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Sales and LeasesOutline & Problems

Scope of Article 2 Article 2 covers the sales of goods.

o

Would not cover other dealings in goods, such as gifts, bailment, and gratuitous bailment.o True lease of goods is covered by Article 2Ao Computer software licenses, not specifically covered by Article 2, process of drafting Article 2B to deal with this

issue. (covered in class notes)o If the transaction is to operate only as a security transaction, Article 2 will not apply.o Article 2 covers any sale, no matter how small or large, as long as the subject is goods.o Real property is NOT movable and cant be considered goods; not governed by Article 2.o Chose in action or things in action an incorporeal right, a right not reduced to possession but recoverable by

bringing and maintaining an action such as copyrights, etc. Although copyrights can be bought and sold, Article2 does not handle those transactions.

o Investment securities are expressly excluded from the scope of Article 2.o

Goods : All things that are movable at the time of identification (other than the money in which the price is paid) Unborn young of animals and growing crops All those whose value is determined by its physical attributes; those whose value is determined by the things in them. Must be both existing and identified before any interest in them can pass. Future goods goods that are not both existing and identified

Transactions: There is no definition for this word. What is the scope of Article if this term is not defined?

Milau Associates, Inc. v. North Avenue Development Corp.Action:

1. Negligence and breach of implied warranty of fitness for a particular purpose.Facts:

1. Burst in an underground section of pipe; damage to bolts of textiles stored in warehouse.2. Commercial tenants sought recovery from the general contractor (which built the warehouse) and the subcontractor (which

designed and installed the sprinkler system).3. Evidence: water hammer a sudden and unpredictable interruption in the flow from the city water main followed by

back-surge and buildup of extreme internal pressure: caused crack to develop.4. Stress-raising notch produced by poor tool used by Higgins (subcontractor).5. Defendants produced evidence securing that the pipe itself was neither defective as manufactured nor improperly installed.

Issue:1. Does the torts negligence action or the implied warranty and strict warranty application of Article 2 apply?

Rule:

1. When service predominates, and the transfer of personal property is but an incidental feature of the transaction, the exactingwarranty standards for imposing liability without proof of fault will not be imported from the law of sales to cast purveyorsof medical services in damages.

2. Cannot separate the goods from the services service predominatesHolding:

1. Given the predominantly service-oriented character of the transaction, neither the Code nor the common law of this Statecan be read to imply an undertaking to guard against economic loss stemming from the non-negligent performance by aconstruction firm which has not contractually bound itself to provide perfect results.

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2. What factors would you look at to determine whether the transaction is one for sale or service? Look at relative values of thegoods portion and the service portion: if the value/price of the goods is greater than the value/price of the service portion. If,in the contract, the buyer specifies that the goods are specific and particular may indicate that he is more interested in the saleof goods rather than the services portion of the hybrid.

Is a breach of contract dependent on proof of negligence? No, contracts are strict obligations.

Article 2 covers implied warranty.

Contractual liability may or may not require proof of negligence. Typically, contractual obligations are strict.

Article 2 does not cover most custom designed goods; the materials, etc. involved in the making of the goods are incidental tothe services.

Are loans or gifts considered transactions? Article 2 is consistently interpreted to be limited to sales (supported by 2-101 and by the fact that in all the comments and articles, the body of the transactions identified mention seller and buyer). Untilrecently, there was a tendency to apply the article to lease transactions, mostly because there was not a specific body of lawcovering lease transactions (Article 2A now covers this area).

Predominant Purpose test characterization of the transaction as a whole as either a sales transaction or a servicetransaction. This characterization is applied to all parts of the transaction.

Gravaman test what gave rise to the cause of action/dispute? Not always easy to apply because it requires to answer somedifficult causation questions. This does, however, do away with the problem of having to characterize each transaction as oneof two types holistically.

2-314 service of food in a restaurant (contains both service and sales elements) = provides that this type of hybridtransaction is always to be considered a sales transaction (all Article 2 warranties apply). This article recognizes that this typeof transaction may be considered a service transaction. (Does not apply to other types of hybrid transactions; these arecovered by the predominant factors test or the Gravaman test).

Anthony Pools v. Sheehan (product liability case: questions about implied warranty) Facts: (2-314)

1. P (Sheehan) and wife sue D (Anthony Pools).2. P sustained injuries when he fell from the side of the diving board (Anthony designed and manufactured the pool and diving

board).3. Ps theories of liability:

a. Skid resistant material didnt extend to the edges of the board breached an implied warranty of merchantability. b. D used defective diving board that was inherently dangerous.

4. Trial court found for D = stipulation in contract provided that the express warranties were in lieu of any others.5. Appeals court reversed pool = consumer goods; cant limit the implied warranty of merchantability.6. The contract = hybrid transaction in part a contract for the rendering of services and in part a contract for the sale of

goods.7. The test = whether the predominant factor , the thrust, the purpose, reasonably stated, is a transaction of sale with labor

incidentally involved. If follows that, if the service aspect predominated, no warranties of quality were imposed in thetransaction.

8. Used the majority test to determine what the predominant factor was: the Ps hired D to install a pool, the sale of the boardwas incidental to the construction of the pool. Although the diving board is goods it was not purchased in a separateagreement and therefore not protected by implied warranty.

Holding:Where, as part of a commercial transaction, consumer goods are sold which retain their character as consumer goods after the

completion of the performance promised to the consumer, and where monetary loss or personal injury is claimed to have resulted from

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a defect in the consumer goods, the provisions of the Maryland UCC dealing w/implied warranties apply to the consumer goods, evenif the transaction is predominantly one for the rendering of consumer services. [Used the gravamen test]

The Merchant Class2-104:

1. Merchant means a person who deals in goods of the kind or otherwise by his occupation holds himself out as havingknowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may beattributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as havingsuch knowledge or skill.

2. Because of the word or used repeated in trying to spell out the classification, there is no single test to determine if someoneis a merchant.

3. Comment #2 the term merchant as defined here roots in the law merchant concept of a professional in business. The professional status under the definition may be based upon specialized knowledge as to the goods, the business practices, or as to both and which kind of specialized knowledge may be sufficient to establish the merchant status is indicated by thenature of the provisions.

4. The definition of merchant is supposed to distinguish between the professional on the one hand and the casual or inexperienced buyer or seller.

5. A person making an isolated sale of goods is not considered a merchant; warranty of merchantability will not apply.

6. Sometimes determining the status of merchant is a toss up; general rule to follow: the more professional the party appears to be, the more likely he will fall within the classification of merchant; the more casual or inexperienced the less likely.

7. The court usually distinguishes between casual sellers of food (luncheons, etc.) and the commercial restaurateur. Of course,if the organizer of the luncheons did it on a regular or continuing basis, it may then change its status of merchant.

8. One is considered a merchant as soon as he holds himself out as having the kind of knowledge and skill that others in thefield have; it matters not that the individual is a newcomer; the code protects the buyer, not the merchant when it comes to thewarranty of merchantability.

Sieman v. Alden (1975) Illinois Appellate CourtFacts:

1. P sued D for injuries sustained while operating a multi-rip saw.2. Theories of recovery: strict tort liability for the sale of a defective product; breach of warranties; negligence.3. D owned the saw P purchased; D informed P that the saw was NOT in operating condition; P would have to do a lot of work

to the saw, but determined to buy it for $2900.4. On appeal, P contended that summary judgment should be reversed because: D had a sufficient relationship to the saw whichinjured P to subject him to strict tort liability and the UCC would hold D liable for implied warranties.

5. Language of the UCC limits the application to sellers engaged in the business of selling the product. (the occasional seller isexplicitly excluded) This was an isolated transaction and thus, not protected by the code.

II. Contract Formation

Offer and Acceptance1. 2-204 Formation in General

a. (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by

both parties which recognizes the existence of such a contract. b. (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making isundermined.

c. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties haveintended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

2. The drafters realized that contracting parties, either through lack of diligence or because they continue to squabble over details, fail to produce a neatly packaged contract.

3. The question is whether the parties have as a practical matter reached sufficient agreement for contract liability to arise. If they have in fact reached agreement, how they did so is of secondary or no importance.

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4. Commercial standards of indefiniteness, not the standards of an uninformed layperson and certainly not the standards of a pettifogging lawyer, are what are relevant to the question of contract formation.

5. The section does not preclude finding a contract by the traditional form of offer and acceptance; the parties having agreed to buy and sell is enough, no further conduct is necessary.

6. 2-105 Firm Offers modifies the rule stating that consideration is no longer a requirement; offers are firm if they arecharacterized as such and in signed writings.

a. An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will beheld open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonabletime, but in no event may such period of irrevocability exceed three months; but any such term of assurance on aform supplied by the offeree must be separately signed by the offeror.

b. ** This is an OPTION CONTRACT7. The common law of offer and acceptance was altered significantly by the UCC. Much of the evolution of the common law

has been brought about by Article 2 of the UCC, in particular.8. It is now clear that a contract for sale may be created by the parties having exchanged forms which contain different terms as

long as the differences are not of the type which in the commercial environment usually make or break a deal.9. Generally, the terms of the offer are the terms of the contract.10. Under 2-207, there are 2 ways that an additional term in the acceptance can become part of the contract:

a. Implicit in the statement that such additional terms are to be construed as proposals for additions to the contract.An additional term can become part of the contract by is express acceptance by the original offeror.

Battle of the Forms2-207 Additional Terms in Acceptance or Confirmation

1. A definite and seasonable expression of acceptance or a written confirmation which is sent w/in a reasonable time(emphasizes both the principles of freedom of contract and the desirability of making judgments based on the circumstancesof an individual transaction ) operates as an acceptance ( means to bind both parties ) even though it states terms additional toor different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

2. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become partof the contract unless:

a. The offer expressly limits acceptance to the terms of the offer; b. They materially alter it; or

c. Notification of objection to them has already been given or is given w/in a reasonable time after notice of them isreceived.

3. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although thewritings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of thoseterms on which the writings of the parties agree, together with any supplementary terms incorporated under any other

provisions of this Act.

People in business tend to rely on form documents detailing all manner of terms and conditions. When merchants/businesspeople exchange forms, the information specific to the deal = dickered terms. Under common law, the exchange of forms would probably not result in a binding contract mirror image rule; any

additional terms/conditions were considered counteroffers. only to an acceptance which clearly reveals that the offeree is unwilling to proceed with the transaction unless he is assured

of the offerors assent to the additional terms therein does the proviso (1) apply; it should be reasonably worded and presented in such a manner as is calculated to bring a reasonable recipient to the understanding that no deal has yet beenconcluded and none will be concluded unless and until either it responds favorably to the new terms being presented or evenmore negotiation brings on a compromise. (Dorton test)

The common law of offer and acceptance was altered significantly by the UCC. Much of the evolution of the common lawhas been brought about by Article 2 of the UCC, in particular.

It is now clear that a contract for sale may be created by the parties having exchanged forms which contain different terms aslong as the differences are not of the type which in the commercial environment usually make or break a deal.

Generally, the terms of the offer are the terms of the contract. Under 2-207, there are 2 ways that an additional term in the acceptance can become part of the contract:

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Implicit in the statement that such additional terms are to be construed as proposals for additions to the contract. Anadditional term can become part of the contract by is express acceptance by the original offeror.

Diamond Fruit Growers, Inc. v. Krack Corp . (1986)

Facts:1. Krack (K) manufacturer of cooling units containing tubing supplied by Metal Matic (MM).2. At beginning of each yr. K sent blanket purchase order to MM stating how much tubing it would need for the year. Then K

would send release orders and MM would respond w/acknowledgment form and shipping of tubing.3. MMs acknowledgement form disclaimed all liability for consequential damages and limited MMs liability for defects in

tubing to refund of the purchase price or replacement or repair of the tubing. (these terms were not found in Ks purchaseorder). acceptance made conditional on additional terms [see reverse side for terms and conditions = printed on signatureside of acknowledgement form]

4. K objected to the terms, but they were never changed, and K continued to buy.5. K then sold one its cooling units to Diamond Fruit Growers (P).6. Unit began leaking ammonia. Found a pin-hole leak in cooling coil. P sued for lost produce. K brought MM in as a third

party complaint.7. Jury found for P; MM was liable for 30%.

8. Issue is whether the disclaimer was ever a part of the contract with K.9. K argues 2-207 applies (it does apply to commercial transactions in which parties exchange printed forms). In this case, theyexchanged forms w/ different terms.

10. 2-207 changes the common law mirror image rule: converts a common law counteroffer into an acceptance even though itstates additional or different terms The only requirement is that the responding form contain a definite and seasonableexpression of acceptance; if the offeror assents, the parties have a contract w/additional terms; if offeror doesnt assent, but

performs, then there is a contract w/additional terms.11. MM argues that K agreed based on conversations and then continued buying.12. But, 2-207 does away with common laws last shot rule which gives advantage to the party who sent the last form. Instead,

all the terms on which the parties forms do not agree drop out, and the UCC supplies the missing terms. 2-207(3)13. Accepting MMs argument would in effect reinstate the last shot rule.

Holding: Because Ks conduct did not indicate unequivocally that it intended to assent to MMs terms, that conduct did not amount toassent. [if the seller truly doesnt want to be bound unless the buyer assents to its terms, it can protect itself by not shipping until itobtains that assent].

Dale R Horning Co. v. Falconer Glass Industries, Inc. (1990)Facts:

1. P (AGM) seeks recovery for consequential damages for breach of warranty.2. AGM was to install curtain wall & glass for building; time was of the essence.3. AGM entered into agreement with D (Falconer Glass) to supply glass; there was no discussion of limiting remedies or

disclaiming warranties over the phone. AGM sent D an confirming order form (contained no language of warranties,damages). D sent his form to P at same time; his form contained fine print stating that buyers exclusive and sole remedyfor defective goods shall be to secure replacement the seller shall not be liable for special, direct, indirect, incidental, or consequential damages. [not underlined, bold-faced, etc]

4. AGM received defective glass and told Carmen (rep. For D) that it would hold D responsible; there was no objection to this. No agent or employee was aware of the restrictive terms of Ds form.

5. In the commercial glass industry, it is customary common practice for suppliers to place restrictive warranty terms on the back of their forms. (despite standard forms, suppliers will often work w/buyer to help cover part or all of the extra costsincurred due to defective products).

6. 2-715 provides that consequential damages may be recovered by the buyer for any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could notreasonably be prevented by cover or otherwise; there need not be a conscious acceptance of an insurers liability on thesellers part, nor is his obligation for consequential damages limited to cases in which he fails to use due effort in good faith.However, D did attempt to exclude consequential damages by sending its form w/fine print on the back. Issue do theseterms form part of contract?

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7. 2-207(2) states that they become part of the agreement unless they materially alter the prior agreement = if its incorporationinto the contract w/o express awareness by the other party would result in surprise or hardship

8. Course of dealing and usage of trade analysis would have to be invoked at this stage to determine if the new terms imposedsurprise or hardship; for if the buyer is generally aware that such limitations are imposed in the industry, the buyer cannot beheard to complain or surprise in any individual transaction.

9. Glass industry presents a dichotomy in the course of dealing analysis: suppliers make exceptions where it is in their bestinterest. Boilerplate clauses are not reliable; parties must expressly negotiate terms of limited liability if they dont want to befound liable.

10. Note: the code did not completely abolish the concept of mutual assent.

Leonard Pevar Co. v. Evans Products Co. (1981)Facts:

1. P sued breach of implied and express warranty; he entered into an oral agreement for the purchase of plywood. P sent p/o butit didnt mention warranties, etc. D sent his acknowledgement form in boilerplate fashion stating that the contract of salewould be expressly contingent upon Ps acceptance of all terms contained in the document.

2. D contends that the oral agreement is unenforceable: in violation of statute of frauds which holds that if an agreement is inexcess of $500 it is unenforceable.

3. Section 2-201 however, holds an exception: if written confirmation is sent to the receiving party and party doesnt object w/in10 days, then the oral agreement is enforceable.

4. Where 2-207 applies:a. Where an oral agreement has been reached followed by sending of forms containing terms not discussed. The

additional terms will be part of the agreement unless they materially alter it; if they do, then the standard gapfillers provisions of article 2 will provide the terms of the agreement.

b. Where the parties have not entered into an oral agreement but have exchanged writings which do not containidentical terms.

5. Court rejected the last shot rule (Ds argument)

The Statute of FraudsBefore even looking at statute of frauds, you must first determine whether a contract exists at all . (This has to do with matters of

offer and acceptance) Statute of Frauds does not deal with this stuff.Parties who invoke a statute of frauds defense are not claiming that a contract wasnt agreed to, they are claiming that even if a

contract was formed, the contract is not enforceable against them. (Basically, theyre saying that the court lacks the power to enforce acontract even if they did breach)

At common law, when a contract fell under Statute of Frauds, all its terms and conditions had to be in writing, or the contract wasnot enforceable.

Under 2-201, a contract is enforceable even if a main term is omitted or misstated.The only term necessary for enforcement is quantity .There are 4 exceptions:

1. Merchant confirmation letters.a. Under the merchants exception, a party could be bound by a writing it had not signed.

b. UCC distinguishes the obligations of business people from others in an effort to promote predictable,dependable, decent business practices.

c.2. Special manufacture.3. Part performance.4. Admission in legal proceedings.

Bazak International Corp. v Mast Industries, Inc.Facts:

1. Annotated purchase order forms signed by the buyer were sent to the seller and retained without objection.2. Ds claim if the memorandum on its face is such that a reasonable merchant could reasonably conclude that it was not a

confirmation, then the claim is barred as a matter of law by the Statute of Frauds.

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3. Ps claim a requirement only that the writings afford a belief that the alleged oral contract rests on a real transaction(Rule of law) ; contends that the purchase orders were sent in confirmation of the agreement already reached, and that there issufficient support for that interpretation in the documents themselves.

Issue:1. Whether the disputed documents qualified as confirmatory writings within the merchants exception to the Statute of

Frauds.

2. Are explicit words of confirmation necessary?Rule of law:1. A confirmatory writing does not satisfy the requirements of 2-201(2) unless it is sufficient against the sender. the

sending merchant itself runs the risk of being held to a contract.2. Explicit words of confirmation are not necessary, but the writing must satisfy the test that it be sufficient to indicate that a

contract for sale had been made..

The Parol Evidence Rule2-202 Final Written Expression: Parol or Extrinsic Evidence .Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended bythe parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted byevidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

a) By course of dealing or usage of trade (section 1-205) or by course of performance (2-208); and [ this means, unlessspecifically negated, course of dealing or usage of trade assumptions are to be taken as part of the agreement;additionally, the course of actual performance of the parties is considered an indication of what they intended thewriting to mean]

b) By evidence of consistent additional terms unless the court finds the writing to have been intended also as acomplete and exclusive statement of the terms of the agreement.

This section rejects: any assumption that because a writing has been worked out which is final on some matters, it is to be taken as including all

the matters agreed upon; the premise that the language used has the meaning attributable to such language by rules of construction existing in the law

rather than the meaning which arises our of the commercial context in which it was used; and the requirement that a condition precedent to the admissibility of the type of evidence specified in paragraph a is an original

determination by the court that the language used is ambiguous. The parole evidence rule makes it possible for a party to argue that something to which he or she expressly did in fact agree

has ultimately been rendered unenforceable because it was not later set forth in the writing adopted by the party . Under the Code, trade terms are part of the agreement as much as those provisions expressly dickered over by buyer and

seller .

Course of Dealing and Usage of TradeSection 1-205

1. A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to beregarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

2. A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a

usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing theinterpretation of the writing is for the court.

3. A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of whichthey are or should be aware give particular meaning to and supplement or qualify terms of an agreement.

4. The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.

5. An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting theagreement as to that part of the performance.

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6. Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party suchnotice as the court finds sufficient to prevent unfair surprise to the latter.

Course of PerformanceSection 2-208

1. Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in withoutobjection shall be relevant to determine the meaning of the agreement.

2. The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade,shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, expressterms shall control course of performance and course of performance shall control both course of dealing and usage of trade.

3. Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant toshow a waiver or modification of any term inconsistent with such course of performance.

Columbia Nitrogen Corp. v. Royster Co. (1971)Facts:

1. P manufactures fertilizer; D produces nitrogen.2. Contract for P to sell phosphate to D for 3 yrs with option to extend.3. D contends that express price and quantity terms in agricultural contracts are mere projections to be adjusted according to

market forces. (usage of trade and course of dealing).4. Held that ambiguity in the language is not necessary to invoke the usage of trade argument. The contract is silent about

adjusting prices to reflect a declining market neutrality provides for the application of usage of trade.

III. Terms of the Contract

Gap Fillers (177-183)At common law if parties left terms out of contract, courts could find n o legally enforceable agreement.Today courts try to save a contract by implying reasonable terms where possible: gap filling2-305 2-311

2-305 Open Price Term1. The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a

reasonable price at the time for delivery if a. Nothing is said as to price; or

b. The price is left to be agreed by the parties and they fail to agree; or c. The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or

agency and it is not so set or recorded.2. A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.3. When a price left to be fixed otherwise than by agreement of the party fails to be fixed through fault of one party the other

may at his option treat the contract as cancelled or himself fix a reasonable price.

4. Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is nocontract. In such a case the buyer must return any goods already received or if unable to do so must pay their reasonablevalue at the time of delivery and the seller must return any portion of the price paid on account.

2-306 Output, Requirements and Exclusive Dealings1. A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or

requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or inthe absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

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2. A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unlessotherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to

promote their sale.

2-307 Delivery in Single Lot or Several LotsUnless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only onsuch tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can beapportioned may be demanded for each lot.

2-308 Absence of Specified Place for DeliveryUnless otherwise agreed

a) The place for delivery of goods is the sellers place of business or if he has none his residence; but b) In a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some

other place, that place is the place for their delivery; andc) Documents of title may be delivered through customary banking channels.

2-309 Absence of Specific Time Provisions; Notice of Termination1. The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a

reasonable time.2. Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but

unless otherwise agreed may be terminated at any time by either party.3. Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be

received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.

2-310 Open Time for Payment or Running of Credit; Authority to Ship Under ReservationUnless otherwise agreed

a) Payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment isthe place of delivery; and

b) If the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection isinconsistent with the terms of the contract; and

c) If delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment isdue at the time and place at which the buyer is to receive the documents regardless of where the goods are to bereceived; and

d) Where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but postdating the invoice or delaying its dispatch will correspondingly delay the starting of the credit

period.

2-311 Options and Cooperation Respecting Performance1) An agreement for sale which is otherwise sufficiently definite to be a contract is not made invalid by the fact that it leaves

particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and w/inlimits set by commercial reasonableness.

2) Unless otherwise agreed specifications relating to assortment of the goods are at the buyers option and except as otherwise provided in subsections (1)C and (3) of 2-319 specifications or arrangements relating to shipment are at the sellers option.

3) Where such specification would materially affect the other partys performance but is not seasonably made or where one partys cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in

addition to all other remediesa. Is excused for any resulting delay in his own performance; and b. May also either proceed to perform in any reasonable manner or after the time for a material part of his own

performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods. Landrum v. Devenport (1981)Facts:

1. P brought act for breach of contract & violations of Texas Deceptive Trade Practices Consumer Protection Act.2. P wanted to buy Indy Pace Car for sticker price; D agreed to deal; P gave D $100; by the time the car came in, the

market value had increased. D didnt want to continue on w/the agreement, he wanted to raise the price. P bought the car for the increased price but protested.

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3. Trial court found that no contract was formed because there was no express price on the purchase order.4. But, 2-305 establishes that even if the price was not expressed, the law will imply that a reasonable price was intended;

the contract was otherwise complete: both parties had signed and P had tendered performance.5. Estoppel was not established: estoppel arises when a representation or act by one party causes the other to do an act

which would operate to his detriment if the first party is allowed to complain, or where a party recognizes the validity of a transaction and accepts benefits from it and then attempts to repudiate it.

6. Court reversed and ordered a new trial.

Unconscionability2-302 Unconscionable Contract of Clause

(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the timeit was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without theunconscionable clause, or it may so limit the application of any unconscionable clause as to avoid anyunconscionable result.

(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the partiesshall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aidthe court in making the determination.

In the name of freedom of contract , caveat emptor , and the duty to read , courts have permitted some rapacious merchants to insulate

themselves in legally formidable contracts that have bordered on fraud and were filled with I winyou lose provisions adhesioncontracts (because the lesser party had to adhere to the will of the stronger).

Professor Leff divided unconscionability into:a) Procedural unconscionability: unfair conduct in the formation of a contract.

b) Substantive unconscionability: unfairness in the terms of the resulting bargain. He said that both should be required before a court can make a finding of 2-302 unconscionability.

WarrantiesTitle Warranty (77-79)

The UCC divides warranties into two basic types:1. Warranty of Title

2. Warranty of Quality

2-312 Warranty of Title and Against Infringement; Buyers Obligation Against Infringement1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that

a) The title conveyed shall be good, and its transfer rightful; and b) The goods shall be delivered free from any security interest or other lien or encumbrance of which the

buyer at the item of contracting has no knowledge.2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances

which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.

3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that thegoods shall be delivered free of the rightful claim of any third 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 whicharises out of compliance with the specifications.

Note Warranty of title includes:1. a warranty that there are no security interests (or other liens) on the goods other than those of which the buyer knows

2-312(1)B, and2. a warranty given by merchant sellers against claims based on patent infringement or the like 2-312(3).

o If the buyer furnishes specifications to the seller (which happens whether the goods are to be specificallymanufactured to buyers order) the buyer automatically makes a warranty to the seller that protects thelatter from infringement claims. This is the only situation in the UCC where the buyer is the warrantor .

Warranty of Quality. (79-83)o Express Warranties

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Arises when the seller does something affirmative to create buyer expectations about the characteristics or performance of the goods. (i.e. seller will make oral or written representation about the product inadvertisements, the verbal sales pitch, or the written contract).Rest on dickered aspects of the bargain.The representations must have some substance = they must relate to the goods and become part of thebasis of the bargain.

Most courts have adopted a test that a statement goes to the basis of the bargain if its natural tendency is toinduce the buyer to purchase (even though it is not the sole reason) if the statement has any substance to it sothat it might have played a part in buyers decision to buy, the burden in on the seller to prove that the buyer did not rely .

Problem 22: Joe College bought a new car from Flash Motors, relying on the sellers extravagantclaims about the cars superior qualities. He signed a purchase order on Aug. 1, and the car wasdelivered 2 wks later. In the glove compartment he found the warranty booklet and on reading it wasdismayed to learn that the actual written warranty was very limited in coverage. Is he bound by thewritten warrantys terms? What argument can he make? Comment 7 to 2-313, 2-209.

o For a post sale modification, no consideration is needed, but there must be agreement.Additional post sale statements working themselves in rarely apply to disclaimers. Thesekinds of cases where a written warranty is contained, courts have rejected the applicabili ty of the written warranty. One aspect that has changed is the warranty in computer sales (where

sales were made online/telephone and at time of sale negotiation, nothing was said aboutwarranty.

o In this case, the post sale limited warranty is ineffective. In regard to computer sales, if hedidnt do anything, (reject the modification) then it would be considered an agreement w/thelimited/additional terms.

o Implied WarrantiesAutomatically part of the contract unless the seller (or the circumstances) does something affirmative to get of them.Implied as a matter of law; sometimes referred to as children of the lawThe sellers intention to create any implied warranty is completely irrelevant.Implied warranty of merchantability the idea must be saleable and conform to the normal expectations of the

parties. Does not relate to the use of the goods; just means that it is sellable. The warranty expanded in the

common law and began to cover users as well as sellers.o 2-314

Implied warranty of fitness for purpose specific description of the content of the warranty of impliedmerchantability.

o 2-315 Implied Warranty: Fitness for Particular Purpose

In what case does a post sale warranty alter the agreement? Look at 2-209. Comment 7.Unilateral statements that dont seem to matter to the buyer are unable to equal a post sale warranty. Courts have been reluctant 2-313and have2-314 Problem 24:

o A. Are cigarettes that cause lung cancer if used over a period of years merchantable? If the sellers advertisements statedthat the cigarettes were mild, would that create an express warranty?

The aspects of what it does to your health do not imply that it the product is not fit for its ordinary purpose.Theyre not un-merchantable because all cigarettes cause lung cancer; they are no worse the average product(OBJECTIVE there is no departure from the norm; SUBJECTIVE still conform to the reasonableexpectation of the buyers ). So long as theyre as good/bad as the products in the market, the fitness for purposeis satisfied.The tobacco cases involved concealment additional ingredients added to the product to make them more

potent w/o adequately disclosing; the cases succeed on fraud grounds, not on breach of warranty grounds.Some things which pose a greater risk than normal, may be held unmerchantable w/o proper notice.

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Mild does not create an express warranty unless they are not mild: the expectations of the buyers would bedifferent and therefore may be a breach of warranty. If the buyer has been led to expect that he is getting amilder

o B. Officer Krupke, a NY policeman by profession, sold his family car to his next-door neighbor, Maria, telling her it wasa good car. In fact, it was falling apart and blew up the first time she drove it. Has Krupke breached the impliedwarranty of merchantability. Should 2-314 be extended so that the warranty is made by all sellers?

No, b/c if you dont deal in goods of the kind, youre not as knowledgeable about the products fitness of ordinary purpose.The policeman is not a merchant, but he did have a duty to tell her of all and any latent defects (comment 3).There is not an implied warranty, is there an express warranty? (Comment 4). If he had guaranteed the car, for example, then the warranty arises. Disclaiming an express warranty is next to impossible; if seller is saying thatthe goods are fit for its ordinary purposes, then that warranty is almost impossible to detach.

Problem 25: Natty Bumpo was driving through upstate NY when a deer ran in front of his car. He swerved to avoid it and ran intoa tree. His major injuries came from his sudden contact w/the inside of the drivers door, where he smashed up against sharp

points on the door handle, the window lever, and an ashtray. Natty sued the car manufacturer for breach of warranty or merchantability. His theory was that the design should have been safer. The manufactures defense was the car was fit for itsordinary purpose and that Netty misused it. How should this come out?

o By swerving the car in such a way, he brought the injury upon himself; if there were no fault on his side, the questionwould arise to whether the design defect made the car un-merchantable because of the liability to produce injury because

of the features. Defense: all cars are like this; none of them have padded doors, etc.o How does a court determine that the car in un-merchantable? Ct held that the design ought to be different; buyers had a

right to expect that they would be protected against injuries of this kind. So: even though the car was no worse than allthe cars in the market place, it failed to satisfy the expectations of the buyer. (Dual test: dynamic element into productdesign brings about changes in product design, much like strict liability in tort brings about incentive to exercisehigher standard of care)

Problem 26: When Christopher Wren finished building a recreation room in his basement, he wanted a heater for it. He saw an adfor the A-1 Hotblast heater, which seemed to be what he needed. A good friend of Wrens named Jones ran a nearby appliancestore. Wren went there and told Jones that he wanted the A-1 Hotblast for the new room. Jones knew the room well; he hadhelped build it. When the heater arrived, it worked perfectly, but it didnt have the capacity to heat the room. May Wren sue Jonesfor breach of 2-314 or 2-315?

o For fitness of purpose to apply, Seller must have reason to know of purpose; reason to know that the buyer was relyingon the seller; buyer was relying on the seller. This warranty probably doesnt apply because the buyer didnt ask for the

sellers advice (the seller, did however, know of the room for which he buying and he knew the buyer and the degree of non-expertness and the relationship which suggests that the seller knew that the buyers use of the brand name wasnt aresult of the buyers expert knowledge of the heater and its suitability for that particular room); but the buyer also wantedthat particular brand. So, the fitness warranty MAY arise; if it arises, its been breached. The merchantability warrantydoes arise, but hasnt been breached.

Note comment 8: patent or trade name exception. Irrefutable presumption that if a buyer comes in and orderssomething of a brand name is enough to determine that the buyer is relying on his own judgment; however, thisfactor is just one among many.

o Under old law, if the buyer insisted on a particular brand it eliminated the possibility of reliance; comment 5 says thatthis is no longer an absolute rule.

Problem 27: Harold Thumbs went to the Easy Paint Store and bought a can of green paint, which the store mixed on the premisesfrom various pigments. Harold used the paint on his dining room walls, but due to a miscalculation on his part, he ran out when hewas half finished. He took the empty paint can back to the store. He told the clerk that he was only half done with the job andneeded another can, which the clerk promptly mixed and sold him. Harold finished the painting and then notice two things: (1) thedried paint gave off an offensive odor, and (2) the paint from the second can did not match the first.

o The merchantability warranty has been breached; the first paint can was not fit for ordinary purposes.o The fitness warranty? The seller knew of the buyers particular purpose, that he is relying on him to match the paint, and

he knew what the paint was for. There is no breach of warranty of merchantability, but the fitness warranty is breached(the painted purpose had a different purpose; the buyer had a specific purpose in mind (a non ordinary purpose) and the

paint sold did not fit that purpose; the 3 requirements were met). Problem 28: Donald Souse ordered a martini at the Tired Executives Club. When he bit into the olive, he cracked his new $2000

dentures on a pit. Is there a cause of action under either 2-314 or 2-315? Courts faced with this last problem (harmful substances

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in food) have split into 2 camps: those that deny liability if the object is a natural substance, as opposed to a foreign object, andthose that permit recovery even when the consumer is injured by a nautral substance as long as the biters reasonableexpectation is that it would have been removed.

o Does the merchantability warranty arise? Value of food or drink is also applied to the merchantability warranty arises.Has it been breached? Was the martini not fit for ordinary purpose? The reasonable expectation is that the olive inmartini doesnt have a pit in it. However, there is a question as to what the expectation is; the evidence is probably

inconclusive as to whether martinis are typically sold w pitted olives.o What about the fitness purpose? No cause of action unless he can show that the buyer specifically had the seller knowthat he was expecting a pitted olive in his martini. In the absence of an individual communication of that kind, would thefitness warranty arise? If the customer was a frequent one who relied on the pitted-ness of the olives, then the fitnesswarranty may arise. Unless it was a settled practice that the club sold pitted olive martinis, the only cause of action the

buyer may be able to establish is the fitness warranty.o The content of the merchantability warranty depends on the typical customer of the establishment; if the customers are

typically tourists, their expectations may be different from those of the frequent ones. It may be that the tourist/consumer may have a claim of breach of merchantability; if not, then the only claim would be breach of fitness warranty whichwould depend on the individual conversation.

Webster v. Blue Ship Tea Room, Inc . (1964)

Problem 29: Carry Nation, on the advice of her hairdresser, bought a hair dye and proceeded to use it in accordance w/theinstructions on the box. Unfortunately, the product contained alcohol, to which Nation was allergic, and she suffered considerable

burn damage to her scalp and ears. When she sued the manufacturer, the basic defense was that only 5% of the population hadthat reaction. Is this a good defense?

o Only 5% of the people had this reaction. So, the merchantability warranty probably would not apply. The fact that thereare allergic reactions to scalp preparations: but it must be fit for the typical customer. Assuming that is not the case,assuming it is a regular establishment, probably, the analogy affecting such a small proportion of the population, it

probably wont be considered unmerchantable. The jury, however, must decide what standard the manufacture must beheld to.

o The fitness warranty may be able to apply if the buyer had made it known that she had a particularly sensitive scalp.Also, unless the seller worked with the manufacturer, then she wouldnt really know of the particular purpose, etc. If thesuit was on the dresser, then the hair dresser would know of the buyers particular purpose (a hair dye that doesnt burn

the scalp). Additionally, there is not a privity issue; the manufacturer did not directly sell the hair dye. In this case, itmay have been the duty of the buyer to look at the ingredients.o A warranty suit can only be brought against the buyer and the seller; not the buyer and someone who advised the buyer;

it must rest on the privity of contract. One of the evolving changes is the gradual erosion of the privity requirement asapplied to warranty.

Burden of Proof In a warranty suit the P has the burden of proving:

(1) The creation of a warranty;(2) Its breach;(3) Its causal connection to Ps injury (proximate cause); and(4) The fact and extent of the injury.

Flippo v. Mode ODay Frock Shops of Hollywood (1970)Facts:

P (Gladys Flippo) was bitten by a spider while trying on clothes at store. Filed complaint asserting: 1. pair of slacks were indefective condition (presence of poisonous spider); 2. both the store and owner were negligent; 3. there was an impliedwarranty that the slacks were fit for the purpose for which they were purchased, though actually not fit, because of the

poisonous spider concealed therein.

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Holding/Reasoning: Implied warranty of merchantability does not apply. P bought the pants after being bitten and has worn andlaundered them since the incident. There is no evidence that the goods were defective in any manner. The spider was not part of the

product; neither manufacturer or retailer had control of the spider or caused it to be in the pants.

Warranty Disclaimers and Limitations Warranty disclaimer is a disclaimer of obligation; it is an attempt to reduce or eliminate the scope of obligation it assumes.

Without more, the merchant/seller assumes that the goods are fit for purposes ABCD. However, he may only wish to accept theobligation for ABC, and therefore wants to reduce the scope of the warranty of merchantability (that risk is then transferred to the

buyer). If the seller is willing to assume goods are fit for ABCD, but unwilling to pay the full damages if the goods are unfit, thenwhat the seller needs is a Limitation. 2-316

Remedy LIMITATION for consequential damages ; here the obligation is unaffected, the only thing changed is the amount of damages he must pay in the event there is a breach.

2-316 Exclusion or Modification of Warranties1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or

limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative tothe extent that such construction is unreasonable.

2. Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it thelanguage must mention merchantability and in case of a writing must be conspicuous, and to exclude or modifyany implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude allimplied warranties of fitness is sufficient if it states, for example, that There are no warranties which extend

beyond the description on the face thereof.3. Notwithstanding subsection (2)

a. Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions likeas is, with all faults or other language which in common understanding calls the buyers attentionto the exclusion of warranties and makes plain that there is no implied warranty; and

b. When the buyer before entering into the contract has examined the goods or the sample or model asfully as he desired or has refused to examine the goods there is no implied warranty with regard todefects which an examination ought in the circumstances to have revealed to him; and

c. An implied warranty can also be excluded or modified by course of dealing or course of performanceor usage of trade.

4. Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidationor limitation of damages and on contractual modification of remedy. (section 2-718 and 2-719) (Limitation)

Cate v. Dover Corp . (1990)Issue: enforceability of a disclaimer of implied warranty.Facts: P purchased 3 lifts manufactured and designed by Dover Corp. The lifts never functioned properly. D claims that P is barredfrom recovery based on a disclaimer contained w/in a written, express warranty. The disclaimer, although contained in a separate

paragraph w/in the warranty text, is in the same typeface, size, and color as the remainder of the text. D argues that a lesser standard of conspicuousness should apply to a disclaimer made to a merchant.Rules/Reasoning:

1. An implied warranty of merchantability arises in a contract for the sale of goods unless expressly excluded or modified byconspicuous language.

2. Whether a disclaimer is conspicuous is a question of law a term or clause is conspicuous when it is so written that areasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals is conspicuous;language in a body of a form is conspicuous if it is larger or of other contrasting type or color. But in a telegram, any statedterm in conspicuous. (1-201 section 10)

3. Although the warranty in its entirety may be considered conspicuous, the disclaimer is hidden among attention-gettinglanguage purporting to grant the best warranty available. Ds disclaimer fails to attract the attention of a reasonable person.

4. Because the object of the conspicuousness requirement is to protect the buyer from surprise and an unknowing waiver of hisor her rights, inconspicuous language is immaterial when the buyer has actual knowledge of the disclaimer. This knowledgecan result from the buyers prior dealings with the seller, or by the seller specifically bringing the inconspicuous waiver to the

buyers attention. (code recognizes that buyer knowledge makes the inconspicuous waiver immaterial; also course of dealing

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or usage of trade can also act as an exclusion of implied warranty). The seller has the burden of proving the buyers actualknowledge of the disclaimer.

5. D failed to establish that P understood warrantys limitations or exclusions.6. (Dissent) 2-316 undermines implied warranties. Implicitly it adopts the position that disclaimers should be enforced because

society benefits when parties to contract are allowed to set all the terms of their agreement. It ignores the fact thatgovernmental implication of protective terms into private contracts is commonplace and rests on the faulty premise that

contractual disclaimers are generally freely bargained for elements of a contract. Marketplace reality suggests that freedom of contract in the sale of goods is actually nonexistent; a buyer can either take the contract w/the disclaimer attached or leave itand go w/o the good. this reality would seem to demand that the legislature prohibit implied warranty disclaimers byrepealing 2-316 (w/o this action, courts have to rely on the unconscionability or conspicuous requirements to reach a fair result.

7. Purpose of implied warranty they create incentives to produce and market higher quality products; they discourage shoddyworkmanship and unethical trade practices; they place responsibility on those who profit from the sale of goods, have thegreatest control over the products, and are better able to bear the risk of loss.

Problem 31 a. A statement buried in the fine print of a used car purchase agreement states that There are no express or implied

warranties that are part of this sale.i. Are the implied warranties effectively disclaimed?

1. NO. The disclaimer was not conspicuous. Also, as a side note, the disclaimer may have failed theunconscionability test as well.ii. If the car dealership asks you to redraft this clause so as to comply with the Code, what changes would you

make in the language?1. You would include as is or with all the defects, etc.

iii. What changes would you make in the physical appearance of the clause in the contract? Is it all right to putthe disclaimer in the clause labeled WARRANTY?

1. You cannot put the disclaimer in the section labeled warranty because it would not call attention toitself. Changes made the physical appearance of the contract would include a change in font or type face, color, or separation from the rest of the warranty provisions.

iv. Can the car dealer win the legal dispute by arguing that the usage of trade permits the burial of warrantydisclaimers in the fine print?

1. He may win, however, the usage of trade and course of dealing argument can be used the other way as well: it is a usage of trade and course of dealing presumption that buyers dont read thefine print, especially in boilerplate forms.

b. The words AS IS are written with soap in large letters across the front windshield of the used car. Is this effective todisclaim implied warranties? Express warranties? Must the as is language be conspicuous?

i. The writing is specific and conspicuous; should meet the test of enforceability.c. The car salesman asks the buyer, Would you like to examine the car? and the buyer, who is in a hurry, says,

NO. Effective disclaimer?i. If buyer refused to examine the goods then the resulting injuries likely resulted from buyers own action

rather than from breach of warranty. An examination could have revealed defects; the buyer had aresponsibility to inspect the goods he was purchasing.

d. Remember Ted Traveler (problem 19) who walked into the mens room of the bus depot and bought an expensivewatch? We decided that there was no warranty of title in that transaction; however, a warranty of quality is aseparate question. Are there implied warranties in this sale?

i. Yes. There is an implied warranty of fitness and merchantability; an implied warranty that the car willwork, etc.

Bowdoin v. Showell Growers, Inc . (1987)Issue: whether the defendants effectively disclaimed the implied warranties of fitness and merchantability w/respect to a high pressurespray rig that caused injury to Ps.Facts: The disclaimer was included in the instruction manual; the manual was delivered to Ps after the sale. The disclaimer stated:The foregoing warranty is expressly in lieu of any and all other warranties, express, implied, statutory or otherwise (including, butw/o limitation, the implied warranties of merchantability and fitness for a particular purpose).Rules/Reasoning:

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1. Post-sale disclaimers are not effective because they do not for a part of the basis of the bargain b/w the parties of the sale.2. The buyer is not bound by the disclaimer to which he had never agreed at the time of the sale and which first appears in the

manufacturers manual delivered to the buyer with the goods or the manufacturers printed material brochure, or warranty booklet that accompanies the goods.

Remedy Limitations2-719 Contractual Modification or Limitation of Remedy

1. Subject to the provisions of subsection (2) and (3) of this section and of the preceding section on liquidation and limitation of damages,

a. The agreement may provide for remedies in addition to or in substitution for those provided in this Article and maylimit or alter the measure of damages recoverable under this Article, as by limiting the buyers remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and

b. Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it isthe sole remedy.

2. Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided inthis Act.

3. 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.

Wilson Trading Corp. v. David Ferguson, LTD . (1968)Facts:

1. P suing based on theory of unmarketability (yarn shaded);2. Ds defense is that P did not perform all of the conditions of the contract no claims relating to excessive moisture

content, short weight, count variations, twist, quality or shade shall be allowed if made after weaving, knitting, or processing,or more than 10 days after receipt of shipment.; also included a merger clause.

3. P alleges that the yarn had latent defects that could not have been detected until after the yarn was processed; D does notseem to argue that the yarn was unmerchantable, but instead relies on the theory that P did not give notice of the breach of warranty until after the specified time had run.

4. The warranty limited remedies to 10 days and before knitting & processing; issue whether the time limit and conditions arereasonable.

a. Any clause purporting to modify or limit the remedial provisions of this Article in an unconscionable manner is

subject to deletion and in that event the remedies made available by this Article are applicable as if the strickenclause had never existed.Ruling:

1. Where an apparently fair and reasonable clause because of circumstances fails in its purpose or operates to deprive either party of the substantial value of the bargain, it must give way to the general remedy provisions of this Article.

2. The contract limits the remedies for the breach and tries to alter the warranty of merchantability; attempt to warrant and thenrefuse to warrant goods creates ambiguity in which one term must yield to the other.

(top of page 122: either that clause will be viewed as either sellers warranty regarding defects in the product was unimpaired, but theseller was disclaiming any damages brought to its attention after the period of 10 days (warranty disclaimer clause); or it could beviewed as a contraction to the warranty, so that it would be viewed as a contractual relation stating that it would not cover anydamages after 10 days.)

Problem 32: On Nov. 1, Jack bought a car from King. J used the car to get to work during the week in the winter and for fun on

the weekends. The contract he signed stated that the seller warranted the vehicle was merchantable, but that, in the event of breach, the buyers remedy was limited solely to repair or replacement of defective parts. Moreover, the contract conspicuouslystated that the seller was not responsible for any consequential damages. One week after J received the car, he noticed a rumblein the engine; he took it back and the machine was allegedly repaired; the same thing happened several times. 4 weeks later, J wasseriously injured; he lost the use of his arm, incurred hospital expenses, lost pay, and lost the cost of vehicle. K defended on thegrounds that his liability was limited to the cost of repair or replacement. J argued the remedy limitation was unconscionable.How should the suit result?

o The personal injury losses: hospital expenses, lost pay, lost use of left arm. Could he recover from those losses? Thecontract limited liability for consequential damages. Does this argument work? NO, any attempt to limit the liabilityfor injury is an unconscionable attempt and they are excluded leads to the deletion of the objectionable clause 2-719

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and 2-302. There must be some argument that the seller can use to offer an exemption from liability? What is it thatmakes a provision unconscionable? :Concealment, etc. 2-719 1b seems to say that this is a limited warranty; attempt torecover damages for personal injury is precluded by 2-719 1b and 1a. If you were advising the buyer facing thesedamages, what call would you make? It is still unconscionable and this argument still trumps the sellers argument. Thedistinction between failure of essential purpose and unconscionability is big. The agreement to a limited remedyrepresents a bargain. This bargain should be made to function perfectly; when it doesnt, the limited remedy has failed inits essential purpose.

o If the buyer cannot prove that the damages were caused as a proximate result, then he cannot recover. This is a matter of foreseeability, etc. which may prevent recovery despite contract limitations, etc. The remedy limitations: 1. noconsequential damages, 2. the only remedy is for replacement. As far as consequential damages, the limitation isunconscionable; on the damages for non-consequential damages or damages that are injury, but not consequential, the

problem is that w/ so many repeated failures, the buyer is going to be able to argue that the limitation failed in itsessential purpose and therefore should be excluded from the contract.

Warranty limitations and buyer disclaimers try to limit the liability of the seller trip back the scope of the warranty (there is nowarranty for certain losses); these are difficult drafting decision that are faced because you have to account for the probability that anydisclaimer, etc. will even stand up to the unconscionability test. (disclaimers are subject to stricter regulations than warrantylimitations).

Goddard v. General Motors Corp. (1979)Facts:

1. P bought car w/ warranty: repair any defective or malfunctioning part of the vehicle (except tires) for 12 months or 12,000miles whichever comes first; the warranty covers only repairs made necessary due to defects in material or workmanship; didnot cover consequential damages.

Holding/Reasoning:1. When a seller is unable to fulfill its warranted obligation to repair or replace defects in goods which are the subject matter of

the sale and the buyer is deprived of the benefits of the limited remedy, the remedy fails it essential purpose (2-719).

2-714 Buyers Damages for Breach in Regard to Accepted Goods1. Where the buyer has accepted goods and given notification (subsection 3) of Section 2-607 he may recover as damages for

any non-conformity of tender the loss resulting in the ordinary course of events from the sellers breach as determined in anymanner which is reasonable.

2. The measure of damages for breach of warranty is the difference at the time and place of acceptance b/w the value of thegoods accepted and the value they would have had if they had been aw warranted, unless special circumstances show

proximate damages of a different amount.3. In a proper case any incidental and consequential damages under the next section may also be recovered.

NOTE: in a commercial setting where the buyer is not a consumer, courts tend to hold that disclaimer limiting consequential damagesis enforceable despite the failure of the limited warranty.

Defenses in Warranty Actions

NoticeIn all warranty actions a buyer loses all UCC rights if he fails to give the seller notice of the breach w/in a reasonable time after the

breach should have been discovered.

2-607 Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigationto Person Answerable Over.

1. The buyer must pay at the contract rate for any goods accepted.2. Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity

cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would beseasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity.

3. Where a tender has been accepted

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a. The 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 ( time begins to run when buyer becomes aware or shouldhave been aware; there is a general obligation to inspect the goods ); and

b. If the claim is one for infringement or the like and the buyer is sued as a result of such a breach he must so notify theseller w/in a reasonable time after he receives the notice of the litigation or be barred from any remedy over for liability established by the litigation.

4. The burden is on the buyer to establish any breach w/respect to the goods accepted.5. Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over a. He may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and

that if the seller does not do so he will be bound in any action against him by his buyer by any determination of factcommon to the 2 litigations, then unless the seller after seasonable receipt of the notice does come in and defend heis so bound.

b. If the claim is one for infringement or the like the original seller may demand in writing that his buyer turn over tohim control of the litigation including settlement or else be barred from any remedy over and if he also agrees to

bear all expenses and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demanddoes turn over control the buyer is so barred.

6. The provisions of 3, 4, and 5 apply to any obligation of a buyer to hold the seller harmless against infringement or the like.

2-515 Preserving Evidence of Goods in DisputeIn furtherance of the adjustment of any claim or dispute

A. Either party on reasonable notification to the other and for the purpose of ascertaining the facts and preserving evidence hasthe right to inspect, test and sample the goods including such of them as may in the possession or control of the other; and

B. The parties may agree to a third party inspection or survey to determine the conformity or condition of the goods and mayagree that the findings shall be binding upon them in any subsequent litigation or adjustment.

2-508 Cure by Seller of Improper Tender or Delivery; Replacement1. Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet

expired, the seller may seasonably notify the buyer of his intentions to cure and may then w/in the contract time make aconforming delivery.

2. Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable w/or w/o money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute aconforming tender.

Problem 33o The notice that Dave had given was too late; he waited 60 days after delivery. The notice section allows the seller the

right to cure the breach/problem; if the notice is given too late, then the opportunity to cure will likely lapse.

Problem 34o Here, the seller knew: the shipment was five months late. Was notice necessary? Here there is an installment contract; so

notification of a breach in the first installment would give the seller the opportunity to make up for it in the secondinstallment. Without notice, the delay is not deemed to be important. Even if the seller was aware of the importance of timely delivery, if he had been notified then the seller would reasonably be able to do something to avoid delay.

o If 2-607 is not satisfied, then youre left with no remedy.o When the second delay occurs, the buyer sends a notice; seller argues that it is insufficient notice to satisfy 2-607.

Comment 4 says that all is necessary to be included in the notice is that the transaction is troublesome. However, theweak letter doesnt tell the seller that something needs to be done. notification need only be such as informs the seller that the transaction is claimed to involve a breach, and thus opens the way for normal settlement through negotiation.Especially if youve attained legal advice on the matter, you should include the word breach and make it clear that the

breach has not been waived.o Would filing of a suit be sufficient? The purpose of notice is to give the seller time to cure the breach or offer a

settlement. If the buyer files suit right away, then those rights are taken away. Even if one wasnt looking for a cure,there are other means of settlement. In a sense, one could argue that those settlements are all short circuited by skippingthe notice portion. Seller could argue that 2-607 says that if there is no notice, you are barred from any remedy. Somecourts have held that no serious negotiation occurs before filing of suit. However, to be safe, if you were giving advice,you would not want to skip that step (unless, of course, you were facing imminent bankruptcy of the seller, etc.).

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2-318 Third Party Beneficiaries of Warranties Express or Implied (states select one alternative)Alternative A

A sellers warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such a person may use, consume or be affected by the goods and who isinjured in person by breach of the warranty. A seller may not exclude or limit the operation of this section. (This is the most

restrictive alternative)Alternative BA sellers warranty whether express or implied extends to any natural person who may reasonably be expected to use,

consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit theoperation of this section. ( This is broader than the first alternative; does not limit it to family members or guestsof a household)Alternative C

A sellers warranty whether express or implied extends to any person, who may reasonably be expected to use, consume or be affected by the goods and who is injured by breach of the warranty. A seller may not exclude or limit the operation of this sectionwith respect to injury to the person or an individual to whom the warranty extends. (This is the broadest of the alternatives;it includes corporations as well as injuries that are not personal, such as financial) Problem 35

o 2-318 extends to third party beneficiaries the warranty of merchantability. (Alternative A is the most restrictive; but the

alternative which applies varies by jurisdiction).o Does Sancho have to give notice in order to maintain an action? NO. 2-607 speaks only of buyers, Sancho is not a buyer.Would it make sense to require an non-buyer to give notice? The comment suggests that even though 3 rd party

beneficiaries are not required to give notice of breach, they may required to give notice of injury. Is there a realdifference? Plus, how would Sancho give notice? Sancho doesnt know anything about Carrasco. Notice of breachsections make a lot of sense when youre talking about buyers and sellers (all the information is available); however,when you include 3 rd parties, its more difficult to hold them to a notice requirement because they lack the informationnecessary. The comment doesnt make clear what a notice of injury is. Most courts hold that individuals claiming under alternative A or B have held that they dont need to give notice (a court can ignore the comment).

o What about Alonzo himself (the buyer) is held to a notice requirement? What if he wanted to sue La Mancha, notCarrasco? Alonzo is claiming breach of merchantability w/contract to Carrasco. He could claim under alternative B

because he in the foreseeable range of use of the product. Would he have to give notice to La Mancha? Courts havetended to ignore the notice injury requirement for 3 rd party. However, he does fall w/in the term buyer (he bought fromCarrasco). Courts still hold that he is a 3 rd party and tend to hold that he is not required to give notice.

o Are there any other warranty claims? If you were representing Alonzo, youd want a stronger claim? How would youargue that there is a direct warranty to Alonzo? Can you find a contract b/w the manufacturer and Alonzo? This is aheavily advertised product. With respect to mass circulation, highly advertised products, the representation made to

buyers acts as a direct contractual relationship between the buyer and the manufacture. Alonzo could argue that he was persuaded by La Manchas advertisements, etc. and by acting upon that advertisement he directly engaged in a contract(consideration included, the representations then become express warranties). If hes suing on express warranty, then hewould have to satisfy the notice requirements under 2-607.

PrivitySuits on warranties are contract actions. Buyer must establish that there was in fact and in law a contract b/w the parties = privity . The

problem of how far back up the distribution chain the buyer can go is said to be an issue of vertical privity . Horizontal

privity deals with identifying to whom the retail seller is liable other than the immediate purchaser. Problem 36

o Mr. Gauss could use alternative C (the jurisdiction would have to have adopted this provision) to sue. If the jurisdictiondid not adopt C, could he establish a direct warranty/contract b/w himself and the manufacturer? Consideration has to besomething that is reasonably/conceivably conclusive on part of the seller. It would be difficult to construct a contract outof that. He would have to depend on Alternative C (as far as the dog is concerned); or Alt B for injuries to himself.

o Cayley could establish a direct contract w/manufacture (not the paint company though) and therefore was protected bythe express warranty.

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o Can Mr. Gauss bring a tort action based on strict product liability? a defect in the product maintained by strictliability. All he would have to prove is a defect that is unreasonably dangerous.

Strict Products Liability in TortStrict products liability permits recovery by an injured consumer in a suit against the manufacture as long as the consumer can provethat the manufacturer distributed into commerce a product that contained a dangerous defect. There is no necessity of proving either negligence or privity.Section 402A Special Liability of Seller of Product for Physical Harm to User or Consumer

1. One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property issubject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if

a. The seller is engaged in the business of selling such a product, and b. It is expected to and does reach the user or consumer w/o substantial change in the condition in which it is sold.

2. The rule stated in subsection 1 applies althougha. The seller has exercised all possible care in the preparation and sale of his product, and

b. The user or consumer has not bought the product from or entered into any contractual relation with the seller.Differences b/w strict liability action and breach of implied warranty of merchantability:

1. 402A does not require notice2. 402A damages are limited to physical injury3. 402A has the statute of limitations imposed by state law for tort actions; UCC is governed by 2-725; time

periods may vary significantly.4. 402A is not affected by disclaimers or remedy limitations5. 402A does not consider privity6. 402A requires that the product contain a defect; UCC warranty may be breached even if the product is

not defective.

East River Steamship Corp. v. Transamerica Delaval, Inc. (1986)Issue: does admiralty law incorporate principles of products liability, including strict products liability.Facts: A defective product purchased in a commercial transaction malfunctioned and injured only the product itself causing purelyeconomic loss. P sought 3.03 million in damages for cost of repair and lost income while the ships were out of service; alleged that Dwas strictly liable for the design defects and negligent supervision of the installation.Ruling: The Ct of Appeals held that damage only to a defective product is actionable in tort only when the defect creates an

unreasonable risk of harm to persons or property other than the product itself; here, P was disappointed w/the products quality whichwas protected under warranty strict liability and negligence were not cognizable claims.

Products liability was a policy judgment affording greater protection from dangerous products than warranty law provides.o These types of actions are ones where it is reasonably certain to place life and limb in peril; here D would be liable

regardless of negligence b/c public policy demands responsibility to be fixed to reduce hazards to life and healthcaused by dangerous products.

o This COA would also attach if there was additional property damage (reasoning is that the case would distinguishitself from the warranty COA and make it a strict liability action).

o However, usually defective products fall under the contract law causes of action.Rule A manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theoryto prevent a product from injuring itself.Damage to a product is understood as a warranty claim; disappointment in a products failure can be insured as protection;liability in tort would create unnecessary costs to the public.A warranty action also has a built in limitation on liability, whereas a tort action could subject the manufacturer to damagesof an indefinite amount; in a warranty action where the loss is purely economic, the limitation derives from the requirementsof foreseeability and of privity, which is still generally enforced for such claims in a commercial setting.

Problem 37 The axle on Montys car snapped while driving; Monty skidded across median and ran into Bystander. What is the best cause of action: negligence, 402A, or 2-314? Whom should you sue?

o 402A is probably the best COA; you dont have to establish negligence or privity. Although Bystander was not aconsumer; part 2b states that it applies even if the user or consumer did not buy the product himself. All you have to

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prove is that manufacturer distributed into commerce a product that contained a dangerous defect. Also, the damages arelimited to personal injury, so you wouldnt be suing for merchantability of the product, but