): all things movable at the time of identification to the contract of sale
 Includes the unborn young of animals, growing crops and specially manufactured goods
 §2-105(2): Must be both existing and identified
 Even if the goods don’t exist, we can have a contract for the sale of goods to manufacture in the future (future
goods)
 §2-105(4): An undivided share of a bulk of identified fungible goods is sufficiently identified to be sold although
the quantity of the bulk is not determined
 Once you buy, you became an owner in common
Statute of Limitations
 §2-725(1): Must sue within FOUR years after breach
oCan be reduced via contract, but cannot be less than one year
oCannot extend via contract
 §2-725(2): Cause of action accrues when the breach occurs, even if you don’t know about the breach
oBreach of warranty occurs when the tender of delivery is made, except where warranty explicitly extends to
future performance of the goods and discovery of the breach must await the time of such performance
The cause of action then accrues when the breach is or should have been
discovered Examples of Goods and Not Goods
 Buyer leases computer software (i.e. a license)
 Secured transactions: the sales part does
 Once hardware is soft with software in it it is more likely to be covered under Article 2
oSO: Shrink Wrap (Good), Creating the software (NO), Updates/modifications (middle ground)
 Updates/Modifications depend on whether programmer was paid like a seller
 NO:
Copyright
Investment securities
Goods that are incidental (use the predominant factor test)
oEx: Get dentures from dentist. They suck. Can’t sue Dentist under Article 2 BUT you can sue the
manufacturer of the dentures.
Repair Contracts are not usually goods
Termination vs. Cancellation of a K
 §2-106(3): Termination: When either party pursuant to a power created by the agreement or law puts an end to
the contract for something other than a breach
 All obligation which are executory on both sides are discharged
 Any right based on a prior breach or performance survives
 VW: No Remedy for a termination
 §2-106(4): Cancellation: One party legitimately ends the K in response to other’s breach
 Remedy is available
 VW: Default does NOT equal breach

Defining Merchant
 NOTE: Do NOT start the analysis asking if one party is a merchant until you have identified the particular provision of the
code that you are applying the facts to
oDifferent provisions may result in different answers
oDO ask: Is the party a merchant in this section?
What standard are we using?
Does the party in question apply to the standard?
 3 Standards in §2-104
o§2-104: A person who deals in goods of the kind OR holds himself out as having knowledge of skill peculiar to the
practices/goods involved
1) Merchant in GOODS (§2-300s: Warranties) = meaning the party is an expert in those goods in
particular
2) Merchant in PRACTICE (§2-200s: SOF, BOF, Firm Offers, Modification/Rescission) =
essentially everyone is qualified as a merchant unless acting in a private capacity
3) Sliding Scale (huh?)
o§2-104(3): “Between merchants” both parties are chargeable with the knowledge or skill of merchants
Comment: For purposes of these sections almost every person in business would be deemed to be
a “merchant”
o§2-314: Uses a more limited definition of merchant
 Note: MI criteria of good faith on behalf of a merchant will be different based on what section you’re using (see note
on Article 1 differences)

LEASES: Article 2A
General Notes
 There is no §2-207 in Article 2A
 §2A-100s are almost the same as §2-100s
oImportant Change: §2A-302 (on unconscionability) was moved into the 2A-100s which makes more sense
because unconscionability is not a gap filler.
It is a correction/policing mechanism
 No parallelism between 2-300s and 2A
oThere are no gap-fillers in 2A, except for provisions about warranties (implied AND express)
 We can add more features into a lease relationship (i.e. build in a third party)
oEx: When you lease a car you work with the dealership and through a financing agency
 §2A-103(1)(i): Installment lease contract
oSame as §2-612(1)
 §2A-501: whether the lessor or lessee is in default under a lease contract is determined by the lease agreement
and Article 2A

§2A-103(1)(j): a transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including
a sale on approval or a sale or return, or retention or creation of a security interest is not a lease. Unless the context clearly
indicates otherwise, the term includes a sublease.

Lease must be for less than the economic life of the goods and lessor must retain right to goods
Lessor must retain an economically meaningful reversionary interest

Does Article 2A Apply?

 Issue: For tax reasons, I might want to take what is in reality a sale and disguise it for something else like a lease
 Determine whether it is a sale or lease
§1-203(b): NOT a lease if: lease is not subject to termination by lessee, AND 1 of these 4 factors:
o1) Original term of the lease is equal to or greater than remaining economic life of the goods;
o2) Lessee is bound to renew the lease for the remaining economic life of the goods or is bound to
become the owner of the goods;
o3) Lessee has an option to renew the lease for remaining economic life for no additional
consideration or for nominal additional consideration upon compliance with the lease agreement; or
o4) 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
 Problems disguising a sale with a lease
Make monthly payments with purchase at the end of the lease term
Often with these the residual value is 0 or something nominal
The more you understand the complexity of the transaction, the more you understand in the
commercial world and can identify a sale disguised as a lease
 Key is a reversionary interest = lessor will get the chattel back and it will have some economic life left
Ex: 20 year car lease is a sale
Auto renew lease for remaining life or required to buy at end is sale
 Renewal of lease for nominal consideration is a sale
oNominal consideration = less than lessee’s reasonable prediction of cost of performing if lease option
is not exercised
NOT nominal if renewal price is to be determined at time of renewal
oNOT auto security interest just because:
Lease price is Full market value
Lease assumes no ROL
Lessee agree to pay maintenance
Option to renew/own later
Option to renew at a greater price than full market value

Formation, Enforceability and Basic Terms p. 58-85,87-107

Offer & Acceptance: 2-204, 2-206
 Offer and Acceptance are not defined in the Code, so we default to common law
 §2-204: Formation in general
o(1) Contract can be made in any manner sufficient to show agreement, including conduct by both parties
which recognizes existence of a contract is sufficient
o(2) moment of making doesn’t need to be determined
o(3) one or more terms can be undetermined so long as parties intended to enter contract and there is a
reasonably certain basis for giving an appropriate remedy
Use gap fillers for anything that is left out
§2-305(4): If parties do not intend to be bound, there is no contract
 §2-206: Offer and Acceptance in formation of contract
oAcceptance may be by any manner that is reasonable under the circumstances
EXCEPT if manner of acceptance is unambiguously restricted or limited by the language or
the circumstances
oPrompt or current shipment orders may be accepted by:
Prompt promise to ship goods
Prompt shipment of goods
oShipment of nonconforming goods is an acceptance and a breach
EXCEPT if seller seasonably notifies buyer that nonconforming shipment is only offered as
an accommodation
This = a counter-offer that the buyer can reject.
Firm Offers: §2-205
 Merchant buyer has different obligations than a non-merchant buyer
oOnly recognized status distinction in Article 2
 Offer is not defined by the code: must depend on common law to define
oEx: A newspaper ad is not an offer
 §2-205: Firm Offer: an offer by a merchant to buy or sell goods in a signed writing which by its terms give assurance
that it will be help open is not revocable, for lack of consideration during the time state or if no time is stated for a
reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of
assurance on a form supplied by the offeree must be separately signed by the offeror
oActual offer
oMade by a merchant
oSigned writing (tangible representation/manifestation of words
oImportant: By its terms gives assurance it will be held open (2 tricky parts)
By its terms, by terms of signed writing in normal construction and not other stuff
What qualifies as assurance?
If I say offer expires by Friday: not giving assurance it will be open until then, I’m saying
you have until Friday to accept. It expires on Friday
Becomes in effect a statutory option contract for you to accept at your discretion
How long does it remain open? As long as it says (not longer, sometimes shorter).
Never longer than three months (Gap-Filler)
 When there is a firm offer, it is enforceable just because it is made
oIt does not have to be an option contract and it does not require consideration
 Look for:
 oGenuinely an offer
oBy a merchant
Who is a merchant? Depends on which provisions we are talking
about Battle of Forms: §2-207
 Common law mirror image rule: You acceptance must mirror my offer AND all of its terms/conditions
oWhat comes from this: If we know that we have a contract, then we know that you have accepted my offer or I
have accepted yours
 §2-207: Does NOT work the same way as the mirror image rule
oWhen I accept your offer, I can do things with different or additional terms
oDo not have to identify who made offer to whom or exactly what terms you offered to me
oUnder §2-207, an offer MUST be made
Solicitations and inquiries are not offers
Do not pay attention to the label parties give to a document, rather look at the function of
the document
oRemember: If it changes too many terms, it is NOT an acceptance. Also pay attention to when the offer lapses
 §2-207(1): Contains the proviso clause after the comma
oUnless acceptance is expressly made conditional on the assent to the additional or different terms
oIf included in offer than any additional terms are considered a counteroffer
oSmart for sellers
 §2-207(2): If worried about having term snuck in as additional then add provision to offer that says this can only
be accepted by terms and conditions in this offer!
 Questions: Is there a contract? What are its terms? Was there an offer? Was there a response?
oWas the response a definite and seasonable expression of acceptance? (doubtful)
Definite and seasonable: Response to offer within time stipulated by original offer
If accepted after time stipulated, new offer
oDid the acceptance contain different or additional terms?
 Comment 4: Do the proposed additional terms materially alter the contract?
 Comment 5:: Unreasonable surprise or hardship in the trade – issues:
oChoice of law: Material
oChoice of Venue: Immaterial
oArbitration: Varies by Jurisdiction
 Standard terms and conditions = BAD: If I want to incorporate my standard terms and conditions, I have to at the
bare minimum say so and get your agreement to their inclusion

Offer was made:

No Acceptance Acceptance
NOT between merchants: no additional/different terms
Rejection: No contract
unless consented to
Between merchants additional terms: §2-207(2): part of the
contract unless offer expressly limits acceptance to its terms
Counter: Response is conditional, not seasonable, not a
(proviso), the terms materially alter the contract (comments
definite expression
4&5), OR reasonable notice of objection is given/has been
given
Different terms: 2 approaches
Knock out doctrine: conflicting terms knock each
No acceptance/performance: no contract other out – use gap fillers (majority approach)
Parallel: offeror’s original terms become part of the
deal (minority approach) – TN and 2 other states
Clear manifestation of acceptance: contract on offeror’s terms
No acceptance but conduct indicates: contract under §2-
207(3) with agreed upon terms, gap-fillers for rest

 What to expect to be different or additional terms

 warranties
 damages—i.e. consequential
 delivery terms
 Analysis
 §2-201(1) is there a K? (YES = Go to 3; NO = Go to 2)
oOffer & Acceptance: must be definite and seasonable
 Definite = A specific offer is identified and not rejected
 Seasonable = The offer has not lapsed in time
oWritten confirmation: Creates the offer (even if different/add terms)
 Means there is a K (however terms are not decided yet)
 If no confirmation then go to 2
oEXCEPTION--Proviso clause: Not an acceptance if the confirmation states that acceptance is made express
on the terms of the acceptance
 Creates a counter-offer
 §2-207(3) Does the conduct make a K anyway?
oYES, IF writings don’t make a K BUT conduct does (i.e. no acceptance but someone receives PO and ships
w/o confirmation
oTERMS: what’s agreed upon + gap-fillers
 Different = knockout
 Silent = gap-fillers
 §2-207(2): Are there any different or additional terms?
oADDITIONAL:
 Is the K between merchants (easy practice standard i.e. most will fall into this category)?
oNO: no additional terms
oYES:
 Did the offer limit the acceptance to the offer’s terms?
YES = No additional terms
NO = Go to b
 Do the additional terms materially alter the K
I.e. undue hardship or surprise?
YES = no additional terms
NO = go to c
*MATERIAL (comment 4): Limit warranties; Higher delivery guarantee
than normal course of dealing; Consequential damages
*NOT MATERIAL (comment 5): Slight enlarging seller’s protection
for superseding causes beyond seller’s control—choice of venue;
arbitration depends by court
 Was objection to the additional terms given before, or reasonably after?
YES = no additional terms
NO = add terms in
oDIFFERENT: Knock-out doctrine (no different terms allowed)
 Then use gap-fillers to finish
oWarranties will depend on what kind
oBuyer will get consequential damages
 SOLUTION: Seller should sell up click terms website with their terms that reads so that the buyer is made to look like
they are accepting the offer from seller
 i.e. the buyer is accepting their own terms
LEASES
No Battle of Forms: use mirror image rule
Statute of Frauds: §2-201
The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a writing, signed by
the party to be charged, with sufficient content to evidence the contract. Traditionally, the statute of frauds requires a
signed writing in the following circumstances:

Noncompliance with statute of frauds is an affirmative defense: must be raised by a party

- What’s at issue isn’t winning the lawsuit, it’s getting to trial
- Statute of frauds is a 12(b)(6) kind of defense, no enforceable contract, cannot proceed
 §2-201: Applies to contracts of $500 or more: not enforceable 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.
 “Some writing” means any durable communication
 1 way to work around: Extra memo for which there are 3 requirements:
 some writing
orefer to contract for sale of goods: must indicate a sale has been made
 signed
o1) anything sufficient to identify a party, AND
o2) demonstrate present intention to adopt or accept the writing
 specify quantity
odoesn’t have to be a number, can be bushels
oonly enforceable to quantity stated
oremember the check example with memo line/dollar amount
 4 exceptions to the writing requirement
 §2-201(2): “Between merchants” exception
oSome writing written in confirmation of the contract sufficient against the sender sent within a
reasonable time after entering the contract which the receiving party:
 1) actually receives the writing
 2) has reason to know of its contents
 3) doesn’t abject in writing and within 10 days of receipt
 SO: no writing needed if
oOral agreement made
oSend out confirmation reasonable after (trade custom)
oParty receives it (actual receipt not necessary if they would have received it w/ due
diligence)
oParty then has 10 days to reject after receipt otherwise there is a K
oMy signed confirmation can satisfy requirements of statute of frauds as against you even though you
haven’t signed it
oComment 3: failure to answer a written confirmation of a contract within ten days of receipt is
tantamount to a writing under subsection (2) and is sufficient against both parties
 §2-201(3)(a): Specially manufactured goods exception
oSpecially manufactured goods which reasonably indicate that they’re for the buyer and whose
manufacture or means for manufacture has substantially begun
oPart produced by putting two parts together: A and B together--courts go either way
oIf seller does not normally sell these types of goods and has reasonable basis for believing a sale had
taken place, no writing is necessary and buyer can’t claim SOF as Defendant, if seller has started to get the
goods or ordered their manufacture
 §2-201(3)(b): Judicial admissions exception, evidentiary
oIf D admits in pleading, court, testimony that a K existed SOF cannot be used and K is enforced for what
the D admitted to
oEnforcement limited to quantity admitted to
oNote: doesn’t always require express admission— can be implied if able to infer existence of the essential
elements
 §2-201(3)(c): Part performance exception
oNo writing necessary to enforce K for goods that have been paid for and accepted OR received and
accepted

 Promissory estoppel to work around?

 sometimes allowed, sometimes not— jurisdictional, Courts are Split
 1: allow PE to get around writing requirement if party detrimentally relied on belief of K
 2: don’t allow, only allow the 4 strict exceptions (VW thinks this is right) (SOF is concrete)
 3: some say allow PE but make the standard really high
Blanket purchase orders are not requirement contracts unless specifically stated, otherwise will fail for having a writing down
the line of succession. Blanket purchase orders are NOT the same as requirements contract unless explicitly stated as such. So,
this does NOT meet the Statute of Frauds in most courts
LEASES: §2A-201: Statute of Frauds
 §2a-201: Lease term is required
oNo “between merchants” exception
oNo “partial payment” exception
 There is far less flexibility than under Article 2
oUnder 2A need duration
Under 2 only need indication that contract was made and the quantity
o§2A-201(4) is the same as §2-201(3)
oBasic Idea is the same. Need:
Writing, price threshold
 Legally: You can leave the price term open on a lease, but this is impractical because there are NO gap fillers
oTerms of lease and the price of lease are intertwined

Interpretation and Construction p. 109-164

 Interpretation of Specific Terms in the K (Hierarchy of how to analyze what’s enforceable)

 Express Agreement (best): what are the explicit terms of the K?
 §1-303(A): Course of Performance = What terms were made in prior performance of same K between
these parties
oIncludes when other party knows of the nature of performance but does not object
oAlways admissible in court
 §1-303(B): Course of Dealing = What term has meant in previous Ks between the parties that is reasonable
for believing would continue on (subjective standard)
 §1-303(C): Trade Usage = What a term means in the industry with high regularity
oObjective standard that must be proven as fact unless in a code somewhere, then it’s a matter of law
oDoes not work when the type of term is usually written out in industry
oScope is geographical (what trade usage in MI means is different than FL)
Parol Evidence Rule: §2-202
 In litigation, the function of the rule is to exclude stuff you want to say happened and I want to say didn’t happen or
shouldn’t count
 Express terms in written, final agreement may not be contradicted by evidence of:
 1) any prior agreement OR
 2) a contemporaneous oral agreement BUT may be explained or supplemented by:
oCourse of performance, course of dealing, usage of trade AND
oEvidence of consistent additional terms, unless the court finds the writing to have been intended also as a
complete and exclusive statement of the terms of the agreement
 Terms will be included unless:
 Absent terms would certainly have been included OR
 The court concludes that the contract is completely integrated
 Complete v. partial integrations: assume it is partial, not complete
 assume the terms in writing are the final terms of the contract BUT in the eyes of the code drafters, the writing
is incomplete— final but not everything agreed upon is there
 §2-202(b): may be explained/supplemented by evidence of consistent additional terms unless the court finds
the writing was a complete and exclusive statement of the terms of the agreement.
oEx: fishing boat agreement says nothing about speed and we’ve never done business before so no course
of performance, course of dealing— speed term gets in because it is consistent/additional
oBUT if it says top speed is 12knots and you’re claiming I said 25knots it does NOT get in:
 This is contradicting an express term
 Only time you would keep evidence from trier of fact that it certainly would have been put in the writing — not
many things meet this threshold
 Parol evidence rule applies only to:
 written or oral evidence precedent to contract formation
 contemporaneous oral evidence
 Parol evidence rule does NOT apply:
 if there is no writing
 if the writing is not a final expression of agreement
 if the opposing party does not object to the extrinsic evidence
 if extrinsic evidence is subsequent to agreement OR is supported by additional consideration
 to contemporaneous written agreements (assumed to conjoin together into a single contractual document)
 This is a 2-step process:
 1. Submit evidence to the judge— judge determines whether evidence is admissible (i.e. whether contract is
fully integrated— UCC presumes partial integration)
 2. Prove claim to trier of fact
 Drafters of the code were very Corbinean (not Willistonian)— in general Corbin takes the attitude that you should
let more of stuff in for the trier of fact to decide what really counts
 As part of that very Corbinean alignment, have to understand the significance of usage of trade, course of dealing,
course of performance
 At the most foundational level, drafters of 2 assumed all those kinds of things are part of the agreement, so
much so that when you see §2-202(a), evidence of these things is always admissible.
oThere is a sharp contrast between Article 2 and the common law
 Merger and integration clauses: writing is intended to be complete and final
 VW hates these SEE HOW TO MAKE THESE ENFORCEABLE
 Jurisdictions vary significantly
oNY & CA do not enforce
oKSL: MI case— VW hates this opinion
 Treats merger clause as conclusive about the intent of the parties to treat the writing as
complete and final. P
 Problem is this was on a letter of intent which aren’t supposed to be binding.
 Why would language on a non-binding document be binding?!
oBest bet in MI: assume if you have a written contract for sale of goods and merger and integration clause
that some judge is going to say this controls under KSL
 ASK: Did written contract say anything about speed of boat
 If yes, does alleged extrinsic evidence explain or supplement what is there or contradict it?
oIf contradicts, then not allowed (fair amount of flexibility in notion of explain/supplement)
oIf doesn’t contradict turn to §202(a) & (b)/ the hierarchy
 §2-202 PER—used to determine what terms can be used to supplement or explain the K (but not contradict)
o§2-202(A): Ambiguities you can use the hierarchy to show
o§2-202(B): supplemental terms

 EXCEPTION: Always can allow evidence of things like fraud

 EXCEPTION: can always use evidence of a conditional delivery, i.e. that there was a condition precedent for the K

Course of Performance, Course of Dealing, Usage of Trade & Statute of Frauds

When reasonable, interpret contract using the express terms in the contract
If unreasonable, turn to the hierarchy which is:
oCourse of Performance
oCourse of Dealing
oUsage of Trade
Course of Performance
Requires:
o1. A sequence of conduct by a party (more than once)...arising from an agreement involving repeated
occasions for performance
o2. Other party had knowledge of conduct AND an opportunity to object, AND
o2. Other party either acquiesced and accepted the conduct
oOR failed to object to the conduct
Course of Dealing
Requires:
oSequence of conduct (more than once) arising from previous contracts/transactions between the parties
oThat can be fairly regarded as establishing a common basis of understanding for interpreting the parties’
conduct
Usage of Trade
Requires proof that:
o1. trade exists (place, vocation, or trade)
o2. parties are members of the trade
o3. the usage exits— usage has such regularity of observance as to justify an expectation that it will be
observed with respect to the transaction in question
o4. Parties’ usage is consistent with that of the trade
Note: A usage of trade is something customarily performed even though it is not in the contract— it is not something
customarily found in a contract

Modification, Rescission and Waiver: §2-209

 §2-209(1): An agreement modifying a contract doesn’t need consideration— just need to follow good faith
oNO separate consideration necessary to modify
 §2-209(2): No oral modification clauses
oWorthless at common law (lawyers don’t seem to know this)
oUnder this section appears that these clauses are enforceable— deceiving
BUT see §2-209(4) (worthless clause that is superseded by §2-209(4))
oWhat you can do
Send out weekly updates that you are continuing to conform to K, AND
Agency limitation: add clause that only a certain officer/agent can modify K
 §2-209(3): Statute of frauds requirements must be satisfied if the contract, as modified, is within its provisions
oAfter modification, contract is for $500 or more
oMore complex when contract was within statute of frauds before modification and still is after— do you need to
satisfy statute of frauds the second time?
Assuming you have the same parties, the only important change is quantity
Renegotiate price or time for delivery—don’t need new writing
Renegotiate quantity— need new writing
Case law split on this but be safe, this is the most common answer
§2-201(2): Send a conforming note un-objected to or anything in §2-201(3) will satisfy
 §2-209(4): Attempt at modification/rescission can operate as a waiver
oSo no oral modification clause is not effective but can be a waiver
odestroys §2-209(2) by stating oral modification clause will be a waiver of old term
 §2-209(5): I can retract waiver unless you have relied on it, in which case I can’t
obetter off saying: HERE ARE THE EXPRESS WARRANTIES, THERE ARE NO OTHER PROMISES/WARRANTIES
MADE BY THE SELLER beyond what is expressed here

Unconscionability: §2-302
 Procedural: term arose out of unfairness
 Substantive: term is unfair
 Frosty fresh v. Ramaso: Spanish Harlem, this is both procedurally and substantively unconscionable—can’t speak or read
English and no translator, substance of agreement also bad
 Rarely used these days, except in the case of pre-dispute arbitration clauses
oIn commercial litigation if you allege unconscionability, it’s like waiving a flag of surrender— the response: that’s
the best you’ve got??
 Pre-dispute arbitration clauses
oCourt developed separability doctrine: arbitration provision should be thought of as legally separate from the rest
of the contract
oIf you want to challenge this clause, it’s not enough to challenge the contract taken as a whole, you have to
challenge the clause itself— treated for its purposes as its own separate agreement
oEnforceability of arbitration clause— claim of fraud has to be brought up in the arbitral forum
 Business has huge incentive to not allow things to go to trial because customers get to see the books which exposes things
 §2-302 Unconscionability (unfair):
oAPPLIED TO:
Consumer clauses (suing a business who mistreated the customer)
Arbitration Clause (pre-determined dispute resolution)
Seperability doctrine: Must sue for the clause itself to be in real court
 oTYPES:
Procedural: the how-to’s, process was unfair (unfair bargaining)
Substantive: An outrageous term
 §2-302(1): If courts find it, they have 3 options:
oStrike the entire K
oStrike that portion of the K and enforce the rest
oLimit the unconscionable clause, as to limit the unconscionable result
 §2-302(2): If court finds K unconscionable then the P can see the books

Output and Requirements, Exclusivity: §2-306(1), 2-306(2) (Gap-Filler)

 Best efforts: Doesn’t mean better than anything else— only means no worse than anything else
 §2-306(1): Outputs and requirements: depend on good faith in determining breach
 §2-306(2): Requirements: Lady Duff Gordon
 What is the quantity? what I require— how does this work for §2-201
oIn general, should be acceptable to say I’m going to buy from you ½ of my requirements
oIf requirements is a satisfactory quantity then half of them should be too
oBuyer = use best efforts to promote sales
oSeller = use best efforts to supply
Competing standard of “Best Efforts”
Best I can give vs. better than anyone else can give
Absence of Specific Time Provisions, Notice of Termination: §2-309 (Gap-
Filler)
 §2-309(1): If time for shipment or delivery is not specified, it is a reasonable time
 §2-309(2): If contract calls for successive performance but is indefinite period of time, then it is reasonable time but the
K is AT WILL and can be terminated by either party at any time in good faith
oRead: terminable at will after a reasonable time has expired
oRemember good faith requirement— my right to terminate our contract which is indefinite in duration should be
limited by my obligation of good faith
 §2-309(3): Termination of contract requires reasonable notification
oReasonable = commercially average time it would take to find a new supplier or whatever it is that you need
(Objective/Commercial Standard)
oEquitable recoupment: If the contract is terminated too early for something/investment to be recouped,
expectation damages can be sought
Other Gap-Fillers
 §2-304: Payment can be in non-money (i.e. docs of title) and still be under Article 2
 §2-305 Open Price Term
 §2-307: Delivery is by default to be made in one shipment unless reasonable otherwise
 §2-308: Delivery place is by default seller’s place of business/residence unless knowledge of somewhere else
 Delivery documents of title = customary banking channels are ok
 §2-310: Payment: Payment is due at delivery
 §2-311: Lack of specifics for performance are ok as long as reasonable to be open; shipment is by default up to the
seller’s discretion

Warranties

 Three part analysis for warranties

 1. How does the warranty arise?
 2. What is the content of the warranty?
 3. How can the warranty be limited, disclaimed, etc.?
 Warranty as part of a contract for a sale of goods: nothing separate/fancy
 Part of the contract, creates a performance obligation— creates expectation on part of buyer
 A lot of times sellers will think of warranties as promises about the quality of the goods
 Warranties from 2 and 2A are NOT just about the quality of the goods
 Dividing line between express and implied warranty is how it arises
 If arises because of express language of the contract, how much more express can it

be Express Warranties: §2-313

 Created when:
 1. seller makes or provides any affirmation of fact/promise, description of the goods, OR
sample/model exemplary of the goods
 2. part of basis of the bargain— no requirement buyer actually relied
owould a reasonable person possibly rely on this in making the decision— if yes, will likely become basis
of the bargain (price is basis of the bargain)
 Standard is low
 Content is: language of the statements themselves, subject to interpretation (what does “new” mean)
 note:
 if sample, goods must be of fair/average quality in range of variability
 sales talk, opinions, and puffery do NOT create warranties
 the more specific the language, the more likely it is a warranty and not mere sales talk
 usage of trade may be able to expand upon what constitutes an affirmation by seller and/or what is part of
the basis of the bargain for the seller
 statement re. value of goods creates warranty— I say bluebook value is 25k and it isn’t, I’ve breached
 how to limit or disclaim express warranties
 DON’T disclaim express— once it has been made, it doesn’t go away
othe more you attempt to do so by using blanket, general phraseology the more likely you are to fail
 DO take advantage of parol evidence rule by including very specific things in contract and any attempt
to contradict those will be barred by the parol evidence rule
 MI: in MI can use a merger clause so none of your express warranties that aren’t written in will be enforceable
 §2-313 Express Warranties
 How do they arise?
o§2-313(1) Types:
oAny affirmation of fact/promise about goods
oAny description of goods
oAny sample or model
 Fair or average
o§2-313(2) Warranty vs. Puffery
oMust become part of the bargain
oStandard: Would a reasonable person have relied upon this?
 Is there a market difference between goods with and without this promise?

Implied Warranty of Merchantability: §2-314

 Created when: seller is a merchant with respect to the goods sold
 merchant: seller with respect to goods of that kind— higher standard
 not a merchant if goods have their own submarket that seller is not engaged in
 content: a) goods must pass without objection in the trade c) goods must be fit for their ordinary purpose
 if fungible, are of fair/average quality within description
 of even kind, quality, and quantity
 are adequately contained, packaged, and labeled
 conform to affirmations made on the container or label
 AT LEAST: bare minimum of what it is
 c) is most important, a) is second most
 note: other implied warranties may arise from course of dealing or usage of trade
 §2-316(2): disclaimed if: mentions merchantability OR contains as is/with all faults language (2-316(3)(a))
 a writing is not required but, if there is a writing, it MUST be conspicuous
 conspicuous: different type size from rest of contract— other requirements vary by jurisdiction
osome cases have held that if this is in paragraph 9 in 16 page contract and the only thing that draws
attention to it then it’s not conspicuous enough OR that it was unconscionable
 §2-314 Implied Warranty of Merchantability
 How does it arise?
o§2-314(1) Unless it is excluded or modified AND
o§2-214(1) seller is a merchant (GOODS STANDARD—higher)
oVW Standard: Not a merchant if the goods have their own sub market that seller does not engage
in
 What is its content?
 o§2-314(2) AT LEAST COVERS
o*ability to pass inspection w/o objection
 2 nd most important
obe of fair average quality
o*fit for ordinary purpose
 most important
orun within variations permitted by K
oAdequately contained, packaged, and labeled as required
oconform to express labels on container
 How can it be disclaimed?
o§2-316(2): in the K, specifically
oMust mention the word MERCHANTABILITY
oIF a writing, then it must be conspicuous (e.g. different size, drawn attention to)
o§2-316(3)
oAS IS and W/ ALL FAULTS language (or other acceptable)
oExamined and inspected model with no objection
oBy use of course of dealing or course of performance or trade usage
Implied Warranty of Fitness for a Particular Purpose: §2-315
 §2-315 Fitness for Purpose
 How does it arise?
oSeller has reason to know of a particular purpose for the goods; AND
oOBJECTIVE—ok even if they had reason/should have known
oBuyer is relying on seller’s skill or judgment to provide suitable goods
o*NO REQUIREMENT FOR MERCHANTHOOD
 What is its content?
oReasonable fit for that particular purpose
 How can it be disclaimed?
o§2-316(2): in the K
oMust be in writing AND
oMust be conspicuous
oDOES NOT need to say word FITNESS
o§2-316(3)
oAS IS and W/ ALL FAULTS language (or other acceptable)
oExamined and inspected model with no objection
oBy use of course of dealing or course of performance or trade usage
 Note: no fitness warranty if goods are to be used for their ordinary purpose

Exclusion or Modification of Warranties: §2-316

 Indicates how to modify/disclaim the warranties— broken down by type above
 §2-316(3)(c): implied warranty can also be excluded or modified by course of dealing, course of performance,
or usage of trade
 §2-316(4): remedies for breach can be limited by liquidation or limitation of damages
osee 2-718 and 2-719
 Comment 8: bonus disclaimer for implied warranties: when the buyer, before entering into the contract, has examined the
goods/sample/model as fully as he desired OR has refused to examine the goods, there is no implied warranty with regard
to defects which an examination ought in the circumstances to have revealed to him

 §2-316 Exclusion of Modification of Warranties

 §2-316(1) express v. negation = express
oMI Rule and PER application
 §2-316(2) How to
oMerchantability Warranty = say MERCHANTABIITY and IF writing, be conspicuous
oFitness Warranty = be in writing and conspicuous
 §2-316(3): AS IS ETC. limits all implied
o Also inspection, and hierarchy of extrinsic evidence
 §2-316(4): Limits on Remedies
oheld in §2-716
 odo not need to be conspicuous
Warranty of Title: §2-312
 §2-312(1): in a sales transaction, the seller warrants that the title conveyed shall be good, and its transfer rightful and
that the title of the goods is delivered free of any encumbrances of which the buyer is unaware
 warranty of title is NOT an implied or express warranty
 if buyer sees language “no warranty of title” back away
 §2-312(3): exception— unless otherwise agreed seller who regularly deals in goods of that kind warrants that the goods
shall be delivered free of the rightful claim of any 3rd person by way of infringement or the like, but a buyer who furnishes
specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the
specifications
 §2-312 Warranty of Title (neither express nor implied)
 How does it arise?
oBy any sale (automatic) so kind of implied but not technically
 What is the content?
o§2-312(1a/b): free from any security interest, liens, or encumbrances
 How can it be limited?
o§2-312(2) specific language that no warranty of title exists
o§2-316 rules DO NOT APPLY
oEXCEPTIONS:
o§2-312(3) Where something is accidently sold from
 e.g. pawn shop
o§2-327/2-328 Auction or consignment rules
 With or without reserve is the only issue

Third-Party Beneficiaries of Warranties: Express or Implied: §2-318

 basic contract between buyer and seller and then 3rd parties involved— people who didn’t buy goods but used
the goods— use my lawnmower or step ladder = 3rd party beneficiary
 §2-318: different formulations, none can be excluded or limited by contract
 A person related/in house— injured in person
omost states use this formulation
 B any person reasonably expected to use/consume/be affected— injured in person
 C economic and personal injury, person or corporation
 §2-318 Warranties to 3 rd Party beneficiaries: States can pick one of the 3 options
 §2-318(A): Most restrictive, MOST COMMON
oMust be to a PERSON AND
oBe a natural person, part of the household, guest with reasonable expectations
 §2-318(B): Middle-ground
oInjury to a PERSON AND
oBe a natural person, but with a wider scope than A meaning people outside of your household
 §2-318(C): Least restrictive
oInjury to a person or an economic loss, Can be any person, even a corporation

LEASES: Warranties
 §2A-210: express warranties— same as 2-313
 §2A-211: warranties against interference and infringement
 no warranty of title, duh!— quiet use
 warranty that for a lease term no person holds claim to goods by way of infringement that will interfere
with use/enjoyment of the thing for period/duration of the lease disclaimer same as 2-312(2)
 §2A-212: implied warranty of merchantability— 2-314
 except in finance lease…
 §2A-214(2): to exclude or modify must mention merchantability, be by a writing, AND be conspicuous
oarticle 2 analog doesn’t need to be in a writing, this DOES!
 §2A-213: implied warranty of fitness— 2-315
 same requirements to exclude/modify
 §2A-214: exclusion or modification of warranties
 §2A-216: third part beneficiaries— same as 2-318
Finance Lease: §2A-209
 2A-103(g): finance lease means a lease in which
olessor does NOT select, manufacture or supply the goods
othe lessor acquires the goods or the right to possession and use of the goods in connection with the lease
oAND either: lessee receives a copy of the contract evidencing the lessor’s purchase of the goods on or before
signing the lease contract OR
the lessee’s approval of the contract evidencing the purchase of the goods is a condition to
effectiveness of the lease contract
 §2A-209: creates a statutory mechanism that allows lessee to go back to the supplier so long as this is a finance
lease (extension of the provisions of the supply contract)
 3 party relationship: lessor, lessee, supplier— 3rd party is typically a finance institution think about car lease
omanufacturer passes car to lessor/dealer. you enter into contract with lessor to lease the car, the question
becomes who do you go after?
olessor requires the goods/right to possession, lessor goes back to supplier for warranties
 finance leases are special— only in 2A, nothing in article 2
oother than that you have the same set of provisions/ideas
osometimes you do more than tweak the language— talk about warranty of interference
oeven remedies for breach of warranty are the same
 to go after supplier for breach, need to show: the warranties were in connection with or part of the supply contract
 2A-210: finance lessor can make express warranties —
 2A-211: (2) finance lessor is automatically protected by way of infringement or the like— not excluded from giving
the warranty of quiet possession
 hell or high water provision: lessee must continue paying come hell or high water
o§2A-407: power to make the lessee pay! Not part of consumer lease
 LEASES: in the §2A-200s
 §2A-210 Express = same as §2-313
 §2A-212 Implied Merchantability = same as §2-314
 §2A-213 Implied Fit = same as §2-315
 §2A-214 Exclusion and Limits = same as §2-316
oEXCEPTION: EXCLUSION OF IMPLIED MERCHANTABILITY MUST BE IN WRITING
 §2A-211 Title = same but called an infringement
 §2A-216 3 rd party = same as A,B,C of 2-318A,B,C
 §2A-209 3 rd Part between lessor, lessee, and supplier
oCan go after the supplier in a finance lease
o§2A-103 FINANCE Lease = when the lessee buys the goods from supplier to lease to lessor who could not
afford it otherwise
oLessor was not the selector of goods nor the manufacturer
oLessor acquires goods through a true lease
 And not a security interest—i.e. have no economic life after
oLessee was given advance notice as to the key terms in the supply K
o§2A-407 Hell or High water—Even if there is a breach of warranty the lessee has to keep making
payments to lessor while pursuing action against supplier
oLessee is liable for disclaimers and modifications to supply K that were made known in advance

Performance p. 319-449
Insurable Interest in Goods, Manner of Identification of Goods: §2-501
 have the goods been identified to the contract? answer is almost always yes
 important question: when were goods identified to the contract?
 identification of the goods is the starting point of seller’s performance— until goods are identified, we can’t
think about the duty to tender/deliver/anything else
 at some point when identification arises, the buyer acquires an insurable interest
 §2-501(2): when insurance can be thought about by buyer or seller
 Note: you will see gaps in a, b, and c— there are cases that aren’t covered— lithographs in gallery where gallery has
a series of them but you’re only buying one
 if goods are existing and identified: identification occurs at the time of contracting unless otherwise agreed
 if goods are existing but have a range or are unselected— identification occurs upon selection by buyer or Seller
Effect of Seller’s Tender, Delivery on Condition: §2-507
 §2-507(1): tender of delivery is a condition to buyer's duty to accept and pay for the goods
oentitles seller to acceptance and payment
oassumption of code is that payment will be made at the time of delivery
otender: ready, willing, and able— can happen that seller can’t deliver but wants to tender
 buyer’s tender of payment is a condition to seller’s duty to tender and complete any delivery
ocan be any means or in any manner current in ordinary course of business EXCEPT if seller demands payment in
legal tender and gives a reasonable extension of time
 note: if payment is due and demanded on delivery by seller, buyer’s right to retain the goods is conditioned upon
making payment
 if contract requires payment before inspection: buyer must pay even if goods are nonconforming
oexcept if nonconformity appears without inspection
obut payment doesn’t constitute acceptance or impair right to inspection or remedies

Right to Cure: §2-508

 §2-508(1): seller has right to cure nonconforming tender if:
o1. time for performance has not yet expired
o2. seller seasonably notifies buyer of intent to cure
o3. conforming delivery is made within original time to perform
 §2-508(2): reasonable extension of time given ONLY if:
o1. seller had reasonable grounds to believe nonconforming tender would be acceptable (with or without money
allowance)
o2. seller seasonably notified buyer of intention to cure

Tender of Payment by Buyer: §2-511

 tender of delivery entitles the seller to accept the goods and THEN turn to 2-601 that acceptance of the goods
 is conditioned on perfect tender, conforming tender which entitles the seller to acceptance of the goods
 check is a fine way to pay
Buyer’s Right on Improper Delivery: Perfect Tender Rule: §2-601
 if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may
o(a) reject the whole; or
o(b) accept the whole; or
o(c) accept any commercial unit or units and reject the rest.
 right of the buyer to reject goods if in bad shape or are non-conforming
oif rejecting, reasonable notification must be received by the other party
oreasonable notification: amount of time required in that industry for you to line up a substitute supplier
o8th circuit equitable recoupment rule: applies to notification and sometimes to termination under §2-309(2)
I am your supplier, if you terminate me too early, so early that I have not recouped my investment,
then you will be deemed to have breached your obligations under 2-309(2) and I will hold you
liable for damages to the extent that I need to be made whole to keep my investment
Manner and Effect of Rightful Rejection: §2-602
 §2-602(1): within reasonable time after delivery or tender (requires seasonable notification)
 §2-602(2): after rightful rejection, cannot exercise ownership over any commercial unit
 §2-602(3): if you’re the buyer and you’ve wrongfully rejected the goods, then you’ve made yourself liable for damages
(see 2-703)
 note: if you’re a non-merchant buyer, not under obligation to do anything else (don’t have to resell)
Merchant Buyer’s Duties as to Rightfully Rejected Goods: §2-603
 think about the kind of goods and what standard of merchanthood applies— law/standard changes when talking about
a merchant buyer
 §2-603(1): merchant buyer under duty to follow any reasonable instructions received from the seller
oif no instructions and goods are perishable OR threaten to decline in value speedily, buyer must make reasonable
efforts to sell them on seller’s account
 §2-603(2): when buyer sells goods for the seller, he is entitled to reimbursement for reasonable expenses plus selling
commission as reasonable in the trade— not exceeding 10% of proceeds
 §2-603(3): in complying with this section, buyer is held only to good faith and good conduct
Buyer’s Options as to Salvage of Rightfully Rejected Goods: §2-604
 if the seller gives no instructions within a reasonable time after notification of rejection the buyer may:
ostore the rejected goods for the seller's account OR
oreship them to him OR
oresell them for the seller's account with reimbursement as provided in the preceding section
such action is not acceptance or conversion

Waiver of Buyer’s Objections by Failure to Particularize: §2-605

 §2-605(1): buyer’s failure to state in connection with rejection a defect ascertainable by reasonable inspection precludes
him from relying on the unstated defect to justify rejection or to establish breach
ob. where the seller could have cured if it stated seasonable, OR
oc. between merchants, when the seller has, after rejection, made a request in writing for a full and final written
statement of all defects on which the buyer proposes to rely
 §2-605(2): payment against documents made without reservation of rights precludes recovery of the payment for
defects apparent on the face of the documents

What Constitutes Acceptance of Goods: §2-606

 §2-606(1): acceptance of goods occurs when the buyer:
o1. after a reasonable opportunity to inspect goods says goods are conforming or will take/retain them in spite of
their non-conformity,
o2. fails to make an effective rejection, but such acceptance doesn’t occur until the buyer has had a reasonable
opportunity to inspect them, OR
o3. does any act inconsistent with the seller's ownership— if wrongful act, acceptance only if ratified by seller (I
start using goods, you ship and I say don’t accept but hold them long enough so is acceptance)
 §2-606(1)(b): failure to make an effective rejection is an acceptance
 §2-606(2): acceptance of any part of a unit is acceptance of that unit
o1 sweater from box, I have accepted entire box but not necessarily all of the boxes in the shipment
 note: reasonable opportunity to inspect is very important— an attempt to change this is likely a material alteration

Effect of Acceptance/Notice of Breach: §2-607

§2-607(1): buyer must pay at the contract rate for any goods accepted
ocan later assert claim for non-conformity/breach of contract but have to do that separately
§2-607(2): acceptance of the goods by the buyer precludes rejection and if made with knowledge of nonconformity,
cannot be revoked unless believed non-conformity would be seasonably cured— acceptance does not impair any other
remedy for non-conformity
orevocation of acceptance— higher standard than perfect tender
§2-607(3)(a): where tender has been accepted… buyer must within a reasonable time after he discovers or should
have discovered any breach notify the seller of breach or be barred from any remedy
ocomment 4: time for notification— commercial standard
ocontent of notification: need merely be sufficient to let the seller know that the transaction is still troublesome
and must be watched (beginning)… must claim to involve breach (end)— schizo
§2-607(4): consequence of acceptance— burden is on buyer to establish any
breach Revocation of Acceptance: §2-608
 §2-608(1): buyer may revoke acceptance of a lot or commercial unit whose non-conformity substantially impairs its
value to him IF buyer accepted:
oa. on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured OR
ob. without discovery of such non-conformity because seller assured it was conforming or because nonconformity
was hard to discover IF his acceptance was reasonably induced by
difficulty of discovery before acceptance, OR
the seller’s assurances
 §2-608(2): revocation of acceptance MUST occur within a reasonable time after the buyer discovers or should have
discovered it AND before any substantial change in condition of the goods which is not caused by their own defects—
(a) revocation not effective until buyer notifies seller
 §2-608(3): a buyer who revokes has the same rights and duties with regards to the goods as if he had rejected them
(2- 602, and if merchant 2-603, and if no instructions 2-604)
 oproblem with this: your goods are bad but you don’t want to claim breach of warranty, want to return them— can
only do this if non-conformity substantially impairs value to buyer and you’ve accepted the goods without
discovering non-conformity
this strict standard is out of sync with the rest of the code— most provisions say if you don’t do X in
the right time frame then you don’t gain your advantage/position
 if you’re effective (rightful under 608) in revoking your acceptance then you’re restored back to your position as if
you had rejected— you have certain other duties with regards to the goods themselves
 rescission and revocation are NOT the same thing
 NOTE: puts seller in same position as if buyer had rejected the goods
Right to Adequate Assurance of Performance: §2-609
 §2-609(1): contract for sale imposes obligation on each party that the other’s expectation of receiving due performance
won’t be impaired
ob. when reasonable grounds for insecurity arise, the other party can demand adequate assurance of performance
in writing and
oc. until he receives such performance, if commercially reasonable, can suspend own performance for which he has
not already received the agreed return
note: further obligation on one party emerges
 §2-609(2): between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance
offered shall be determined according to commercial standards
oreasonable grounds: I can feel insecure if you’ve been failing on your performance on other contracts with me or
even in other contracts with other people that i’ve heard about
 §2-609(4): failure to provide assurances within a reasonable time (<30days) is a repudiation of the contract
ofailure to give adequate assurances is like saying screw you to the other party— we have no intention of doing
what you think the contract requires
 note: one of the things I can’t do is say I had qualms about this contract before we entered— I can only say I was
insecure about things that have happened since we entered the contract

Anticipatory Repudiation: §2-610

 §2-610(1): when either party repudiates with respect to performance not yet due, the loss of which will
substantially impair the value of the contract, the aggrieved party may:
oa. await performance for a commercially reasonable time,
ob. resort to any remedy for breach (703 seller, 711 buyer) even though have notified repudiating party would
wait performance and has urged retraction
oc. suspend performance or proceed in accordance with seller’s right to identify goods to the contract
 note: be careful! if you jump the gun and treat me as having repudiated the contract, you may be deemed to
have repudiated

Retraction of Anticipatory Repudiation: §2-611

 §2-611(1): retraction is permissible if: repudiating party’s next performance is not yet due unless aggrieved party:
has cancelled, materially changed his position, OR otherwise indicated he considers repudiation final
 §2-611(2): method of retraction: may be by any method which clearly indicates that the repudiating party intends to
perform
oMUST include any assurance justifiable demanded by the aggrieved party under 2-609
 §2-611(3): effect of retraction: retraction reinstates the repudiating party’s rights under the contract with due excuse
and allowance to the aggrieved party for any delay occasioned by the repudiation

Installment Contract/Breach: §2-612

 §2-612(1): what is an installment contract: one which requires or authorizes the delivery of goods in separate lots to be
separately accepted, even though the contract contains a clause “each delivery in a separate contract” or an
equivalent clause
 §2-612(2): when rejection of an installment is permissible: buyer may reject any installment which is nonconforming…
oIF the non-conformity substantially impairs the value of that installment which is non-conforming
oOR if the non-conformity is a defect in the required documents
oBUT if the non-conformity doesn’t fall within (3) and the seller gives adequate assurance of its cure, the buyer
MUST accept that installment
onote: when the buyer can reject, NOT what the damages are
 §2-612(3): if multiple non-conforming installments: whenever non-conformity or default on one or more
installments substantially impairs the value of the whole contract, there is a breach of the whole
oBUT the aggrieved party reinstates the contract
IF he accepts a non-conforming installment without seasonably notifying of cancellation
OR IF he brings an action with respect only to past installments
OR demands performance (2-609) as to future installments
onote: easy way to think about this: no longer employs a perfect tender rule
substantially impairs value of the delivery or the contract— basic idea behind this is very similar
to material breach
onote: use the word cancellation— very different from termination— 2-106(4): occurs when either party ends the
contract for breach, effect is the same as that of “termination” except that the canceling party retains any remedy
for breach of the whole contract or any unperformed balance
onote: what is substantial impairment— as clear as mud—
 other problems: quality, these are much harder to cure— anything that makes the goods unusable for a particular
purpose is going to be hard to cure

Right to Inspection
 buyer has right to inspect unless otherwise agreed to by the parties
obefore payment or acceptance to inspect at any reasonable place/time and in any reasonable manner
oif goods are shipped, inspection may occur after arrival
 note: expense born by buyer may be recovered from seller if goods do not conform and are rejected
 note: inspection place or method fixed by parties is presumed exclusive, etc. pursuant to 2-513(4)

Buyer Picks up from Seller OR Seller Ships Himself

 tender requires: conforming goods, notification, reasonable hour, available for a reasonable period of time
 buyer must furnish facilities reasonably suited to receipt of goods unless otherwise agreed
oif buyer does not furnish facilities, seller’s tender is still effective
 risk of loss:
oif seller is a merchant: risk passes to buyer upon receipt of goods
oif seller is nonmerchant: risk passes to buyer upon tender of delivery

Carrier Contracts: Shipment v. Destination

 shipment: contract authorizes or requires shipment but doesn’t require delivery at destination
o“I promise to get the goods to you”
o“ship to” may be considered only instruction to carrier
 destination contract: contract requires delivery at destination
o“I promise to get the goods to you at your correct address”
 FOB seller’s: shipment
 FOB buyer’s: destination
 SHIPMENT IS THE NORMAL TYPE (favors the seller)

Shipment Contract: FOB Seller’s §2-504

 tender requires unless otherwise agreed to:
oconforming goods delivered to carrier
ocarrier contract reasonable in regard to nature of goods and other circumstances
odocuments promptly delivered to buyer
onotification to buyer
 note: failure to notify or make proper contract regarding nature of goods is grounds for rejection only if material delay
or loss results
 title: passes at time and place of tender
 risk of loss: passes when goods are duly delivered to carrier
 §2-504(a): make an agreement with carrier to come collect the goods, haul them off, take and direct them to the buyer
 another way to say: contract is shipment contract if it involves 3rd party carriers

Destination Contract: FOB Buyer’s §2-503

 tender requires unless otherwise agreed to:
oconforming goods
 onotification
oreasonable hour
oavailable for a reasonable period of time
otender documents
 title: passes upon tender at place of delivery
 risk of loss: passes when goods duly tendered so as to enable buyer to take delivery

FOB & Fas Terms: §2-319

 §2-319(1): FOB (free on board)
 §2-319(2): FAS (free alongside)— same as FOB but when referring to maritime shipping contracts

Warehouse Contract
 goods to be delivered without being moved
 tender:
otender of negotiable bill is tender of goods
otender of nonnegotiable bills is tender of goods unless buyer seasonable objects 2-503(b)
 title:
oif seller must deliver documents of title, title passes at time/place of delivery of documents
oif no documents to deliver and goods are identified, title passes at time/place of contracting
 risk of loss:
opasses when buyer receives or controls a negotiable document of title
oor on acknowledgement by bailee of buyer’s right to possess goods

Risk of Loss in the Absence of Breach: §2-509

 if neither carrier nor warehouse contract:
oif seller merchant: shifts upon receipt of goods
oif seller non-merchant: shifts upon tender
 carrier contract:
o§2-509(1)(a): shipment contract: shifts upon delivery to carrier
when does due delivery take: when loaded onto carrier’s truck unless parties have made agreement
to the contrary
buyer has to worry about insuring the goods against damage/destruction— now the buyer’s problem
o§2-509(1)(b): destination contract: shifts upon receipt by buyer
 warehouse contract:
oshifts upon receipt of negotiable bill of lading
oshifts upon receipt of nonnegotiable bill of lading
 §2-509(3):if risk of loss passes to buyer, seller has the right to the price of conforming goods lost or damaged within
a commercially reasonable time after risk has passed to buyer (2-709)

Effect of Breach on Risk of Loss: §2-510

 §2-510(1): if nonconforming goods give a right of rejection, risk of loss remains on seller until cure or acceptance
 §2-510(2): buyer rightfully revokes acceptance: risk of loss on seller since beginning to extent of any deficiency in
buyer’s insurance coverage
 §2-510(3): breach by seller or buyer repudiates before acceptance— conforming goods and buyer repudiates/breaches
before risk of loss passes to buyer: to extent of deficiency in insurance, seller may treat risk as resting with buyer for
a commercially reasonable time
 what happens when there isn’t enough insurance
orisk of loss is still with the seller… if capped or not enough insurance, pay out of your own pocket
 SELLERS Tender: Identify goods and Ship/deliver/transfer documents of title
 §2-501 ID Goods: Effect gives buyer official insurable interest/claim in goods
oUsually is whatever parties agree to in K BUT DEFAULT…
o(1a) Explicit i.e. the K itself were for already existing and chosen goods
o(1b) Future goods: ID when seller picks them or ships them, whichever first
oComment 5: Undivided shares in a bulk: ID is when the K is made and bulk ID’d
 HOWEVER, seller’s duty to deliver is not controlled by this ID
  §2-503/504 Delivery Goods: 4 options
o§2-503(1) Seller delivers w/ own truck or buyer picks them up:
 at a reasonable hour (business hours usually)
 kept available for reasonable amount of time for buyer to take
 buyer must furnish reasonably suited facilities
 STILL TENDER if C not met
 §2-509(3) ROL:
 Seller merchant = when buyer receives goods
 Seller non-merchant = passes with seller tender
o§2-504 Shipment K—default scenario for carrier Ks, no specific destination; seller’s tender = when goods leave
the store, pushed out door
 FOB: seller must put the goods in the hands of the carrier and make a reasonable K for their delivery
 §2-509(1a) ROL = between buyer and carrier once goods handed to carrier
 Seller must also obtain and deliver necessary docs of title (i.e. bill of lading)
 Notify the buyer shipment has been made
 **Failure of A or C only cause for buyer rejection IF MATERIAL LOSS/DELAY results
o§2-503 Destination K: if K states FOB is specific destination
 Seller must make sure delivery is at rbl hour; held for rbl time; buyer must again furnish rbl facilities
 Title passes at delivery destination
 §2-509 (1b) ROL = passes to buyer when buyer can take the goods at delivery
o§2-503 (4/5) Warehouse Ks: when goods delivered w/o being moved
 tender:
negotiable bill is tender of the goods OR
non-negotiable bill is tender of the goods UNLESS buyer seasonably objects
 title:
seller must deliver docs of title = title passes at delivery of docs
seller doesn’t have to deliver and goods are ID’d = at time of K
§2-509(2) ROL
Passes when buyer receives/controls doc of title OR
Bailee ack to buyer the right to possess goods
o§2-510 ROL for Breach:
(1) If seller fails to deliver; give to carrier; bad goods, ROL stays w/ on seller
(2) Revocation, ROL is effectively always been on seller and still is for defect
(3) Buyer AR = ROL on buyer for commercially rbl time
§2-508 Seller’s Cure
o(1) seller can seasonably notify buyer of intent to cure if K time not up
o(2) seller can cure and get extra time if sent rbly acceptable sub goods
 BUYERS Tender: avenue depends on what buyer does when the goods are delivered
 §2-511: buyer’s tender
o(1) DEFAULT buyer’s payment is a CONDITION to seller’s tender and delivery
o(2) Buyer’s payment (tender) can be anything in ordinary course of business
 (3) checks are a legit way to pay, but if they bounce later than tender is revoked
 EXCEPTION: seller can demand legal tender ($) and must give buyer rbl time to procure such as
a condition
 §2-601: Perfect Tender Rule (reject; accept; reject some accept some)
oif the goods fail in ANY manner they buyer can
 reject
 accept OR
 accept some and reject some
 must reject in commercial units
oEXCEPTIONS: GF; Cure; Installment Ks
 REJECTION: §2-602>603>604>605
o§2-602 Rejection:
 If merchant need to use §2-603 as well
 Made w/in rbl time and seasonable notification to seller
 EFFECT OF REJECTION
 Buyer cannot use the goods anymore
 Buyer must hold them for a rbl time for seller to get them
 Buyer has further obligations to perform under the K
 WRONGFUL rejection will give seller’s remedies
 o§2-603: Rejection by a MERCHANT (sliding scale standard—in between
 buyer must follow rbl directions from the seller re the goods
 buyer is entitled to be reimbursed if ze sells them
o§2-612 Rejection of an Installment K
 (2) Single Installment: Buyer can reject an installment if SUBSTANTIALLY IMPAIRS (murky standard)
the value of the installment AND if seller cant cure (quality harder to cure than quantity)
 Seller can this give adequate assurances of intent to cure and buyer must accept
 (3) Entire K: if substantial impairment is of whole K then buyer can cancel (not terminate because
terminate ends obligations/claims)
 BUYER must seasonably notify seller of cancellation AND not accept any installments OR
bring a claim for any part of the K OR demand future assurances
o§2-604: Resale—if seller does not take back goods the buyer can resell them and it will neither be an
acceptance nor grounds for conversion
o§2-605 :If the buyer fails to state a reason for the rejection then the claim is precluded
 ACCEPTED: §2-606>607>608
o§2-606: Acceptance occurs when
 After rbl time to inspect the seller is signaled that buyer accepts
 the buyer fails to reject
 Buyer does any act inconsistent with seller’s ownership (use etc.)
 *Acceptance of any part of a comm unit = accept whole unit
o§2-607: Effect of Acceptance
 (2) Buyer has forfeited right to reject under Perfect Tender
 (3a) if there is a breach then the buyer must notify seller of breach w/in rbl time or remedies
are forfeited
 STANDARD
Code approach liberal: something as slight as to let the seller know that the deal is
troublesome & s/b watched
MI: much higher STANDARD, buyer has to send actual notice to seller
 (4) Buyer has burden to establish breach
o§2-608 Revocation:
 the non-conformity must substantially impair value of goods AND
 based on rbl assumption that it would be cured OR
 it was hard to discover non-conformity or seller made assurances
 also revocation must in a rbl time after discovering the defect or when buyer should have known
 Anticipatory Repudiation
 §2-609 Assurances:
o(1) if either part has REASONABLE GROUNDS (includes word of mouth) for insecurity of other’s perf
 can demand in writing assurances (crts ignore writing req) AND
 *must accept verbal assurances though
 suspend own perf if commercially rbl to do so
 RBL GROUNDS for merchants = rbl commercial standards
o(4) party has rbl time (up to 30 days) to respond or it’s an AR
o(3) party does not waive right to ask for future assurances if accepts non-conforming goods in present or past
o*NOTE: asking for assurances for payment is NOT grounds for the other party to demand assurances too
because they feel uncomfortable that you are desperate
o*NOTE a lot of courts require you to ask for assurances before suing for non-performance breach
 §2-610 AR: If either party repudiates their non-perf that will substantially impair the K then the injured party can
oWait comm rbl time to wait perf OR sue for breach (§2-703/2-711 damages) AND
oSuspend own performance
 Seller can resell ID’d goods as well
 §2-615 Impossibility: usually only going to work in the case of a natural disaster or the goods have completely dried
up—if become limited the seller must distribute amongst customers appropriately

Remedies, CISG p. 479-557

Seller’s Remedies
 §2-706: resale
ocontract price - resale price + incidentals - costs avoided
omay be public or private resale. seller may bid at auction
 §2-708(1): damages
 ocontract price - market price + incidentals - costs avoided
omarket price = market price at time/place of tender
 §2-708(2): lost volume seller
ocontract price - cost to seller (profit list price less cost to dealer) + incidentals (including: overhead and costs
incurred) - costs avoided
oallowed if seller could have made next sale despite breach
 §2-709: action for price
ocontract price
§2-709(b): of goods accepted/conforming that are lost or damaged within reasonable commercial
time after risk of loss passed to buyer or
§2-709(c): of goods identified to contract and seller unable to resell after reasonable time
(or circumstances indicate that resale is unavailing)
BUT if able to resell later, net proceeds are credited to buyer
olimited to cases where:
resale is impracticable
buyer has accepted the goods OR
goods destroyed after risk has passed to buyer
 §2-704(2): salvage unfinished goods
oif goods unfinished, aggrieved seller may exercise reasonable commercial judgment for the purposes of avoiding
loss and:
complete manufacture and resell goods OR
cease manufacture and resell scrap/salvage
Buyer’s Remedies
 §2-712: cover I think buyer can choose between 712 and 713— is this correct?
ocost of cover - contract price + incidentals AND consequentials - costs avoided
oreasonable substitute purchase made in good faith and without delay
onote: if the provision allows me to buy more expensive goods, the implication is if I buy more expensive I get to
stick the breaching seller with that full cost of the more expensive goods
many ways drafters will limit that provision
 §2-713: damages
omarket price - contract price + incidentals AND consequentials - costs avoided
omarket price at time buyer learned of breach and at place for tender
ounless rejection/revocation after goods arrived, then…
omarket price at time buyer learned of breach and at place of arrival
 §2-714: accepted but nonconforming goods
ovalue of goods as warranted - value as are at time/place of acceptance + in proper case incidentals AND
consequentials
oapplies of buyer accepts nonconforming goods and given notification to seller
 §2-716: replevin
ospecific performance: buyer receives goods, buyer pays contract price
omay include damages and other relief as court sees fit
olimited to cases where
goods are unique OR
buyer is unable to effect cover after reasonable effort (or circumstances indicate that cover is
unavailing) Consequential Damages
 any loss resulting from general or particular requirements which seller had reason to know at the time of contracting
and which could not reasonably be prevented by cover or otherwise
 an injury to person or property proximately resulting from any breach of
warranty Liquidation & Modification: §2-718, §2-719
 §2-718: liquidated damages
ostipulated liquidated damages provision is valid only if:
1. reasonable in light
a. anticipated harm OR actual harm, and
c. difficulties of proof of loss, and
d. inconvenience or in feasibility of of otherwise obtaining an adequate remedy
2. not unreasonably large
 §2-719: modification or limitation of remedy
oremedy must
1. be sole or exclusive remedy
2. not fail of its essential purpose
3. not be unconscionable
 note: consequential damages may be limited or excluded unless unconscionable
opersonal injury damages cannot be limited
ocommercial damages can be limited

Breach
 Is the contract an installment? (if yes, see 2-612)
 Is it a perfect tender? has the seller made a tender which conforms in all respects to the contract?
o1. if NOT a perfect tender: buyer may reject all, accept all, or accept/reject the commercial units
if buyer rejects: 2-602 in order to rightfully reject he must
seasonably notify seller of rejection
within a reasonable time after the delivery or tender
does buyer accept any units? 2-606 acceptance occurs when the buyer…
signifies to the seller that the goods are conforming or that he will take/retain them in spite
of non-conformity
fails to make an effective rejection
oBUT such acceptance doesn’t occur until buyer has had a reasonable opportunity to
inspect them
does any act inconsistent with the seller’s ownership and which is wrongful against the
seller, BUT the seller has the option to permit or deny such acceptance
acceptance of a part of any commercial unit is acceptance of that entire unit
o2. does seller have the opportunity to cure? (see 2-508)
 if buyer rightfully rejects (seasonably notifies), buyer has duties with respect to the goods— 2-602(2): buyer must
oNOT exercise ownership over units
ohold goods with reasonable care
obuyer should state any defects ascertainable by reasonable inspection that buyer is relying on for his rejection (2-
605)
buyer cannot rely on unstated defects as justification for rejection...
if seller could have cured defects had buyer reasonably stated them
if between merchants: seller requests 1) in writing a 2) full and final written statement of all
defects on which the buyer proposes to rely, and 3) the buyer fails to provide such statement
oif buyer is a merchant and if seller has no agent or place of business at market of rejection— buyer must follow
any reasonable instructions received from seller (2-603)
if buyer receives no instructions and goods are
perishable: buyer must make reasonable efforts to sell goods for seller
oif sold, buyer is entitled to
reimbursement for expenses
commission (as is usual in the trade, or reasonable amount not exceeding 10%)
NOT perishable (2-604)
obuyer may store, return, or resell goods for the seller
if sold, buyer is entitled to
reimbursement for expenses
commission (as is usual in the trade, or reasonable amount
not exceeding 10%)
 if wrongful rejection, seller has remedies (2-703)
owhat constitutes wrongful rejection: if the seller has made a tender which conforms in all respects to the contract,
buyer has a positive duty to accept and his failure to accept constitutes wrongful rejection
 if revocation after acceptance...2-608
obuyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value
to him IF buyer accepted…
b. on the reasonable assumption that its non-conformity would be cured and it has not been
seasonably cured, OR
 c. without discovery of such non-conformity, IF his acceptance was reasonably induced wither by
the difficulty of discovery before acceptance, OR
the seller’s assurances
orevocation of acceptance MUST occur within a reasonable time after the buyer discovers or should have
discovered the ground for it AND before any substantial change in condition of the goods which is not caused
by their own defects
it is not effective until the buyer notifies the seller of it
oa buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected
them (2-602 and if merchant 2-603 and if no instructions 2-604)

Breach of Installment Contract: §2-612

 what is an installment contract: one which requires or authorizes the delivery of goods in separate lots to be
separately accepted, even though the contract contains a clause “each delivery is a separate contract” or an
equivalent clause
 when rejection of an installment contract is permissible: buyer may reject any installment which is nonconforming…
oif the non-conformity substantially impairs the value of that installment and can’t be cured
oor if the non-conformity is a defect in the required documents
obut if the non-conformity doesn’t fall within (3) and the seller gives adequate assurance of its cure, the buyer
MUST accept that installment
 if multiple non-conforming installments: whenever non-conformity or default with respect to one or more
installments substantially impairs the value of the whole contract there is a breach of the whole
oBUT the aggrieved party reinstates the contract…
if he accepts a non-conforming installment without seasonably notifying of cancellation
or if he brings an action with respect only to past installments
or demands performance (2-609) as to future installments

IF PERFORMANCE HAS NOT OCCURRED, SEE §2-609, §2-610 and §2-611 (above)

Seller’s Remedies
More remedies info above (18)
Loss in Value
 §2-703: seller’s remedies in general
owhere the buyer wrongfully rejects or wrongfully revokes acceptance of goods, or fails to make a payment on or
before delivery or repudiates with respect to a part or the whole
THEN with respect to any goods directly affected (and if the breach is of the whole contract, 2-612,
then also with respect to the whole undelivered balance), the aggrieved seller may
a. withhold delivery of such goods
b. stop delivery (2-705)
c. proceed under 2-704 respecting goods still unidentified to the contract
d. resell and recover damages 2-706
e. recover damages for non-acceptance (7-708) or in a proper case the price
(specific performance, 2-709)
f. cancel
 loss in value: if seller possesses goods— resale
o§2-706: seller’s resale including contract for resale
1. requisites of resale: under the conditions stated in 2-703 on seller’s remedies, the seller may resell
the goods concerned or the undelivered balance thereof
where the resale is made in good faith and in a commercially reasonable manner, the seller
may recover: contract price - resale price + incidentals (710) - costs avoided
2. resale may be public or private— by way of one or more contracts to sell or of identification to an
existing contract of the seller
a. sale may be as a unit or in parcels and at any time and place an on any terms
oa) BUT every aspect of the sale including the method, manner, time, place and terms,
MUST be commercially reasonable
b. resale must be reasonably identified as referring to the broken contract
oa) BUT it is not necessary that the goods be in existence or that any or all of them have
been identified to the contract before the breach
 3. private sale: seller must give the buyer reasonable notification of his intention to resell
4. public sale: where the resale is at public sale
a. only identified goods can be sold except where there is a recognized market for a public sale of
futures in goods of the kind; and
b. it must be made at a usual place or market for public sale if one is reasonably available and
(except in the case of goods which are perishable or threaten to decline in value speedily) the
seller must give the buyer reasonable notice of the time and lace of the resale; and
c. if the goods are not to be within the view of those attending the sale, the notification of sale
must state the place where the goods are located and provide for their reasonable inspection by
prospective bidders; and
d. the seller may buy
5. purchaser who buys in good faith at a resale takes the goods free of any rights of the original
buyer even though the seller fails to comply with one or more of the requirements of this section
6. seller is not accountable to the buyer for any profit made on any resale. a person in the position of a
seller (2-707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account
for any excess over the amount of his security interest (2-711(3))
 if unable to resell or lost volume seller— damages
o§2-708: seller’s damages for non-acceptance or repudiation
1. subject to (2) and to 2-723 (proof of market price), the measure of damages for non-acceptance
or repudiation is…
contract price - market price + incidentals - costs avoided
market price = market price at time/place of tender
2. lost volume seller: if the measure of damages provided in (1) is inadequate to put the seller in as good
a position as he would have been if the K had been performed, then the measure of damages is
contract price - cost to seller (profit list price less cost to dealer) + incidentals (2-710)
(including: overhead and costs incurred) - costs avoided
oallowed if seller could have made next sale despite breach
 if buyer possesses goods or seller is unable to resell— specific performance
o§2-709: action for the price
1. when the buyer fails to pay the price as it becomes due, the seller may recover…
contract price
o§2-709(b): of goods accepted/conforming that are lost or damaged within reasonable
commercial time after risk of loss passed to buyer OR
o§2-709(c): of goods identified to contract and seller unable to resell after reasonable
time (or circumstances indicate that resale is unavailing)
BUT if able to resell later, net proceeds are credited to buyer
limited to cases where:
oresale is impracticable
obuyer has accepted the goods OR
ogoods destroyed after risk has passed to buyer
Other Loss
 §2-710: seller’s incidental damages
oincidental damages to an aggrieved seller include…
any commercially reasonable charges, expenses, or commissions incurred in…
stopping delivery
in the transportation
care and custody of goods after the buyer’s breach
in connection with return or resale of the goods
or otherwise resulting from the breach
 SELLERS CANNOT GET CONSEQUENTIALS because loss caused by the buyer’s breach is the loss of the money that
the buyer was supposed to pay, money is always available
owhile it’s true/compelling that there is an asymmetry with consequential damages— better to understand how
they work together
buyers side: buy from someone else, get on with life
sellers side: similar kind of structure to push the seller to do some things, sell the goods
if you can’t sell then scrap them and get the money
 §2-704(2): salvage unfinished goods
oif goods unfinished, aggrieved seller may exercise reasonable commercial judgment for the purposes of avoiding
loss and:
complete manufacture and resell goods OR
cease manufacture and resell scrap/salvage

Buyer’s Remedies
 more remedies info above (18)
 buyer can choose between 712 & 713
 generally
o§2-711: buyer’s remedies in general; buyer’s security interest in rejected goods— umbrella provision
1. buyer’s ability to recover: where seller fails to make delivery or seller repudiates or buyer rightfully
rejects or buyer rightfully revokes acceptance, THEN (with respect to any goods involved, and with
respect to the whole if the breach goes to the whole contract, 2-612), the buyer may cancel, and
whether or not he has done so may in addition to recovering so much of the price as has been paid
b. “cover” and have damages under 2-712 as to all the goods affected whether or not they
have been identified to the contract; OR
c. recover damages for non-delivery as provided for under 2-713
2. if buyer doesn’t possess goods: where seller fails to deliver or repudiates, buyer may also
a. if the goods have been identified, recover them as provided under 2-502
b. in a proper case, obtain specific performance or replevy the goods as provided under 2-716
3. if buyer possesses goods: on rightful rejection or rightful revocation of acceptance
a. buyer has a security interest in goods in his possession or control for any payments made on
their expenses reasonably incurred in their inspection, receipt, transportation, care and
custody
b. and may hold such goods and resell them in like manner as an aggrieved seller (2-706)
Loss in Value
 §2-713: buyers’ damages for non-delivery or repudiation
omarket price - contract price + incidentals AND consequentials - costs avoided
omarket price at time buyer learned of breach and at place for tender
ounless rejection/revocation after goods arrived, then…
omarket price at time buyer learned of breach and at place of arrival
 if cover
o§2-712: cover; buyer’s procurement of substitute goods
1. calculation: cost of cover - contract price + incidentals AND consequentials - costs avoided
reasonable substitute purchase made in good faith and without delay
note: if the provision allows me to buy more expensive goods, the implication is if I buy more
expensive I get to stick the breaching seller with that full cost of the more expensive goods
omany ways drafters will limit that provision
2. market price is to be determined based on the place for tender or, in cases of rejection after arrival
or revocation of acceptance, based on the place of arrival
3. business about within this section— can’t calculate/recover under 712, doesn’t mean I’m out of luck
completely— can still turn to 713, may not be as advantageous as 712 but it’s still there— big
difference is that 713 refers to a hypothetical substitute while 712 refers to actual
 if no cover and non-conforming goods
o§2-714: buyer’s damages for breach in regard to accepted goods
1. where the buyer has accepted goods and given notification of revocation (2-607(3)), he may recover
damages for any non- conformity of tender resulting in the ordinary course of events from the seller’s
breach
2. calculation: the measure of damages for breach of warranty is
 value of goods as warranted - value as are at time/place of acceptance + in proper
case incidentals AND consequentials
applies if buyer accepts nonconforming goods and given notification to seller
3. in a proper case, any incidental and consequential damages under 2-715 may also be recovered
onote: under (2)— 2 ways to measure market value in land model v. cost to complete contract— not clear on which
courts will favor which ones

Other Loss (lost profit and the like)

 §2-715: buyer’s incidental and consequential damages
o1. incidental damages resulting from the seller’s breach include:
b. expenses reasonably incurred in inspection, receipt, transportation and care of custody of goods
rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with
effecting cover and any other reasonable expense incident to the delay or other breach
o2. consequential damages resulting from the seller’s breach include: (lost profit most important here)
a. any loss resulting from general or particular requirements and needs of which the seller at any time
of contracting had reason to know and which could not reasonable be prevented by cover or
otherwise
b. injury to person or property proximately resulting from any breach of warranty
 note: mitigation could be a requirement to buy goods from the same person at a higher price— failure to buy the goods
from me now at a higher price could be deemed failure to mitigate and disentitles you to consequential damages
under 715(2)(a)— may need to keep relationship with contract breaker
ocan find some comfort under 712— get difference between contract price and price of code, you get higher price
as part of your recovery for damages— nothing explicitly says this but hard to argue
 note: drift of commentary: if fact of consequential damages was foreseeable then amount doesn’t matter and I can
make you pay for full amount— 719 allows you to exclude/restrict
 note: consequential damages may be limited or excluded unless unconscionable
opersonal injury damages cannot be limited
ocommercial damages can be limited

Liquidated Damages
 §2-718: liquidation or limitation of damages; deposits
ostipulated liquidated damages provision is valid only if:
1. reasonable in light
a. anticipated harm OR actual harm, and
c. difficulties of proof of loss, and
d. inconvenience or in feasibility of of otherwise obtaining an adequate remedy
2. not unreasonably large
 in order for a liquidated damages provision to be valid it must:
obe reasonable in light of anticipated harm
obe reasonable in light of actual harm
obe difficult to prove loss (existence of OR amount of) (the more difficult to prove, the more the court will likely say
the clause is reasonable)
onot be unreasonably large
onote: if it fails ANY of the above, it is a penalty and likely void
 if you want a liquidated damages clause to be valid:
oavoid a large lump sum
omake it graduated (span in payments over time)
oadvice: make the payments increase incrementally in size over time (longer the breach occurs, the greater the
harm and the larger the payments become)
oadvice: expressly state that it would be difficult to determine actual damages

§2-718: Liquidation of Damages, Deposits

 §2-718(1): damages amount reasonable in light of the anticipated or actual harm!
oexample of abuse: employer/employee— employer states that, upon employee’s breach, it would be impossible to
determine actual damages. so employer is entitled to acquire liquidated damages in the sum of 50k
so, employer flexes the "anticipated" harm to itself to the maximal extent
and makes an express term stating the “difficulty of proof of loss”!
 it would be difficult to prove 50k damages, but it has other effects: intimidation/deterrence, and places
the burden on the other party for disproving the damages
oBUT “damages for breach by either party may be liquidated in the agreement but only at an amount which is
reasonable in the light of the anticipated or actual harm caused by the breach"
so, 2 chances for proving that liquidated damages is unreasonable
1. unreasonable in light of the circumstances
2. actual harm
summarized in idea of penalty: if the damages act like a penalty (unreasonable/beyond actual damages)
then it is NOT enforceable
o§2-718(1) last sentence: a term fixing unreasonably unreasonably large liquidated damages is VOID AS A
PENALTY."
BUT under liquidated damages provision, unreasonably SMALL = damages in the amount of 500—is
an under liquidated damages clause viable? it’s debated.
you can have a whooping LARGE clause or you could have a whooping SMALL liquidated damages clause,
and either one, depending on the circumstances, could be equally unjust and unreasonable. BUT
ONLY ONE IS EXPLICITLY VOIDED.
§2-718(1) THIS IS AN EXAMPLE OF HOW WELLMAN COULD TWIST TERMS IN THE EXAM
CONTRACT TO FUCK WITH US!
 hypothetical: excessive liquidated damages clause
oexcessive damage clause bears no reasonable relation to anticipated or actual harm
oBUT: Wellman does "completion date is in fact 6/1, and there is a 100k BONUS for completing on time
EFFECT IS THE SAME → 1 party holds a 100k "club" over the 2nd party, to wield and intimidate AND
IT IS PERMISSIBLE. courts have yet to strike this down.
 §2-718(2): deposits
oa. in the absence of such terms, 20% of the value of the total performance for which the buyer is obligated under
the contract, or $500, which ever is smaller
this acts as a deposit, is essentially a liquidated damages
clause Modifying or Limiting Remedies
 §2-719: contractual modification or limitation of remedy
oremedy must
1. be sole or exclusive remedy
2. not fail of its essential purpose
3. not be unconscionable
o2. consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable.
limitation of consequential damages for injury to the person in the case of consumer goods is prima facie
unconscionable but limitation of damages where the loss is commercial is not.
 Wellman on limitations of 2-719
o§2-719(1)(b): need to say this is exclusive or sole remedy
o§2-719(2): where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may
be had as provided in this act
not much used by courts
courts are fairly narrow in their interpretation
o§2-719(3): unconscionability
unconscionability is VERY LIMITED mechanism
showing that limited remedy is unconscionable is very difficult unless there is injury to a person
 in addition to OR in substitution to as by limiting buyer’s remedies in return of goods and repayment/repair
o(1)(b): optional
oif you don’t put sole or exclusive, then it falls under (1)(b) and other options available for recovery
Modification, Rescission and Waiver of Loss: §2-209
 §2-209(1): an agreement modifying a contract doesn’t need consideration— just need to follow good faith
 §2-209(2): no oral mod clauses
oworthless at common law (lawyers don’t seem to know this)
ounder this section appears that these clauses are enforceable— deceiving— BUT see 2-209(4)
 §2-209(3): statute of frauds requirements must be satisfied if the contract, as modified, is within its provisions
oafter modification, contract is for $500 or more
 omore complex when contract was within statute of frauds before modification and still is after— do you need to
satisfy statute of frauds the second time?
assuming you have the same parties, the only important change is quantity
renegotiate price or time for delivery—don’t need new writing
renegotiate quantity— need new writing
case law split on this but be safe, this is the most common answer
§2-201(2): send a conforming note un-objected to or anything in 2-201(3) will satisfy
 §2-209(4): attempt at modification/rescission can operate as a waiver
oso no oral mod clause is not effective but can be a waiver
 §2-209(5): I can retract waiver unless you have relied on it, in which case I can’t
 better off saying: HERE ARE THE EXPRESS WARRANTIES, THERE ARE NO OTHER PROMISES/WARRANTIES MADE BY
THE SELLER beyond what is expressed here
 test of good faith between merchants or against merchants : observance of reasonable commercial standards of
fair dealing in the trade (2-103; verbatim)— test includes:
o“observance of reasonable commercial standards of fair dealing in the trade” (2-103),
oand may in some situations require an objectively demonstrable reason for seeking a modification. but such
matters as a market shift which makes performance come to involve a loss may provide such a reason even
though there is no such unforeseen difficulty as would make out a legal excuse from performance under 2-615
and 2-616.
class: the extortion of a 'modification' without legitimate commercial reason is ineffective as a violation of
the duty of good faith.
standard of good faith is different for non-merchants than it is for merchants GOOD FAITH
IS SUBSTITUTED FOR CONSIDERATION AS A POLICING DEVICE

Note on §2-709 and risk of loss

 seller’s remedy— specific performance/replevin for goods
ojudicial reluctance to give specific performance— more inclined to say your buyer is going to be made whole to
collect money damages
oback to risk of loss— what happens when goods are shipped, can be lost/damaged in transit—distinguish
between shipment and destination contract
onothing here that says this is specific performance— as a result ought to be in a position to argue that this is a
claim of law, not an extraordinary remedy, just a remedy available to you in the ordinary course of things
might be an action for specific performance
interesting argument. in order to be successful need to emphasize that even though code action
doesn’t say specific performance— the language sounds exactly like it
on the other hand, buyer attorney says code knows how to address when talking about it— see 716
that says specific performance, this is just another remedy at law
 Expectation Damages = loss in value + inconsequential/incidental – costs saved
 Buyer’s Remedies: if seller fails to deliver; ARs; buyer rejects/revokes can cancel
 §2-712 Cover-except for breach of warranty
o(1) Buyer can get substitution goods w/in rbl time (not necc Identical)
o(2) collect the difference between the cover and K price
 with consequential and incidental damages minus saved costs
 must be in good faith (can’t cover with extravagant goods)
burden on seller to show not in good faith
if shown damages are §2-713 market value
o(3) don’t have to cover
 §2-713 Non-cover—if buyer doesn’t want to cover or for AR
o(1) buyer can collect different between market price and K price
 with conseq and incidental damages minus costs saved
o(2) market price = at time buyer learns of breach at time of tender
 §2-714 Damages for defective goods that were accepted
o(2) buyer gets breach of warranty damages = different between goods contracted for and those received
(constructive warranty)
 EXCEPTION: if special circumstances show proximate damages in a different amount (i.e. cost to cost
to complete)
o(3) includes conseq and incidental damages
 §2-715(1) Incidental—business losses from the K (inspection, transportation etc.)
  §2-715(2) Consequential—business losses outside the K (lost profits if buyer had resold)
oSeller can limit these by showing that buyer could have AVOIDED these costs by covering or another way AND
oSeller can limit by showing ze didn’t have reason to know these were FORSEEABLE costs (seller will show to
avoid absurd damages—courts differ on this test)
 §2-716 Specific performance: Good are unique OR other proper circumstances
overy conservative approach—damages are usually possible
 Seller’s Remedies: if buyer makes a wrongful rejection/revocation or fails to tender payment or ARs
 §2-703 Seller’s Options
oWithhold delivery
oStop delivery by bailee
oResell goods that are not identified
 §2-704: if goods are not finished or not picked out seller can resell as long as using rbl comm
j’ment and GF (burden on buyer to show otherwise)
oSue for damages
oCancel
 §2-706 Resale
oseller can collect different between resale price and K price AND incidental minus costs saved
oResale can be private or public sale but all aspects must be commercially rbl and rbl’y ID’d as a resale
 Private = seller must give buyer notice of intent to resell
 Public = only ID’d goods can be sold unless there is a public market for future goods of this kind;
time and place must be comm rbl and buyer told of such; if goods wont be at auction must allow
for inspection; and the seller can buy
 If seller fails any of the above a new buyer gets title anyways
oSeller is not accountable for any profits made in the resale
 §2-708 No resale
oseller can get different between market value and K price at time of tender
oLOST VOLUME SELLER: is seller resells AND has an endless amount of stock (where the seller is in the business
of selling as much as ze can) then damages can include the profits seller would have made on that K PLUS rbl
overhead
oBoth include incidental damages minus costs saved
 §2-709: Specific Performance
oif buyer has goods and wont pay or seller cant resell after rbl’y trying seller can sue for the K price
oseller must hold remaining goods ze has in the K for buyer unless resale comes up then the resale is subtracted
from the K price damages
oif this fails the seller can still resell and collect damages in 2-708
 §2-710 Incidental Damages: any costs incurred from transportation; storage; resale
o**NO CONSEQUENTIAL DAMAGES ALLOWED
 Limits on Remedies
 §2-719 Limits in the K
ocan limit damages in the K
ono requirement to be CONSPICUOUS
ois optional unless explicitly stated to be exclusive
oif it fails of essential purpose will be set aside (lemon clause)
ocant be unconscionable (very high burden)
o*NOTE: drafters should define what will be counted as conseq/incid damages
 §2-718 Liquidation Damages
omust be rbl in light of ANTICIPATED AND ACTUAL harm; be hard to prove the loss
ohigh auto liquidation damages will be struck down (i.e. if applies for any minor breach)
oneed to have the specific calculation in there to make it enforceable
otake or pay clause are the same as liquidated damages (buyer must pay even if reject)
o**NOTE: drafter should frame a bonus clause to get it through
o**NOTE: unrbl’y small is debatable but not auto void
o(2) Deposits: if no specific term listed then the liq damges will be 20% of total value of perf OR $500,
whichever is smaller

LEASES

Liquidation of Damages: 2A-504

 §2A-504: language
 ohybrid of 2-718 and 2-719(2)
osame basic idea and language as 718— 2 important differences: none of that talks about unreasonably large
liquidated damages
more importantly: under 2A only get one bite of apple— something to then anticipated damages
oremember we measure these by virtue of time it was breached
onote: covers default & any act or omission!
odifferences: covers default & any act or omission!, allows liquidation by use of formula not just amount, does not
require proof of situation with difficulties of proof of loss/inability to obtain adequate remedy
Modification or Impairment of Rights and Remedies: 2A-503
 §2A-503:
o(1)-(3): see 2-719
o(4): rewrite of 2-701: no big/important change
Lessee’s Remedies: 2A (Buyer)
 Supposed to have goods in accordance with lease contract— if lessor defaulted, I don’t have goods I should
 2A-508: remedies generally
 2A-509: rights on improper delivery, rightful rejection
oimproper delivery: same as 2-601
o(2) procedure for rejection same as 2-602(1)
 2A-510: installment lease contract: rejection and default— same as 2-612
 2A-511: merchant lessee’s duties as to rightfully rejected goods— 2-603 and part of 2-706
 2A-512: lessee’s duties as to rightfully rejected goods— follows 2-602 & 2-604
 2A-513: cure by lessor of improper tender or delivery; replacement— same as 2-508
 2A-514: waiver of lessee’s objections— same as 2-605
 2A-515: acceptance of goods— same as 2-606
 2A-516: effect of acceptance; notice of default; establishing default— same as 2-607
 2A-517: revocation of acceptance— 2-608
 2A-518: cover; substitute goods
olessee who doesn’t get the goods or has to reject them to cover in one form or another and sue for difference
between what would have had to spend and what it must now pay on substitute contract
osubstantially similar lease— present value
 2A-519: non-delivery, repudiation, default, and breach of accepted goods— same as 2-713
o(4) is the same as 2-714: measure of damages if lessee’s complaint is breach of warranty
 2A-520: incidental and consequential— same as 2-715
 2A-521: right to specific performance/replevin— 2-716
 2A-522: right to goods on lessor’s inventory

Lessor’s Remedies: 2A (Seller)

 2A-523(1): index provision, lists remedies available to lessor if lessee wrongfully rejects or revokes acceptance of
the goods or fails to make a payment when due or repudiates with respect to a part of the whole— same as 2-703
 2A-523(2): lessor’s rights should it not exercise a right or obtain a remedy to which it is entitled under (1)
ocomment 19
 2A-523(3): lessee may default in ways not mentioned in (1)
olessee may be obligated to keep goods so lessor can get them back in good condition— if lessee doesn’t do this or
damages the goods, then it is a default and isn’t covered by (1)
ocomment 20
 2A-524: lessor’s right to identify goods— see 2-704
 2A-525: lessor’s right to possession
o(1): revised version of 2-702
o(2) and (3): NO article 2 counterpart!
olessor assumes he will get the goods back at some point— if lessee pays he has use, if lessee doesn’t pay, lessor
can take back possession earlier than the end of the lease term
othis reflects this idea— codifies the lessor’s common law right to protect the lessor’s reversionary interest in the
goods
 2A-527: lessor’s rights to dispose
o(2): cover minus contract measure
 2A-528 & 529: see below
 2A-530: lessor’s incidental damages— same as 2-710

Approach for Aggrieved Lessor

 lessor can go after lessee for cash in one of three ways
o1. in the proper case can bring an action for rent under 2A-529
o2. if the lessor covers by disposing of the goods either through another substitute lease or through a sale, it may
seek damages on a contract - cover measure (2A-527)
o3. can seek damages under a contract - market theory (2A-528(1)) OR for lost profits (2A-528(2))
similar to 2-708(1)— remember present value
has a second part that gives lost volume lessor the right to calculate its damages in a way analogous to
the lost-volume seller’s rights in 2-708(2)
 in keeping with article 2 with a few notable changes
oless likely that 2A-529 lessor’s action for price than it is for seller in article 2
same: lessor can sue for rent when goods have been lost/damage and risk has passed OR where
they can’t be disposed of in some way at a reasonable price
different: lessor doesn’t have a right to this relief just because the goods have been accepted
can sue for rent ONLY with respect to the goods accepted by the lessee and not repossessed by
or tendered to the lessor
if lessor has taken the goods back or lessee is willing to let the lessor have them back, lessor
must arrange some disposition of the goods that minimizes damages
 §2A-532: lessor’s right to residual interest
ono article 2 analog
oif lessee returns goods in a damaged condition or in worse shape than is permitted under the lease agreement, the
lessor must necessarily have a right to recover for this injury

Present Value: 2A-518 & 2A-519

 §2A-518: cover/substitute goods— comes within the part/subpart that has to do with remedies for an injured
lessee which is much the same as remedies for an injured buyer— requires use of goods not ownership
oastonishing level of convergence/similarity/parallelism between remedies for lessee and for injured buyer
osame kind of remedy as cover for injured buyer— think of this as measuring damages for injured lessee in
reference to substitute lease
 see 518(1) and (2): all 2-712 case law applies here to determine whether lease agreement is in substitution of those
due from the lessor
oin 712 talking about one sales contract substituting for another, because in 2A we’re talking about the lease of
goods, we have to expand the possibilities of how injured lessee might try to cover— why? lessee might enter into
new lease contract but might also try to acquire use of goods by buying the goods— says PURCHASE or lease of…
 doesn’t work under 2A to depend on gap-fillers
ocorollary to that is since we’re agreeing on everything else and all of the drafting of 2A comes against background
of changed body of law on liquidated damages clauses up to and including the remedies
owill often find liquidated damages provision in the lease agreement
oeven if they haven’t agreed to liquidated damages— back to 518(2) something something
keep going back to what the parties actually agreed to
 because this is a lease and because your leases are usually paid for in a stream (over the life of the lease) it’s a
different deal mathematically than a lump sum payment up front
opresent value: worth to me now at most present moment
odiscount to present value— allows us to calculate the present value of a future fixed sum of money
otime value of money: PV = (FV)/((1+r)^t)
 §2A-518(2): don’t have to do this on exam, just have to indicate how it would work
obasic concept: 2 payment streams, that the lessee promised to pay to breaching lessor and that in the NEW lease
agreement where lessee is promising to make new lease agreements— because you breached our lease and I have
to pay someone else more per month, you should make me whole— you should pay me the difference between
what I was supposed to pay you and the larger amount I pay someone else
opresent value, payment streams and how to compare segments, not necessarily entirely comparable
if I wait a little my new agreement may have different dates (reasonable wait) then we block something
off and we compare from that the sum of the present value of the lease payments I was supposed to
be making— interest rate: enforced as long as not unreasonable
 LEASES: not a breach, but a default
 §2A-504 Liquidation of Damages
oSame as §2-718 except removes the hard to prove loss requirement
 Lessor Remedies—giving the goods for use
o§2A-103: present value what the missed payments would be worth today if they had been paid when they
were due
o§2A-525:
 the Lessor can refuse to deliver the goods if ze discovers the lessee is insolvent
 the lessor can also take possession of the goods if the lessee defaults
judicial intervention is not necc her if the lessor can do so peacefully
o§2A-523: Lessor can go after cash 3 ways
 §2A-529: go after rent in court
can collect missing rent at present value with incidentals
i. present value = the value of the money if it had been given when it was due (because
100 given to me last year would be worth more if I had it this whole time)
**high burden because can only use this remedy if goods are lost; stolen; title is
somewhere else
***CANNOT USE THIS REMEDY WHEN THE GOODS HAVE BEEN ACCEPTED AND CAN
GET THEM BACK/LESSEE AGREES TO GIVE BACK
 §2A-527 Cover lessor can re-lease OR resell the goods and collect the difference between cover K
and default K
present value of original lease MINUS present value of cover lease
cover lease must be substantially similar to the original lease
 §2A-528 no Cover: lessor can sue for difference between market value and K price OR lost profits
if lost volume seller
present value of market lease MINUS present value of original lease
 §2A-532: lessor can also recover damage to the goods when returned
 Lessee’s Remedies:
o§2A-508: if non-conformity not bad enough to make lessee reject or revoke acceptance than can sue for the
cost of repair/tune-up
o§2A-518 Cover: lessee sues
 substantially similar lease
 difference between what would have spent at present value and what has to spend now at present
value
o§2A-519 no cover:
 sue for difference between present value of market lease and present value of original lease
 §2A-504: liq damages

Documentary Transactions p. 561-604

Article 7-Documents of Title
 Documents of Title
 Bill of lading: document that carrier/bailee issues stating that goods have been received from the consignor/seller
oThe seller will then give it to the buyer to use to pick up the goods and the buyer tenders payment
 Warehouse Receipts: document that warehouseman/bailee issues stating that goods have been received from the
consignor/seller
o*Warehouse must be an independent 3 rd party, not the seller’s warehouse
oThe seller will then give it to the buyer to use to pick up the goods
 3 Different Functions of Carriers and Warehousers
 Caretaker Function: charged with care for the goods
oThe caretaker is relieved of risk under DOC when the goods are pushed out the door to the recipient
 Issuer Function: issues the doc of title
oHold the carrier/warehouser liable for the difference between the goods given by caretaker and what was
received
 Deliverer Function: charged with delivery of goods via the doc of title
 §7-104 Negotiable vs. Non-negotiable
 Negotiable = If document of title states that goods are to be delivered to bearer OR order of a named person
o§7-403 Allows for doc to be transferable—e.g. pay to order of on a check means that it can be signed over to
someone else (i.e. on the back)—means that the carrier is really the holder at this point
  Non-negotiable = if not the above
o§7-403 The holder is then whoever is listed as such below
 Application to Article 2—ROL see above
 Payment Against Documents: for transactions that occur over a distance and the seller has no way of giving the bill of lading
to the buyer; can do it on credit but also can use banks
 Seller and buyer make a K
 The seller gives the goods to the carrier and gets the bill of lading
 Seller makes a draft and gives it to the seller’s bank along with the bill of lading
 The sellers bank transfer the documents to the buyers bank via customary banking channels
 Once it arrives at the buyers bank the buyer pays the money to the bank in exchange for the bill of lading
 Once the goods arrive the buyer gives the bill of lading to the carrier and takes the goods
 The buyers banks sends the money to the seller’s bank and deposits it in the sellers account

Supply Chain Issues – Distributors, the Economic Loss Doctrine, Risk of Loss p. 297-303, 453-477

 Supply Chain
 OEM = Original Equipment Manufacturer
oMakes part or subsystem that is used in another company’s end product
 Tier 1: Ships directly to manufacturer (GM)
 Tier 2: Make parts that go to Tier 1 OEM
 Tier 3: To Tier 2?
 T3<>T2<>T1<>OEM>(credit)>Distributor>Wholesaler>Retailer/Dealer>Consumer
 Purchasers want to go after OEM because deepest pocket and OEMs want to send the claims downstream
 Distribution Agreements: between OEM and distributor
oK: defining the relationship
 Pure middleman: Just a sales person
 Agency: Actively promoting product on behalf of OEM
oSales of goods under Article 2?
 Predom Factor test—YES
 MI: NO
oObligations:
 OEM sells goods to distributor
 Drop Shipment K: OEM sells, gives to distributor, distributor delivers to seller
oWarranties
 Implied Warranties go against the SELLER so need to determine if that the OEM or
the distributor
 §2-314 Merchant: seller does not matter here though
 Disclaimers and modifications do because only the seller can make them
i. OEM wants to stop the warranty at the dist (middleman approach)
 §2-314 (e&f): OEM wants all the provisions on product
i. Privity must be found between OEM/Distributor and purchaser
1. E.g. agency can tie them
oINDEM: OEMS want them and Distributors fear them
oExclusivity K: Distributor has requirement to use Good Faith—BEST EFFORTS §2-306(2)
 Hard for OEM to show
oK models
 Unified K
 Ts&Cs: One K for terms and one w/ standard terms and conditions
 Allows OEM to standardize their terms and conds
 Addendum/Schedule: STANDARD K with addendum attached
 Separate: 3 different Ks entirely (PO, Credit K, and INDEM)
 ROL Issues matter here—see §2-500s
 Intro to ELD:
 Tort-K Boundary (breach of K versus tort arising from K)
 Warranty claims can go either way
oMI = warranty under K theory is under breach but if tort then needs to be separate claim
 Why care about the boundary?
 oK claims needs Privity for purchaser to get to OEM
oTort claims don’t need Privity
 Want to sue OEM because they have a deeper pocket and you can get punitive damages
(no punitive in MI)
 SOL: K starts at breach and tort starts at time you notice injury
oSubstantive differences
 K: no intent needed, nonfeasance fine
 Tort: need to show malfeasance
 ELD: precludes remedies outside Article 2 for economic harms for goods
 MI states that no personal harm when suing for business loss up the supply chain so need to sound your claim in
K rather than tort
 THUS if you file tort claims and ELD applies then you have no remedy
oMI extends ELD to all damages
oAgency theory (including estoppel) might allow purchasers to sue OEM
 MI is undecided
 Application of ELD
 ELD = no tort remedies unless personal loss, thus remedies limited to Art 2
 If no remedies under Art 2 need to try 2-314 e&F theory
 EXAM: proposal to change §2-313 or adopt ELD??
 Article
 §2-318: 3 different scenarios
ooptions A is the most common and the most restrictive
 issue becomes who can bring suit
 MI is weird because they hold distributorship Ks not to be sales of goods (unless they state a quantity (see
Lorenz Supply v. American Standard)
 VW thinks that if the sale of goods was for non-commercial purposes than ELD should not apply
 ELD means NO tort REMEDIES, not no tort claims (i.e. can still have a case for fraud)
oMI made a mistake by barring tort claims for fraud under ELD because it is explicitly in 2-721 (see Huron
Tool case)
 MI ELD
oOnly applies when the predom factor of trans is the sale of goods
**MI says distributorship Ks are not unless they state a quantity term
thus service Ks are not limited by ELD
oELD precludes tort REMEDIES and says you are limited to UCC remedies
*Hart v. Ludwig precludes tort CLAIMS if the tort claims could not stand independent of the K
oSince ELD limited to UCC remedies for torts, and UCC allows remedies for tort claims (see §2-721) then
tort claims are ok (e.g. fraud) HOWEVER you can K around this by drafting remedies for non-disclosure
and misrep
oELD only applies to econ/commercial losses by defective products, not personal losses suffered by the
consumer UNLESS the consumer had adequate opportunity to negotiate the terms of the sale and
oIF ELD precludes any remedies you might be able to get (see §2-313) THAN
Need to use warranty claims to try and get damages (express created by ANY affirmation of fact
etc., but must be construed whenever rbl w/ usage of trade/course of dealing) SO OEM should
state that technical services cannot be expected to solve any and old issues that rise from the
goods
oPrivity:
Isn’t the fact that the distributor is motivated to sell
oLimits the downstream of warranties to purchaser
oDistributors will not make any promises
oINDEM
Flip side is that OEM sometimes wants to back up the distributor so deter future claims by backing up
the distributor