advanced contracts
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Advanced Contracts Sales & Leases UCC Article 2TRANSCRIPT
Advanced Contracts 8/24/12 8:49 PM
Fundamental aspects of sales
Sales “systems” mean all of the people, institutions, laws and
practices that are involved in transfers of ownership for a price.
Sales systems generally perform four functions that facilitate the
transfer of ownership from seller to buyer
o First, they bring buyers and sellers together and enable them
to create legally enforceable transfers of ownership. They
provide legal rules to determine when formation occurs an
provide people and institutions that enable formation to
happen at all.
o Second, systems provide a set of standard terms that govern
the transfer of ownership, and act as a gap filler (ie, UCC).
Common law and standard form K’s also act as gap fillers.
o Third- provide a set of delivery institutions that facilitate the
possessory, legal an symbolic transfer from buyer to seller
o Fourth, enforce agreements to transfer ownership by giving
the aggrieved buyer or seller various remedies for breach by
the other.
Three spokes that follow the article 2 hub in each assignment
(formation, terms, performance, remedies) are personal property
leases, international sales of goods, and real estate conveyance.
International sales are generally governed by the Convention on
Contracts for the International Sale of Goods (CISG)
Professor Stewart Macaulay: “non contractual relations in business”
There are at least three ways that sales law has an impact on sales
systems
o First, law of sales crucial when normal bus relationship breaks
down and parties litigate
o Second, parties to a sales agreement who negotiate informal
settlements do so ‘in the shadow of the law”
o Third, legal rules are important in sales systems because they
help dictate the terms of the various forms that business
people use in conducting transactions within a given sales
system.
Professor Russell Weintruab – conducted and extensive survey of
corporate counsel about K practices, noted the law should not be
contrary to practices the community perceives as normal and
desirable.
Scope of Article 2:
Some industries shun 2; Professor Lisa Bernstein notes: the
diamond industry and the grain industry don’t. The diamond
industry is unique in its ability to create and more important, to
enforce its own system of private law.
Grain industry’s private legal system does not seek to explore the
actual practices between two contracting parties, they use norms.
o Calls into question one of the fundamental premises
underlying Article 2, that courts should apply the rules in
litigation with reference to how the parties acted when they
were not in litigation.
o Another key consideration of article 2 coverage is whether the
transaction will be subject to the gap filling role of the code.
o Usual areas of dispute are statute of limitations and warranty
of merchantability.
o Adel v. Greensprings of Vermont
o Procedural Posture
o Plaintiffs, a husband and a wife, filed an action to recover
damages for personal injuries from defendants, a resort
corporation, its president, and its water system manager, as
well as a self-employed management consultant. Defendants
filed a motion for summary judgment.
o
o Overview
o The husband suffered from a severe case of Legionnaires'
disease after returning from a ski vacation during which he
stayed at the corporation's resort. The water at the resort was
tested by health officials, and some of the samples contained
Legionella bacteria. The court granted the summary judgment
motion as to the president and the consultant because neither
of them were personally involved in maintaining the resort's
water supply. In denying the remainder of the motion, the
court held that (1) water was a "good" under article 2 of the
Uniform Commercial Code (UCC), Vt. Stat. Ann. tit. 9A, § 2-105
(2004); (2) the corporation was a "merchant" with respect to
water pursuant to Vt. Stat. Ann. tit. 9A, § 2-104(1); (3)
because the condominium owners of the resort's units paid
the resort for water, they were "buyers" of the water, and
thus, the warranty of merchantability in Vt. Stat. Ann. tit. 9A, §
2-314 (2004) applied; (4) the corporation was in the business
of selling water for purposes of strict liability; and (5) the
manager could be held liable for negligence because he was
personally responsible for the resort's water supply at the
time the husband got sick.
o
o Outcome
o The court granted defendants' motion so as to dismiss the suit
as to the president and the consultant. The court denied the
remainder of the motion.
o
o
Court said water is a good. (strict liability means you’re
not necessarily negligent, you’re just strictly liable. We
usually think of this in tort, but all K actions are strict
liability including the implied warranty of
merchantablilty)
If you’ve made a warranty, and the goods aren’t
merchantable, you’re liable. We don’t care why.
COOK v. DOWNING
o Procedural Posture
o Appellant dentist sought review of an order of the District
Court of Leflore County (Oklahoma), which entered judgment
in favor of appellee patient in her action arising from a
condition that was the alleged result of ill-fitting dentures.
Damages were awarded pursuant to article 2 of the Oklahoma
Uniform Commercial Code, (UCC), Okla. Stat. tit. 12A, §§ 2-
104, 2-105 and 2-315 (1991) and the implied warranty of
fitness for a particular purpose.
o
o Overview
o The dentist testified that the condition was generalized and
not consistent with localized sore spots, which would have
resulted from ill-fitting dentures. The dentist argued that any
claim the patient might have had sounded in tort. The court
agreed, holding that the trial court erred in entering judgment
in favor of the patient based on the UCC. In Oklahoma, a
dentist was not a merchant and dentures, furnished by the
dentist, were not goods under the UCC.The fact that the
dentist held himself out as specializing in the preparing and
fitting of dentures did not remove him from the practice of
dentistry and transform him into a merchant. The court ruled
that those who, for a fee, furnished their professional medical
services for the guidance and assistance of others were not
liable in the absence of negligence or intentional misconduct.
In general, dentists were required to use ordinary skill in
treating their patients. The patient did not establish the
elements of legal detriment by only showing nonsuccess or
unsatisfactory results.
o
o Outcome
o The court reversed the judgment of the trial court and
remanded the matter with directions to enter judgment in
favor of the dentist.
Dissent basically said, no, this is a mixed transaction, and there is
evidence in the record that could support the conclusion this was
principally a sale of the good of he dentures, and those dentures
were not fit for their ordinary purpose, and applied Article 2.
Warranty of merchantability, there are stricter standards for
merchants. Same is the case for SOF.
2 kinds of merchants, regular merchants, which almost any
businessperson would be, and merchants in goods of the kind.
Steverson notes, you don’t need to be a merchant for 2-315
majority wrong dissent right.
CLASS NOTES:
o 768 6667 steverson’s number
o 70% final, 30% class expert, must do 3x, cases and problems
o prepare to make arguments on both sides, read ucc
comments, know the cases. You can talk to her about any
problems you’re having with your problems.
o Sign up sheet on twen, sign up for three classes, figure out
when to be class expert, sign up.
o Syllabus on twen next week, we go in order of the book, NOT
doing real estate.
o There is an optional midterm, Oct 23, turn in by 8:10 pm oct
30. If you do the midterm, you can come to the review
session. At the session, model answer and we go over.
o Don’t just look at the code sections the problem says, you
might want to look at other things.
o She will provide us a statute book for exam.
o
o Big picture outline of class:
Scope
What statute applies?
Am I in Article 2, or 2A, or CISG, or Common law?
If I am in Article 2 (LOOK AT SLIDE ON TWEN)
Article 2, article 2a, and cisg are MUTUALLY
EXCLUSIVE!!!!!!
Formation
Under the law I’m focusing on, do I have a
contract?
Terms
If I do have a K, what are the terms? Always look
to the K FIRST. Look at the K and figure, do we
have any unclear, ambiguous, missing terms?
Parol evidence?
Avoidance of the K
Can I get out of it?
Performance & Breach
If you can’t get out, what were your obligations?
Did you fulfill them? Did you breach the K?
Anticipatory repudiation?
Remedies
If there is a breach, can the other party receive
some compensation or other remedy because of
that breach, in particular damages.
Not talking about goods oriented remedies, that
goes under performance and breach (ie,
withholding goods)
Statutes we’re responsible for: Need one that includes article1,
article 2, 2a, CISG, and Magnuson-Moss or MMWA warranty federal
trade commission improvement act
warranty act.
(note, OR and WA have NOT adopted revised article 1!)
if you start to get confused in article 2, look at the table of contents,
it breaks it down nicely.
we are using revised article 1.
Look at 2-403 transfer of title, we’ll use that. S says important.
Transactions in most instances involve a sale, but the term in 2 102
is actually ‘transactions’, not sales, so if you have a good and it’s
not a sale, don’t automatically say it isn’t governed by article 2
(gonna have to go back to property for title- look at prop notes)
Need to be able to apply both PPT and GA test AND KNOW POLICY
BEHIND EACH!!!
8/24/12 8:49 PM
Mixed Transactions
Problem 1.3
(side note CISG deals with if buyer supplies goods used, then mainly what
you’re asking of seller is ervices only, but UCC doesn’t have that , so the
question is should we analogize?)
Plaintiff’s argument:
Transaction falls under article 2 of the UCC because
o It’s a good, because goods are all things moveable
It is a DVD, and a dvd is moveable because you can pick
it up and move it.
Sale- 2-106 transfer of title (In exam, you’d write, we don’t
know that this is for a price, it isn’t in the facts) of dvd’s from
shop to aunt millie for a price, 2-304 money or otherwise. (we
assume she’s paying money) (no evidence there’s a lease)
Defense response
o NOT under UCC, article 2 does not apply
o This is a mixed transaction, we look at predominant purpose
o Predominant purpose was to transfer from a video to a dvd,
otherwise aunt millie wouldn’t purchase the dvd’s, so the
predominant purpose was the service of transfer.
Mixed because service of transfer and goods of the
dvd’s.
o Why choose ppt vs ga test? You need a policy argument. She
says, it better reflects the parties’ intentions.
Rebuttal:
o Specially manufactured? If so, not a mixed transaction. A
specially manufactured hybrid is by definition a good, so we
don’t even need to go there.
If manufacture is ‘act or process of producing’, and
specially is just for this customer, then sounds pretty
specially manufactured.
(videos are ip, here we are just using a machine to
transfer)
Judge says: not specially manufactured, she’s paying for the service
of the camera shop to convert the movies to dvd format. The dvd
isn’t unique, she doesn’t want blank dvd’s, she wanted the service.
Court of appeals has reversed
Class is supreme court. Ruling that it is not a specially
manufactured good is upheld, That’s the binding law in our
jurisdiction of make believe – majority using raw materials
definition, it’s not unique (special) because they transfer movies for
everyone, so hers isn’t special, and the dvd is just a dvd, not
special, and it wasn’t manufactured from raw materials.
Remember that the ucc is supposed to be construed liberally
Remember to fairly represent what the majority has to say, then
counter it head on
You need to do both tests, with policy arguments for each. Policy for
GA test, PPT is too wishy washy, consumer protection
Problem 1.4
Be careful looking at the facts- non goods aspects- tests didn’t ‘go
into the manufacture’ of the specially manufactured goods if they
are specially manufactured
If we say the goods predominate, do we have to worry about the
implied warranties?
Yeah, they are merchants, so 314 applies and so we don’t need to
go to 315, but you could probably go that way too, steverson says
we’d probably go to 315 because they are special for the user, and
you don’t need to be a merchant in goods of the kind
314, you do need to be a merchant, so watch that in analysis.
Policy about whether professionals should be merchants (ie, dentist)
Look at 104(?) warranties should professionals be merchants?
ARTICLE 2A:
Scope is in 2A102 – applies to any transaction, regardless of form,
that creats a lease. Lease is 2A103j:
Also look at lease vs. security interest in 2-103
o Make sure you understand tax, accounting, bankruptcy
differences between lease and sale. Gonna get lost later if we
don’t understand.
o If it’s a disguised sale, article 2 and article 9 apply
o If a lease, 2a. mutually exclusive.
o
o Problem 2.1a:
True lease according to class expert
1. 2A102
2. 2A103j
3.1-203 b– Bright line
bailey analytical framework
a) consideration is an obligation for the term
of the lease
b) is not subject to termination by lesse
c) 1 of 4 of the following
if yes, then a disguised sale/security
interest, not a true lease
we don’t fit, so then it’s determined by facts of
case 1-203a, apply common law – economic
realities test ERT. (????)
Article 2A Scope 8/24/12 8:49 PM
1. §2A-102, then
2. §2A-103(j), then
3. §1-203
1-203(b) bright line test that is a partial codification of economic
realities test
o You definitely have a security interest if
A. The consideration the lessee is to pay is an obligation
for the term of the lease and is not subject to
termination by the lessee; and
B. Transaction fits within one of 4 categories (see (b)
(1)-(4)} (make sure you at least have a vague idea of
what these are) (you want to go through 1 203b
At the end of the term, will the goods have any
economic life? Does the salvage value exceed the
use value, you measure at the time of entering
the lease, projected.
Option to purchase at the end? Must be for fmv,
that’s not nominal consideration, but nominal
consideration is a problem
1 203 sets up some situations that do not necessarily set up a security
interest merely because: be aware of those situations
In the hypo, Martha was supposed to pay insurance and maintenance, that’s
a net lease, simply having a net lease does not, by itself, indicate that there
is a security interest. Carlson agrees with this, Bailey in Dicta suggests net
lease is a signpost (Factor towards disguised sale)
If application of 1-203 b bright line test does not definitively sho a security
interst, then look to facts of the case and apply ERT
ERT- the likelihood, at the time the transaction is entered into, that the lessor
will receive the goods back at a time when the goods still have meaningful
economic life.
TWO STEP PROCESS: FIRST bright line test. If you get YES, security interest ,
YOU”RE DONE. If no definitive answer, then you go to the ERT. DON’T
conflate the two. So 1-203b, you get a NO on anything, you do ERT. If you
get all YES, then no ERT needed.
Breakdown of ERT
True lease if (SEE TWEN SLIDE)
Problem 2.1 cont.
B.) consideration paid for the lease is more than the fmv, but that doesn’t
determinitevly make it a security interest.
You got a bad deal, but that doesn’t make it a disguised sale. Nothing has
changed from a, no definitive answer, so we go to ERT, full payout doesn’t
tell us anything about reasonable likliehood, she’d still have to pay FMV at
the end of the lease. Still a true lease. Not too good a deal to pass up (at all)
she still has to pay fmv.
C) ERT says ‘meaningful economic life’, code says ‘economic life’,
meaningful is relative. If the car was 20k, and now it’s worth $500, is that
‘meaningful’?
D) nominal consideration (what’s nominal? Make sure you define , define,
define!!!!) 1 203 d give def of nominal, also see: In re Bailey, see the * that
Steverson pointed out. Cite to white & summers treatise!!
E) bc of option to terminate, we have to move to ERT. ERT asks, at time of K,
is there a reasonable likliehood that the lessor will get the car back when it
has meaningful economic life. Is it LIKELY (HIGHLY likely?) that she will
exercise her OPTION? You have to look at what its gonna cost her. OF
COURSE SHE WILL TAKE THE OPTION. We’re asking, what would make
economic sense to a reasonable person??
Remember, it’s based on TIME OF K, so you don’t look at what might happen
over the term of the lease. You look at the end, but based on the assumption
of what’s true at the time of the lease.
F) it’s a lease. Just like A, doesn’t change the analysis any. The fact she wore
it out in 3 years is a red herring, because you look AT TIME OF K. Predicted
useful life is 15 yrs, the fact she rode it hard is irrelevant
G) She can terminate, she just has to pay 5k. So for a formalist court, we’d
go to ERT, because you don’t fit.
Bailey is not quite as formalistic, and bailey finds no right to terminate where
they’d have to pay three months rent to terminate, so some J’s read that
loosely, but let’s assume formalistic J, and look at ERT.
It’s unlikey she would terminate because it costs so much, that’s
like a year’s worth of lease payments. (remember it’s relative)
SO g is a disguised sale.
2.3
extension of credit is a separate instrument so that doesn’t affect
lease or sale
note, you’re giving up 50% of purchase price to terminate, so you
have to do the formalistic/bailey comparison (bailey would say, no
right to terminate)
ERT: Is there a reasonable likliehood ANYONE would terminate? No.
So jay, this is NOT a true lease.
How to fix it?
Incentivise outside the lease- structure the lease so it looks like a
true lease, but give them something that incentivizes them to either
keep this one or buy a different one (exchanges, lessons, service),
but the LEASE k is not binding them in such a way.
Question 2.5
Article 1, CISG- applies to sales in goods
No def of sales or goods, however, goods, art 2 exception,
consumer goods not covered by CISG if the seller knew or ought to
have known at any time that the goods were for that purpose (so if
no way to know it’s a consumer good, then that’s covered)
She ordered one for home and one for work, but could they know?
Between k’ing parties whose place of business are in different k’ing
states and they’ve adopted the CISG.
8/24/12 8:49 PM
The CISG applies to the following:
Contracts of sale of goods (but not consumer good); AND
The contract is between parties whose place of biz are in different
states if
Such fact appears either
From the contract or
From any dealings beween, or information disclosed by, the parties at
any time before or at the conclusion of the Contract; and
Either
The states are ocontracting states, ie, countries that are
signatories to the CISG or
The rules of private international law lead to the application of the law of a
contracting state. (The US has OPTED OUT of this part) so in the US, you only
fall into CISG if the states are both contracting states.
What if they have different places of business?
If a party has more than one place of business, then in deciding whether the
places of biz are in different states (SEE TWEN SLIDE)
Parties have to know about the other place of business (you can’t be all, OH
HA< I have this OTHER pob you didn’t know about, cisg bitches!)
That’s in article 10 of cisg
Learned that cisg applies to k of sale of goods, but it doesn’t apply to
consumer goods, unless the seller doesn’t know that the buyer is buying as
consumer goods.
Make sure you don’t fit in any exception in article 2 before you say CISG
applies
ERT – came from case law 1 203 codified part of it, so whatever part it
doesn’t supplant from the caselaw, still exists, so that’s why we can go from
1 203 right to caselaw with ERT.
Problem 2.5:
Article 3 of cisg- manufactured goods – covered in this case
Sale isn’t defined – where to look? Private international law? Article 7 cisg
says about interpreting the convention, what are the parameters? Matters
not settled should be in conformity with the law applicable by virtue of the
rules of private international law – we don’t have those rules, we don’t need
them here, we are just familiarizing ourselves with cisg – we don’t have a
def. of sale, so we look to principles of private int’l law, and conflict of laws
will come in too. (Steverson suggests taking conflict of laws)
No def. of goods in cisg. But this falls under manufacturing goods in article 3
(1). If it didn’t fit, cisg applies predominant purpose test to mixed
transactions.
Intended one of the chairs for consumer use, so if the seller doesn’t know
that, then it’s goods (not excepted, because the seller doesn’t know that it’s
consumer goods) but if the seller knew or ought to have known, it would be
excepted from CISG because seller doesn’t know.
So what if he did know?
Either has to have whole K not covered, or has to make two contracts. One
would be cisg, one would not be. (Steverson told her this was an option. If
there is no reason not to separate because they have totally different
purposes, then you can separate them. The question is, can the separating
lead to problems in the CISG? It doesn’t say anything one way or another
about personal goods vs. commercial.)
Even if only one k is signed, you can still split. The predominant purpose
thing is not designed for personal vs. commercial, as far as steverson knows,
in this type case, you can split them into to k’s.
Remember if you are applying predominant purpose, you use article 3(2),
NOT the one we’ve been using from American common law for ucc.
Judge could also rule to apply cisg to both because the buyer created the
confusion.
Is it between parties w place of biz in diff states? Is the place of business for
the seller in Michigan or in Mexico?
Article 10 has the test. Closest relationship to K and it’s performance.?
Argument for Detroit/mi, is that this is where the people making the K are,
mexico is where the goods are manufactured. (and we have no evidence she
knew that there was a factory in mexico) (what is PERFORMANCE of the k
mean? Isn’t it the factory that performed it? But then, if there was a problem,
wouldn’t you contract MI?)
Steverson says, well MI has the closest relationship to FORMATION of
the K, whereas mexico probably mostly performance. But some performance
could happen in MI, so that’’s one argument that the balance tips to
Michigan.
Other argument, the chair is put together in mexico, ships from
mexico, etc. she didn’t purposefully GO to an American place. But, someone
from the corporate office came to her…but the specs get faxed to mexico ….
Question of ‘closest relationship’ is not as straightforward as you might like.
It would be irrelevant if the buyer iddn’t know about mexico, if buyer thought
it was a us company,t he company’s choice to use a Mexican factory
wouldn’t cause CISG to apply.
On test, make both arguments but then come to a conclusion. You can also
say “if the court decides differently, then you have to look at X”
In real life, steverson says, there aren’t many cases but you’d want to try to
find cases so you can figure this out.
There are also a couple treatises you can look to in order to get more
information. You just have to make arguments as a lawyer, give it your best
shot, argue by analogy.
Formation (Back into article 2, leaving cisg)
Making sure we are all on the same page with the big picture
Formation of K
2-201 SOF
2-204 Formation in General (tells you that you are applying legal
realism idea of contract formation, if it’s clear a k has formed, it exists, even
if we don’t know when it happened) you CANNOT USE 2-204 IF your K is
governed by 2-207!!! If a specific provision applies, you have to use the
specific one. ONLY use 2-204 if you are not in one of the specific ones.
2-205 firm offers
2-206 offer and acceptance in general – 1a is general 1b is specific
2-207 battle of the forms
re-look at getway/licitra!!
Problem 3.2b
22061b – order or offer to buy goods for prompt or current shipment – it shall
be construed as inviting acceptance by prompt promise to ship or prompt
shipment, conforming or nonconforming
order- because purchase order submitted (how do we know it’s for
prompt or current shipment?) does PO say? Look at facts, see what it says. If
it says ship in three months, not prompt or current shipment. As a general
rule, with sale of goods, time is always of the essence in general. So in
general, most PO’s are an order for prompt or current shipment unless there
is something to the contrary.
Remember for prompt promise, the promise itself must be prompt, not
just a promist TO BE prompt. In these facts, we have no idea when they
shipped, based on facts, it appears she shipped immediately. You can look at
did they get in a reasonable time to construe. Author didn’t say in the
problem, so we’re just going to assume it’s for prompt shipment.
Nonconforming goods with no notice of it.
Do we have acceptance of the offer? Yes. The prompt shipment signified
acceptance.
If yes (yes) what are the terms? It’s the terms on the PO, with gaps filled by
UCC. The PO is the offer.
3.2 a, purchase order said seller liable for all remedies available under UCC
HMI’s acknowledgement disclaimed in bold face all consequential damages.
Stairmasters were shipped and acknowledgement sent LATER.
If the acknowledgement were treated as a confirmation, 2-207 will govern.
(steverson rants about Easterbrook again. She has no idea what he was
doing in pro cd and gateway)
2-207, battle of the forms.
Common law give precedent to the ‘last shot’, even though that may not be
what parties intended. 2-207 deviates from that common law rule, but it
creates both solutions and problems.
“dicker terms” or bargained for terms.
If the forms agree, we have a definite expression of acceptance. If not, then
we say the parties are not, the offeree is not accepting, you order apples and
get an acknowledgement that says, yeah we will send you oranges, that’s
not an accepted offer. But 2-207 says, if you have aggreeement on dicker
terms, you have an acceptance not a counteroffer.
Also if you don’t have an acceptance but parties act if you have a K, then
section 3 comes in (look at notes and outlines) 3 hates 2. Willinteract with 1
only if 1 says no K. Never ever put three with two.
Can have a section 1 k with acceptance, or k previously formed via 2204 or
2206 followed by a written confirmation.
Gateway into 2 207 is an acceptance or confirmation with additional or
different terms.
If you don’t have a confirmation or purported acceptance with additional or
different terms you’re not in 2207
Additional to or different from the offer in case of acceptance
Additional to or different from the previously formed K in case of
confirmation.
Had to be definite expression of acceptance
Do they say they are accepting? Is there language of acceptance? (I.e.,
we will ship)
Look to dicker terms? Is there agreement in dicker terms? If not, no definite
expression of acceptance (See handout on TWEN) “subject to” doesn’t make
it EXPRESSLY conditional. Must be absolutely clear cut you will not accept
unless buyer agrees to your terms.
Has to be a seasonable expression of acceptance
Not expressly made conditional on assent to additional or different terms
(go through those three individaullY)
we are only talking about the acceptance, if the acceptance says the
acceptance is expressly conditional on our additional or different terms.
See TWEN slide for steverson’s rewriting of 2-207 1 that makes it more clear.
If you have a section ONE k, you look to section TWO to see which terms in
the acceptance or confirmation are a part of the contract.
(comment 6 is only talking about if you have 2 confirming forms) white made
up his knock out doctrine. (Re look at white and summers and all that shit)
if no section 1 acceptance, but conduct, go to section 3. (terms on which
they agree) if a term is in one but not the other, it’s out, only terms in both
writings come in, UCC is gap filler for any gaps created by this. REMEMBER
YOUR GATES!!!!!!!
Section 2 terms, 2 rules for merchants and non merchants, and they mean
general merchants (everyone in business acting in their mercantile capacity)
Between merchant and non merchant, they are only proposals for addition to
the contract. They must be expressly assented to in order to come in.
CONDUCT IS NOT EXPRESS ASSENT. Simply performing will not constitute
express acceptance.
3.2c
is it seasonable? GOD I NEED MY NOTES.
Seasonable is in 1-205
Not seasonable, 3 months
3.2d
Don’t get fooled, the expressly conditional language in this problem is NOT
IN THE ACCEPTANCE OR CONFIRMATION.
2-207 says NOTHING about an OFFER with expressly conditional language. If
you let the offer do that it’d be counter to 2-207 but steverson can see a
court saying there’s no definite expression of acceptance because the seller
didn’t follow dictates of purchase order but steverson says that’s counter to
2-207 and most courts agree. It’d be relevant in common law but NOT in 2-
207.
What’s the counter?
You can look to common law to see if you have an offer, so can we look to
common law to see how to accept the offer? What’s wrong with that
argument, 2-207 specifically lays out how to accept an offer, and nowhere
does it say you have to accept on the terms that the offer creates, so most
will say you have an acceptance in spite of the fact you have that language
in the purchase order.
Also remember the question of what terms come in (2 207b) is totally
separate from whether or not you have a CONTRACT 9which is 2-207 1 .
Start with 3.3 on Tuesday. And Gateway.
8/24/12 8:49 PM
Gateway:
Easterbrook’s an idiot, should have used 2-206.
o They ORDERED the computer. It was an “order or other offer”
under 2-2061b.
o We don’t KNOW that it’s prompt or current shipment, but
general case, time is of the essence with goods, so we would
say that, we have an order for prompt or current shipment
under the general rule which we will apply because we have
no evidence that it wasn’t so.
o We don’t have specifics on ship time, but in the general case,
they would have said on the phone that they would ship
(prompt promise), or they at least currently shipped.
o If that’s the case, what’s the effect of the terms in the box?
They would be a proposal to modify (common law or 2-
209)
Or, some argue it’s a confirmation of the K, and if it is,
then we would look to 2-207 to see what we do with the
additional or different terms.
Hills are non merchants, acting as consumers, so
additional terms would be proposals under 2-207 , that
must be expressly assented to.
Either way, it ends up a proposal.
There is more than just silence here, they kept the
merchandise, it said in the terms that if they keep it it’s
theirs.
But they already BOUGHT it. The seller can’t say, if you
keep that thing you ALREADY BOUGHT, it’s an
acceptance. They had a right to it.
o The only way to get out of this, is if there was not yet a K
when those terms came in.
o
EASTERBROOK says it’s a rolling K.
o Offer from vendor, so vendor can say what constitutes
acceptance. So they can say keeping it 30 days is acceptance.
o Offeror is ‘master of the offer’ and can dictate the manner of
acceptance.
o As long as we aren’t in 2-207, that’s fine. So Easterbrook just
says we’re in 2-204.
o
o Who is master of the offer (says steverson) whoever made the
damn offer! May be the vendor, may be the buyer. There’s
nothing inherent, whoever makes the offer is the person in
control of the terms of the offer.
o Easterbrook apparently was paying no attention in 1st year
K’s.
o
Why did Easterbrook say this is just like pro cd even though it isn’t?
o Wanted to simplify transactions, what are you going to do,
read the terms over the phone? Practical and policy
considerations. All the sellers are doing this, you buy anything
and there’s a bunch of crap in the box, they’ve limited
everything and it’s all in the box. He’s saying for practical
reasons this is the only way to do it, who wants to sit on the
phone?
Is there a way to do what judge Easterbrook wants to do without
butchering the UCC? They could just give notice on the phone, there
are terms coming in the box. (in stuff you buy off the shelf, the
notice is on the outside of the box), click box on the website, or
notice saying terms are available on the website.
Argument is , as long as you have notice of the terms, (in pro cd),
and you can learn the terms before you agree, that’s sufficient. (so
here, if you can reviewe the terms before the 30 days)
You could also use 2-204 3, to say, hey these terms are left open
Even in 06 and 07, you can leave terms open.
To make this work you really have to say we are outside the UCC
(gateway/pro cd)
So this applies to rolling K in those j’s that have adopted the rolling
k idea. Some have rejected that and applied article 2, and some
apply 2-207 within a rolling K framework to terms and conditions.
Some accept rolling k but say only reasonable terms come in
Steverson’s biggest beef is not just the failure to follow ucc, but the
failure to even acknowledge it and explain why they aren’t applying
them.
We need to know BOTH ways to do this, and know problems and
how to get out of it for practical reasons.
Most consumers know products come with terms and conditions, so
if they are reasonable they’ll be implied as part of the offer (Think
it’s from carnival)
Seller could say, we don’t consider this to be an offer, we will make
you an offer and it will come when you get the box. Either party can
say “I am not accepting your offer, I am not considering it an offer, I
am considering it an invitation to deal, and then I am sending you
an offer”
She wants to point out that the arbitration clause was bad, brower
v. gateway said it was unconscionable.
Problem 3.3a
o We are in 2-207 because we have an acknowledgement with
additional or different terms, which says all disputes must be
brought to binding arbitration.
o ‘immediately’ is always reasonable.
o So we have an acceptance, so she can’t avoid the deal.
o THEN you look to see what terms come in, but the question of
the terms is NOT THE QUESTION OF DO WE HAVE A K.
o There IS a K, otherwise we’ve rendered that part superfluous.
o So she can’t avoid the deal.
o Can she avoid it under common law? Mirror image rule, she
could avoid the K, because the acknowledgement isn’t the
mirror image, so that’s a counteroffer, and no conduct or
words that accept that shipment/offer so no acceptance of the
counter, NO K
o
o 3.3b
o accept means an expression of acceptance, but it’s not
definite because it’s not for what she offered to buy. So that is
a disagreement with regard to a dickered term, so no definite
expression of acceptance. (look at twen handout again)
o this is apples and oranges
o 3.3c
ack. Says expressly made conditional on buyer’s assent
to any additional or different terms in this form.
So now she can avoid K, because it was expressly
conditional, so it does not operate as an acceptance, it
is a counteroffer.
3.3d
same as above but seller ships, buyer accepts and pays,
seller accepts payment
So we go to section 3, because of the conduct. Terms
are whatever terms on which the writings agree, with
gap filler by UCC. “agree’ means it’s in both, you can’t
agree with nothing, so if it’s in one and not the other
they can’t agree, so it falls out, if they are different,
they don’t agree and fall out.
Why did court in Belden say that the buyer accepting
and paying, is NOT accepting? Because we have this
section trying to get away from the common law last-
shot doctrine, so it wouldn’t be in line with the purpose.
It would also be in contradiction to section 3, which
says, if the writings don’t establish a K, you use THIS,
NOT common law.
What if you have someone saying, yeah, I got your
acknowledgement and I’m fine with those terms? Then
you have an express acceptance, you stay in 1 & 2, you
do NOT go to section 3.
3.4a
aaah, SUMMERS< DUSENBERG AND WHITE
o know the difference between a different term and an
additional term, because the treatment will be different.
o
o is there a K? YES
o neither the remedies/arbitration are a dicker term, so we still
have a definite seasonable expression of acceptance. So we
have a section 1 k, so what do we do with the terms in the
acknowledgement
o
o Summers: 2-207 2 only applies to additional terms so you
don’t use it because it’s a different term not an additional
term, so it just drops out because subsection 2 is the only
mechanism by which terms in the acknowledgement will
come in. The different term drops out. Reserves all remedies
stays. The different one falls out, because if you look at
section 2 it just says additional not different even though 1
says both.
o
o Dusenberg: look at comment 3, that says additional OR
different, this was an oopsie, it should have included both, so
we apply section 2, it’s a drafting error.
It’s a contract between merchants, because they are
general merchants, and that is all they have to be for 2
207. (they are arguably special merchants but definitely
special)
They become terms of the offer unless the stuff in 2.
Dusenberg says it materially alters, and by putting a
different term in you are giving notice you object, so the
different term in the acknowledgment would fall out.
Summers would say the language governs over
comments, the comments are just comments, but if we
are going to go that route, I agree with dusenberg’s
conclusions
Professor White:
Majority rule, the knock out rule, different terms cancel each other
out (THEY BOTH fall out, not just the term in the acceptance) so you
use ucc gap filler (which here is the same result as the others
because it’s reserving all remedies)
Most fair, because otherwise it’s a sort of first-shot doctrine. (the
original document controls)
o Kind of in easterbrooks court, it’s fair, policy, ignore the code.
2207 was designed to do away with the prerogative of the
offeror, if you allow the terms to come in you are giving it
back. Summers says, there’s no indication they intended to
TOTALLy do away with that.
o He also relies on comment 6 of the ucc. Summers would say
that isn’t official.
o Also, 6 only applies to confirming forms.
o (got through 3.4a)
o section 2 deals also with confirmations, so if you had 2, they
are BOTH subject to section 2 and only come in via section 2.
Notice of objection has been given by the notices of the
confirmations so they knock themselves out,b ut you can’t
use that to knock out terms in the OFFER because OFFERS
ARE NOT SUBJECT TO SECTION TWO.
o
o So comment 6 doesn’t support white.
Subject to arbitration- it depends
Does the offer expressly limit acceptance? We have no facts saying htat’s
the case
Notice of objection has been given within a reasonable time – we don’t have
that
Material alteration- remember to look at comment 4 and comment 5
Arbitration isn’t mentioned by either, but 4 says if it results in surprise or
hardship, it’s material, but courts disagree on whether it is surprise or
hardship
Some courts have said it’s not a question of fact it’s a question of law, as a
matter of law, arbitration clauses materially alter. Other courts have said, no,
as a matter of law, it does not alter.
Remember arbitration clauses are in fact favored, some are innocuous, but
you do have to look at the terms of the actual clause in question.
Arbitration is cheaper than court, so companies prefer it to litigation
Acceptance must be definite and unquivicol
3.4c – expressly conditional is irrelevant because that only has to do with
acceptance, this isn’t an acceptance, we already have a K (oral) this is just a
confirmation so no effect.
2-207(1) contract (we already had a K under 2-206) ; written confirmation
sent within a reasonable time, that has additional or different terms, so
that’s 2-207 (2)
confirmation with different terms, summers and dusenberg say the different
terms(in confirmation) fall out, the oral contract is objecting to the different
term in the confirmation. NEVER APPLY WHITE, because it unilaterally alters
the terms of an existing contract. You’re left with a term in the oral k. Using
white’s knock out would let the confirmation unilaterally change.
If you had 2 confirmations, and the oral k said nothing, and you have
different terms in two confrimations, that’s the comment 6 situation where
those two knock themselves out.
Delivery CAN be a dicker term, but there was no delivery time before, so
does the term materially alter the default term – (within a reasonable period
of time) does it cause undue hardship or surprise? I think not. (you could
argue that one)
What if the gg confirmation said delivery on 8/15 and HM sent a confirmation
that said delivery on 9/1
Different terms in confirmations, they knock each other out, default to
reasonable time. (So what’s reasonable within the industry)
3.4b:
8/24/12 8:49 PM
4.1 b
2A 205 offer from merchant- yes, 2-104
signed writing that will leave open
1-201 b 37 (writing is 43)
Time limit of 3 months because no consideration.
4.1c
another theory of enforcement?
Promise- Deb said….
Reliance…you waited for 4 months & never bought a car
Promisor should have reasonably expected to induce reliance (she
put it in writing, probably should have expected you could wait)
Enforceing is only way to avoid injustice
o Nature of detriment (substantial)
o Justified
o Nature of promise
o Mitigation available?
Promissory Estoppel… might have trouble with the last four- the
fourth element might be a sticky one for you
(We are not responsible for remembering promissory estoppel, you
CAN bring in common law it’s always worth bringing up.)
4.2 CISG is closer to the common law last shot doctrine? Yes.
The terms of the counteroffer control, because that offer was
ACCEPTED.
CONTRACT:
o A. Promise
o B. Consideration
o C. Mutual Assent
o D. In the appropriate case, compliance with the statute of
frauds
o
Statute of frauds, 2-2-1
Is the K governed by the SOF?
If yes, then have the parties complied with the requirements of the
SOF
If the requirements have not been complied with then does the K fit
within any of the exceptions
Does it apply? K for sale of goods for price of $500 or more
If yes, then the SoF applies, you must comply with the requirements or fit in
an exception
Writing sufficient to indicate that a k for sale has been made
between the parties and signed by the party against whom
enforcement is sought
K is not enforceable beyond the quantity of goods shown in such
writing
(so, you have to state a quantity)
1 201 b 43
walmart
1201b 37
self explanatory
if it doesn’t comply with the requirements then does it fit within any of the
exceptions?
Remember 2-102 is scope, NOT 2-201!!! Don’T MESS IT UP
2-104 practices AND acting in mercantile capacity, explain both
8/24/12 8:49 PM
5.1
a
mike and sara, both in furniture business
oral k
eight antique desks
12 k each, total kp 96k
delivery in five weeks to sara’s out of state business
confirmation from mike
memo on company letterhead
outlines deal including quantity
has no signature
2-201 statute of frauds has been complied with if necessary?
Is k governed by sof?
If yes, then have parites complied with the reuqirements of the sof
If the requirements have not been complied with does it fit in an
exception?
Merchants exception 2-201(2)
1. Between merchants (2-104 (3))
2. A writing in confirmation of the contract is received within a
reasonable time;
3. the confirmation against the sender (if we were trying to enforce
against the sender, would the writing satisfy subsection 1 against
the sender?) 1-201b43 has to indicate a k was made. Signed – 1-
201b37 and comment 37.
4. The party receiving the confirmation has reason to know its
contents (we know bc she responded – would a reasonable person
situated as she’s situated know what it’s about? Not reading
something when you know what it is doesn’t get you off the hook)
5. The receiving party does not send written notice of objection to
its contents within 10 days after the confirmation is received.
o So in (a), she made oral objection, so she did not satisfy five,
so it is within the merchant’s exception. So the K is
enforceable.
o
Resist the temptation to go straight to the merchants exception if you see a
confirmation, do section one FIRST< because if section one is satisfied, you
DON’T GO TO THE MERCHANTS EXCEPTION!!!!
(b) now we have a writing, so you have to go through section 1.
Doesn’t have a quantity, so that’s the ONLY reason this writing doesn’t
satisfy section one, so just because you had this you shouldn’t go right to
(2), ANY WRITING even one AFTER a confirmation can satisfy section 1.
He CAN enforce the contract bc she didn’t object to the existence of the
agreement
Remember they have to object to the existence of a CONTRACT, not just
the terms.
(see walmart, page 108)
(c)
check is a writing, but it doesn’t state a QUANTITY
(so if memo had said deal for 8 desks, that’d be good)
2-201 3 c
partial payment- we don’t know from the facts if he accepted the part
payment
2-606 talks about acceptance of goods, but we don’t know when payment
has been, so we have to look at caselaw .
Endorsement or negotiation of a check will generally equal acceptance. One
court said it’s the ONLY way, some say you can evidence acceptance by
holding the check for a sufficient time period. Another court has said if you
keep the proceeds even if you later give the money back, that can be
acceptanace. Given that he wants to utilize the exception, he will do
whatever it takes to accept the payment to get into this exception and
enforce the contract against her.
Then, we have the problem because it only gets him an obligation to send
her 20k of product, but it doesn’t get him to force her to pay him for the
whole K.
This is why usually it’s the person who paid (or a seller who shipped without
payment) who uses this.
So he could deliver 2 desks and seek the remaining 2K, or if she doesn’t
honor the check he can get the 20k.
He can’t use 3c to go after payment for the other 6.
Court is likely to enforce to 2 desks here, because it said downpayment
which would indicate more owed, but that’s all.
5.1d
2-2013b
two arguments- it’s not an admission, because she says ‘even if’ but even if
the court construes it to be an admission, the rule is that procedural
admissions don’t count, because it’s in a pleading.
So, should the lawsuit end here, or should mike be allowed to go forward and
get more discovery? DF Activities Corp says you can at least go into
discovery enough to see if maybe she’ll admit something.
Bare motion or answer without evidentiary materials might not be
enough to dismiss
Other courts don’t agree with that, they say a bare motion to
dismiss is enough, we aren’t going to force them to go under oath,
we cut it off righ thtere, which of course gives no opportunity for an
admission anywhere and probably defeats the purpose of 3b
Look at white and summers (LOOK FOR EVERYTHING IF YOU’RE AN
EXPERT)
Be aware of the various positions.
See twen slide for variation on 5.1d
White and summers say you should go all the way to trial
o They might crack you never know
o
o The other extreme says stop at motion to dismiss because it’s
a waste of judicial resources. If she didn’t admit it in the
motion/affidavit, why would she do it now? Why should she
have to incur those costs
o
o Df perspective
o
o Know all the different positions and policy reasons
5.1e
reliance on the k – how would she know he had to purchase the desks from
someone else?
Promissory estoppel? Can you utilize the common law exception to get
around the SOF?
When we look at 2-201, are those exceptions exclusive or may you utilize
other. They are exclusive. These exceptions are the only exceptions that are
available, so an argument can be made that you can’t use PE.
You can argue 1-103, but then you say, 2-201 displaces.
Promissory estoppel can be used defensively or offensively, offensively
meaning – use it as an independent cause of action. Defensive is saying, I’m
suing for Breach of K, other side says no consideration, you say , well
because of my reliance, I can sue for breach of k
(HOFFMAN CASE)
where you don’t have trappings of k, you need an independent cause of
action intdependt of k, so if you are using promissory estoppel as it’s own
cause of action, you do NOT HAVE TO MEET SOF, you doing a § 90 k, and SOF
is irrelevant to the Discussion.
But 1-103
8/24/12 8:49 PM
Recap questions
5.1e dealth with q of PE to exception of SOF, can common law come in and
supplement, or are the exceptions exhaustive?
Various positions re PE and SOF
Some courts say no estoppel esception to the SOF in general (SEE
TWEN SLIDES FOR THE REST )
C is mostly the position of professor Summers (c on twen slide)
“because it is clear that the stated exceptions are not exhaustive”,
but he doesn’t say why it’s clear. Steverson thinks he’s out on a
limb, not sure it’s not displacing the common law
PE is also available as an independent cause of action, doesn’t
require compliance with SOF
Some courts say only reliance on an agreement to reduce to
writing, and then you don’t (ie, reliance on the promise to make a
writing)
5.2
See twen slides
Can Arlene enforce the K? Yeah, probably, 2-201(3)a, custom made
Custom made generally means specially manufactured, courts
generally want to see that you’re making something that you don’t
ordinarily make. Here, Arlene doesn’t normally manufacture these.
Some courts say they want the goods to have unique components
that are not easily altered.
Goods are not suitable for sale to others in the ordinary course- she
doesn’t usually sell for seniors so none of her usual buyers
Has seller made either substantial beginning or commitments for
their procurement (someone else will spcecially manufacture) etc
o Another part performance type exception. She has definitely
made a substantial beginning with regard to the first machine
before repudiation. BC of the lower weights, we can indicate
they are for this buyer not her regular buyer. Difficulty is
whether she can only enforce for the one or 3, is there a
substantial beginning as to the whole K?
o Some courts look to comment 2 by anology of 2-201, you
should only enforce up to the limit of the part performance
o Steverson says, note, that the comment really refers to 3c not
3a, and there’s a good argument that it doesn’t apply and
there’s a substantial beginning of the entire K here. (make all
these arguments)
o
o White and summers agree with that latter position
o
o 5.3
yes, there are risks, but not as many as before UETA
and ESIGN
49 states have UETA, everyone governed by ESIGN
you could still have a court that you have to point this
stuff out, but you can deal with these risks by having a
master agreement that all electronic K’s constitute
writings.
CLASS HYPO:
o Yes we have mutual assent (my 2-206 was right)
o WAL MART treated an email confirmation as a writing
o Section 7 of UETA, if a law requires a record to be in writing,
an electronic record constitutes a writing
o She agreed to conduct the transaction via email bc she sent
the order via email (UETA 5)
o Can have more than one doc
o Singed by party against whom enforcement is sought
o UETA section 7D, if law requires signature, an electronic
signature suffices, then section 2 that I picked
o Esign 7001
o 106(5)
o
o
course of performance, course of dealing, usage of trade, part of the
terms of the K (SEE TWEN SLIDE)]
parties CAN contract out of course of dealing and trade usage. (hard
to k out of course of perf, because that’s to this one k)
Hierarchy of terms (See TWEN) – the closer you are to THIS k, the
higher in the hierarchy you are
Clear express terms trump everything
Course of Perf
Course of dealing
Usage of trade
UCC gap-fillers (if the above don’t answer what the term is, you go
to the default term) for when there really is a hole in the k
Courts are supposed to construe the first 4 as being consistent with each
other to the extent possible.
If you want to actually get RID of a course of dealing or usage of trade, you
need to use explicit terms in the k to get rid of it, because if it isn’t directly
contradictory they might do an end run around you and find a way to apply
them.
1.2a
No. Course of performance. See twen slide (I had this right)
Remember with course of performance there needs to actually be CONDUCT,
not just words. If the k says it but they have never DONE it, no course of perf.
Need at least 2 instances. See comments.
B
Course of dealing. Again it has to be conduct. No, can’t insist on gap filler
C
Usage of trade, can’t insist on gap filler.
BIG PICTURE
SCOPE- What law applies
o Article 2? 2-102, 2-105, 2-107, 2-106
o Article 2A? 2A1-2, 2A103J, 21061, 2-103
o CISG articles 1-6, and 10
o Common law (only IF none of the above)
o
o FORMATION
Do we have an enforceable K (SEE TWEN SLIDES)
Remember more specific statutes govern over more general statutes.
Cisg has no SOF
So if we have an enforceable k, what are the terms?
2-202 is the parol evidence rule for ucc
look carefully at Cravotta case, and steverson will post parol
evidence slides.
Problem set 6
6.1b
this was after, so it’s a mod.
2-202 covers a prior oral or written or contemporaneous oral agreement
remember a modification doesn’t require consideration
c
once you decide you have a writing that is covered by 2-202,
questions progress as she lays out on the powerpoint
final expression ‘integration’ (doesn’t have to be fully integrated)
merger clause is evidence of it being a final and complete
expression
o when do we not take the merger clause as being a final and
complete and exclusive expression?
When the agreement itself doesn’t contain everything
needed to be complete
“merger clause is contradicted by the writing itself”
(note, remember dicker terms only matter for 2-207)
some courts apply a ‘certainly’ test (cmt 3) to decide if it’s complete
and exclusive (without a merger clause)
we don’t have facts sufficient to tell us if the merger clause is
contradicted by the written agreement itself.
court in morgan case says if you’re missing lots of terms, it can’t be
complete. In general though, merger clauses are conclusive
evidence of complete integration.
If you have a standard form k, and one party is taking advantage of
the other, courts will second guess a merger clause, but generally
when you have businesses w a merger clause, court won’t usually
go aroung it
Ucc is more likely to go around merger clauses.
Reme,ber parol evidence rule doesn’t say what the court can look at
to decide if the writing is INTEGRATED
In c. it is probably a conclusive statement so you can’t supplement
except based on the oral statements, but you can use course of
dealing (but, do we have CONDUCT? Nope. So not course of
dealing.)
D
Custom in the industry
o Complete and exclusive agreement, no supplementation of
consistent additional term.
o You can supplement with usage of trade, so she can introduce
evidence of custom in the industry if it doesn’t contradict
This contradicts because it’s a variable price across the
industry but it’s a set price in the contract.
Courts are lenient, they don’t like to find contradiction
with regard to course of perf, course of deal , usage of
trade, so if they don’t gut the express term, they will
say no contradiction.
So the posted price is the ceiling, so to argue no
contradiction you say, you’re not contradicting it, it can
just go lower.
Comment 2 ‘carefully negating” you say, I understand course of x is
this, but we are doing this
Nanacooley case(??) from 1st year k’s)??)
6.2
o 2 rolls for 17K each
8/24/12 8:49 PM
6.1a
can she buy from the lower priced competitor? Remember in going through
our questions, we first have to look to the writing and ask if it is a final
expression (under common law we say integrated)
2-202 1. Is it a final expression ? here, we just have the one writing. Is it a
final expression. Here we can say it is, it was a writing to which both parties
assented, evidenced by the fact they both signed it and there is nothing
indicating they expected further negotiations or that it was a draft.
Since we said it is a final expression, we go to question 2,
2. is the extrinsic evidence covered by 2-202’
o here we have a prior or contemporaneous oral agreement.
o 3.Does it contradict? We talked about that last class, can’t
contradict. If not contradicting, we argue we are either
explaining or supplementing.
o 4.If we are supplementing, then we have to ask, is the written
agreement a complete and exclusive (fully integrated rather
than partially integrated) if complete and exclusive, you may
not supplement. If partially, you may supplement with a
complete and exclusive term.
How do we decide if it’s complete and exclusive? What
do we look at?
Morgan bldgs. On pg 116, no evidence is barred in
determining whether it’s complete and exclusive.
Cravotta case pg 126 says it is a question of fact,
most courts treat it as a question of law. They also
say that you look at the facts and circumstances
surrounding the execution of the written
instrument and the instrument itself.
Look at all evidence, side agreement, written
agreement, surrounding circumstances
Is there a test? Intent of the parties –
If the terms certainly would have been included in
the written agreement if the parties had intended
to be bound (Comment 3)
SO, if they certainly would have been
included, you CAN’T introduce evidence, it
IS a complete and exclusive agreement.
Ie, if it were that important it would have
been included in the main agreement. The
fact that it wasn’t indicates they did not
intend to be bound.
Re look up integration- liberal vs strict
(check E&E)
So we are also looking in particular about
how these parties were situated and how
this k was negotiated.
Things you might want to know: form K? drafted from
scratch? When was the discussion? Where did
negotiations take place? Relative sophistication of the
parties
How important does the term seem?
One argument- not very- just a freebie, he was
confident that he’s the lowest price anyway. From
his perspective no biggie, if she believes him, no
biggie. On the other hand, if Jake were known for
having high prices, this would be a fairly
important term. (this is an argument it is NOT fully
integrated)
o
You could argue it was very important, reason why she
agreed, locking herself into buying all her steel from
him, so “all” is the quantity. So still using cmt 3, you
could argue it is really important to her and so it is NOT
fully integrated. Also, if we can find evidence it
devaiates from the norm you’d expect it to be in the
written agreement.
o Courts do not give the same leeway with regard to side
agreement as they do with trade usage so contradiction is a
stronger argument with side agreements.
o
o If not complete and exclusive, then is the side agreement a
consistent additional term?
Argument one: it is not a complete exclusive writing and
it is a consistent additional term. It’s a forward looking
term, it is consistent with the K
Argument two, it is not consistent because it doesn’t
follow the term that they will buy all the steel from him,
so it is not consistent, because if you can purchase from
someone else that isn’t all the steel purchased from
jake. Could argue that contradicts, but definitely is
inconsistent. Something outside the realm of the
agreement is inconsistent. (example steverson gives of
taking something off some other property being
inconsistent with a real estate agreement
MAKE A FLOW CHART!!!!!!!!!!!!!!
6.2
o Two rolls royces at 17K each (SOF before 2-207)
FIRST: PAROL EVIDENCE 2-202
IS THE WRITTEN evidence covered by 2-202
(confirmatory memoranda means TWO) and we
don’t have a writing intended by the parties as a
final expression of their agreement because they
didn’t both agree to it. Here we just have a
confirmation, that is not a final expression
If you have an oral agreement and a writing, you
want to make sure that the oral agreement can
come in, so you have to make SURE that you
don’t have final expression
So, evidence of the oral agreement can come in
Now, we have to figure out if we have an enforceable
oral agreement
SoF 2-201
We have a writing, sufficient to indicate that a
contract has been made, signed by Debbie, it
specified a quantity, only enforceable to that
quanity, she put two so you can only make her
sell two. The terms in the K are different than the
terms of the oral agreement, do that then go to 2-
207
What are the terms of the agreement?
2-207
oral agreement followed by written k, sent within
a reasonable time.(1)
(2)different, not additional terms (both not
merchants)
remember dicker terms only matter with respect
to if it’s an acceptance
dusenberg: proposals for addition, they don’t
come in, materially alters/notice of objection,
different term falls out
white, don’t use. Don’t want last shot
Different term in confirmation fell out (summers?)
Leaving us with price in oral k, but only
enforceable as to 2
Why can’t we say the 2 drops out and the 4
stands? Because if you bring the 4 in, then you’re
contradicting the SoF, and we don’t want them to
contradict each other, it would render that part of
2-201 meaningless
Conflict between 2-207 and 2-201, why does 2-
201 trump? Because it is formation. You can’t get
to terms unless you do formation first, so
formation is always going to have to trump over
terms.
o We did Parol Evidence first here because you had to get the
evidence of the oral K in first in order to even get to
formation.
o
Make sure you know details of parol evidence and SoF with respect to 2A and
CISG!!!! In the text, make sure you understand the differences.
Make sure you can distinguish merger clauses that will and will not be given
effect – tvtoons case – nice scope analysis for CISG in this case – look at it.
Tv toons – you can use oral evidence to introduce the evidence of the
parties’ intent (article 8), no parol evidence rule in cisg so the oral evidence
can come in.
7.2a
Toronto breaches and Detroit files suit in Michigan
Toronto moves for SJ pleading the SoF defense, attached to the motion is a
signed affidavit denyig that Toronto ever entered into a K with Detroit.
Does the CISG govern?
We do have parties with their place of business in different states so
CISG applies
Article 11, no writing required
Article 6 – parties can derogate
o How do we know that the selection of Michigan law is binding?
o If choice of law provision is binding, you can’t then use SoF
even though you are in Michigan law, because you already
had to decide you had an enforceable K, qustions of formation
will ALWAYS BE GOVERENED by the CISG because you CAN’T
GET OUT OF CISG without determining you have a binding k,
so you have a binding choice of law to get you out of cisg! So
the Choice of law provision governs everything AFTER the
decision you have an enforceable K.
o So you go to Michigan ucc then, but NOT FORMATION! DON’T
GO TO SoF, you already have a K!!!
7.2b, written k, no merger clause, all releant terms included
oral agreement prior to signing of writing, that said mich law exclude cisg
applies
Same as above, except not article 11. Article 8(3), all evidence is admissible,
no parol evidence rule, don’t have to worry about whether or not the
agreement is integrated, so again CISG governs until you get the choice of
law K
Variation on 7.2b
Written K says Michigan law applies
Do the ucc’s remedy provisions apply rather than the CISG’s? no. CISG
applies, because Michigan law IS that CISG applies!!! (there is an American
biophysicics case to the contrary, but that case is wrong, outlier). Because it
didn’t exclude CISG, ‘michigan law’ is CISG, unless it’s specifically excluded.
CISG preempts Michigan law.
Warranties:
Express and implied
o Implied warranty of merchantability is the most important
o
o 1 . does a warranty exist? If yes , what kind?
Implied warranty of merchantability
Implied warranty of fitness
Express warranty
Due to the defendant’s breach of the warranty, did the plaintiff
SUFFER A LOSS?
o The warranty was breached
o Plaintiff suffered injury to self or property
o The defect in the good caused in fact and proximately the
injury (see comment 13 to 2-314)
o
2-314
o There was a k for the sale of goods
o AND
o Seller was a merchant IN GOODS OF THE KIND
o
The warranty was breached, ie, the goods were not merchantable at time of
sale (Only need ONE OF ThEM) 2-314 2 a-f (if it fails any of those, you gotta
problem)
8.1a – isolated sale not a merchant
b- still not a merchant. But you might have breached duty of good faith
under 1-304,(applies to everything in the code, because it’s in ONE, doesn’t
have to be an article 2 transaction) then look to 1-201(20) for good faith.
(why? Why wasn’t it good faith? Never forget steverson’s because..Because
WHY?) because good faith requires honesty in fact and commercial
standards of reasonable fair dealing, and because here there was no
observance of reasonable fair dealing standards, because you failed to
disclose a latent defect that you were aware of and that is a failure to
observe reasonable commercial standards of fair dealing.
Although the majority of states have adopted revised article 1, a significant
portion of htose states have opted out of 1-201(20), enough that it is NOT
THE MAJORITY POSITION. The marority position is unrevised, for merchants
it’s both but for NON MERCHANTS IT IS ONLY HONESTY IN FACT. This is the
majority rule and the standard we need to know. (idea is non merchants
don’t know what commercial standards of fair dealing are.)
Does that change the answer? Proably yes since answer was based on
second, but is there an argument it’s not honest in fact
Other experts, (ME) 8..1d, 8.2 really quickly
8/24/12 8:49 PM
8.1b
comments tell us that fraudulent nondisclosure of a material LATENT defect
even of a nonmerchant is violation of warranty
8.1c
she said it doesn’t meet any of the three factors, buyer could argue ‘super’ is
a description, but what does that convey? It doesn’t affirm or describe
anything, it just says it’s super. Where are you getting requirement it be
definite?
Specific language
Context
Reasonableness of buyer’s reliance
What about common law fraud or misrepresentation? They can be used as a
defense to breach of k or as a ground for avoidance/recission of the K, so
that would put the parties’ back.
So then you have to look at if your jurisdiction allows you to get out of a
contract that has already been executed.
Also, you CAN’T use misrepresentation if it’s puffing. Opinion is NOT
actionable!!!!
What about fraudulent nondisclosure – you give some so they think they’re
getting all, so a half truth, to allay buyer’s concerns, therefore you have a
duty to disclose anything that would make it not-super (like characters
fading after 20 minutes) you still have to show justified reliance.
(fraudulent nondisclosure, duty to disclose could also be for latent defects
only in knowledge of seller, but that’s the liberal rule, the general rule is
caveat emptor)
LECTURE:
2-313 there are a lot of comments, they help you to understand some of
what’s being said with regard to how to create a warranty, comments 5 and
6
note that there is no requirement in this version that the buyer has to state
that they relied, it is not necessary that the buyer specifically rely on it, but it
has to be part of the basis of the bargain, so what’s that?
Some courts say, in order to be part of the basis of the bargain, you have to
show justified reliance, so some courts put that back in.
Some courts think you had to at least partially rely on that affirmation in fact,
and plaintiff must show reliance
Comment 7 can be used to argue that you do not need to show reliance, just
that it’s part of the bargain, and that’s just , is this part of the contract or
outside the contract? If it’s part of the bargain
Comments 3, 6 and 8 clarify
White summers dusenberg- any description becomes part of the basis unless
seller rebuts the presumption –
Seller would have to show that it wasn’t part of the bargain and you didn’t
rely on it, otherwise it’s a warranty.
If you’re on the cusp if it’s puffing, courts say, look at justified reliance. So, in
many instances the courts just conflate it, they put it all together and look
for justified reliance, then burden shifts to seller to rebut that.
If it’s clear that they make an affirmation of fact, car has this engine, you’re
good to go as the buyer, that is an affirmation of fact and presumption it’s
part of the bargain, and if the seller made that statement to tell you bouthe
item, seller will have a hard time rebutting.
IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE:
Buyer has a particular vs. an ordinary purpose
Seller has reason to know of Buyer’s particular purpose
Buyer relies on seller’s skill and judgment in selecting goods and
Seller has reason to know that b uyer is relying upon seller’s skill
and judgment to select or furnish suitable goods,
Comment 1, 2 and 5 in particular.
8.6
think outside the box as a plaintiff’s attonrey
8/24/12 8:49 PM
shiori sato and jed Jackson met in 2004 when Jed was on vacation in Tokyo.
They fell in love, and maintained a long distance relationship until finally
they were wed in a small ceremony in Jed’s hometown of Eugene, Oregon in
September of 2006. Shiori maintained her Japanese citizenship and obtained
a resident visa. In 2007, the couple had their first child, . In 2010, the couple
began to have marital difficulties. They divorced in 2011, with a court order
which provided that the parties had joint legal and physical custody. In 2012,
Shiori took the child to “visit” her parents in Tokyo, without permission from
Jed. Shiori refuses to return, and Jed wants to enforce the Oregon custody
order granting him joint legal and physical custody of .
PROBLEM 8.5
Arguments to defend against the lawsuit:
The car is conforming to the description, a car with regular airbags
not side airbags is what she purchased, the k description was an
economy model car without airbags, and so it passes without
objection in the trade under the contract description.
Plaintiff’s going to argue 314c, she was using the car for ordinary
purposes and she got hurt. Defense would be a sort of cost benefit
analysis that we saw in Phillips v lighters, where the court says if
the price of a feature takes the product out of the market it’s a
factor. She didn’t buy the extra features and we don’t have them as
standard features because then we couldn’t afford to sell this
economy model vehicle.
Steverson says, a little more information about passenger side
airbags: The govt did require upgraded side impact protection but
not side airbags, but the injuries that happened from side impact
are actually quite severe, and more severe than being hit from front
or rear because there is nothing between you and the car that’s
hitting you. So, that might change the cost/benefit analysis (B <
PxL, remember the hand formula) So here, B would be the cost of
putting side impact airbags in al lmodels, recalling other cars
The P would be the number of accidents involving side impat that
occur in these types of cars and total number of these types of cars
on the road
L would be the aggregate average of the loss suffered from those
types of accidents (what’s the severity of the injury?)
Have to be careful, Ford pinto cases for example –
So no answer, but these are the things you want to think about as far as fit
for ordinary purpose, you have to deal with every one of those six points in
314, if it is not fit for it’s ordinary purpose, it doesn’t matter if it would pass
without objection in the trade.
8.6
milk question- it’s not bad for everyone, you are supposed to give it to kids
not skim milk
point authors wanted was to alert you to other parts of 314, and labeling
issues. Note it says ‘adequately contained packaged and labeled as
agreement- so what’s the agreement, the express k or the implied
agreement with the purchaser at the store? Questions to ask.
8.7
I had this right – no cost benefit analysis because it’s clear they aren’t fit for
their ordinary purpose.
9.1a
different standard for merchant vs. consumer buyers, so remember that.
I was right, question is notice, was it reasonable?
Need to know what commercial standards are – they will argue she didn’t
notify them in a reasonable period of time and three months isn’t
reasonable. So how do we figure out what’s a reasonable period of time?
Comment 4 offers some guidance. So a longer
just driving the truck doesn’t mean you are truck merchant, but she is a
business person, so she’s a general merchant, because she bought the truck
for her business so she was acting in her mercantile capacity, so she
probably is a merchant buyer because it doesn’t require you be a special
merchant.
So, how do we know what the commercial standards are for a merchant
buyer?
Minimizing prejudice is one function of the notice requirement, along with
voluntary resolution of disputes and enabling the cure of the breech (from
the case)
We don’t believe in tardy claims because we think if there was a defect
people wouldn’t perservere in the face of it, a seller has a right to repose, to
know they aren’t going to be sued.
Well, if she would have notified them earilier, she wouldn’t have lost 6 jobs,
didn’t give them a chance to cure, etc. what’s the counter to that?
She won’t get the extra loss anyway because she could have mitigated, and
three months just isn’t that long, they can still settle, they still have the
evidence, etc.
Argue both, construe the facts, usually notice is a question of fact, unless it’s
soooo egregious that notice is insufficient as a matter of law as in the case in
the book. Anyway, argue both and then pick a side, but 2 years with
destroyed evidence, ‘as a matter of law, she is barred because she failed to
give reasonable notice” but less is going to require argument
9.1b
shane says, well first of all, tender was oct 1, so that’s four days so that’s
ample notice, and she’s really complaining about delivery which is a service
but even if it accrued on July 1, with the purposes of reasonable notice, she
didn’t give the seller any chance to resolve because she waited till after
delivery to complian so she isn’t within the policy.
How to distinguish from the other one? The damages there were open
ended, here she waited till the damage is capped, and then she complains,
and there is no way for the company to mitigate the issue, unlike before
when they could cure, they can’t cure now.
NONCONFORMING is failure to comply with the contract, doesn’t just have to
do with the goods, conforming to the k, subsection 2 of 2 106.
Counter: she accepted tender oct 1, she notified 4 days later, bam that’s
reasonable. Damages are going to depend on if she could have mitigated,
but steverson says don’t conflate the damage mitigation question with the
notice questions. She’s not barred from the claim under this argument, but
shane’s argument is a counter, he says that only applies when arguing about
a breach with regard to the goods because that’s the only way it makes
sense, so notice should have come from when the delay did, on july 1, but
you have a counter, that the company here KNEW they were late. So why
does she have to tell them? They knew they were supposed to ship July first,
why does she have to tell them? They HAVE notice.
Steverson says, is there something in the language that gives a
counterargument? 2 607 says the BUYER MUST NOTIFY THE SELLER, not that
the seller must know.
So does the buyer have to do something, does the buyer have to notify?
Comment 4, needs to inform the seller that the transaction is claimed to
have involved a breach, so the argument is if she doesn’t give them notice,
they don’t know she cares, and it doesn’t open the way to settlement. There
are courts that go that way, that seller must be put on notice that buyer
cares. But, the majority of courts say if the seller Must Know, then they have
actual notice of the breach and that is sufficient to satisfy.
9.1c
2607 3a
does the buyer have to give notice to a remote seller or just the immediate
seller?
Who’s a seller? A person who sells. Acme is a seller. So why is shane saying
acme is not a seller?
2-318 says HIS seller as opposed to “THE” seller
so if they wanted to say HIS seller in 607, we assume they would have,
because they did it earler. But what does THE seller mean as opposed to A
seller, and THE means the same as HIS.
THE seller in THIS transaction in question
So you are going to have to do case research to see how your jurisdiction is
interpreting this. A Bare majority (can’t rely on it) say that if you give notice
to the immediate seller that’s sufficient, but quite a few j’s say if you are
going to sue the remote seller, for the same reasons as why you have to give
notice to the immediate seller, you have to give notice to the remote seller.
So what do we learn about notice, as a transactional attorney, ti’s in flux, so
you give notice to anyone and everyone who might possibly be implicated in
any possible lawsuit. Don’t be a lawyer who loses because you failed to give
notice!!!
9.1d
shane
says mack co probably doesn’t have good defense, Mack co received notice
from judy.
Comment says reason extends to beneficiaries, so as defendant we’d have
to show bad faith on michaels’ part, he was hospitalized, etc, so in spite of
comment five. Generally if you have a third party who’se blood has been
spilled, you’re not going to have luck getting it dismissed for lack of notice,
but may do so for only economic damages.
9.2
SEE TWEN SLIDES FOR PRIVITY
2-318, three alternatives. Most jurisdictions have adopted A. only 41 states
have adopted 2-318 at all, and 6 and 6 for b and c.
9.2a
J: adopted A,
Jack is nephew=family; counterargument, no, he’s an employee. So what if
you are an employee AND family? 2318 doesn’t say you can’t also be an
employee, it just says family, and he’s family. So then, how far family? Fifth
cousin once removed? Or is it only immediate family? Those are interpretive
questions answered by caselaw.
So can a family owned business have family? Can a company also be a
family? Does the holding of Crews bind us?
She says a court would probably say family is still family with a family owned
business.
There are some cases that say nephew is only ‘family’ if in close proximity.
(2). Some say you aren’t in the family unless you’re in the household.
But that’s stupid, says stererson, cause then why did it say household?
She said there’s little caselaw, so you have to argue the sense of the statute,
likely to be foreseeably injured. “reasonable to expect”
In B j, he’s a natural person, it’s reasonable, but no on garage
9.2B
horizontal privity the same. Q is, does A obviate vertical privity along with
horizontal privity, the answer is NO, it does not because alternative A says
“HIS buyer”. Majority of courts agree A does not obviate vertical privity, but
you still have to look at your J to see if they have obviated vertical privity.
8/24/12 8:49 PM
8/24/12 8:49 PM
10.1d
May the classmate recover from the retailer through MM action?
macnamara says you can’t bring a MM warranty without a written
warranty.
Steverson says macnamara is trying to, with the definition of
disclaim, describe why 2308 is in conflict with 2310.
When they denied liability, that is a disclaimer, but they aren’t using
disclaim the way we normally do.
May plaintiff bring an action under MMWA for IW where defendant
has not given a WW? (a bare IW claim)
McCurdy says yes
McNamara says no
McNamara does statutory interpretation
Ambiguity or lack of clairity? If yes, then look for tools to assist with
figuring out the purpose
McNamara court says conflict between 08 and 10. Steverson agrees
with their reading of 10.
The court is construing 08 to also create a cause of action. So where
does the court get that from? Suffice to say court’s interpretation of
2308 seems to run counter to the language of 2308, and the
definition of disclaim doesn’t mean what disclaim means, and
steverson says that she doesn’t think that they didn’t know
anything about commercial law.
If you read MMWA as only applying to written warranties, this makes
sense, but steverson says that the purpose is to provide a federal
cause of action in 4 distinct cases, and that’s what 2310 does.
Some courts are following mcnamara for no reason at all.
Steverson says there’s not really any conflict, our perception is
right, that 2310 and 2308 are not in conflict, in fact you can enforce
2308 with 2310.
You DO HAVE TO DEAL WITH BOTH OF THEM.
She doesn’t think the court’s reasoning is persuasive in and of itself.
Try to explain the problems with the courts reasoingin, understand
mccurdy and why it didn’t see a conflict.
All the commentators say mcnamara is wrong.
THIS IS GONNA BE ON THE EXAM.
Even if an implied warranty can be brought on it’s own (mccurdy j), then can
this particular plaintiff, a non buyer, sue on this? Comes down to definition of
transfer, any person to whom the product is transferred, so yes.
10.1 f
no, the manufacturer can’t be joined under UCC alternative A.
10.1G
May the manufacturer be joined in a suit under MM? Vertical privity obviated
by MM with regard to implied warranty? One way of reading 2310 is to say
manufacturer is a supplier , bc it fits within the definition of supplier in
2301(4), so they are a supplier that has failed to comply with implied
warranty. Argument on the other side, that mm doesn’t obviate vertical
privity with implied warranty? Other jurisdictions focus on the definition of
implied warranty instead of the definition of supplier. Def of implied warranty
101(7) means an implied warranty arising under state law as per 2304 and
2308, so those j’s interpret arising under state law to mean encompassing
not only the existence of an implied warranty under 23-14 or 2-315 but also
the privity requirements of that state. In these J’s, the ONLY way to get to the
manufacturer is through the common law of the state, and you have to hope
your j has obviated vertical privity for both economic and personal injury
So what do the first group (focus on supplier def) j’s say about “arising under
state law”? they say arising under state law only applies to the EXISTENCE of
implied warranty, not to the privity requirements, we don’t need to look to
state law it’s in 2310. The gerenal def of arising under is does it exist, NOT
the question of STANDING, which is WHO may bring suit. Arising under is
simply existence.
Go through mcnamara/mccurdy, go through the above (g) sides, make policy
arguments on both sides.
Pg 190, bottom of page, top of page 191, re read.
ASK FOR THIS PODCAST.
The definition of consumer encompasses the state horizontal privity, so that
doesn’t really come up.
10.1g
would it have made a difference if the manufacturer had made a written
warranty? If there is a written warranty, you go straight to MM, you don’t do
ANY OF THAT STUFF ABOVE, because that ALL Only arises because the def of
implied warranty points us to state law, written warranty does not do so. MM
obviates vertical privity on suits on written warranty, and many say that if
there is a written warranty it can ride on the back of the written warranty
(even in a J that wouldn’t allow you to go after manufacturer on the implied
warranty alone.)
some courts use 110f to go after manufacturer bc they are the one who gave
the written warranty.
NOTE Kemp case, the FDA stuff, She said make sure, probably needit for final
McNiff- just bc there’s a contingency fee, that is NOT THE CEILING. Court CAN
go beyond whatever the contingency fee agreement is.
Schmitz case- look at it for warranties, 195, she pointed it out.
Be aware of burden of proof for plaintiff, need only prove they were
defective, need not prove nature of defect.
LEASES:
When dealing with a straightforward lease agreement, warranty
provisions are very similar to article 2 of UCC, so we already did
that. One area they differ is with regard to finance leases.
Sales transactions vs. lease transactions
Sales: seller, passing title to a buyer for a price (SEE TWEN SLIDES)
Lease: passing possession and right to use, NOT TITLE. If you’re
getting title, it’s a disguised sale.
Sale with security interest
(see twen slide)
Finance lease:
Example, supplier says I don’t want to lease it to you, but I will sell it
to the finance place, and they will turn around and lease it to you,
and your relationship is with them. Finance lessor doesn’t really
want the interest in the item, so the first issue is , is the relationship
between lessee and lessor a true lease? Often a disguised sale, so
ALWAYS ALWAYS check to see if the finance lease is really a
disguised sale, if the lessor doesn’t really want the items back.
If lessor is in the business, they can usually lease it to someone else
after the lease term is up, that’s why in the problems it’s the
‘leasing branch’ of the credit company.
They are buying the trucks for this lessee, who has to pick out the
goods, otherwise it is not a finance lease. So if they can’t re lease,
and they want lessee to buy them, then that could be a disguised
sale. In the book problems, we don’t have enough to know, but she
may give us such a thing later. 11.1
what rights does standard have
first q: is it a lease or a disguised sale?
Then, is it a finance lease? (CONSUMER??)
We don’t have enough facts to decide if it’s a true lease, so here we
will assume it is, then decide if it is a finance lease.
Is it a finance lease? 2A-103(1)(g)
o Lessee selected the goods
o Lessor only bought goods because of lease
o Must have 1 of the 4 in iii, steverson liked b for this one, but
any of them will suffice.
o We have yes,yes,yes so it is a finance lease, SO
What rights do you have?
o We have no facts to support a written warranty, so we say
they do not have one, so they can’t go after first national
o Warranties are in 2A-212 and 2A-213, they both say “except
in a finance lease”, these warranties exist. So they can’t sue
under those for a finance lease
o No goods oriented remedies either, under 2A-407
Says even if there is a breach by the lessor, you can’t
withhold payment, your obligation still exists.
So the answer was no rights
11.1b
now they “highly recommend that we get trailers from Billings”
did they “select”? or is it a suggestion?yes, but not as to the GOODS, just as
to the company. So it’s still a finance lease.
2A-210 (2), lessor’s opinion or commendation of the goods…etc
so you don’t have any of the implied warranties, but you may have an
express warranty under 2A-210 depending, you still have to show you fit
within all the elements of an express warranty and this statement probably
isn’t enough.
So same basic answer as above.
11.1c
what rights does standard have against BILLINGS, the manufacturer of the
trailers
2A-209 extends the rights of the lessor under the sale agreement to
lessee, so whatever rights lessor has against supplier, lessee has,
you still have to do the above lease/finance lease analysis
2-313, 2-314, 2-315 as opposed to 2A (because the lessor’s rights
against the supplier were in a SALE)
what if there’s a disclaimer? Comment 1, it will operate against the
lessee to the same extent as lessor
11.1d
o statute doesn’t say anythinga bout express warranty between
supplier and lessee, this wasn’t the lessor. So if we don’t have
an express warranty to lessor, do we have IWM or IWFPP?
o He will say he told supplier what he needed and supplier
made the rec, but what about reliance, because lessee relied
not lessor. What language supports argument lessor has to
rely? 2-315, “buyer is relying” the buyer here is the lessor, the
lessee is not the buyer, and he’s relying on the skill/judgment.
o Lessee would argue that the lessor is relying on you to give
his lessee what he needs. Why not 2-314? Bc they ARE fit for
ordinary purpose.just not particular purpose
8/24/12 8:49 PM
Problem 13.1 b
Lou wants to include the limitations in his “limited” warranty
o (Steverson says, you can’t disclaim the implied warranty of
merchantability but you can get the same effect by limiting
consequential damages except for personal damages, so that
will provide some protection to your client. Make sure you
read the Ishmael case, remember these cases are here for a
reason, for example the west case for today walked you step
by step thorough your title analysis.)
2-308b, you can limit duration, but not shorter than the written
warranty. 2-304a3 and a4 only apply to full warranties. 2-719 he
can replace the remedies to repair or replacement, so long as you
aren’t completely doing away with any remedy.
2-719 exclusion of consequential damages, but not for a consumer
with personal injuries.
Regs we specifically point out, pay attention to. CFR 701.3a8 , (see
pg 226, you need to know the CFR’s and USC’s that are listed in the
text!) Re read this, you don’t understand it.
o Has to be clear and conspicuous.
o Limitiation on duration of implied warranty of merchantablity,
even though you can, limit has to be conscionable,
unmistakable language, prominently displayed on the face of
the warranty. Can’t be less than duration of written warranty.
o You CANNOT do #1, the complete disclaimer of the implied
warranty of merchantablity.
o
13.2
swingset problem
does a warranty exist? NO- past date
The written warranty doesn’t say that seller warrants that the goods
are free from defect. Seller is just warranting that they will provide
any missing part or repair or replace any defectiveparts, but it
doesn’t warrant anything is free from defects. Even though they
don’t explicitly say goods are warranted (except maybe in title)
courts will sometimes say you can infer from the language that the
goods contain all they should and that the parts are free from
defect bc otherwise why would you warrant them.
If you go ww under mm or ew under ucc,
Whats the problem going under ww under mm?
o This was a NINETY DAY warranty. He was injured four months
later. You can’t sue under the written warranty. Period.
So, now we have to go to implied warranty of merchantability.
IWM? Section 2-314 – yes, exists, but was it effectively disclaimed?
(2-316) Yes, but not effective under MM b.c if you have a written
warranty by supplier (a person engaged in making a consumer
product directly or indirectly to consumers) (look up MM sections)
So, NO effective disclaimer so the implied warranty of
merchantability applies, remember with implied warranty of
merchantability you have to first ask UCC, then ask MM.
So it exists. Has it been breached?
o Not fit for it’s ordinary purpose, which is to swing on it. 2-
314c. Defect in good caused injury.
o 2-719 damages, you can limit consequential damages unless
it’s unconscionable, here they didn’t limit personal injury, so
he can get personal injury damages.
o
13.3a
Peter represents acme
Erin represents hard drive
(see notes in book, maybe ask for podcast)
Go through every possibility
Creating express warranty
Disclaiming implied warranty
Modifying implied warranty
Title with Sale of Goods
Unless the parties explicitly agree otherwise, title passes to the
buyer once the goods are delivered under a sales contract 401(2)
In general, seller cannot get the goods back, ie, reclaim the goods,
unless
o Buyer rejects the good 401(4)
o Buyer revokes acceptance of the goods 401(4) (we will learn
about the above two soon)
o Seller has a security interest in the goods (see Article 9)
o The sale is a “cash sale” and buyer has not paid 2-507(2); or
o Buyer has received goods on credit while the buyer is
insolvent 2-702(2) (bankruptcy, basically, don’t worry too
much, just know some courts use the ten day limit from this
on cash sale even though there is nothing applying it)
So you have warranty of title
And, as between two alleged owners, who has the right to
possession(performance and breach question)
What is a cash sale? Delivery of the goods and payment of the goods happen
at the same time. The default rule under ucc is a cash sale. Default is
payment is due at the time of delivery.2-310a. encompasses payment by
check, which is a conditional payment and if the check bounces you have not
paid and seller can reclaim the goods.
2-403 is designed to give protection to the bona fide purchaser who gets title
from someone who doesn’t have lawful title.
PULL UP TWEN SLIDES
2-403
a little bit of unhappy drafting. 2-403 doesn’t define voidable title. “such
power” is the power to pass to good faith purchaser for value. Commentators
treat a-d plus transaction of purchase as creating voidable title. That isn’t
what it says, but that’s how they treat it. Voidable title is 2 instances,
voidable title under common law, or 2, transaction of purchase plus a-d.
Steps for analyzing title issues
1. Did the transferor have power to transfer good title to the transferee?
A. Did transferor have title? Of
Did transferor have voidable title? Or
Was the transferor an entrustee?
2.Did transferee acquire good title?
If you are under 1a, then ask, is the transferee a purchaser of
goods?
If you are under 1b, then ask, is the transferee a good faith
purchaser for value?
Under 1c, then ask, is the transferee a buyer in the ordinary course
of business.
Again, be sure to look at west case (wes?)
16.1a
The critic had voidable title, lucy was a good faith purchaser for
value, so pierre may not recover the painting. (because there was a
transaction of purchase from pierre to the critic) see 403.
8/24/12 8:49 PM
Steps for analyzing title issues
2-403 1-3
1. Did the transferor have POWER to transfer good title to the transferee
a) did transferor have title or the power to pass title? Or
b) did transferor have voidable title (transaction of purchase with
one of a-d) or
c) was the transferor an entrustee?
2. Did the transferee acquire good title?
If under 1a, then ask, is the transferee a purchaser of goods?
If under 1b, then ask, is the transferee a good faith purchaser for
value?
If under 1c(look at twen)
16.1a)
2-403 1
Power even though a-d
Did the critic have the power to pass good title to lucy?
o A) the goods were delivered to the critic under a transaction
of purchase (see 1-201 (29); and
o One of the four scenarios in 2-403(1)(a-d) occurred? (d here)
o
Did the transferee (Lucy) acquire good title?
o (question of good faith – kind of a shady deal, is that typical?
Did she have good faith? (1-201 (20), or look to article 2 , 2-
103b, unrevised article 1, 1-201 19. Just remember the
minority apply revised 20 to merchants and nonmerchants,
majority of j’s have bifurcated good faith, 2-103 for
merchants, unrevised 1-201 (19) honesty in fact for non-
merchants. In make believe, we use the bifurcated one.
o So you’d need to know if you’re dealing with a merchant or a
non merchant. Lucy is a merchant, owns a gallery. She’s
even a specific merchant. So she’s subject to 2-103(b)
o So there is a strong argument she might be a purchaser for
value but not good faith.
o Case: unreasonably low price is evidence the buyer knows the
goods are stolen, but there’s also caselaw that art value is in
the eye of the beholder (but maybe not for an art gallery
owner)
16.1b
lending does not create an interest in the property. So no
transaction, so no voidable title, so pierre can get his painting back.
also not entrusting because non-art dealer friend is not a merchant
in goods of the kind.
So, no title, no voidable title, no entrustee, no powery to transfer.
16.2d
Pierre entrusted to Lucy and Lucy sold to Frank, as a buyer in the
ordinary course of business.
2-403(2) gives power to entrustee
2-403 (3) entrusting
1-201 (9) – buyer in the ordinary course
2-103 “buyer”
2-106 “sale” clerk was intending to pass title for the cashier’s
check
good faith, and in ordinary course of business
Pierre cannot retrieve the painting
16.2e
nothing in ucc, look at common law; conversion
16.2a
is he a buyer in the ordinary course if the check bounces?
If the court says no, then pierre can get it back . If yes, then frank can keep it
and pierre is out of luck.
All the same as above only the question is about the buyer in the ordinary
course of business. So the question is about ‘buying’
2-304 , money or otherwise, otherwise is anything that is consideration, a
promise is consideration, the check is a promise.
SO even if he is a buyer, another argument, cash sale means good and
payement at same time, under 2-507(2)and 2-511(3), arguably lucy can
retrieve the goods. Question is, does lucy have to give him a chance to cure?
Pretty strong argument that she does.
If frank had done it deliberately, you could argue he wasn’t a buyer in good
faith. (SEE SLIDES)
So if lucy can get it back, then pierre can get it back from lucy.
16.2b
same as above, but pierre demands painting before frank makes good, but
frank quickly makes good.
IF he’s a buyer in the ordinary course with a bad check, it’s same as above.
But what if frank is not a buyer in the ordinary course when he gave the bad
check? IF that is the argument, then has he become a buyer in the ordinary
course by curing? But if pierre has interceded, then he is not a buyer of good
faith without knowledge of violating the rights of another, so he would not be
a buyer in the course, so pierre could get it back.
Once he has the knowledge, he can’t then become a buyer in the ordinary
course.
May lucy reclaim from frank pursuant to 2-507 and 2-511? Well, he paid.
Once she has the money she can’t reclaim it. Only argument is in real estate
context. There’s not the same type of authority in sale of goods.
So pierre can reclaim but lucy cannot.
16.2c
gives cashier’s check before pierre’s demand.
Frank gets the painting, he’s buyer in the ordinary course, pierre is out of
luck.
16.3a
see slides
DON”T FORGET “UNDER A TRANSACTION OF PURCHASE” for voidable title.
Carla is a good faith purchaser for value so Carla has good title (bc georg sr
had power to transfer good title.)
GIFT = PURCHASE. HE IS A PURCHASER!!!!! EVEN though it was a gift, EVEN
THOUGh he knew about the check.
16.3b
Georges are involved in a scam to wash the title clean.
He could go after junior for fraud/tort, so that should step in to estop George
jr. from profiting from his fraud, but the UCC isn’t gonna get it back for him,
need common law fraud.
16.3c
jr is still a purchaser, and George sr, still has power to transfer good title.
Is he a good faith purchaser for value? Probably not, because no value, and
he knew about dad’s check so no good faith. 1-204
No consideration with the gift. So no value, so not a good faith purchaser for
value. So HERE the gift doesn’t suffice, because there’s no Carla (Carla had
good title, so gift was ok, but sr. only has voidable title.)
16.3d
Purchaser acquires what transferor had, so jr only gets what sr had, which is
voidable title. Carla was a purchaser for value, so she was able to get good
title from jr because he had voidable title.
(jr not good faith for value, but he WAS a purchaser, so he gets what
transferor had)
16.3e
Carla gets nothing bc bfp from theif gets nothing, sr has no power to
transfer, so no matter how far down the line we go, no one gets anything, a
theif breaks the chain, so after that, everyone is screwed in spite of 2-403(1),
The theif has VOID title, no one can get ANYTHING from someone with void
title.
16.4
1) No. jules had voidable title, pierre acquired good title because he was a
good faith purchaser for value. As is doesn’t put him on notice that he was
violating anyone’s rights because the language was not specific enough to
disclaim warranty of title (2-312)
2)recourse against jules by pierre? Warranty of title says shall be free of
defects , then 2-312 says need specific language to modify, and this wasn’t
specific language. Comment 6 (read it) here the title was good, but the title
of transfer wasn’t rightful, even though he had the power to transfer title he
didn’t have the RIGHt as against Delgado, and the as is didn’t disclaim
warranty of title becase that warranty is not implied.
How would you disclaim the implied warranty of title? Specifid language or
circumstances (in the comment) (specific language like “there is no warranty
of title)
Two warranties, title be good, and transfer be rightful So even if the title is
good, fact transfer isn’t rightful can subject party to suit so they’d want to
make a claim of breach of warranty of title to get the attorney fees back.(3-
312)
8/24/12 8:49 PM
Situation One
Lessor -----------Lessee 1
________lessee 2
we sometimes go to 2-403 because purchase encompasses leases.
Comment to 2A304 (cmt 2) makes clear the relationship with 2-403
So situation one, leases to lessee one then turns around and re-leases the
goods to another lessee. Governed by 2A 304. (so original lessor leases to a
second lessor)
Different ways for the second lessee to obtain an interest, but keep in mind
that lessee’s interest is subject to the first lessee’s contract.
So, you can’t ge the lease until the conclusion of the first lessee’s
interest. You get what the lessor had to give, but subordinate to the
first lessee to the extent they exercise their interest.
Then, if the lessor only has a voidable title either by caselaw or bc
it’s a transaction of purchase and you fit within a-d, then he can
transfer a good lease interest to lessee 2 if lessee 2 is a good faith
lessee for value but again it’s subordinate to lessee 1’s interest.
There is a VERY NARROW Exception in 2a-304(2), lessee 2’s interest is not
subordinate to lesse 1’s interest if you fit three requirements
Lessee 1 entrusts goods back to lessor
o They have to do it before the second lease contract is
executed
Lessor has to be merchant goods of kind
Lessee 2 has to be a subsequent lessee in ordinary course of biz
Make sure you look at 2A303, particularly subsection 2 (by violating the
lease provision you subject yourself to damages but the person can still have
a valid lease interest.
2a-527 is a remedy provision, has goods oriented remedies and actual
damages.
SITUATION TWO
2a-305 and 2-403
SELLER---sale contract--buyer/lessor---lease contract-lessee
Two ways for lessee to have good lease hold interest;
If lessor had good title and the lessee is a purchaser
Then the lessee acquires all title lessor had, unless you purchase a
limited interest
Can also get good leashold if lessor didn’t have good title but had
voidable title, then you have to be a good faith purchaser for value,
purchaser includes leasing.
Even though the first person might net get the goods back, they
might get the money on the lease
White and summers would apply 2a304, not 2-403. Steverson thinks
language and comments support idea that 2-403 works better, not
2a-403. She doesn’t usually disagree with white and summers but
she disagrees there.
SITUATION THREE
Lessor--lease contract-lessee/sublessor or seller-sublease K or sale K---
sublessee or buyer
2A305
Ways for sublessee/buyer to get interst when you have a lessee selling or
leasing.
They will get a good leasehold interest under (1) if the lessee had a good
leasehold interest, but they will only get what the lessee had power to give,
and they take subject to the existing lease K. They only get up to what they
purchased. (So if lessee had a five year lease and sublease for a year, they
only get a year)
Voidable title, then sublessee or buyer has to be sublessee or buyer (good
faith for value) then they acquire a good leasehold interest, but no greater
than the rights of the lessee. The only way to get more is through (2),
exception to the general rule.
Sublessee or buyer can take the rights of the lessee and lessor and free of
existing lease k if:
Original lesse/sublessor/sellor is merchant in goods of the kind
The goods have to have been entrusted to lessee by lessor
Sublessee/buyer has to be a sublessee/buyer in the ordinary course
of business.
Both 304 and 305 have a subsection (3) that deals with certificate of title
statutes.
See In re M&S Grading, Inc. p. 282
o Plaintiff CIT group says, we own that. Sue debtor for
possession to get it back. Nebraska statute says covered by
cert of title, you can’t transfer valid title without cert of title.
Fehers didn’t have cert of title under 2A-305(2), can’t get title
under(3), they couldn’t transfer title. So Debtor never had
title.
o Section 3 is an exception to the exception. You can’t transfer
full ownership unless you transfer cert of title, so debtor can’t
be a buyer in ordinary course because cert wasn’t transferred.
Debtor responds
o Says it should be 2-403, and that section doesn’t require
buyer in ordinary course to obtain title. Cites comments
(7)that reference 2A 304, which says it should be interpreted
consistently with supreme court rulings and 2-403.
o Talk about Dugdale case, Neb. Supreme court does not
require buyer in ordinary course to get a cert of title.
Court sides with CIT
o They distinguished Dugdale, 2-403 doesn’t deal with cert of
title, so you can’t apply it.
Plain language of the statute will ALWAYS trump the
comments.
If you knew you should get cert of title and don’t, you
aren’t a buyer in ordinary course anyway, but 3 is to
make really sure.
o There are plenty of courts that go the dugdale route for the
SALE context, not the lease context.
o
BE AWARE OF DUGDALE with regard to 2-403, exact opposite of
M&S in leasing context.
17.1a
o can Shelby get caged compassion back immediately or does
she have to wait a year?
2A 304 comment 3
She does entrust it 2-403(2); but in order for museum to
get an interest, under that subsection, they would have
to be a buyer in the ordinary course, which the museum
is not a buyer in the ordinary course, because although
purchase encompasses lease, buying does not
encompass lease. Buy goes with sale and sale is
transfer of title
Leasing is not a sale;sale is not a lease.
2a-304(2) doesn’t apply because it isn’t a subsequent
lease, there is no existing lessee
2A-304(1) 2A 305(1); have to have an existing lease k.
2A 305 (2); doesn’t apply bc not a lessee. We don’t
have that situation here.
Comment 3, says Shelby is a creditor, so THAT’S why
2A-307. Creditor takes subject to the lease K.
Don’t look tot tile statutes for this situation. She does
get payments.
17.1b
o This time it’s a sale, bad check, pierre leases to museum. Can
Shelby get the painting back
Pierre gets voidable title per 2-403(1)
This can all be under 2-403 because transaction of
purchase includes a lease.
So if museum is a good faith purchaser for
value under 2A 403, then the museum gets
their lease. IN this case, they are, assuming
it’s a fair price. (good faith), purchaser(lease
is a purchase), for value (10K).
The only problem with 403 is that it
suggests that the museum gets title, but if
you read that in conjunction with the first
sentence, that you only get what you
purchased, then it makes sense.
Remember, 403 is designed to circumvent, his transfer to a good
faith purchaser for value cuts off her right to reclaim, but she can
get it back under507 when the lease is up. She also gets the 10K.
(That’s from caselaw and comments in the 2A’s)
17.1c
o 2A 305, sublessee situation. The art gallery gets what the
museum had, which is not five years but one year.
o
o Argument the art gallery can get their five years? Under
subsection 2, art gallery is a sublessee in the ordinary course,
museum is a lessee dealing in goods of the kind, pierre is the
entrustor, so can’t the sublessee get all of lessee and lessor’s
rights, free of the existing lease.
Up to what they purchased. So they get what Pierre had
(?) But did Pierre HAVE anything? Nooope, not really, it
was entrusted to him, but no rights were transferred to
him. He has right to pass on the lease. BUT, it says FREE
OF EXISTING LEASE K. So they get pierre’s right to pass
a lease, free of the existing lease, so they get their 5
years. (they can pass a five year lease to themselves)
Pierre entrusted to the museum , definition of entrust in
2-403 applies (2a 103 3) so he did acquiesce in
possession and voluntarily delivers.
Then, Shelby would not get it back for FIVE years.
17.2
CISG article 1 for scope
CISG article 4 says only governs formation not validity or effect on goods
sold
NO governance to third party rights
CISG doesn’t have a provision, so we go to domestic law, (Gonna have to
apply conflict of law analysis to figure out which law applies) HERE, title is in
US.
So apply texas law; seller’s domicile, etc etc
2-403; pierre had power to transfer, so Las Pinturas has good title;
all he has to do under CISG title is show he delivered goods free of any claim
on title, and he did, so he’s good to go. (Free of claim means valid claim)
8/24/12 8:49 PM
§2-613 applies ONLY where the contract REQUIRES for its performance goods
identified when the K is made. So if the goods are damaged or destroyed
through no fault of either party before risk of loss passed to buyer, seller is
excused from perf. Though buyer has a specific opportunity to buy the
damaged goods at a reduced price.
So this would never apply to fungible goods
If it is determined that §2-613 applies, then there are two possibilities.
First, if the loss is total, then the k is avoided completely.
If the loss is partial, the buyer may demand inspection and either treat k as
avoided or accept the goods with due allowance from the k price for the
deterioration.
Distinguish between risk of loss and excuse from performance
If seller qualifies for excuse, that doesn’t change risk of loss, seller still bears
the burden and suffers the loss if they still owned the goods at time of
destruction.
However, qualifying for excuse means that the seller will not suffer a further
loss, so they don’t have to pay damages to buyer for seller’s delay or
nonperformance.
Ucc doesn’t really help defining what circmstances excuse a party from perf.
Obligations, 613 to 616 speak strictly in terms of a seller’s ability to BE
excused.
Som courts have considered a buyer’s defense of excuse by anaology to
615’s commercial impracticability rules for sellers or simply by ref. to
common law of excuse. Only successful in a very few cases of buyers.
Resources investment corp – increased cost alone won’t cut it, a rise/collapse
of market is ‘the type of business risk fixed priced business K’s are intended
to cover”
UCC 2-615 a focuses on the foreseeability of the supervening event. Must be
a contingency the non occurrence of which was a basic assumption on which
the k was made. Also mentions seller’s good faith compliance with
applicable governmental regulations as a permissible basis for excuse
Comment 5 says that unless both buyer and seller thought that a particular
source of supply was to be seller’s exclusive source of supply, then the seller
will not be able to rely on the inability of a particular supplier as a basis for
its own excuse.
Impracticability with Leases:
2a 221 in analogous to 2-613 and relates to casualty to identified
goods.
2a 405 is analogous to 2-615 excused performance
2a 406 covers the procedure on excused performance.
Lessees under 2a 221 and 2a 406 are generally given options that are
comparable to those available above, EXCEPT, nonconsumer finance lessees
only have a choice to terminate the k or go forward with the k with no
reduction in rent (2a 221 b and 2a 406 1 b.)
Commercial impracticability, international
Article 79 of CISG
Raw Materials case (RMI) imports UCC reasoning to interpret CISG 79
Under 2-615, three conditions must be satisfied to excuse perf.
o A contingency has occurred
o The contingency has made performance impracticable
o The nonoccurrence of that contingency was a basic
assumption upon which the k was made.
o
o Both UCC and CISG require the excused party to notify the
other side of the basis for the excuse and of its effext on the
excused party’s ability to perform
o
o Differences: CISG excuse rules are broader in two ways
Applies to both buyers and sellers, not just sellers like
615.
Covers a party’s failure to perform ‘any of his
obligations’ whereas ucc 615 a only allows excuse with
respect to a seller’s ‘delay in delivery or non delivery in
whole o part”
Not really that different practically, many courts
will allow buyers to claim excuse either by
analogy or using common law. Not many cases of
seller breach OTHER than delivery issues in whole
or in part
CISG narrower than 615- when sellers’ assumed source
of supply fails to deliver to seller. Comment 5 of 615
suggests as long as both buyer and seller assumed that
to be the exclusive source, seller will be excused.
CISG 79 says that the party above is only excused
if the source itself has a valid basis for excuse.
Class notes:
Common law frustration of purpose, buyer would use, still exists, but we are
going to talk about statutory excuses.
Keep in mind that these are extraordinary excuses, so it is unusual to be able
to prevail.
Normal market risks are a gamble you take.
14.1
You CAN use 2-615 for goods you identify at the time of contract, but 613 is
for goods you can’t substitute for, it’s not fungible.
Identification of goods is goverened by 2-501
Not really helpful, but if the k identifies a particular item (here,
probably the VIN)
501a does tell you goods have to be exisiting and there has to be
some indication in the k that these are the goods.
she broke down into
2 goods suffer casualty without fault of either party – fault includes
negligence so that’s some stuff you’d want to look at. (what did the
seller do to protect itself, and did it do enough to protect itself)cmt
1 says fault includes negligence. See also second sentence of cmt 2.
3 before risk of loss passes to the buyer.
o 2-509
this is subsection 3, bc the seller is the merchant, so
risk of loss doesn’t pass until she receives them.
(if he hadn’t been a merchant, then it would’ve been
tender of delivery, which is when the goods would have
been delivered to her)
receipt of goods, 2-103, means taking physical possession
MAKE SURE YOU CHECK THE DEFINITIONAL CROSS REFERENCES
AFTER THE COMMENT.
So risk of loss did not pass to buyer.
SO, a) if the loss is total the K is avoided. Was it total? The damages
was more than the k price…. So it was probably total by the
insurance definition, but do you want to use it? Well, we represent
Rick, so yeah, because then he can avoid the K.
B) if partial, then what I said.
14.2
if it is not foreseeable at all, it’s nonoccurance is a basic assumption
if it was foreseeable but highly unlikely, then it is probably a basic
assumption
so the occurrence of the contingency has to change the k, go to the essence
of the k, if parties had thought of it, no way they would have made the k,
goes to heart of the k.
comment 4, increased cost alone does not excuse performance, unless the
rise in cost is due to some unforeseen contengecy which alters the essential
nature of the performance. Here, Heavey Metal is supposed to provide me
with gym equipment. That’s the essential nature of the contract. He can still
do so.
argument is that the exclusive supplier provision applies to third parties you
have no control over, he has control over everything.
So it will all turn on whether the court will classify it as a manufacturing k,
and let him out on the supplier basis.
14.2b
remember, condition to her being excused is she has to turn over to
golds’ any rights against the defaulting supplier.
analyze section 1 by analogy to UCC, which says that fault includes
negligence, and they are liable for the negligence of their
employees.
note, CISG article 79 goes all the way up the supply chain
14.2c
d) seems to suggest buyers only options are to terminate or accept proposed
modifications, because if you don’t then it’s going to modify by default.
11/6/12 8/24/12 8:49 PM
Unconscionability
15.1
Mary wants her money back. Will mary’s lawyer be successful in arguing
unconscionability?
2-302: this is not a q for the jury, it’s for the judge, matter of law.
Was any clause unconscionable at the time it was made without
looking to what happened afterward?
o Comment 1 has the basic test that most courts use.
o Also look at cases, particular test- procedural or substantive
unconscionability? Look at third full paragraph of Maxwell.
Look at Williams vs walker Thomas furniture cite in there-
Procedure looks to behavior Why did you agree?
Absence of meaningful choice, the other side took
advantage of your absence of choice (not enough
you had one, the other side had to take
advantage)
Substantive looks to the bargain itself. What did you
agree to? And, is the bad deal unreasonable?
The substantive aspect has been troublesome,
since we said a peppercorn can be consideration,
courts won’t second guess, but looking at this you
really are looking at it, you’re saying ‘this is a
really bad deal”. Most courts say a bad deal, even
a really, really bad deal isn’t enough, they really
want some procedural unconscionability along
with it.
o Maxwell is one of a few cases that say substantive
unconscionability alone is enough. Pay attention to the nature
of it and why that was enough.
o
So, as to the problem: what makes it procedural unconscionability? She
doesn’t read English well, the person she is with is friends with the dealer.
She’s “uninformed” of her choices, she didn’t understand the meaning of the
as is clause, so that’s her absence of meaningful choice argument.
Rick’s response: Paul read her the K, she doesn’t have to buy a car, it was
her choice to pick the car she wanted and to pay the price, it was the posted
price he didn’t jack it up. NO overreaching on their part.
What about substantive? Mary says, it’s 25% more than is usually paid, and
the as is term makes it a one sided deal in favor of Rick.
Rick says: she said the fact most customers negotiate doesn’t mean she got
a bad deal, was posted price; he’s allowed to have an As Is part, it’s
prominent, did Paul read it prominently? But it’s displayed prominently,
satisfies 2-316
Car dealership doesn’t have an obligation to protect Mary’s interests, but we
might want to find out more about paul/rick relationship, but on the face of it
Mary doesn’t have a very good argument on either.
Unlikely mary can successfully argue unconscionability.
15.2a
Any problem enforcing agreement as written? 2a-108
o We look at unconscionable conduct with regard to collection
or any inducement
Any procedural or substantive unconscionability?
Is there a commercial reason for what they are doing?
His bad credit might be a valid commercial reason for
the higher payment
What about argument he had no meaningful choice,
because no other dealer in town would lease to him.
Response? He doesn’t HAVE to get a purple
Cadillac at ALL. Remember absence of choice
focuses on what you are K’ing for. Do you NEED
it? If yes, more likely to find absence of
meaningful choice. Not being able to get a caddy
for fast cruising is probably not going to get there.
Plus, HE is the one that trashed his credit.
Substantive: what about the security interest on his
house? Maxwell case didn’t like that. Might the court
strike that portion? Is there a business justification for
the security interest? Is it typical in the industry to take
a lien on the house? Is giving such bad risks unsecured
credit really a good idea in the industry? What about
freedom of contract? Joe agreed to the terms. If we say
you can’t take that security, we take away freedom of k
bc now joe can’t get a k at all.
o To argue he was duped you need evidence that they hid this.
If they hid it, or it was written in such a way it wasn’t
understandable to a reasonable person, that could be
unconscionable. If they are up front with the draconian terms,
you’re SOL unless you can show you had no choice. Joe
doesn’t have that leg to stand on, so the terms could be
substantively unconscionable, but it’s unlikely that they are
here. We don’t have evidence here he didn’t have knowledge
of the nature of the terms. Steverson says, court is unlikely to
find unconscionability here.
o What’s the difference between this and Maxwell? Maxwell had
absence of meaningful choice. Why? The terms of the finance
charges were hidden and difficult to understand. In Maxwell,
even if they performed all the terms, they still got the horrible
terms, here, only joe’s default will bring forth the terrible
terms. Also, the Maxwell’s were targeted. They weren’t a
credit risk, but the sellers thought they could get away with it.
So this can be distinguished from Maxwell.
o
What about the 6 hungry kids? If fast eddie wants to foreclose? Would that
be a problem? Court would probably say kicking wife and kids out is
unconscionable conduct in collection fo the claim. ONLY in 2A, 2 doesn’t
have the collection part. So if you’re in 2A with a REAL LEASE, not a
disguised sale, then you would have this protection. The other difference
between 2A and 2 is attorney’s fees in 2A, not in 2.
15.2b
There’s no valid commercial justification. It’s one sided. Is it unreasonably
one sided? Does it unreasonably favor fast eddie with no reasonable
justification? (see BMW case for commercial justification language)
Authors are trying to ask, is the price so out of the ordinary you’d say “You
paid WHAT?” see BMW “no sane man…no honest man” phrase.
So arguably this is substantively unconscionable, no reason to charge that
much other than you can. But is there any procedural unconscionability?
No procedural unconscionability, really. Joe has great credit, he
could get a lease anywhere, he chooses to not shop around. Do we
protect Joe from his laziness? Generally courts say no, Joe, you
chose not to do what you should> So Maxwell notwithstanding, we
don’t protect people from their own bad bargains; no justification
for ignorance.
So, court will likely not help joe because no procedural.
15.2c
Purpose of driving to work. Nothing else really changes except the price is
less, but still 3x the price. Maybe changes meaningful choice question, since
he now needs the item, unlike ‘fun cruising’. But, he still is not doing his due
diligence, so really same answer as above, he has the option to go elsewhere
, research, shop around. Probably not unconscionable. 3x the market rate is
3x the market rate, so don’t base it on how large it seems to YOU. Still ask,
does it shock the conscience?
15.2d
Now we know about the exploding gas tanks
He didn’t know about the report at the time, so not unconscionable.
If he had known at the time, then that would be a problem.
Collection only applies to default, so the fact he pays monthly
doesn’t matter.
Also, if Eddie knows, that would be fraudulent nondisclosure.
Unconscionability RARELY wins.
Closing:
Big picture
Performance and Breach
o Remedies for a breach
Goods oriented remedies(what can buyer and seller do
if other party breaches in addition to collecting
damages) Breach- is a duty due and owing? If yes, has
there been a failure to perform? If yes, what can a party
do? Can they cure? Suspend performance? End K?
Damages/equitable remedies
o Look at cancellation outline (?)
Note that with buyer, good oriented remedies, first q is
Has the buyer accepted the goods?
If no, then that tells you options buyer has
If yes, buyer’s options are limited but they
still have some goods oriented remedies.
Look at 2-703, seller’s remedies in general
2-711, buyer’s remedies in general
2-606, what is acceptance? These hypos flesh out 2-606 options, 3
ways to accept goods.
18.1a
Has kim accepted the computer? Is 10 minutes a reasonable
opportunity to inspect the goods? Likely not sufficient to inspect it in
its entirety, and using it during that time is part of the inspection
process. You want to go through 1a, 1b, and 1c.
o Where do we look for reasonable opportunity? 2-602,
seasonably notify, go to 1-205 for seasonable, 1-202 for notify
o In this case she is still inspecting so she has time to reject.
o So that’s a and b.
o For c, is it inconsistent, part of the bundle of sticks? Well,
yeah, but it is also consistent with inspection, because using
is part of inspecting. But if you use something you don’t need
to use in order to inspect it, that could fall under C.
o
18.1 b, she has accepted it, under c, drilling the holes is not consistent with
seller’s ownership and she didn’t need to do it to inspect it.
General rule 1: an act inconsistent wit hthe seller’s ownership occurs when a
buyers act has changed the nature of the goods in some way
18.1 c
She sees the crack, then she uses for 10 minutes.
A) she might not be done inspecting, so that’s probably ok
B) stillin inspection mode, so she hasn’t had time to not reject
C) again, using it is not inconsistent, even though she saw the
crack, because she is inspecting to see what else is wrong.
Unless she knows immediately she will reject, if she KNOWS she will reject
because of the defect, she shouldn’t use it, but if she isn’t sure then she can
look for other things.
General rule 2: Buyer’s use of the goods after buyer knows of the defect –
the defect which later forms the basis for buyer’s attempted rejection- is an
act inconsistent w seller owner ship unless buyer has no choice but to use
goods
18.1d
She notifies them she is rejecting
Then she uses it ten minutes.
2-606 c: using the goods is inconsistent. See 2-602 (2). It is wrongful as
against the sller, it is an acceptance only if ratified by seller?
So the answer is, it depends on if seller ratifies.
11/8 8/24/12 8:49 PM
remember the connection between 2-606 and 2-602 (see 18.2d notes)
Rejection of the goods depends on whether it’s a single delivery k
or an installment k (several deliveries)
o Single delivery- 2-601 (perfect tender rule) If it isn’t an
installment k. Any defect, no matter how minor, gives a right
of rejection.
o So if goods or tender of delivery fails in any way to conform to
the k…buyer may a) b) c)
Make sure to look at page 297 that lists various limits to
this general rule
If buyer rejects in bad faith, some courts won’t
allow it, they impose a good faith standard on the
buyer’s rejection.
Failure to conform to k in ANY respect. NO
requirement of substantial impairment of
value.
So gate into 2-612 is 2-612 (1). If not there, don’t use 612!
o Installment – 2-612
2-612 (2); buyer may reject any installment that’s
1)nonconforming but only if 2) the nonconformity
substantially impairs the value of that installment and
3) cannot be cured . (so those are the three things that
it breaks down to)
can be a defect in the documents, see comment
4, paragraph 2.
Also look to comment 4 for meaning of
‘substantial impairment’
With regard to ‘cannot be cured’, what the code
says is if the nonconformity is curable, and seller
gives adequate assurance of cure or gives
adequate assurance of conforming replacement
goods, buyer must accept the cure.
Remember buyer doesn’t have to take
nonconforming goods, but if the cure is
forthcoming you must accept the cure.
What’s an adequate assurance? Look to 2-
609.
Look also to comment 5 to 612.
If they don’t give adequate assurance, it
doesn’t matter if it’s curable, they have to
give adequate assurance.
When can you cancel an installment K? 2-612(3)
Basic answer- nonconformity substantially impairs
value of ENTIRE k, not just one of the
installments .
We don’t have much law on what ‘substantial
impairment of the whole k’ is. Probably look to the
same concepts as divisible k’s. (ie, where you can
apportion the consideration in defined segments
and basically turn a k into a bunch of little k’s. So
you have to look at if the defect infects the entire
thing; for example, if parts of the k build on one
another, losing one installment might impair the
whole thing. If each part is individual, you might
just get damages for the part that’s impaired)
Remember if you’re the seller and they don’t pay
the first installment, that isn’t automatically
impairing the whole thing, but you can request
assurances, if they don’t give it, then you can
treat that as repudiation, see 609.
18.1 e
May Kim reject the installment?
o It’s an installment K under 2-612 bc the computers will be
shipped in in separate lots to be separately accepted (see 2-
105(5))
So we’re through the gate of 612 (1)
o (2) – do we have a nonconformity?
2-106 defines conforming
so nonconforming – doesn’t conform with the k bc
not in accordance w obligations under the k.
obligation under the k here was to deliver
goods free of defect and a cracked
computer is not free of defect
Does that impair the value substantially?
See caselaw - Hopkins- Subjective and
objective components. (also see cmt 5)
We might need more facts- what does this
do to the computer? Impact the viewing?
Processing? Is it just aesthetic?
o Assuming it’s just aesthetic, she
doesn’t have right to reject, so she
calls them and says, hey, there’s a
crack, send me a new monitor or fix
this one. What if they say no? Isn’t it
just a regular breach? Yes. So, sue for
damages. They can’t just be sending
you cracked computers. But the right
to reject in 612 requires substantial
impairment.
o NOTE: shaken faith doctrine requires
you to start with substantial
impairment, too.
What if it WAS a substantial impairment?
o Must give seller an opportunity to cure
(give adequate assurance or provide
conforming goods)
o So, if they say “sure, we’ll send you a
new monitor” she has to await the
cure and accept the cure. (so yes,
seller can cure defective installment)
o If they DON’T, then she can reject.
Can Kim cancel the rest of the K? (assuming
substantial impairment) 2-612 (3)
Does this substantially impair the value of
the whole contract?
o Unlikely, could just have been cracked
in transit, there’d need to be more.
See 2-711. Says you can cancel.
So you need 711 to go hand in
hand with 612. TOGETHER they
give buyer the right to cancel.
Doesn’t impact the value of the
whole k.
18.1f (note, everyone kept going to 2-508. Don’t go there. Right to
cure is IN 612. Get out of 508)
o Now may Kim reject the installment? 2-612 (2)
Yes. An exploded computer is nonconforming.
An exploded computer has substantially impaired value.
(to that installment)
Can it be cured? Sure, they could send her a new
computer. Will they be allowed to cure? Maybe:
What’s kim going to argue? She’s afraid the new
computer will blow up. Shaken faith doctrine, so I
don’t have to accept a cure of this installment, or
any other installments. See Sinco case.
They will get an opportunity to convince that it
won’t happen again “convincing showing”. She
will have to accept if they can show why this
won’t happen again.
Has to be specific to that incident and what
caused it.
“reasonable person situated as kim is
situated”
Can she cancel the remainder of the K? Only if
successful on shaken faith doctrine argument. So this
will depend on facts/evidence, same as right to cure in
this case. Now, if she gets another exploding computer,
that’s pretty much going to do it.
18.1g
Once she accepts the goods, has she precluded herself from any
remedy for the computer’s defects?
o She may be able to revoke under 2-608
o She may also be able to sue for breach, and get damages.
Always remember, if there’s a breach, you can get damages,
even if you can’t get goods oriented remedies.
o
18.3
what Lou really is asking, can they cancel the contract? (remember “as is” is
a disclaimer of implied warranty of merchantability)
If they reject, can I cure?
o 2-508 governs
two situations where seller has a right to cure
1) time for performance has not yet expired
2)seller had reasonable grounds to believe would
be acceptable.
Here, we need (2) because (1) doesn’t
apply, time for performance expires when
they drive away in the car.
So we’d need to look at whether it is
industry custom to have cars inspected by a
mechanic. Does his 10 minute drive suffice
in the industry? IS that how you can identify
most defects? Or was the 6-7 hour
examination typical?
o So whether he has reasonable
grounds to believe will depend on
above. It’s NOT good enough that he
just doesn’t know about the problems.
Ignorance won’t get you into (2).
We might tell lou, he needs to do more than
10 minutes.
The fact he SAYS he anticipates problems
belies any argument that he had reasonable
grounds to believe they would be
acceptable.
You could probably put in the K that you
have to give Lou an option to cure.
If they revoke their acceptance, can I cure?
o 2-608 1 a – what gives our buyer the reasonable assumption
that the nonconformity will be cured? They are thinking along
the lines of where the buyer KNOWS about the nonconformity,
in this case, we don’t even know at time of sale that there is a
nonconformity.
o So
o 2-608 1 b- could apply, we’d need them to have seller’s
assurances reasonably inducing. So if Lou said, if you find any
problem I’ll fix it, that’d do it. (WE know that, but the facts
don’t say he told the buyers). Without that, we aren’t under
1b.
o Also remember that you can’t have a substantial impairment
unless you gave an opportunity to cure, so he might be able
to use that.
Split in courts on whether 2-508 applies. Some courts
say, clear language says rejection, doesn’t apply to
revocation.
Other courts look to 2-608(3), same rights and duties as
if he had rejected, so revocation same as rejection in
this regard. (one of the duties of a rejecting buyer is to
give opportunity to cure, so you have same obligation
as a revoking buyer)
Most acceptance is under 2-606 1 b, some courts will
stretch the reasonable period of time, such that you
haven’t actually accepted so you can reject (instead of
revoking)
18.4
May the school avoid its deal with Big Al’s and get its money back?
(2-711- Rightful rejection or justifiable revocation= cancel)
o Acceptance? (2-606)
Yes
Failed to make an effective rejection, 2-602 (1)?
Could argue, she needed a longer
time/more mileage to find out it’s a gas
guzzler.
Opposing argument, you only need to drive
it for about an hour to see, not 100 miles
and a week.
(Note, it would be fine if they called and
said, Hey, this bus is burning oil but we have
to drive these kids back, that would not be
against seller)
Justifiable Revocation?
No
Rightful Rejection?
She probably has either JR or RR, reasonable people would
give him an opportunity to cure. What Lou really wants to
know is, if she is Unreasonable, can they get out of the k?
We called it YES, acceptance.
o So now we have to look at justifiable revocation (See
cancellation outline)
Right to revoke?
Nonconformity that substantially impairs the
value.
Nonconformity- burning oil
Substantially impairs- it was in the deal, was
obviously important, putting it in the k
raises the importance level. He assured her
that it did not burn oil. So here, yes,
substantial.
Buyer accepted the goods
With discovery? No
Without discovery? Yes
o Reasonably induced by seller’s
assurances AND difficult discovery
here. YES.
So, can the assurances that induced you be the
assurances under 2-608?
North American lighting/Hopkins case
o Yes, they can serve double duty.
So, we may have justifiable revocation in
this instance bc of assurances.
Cure:
They can say, it doesn’t substantially impair if
they can fix the burning oil.
If it’s actually going to take a lot of time/effort to
fix, then they will say 2-508 via 2-608, or we will
stretch the period so we are in rightful rejection,
which gets you into 2-508
Still has to figure if he had reasonable grounds to
believe it would be acceptable
He promised it wouldn’t burn oil, it in fact
burns oil bad, you might expect that the
seller did NOT have a reasonable belief the
goods would be acceptable, he wouldn’t
have a right to cure, and she CAN avoid the
deal.
11/13 8/24/12 8:49 PM
18.4 question 2
if can avoid deal, can school keep bus till Big Al give money back
o they want you to look at remedies under 2-711(3)
rightfully reject/justifiably revoke, and buyer has
security interest for payments made on their price, may
hold such goods and resell, that’s assuming buyer
hasn’t given back money
So if you have possession, and you’ve made payments,
you have a security interest, you can hang on to it, and
even sell it if necessary to get your money back
So, yes.
What duties regarding the goods would the college have
if it DIDN’T have a security interest?
Merchant or non merchant buyer?
2-603 for merchant buyer, has more duties
with regard to the goods than a non
merchant has
o duty follow reasonable instructions
received by the seller with respect to
the goods, etc. If they have an agent
or place of business you can make
them take care of it, if not buyer has
these obligations
non-merchant, 2-602 (2) no obligation other
than to hold on to them and reasonable
care. Don’t use them. You don’t have to
take any further action, you don’t have to
ship back.
18.4 (3)
o Yes, it will hurt her ability to undo the deal unless she has NO
CHOICE but to use the goods
Revocation- hurts ability to revoke, waiting another
week is arguably not a reasonable time to revoke
particularly for convenience
Rejection- hurts her ability because her use now that
she knows about the defect that she wants to use to get
out of the deal is an act inconsistent with the seller’s
ownership.
In all cases, need to communicate with the seller, might
be able to agree.
18.4 (4)
right to cure- see last class.
o Don’t necessarily get into 2-508, but there are ways to get in
(revocation
o Get in 2-508 with rejection
o Has time of performance passed? Probably yes
o Did he have grounds to believe tender/delivery acceptable?
Goes back to inspection procedures, reasonable in
industry, etc.
o
Closing with leases and the CISG
Read p 314
Be aware of Delchi carrier case, need to be aware of rights with
regard to revocation/rejection, not as extensive with regard to ucc.
NO perfect tender rule.
Need a fundamental breach for goods oriented remedy under CISG
So remedies under Delchi depend on their being a fundamental
breach.
RISK OF LOSS:
Who bears the risk of loss, ie, who is responsible for repairing or
replacing the goods (or coping with their absence) if the goods
sustain harm?
In general, if you own them and have control of them, then risk of
loss is on you.
Risk of loss- on buyer as owner and possessor , has risk of loss
So remember, in general, above.
Question is, what about when they are in transit, or one party owns
but the other party controls (like when you already paid for the car
and it’s being shipped on one of htose trucks)
2-509, 2-510
Comments tell you, 2-509, ROL in the absence of breach
Attempts to place the risk on the party who is more likely, at the
moment of loss, to have insurance on the goods
2-510, ROL when either party is in breach of the k at the time the
loss occurs
o so first question, is anyone in breach? Then you know which
to use
o
Practical effect: risk of loss
o Seller fails to deliver when goods are destroyed in transit and
buyer refuses to pay
o Question of which party has breached
When was the breach? Who bore risk of loss at time of
breach?
In real life, it’s usually a fight among the insurance
companies.
Read case on page 344 carefully, design data corp – burden of proof
issues- know and understand
20.1
2-509
o 1) ship by carrier? No
o 2) bailee? Well, you could argue lou is a bailee, but when you
look it up this refers to a third party bailee, like a warehouse.
o 3) any case not 1 or 2. Yep. Risk of loss passes to buyer on his
receipt of the goods if the seller is a merchant.
Lou is a merchant.
Receipt is taking physical possession 2-103
So , risk of loss had not passed
Lou has the risk.
If a non merchant, then on tender of delivery
2-503 for tender of delivery
what can lou do to ensure customers pick up their cars?
o Put something in the K saying you have to pick up
immediately, but if buyer injured, then what? ( I mean, you
could go to 2-510 bc you have a breach by the buyer, but you
still have to go to his insurance) or put passing risk of loss to
buyer in the k
o Contact info for someone else?
o Delivery information? Wouldn’t want that in the k because
then everyone would want it delivered.
o Charge storage fees after a certain amount of time?
o
20.2(1)
brake problem, breach of K.
2-510 – fails to conform, right of rejection, loss remains on seller
1)conform 2-106(2)
2) as to give a right of rejection
o 2-601 AND 2-504
o Yes, under 2-601 right of rejection exists
3) risk of loss remains on seller until cure or until buyer’s
acceptance despite non-conformity
o So it remains until cure or until buyer’s acceptance. He’s fixed
the brakes. But, they vandalized the car BEFORE he fixed the
brakes.
o But, she already accepted the car- did she?
She hasn’t revoked – how do we know she accepted the
goods?
2-606 not 1a – what about 1b? reasonable time?
1c, inconsistent? Two weeks is a pretty long time.
Arguably, she’s already accepted the goods. A
court could be lenient and say she hadn’t
accepted.
If she accepted, the risk of loss is on her.Why? She
should have insurance on that car, she’s had it
two weeks, SHE has the insurable interest. The
dealership no longer even HAS an insurable
interest in the car anyway.
If Lou was at fault, then he’d bear the loss (like if the car wasn’t
protected as it should have been.)
see also 2-504 (maybe ask for podcast, this was not clear to you)
o when you look at 504, which are requirements when seller
has to ship, seller must to all these things in 504, one of which
is notify buyer of shipment. Risk of loss is on you then, but if
material delay or loss ensues, then it’s a ground for rejection,
so that’s the only time you have a right of rejection under 510
in that situation in those 2 instances from 504 with shipment.
(With regard to THOSE TWO BREACHES) you read 601 with
504, but ONLY those two breaches.
o
509 and 510 are mutually exclusive
would it change anything if upon hearing about the vandalism, Karen said I
revoke my acceptance.
2-608 (2), she didn’t revoke before substantial change in condition
(not due to defect (brakes)). So, she’s SOL.
So it changes nothing.
20.2 2
this time she says, I hereby revoke until you get the brake system
working properly.
2-510 (2)
o Buyer rightfully revokes
o Then rol is on seller to the extent of deficiency in the buyer’s
insurance.
o On seller from the beginning.
Rightfully revokes is in 2-608
o Only thing that might give pause is substantial impairment
o Steverson says, cure shouldn’t change her right to revoke
Fact that seller can cure won’t allow seller to say that
she didn’t give goods back to him, risk of loss would be
on seller as per (1). IN this situation.
o Seller is going to argue, (2) doesn’t apply to this situation,
because that’s designed to deal with a situation where the
buyer has given up an ownership interest but has retained
control (possession) of the goods. Comment 3.
o Steverson says, that probably IS what (2) is designed to deal
with.
o What is the comeback to seller? If you own or control goods,
risk of loss is on you? If buyer revoked, seller owns. So risk of
loss is on him. (then rol would be on seller COMPLETELY, not
just to extent of deficiency)
o
20.3(1)
UNDERSTAND WHAT THE TERMS MEAN!!!!!!!!!
o FOB Sellers
o FOB Buyers
2-319
FOB seller’s factory (Shipment contract) seller
bears risk and expense of putting goods in the
possession of the carrier
Buyer is responsible for paying freight from carrier
to buyer’s location/delivery
Seller has to comply with all of the requirements
under 2-504
Default term under ucc is FOB seller’s place (this
one) 2-308
o FOB buyer’s place
Destination K
Seller must transport goods to that place in
manner provided in this article
See 2-503 for ‘manner provided’
Seller bears risk and expense of getting
goods to buyer’s place, so seller pays
freight and has to tender in accordance with
503
20.3 (1)
o as between heavy metal and gold’s gym, who has to pursue
the carrier for loss?
They shipped nonconforming goods
That’s a breach (not realted to shipmetn
2-510
Risk of loss on seller until cure or acceptance
Heavy metal has to fix it.
11/15 8/24/12 8:49 PM
20.4 (1) GET PODCAST FOR TONIGHT.
conforming, failed to give notice of shipment
FOB seller’s factory
Golds didn’t insure
Trucks stolen
Who bears risk of loss?
Risk of loss transferred to carrier when Seller put the goods in their
care.
2-319 and 2-504
seller breached because he didn’t notify. So, 2-510
o Tender or delivery fails to conform
Tender -2-503(2), in order to tender with regard to a
shipment K, you have to comply with the requirement of
2-504
MAY also have to comply with 503(1) in some situations.
2-510 (1), tender so failing to conform as to give a right
of rejection
does it give a right of rejection?
2-504 – failure to notify only gives right of
rejection if you have material loss or delay.
Buyer didn’t get insurance bc of no notice, so that
is a material loss caused by no notice, so loss
remains on seller until cure or acceptance
Buyer can’t accept, shipment is lost. Can’t cure
notice because the breach has happened. They
could cure the goods but that’s not the point here,
because the risk of loss remains on the seller.
2-504 DOES NOT SHIFT RISK OF LOSS. Just talks about
grounds for right of rejection.
Note, Keating went under 2-509 for this,
Steverson says her difficulty is that the comment
to 509 says ANYTIME you have a breach, it’s 510.
Second comment, is it doesn’t give you a clear
path.
SO ASK FIRST IF THERE’S A BREACH, then go from
there.
o Would answer change if golds learned from a third party that
shipment was made but still never insured the goods?
2-504 –
comment 6
most courts are going to say, you didn’t insure for your
own reasons, NOT bc seller didn’t notify, bc you knew,
so that error didn’t cause your loss.
(you should at least investigate if items have shipped)
2-509(3) if seller is a nonmerchant, risk of loss psses on tender of
delivery, go back to 503 for that. (1) is general case, (2) is adding
on w regard to shipment k. (3) is for destination k (FOB buyer) (4) is
the bailee situation, delivered without being moved. (like a
warehouse) Don’t need to be too familiar with (4), know 1-3.
Risk of loss, leases:
21.1
o employee of lessee destroys machine
5 yr lease at 2k/yr
agreement says nothing regarding risk of loss
o there’s fault. Lessee is responsible, at fault bc of employee’s
actions.
o Lessee is liable under 2A risk of loss provisions only come in
when there’s no fault, says caselaw. If there’s fault, whoever
is at fault bears risk of loss. (page 347 in the book, common
law)
If the damage was an intentional tort, then employer
wouldn’t be liable, if you SAID that on her test, you’d
get full credit.
21.1b
o Now we have a finance lease.
Accidental fire
Law school has risk of loss.
2A 219(1)
Risk passed to lessee, he’s got the goods.
Generally risk of loss stays on lessor, but not in
finance lease.
You still have to figure out if it’s a true lease or a
disguised sale, then finance lease or not.
Breach and Damages:
You only have a breach if the defendant had an obligation under the
contract ,
and that obligation was due and owing,
And defendant failed to perform.
o And the failure has to lead to the damages
o
Vital with respect to remedy. UCC has some default provisions including the
implied warranties and 2-301 (2-3’s are your defaults) general obligations of
the parties. General obligation of seller is to transfer/deliver, of buyer is to
accept and pay. But buyer doesn’t have to do that if seller doesn’t tender,
and seller doesn’t have to deliver if buyer doesn’t tender payment.
So that gets to ‘was the obligation due and owing’, look at time in K.
Also look at the conditions in the k , express conditions or constructive
conditions (pay attention to latter)
Sale of goods/cash sales, you have constructive concurrent conditions,
pay/accept is dependent on seller tendring proper deliver. Simultaneous,
both parties have to be ready willing and able
2-507 and 2-511. Obligations of buyer and seller.
Constructive concurrent conditions, all about tender, which is offering, not
necessarily rendering, which is actually performing. So you just have to
OFFER, be ready, willing and able to perform.
Make sure you know 2-607(1 ) which says when buyer accepts, has
obligation to pay at the contract rate.
EVEN If they accept nonconforming goods.
Seller’s remedies:
Remember that remedies compensate you for loss
Remember, you have to figure out what the injured party wanted
under the K. Usually, seller wanted money, buyer wanted the goods.
Seller wants Expected Value (contract price ) minus Received
Value(payment from buyer)
o Seller can mitigate, you have to take into account that seller
can mitiate. The code assumes that seller can mitigate. Seller
is only entitled to extraordinary damages under 709 if he can
SHOW he can’t mitigate. UNABLE TO.
o
o So, seller has K to sell buyer toy wagon for $100.
o Buyer doesn’t pay.
o Seller sells to another buyer (mitigates) for $90. Seller is
happy except the $10.
o Even if seller doesn’t actually sell, if he shows market value is
$90, (POSSIBLE resale price, aka , market price) then we use
that. You could have mitigated.
o
o If he sells the one wagon to someone else it’s a substitute
sale, so he doesn’t get full K price, he gets K price minus
resale/possible resale (and also take into account incidental)2-
708(1)
o
Now, maybe seller has LOTS of toy wagons to sell instead of just
one. He’s a toy wagon dealer.
So, seller wants his K price, which is composed of his profit and
recouping cost (materials and labor) overall, he wants his profit.
So, seller says I can’t recoup that profit, because I could have
always sold another one to someone else. So he’s entitled to the
profit, 2-708 (2)
o So if you’re actually building it and you’re halfway done and
buyer breaches, you want the profit and reimbursed for any
materials and labor you can’t recoup (again, (2) above)
o
2-709 is an extraordinary remedy, specific performance for seller,
buyer has to perform as promised under the K. Seller only gets this
where seller CANNOT mitigate. Cannot resale, either bc no market
or bc goods have been destroyed and risk of loss was on BUYER.
o Also, if buyer accepted, buyer has goods, seller can’t resale,
so buyer has to pay as promised under the K.
o The three instances in 2-709 are the only times seller can get
full K price.
o
UCC assumes mitigation, so burden is on seller to prove he CAN”T
and is entitled to 709 remedies.
22.1a
started with 2-703 then he went to 709 (we treat the repudiation as
failing to pay when comes due, because you’re saying you won’t do
it)
o 1 buyer fails to pay price as it becomes due
this is where anticipatory repudiation goes so you don’t
have to look at tender of delivery or time of payment
due, we have repudiation under 2-610
o Seller may recover the price under 709 (1)(b)
Goods identified to the contract if the seller is unable
after reasonable effort to resell at a reasonable price
Were the goods identified to the contract?
Under 2-704, seller can identify after the breach,
we assume he will here to go for the action for the
price (704) 1 a
Reasonable effort? Yeah, he made efforts to sell
them.
Reasonable price? Depends. 1/10 of K price isn’t
reasonable, but if you base it off market price, and
that’s market, it might be reasonable.
Whole point of K is to protect against crazy
drops in price, so not using K price might
not protect him under the k (these are
arguments to make)
o So, they can get the full 10K, and the
K buyer gets the beanie babies.
If the court said it was a reasonable price, then seller
would get damages under 2-708(1), market price, so
he’d get 9K, and the beanie babies.
If he resells to EiD, he’d be under 706, which again
would give him 9k.
In every case, seller ends up in the same position, 10k
in pocket, it’s a question of who has to deal with the
beanie baby hassle.
22.1b
good destroyed, no fault of SD. SD has no fire insurance.
o 2 510 3
2 501 (see cmt 5)
is this an undivided share of a fungible bulk?
So “identified’ means, look to the K. Does it tell
you which goods will be used to fulfill the K.
2-105 (4) undivided share
1-201 (18) fungible bulk
o so, even though benie babie collectors
might tell you that there is a big diff
btwn beanie babies, they are fungible
her bc the parties just said ‘beanie
babies’ they treated them as fungible.
(any of the 8K beanie babies would be
fine to make up the 2K)
11/20/2012 8/24/12 8:49 PM
22.1b
seller probably can recover bc rol was on buyer to the xtent of defieciency
sellers insurance, here there is no insurance, but only for a commercially
reasonable time
use 2-510 3 bc 1 ) a breach prior to the loss and 2) breach is by buyer
bc 510 3 limits your recovery, and it answers the q so no neet to go to any
other provision.
1. buyer repudiates or is otherwise in breach b4 rol passes to him? Yes
2. goods are conforming? Y, bc they are what the k was
3. good already identified to K, this is where we went through starting w id to
k, 501, talks about how goods are identified to k, (a) says “in absence of
explicit agreement identification occurs when k is made if k is for sale of
1)existing goods (yes) and
o 2) identified (see TWEN SLIDE) see comment 5 of 2-501
o
also fungible if by agreement treated as equivalent, so even though
beanie babies may arguably not be fungible, the k treated them as
fungible bc it just said beanie babies.
SO yes they are identified to the K, so seller can recover the price
Remember rol is only on buyer for commercially reasonable time, look at
trade usage to see how long it is going to take seller , after a period of time,
rol returns to seller.
If seller had insurance, they could only recover the deductible here, “the
defiecency” in the insurance
Firwood case:
Talks about reasonably identified, and what is a commercially
reasonable time, 3 yrs usually wouldn’t be but here under
circumstance it is, and seller’s inability to recover consequential
damages and that loss of use of money is consequential.
Note that Michigan is more typical in identifiying that interest is not
incidental, NY is the outlier. Remember 1-305 says no consequential
unless a code says consequential, remember SELLER’S damages do
NOT allow for con damages, only BUYER’S do.
22.1c
resale, so 2-706
we get there from 2-703 “where the buyer wrongfully rejects or revokes
acceptance of goods or fails to make a payment when due on or before
delivery or repudiates with respect to a part of the whole
(d) resell and recover (SEE SLIDES)
2-706, satisfy prerequs, if you do, then KP-RP+I-ES
note, 706 v 708, 706 is KP, whereas 708 says diff btwn mkt price and unpaid
K price. If you actually have buyer pay, you have to take that into account,
even though 706 just says K price. You can take it into account in formula
(by making KP unpaid KP) but if buyer is suing for restitution (want money
back they paid) then you always do KP not unpaid KP, SO, if we are using 706
and there has beena payment, use unpaid Kp, but if they want restitution,
then use KP.
In other words, ALWAYS use unpaid KP UNLESS buyer is suing for restitution,
then use KP.
Prereqs for 706
1) resale in good faith (2 -103 1 b) for merchants
2) resale made in commercially reasonable manner, cmt 5 and Firwood case
3) Seller provided requisite notice (706(3) private sale 706(4)(b) public sale.
Here, SD is trying to mitigate as best they can, good faith, no evidence that
resale is not commercially reasonable, did they give notice? Yes, they did.
So
KK’s argument
KP($10K) –RP (6K) =I(0)-ES(0) = 4K
Sd argument
10K-4K+I(0)-(ES)(0)=6K
court will say, whatever evidence we have to say which goods are identified
to KK’s contract, then that is the box we use for damages.
22.1d
two separate k’s
K1- 1000 Dobie Dogs for 5k
K2- box of 1000 Digger frogs for 5k
KK repudieates k
DD sold for 8k
DF sold for 3k
In calculating damages, do we treat as one k? then extra from dd would cut
down damages on df. Or, is it two k’s and the profit on the DD they don’t
have to account for, and they get damages for df.
KK will say, one K, no damages cuz you made 1k more
SD says, no, two k’s , I have 2k in damages on the second k
Specialty dolls will talk about 2 706 6, says seller not accountable to buyer
for any profit made on any resale.
Kk says, it’s arbitrary to treat as 2 k’s. In reality it’s one.
Steverson disagrees w author.
Steverson likes SD’s k. They had two k’s, there was a reason for 2k’s, dobie
dogs and digger frogs are obvs 2 different items.
Keating says KK has a better argument bc the substance of the deal was one
deal and substance should control (103) so for equitable considerations.
22.2a
NOT a cash sale bc payment due a month after delivery.
On the exam, you don’t have to keep starting with 703, but
Starting w703, failed to make a payment
SEE TWEN SLIDES 709
So constructive condition not fulfilled bc goods not conforming, but has
buyer accepted the goods? Yes
So it’s time to pay and buyer has accepted, go to 2 and see if any of the 3
apply, she failed to make an effective rejection after reasonable opportunity
to reject, and justifiable revocation (608) problem she doesn’t satisfy either
part, she had no assumption bc she never talked to seller, and she noticed
damage right away, so so acceptatnce was with discovery, so she can’t
justifiabley revoke
He still breached the warranty, he still gave nonconforming goods, so she
has to pay the price but she can make claim for breach of warranty, and then
can subtract those damages from the KP owed, 2-717.
In order to do that, she has to go through with a claim for breach of
warranty.
See northam case on 358, burdens of proof. Keep in mind that bc buyer is
setting up breach of warranty as offset, buyer will have burden of proof on
breach of warranty
Keep in mind, if in 709, and seller argues conforming goods were delivered
so price is owed, burden of proof is on seller to prove goods are conforming
(here he is using acceptance, not delivery of conforming goods, so that’s
why buyer has burden) burden depends on who has to show the elements to
prove their claim/damages.
22.2b
should mel be able to recover from Kathy in an action for price? No
it’s a wrongful rejection, but it’s an effective rejection. So , he can get
damages, but NOT an action for the price. Seller gets goods back.
Mel can only recover price if (709)
See slide;
Mel has none, so no action for price
An effective but wrongful rejection will preclude an action for price unless
seller can get into the exceptions.
So what are sellers options? (slide)
22.2c
same as above only she calls 2 weeks later, not immediately.
She accepted, so this is a wrongful revocation (not rejection) because it’s 2
weeks after she accepted the item
So, can he recover? See slides
Acceptance and action for the price
No action for price under 709(1) if buyer:
Wrongfully but effectively rejected
Rightfully and effectively rejected
Justifiably revoked acceptance.
Hierarchy of damages
2-706 Actual Resale
2-708(1) hypothetical resale
2-709 price because of inability to mitigate
2-708 2 –lost profit- resale is not a complete mitigation of damages
mitigation is built in to the structure of the damages provisions
22.4b
2-703 repudiatiion, resale
2-706
can’t do 706 cuz no notice, so has to go to 2-708
UKP – MP @ time and place of tender
So, UKP is 50,000
MP is 45,000 (DOES NOT MATTER WHAT HIS RESALE WAS)
So 5,000 is the difference
Incidental expenses, cost of feed for 6 weeks= 600
(care and custody of goods after buyer’s breach) BUT- if you’re doing
hypothetical resale at time and place of tender, and if you’re doing time and
place of tender, then you wouldn’t have any feed costs because we’re
measuring at 6/1 – what do we think of this argument?
Well, 2-710 says inceientals are commercially reasonable, so you’d look at
the industry, so he probably WOULD get the 1 ½ months, bc incidental refers
to 2-710 so you argue it’s commercially reasonable. Keating disagrees with
us, he says you measure at time of tender, but steverson says, then you’d
never get incidentals, and they SAID referring back to 710, they did not say
incidental damages at the time and place of tender.
So damages are 5600.
Under 706, he would’ve gotten 10,600, so those prerequisites are VERY
important!!!
22.3
Shoe Works
Make sure you KNOW market price at TIME AND PLACE OF TENDER, and
know WHAT”S THE DELIVERY TERM to know when tender happens, because
she’s gonna give you a bunch of different market prices.
2-703- wrongfully rejected
didn’t give notice (even tho they picked them up , that was AFTER they sold,
statute says notice of INTENTION to resale)
so, can’t use 706 bc no notice, can’t use 709 cause we sold em, so we go
with 708
2-708(1)
tender occurred when seller gave goods to carrier, so $6700.
So plug that into formula, 7500-6700+0 -0= $800
(so, if it had been seller who had to pay shipping, and they didn’t ship, so
they didn’t pay, you’d subtract that under expenses saved)
22.4a
now, ben, no notice, sells cattle for 49k. same cattle costs.
703- repudiates
2-708
UKP is 50k-MP is 45k
Still has 600
So it’s the same as above in b).
5,600 damages
buyer says, noooo, I want them under 706, which would give him $1,600 in
damages. (note, rememeber, there is no PROFIT here, so no 706-6)
Can buyer do that? Buyer says, notice is to protect me. I waive lack of notice.
So we’re in 706.
Can seller say, no, I can choose, and we’re in 708
The code is written so seller can freely elect at their option, their best choice.
White and summers said, that’s how the code is set up, it’s to allow the loss
value seller to get into 2-7082.
But, if allowing a seller to elect 2 8=7081 runds afoul of the whole’putting
them back’ thing,
In reality, buyer will have a hard time proving that they resold for more,and
they have burden of proof, so seller essentially can freely elect
GET THIS PODCAST, FF to the last 10 minutes
11/27/12 8/24/12 8:49 PM
22.4c
comment 5- look at factors to decide if 1.5 months was a commercially
reasonable time, nature of goods, condition of markets (firwood case), why
did it take that time? As well as other circumstances.
If reasonable, then 2-706
SEE TWEN SLIDE
if not reasonable, then 2-708(1)
SEE TWEN SLIDE (question mark is bc of the time of tender issue discussed
last class)
22.5
is the 20K incentive consequential or incidental damages?
Seller can’t get consequential damages under UCC, look at 2-703,
2-706, 2-708, 2-709 (all 3 talk about incidentals) 1-305 says, no
consequential damages except as specifically provided in the ucc or in the
law
it’s not specifically provided in any of those sections, therefore no
consequential damagaes.
Seller can get Incidental damages according to 2-710 –usually just expenses,
but some courts use ‘otherwise resulting from the breach’ language to
expand and include some expenses that would otherwise be consequential.
White and summers think you should get consequential in the proper case
Seller’s Damages
LiV+OL-CA-LA
Loss in value plus other loss minus cost avoided minus loss avoided
YOU DON”T NEED THIS IF THE SPECIFIC FORMULAS MAKE SENSE, it’s just if
that universal formula makes sense you can use it.
There are TWEN SLIDES if you want to look
LiV [expected value (EV) under the k minus the value actually received under
the K (RV)]
Expectd value under the k is expected profit plus reimbursement for any
costs incurred in making or acquiring the good to be sold.
KP(EV)-any payments made by buyer (RV)
Unpaid KP or UKP
+other losses suffered bc of breach
incidental damages
CA (passive mitigation ) is expenses saved
LA (loss avoided) is active mitigation 2-704
Remember a lost profit seller can never completely mitigate the loss
o So that’s when you use 2-708(2)
o
Seller’s car Buyer 1, K to purchase, Breach
Sells to buyer 2
But what if you had 2 cars?
o Now you haven’t recouped your lost profit on the first car,
because you still have more cars that you could sell, that is
not a substitute sale/mitigation.
o
Lost volume seller definition on page 399. 2 parts to it.
In some jurisdictions, they only go to 2 sales, others go by the def in the
book, others use ucc, any fixed priced good.
WE ARE RESPONSIBLE FOR the test on page 399, the two part test.
Remember that 2-708 (1) is the GATE to 2-708(2), how to prove inadequate?
Prove you are a lost profit seller, one of the 3 kinds in the book.
But, you don’t add the damages from 2 to 1, it’s one or the other, you just
have to go through 1 first. Sometimes you have to do 706, so sometimes you
have to get from 7-06 to 708 (1) to get into (2).
GET TODAY’S PODCAST
Steverson says author makes mistake, says under 708(2) you only use profit
plus incidental, you ignore cost reasonably incurred and due credit for
payments or proceeds, technically you don’t ignore it, it’s just with a lost
volume seller, the cost reasonably incurred is cancelled out by proceeds of
resale, so you are mitigating the loss of the cost but not the profit.
You do NOT ignore due credit for payments, you have to take into account
money you received from your buyer.
24.1a
2-703 leads to 2-706, then 2-708 1 (this does NOT put a lost volume seller in
the position they’d have been in, go to 2-708 2)
UKP –MP-ES+I
REMEMBER PROFIT IS GROSS PROFIT NOT NET PROFIT
So KP –direct costs, we don’t subtract overhead or fixed costs
So not net profit, note 708-2 says profit including reasonable overhead
8k is kp, 7k is mp, so under 708 1, you get 1000 in damages
LOOK AT THE SLIDE FOR THE RIGHT FORMULA
So it’s KP – Anticipated direct costs – payments plus I
So 8000-4000=4000-0=0
24.1b
the only thing that’s different is they have expenses saved, the $450, so
subtract that and you get 8000-4450 (anticipated direct costs). (so it’s not
technically ES, it adds to direct costs) remember adc= variable costs
so damages are 3550
24.1c
now st is not a lost volume seller, because they couldn’t keep up with
demands. So now we use UKP – MP-ES+I (here we don’t have the
information about mp, she’d give it on the exam) realistically, in real life mp
would probably go up and there’d be no damages, but if it didn’t you’d do
708(1)
24.1d
same as a
NET PROFIT IS IRRELEVANT!!!!!!!!!!!!!!!!IGNORE IT!!!!!!!!!if variable costs
remained the same, ignore!
24.1e
UKP-MP-ES+1 damages are 1000, you wouldn’t want to use (2) (this is
708(1), you aren’t a lost profit seller because kp is less than ADC, you didn’t
lose a profit, so use (1)
24.1g
no evidence they can’t keep up with demand, but we have a big impact of
breach, but nothing indicates they are no longer a lost volume seller, so you
can still use 708 2,
800,000-445,000-0+0=355,000 damages
(include 45k saved to not pay the guy in adc)
RUN 708-1 calc FIRST, then explain why that isn’t adequate, explin that they
are still al ost profit seller, then do 708 2
11/29/12 8/24/12 8:49 PM
Problem 24.3
Reasonably ceasing production is passive mitigation
Problem tells us it was reasonable, don’t guess, just do what it says
Sale would not have happened but for the breach, so it’s a substitute sale
KP 500K
ADC 240K materials, 70K labor
Expenditures at point of repudiation, 110K in mats 30k labor,
WPI’s mitigation efforst, see twen
2-703, ©, leads to 2-704 1 b and 2
they may resell, bc reasonable commercial judgment, so that leads us to 2-
706, you could also use 2-708 2 bc specially manu so (1) would be
insufficient
but, under 706, see TWEN slide
ES is the money they would have spend in ADC to complete, take original
ADC and subtract
So damages are 140k
You can use either 706 or 708 2, but you have to say you are doing it
because you can freely elect , but here you aren’t doing it as a lost volume
seller so be careful with your reasoning.
24.4
see slides for numbers
here we are looking at commercially reasonable
so if she chooses to sell scrap, what’s damages? Depends on whether it was
commercially reasonable to scrap at that point. Look at franks nursery v.
young, burden is on the buyer to show that it was commercially
UNREASONABLE. Mitigation is an affirmative defense, so if it’s a close call the
court is unlikely to say it is commercially unreasonable.
Marginal cost of completion, less than or equal to RFP –sv, then yes seller
should complete (that’s the book forumul) but remember that there is only a
75% chance bill would buy, so we have to trust her commercial judgment.
But if steverson gives you a 100% chance, then use the formula.
See slides for math
24.4b
what if she finishes and resells to bill
again can use either 706 or 708 2, see slides. Technically theya ren’t a lost
profit seller, though. Remmeber that, here you really should go under 706 bc
of that, but you get the same number either way.
On slide she put the 5k as incidental (delivery to bill)
if you make resale price minus the delivery that’s ok, but she says just make
it totally clear to her what you’re doing.
24.4c
If bill doesn’t buy- as long as commercially reasonable to finish (and it
probably was) then she can go for action for the price under 709
BUYER’S REMEDIES:
Start with 2-711. Return of any protion of purchase price paid, plus other
cataloged remedies. So basically buyer gets credit for payments made
712- cover
713 is hypothetical cover. Pay attention to where and when they measure
market price, it’s different than with seller.
714- buyer has accepted the goods and is suing for breach of warranty
715- buyer’s incidental and consequential damages.
The possible results of breach
Detrimental effects, ie, losses or costs suffered
Loss in value
Other loss (this is usually the main loss for buyer, cover, etc) loss in value is
usually cancelled by loss avoided, because you substutitue ie cover
Breach of warranty is about the only place you’ll see loss in value for buyer
(see slide)
Vncg value nonconforming good
Vga value goods accepted
Most buyers suffer the cover/hypothetical cover loss.
Usually exclusive, because if you covered, you usually cancelled out your
loss in value
712 and 713 don’t have liv or la, because they cancel out. If you don’t
canecel it out you can get it under consequential values
Hypothetical One:
KP is 100
MP of juice is 70
MP of navel is 110
2-714, B has accepted
B has given notice
VCG at time and place acceptance is the 110, bc you want them to get the
good deal
So $110-$70=$40
Could add incidental or consequential if applicable
VCG-VGA+I/C=$40
2-717, $100-$40=$60, so you’d pay $60, you owed the $100, but you offset
what you owed by the damages.
(2-607, once you accept you owe kp, then offset w/notice)
HYPO Two:
Call of the q is damages, so you plug in .45
When buyer enters a bad deal, they get the same deal as a good deal, you
DON’T use K price, you use market price. You can tell her that buyer might
choose NOT to accept nonconforming goods, demand cure, and if not cured,
go buy the cheaper oranges on the market.
They could reject those juice oranges, and give chance to cure. (508 and all
that, 711), so like, ‘what would you advise buyer’, talk about this stuff. If they
don’t cure you can buy at .45 a lb. if you accept, damages are based on
the .45 market price.
25.3
just accept she can produce convincing evidence, that’s what it says.
Start with 711
Go to 714 because no cover options
So the racket is worth 1000, so look at consequential damages
2-715 a
1) loss
2) resulting from the requirements that
3)seller knew or had reason to know
Hadley v. Baxendale foreseeability requirement)
4.) Mitigation
requirement- general causation (but for), not proximate causation
argue both sides, don’t set up a straw person. Eg, she was winning,
then she lost, but is that the racquet or her head?
did he know/have reason to know? He knew she was up and coming and
would use racquet in tourney, but is that enough to say seller knew or had
reason to know of her needs?
Foreseeability has to be pretty specific, why does he have to have
specific knowledge? Because if he expected it, then we’d expect
him to have a chance to protect himself. Did he have enough to
know he’d be on the hook for 60K? you can go either way, but
whatever way you go, make it in light of the policy behind
baxendale about his ability to protect himself, get insurance, charge
more, whatever.
What about mitigation? Should she have had more racquets? Was
borrowing another racquet attempted mitigation? Usually mitigation
is post breach, and here after theb reach she seems to have done
everything she could have done at the time, so from a policy
perspective, should we say mitigation should also be pre-breach?
You’d make trade arguments at foreseeability (ie, he would have no
reason to foresee, because most people have more than one
racquet, etc.)
25.4
breach under 711
cover 712
good faith reasonable purchase
issue, reasonable purchase?
Look at comment 2
If she has no choice but to buy the more extravagant machine, then she gets
to use it for cover (even if it was WAY more money) if she did her best to get
a comparable machine, but all she could find was a way better one.
(what if it was way more than the potential loss? Ask in email. Like, what if
her potential lost profits from not having something at the show was 12k, but
the machine was 200K?)
25.4 (2)
not reasonable, because she could have bought the exact same machine
so buyer would have to use 713 for cover, so they’d get the $5000 difference
between the KP and MP.
RBPP +MP-KP+I/C-ES
So here 0+40K-35K+0-0=5k
Reasonable is in the eye of the seller with respect to whether it was a
reasonable mitigation. Remember breaching seller has to show that it
wasn’tr easonable
25.4(3)
isn’t it just 7K? isn’t resale irrelevant?
0+42k-35k+0-0=7K
common law? What do you do with the superior added value if something is
partly superior?
Cost to complete minus any superior value added, so if you decide that you
have to take into account that gain, you would say cover minus superior or
additional value and subtract it out) keating subtracts it as an expense saved
but htat makes no sense.
Remember we are trying to put buyer into the position they would have been
in, so buyer makes more, so they’d be double dipping if they got full
damages, because they made 6k on the sale, and if they got 7k, that’d be
13k, so if you deduct the 3k gain, you’d get 4k damages. Which gives you
10k total.
27.1
supply k/resale k
SEE TWEN
So position TI expected to be in was a profit of 18K
Text par and Allied case (3 requirements to worry about allied, from KGM
case) 713 takes into account damages you have to pay to forward buyer,
that is the allied dispute, they couldn’t show they would be liable for forward
damages,
That was under 712, here they WILL be liable
So, 2-713
KNOW DELIVERY TERMS. SHE”S NOT GONNA BE NICE. MULTIPLE
TIMES/PLACE/PRICES
SEE SLIDE
We use Tulsa, but you don’t do two calculations for each k.
8/24/12 8:49 PM
27.1 Sale of Asphalt
note, a possible reading of 713 that is INCORRECT
SEE TWEN SLIDE
Reason you don’t approach it that way, don’t add in lost profit is because
713 already takes those into account. If you cover, then you don’t have
forward damages, because they are already in so it would be double
recovery if you plugged them in.
27.1b
use allied factors
did seller know about forward/resale?
Buyer cannot show that will be liable to forward buyer (in order for seller to
show that buyer CANNOT show, would they need to show SOL passed or
written from forward buyer that they will not?)
Good faith ends up with 18k
What about KGM case? Talks about trouble with allied reasoning
Why are white and summers persuaded by allied’s reasoning?
Remember redding pipe case—cost to complete disproportionate to
damages claim – if your attempt to mitigate is substantially higher than your
lost profit (liV) then you’re not getting that, you get your lost profit.
Texpar, 408K damages
Be able to talk about allied, talk about texpar, white & summers, come out
on what side you think makes the most sense –formalist texpar, legal realist,
allied. If not sure, pick one.
(see slide)
27.1C
can buyer elect remedy like seller?
Nope
If you cover, you are stuck with 712. If you cover, as a buyer, YOU MAY NOT
use 713. If you have NOT covered, you can elect to choose between the two.
27.1d
Buyer could have mitigated, but didn’t. Can we use allied reasoning? You’re
counter to 1-305, you’re getting a windfall/overcompensation.
GET TODAY”S PODCAST
Lots of consideration-
Certainty in applying 713, and disincentive to breach.But that only works if
there’s an alternate market that has a lower price. (or higher price for resale)
27.1e
Only thing changed is it’s not FOB buyers, subtract out expense saved. No
incidentals, TI has no delivery cost.
27.2
Keep track of supply K, resale K and cover K.
6/1 supply K
LCI Seller, sells to GA 3k tons at 60K, fob buyer’s place. (So Seller pays
delivery.
6/2 resale k
GA sells to FNS
3k tons
81,000K kp
predicted profit of 21k
FOB Sellers (FNS pays deliver)
Delay by LCI
GA covers
3rd party seller sells to GA(for FNS k)
22/ton
66K
FOB buyer’s (3rd party seller pays delivery)
Then LCI delivers, but late
GA sells to another buyer
23/ton
69k
FOB seller(3rd party buyer pays delivery)
How to calculate damages?
GA wants to say, 2-712
cp 66k – 60k kp + I/C 0- ES O= 6K
Ignore the second new resale k. You breached, I had to cover, period. I
expected to make 21 K and I only made 15K.
What about 711 (3) and 706 (6)??
That’s LCI’s argument.
GA says, they are separate contracts.
But how do you argue the language in 711 (3) isn’t applicable?
You say, that I am not a rightfully rejecting or justifiably revoking buyer, I
accepted the goods.
Fertigo(sp) case – majority agreed with GA, dissent agreed with LCI and said
you have to account for the 9k.
SPECIAL REMEDIES
Ignore monetary damages part of case
Just focus on general idea of specific performance under 716 and how it
broadens the specific performance remedy under common law, pages 455
and 456 and vander case to the extent it talks about uniqueness, and then
the sugar company damages case, understanding the effect that an actual
harm that is significantly less than liquidated damages, does that indicate
that liquidated damages was a penalty? Rmeember in case though they didin
Ts ay it was a penalty it was because damages were difficult to calculate
even at the end, so even though it was disporoportionate, that’s why.
28.1
718 (2)
Under b, seller can keep $500, 4500 has to go back to buyer
28.1b
See slide
Neary- you take the 20% or 500, here, 500, compare to actual damages,
take the greater, which is 3k, so she gets her 3k, and buyer gets back 2k.
L28.1c
Seller keeps it, buyer gets no restitution, lesser of 500 or 20% of k price, but
you don’t get to say “oh I didn’t get my full 500”, you just get the $100.
28.1d
keep 100, but if you want your other 2900, you aren’t getting it from 718,
you want to go to your seller’s damages here, but you have to bring suit and
sue for damages.
28.1e
718, assuming LD are reasonable, it would be D minus LD, so she keeps 3k.
Don’t worry about neary v literal bc they lead to the same result.
28.1f
LD of 2500, damages of 3k
Can’t get both, you get LD unless there’s some reason to throw them out, so
she gets 2500 not 3k.
LOOK AT TWEN FOR THE REST
TEST
8/24/12 8:49 PM