sales outline 2002

7/31/2019 Sales Outline 2002

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Sales and Sales Financing OutlineProf. Breitowitz Fall 2002

Basics

I. UCC BasicsA. UCC is not really uniform (4 reasons)

1. Lag time as to exactly what official text is being useda. Example:b. Every state (except LA) has adopted Art. 9c. But they have adopted different official texts

2. Even if the same text, the UCC may give alternatives and different states mayhave chosen a different alternative

3. NO state must either take or leave the UCCa. States can amend articles to read how they want

b. The UCC (that we are using) is NOT law the law is the code of the particular

state4. The meaning of a statute must be construed by the courts

a. The interpretation of the UCC in one state is not binding on the interpretation ofanother state

B. The UCC is not really Commercial1. Under-descriptive

a. It does cover some things that are not commercialb. Like garage sales

2. Over-descriptivea. It does not cover some things that are commercialb. Like real estate

C. Not a Code1. A code is supposed to be self sufficient and tell everything that is needed without

CL2. The UCC is not complete in and of itself

a. 1-103 says that if the CL is not displaced by the UCC then it is in effect andshall supplement its provisions

3. It is not a code because it does not replace the CL or take out judicial interpretation

Formalities of Contract Formation

I. Statute of Frauds (2-201)

A. UCC 2-201Except as otherwise provided in this sectionA contract for a sale of goods for $500 or more must be in writingThat writing must be sufficient to indicate that

1) A contract for sale has been made between the parties2) Signed by the party against whom enforcement is sought or by his

authorized agent or broker

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A writing is not insufficient because it omits or incorrectly states a term agreedupon

But it IS unenforceable beyond the quantities of goods shown in the writingA contract satisfies (1) above if:

a. It is between merchants

b. If a within a reasonable time a writing in confirmation of the contractc. And sufficient against the sender is receivedd. And the party receiving it has reason to know its contentse. UNLESS

1) Written notice of objection to its contents2) Is given within 10 days after it is received

A contract that does not meet the requirements of (1) but is otherwise valid in otherrespects Is Enforceable ifa. Substantial beginning of specially manufactured products

1) The goods are specially manufactured for a specific buyer and are notsuitable for sale to others in the ordinary course of the sellers business

2) The seller, before notice of repudiation is received and under circumstanceswhicha) Reasonably indicate that the goods are for the buyerb) Has made either

(1) A substantial beginning of their manufacture(2) Or commitments for their procurement

b. Admission of contract1) The party against whom enforcement is sought2) Admits in his

a) Pleadingb) Testimonyc) Or otherwise in court

3) That a contract for sale was made4) But the contract is not enforceable under this provision beyond the

quantities of goods admittedc. Partial Enforcement

1) With respect to any goods for which2) Payment has been made and accepted3) Or which have been received and accepted

B. Explanations from class1. When does a contract need to be in writing

a. When for a sale of goods for more that $5002. What does in writing mean?

a. It does not need to be contractb. Could be a memoc. A document that needs to be further explained through parole evidence

1) Just because parole evidence might be needed to explain the writing2) It might not be allowed in because it is parole evidence

d. Example:1) Buyer sends a memo to the seller confirming sell

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2) The memo is enforceable against the buyer but NOT the seller3. Point

a. Trigger of the S of F is Priceb. Writing must include quantityc. Why?

1) Price is more standardized than quantity2) Quantity is more susceptible to false testimony

II. Parole Evidence Rule (2-202)A. UCC 2-202

1. Terms with respect to which the confirmatory memoranda of the parties agree2. Or which are otherwise set forth in writing3. Intended by the parties as a Final Expression of their agreement4. With respect to such terms as are included therein5. May Not be contradicted by evidence

a. Of any prior agreement

b. Or of a contemporaneous oral agreement6. But may be explained or supplementeda. By course of dealing or usage of trade ( 1-205) or by course of performance (

2-208); ANDb. By evidence of consistent additional terms unless

1) The court finds the writing to have been intended also as a complete andexclusive statement of the terms of the agreement

B. Explanations from class1. When in effect

a. Into effect when something is put into writing that was intended to be a finalexpression of their agreement1) If it was not intended to be a final expression then it does not come into

effect2) Judge decides when it does come into effect

b. May come into effect with the statute of frauds is not, and vise versa1) The statute of frauds dictates when a contract must be in writing2) The parole evidence rule dictates what is allowed into evidence to explain

the contract2. Four (4) types of parole evidence

a. Course of Dealing1) How the parties behaved under similar contracts in the past2) Other contracts same parties

b. Course of Performance1) How the parties have behaved under this contract in the past2) Same contract same parties

c. Trade Usage1) Trade practices2) The particular vocabulary of the industry3) Not there parties

d. Prior Dealings/Writings

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3. Three (3) reasons for parole evidencea. Contradiction

1) If judge decides that the agreement is a final expression2) Then parole evidence for contradiction cannot come in

b. Explanation

1) When a term is ambiguous and needs to be explained2) May be let in even if it is the parties final expression3) Difference between Contradiction and Explanation

a) Strict line is somewhat blurredb) Revolves around what is considered to be a reasonable interpretation

c. Supplementation1) May be let in even if it is the parties final expression2) How can supplementation not be a contradiction

a) How can you add something to a contract that is final and not contradictthe contract by saying that it is not complete?

b) It is okay because the UCC expressly states that it is ok

4. Difference between Final and Complete and Final and IncompleteMerger Clause1) A contract that states that the contract is final and complete2) Parole evidence

a) Cannot be used to supplement the agreementb) Can be used to explanation

5. What is NOT barreda. Extrinsic evidence of modification

1) Must be after the contract was put in writing2) Cannot be evidence of before the writing

b. Fraud or Misrepresentation1) May be used to cancel the contract2) But not to gain damages

a) The PRE lets you get this type of evidence isb) But then you would not be allowed to prove that it was part of the

contract and thereby preventing any expectancy damages that couldresult if this evidence was part of the contract

III. Battle of the Forms (2-207 Additional Terms in Accepting or Confirmation)UCC 2-207

1. A definite and seasonable expression of acceptance, or a written confirmationa. Which is sent within a reasonable timeb. Operates as an acceptancec. Even though

1) It states terms additional to or different from2) Those offered or agreed upon

d. Unless1) Acceptance is expressly made conditional on assent to the additional or

different terms

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2. The additional terms are to be construed as proposals for addition to the contracta. Between merchants such terms become part of the contractb. Unless

The offer expressly limits acceptance to the terms of the offerThey materially alter it; or

Notification of objection to them has already been given OR is given within areasonable time after notice of them is received3. Conduct by both parties

a. Which recognizes the existence of a contract1) Is sufficient to establish a contract for sale2) Although the writings of the parties do not otherwise establish a contract

b. In such cases1) The terms of the particular contract2) Consist of those terms on which the writings of the parties agree3) Together with any supplementary terms incorporated under any provision of

this act

Notes from Class1. This repeals the mirror image rulea. The Mirror image rule

1) Basically that in order to have a good acceptance, the acceptance mustconform in every way with the offer otherwise it is a counter offer

b. If there is a discrepancy, this rule tells who should govern2. In order for a basic agreement these must be met

a. Commodityb. Pricec. Delivery dated. Quantity

3. If these four are met, then under whose terms will it be governeda. The terms will become part of the contract unless they materially alter the prior

agreement1) A sellers attempt to limit the implied warranty of merchandise operates to

materially alter the contract as a matter of law2) If its incorporation into the contract without the express awareness by the

other party would result ina) Surprise, or

(1) Does the term catch the buyer unaware(2) Trade analysis

b) HardshipWhether the inclusion of the clause would impose substantial

economic hardship

If the knew that the would incur substantial liabilityb. If there is no contract under 2-207(1) then must look to 2-207(3)

1) Example:a) If there is a disagreement about price then there is no contract under

(1)b) Must look to (3)

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c) The case would be settled as if there was no price mentioned in theagreement

d) But under (3) if the buyer has a price of 95 cents and seller has a price

of $1 then the court may go with no lower then the 95 cents2) A contract arising out of the behavior of the parties IS subject to the statute

of frauds defensea) Defective writingb) May be enough to satisfy the S of F

IV. Modification, Rescission and Waiver ( 2-209)A. UCC 2-209

1. An agreement modifying a contract within this article needs no consideration to bebinding

2. A signed agreement which excludes modification or rescission except by a signedwritinga. Cannot be otherwise modified or rescinded

b. But Except1) As between merchants such a requirement on a form supplied by themerchant

2) And It MUST be signed separately signed by the other party3. The requirements of the statute of frauds ( 2-201) must be satisfied if the contract

is modified with its provisions4. Although an attempt at modification or rescission

a. Does NOT satisfy the requirements of subsection (2) or (3)b. It Can operate as a waiver

5. A party who has made a waiver affecting an executory portion of the contracta. May retract the waiver by:

1) Reasonable notification received by the other party2) That strict performance will be required of any term waivedb. Unless

1) The retraction would be unjust in view of a material change of position inreliance on the waiver

B. Notes from class1. Changed the Preexisting duty rule

a. The rule basically that you cant modify a contract without both sidesreceiving consideration for the modification

b. Problems with the Preexisting duty rule1) Fails to distinguish between fair good faith modification and blackmailing

a) Basically does not care how good the reasons are for modification are,unless there is consideration given2) Consideration can be very small, therefore the rule is easily circumvented3) The rule is a shield and not a sword

a) Therefore if a party pays first, then it is modified the other party cannotget their money back because it cannot be used as a shield

b) It can be used only as a reason to make the contract not enforceable

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2. Standard under 2-209 for modificationa. Was the request for Modification done in Good Faith?b. Test

1) Legitimate commercial reason for modificationc. Good Faith means:

1) A good commercial reason for the modificationa) Was it a reasonable request and modification under commercialreasoning

d. Even if there is consideration1) Must still meet the legitimate commercial reason test2) If there is no legitimate commercial reason

a) You do not have a right to modificationb) This allows you to request a modificationc) Then if they accept, it is a good and valid modification

3. What is Commercially Reasonablea. It must be a change of circumstances

1) The change MUST have been botha) Unanticipated andb) Unforeseen

b. Not because of inadequate bargaining power4. Modification MUST be in writing

a. 2-209(2) No Oral Modification (NOM)

1) If original contract states that any modification must be in writing then itmust be in writing

2) Different than a merger clause that makes the contract superior to any otherprior agreement

b. 2-209(3)

1) If modified contract falls under the S of F

then it needs to be in writing2) If original contract was not under the S of Fa) But the modification puts it under the S of Fb) Then it must be in writing

5. Waiver of writing requirementa. Under 2-209(4) if a modification does not meet the requirements of (2) or (3)

then it is not a modification but it can operate as a waiverb. If it is a waiver then it would be effectivec. Difference between a Waiver and a Modification

1) Waiver is revocable (retractable)a) Under 2-209(5)

b) This is so, until there is a material change in position based on thewaiverc) Revocable until detrimental reliance

2) Modification is NOT revocabled. What can be waived?

1) Executory portions of the contract (i.e. things that are needed to properlyexecute the contract)

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2) What about aspects of the consideration paid to each party?a) Maybe some courts yes, other courts nob) If one party asks the other to take on more obligations while not taking

any additional obligations himself, or not paying more consideration,then Maybe.

6. Federal Government Contractsa. Federal government is not governed by the UCCb. It is governed by the Federal Acquisition Regulation (FAR)

1) The Fed can change a contract any time it wants2) And it will pay the reasonable costs of the change

V. Delegation of Performance, Assignment of Rights (2-210)A. Contract rights are assignable

1. Rights gained in a contract are assignable2. Except

a. If the assignment would materially change the duty of the other party

b. Materially increase the burden or risk imposed on the other partyc. Materially impair the other partys chance of obtaining a return of performanceB. Contract duties can be delegated

1. Party can delegate the duty2. But they cannot delegate the responsibility of making sure that it is done3. Some contracts are not delegable

C. Express language in the contract can prohibit the delegation of duties and theassignment of rights

Warranties and Disclaimers

I. Express Warranties ( 2-313)A. UCC 2-313

1. Express warranties by the seller are created as follows:a. Any affirmation of fact or promise made by the seller to the buyer

1) Which relates to the goods2) And becomes part of the basis of the bargain3) Creates an express warranty that the goods shall conform to the affirmation

or promiseb. Any description of the goods

1) Which is part of the basis of the bargain2) Creates an express warranty that the goods shall conform to the description

c. Any sample or model1) Which is made part of the basis of the bargain2) Creates an express warranty that the whole of the goods shall conform to

the sample or model

2. It is NOT necessary to the creation of an express warrantya. That the seller use formal words such as:

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1) Warrant, or2) Guarantee

b. Or that he have a specific intention to make a warrantyc. But

1) An affirmation merely of the value of the goods

2) Or a statement purporting to be merely the sellers opinion orcommendation of the goods3) Does Not create a warranty

B. Class Notes1. Test for express warranties

a. The representations of the seller must1) Relate to the goods2) Be a basis of the bargain

b. This means:1) That if a statement has any substance to it so that it might have played some

part of the buyers decision

2) The burden is on the seller that the buyer did not rely on2. Many express warranties are excluded because of the Parole Evidence Rulea. Example:

1) A person makes an express warranty verbally2) But in the contract there is both a No oral modification and non-merger

clauses3) The express warranty given is excluded

II. Implied Warranty of Merchantability ( 2-314)A. UCC 2-314

1. Unless excluded or modifieda. A warranty that the goods shall be merchantable is implied in a contract for

their saleb. IF the seller is a merchant with respect to goods of that kindc. Under this section the serving for value of food or drink to be consumed either

on the premises or elsewhere is a sale2. Goods to be merchantable MUST be at least such as:

a. Pass without objection if the trade under the contract description; andb. In the case of fungible goods, are of fair average quality within the description;

andc. Are fit for the ordinary purposes for which such goods are used; andd. Run, within the variations permitted by the agreement, of even kind, quality,

and quantity within each unit and among all units involved; ande. Are adequately contained, packaged, and labeled as the agreement may require;

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

any

3. Unless excluded or modified ( 2-316) other implied warranties may arise froma. Course of dealing

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b. Trade usageB. Class notes

1. Repealed Let the Buyer Beware (caveat emptor)2. Test

a. At the time that the goods were sold, were they good?

b. What this means1) It is not at the time the thing broke2) The merchant does not have to know that the thing is broken All they

have to do, is sell the thing3. All other warranties that a seller offers takes away from the Warranty of

Merchantabilitya. When they offer you a warranty you are losing stuffb. The better the warranty, the less you lose but you are still losing

III. Implied Warranty: Fitness for a Particular Use ( 2-315)A. UCC 2-315

Where the seller at the time of contractingHas reason to know any particular purpose for which the goods are requiredAnd that the buyer is relying on the sellers skill or judgment to select or furnish

suitable goodsThere is unless excluded or modified under the next sectionAn implied warranty that the goods shall be fit for such purpose

B. Class Notes1. Why do we need this

a. If by asking for something particular, and the seller gives something in response

Isnt this an Express Warranty??b. Parole Evidence Rule may act to exclude an express warranty

c. The PER Does Not exclude implied warranties

IV. Implied Warranty of Title and Against Infringement; Buyers Obligation AgainstInfringement ( 2-312)A. UCC 2-312

1. Subject to subsection (2) there is in a contract for sale a warranty by the seller thata. The title conveyed shall be good, and its transfer rightful; andb. The goods shall be delivered free from

1) Any security interest2) Or other lien3) Or encumbrance

4) Of which the buyer at the time of contracting has no knowledge2. A warranty under subsection (1) will be excluded or modified onlya. By specific languageb. Or by circumstances

1) Which give the buyer reason to know that the person selling does not claimtitle in himself

2) Or that he is purporting to sell only such right or title as he or a third personmay have

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3. Unless otherwise agreeda. A seller who is a merchant regularly dealing in goods of the kindb. Warrants that the goods shall be delivered free

1) Of the rightful claim of any third person by way of infringement or the likec. But a buyer who furnishes specifications to the seller MUST

1) Hold the seller harmless against any such claim which arises out ofcompliance with these specifications

V. Who is the Warranty DefendantA. The SellerB. But which one

1. Under CL you needed privity of contract in order to suea. The problem is vertical privityb. Whether a buyer can sue not only the immediate person that sold the good, but

also the manufacturer and so forth2. Under torts you do not need privity of contract to have a negligence claim

a. But warranties are NOT negligence claims3. MD lawa. Expressly states that privity is not needed when dealing with warrantiesb. Called abrogationc. The buyer can sue the retailer, distributor, manufacturer

VI. Who can be the Warranty A. The issue is one of horizontal privity

1. Can somebody other than the actual person that actually bought the good sue2. Can somebody that used the product and got hurt using it sue based on a breach of

warranty

B. UCC 2-318 Third Party Beneficiaries of Warranties Express or ImpliedAlternative A1. A sellers warranty whether expressed or implied2. Extends to any natural person who:

a. Is in the family or household of his buyer, orb. Is a guest in the home

3. If it is reasonable to expect that such a person maya. Useb. Consumec. Or be affected by the goodsd. And who is injured in person by breach of the warranty

4. A seller may not exclude or limit the operation of this sectionAlternative B1. A sellers warranty whether expressed or implied2. Extends to any natural person who

3. May be reasonably be expected toa. Useb. Consume

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c. Or be affected by the goodsd. And who is injured in person by breach of the warranty

4. A seller may not exclude or limit the operation of this sectionAlternative C

1. A sellers warranty whether expressed or implied

2. Extends to any person who3. May reasonably be expected toa. Useb. Consumec. Or be affected by the goodsd. And who is injured by breach of the warranty

4. A seller may not exclude or limit the operation of this section with respect to injuryto the person of an individual to whom the warranty extends

C. Class Notes1. The alternatives gives the states a choice as to how expansive (conservative) they

want to be in deciding who can be a

2. The Alternativesa. Alternative A1) Least expansive

2) Extends the possibles the least3) A pedestrian that gets run over because a cars breaks had an inherent flaw

could not sue4) Cannot contract this out

b. Alternative B1) Middle of the ground2) Took out the family member and guest in the home language3) Cannot contract this out

c. Alternative C1) Allows for third party beneficiaries2) No injury in the person in defining who can collect (i.e. ANY injury is

good not just personal injury)3) Can contract out third party beneficiaries BUT cannot contract out a third

party that is actually injured (i.e. can contract out all the injuries exceptpersonal injury)

3. The foreseeability languagea. Reasonably expected tob. What this means:

1) If this thing explodes

2) Are these injuries foreseeable

VII. How do Sellers Escape Warranty LiabilityA. Two (2) Major ways (normally sellers will do both)

1. 2-316

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Exclusion or modification of warrantiesDisclaimer of warranty

2. 2-719Limitation of remedies

B. UCC 2-316 (Exclusion or Modification of Warranties)

Words or conducta. Relevant to the creation of an expressed warrantyb. And tending to limit warranty

Shall be construed wherever reasonableAs consistent with each other

c. But1) Subject to the provisions of the Parol Evidence Rule2) Negation or limitation is inoperative3) To the extent that such construction is unreasonable

Subject to subsection (3),a. To exclude or modify the implied warranty of merchantability

1) Or any part of it the language must mention merchantability2) And in case of a writinga) Must be conspicuous

b. To exclude or modify any implied warranty of fitness1) The exclusion must be by writing and conspicuous

c. Language to exclude ALL implied warranties of fitness1) Is sufficient if it states for example,2) That There are no warranties which extend beyond the description of the

face hereof.Notwithstanding subsection (2)

a. Unless the circumstances indicate otherwise,1) All implied warranties are excluded by expression like:

a) As isb) With faults

2) Or other language which in common understanding calls the buyersattention to the exclusion of warranties and makes plain that there is noimplied warranty

b. When the buyer before entering into the contract1) Has examined

a) The goodsb) Or the sample or modelc) As fully as he desires

2) Or has refused to examine the goodsa) There is NO implied warranty with regard tob) Defects which an examination ought in the circumstances to have

revealed to him

c. An implied warranty can also be excluded or modified by1) Course of dealing2) Or course of performance

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3) Or usage of tradeRemedies for breach of warranty can be limited in accordance with the provisions of

this article ona. Liquidation orb. Limitation of damages and

c. On contractual modification remedyC. Class Notes on 2-3161. If a contract s inherently inconsistent (i.e. gives an express warranty and a

disclaimer) then the exclusion or modification will not worka. A seller may not negate a warranty that is specifically given in the contractb. But it may be negated through the PRE or a merger clause

2. Does it need to be in writing?

a. Merchantability No, oral is fine

b. Fitness for use Yes, must be in writingc. If it is in writing (whether it needs to be or not)

1) The writing must be conspicuous

2) Conspicuous means:a) Larger print so as to call attention to the buyer

3. Affect on third partiesa. If a warranty has been excluded due to the language of the contract

1) And the thing does not work (and would normally be a violation of awarranty)

2) There is no breach of a warrantyb. The buyer cannot suec. And any third party cannot sue

4. Other ways to beat a disclaimera. Unconscionability

A disclaimer valid under 2-316 cannot be invalidated throughunconscionability (the rule has taken it into account)But there are some courts that disagreeHow to beat with unconscionability

a) Procedural(1) The person does not understand what they are signing(2) Something is wrong with the bargaining

b) Substantively(1) It is unfair in what it says

c) This is an exclusive decision for the judge, not the jury5. Precontractual Inspection

a. If the precontractual inspection was waivedb. Then you also waive any implied warranty1) The warranty waived is only about the thing that could have been

discovered in the inspection2) If the thing that was broken, could not have been discovered, then the

implied warranty is not waivedc. But you do not waive an express warranty

D. Remedies for a Buyers Warranties

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Money backRecover in the market for a substitute and the seller covers the difference between the

two items (as long as it is reasonable)Personal injury if neededProperty if needed

Consequential economic lossE. UCC 2-719 (Contractual Modification or Limitation of Remedy)1. Subject to the subsections (2) and (3) and the preceding sections on liquidation and

limitation of damagesa. The agreement may provide for remedies

1) In addition to or in substitution fora) Those provided in this Article

2) And may limit or alter the measure for damages recoverable under thisArticle as by limiting the buyers remedies toa) Return of the goods and repayment of the priceb) Or to repair and replacement of the non-conforming goods or parts

b. Resort to a remedy as provided is optional UNLESS1) The remedy is expressly agreed to be exclusive2) In which case it is the sole remedy

2. Where circumstances cause an exclusive remedy or limited remedy to fail or itsessential purposeRemedy may be had as provided in the Act.

3. Consequential damagesa. May be limited or excluded UNLESS

1) the limitation or exclusion is unconscionableb. Limitation of consequential damages

1) For injury to the person2) In the case of consumer goods3) Is prima facie unconscionable4) BUT

a) Limitation of damagesb) Where the loss is commercial is NOT

F. Class Notes on 2-7191. Unconscionablity

a. Prima Facie1) Does not apply to Disclaimers ONLY limitation of remedies

2) If a car is sold as is then unconscionablility cannot be used to obtainpersonal injuries

b. MD Law1) Eliminates the distinction between personal injury and other types ofconsequential damages

2) These limitations are always invalid3) But it still recognizes the difference between disclaimers and limitations

c. Effect on third partys (2-318)1) Even if the person that bought the goods would be entitled to damages due

to prima facie unconscionability

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2) Does not mean that a third party would be able to recover3) It depends on what alternative is selected under 2-318

d. Even if prima facie unconscionability cannot be proven1) Can still be proven on a case by case method

2. Repair, Replace, or Refund Clauses

a. Standard (when this clause in the contract)1) Whether the item failed in its essential purpose2) Example:

a) Brakes in a car fail causing the car to be in an accident where the car istotaled

b) Car failed in its essential purposec) Therefore if contracted only provided for repair or replacementd) Then clause is NO Good because

(1) Car cannot be repaired(2) And the clause is then thrown out(3) And buyer can get money back plus damages

e) But if a refund is offered

then the clause is good and the buyer getshis money backG. Time or Use Duration (i.e. 6 months, 1 year or 10,000 miles)

1. How analyzeda. A little bit of bothb. For things that occur Before the period has run

1) Looked at as a Limitation of Remedyc. For things that occur After the period has run

1) Looked at as a disclaimer

VIII. Magnuson-Moss Warranty Act (federal law)

A. General about Magnuson-Moss1. Only applies if there is a written warranty with a consumer productConsumer product different than under Art 2

Means A product distributed in commerce that is normally used for personal,family, or household use

2. Creates a federal cause of action

Gives ability to sue in federal court

If victorious, gets attorneys feesB. All products must be conspicuously labeled either

1. Full Warranty2. Limited Warranty

C. Defines the standards for a warrantyIf the warranty does not meet these standards, then it is a limited warranty

If it does meet these standards then it must be labeled as a full warrantyIf not then it must be labeled as a limited warranty

Repair or Replacement Clausea. Must be at no cost to the buyer

Exclusion of consequential damagesa. It is allowed (therefore the 2-719 escape routes are still available)

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b. But any exclusion must be conspicuousIf a limitation is invalid under state law then it is not allowed here

D. If called a Full Warranty1. Cannot disclaim any implied warranty2. But you CAN limit the remedies

3. What this means:a. That 2-316 (exclusion or modification of warranties) becomes inoperativewhen it is called a full warranty

E. Time or Use Duration1. Can limit the duration of an Implied Warranty

a. Can invoke 2-316 in a partial way but not in a full wayb. Can limit the duration of an implied warrantyc. But cannot totally disclaimd. If it is limited in duration

1) Must be set forth in clear and unmistakable language2) And prominently displayed on the face of the warranty

2. Full Warrantya. Can be limited in time and/or useb. But a person can still recover after period has run based on an implied warrantyc. Why?

1) Because before the period has run it is analyzed as a limitation2) After the period it is analyzed as a disclaimer (and disclaimers are not

allowed for implied warranties)F. Limited Warranties

1. Attempts to do four (4) thingsa. Eliminate any implied warranty beyond durationb. Give express warranties for specific thingsc. Repair or replace claused. Exclusion of consequential damages

IX. Effect of Warranties and Disclaimers on Causes of ActionThree possible causes of action (if product malfunctions and person gets hurt)

NegligenceStrict tort liabilityBreach of implied warranty of merchantabilityNote: all of these fall under the auspices of product liability

NegligenceFundamental defect

Hardest to proveMust prove both

Standard of care andCarelessness

Not very advantageous to the

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a. Except can get punitive damages on occasionStrict Tort Liability (Rest. 402A)

1. Standarda. Unreasonably dangerousb. This is higher than the warranty for merchantability standard

2. Because product may meet one standard, it does not mean that it would meet theother, but it may be bothWarranty for MerchantabilityThe Key Points

1. The standards overlap, but are not the same2. Damages

a. In warranty1) Cover damages2) Consequential damages (PI, economic, etc)3) Property damages

b. Tort

1) Personal injury ONLY2) Noa) Propertyb) Consequentialc) Cover

3. Impact of disclaimers and remedy limitationsa. Strict tort is not limited to disclaimers and remedy limitations

4. PrivityUnder 2-318

1) Who can be a 3rd party beneficiary2) Applies only to the UCC

Strict tort goes by its rule5. Statute of Limitations

a. In MD1) Tort 2 years from the time of injury or when it should have been

discovered2) Warranty 4 years from time of sale

X. Lemon LawsA. Affects the sale of cars that are defective in some way

B. MD Title 14 Commercial Law ArticleC. What does it do

1. Designed to give you protection in the early (short term) period2. Additional protections for the short period then given under the UCC3. Designed to get car working again not designed for consequential damages

D. What Rights does it give1. Basically a full warranty under Magnuson-Moss2. To fix or repair within a reasonable time period3. To replace or refund at your option

E. When can you choose between Replace or Refund

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1. If during the warranty period the same problem happens and not fixed for 4 or moremonths

2. Car out of service for 30+ days3. If failure of braking or steering system then dealer has only two (2) opportunities to

fix (meaning to pass state inspection)

F. If you elect a refund the dealer is entitled to certain offsets1. Maximum of 15% for use (basically as if you rented the car)2. Any damages not caused by normal wear and tear or not caused by the defect

G. Defenses1. Problem is not with the car but with how the person drove it2. The person modified or did something to it which caused the problem

Risk of Loss

I. Risk of Loss in the Absence of Breach (2-509)A. UCC 2-509

1. Where the contract requires or authorizes the seller to ship the goods by carriera. If it does not require him to deliver them to a particular destination1) The risk of loss passes to the buyer when

a) The goods are duly delivered to the carrierb) Even though the shipment is under reservation

b. BUT if it does require him to deliver them at a particular destination1) And the goods are there duly tendered2) While in the possession of the carrier3) The risk of loss passes to the buyer when

a) The goods are there duly tenderedb) As to enable the buyer to take delivery

2. Where the goods are held by a bailee to the delivered without being moved, therisk of loss passes to the buyer:a. On his receipt of a negotiable document of title covering the goods; orb. On acknowledgment by the bailee of the buyers right to be in possession of the

goods; orc. After his receipt of a non-negotiable document of title or other written direction

to deliver, as provided in subsection (4)(b) of 2-5033. In any case not within subsection (1) or (2),

a. The risk of loss passes to the buyer on his receipt of the goods if the seller is amerchant

b. Otherwise the risk of loss passes to the buyer on tender of delivery4. The provisions of this section are subject to

a. Contrary agreement of the partiesb. And to the provisions of this article on sale approval (2-327)c. And on effect of breach on risk of loss (2-510)

B. Class Notes on 2-5091. Tender of delivery

a. Once the buyer Can take possession

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b. It does not mean when the buyer actually has possession it is when he has theability to take possession

c. Example: (under 2-509(3))1) Buy a car from the next door neighbor2) They tell you to pick it up on Monday at 6:00

3) The car is stolen at 8:004) You are then at risk and must pay for the cara) You are at risk because the seller was not a merchantb) And there was a tender of delivery

5) You would not have to pay if the car was stolen before 62. Negotiable and Nonnegotiable receipts

a. Three tests to decide what it is1) Legal

a) If the words to the order of are on the document(1) It is a Nonnegotiable document(2) We will deliver to the order of

b) If the words to the bearer of are on the document(1) It is a Negotiable document(2) We will deliver to the bearer of

2) Color 3) The conspicuous language

b. Negotiable Receipts

1) When you are in possession of it It is just as good as if you were inpossession of the actual thing

2) This works only if:a) It was a negotiable receiptb) It was properly endorsed

c. Nonnegotiable Receipts1) Only transfers those rights that can be transferred2) Transferable rights are those rights that the transferer had

d. Hypo:1) Facts:

a) Man owns receipts which he has endorsedb) House broken into and receipts are stolenc) Thief sells receipts to a good faith purchaser

2) What are the Ownership rights of the good faith purchasera) If Negotiable

GFP has rights because the receipt is basically the same as money

b) If Nonnegotiable(1) GFP has no rights because the thief had no rights

3. When does Risk of Loss transfer in a warehouse?a. Nonnegotiable titles (3 possibilities)

1) If buyer presents documents and warehouse accepts buyer bears risk

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2) If buyer does not present documents after a reasonable time buyer bearsrisk

3) If buyer presents documents, but warehouse does not accept sellerretains risk

II. Effect of Breach on Risk of Loss (2-510)A. UCC 2-510

1. Where a tender or delivery of goodsa. So fails to conform to the contractb. As to give a right of rejectionc. The risk of their loss remains on the seller until

1) Cure, or2) Acceptance

2. Where the buyer rightfully revokes acceptance he maya. To the extent of any deficiency in his effective insurance coverageb. Treat the risk of loss as having rested on the seller from the beginning

3. Where (anticipatory repudiation)a. The buyer

1) As to conforming goods already identified to the contract for sale2) Repudiates or is otherwise in breach3) Before risk of their breach has passed to him

b. The seller may1) To the extent of any deficiency in his effective insurance coverage2) Treat the risk of loss as resting on the buyer for a commercially reasonable

timeB. Class Notes

1. Once risk of loss has passed to the buyer

a. The buyer MUST pay in fullb. No matter what, except under 2-510(2)

Rejection, Acceptance, Revocation of Acceptance

I. Right to Adequate Assurance of Performance ( 2-609)1. A contract for sale imposes an obligation on each party that the others expectation of

receiving due performance will not be impaireda. When reasonable grounds for insecurity arisesb. With respect to the performance of either partyc. The other party may

In writingDemand adequate assurance of due performanced. And until he receives such assurance may

1) Suspend any performance2) For which he has not already received the agreed return

2. Between merchantsa. The reasonableness of grounds

1) For insecurity

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2) And the adequacy of any assurance offeredb. Shall be determined according to commercial standards

3. Acceptance of any improper delivery or paymentDoes not prejudice the aggrieved partys right toDemand adequate assurance of future performance

4. After receipt of a justified demanda. Failure to provide within a reasonable time, not to exceed thirty days,b. Such assurance of due performancec. As is adequate under the circumstances of the particular cased. Is a repudiation of the contract

II. Buyers Rights on Improper Delivery (2-601)A. Subject to the provisions of this Article on breach of installment contracts ( 2-612)B. And unless otherwise agreed under the sections on contractual limitations of remedy

( 2-718, 2-719)C. If the goods or the tender of delivery fail in any respect to conform to the contract

D. The buyer may:1. Reject the whole; or2. Accept the whole; or3. Accept any commercial unit or units and reject the rest

III. Manner and Effect of Rightful Rejection ( 2-602)1. Rejection of goods must be within a reasonable time after their delivery or tender.

a. It is ineffective unless the buyer seasonably notifies the seller2. Subject to the provisions of the two following sections on rejected goods ( 2-603, 2-

604)a. After rejection any exercise of ownership by the buyer

1) With respect to any commercial unit2) Is wrongful as against the seller; and

b. If the buyer has before rejection1) Taken physical possession of goods2) In which he does not have a security interest under the provisions of the article

( 2-711(3))3) He is under a duty after rejection to

a) To hold them with reasonable careb) At the sellers dispositionc) For a time sufficient to permit the seller to remove them; BUT

c. The buyer has no further obligations with regard to goods rightfully rejected3. The sellers rights with respect to goods wrongfully rejected

a. Are governed by the provisions of this article on sellers remedies in general (2-703)

IV. What Constitutes Acceptance of Goods ( 2-606)A. UCC 2-606

1. Acceptance of goods occurs when the buyer

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a. After a reasonable opportunity to inspect the goods1) Signifies to the seller2) That the goods are conforming3) Or that he will take or retain them in spite of their non-conformity; OR

b. Fails to make an effective rejection ( 2-602(1))

1) But such acceptance does not occur until the buyer2) Has had a reasonable opportunity to inspect them; ORc. Does any act inconsistent with the sellers ownership

1) But if such act is wrongful2) As against the seller

a) It is an acceptance only if ratified by him2. Acceptance of a part of any commercial unit is acceptance of that entire unit

B. Class Notes1. What is a reasonable opportunity to inspect

a. Depends1) Not a set number of days

2) Depends on the amount of time it would take to discover the problemb. Under 2-316(b)1) If a person can conduct a pre-contractual inspection

2) Then does not accept it No Implied warranties2. Use of the item

a. Merely using the item does not mean that you have accepted the itemb. Unless

1) A reasonable amount of time, OR2) A reasonable opportunity to inspect has occurred

V. Revocation of Acceptance in Whole or in Part ( 2-608)

A. UCC 2-6081. The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs (i.e. Major Defect) its value to him if has acceptedita. On the reasonable assumption that its non-conformity would be cured and it has

NOT been seasonably cured; ORb. Without discovery of such non-conformity if his acceptance was reasonably

induced either by1) The difficulty of discovery before acceptance2) Or by the sellers assurances

2. Revocation of acceptance must occur

a. Within a reasonable time1) After the buyer discovers or should have discovered ground for it2) And before any substantial change in condition of the goods which is not

caused by their own defectsb. It is not effective until the buyer notifies the seller of it

3. A buyer who so revokesa. Has the same rights and dutiesb. With regard to the goods involved

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c. As if he had rejected them

VI. Anticipatory Repudiation ( 2-610) and Retraction ( 2-611)A. Anticipatory Repudiation ( 2-610) (numbers are not the same as the )

1. When either party repudiates the contract

a. With respect to a performance not yet dueb. The loss of which will substantially impair the value of the contract to the other2. The aggrieved party may:

a. For a commercially reasonable time await performance by the repudiatingparty; or

b. Resort to any remedy for breach (2-703, 2-711)1) Even though he has notified the repudiating party2) That he would await the latters performance3) And has urged retraction; And

c. In either case ((a) or (b) above)1) Suspend his own performance

2) In accordance with the provisions of this Article on the sellers right toidentify goods notwithstanding breach or to salvage unfinished goods (2-704)

B. Retraction of Anticipatory Repudiation ( 2-611)1. Until the repudiating partys next performance is due

a. He can retract his repudiationb. UNLESS the aggrieved party has since the repudiation

1) Canceled or2) Materially changed his position3) Or otherwise indicated that he considers the repudiation final

2. Retraction may be by any method which indicates to the aggrieved partya. That the repudiating party intends to performb. But must include any assurance justifiably demanded under the provisions of

this article ( 2-609)3. Retraction reinstates the repudiating partys rights under the contract

a. With due excuse and allowance to the aggrieved partyb. For any delay occasioned by the repudiation

VII. Damage Elements for Rejection and RevocationA. The damages formula for rejection and revocation is different than in acceptance

situationsB. Three Questions to ask

1. What are the buyers remedies if the seller does not deliver2. What are the Buyers remedies if the seller delivers, but the goods are defective or

the delivery is defective3. What are the Buyers remedies if the seller makes an anticipatory repudiation

C. The answers to questions 1 and 3 are pretty mush the sameD. Only in 2 is the question of Acceptance, Rejection, RepudiationE. Buyer can also breach a contract

1. Repudiation

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2. Wrongful rejection of goods3. Not making a payment when a payment is due

Sellers Remedies

I. Sellers Remedies in General (UCC 2-703)A. The UCC 2-7031. Where the buyer

a. Wrongfully rejects or revokes acceptance of goodsb. Or fails to make a payment due on or before deliveryc. Or repudiates with respect to a part or the whole

2. Then with respect to any goods directly affected3. And if the breach is of the whole contract (2-612)4. Then also with respect to the whole undelivered balance5. The aggrieved seller may:

a. Withhold delivery of such goods

b. Stop delivery by bailiee as hereafter provided (2-705)c. Proceed under he next section respecting goods still unidentified to thecontract;d. Resell and recover damages as hereafter provided (2-706)e. Recover damages for non-acceptance (2-708) or in a proper case the price(2-709)f. Cancel

B. Class Notes1. Seller basically has three remedies (all of the above remedies would fall under these

characteristics)a. They get the goodsb. They get the pricec. They get damages

2. When does seller get the goodsIf seller is still in posses of the goods when the buyer breaches then seller does

not have to do anythingIf buyer rejects the goods then the buyer has a right to get them back

3. What if the buyer accepts then fails to make paymenta. Seller generally does not get goods backb. Why?

1) Because obligation on buyer is an unsecured debt2) An unsecured creditor (the seller) is not entitled to property

c. Must sue for the priced. How to avoid

1) Seller should keep some sort of security interest in the goods

2) Howa) Agreement stating that the other person (the seller) has a security

interest

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b) Must be filed or listed in a public place(1) For cars the security interest is on the title(2) Other areas there is a state filing place (SDAT)

4. In Generala. When a buyer breaches a contract the seller gets usually BOTH

1) Damages2) And goods

II. Sellers Resale Including Contract for Resale (2-706)A. UCC 2-706

Under the conditions stated in 2-703 on sellers remediesa. The seller may resell the goods concerned or the undelivered balance thereofb. Where the resale is made

1) In good faith2) And in a commercially reasonable manner

c. The seller may recover

1) The difference between the resale price and the contract price2) Together with any incidental damages allowed under the provisions of thisarticle (2-710)

3) But less expenses saved in consequence of the buyers breachExcept as otherwise provided in (3) or unless otherwise agreed

a. Resale may be at public or private saleb. Including

1) Sale by way of one or more contracts to sell2) Or of identification to an existing contract of the seller

c. Sale may be1) As a unit2) Or in parcels3) And at any time and place4) And on any terms

d. BUT every aspect of the sale1) Including

a) the method, manner, time, place and terms2) MUST be commercially reasonable

e. The resale must be reasonably identified as referring to the broken contract1) But it is not necessary that the goods be in existence2) Or that any or all of them have been identified to the contract before the

breachWhere the resale is at private sale

a. The seller must give the buyer reasonable notification of his intention to resell

Where the resell is at public salea. Only identified goods can be sold

Except where there is a recognized market for a public sale of future in goods ofthe kind; and

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b. It must be made at a usual place or market for public sale1) If one is reasonably available2) And except in the case of goods which

a) Are perishableb) Or threaten to decline in value speedily

3) The seller must give reasonable notification of the time and place of theresale; andc. If the goods are not to be within the view of those attending the sale

1) The notification of sale must statea) The place where the goods are locatedb) And provide for their reasonable inspection by prospective bidders; and

d. The seller may buyA purchaser who buys in good faith at a resale

a. Takes the goods free of any rights of the original buyerb. Even though the seller fails to comply with one or more of the requirements of

this section

The seller is not accountable to the buyer for any profit made on resalea. A person in position of a seller (2-707)b. Or a buyer who has rightfully rejected or justifiably revoked acceptance

1) Must account for any excess over the amount of his security interest2) As herein defined (2-711(3))

B. Class Notes1. This is the basic way for a seller to compute damages2. Basic Damage Formula (typically called cover damages which were called

expectancy damages in contracts)a. Contract Price Resale Price + Incidental Damages Any money that the seller

saved through the buyers breach = Recoverable Damages3. Under the UCC the seller CANNOT get consequential damages (only the buyer

can)

III. Sellers Damages for Non-acceptance or Repudiation (2-708)A. UCC 2-708

1. Subject to (2) and to the provisions of this Article with respect to proof of marketprice (2-723)a. The measure of damages for non-acceptance or repudiation by the buyer

1) Is the difference between the market price at the time and place for tenderand the unpaid contract price

2) Together with any incidental damages provided in this article (2-710)3) But less expenses saved in consequence of the buyers breach

2. If the measure of damages provided in (1) is inadequatea. To put the seller in as good a position as performance would have doneb. Then the measure of damages is

1) The profit (including reasonable overhead) which the seller would havemade from full performance by the buyer

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2) Together with any incidental damages provided in this Article (2-710)a) Due allowance for costs reasonably incurred and due credit for

payments or proceeds of resaleB. Class Notes

1. Gives the seller two additional ways to compute damages

2. Under 2-708(1)a. Market price unpaid contract price + incidental damages savings frombreach = damages

b. This is good if the seller does not meet the requirements of 2-7061) But it is NOT up to the seller to decide under what he wishes to recover2) If the seller meets the requirements of 706 then he cannot chose 708

c. What is the Market Price1) The price at the time of tender2) The time of tender depends on if

a) It is a tender contractb) Or a destination contract

d. Two possibilities (examples)1) Rejection of merchandisea) Shipped in Marchb) Rejected during 1st week of Aprilc) Market price goes up while in routed) Seller would get the market price of April because that is when it was

tendered2) Repudiation

a) No shipmentb) Then must look at the contractc) When delivery (tender) was supposed to be made

3. Under 2-708(2)a. Three basis for the seller to use this method

1) Lost volume sellera) What is it

(1) Measure of damages refers to the lost volume of business the non-breaching seller incurs on buyers breach

(2) When the seller resells the entity he expected to sell to the originalbuyer, he usually deprives himself of something of value the saleto a new buyer of another similar entity

b) How it affect 2-708(1) Interpreted the rule to mean that the savings that the seller received

from the buyers breach does not apply(2) The formula = Profit + Reasonable overhead + Any incidental

damages = recoverable damages2) Seller is a manufacturer and the buyer breaches before the manufacturing is

completeda) What is it

(1) Market for the widget is not relevant when the seller only has apartially completed product

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b) How it is affected by 2-708(1) Seller has two choices

(a) Finish production and get damages(b) Stop production and get damages

(2) If chooses choice (a) then it is the same as 2-706

(3) If chooses choice (b) then would get(a) Profit, costs spent on making the product to the point ofstopping, overhead, incidental damages, MINUS any proceeds hereceived if he was able to resell anything he made/materials

3) Jobbera) Seller buys something from somebody else to sell to the buyerb) Buyer repudiates before the seller buys

IV. Action for the Price ( 2-709) (links up with 2-509, 2-510)A. UCC 2-709

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

together with any incidental damages under the next section, the Pricea. Of goods accepted OR1) Of conforming goods lost or damaged2) Within a commercially reasonable time3) After the risk of their loss has passed to the buyer; and

b. Of goods identified to the contract1) If the seller is unable after a reasonable effort to sell them at a reasonable

price2) Or the circumstances reasonably indicate that such effort will be unavailing

2. Where the seller sues for the price he musta. Hold for the buyer any goods which have been

1) Identified to the contract2) And are still in his control

b. Except that1) If resale becomes possible2) He may resell them at any time prior to the collection of the judgment

c. The net proceeds of any such resale must be1) Credited to the buyer2) And payment of the judgment entitles him to any goods not sold

3. After the buyer hasa. Wrongfully rejected or revoked acceptance of the goodsb. Or has failed to make a payment duec. Or has repudiated (2-610)

d. The seller who is not entitled to the price under this section shall1) Nevertheless be awarded damages2) For non-acceptance under the preceding section

V. Sellers Incidental Damages ( 2-710)A. Incidental damages to an aggrieved seller include any

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1. Commercially reasonable charges, expenses or commissions incurred ina. Stopping deliveryb. In the transportationc. Care and custody of goods after buyers breach, in connection with return or

resale of the goods

d. Or otherwise resulting from the breach

Buyers Remedies

I. Buyers Remedies in General; Buyers Security Interest in Rejected GoodsA. UCC 2-711 (Bold number indicates the number in the )

1. (1) Where the seller fails to make deliver or repudiates or the buyer rightfullyrejects or justifiably revokes acceptanceThen with respect to the any goods involvedAnd 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 money of the price has been paid(a) Cover and have damages under the next sectionAs to all the goods affectedWhether they have been identified to the contract; or

(b) Recover damages for non-delivery as provided in this article (2-713)2. (2) Where the seller fails to deliver or repudiates the buyer may also

a. (a) If the goods have been identified1) Recover them as provided in this Article (2-502)

b. (b) In a proper case obtain specific performance OR replevy the goods asprovided in this article (2-716)

3. (3) On rightful rejection or justifiable revocation of acceptance a buyera. Has a security interest in goods in his possession or control for

1) Any payments made on their price2) And any expenses reasonably incurred in their

a) Inspectionb) Receiptc) Transportationd) Caree) And custody

3) And may hold and resell them in like manner as an aggrieved seller (2-706)

II. Cover; Buyers Procurement of Substitute Goods ( 2-712)A. UCC 2-712

1. After a breach with the preceding section the buyer may covera. By making

1) In good faith2) And without any unreasonable delay

b. Any reasonable purchase ofc. Or contract to purchase

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d. Goods in substitution for those due from the seller2. The buyer may recover from the seller as damages

a. The difference between the cost of cover and the contract priceb. Together with any incidental or consequential damages as defined in 2-715c. But less expenses saved in consequence of the sellers breach

3. Failure of the buyer to effect cover with this section does not bar him from anyother remedyB. Class Notes

1. This is the basic way for a buyer to compute damages2. Basic Damage Formula (typically called cover damages which were called

expectancy damages in contracts)a. Cover Price (cost of replacing goods) Contract Price + Incidental Damages +

Consequential Damages Any money that the seller saved through the sellersbreach = Recoverable Damages

3. 2-712 is the mirror image of the 2-706, but for the buyera. Differences

1) 2-706 awards damages in falling markets for seller2) 2-712 awards damages in rising markets for buyera) 712 also awards consequential damages

III. Buyers Damages for Non-delivery or Repudiation ( 2-713)A. UCC 2-713

1. Subject to the provisions of this Article with respect to proof of market price (2-723)a. The measure of damages for non-delivery or repudiation by the seller is

1) The difference between the market price at the time when the buyer learnedof the breach and the contract price

2) Together with any incidental and consequential damages provided in thisarticle (2-715)

3) But Less expenses saved in consequence of the sellers breach2. Market price is to be determined

As of the place for tenderOr, in the case of rejection after arrival or revocation of acceptance

1) as of the place of arrivalB. Class Notes

1. Damage formulaa. Market price contract price + incidental damages + consequential damages

savings from breach = damages2. 2-713 is the same as 2-708, but for the buyer

a. Differences1) Time and place is different under the two rules

a) 708 it is the time and place of the actual tendera) 713 when the buyer realized the breach (might be when the tender was

supposed to take place)(1) What about when a seller anticipatory reputes (views)

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(a) Since a repudiation is a breach it is when the buyer learned ofthe repudiation1. But the buyer does not have to cancel a contract at

repudiation2. If the buyer does cancel, and the market price is down, then

he is held to the lower price and he may lose money(b) Not a fixed date1. It is the date that the buyer learns is the date when he has

canceled the contract after a reasonable amount of time2. What that time is, depends on the case3. It is reasonable as long as it is reasonable to keep the

contract alive4. The point that it becomes unreasonable is the time and

place date

IV. Buyers Incidental and Consequential Damages (2-715)

A. UCC 2-7151. Incidental damages resulting from the sellers breach includea. Expenses reasonably incurred in inspection, receipt, transportation and care and

custody of goods rightfully rejectedb. Any commercially reasonable chargesc. Expenses or commissions in connection with effecting coverd. And any other reasonable expense incident to the delay or other breach

2. Consequential Damages resulting from the sellers breach include:a. Any loss resulting from general or particular requirements and needs

1) Of which the seller at the time of contracting hada) Reason to knowb) And which could not reasonably be prevented by cover or otherwise;

andb. Injury to person or property proximately resulting from any breach of warranty

V. Buyers Right to Specific Performance or Replevin ( 2-716)A. UCC 2-716

1. Specific performance may be decreed where the goods area. Uniqueb. Or other proper circumstances

2. The decree for specific performance may include such terms and conditions as topayment ofa. The priceb. Damagesc. Or other relief as the court may deem just

3. The buyer has a right of Replevina. For goods identified to the contract if

1) After a reasonable effort he is unable to effect cover for such goods2) Or the circumstances reasonably indicate that such effort will be unavailing

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3) Or if the goods have been shipped under reservation and satisfaction of thesecurity interest in them has been made or tendered

b. In the case of goods bought for personal, family, or household purposes1) The buyers right of replevin vests upon

a) Acquisition of a special property

b) Even if the seller had not then repudiated or failed to deliverB. Class Notes1. Analogous to 2-709 for sellers2. Specific performance is not a standard remedy3. When is it OK

a. Unique goodsb. Real estate because what it is (each piece is unique) and the legal remedy of

money is not adequate4. Right of Replevin

a. Takes the discretion away from the judgeb. If the buyer qualifies then he gets it

c. In order to qualify the goods MUST be identified (IDd)d. But if not IDd but there are other circumstances then maybe okay

VI. Liquidation or Limitation of Damages, Deposits (2-718)A. UCC 2-718

1. Damages for breach by either party may be liquidated in the agreementa. But only at an amount which is reasonableb. In the light

1) Of the anticipated or actual harm caused by the breach2) The difficulties of proof of loss3) And the inconvenience of otherwise obtaining an adequate remedy

c. A term fixing unreasonably large liquidated damages is void as a penalty2. Where the seller justifiably withholds delivery of goods because of the buyers

breach, the buyer is entitled to restitution of any amount by which the sum of hispayments exceedsa. The amount to which the seller is entitled

1) By virtue of terms liquidating the sellers damages2) In accordance with (1)

b. Or, in the absence of such terms1) Twenty percent of the value of the total performance for which the buyer is

obligated under the contract2) Or $5003) Whichever is smaller

3. The buyers right to restitution under (2) is subject to offset to the extent that theseller establishesa. A right to recover damages under the provisions of this Article other than

subsection (1), andb. The amount or value of any benefits received by the buyer directly or indirectly

by reason of contract4. Where the seller

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a. Has received payment in goods1) Their reasonable value or the proceeds their sale2) Shall be treated as payments for the purposes of subsection (2)

b. But if the seller has notice of the buyers breach before reselling goods receivedin part performance

1) His resale is subject to the conditions laid down in this Article on resale byan aggrieved seller (2-706)B. Class Notes

1. Liquidated Damages = an amount of damages contractually stipulated to as areasonable estimation of actual damages to be recovered by one party if the otherparty breaches

2. Does a repudiating buyer get his down payment back when the seller has notsuffered any damagesa. Can get some of it backb. States how much under (2)

Commercial Impracticability

I. Casualty to Identified Goods (UCC 2-613)A. Where the contract requires for its performanceB. Goods identified when the contract is madeC. And the goods suffer casualty

a. Without fault of either partyb. Before the risk of loss passes to the buyerc. Or in a proper case under a no arrival, no sale term (2-324)

D. Then:a. If the loss is total the contract is avoided; andb. If the loss is partial or the goods have so deteriorated

1) As no longer to conform to the contract2) The buyer may nevertheless

a) Demand inspection andb) At his option either

(1) Treat the contract as avoided(2) Or accept the goods

(a) With due allowance from the contract price(b) For the deterioration or the deficiency in quantity(c) BUT without further right against the seller

II. Excuse by Failure of Presupposed Conditions ( 2-615)A. UCC 2-615

1. Except so far as a seller may have assumed a greater obligation and subject to thepreceding section of substituted performancea. Delay or non-delivery in whole or in part by a seller who complies with (b) and

(c) is not a breach of his duty under a contract for sale if:1) Performance as agreed has been made impracticable by the occurrence of a

contingency

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a) The non-occurrence of which was a basic assumption on which thecontract was made

b) Or by compliance in good faith with any applicable foreign or domesticgovernmental regulation or order whether or not it later proves to beinvalid

b. Where the causes mentioned in paragraph (a) affect only a part of the sellerscapacity to perform1) He must

a) Allocate production and deliveries among his customersb) But may at his option include regular customers not then under contractc) As well as his own requirements for production

2) He may so allocate in any manner which is fair and reasonablec. The seller must Notify

1) The buyer seasonable that there will be delay or non-delivery2) And when allocation is required under (b)

a) Of the estimated quota thus made available for the buyer

B. Class NotesLinks with 2-613In order to qualify for Commercial Impracticability Must have 2 things

Impracticability1) The nature of the loss must be so bad2) As to impair the very nature of the business (i.e. put the business out of

business)Must show unforeseeability

That the occurrence went against a basic assumption of the contractThat the occurrence was not foreseeable

Escalator Clausesa. An alternative to 2-615b. Basically states that if the costs go up a certain amount then the cost will go upc. Very common in long term commodity salesd. Because 2-615 is so disfavored in the real world, these are very common in

fact many judges will ask why one was not put in

III. General Escape Hatches for SellersA. 2-613B. 2-615C. Force Majure ClauseD. Elevator ClauseE. Modification

Letters of Credit and Documentary Sales

I. GeneralA. Applicable Articles

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1. 2, 5, 7B. Documents of title

1. Pieces of paper that evidences ownership of the goods2. Two types

a. Warehouse receipts

1) Substitutes for the goodsb. Bills of Lading1) Document moved in addition to the goods

II. Letters of CreditGives a bank a right of ownership under Art. 9How it works

1. Buyer and Seller create a contract for a sale of goods where the payment will be bya letter of credit

2. The Buyer goes to a bank and applies for a letter of credita. The bank does not have to approve the application

b. It will depend on the buyers creditc. If the bank does issue they charge a certain percentage (normally 0.05%)3. If the Bank approves they will require the documents of title from the seller before

they issue the Letter of Credit4. Bank keeps the documents until the buyer pays off the letter of credit

Difference between a documentary sale and a non-documentary sale1. Documentary sale

a. The bank bears the risk of the buyer not paying2. Non-documentary sale

a. The seller bears the riskDuties

1. Duty of Payinga. The bank MUST always pay the seller Independent of the contractb. The Buyer MUST pay the bank Independent of the contract

2. If the buyer is dissatisfied with the seller and is deserving a remedya. The buyer must sue the sellerb. The bank has nothing to do with it

3. Letters of Credit do not take away a buyers right of rejection or revocationa. But the buyer must pursue through litigation

In International Trade1. They are standard practice in international trade2. How these work

a. Each party wants to work with their own bankb. Buyer goes to his bank and obtains a letter of creditc. Seller goes to his bank and hands over the documentsd. Buyers bank sends letter of credit to the sellers bank, which the sellers bank

confirmse. The sellers bank sends the documents to the buyers bank, which the buyers

bank confirmsf. Sellers bank pays seller

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g. Buyers bank pays sellers bankh. Buyer pays seller

Miscellaneous1. If no expiration date 1 year2. No matter what cannot last more than 5 years (even if stated expressly that it is

forever)3. Consideration is not required4. Non-documentary conditions (conditions other than the production of documents)

should be ignored5. Normally spelled out in great detail because they are based on documents

Hypo1. Normal letter of credit transaction2. But seller cannot make widgets until they get some money3. What can they do?

a. Use a letter of credit as collateralb. Seller goes to a bank shows them the letter of credit for something that they

have not made yetc. The bank can then give them money based on that letter of credit1) Many banks do not do this2) They would have to trust the workmanship of the seller and that he is going

to make the widgets to standards that would meet the buyer

III. How Can the Bank Get its Money BackA. Four Avenues

1. Right of Reimbursement2. Art 2 Security Interest3. Warranty Claim4. Subrogation of the Sellers Claim

B. Right of Reimbursement1. The way it is supposed to be2. The buyer simply pays the bank back

C. Art. 2 Security Interest1. Bank can receive possession and sell the goods if buyer does not reimburse

D. Warranty Claim1. Bank can actually reclaim the money from the seller if the documents are

Fraudulent or Forged (under Art. 5)2. Here the bank paid money that it did not need to3. Materially Fraudulent

a. It is not a defect that makes the thing not fit the description in the docsb. Documentary Fraud

1) Signatures are forged on the documentc. Transactional Fraud

1) When something is so fundamentally different that it constitutes fraud (i.e.the description is for computers, but pizza is delivered)

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2) Transactional fraud typically does not equal a breach of a warrantya) If a bank acted in good faith and paid the sellerb) And the bank does not believe that the buyer was defraudedc) The bank is still entitled to be paid by the buyerd) If the bank does go after the buyer the buyer can subrogate the banks

rights and go after the seller on this theoryE. Subrogation of the Sellers Claim1. The bank can go after the buyer because they have subrogated (i.e. stepped into the

shoes of) the seller

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Sales and Sales Financing Outline

Table of ContentsProf. Breitowitz Fall 2002

Basics

VI. UCC Basics..1

Formalities of Contract Formation

I. Statute of Frauds (2-201)...1

VII. Parole Evidence Rule (2-202)3

VIII. Battle of the Forms (2-207 Additional Terms in Accepting or Confirmation)..4

IX. Modification, Rescission and Waiver ( 2-209)..6

X. Delegation of Performance, Assignment of Rights (2-210)..8

Warranties and Disclaimers

XI. Express Warranties ( 2-313)..8

XII. Implied Warranty of Merchantability ( 2-314)..9

XIII. Implied Warranty: Fitness for a Particular Use ( 2-315).10

XIV. Implied Warranty of Title and Against Infringement; Buyers Obligation AgainstInfringement ( 2-312)...10

XV. Who is the Warranty Defendant11

XVI. Who can be the Warranty ..11B. UCC 2-318 Third Party Beneficiaries of Warranties Express or Implied ..11

XVII. How do Sellers Escape Warranty Liability13B. UCC 2-316 (Exclusion or Modification of Warranties)...13

E. UCC 2-719 (Contractual Modification or Limitation of Remedy)...15

XVIII. Magnuson-Moss Warranty Act (federal law)....16

XIX. Effect of Warranties and Disclaimers on Causes of Action..17

XX. Lemon Laws..18

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Risk of Loss

I. Risk of Loss in the Absence of Breach (2-509)...19

IV. Effect of Breach on Risk of Loss (2-510)....21

Rejection, Acceptance, Revocation of Acceptance

I. Right to Adequate Assurance of Performance ( 2-609).21

VIII. Buyers Rights on Improper Delivery (2-601).22

IX. Manner and Effect of Rightful Rejection ( 2-602)...22

X. What Constitutes Acceptance of Goods ( 2-606)....23

XI. Revocation of Acceptance in Whole or in Part ( 2-608)..23

XII. Anticipatory Repudiation ( 2-610) and Retraction ( 2-611)......24C. Anticipatory Repudiation ( 2-610) (numbers are not the same as the )..24D. Retraction of Anticipatory Repudiation ( 2-611)...24

XIII. Damage Elements for Rejection and Revocation..24

Sellers Remedies

I. Sellers Remedies in General (UCC 2-703)25

VI. Sellers Resale Including Contract for Resale (2-706)....26

VII. Sellers Damages for Non-acceptance or Repudiation (2-708)...27

VIII. Action for the Price ( 2-709) (links up with 2-509, 2-510)..29

IX. Sellers Incidental Damages ( 2-710)..30

Buyers Remedies

I. Buyers Remedies in General; Buyers Security Interest in Rejected Goods ( 2-711)30

VII. Cover; Buyers Procurement of Substitute Goods ( 2-712).31

VIII. Buyers Damages for Non-delivery or Repudiation ( 2-713)..31

IX. Buyers Incidental and Consequential Damages (2-715)32

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X. Buyers Right to Specific Performance or Replevin ( 2-716)..32

XI. Liquidation or Limitation of Damages, Deposits (2-718)...33

Commercial Impracticability

I. Casualty to Identified Goods (UCC 2-613)....34

II. Excuse by Failure of Presupposed Conditions ( 2-615)...35

V. General Escape Hatches for Sellers...36

Letters of Credit and Documentary Sales

I. General..36

IV. Letters of Credit.36

F. How Can the Bank Get its MoneyBack37

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L. Harrison GriffisHomework Chapter 20Wednesday, April 05, 2006

20-1 buyers Remedies for Unaccepted Goods (2-711)