Sales Outline

I. CHAPTER 1 BASIC CONCEPTS

Introduction
a. The UCC
i. Has been adopted by all the states and codified
ii. Has generally been adopted verbatim, but not in all states
iii. What aspects of a sale are worth having UCC provisions about?
1. Formation of the contract Bringing the parties together
2. Terms of the contract UCC sets default rules, set in place unless parties contract otherwise
3. Performance of the contract i.e. delivery
4. Remedies In the case of a breach
b. Official Comments Are NOT the law, but they may provide persuasive authority in cases.
c. Basics of Article 1 General provisions that apply to the entire rest of the UCC (unless there is a
particular provision that goes counter) Revised in 2001. 22 states have adopted Revised Article 1. SC
has NOT adopted Revised Article 1.
i. 1-103: preserves CL equity principles unless there is a particular UCC provision dealing with the
issue. Common law still lives and is not usurped by the UCC (unless obviously changed by UCC)!
ii. 1-102: Purposes (Public Policy) to make the law uniform among jurisdictions. UCC also serves a
gap-filling function, to provide implicit terms (default rules) to a contract. This:
1. Encourages commercial transactions. Contracts will not fail for indefiniteness. If parties
intended to form a contract, we want that transaction to go forward
2. Freedom to contract (i.e. Autonomy): By your failure to make particular provisions, we
assume that you intended that your contract contain the default terms dictated.
iii. 1-203: every K or duty w/in the UCC imposes an obligation of good faith Bin its performance or
enforcement.
d. The Basics of Article 2 Applies to Goods: 2-105; Tangible, movable things. Doesnt apply to: (1)
Service contracts; (2) Security interests; (3) Intangible rights (things in action) even if the right is
represented by a tangible object (i.e. an insurance contract).
e. Problem 1: Is it a good?
i. Insurance policy: No; this is a thing in action; an intangible right represented by a tangible object.
ii. Realty: No
iii. House apart from the realty: If it is severed by the seller, it is a good, but if it is severed by the buyer,
it is not a good
1. It depends who is doing the severing (the extracting)!
2. The seller is in charge of getting the house off the land, of getting the minerals off the land, of
getting the timber off of the land. It may cause some destruction to the realty. See 2-107
iv. Building materials: Yes
1. Unless you are contracting for the finished product, the house. Then it is really a service
contract to build a house. See cases below.
2. Buyer contracts to pay seller $1000 for a $750 a/c unit and $250 installation and repair. Mixed
(hybrid) goods/services contract. Predominant purpose test:
v. Standing timber: Yes 2-107(2).

SCOPE OF ARTICLE 2

a. Transactions in Goods
i. Milau Associates Inc. v. North Avenue Development Corp. (N.Y. 1977) Faulty pipe in a sprinkler
system. Was the K for goods (the pipe) or services (installation of the sprinkler system)? Services.
1. Rule: When service predominates, and the transfer of personal property is but an incidental
feature of the transaction, the UCC will not apply
a. Thus, implied warranties under the UCC do not apply to the pipe as provided under this
contract
b. The strict liability imposed by the UCC implied warranties should not be implied in
service contracts
ii. Analysts International Corp. v. Recycled Paper Products Inc. (N.D. Ill 1987) Issue: is the sale of
custom software a good and governed by the UCC? Yes
1. Predominant (Dominant) purpose test: When determining whether hybrid transaction is
one for services of for goods governed by the UCC, you ask what was the essence of the
contract; i.e. what was really contracted for?
a. When an agreement involves both goods and services, the court must inquire whether the
essence or dominant factor in the formation of the K was the provision of goods or
services; this test is in force in a majority of jurisdictions
b. In this case, there would be no purpose to the contract unless there were not a final
product, the program
iii. Anthony Pools v. Sheehan (Md. 1983) Sheehan contracted for the purchase of a pool from Anthony
with a diving board that was an itemized expense in the K. Sheehan claims a faulty diving board after
he slipped and fell off of it.
1. Gravamen test (source of complaint test): Where consumer goods are sold which retain their
character as consumer goods and where monetary loss or personal injury is claimed to have
resulted from a defect in the consumer goods, the provisions of UCC apply to the consumer
goods, even if the transaction is predominantly one for the rendering of consumer services
a. Instead of asking what is the essence of the K, this test focuses on: What went wrong?
(i.e. why are we in court?).
b. What is wrong with this test? You dont know if your K will be governed by the UCC
until something goes wrong; you dont know what you are contracting for b/f you make
the K!
iv. Majority of courts use the Dominant Purpose test What if it is a close call? State it in the
contract! This is a contract for goods governed by the UCC, with services incidental
v. Sale of future goods counts as a sale of goods
b. Always look to see if the K is even governed by Article 2 before you go on to analyze it under Article 2!
c. MERCHANTS
i. 2-104. Definition of Merchant merchant means a person who (1) deals in goods of the kind or
(2) otherwise holds himself out as having knowledge or skill peculiar to the practices or goods
involved in the transaction or to whom such knowledge or skill may be attributed by his employment
1. Merchants held to higher standards under the UCC.
2. You must be acting in your mercantile capacity to count as a merchant;
3. A person making an isolated sale of goods is not a merchant w/in the meaning of the scope of
2-314 and thus no warranty of merchantability would apply
ii. 2-314 Implied warranty of merchantability
iii. 2-315 Implied warranty of fitness for a particular purpose

iv. Siemen v. Alden (Ill. App. 1975) went to manufacturer, who referred to , who sold him a used
saw; the saw later malfunctioned. Issue: Is a merchant subject to 2-314 and 2-315
warranties? Generally, a person making an isolated sale will not qualify as a merchant seller
1. Rule: 2-104: broad definition of merchant. 2-314 definition of merchant is a narrow one
and the warranty of merchantability is applicable only to a person who, in a professional
capacity, sells the particular kind of goods giving rise to the warranty (merchant seller).
2. Here, was not in the business of selling saws. Making an isolated sale will not subject you
to liability under implied warranties (even though you may qualify under the second part of
2-104, that is construed narrowly or just avoided).
v. HYPO: Deborah Swift Handout DS offers to sell you a Rolls Royce for $8k; you send her a letter
outlining the terms, she doesnt reply. When you show up with the check she says she wont sell it for
less than $15k.
1. Is the contract enforceable under the statute of frauds?
2. 2-201(1) SOF: A contract worth more than $500 must be in a writing signed by the party
against whom the contract is being enforced, unless that party admits to the oral K
3. 2-201(2) Merchant confirmation memo (exception to the SOF):
a. Are both parties merchants for purposes of 2-201?

Broad definition or narrow definition under 2-104?

Narrow definition! You are not a person who deals in the goods or holds yourself
out as having knowledge or Rolls Royces.
b. Nope, cant use this exception to make the contract enforceable
d. Problem 3: Are the following persons merchants?
i. A lady who quit her job as a teacher on Friday and opened a hat store on Monday? Yes
ii. A farmer selling produce to a wholesaler? Depends Casual seller or habitual seller? Probably yes, if
it is a modern enormo farming business, but not Uncle Remus selling from his patch

II. CHAPTER 2 CONTRACT FORMATION

1

THE STATUTE OF FRAUDS SOF requires certain contracts to be supported by written evidence to be enforceable.
a. Purpose: to prevent fraud when people claim there are oral contracts. Over-enforcement. Effect: may
exclude oral contracts that actually were created! Under-enforcement.
i. Solution: require a writing, but dont require too much.
1. 2-201 doesnt require all the terms of the contract
2. Allow for exceptions: ways the contract can be enforceable when the requirements of 2-201(1)
are not met
b. When does the statute of frauds apply?
i. When there is an oral contract
ii. For goods worth $500 or more
iii. When someone is trying to get out of the alleged oral contract
c. UCC 2-201 Statute of Frauds (actual text; but some clauses omitted)
i. A contract for the sale of goods for the price of $500 or more is not enforceable unless there is some
writing sufficient to indicate that a contract for sale has been made between the parties and signed by the
party against whom enforcement is sought. A writing is not insufficient because it omits or incorrectly
states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of
goods shown in such writing

1. Revision: $5000.
2. Requirements: 1) writing, 2) quantity, 3) signed by other party (the party trying to walk away;
generally ), 4) sufficient to indicate a contract
3. 2-201(1) only term which must appear is the quantity term which need not be accuretly stated
but recovery is limited to the amount stated. Price, Time and Place of Delivery, General Quality
of Goods or Any Particular Warranties may all be omitted.
4. 1-201(37): signed includes any symbol executed or adopted 2/present intention to adopt or
accept writing; a complete signature is not required; a symbol may be printed, stamped or written;
may be by initials or by thumbprint, etc.
ii. Merchant confirmation memo (MCM): Between merchants if within a reasonable time a writing in
confirmation of the contract and sufficient against the sender is received and the party receiving it has
reason to know its contents, it satisfies the requirements of subsection (1) (2-201(1)) against such party
unless written notice of objection to its contents is given within 10 days after it is received. The first
exception to the (1) SOF; other three exceptions below
iii. Exceptions: a K which does not satisfy the req of subsection (1) but which is valid in other respects is
enforceable:
1. if the goods are to be specially manufactured for Buyer and are not suitable for sale to others,
before notice of repudiation is received and under circumstances which reasonably indicate that the
goods are for the Buyer, has made either a substantial beginning of their manufacture or
commitments for their procurement (2-201(3)(a)); or
2. if the party against whom enforcement is sought admits in his pleading, testimony or otherwise
in court that a contract for sale was made, but the contract is not enforceable under this provision
beyond the quantity of goods admitted (2-201(3)(b)); or
3. with respect to goods for which payment has been made and accepted or which have been
received and accepted (2-606).
d. 2-201 Statute of Frauds requirements: (1) Writing; (2) Quantity Term; (3) Signed by party to be charged;
(4) Sufficient to indicate a K.
i. Merchant confirmation memo (MCM) Requirements:
1. Between merchants;
2. Indicates a contract;
3. Sufficient against the sender;
If it were the sender trying to walk away from the contract, the memo would meet the
requirements of 2-201(1)
4. Party knows or has reason to know of content
1-201(26): A person receives a notice or notification when (a) it comes to his attention;
or (b) it is duly delivered at the place of business he held out as such. Presumption that
you know what the contents are once received.
5. Received within a reasonable time
6. Not give objection in writing within 10 days
Calendar days, not business days
Mailbox rule: as long as he has put it in the mailbox, given it, it counts as a valid
objection to the MCM
1. Class Notes: SoF doesn't care about terms, but only about the existence of something. SO you must
deny the existence of the K to effect a proper objection.
1. "of its contents" means not just the terms, but the EXISTENCE of the K

1. Only if you are trying to go higher than the requested quantity from the K, would you argue an
objection by using terms.
2. If lower quantity, you must reject it all to effect a SoF objection of MCM

ii. Specially manufactured goods 2-201(3)(a) good specially manufactured for a specific buyer; type of
good that would not be suitable for sale on the open market (i.e. Nobody else is going to want it;
deserves extra protection for seller).
iii. Admission in a legal proceeding 2-201(3)(b) party against whom enforcement is sought admits in
his pleading, testimony or otherwise in court that a contract for sale was made
iv. Part performance 2-201(3)(c)- partial performance will render a contract for the sale of goods
enforceable w/respect to the goods for which payment has been made. Receipt and acceptance either of
goods or of the price constitutes an unambiguous overt admission by both parties that a k actually exists.
1. Rule: If they check is mailed but not accepted, it doesnt meet this exception.
2.

Indivisible Contract (i.e. single good/object; not apportionable) the majority view is that
the part performance exception applies in these instances even where the payment is for less
than the full contract price.

e. Problem 6 (p. 40): Oral k b/w merchants; over the phone; Seller wrote the amount to be purchased on a
memo pad, which he then initialed. Buyer then sent Seller a MCM describing the transaction completely.
Over one month later, Seller called Buyer and denied the existence of the K detailed in Buyers MCM.
a. It was for a sale over $500 so it meets the monetary amount requiring a writing
1. Also satisfies the requirement of quantity
2. Says Ross Co. and also the pad shows the writing is from Scott which, together, creates the inference
that a K is made and it is signed by Scott, against whom enforcement is sought
b. Under 2-201(2) it qualifies as a merchant confirmation memo because it was:
1. Received within a reasonable time of the agreement
2. Not objected to by Scott within 10 days
3. Scott had reason to believe it related to the transaction
1. No, because quantity is a required term of the K because there would be no evidence to prove Ross was
owed a certain amount
2. It is conclusive because Scott had reason to know it was related to the K and did not object within the
required time
a. No because he wrote it after the 10 day limitation and it was not in writing (via phone)
1. No, you have to object to the existence of the K. SoF doesn't care about terms, but only about the
existence of something. SO you must deny the existence of the K to effect a proper objection.
f. St. Ansgar Mills, Inc. v. Streit (Iowa 2000): Rule: For merchant confirmation memo, what constitutes a
reasonable time depends on the facts and circumstances of the case, and is usually a question of fact for
the jury. In this case, a Merchant Confirmation Memo delivered two months after an oral contract was within
a reasonable time because of the course of dealing between the two merchants.
g. Problem 7 (p. 48) Oral K b/w Buyer (city) and Seller (manufacturer); Buyer orally ordered a huge water
tank to be made in the shape of a golf ball on a tee from Seller; agreed upon price = $30k. Buyer sent Seller a
$3,000 down payment check, signed by a city agent and marked Tank on the checks memo line. Buyer
later denies the enforceability of the K.
i. Does the check satisfy 2-201(1)? Yes The quantity is one huge water tank and thats on the memo line
of the check. The comments are not law! The only place where it says a quantity is required is in the
comments. The text says only not enforceable beyond the quantity of goods shown

ii. Does the down payment (only a partial payment) satisfy the 2-201(3)(c) part performance exception?
1. For multiple goods, an alleged contract of 10 desks for 10k each, and the check is for $20k, then
you have made a full payment on two goods for SOF purposes.
2. But you may end up getting a jury finding that the contract was really for 10 desks at trial
iii. Can the Seller rely on 2-201(3)(a) (specially manufactured goods)?
1. Yes! This is generally a stronger exception because if there are multiple goods, it is enforceable
for 100% of the contract (instead of quantity issues with (3)(c))
2. They can argue that the goods are specially manufactured for the city. You cant just resell a giant
golf ball tank, especially with part of the towns name on it. Also, a down payment was made.
iv. Yes. The doctrine of estoppel can supplement the UCC unless precluded by the statute in a specific
provision. Equitable estoppel- usually involves a misrepresentation as to some fact on which one of the
parties relied (not about the existence of the contract under that claim). It keeps you from defeating
existence of the contract by using the Statute of Frauds.
h. Problem 8, pg. 49: Most elements of Statute of Frauds met- question as to if there was a quantity term. 2201(1) doesnt always require a specific quantity. Under 2-306, quantity may be actual output or buyers
requirements as may occur in good faith. So here, it would be what Systems Unlimited would be able to put
together in 2 years. Output contract A contract in which a seller promises to supply and a buyer to buy all
the goods or services that a seller produces during a specified period and at a set price. The quantity term is
measured by the seller's output. (i.e. as long as you put in the method for computing quantity, it satisfies
SOF)

i.

TWEN Statute of Frauds Practice Question

j.

EXAM: SOF doesnt apply unless its the sale of goods over $500 and someone is arguing that there is no
contract. You dont need to talk about it on the exam unless the above conditions are met.

PAROL EVIDENCE RULE: Orally we talk a/b A, B and C; writing only includes A and B. Evidence of C admissible?
a. 2-202 (use of extrinsic evidence to explain/supplement a written K) The terms of a final expression of
the parties agreement may not be contradicted by evidence of any prior agreement or of a contemporaneous
oral agreement but may be supplemented by evidence of:
i. Course of performance, course of dealing, or usage of trade; and
ii. By evidence of consistent additional terms unless the court finds the writing to have been intended also
as a complete and exclusive statement of the terms of the agreement
b. Questions to ask:
i. Do we have an integrated writing (final expression of agreement)? Do we have a writing in which some
terms are terms we really have agreed to, or is it just a list of things that we discussed, but didnt really
reach an agreement?
1. Integrated: at least shows that the parties have agreed to some of the terms;
2. Non-integrated: doesnt evidence anything has been agreed.
ii. Is it partially integrated (not completely integrated)? Are all important terms (price, delivery, etc.)
included in the K (complete integration)? If not, then it is probably partially integrated.
1. Is there a merger clause: the contract states that it is a complete integration?
If a merger clause, presumption of completely integrated writing (but not a guarantee of
complete integration); ex. this K represents the parties complete and final agreement and
supersedes all informal understandings and oral agreements relating to the subject matter of
the K.
Have a place to initial beside the merger clause so nobody can claim they didnt see it

2. Also look at the surrounding circumstances of the deal.

3. Generally, the assumption is that is it is partially integrated.
We dont want the rule to be too rigid to not accommodate common business practices.
If you want to make it a completely integrated writing, you can easily do so through a merger
clause
iii. If it is partially integrated, what kind of evidence comes in, and what kind of evidence must stay out?
1. Must stay out: Contradictory terms (inconsistent terms)
2. May come in Outside evidence to explain or supplement such as: Course of dealing, Usage of
trade, Course of performance
Consistent additional terms the biggie!
iv. If completely integrated, what evidence is in and what is out?
1. Must stay out: (i) Contradictory terms; and (ii) Consistent additional terms
2. May come in: (i) Course of dealing; (ii) usage of trade; and (iii) course of performance
v. How do we figure out if a term is consistent or inconsistent?
1. Test: 2- 202; Comment 3: If the additional terms are such that, if agreed upon, they would
certainly have been included in the document in the view of the court, then evidence of their
alleged making must be kept from the trier of fact
Inconsistent Additional Terms: those terms that are so important that had they been agreed
to s/o would have included it in the writing; i.e. if the term is such a big deal that if it would
have been agreed to, it surely would have been included in the writing.

Consistent Additional Terms: those terms that it makes sense were not included in the
writing (i.e. the types of terms that often are left out of written contracts).

2. If this test is met, it is an inconsistent term

c. Course of dealing, usage of trade, course of performance
i. Course of dealing: prior dealings between the parties prior to this particular transaction
ii. Usage of trade: how the industry behaves, especially in regard to certain terms in the K
iii. Course of performance: how the parties have behaved in the course of performing that particular K
iv. You can attempt to contract around the inclusion of these three things as part of the basis of the bargain
d. When to bring up parol evidence rule on the EXAM: Anytime you have a written contract and someone else
says no, we agreed to this
i. Exam: Always give the counterarguments, esp. when the prof asks what are the s best arguments?
ii. Write exam in IRAC format. Dont state the conclusion first, you will miss counterarguments. In
analysis, show how each term either is or is not met.
e. RECAP: 2-202: What is admissible:
i. Integrated document? If not, everything in
ii. Assumption of partially integrated
1. Contradictory terms out
2. UOT, COD, COP in
3. Consistent additional terms in
Is it such a big deal that it would have been in the written agreement?
Court will look to the surrounding circumstances to see if it makes sense that the term was
left out
iii. If completely integrated
1. Contradictory terms out

2. UOT, COD, COP in

3. No additional terms
f. Problem 9
i. In a K for a custom-made airplane (containing a merger clause), buyer claims an oral pre-K agreement
that seller would provide buyer with flying lessons. Is evidence of that agreement admissible?
1. No! Not admissible. It is a consistent additional term, but there is a presumption of complete
integration b/c of the merger clause.
2. But you can dispute the merger clause, just like you argue any other term of the written contract.
Then if you can convince the judge that it is a partially integrated document, you can introduce
evidence of the consistent additional term
3. Could try to make the argument that because the contract is so long, it may have been hidden- that
both parties may not have known they were agreeing to that. It that were successful, you may be
able to claim that its a consistent additional term under a partially integrated document.
4. If at any point the judge finds the term to be an inconsistent additional term, he will exclude it.
ii. Buyer alleges a pre-K agreement that buyer could use the plane for 2 months, and return it for a full
refund if they didnt like it (it is a custom plane).
1. This is an inconsistent term, so it is inadmissible ---- i.e. wouldve been in the writing if it were
intended to be included- not something that is just a throw on. Unless there is this kind of standard
in the industry, theyre probably out of luck.
g. Columbia Nitrogen Corp. v. Royster Co. (1st Cir. 1971) Royster sold phosphate to Columbia. There was a
minimum quantity term and a price term. The price of phosphate fell; Columbia wanted to walk away from
the K (or at least buy products at a price much less than the min (k) amount). Columbia claims that the trade
usage in this industry lets the price fluctuate with the market. Issue: Can usage of trade come in to explain or
supplement the contract? Yes
i. Holding: A finding of ambiguity is not necessary for the admission of extrinsic evidence about the
usage of the trade and the parties course of dealing
1. You can attempt to contract such that course of dealing and usage of trade cannot be used to
explain or supplement the contract
2. Course of dealing and usage of trade, unless carefully negated, are admissible to supple the terms
of ANY writing
3. In this case - this usage of trade is NOT contradictory to the stated price. The contract is silent
about adjusting prices and quantities to reflect a declining market. It neither permits nor prohibits
adjustment; thus usage of trade is admissible
ii. The test of admissibility is not whether the K appears on its face to be complete in every detail, but
whether the proffered evidence of course of dealing and trade usage reasonably can be construed as
consistent with the express terms of the agreement
iii. A court will do everything they can to find COP, COD, and UOT to not contradict the express terms of
the agreement; i.e. Courts know what result they want to reach, then manipulate the legal issues to reach
that result.
1. Rule: parties can contract around COD/COP/UOT; but must expressly exclude such evidence in
the K; i.e. cannot just broadly state that COD/COP/UOT evidence will not be allowed.
3

OFFER AND ACCEPTANCE (p. 58 98)

a. General rules: (1) 2-204: Formation of K; (2) 2-205: Firm Offers; (3) 2-206: Offer & Acceptance.

i. HYPO: Part I: Parties have agreed to a sale of 100 granny smith apples, price is open, delivery date is
open. Is this an enforceable contract? 2-204 Formation Even though one or more terms are left open, a
contract does not fail for indefiniteness if the parties have intended to make a contract
ii. HYPO: Part II: Same agreement, but seller ships 100 red delicious apples instead. Do the parties still
have an agreement? Yes - 2-206(1)(b) acceptance can by made by prompt shipment of conforming
goods or non-conforming goods.

ACCOMADATION LETTER - only way to get around 2-206(1)(b) If the seller doesnt intend to be
bound by shipment of non-conforming goods, he cannot be bound if he notifies the buyer that the
shipment is offered only as an accommodation to the buyer. This is essentially the sellers counteroffer (to the Buyers offer to purchase 100 granny smith apples).

Buyers Offer- 100 granny smith apples; Sellers Acceptance- shipment of 100 red delicious apples
(non-conforming good); Sellers counteroffer- shipment of 100 red delicious apples
w/accommodation letter.

ENGLISH when a seller ships non-conforming goods w/o an accompanying accommodation

letter, under UCC he has accepted buyers offer and therefore a K is formed. Thereafter, the buyer is
entitled to sue the seller for Breach of K; breach of warranty etc. Prevents a seller from being
able to ship non-conforming goods w/no recourse

iii. 2-204 Formation in General (1) K can be formed in any manner; doesnt have to be formal (broad
rule of K formation); (3) Even though one or more terms are left open a K for sale does not fail for
indefiniteness if the parties have intended to make a K and there is a reasonably certain basis for giving
an appropriate remedy.
iv. 2-205 Firm offers: allows merchants to make offers to buy or sell irrevocable for up to 3 months
provided that the offer is in writing or otherwise authenticated. Under this rule, the offerors right to
revoke his offer is basically suspended during the option period (i.e. time the option is left open).
1. Merchant buyer or seller says he will keep offer open for a certain period of time, and cannot
revoke offer;
2. The period of irrevocability cannot exceed 3 months (Can be renewed for another 3 months)
3. Must be a signed writing by the merchant
4. Doesnt have to be supported by consideration (Changed CL which required consideration for
the option; CL Option K really involved 2 Ks: (1) sale of the good; and (2) promise to leave the
offer open.
5. If you want it to be longer than 3 months, you can do this with consideration
v. 2-206 the shipment of nonconforming goods constitutes an acceptance of the offer and a breach of
that K b/c of the goods non-conformance. BUT, the shipment of non-conforming goods accompanied by
an accomadation letter will not constitute an acceptance.
vi. Problem 10 (p. 58): Mastervoice orders 2,000 fuses from GE. Purchase order says reply by return
mail. GE responded by shipping fuses that turned out to be defective
1. When was the contract formed? The K was formed when the fuses were shipped. The shipment of
nonconforming goods (even when unaware of their non-conformance) w/o an accompanying
accommodation letter suffices as an acceptance. See 2-206(1)(b)

2. GE discovered it no longer made the ordered fuses, but shipped similar fuses with an
accommodation letter. Is seller in breach b/c it shipped nonconforming goods (2-206(1)(b)?
NO seller, by acknowledging that the shipment is nonconforming and is offered only as an
accommodation to the buyer, keeps the shipment from operating as an acceptance. (Attempt
to accommodate)
Because of the accompanying accommodation letter, there is no acceptance and no K!
vii. Problem 11 (p. 59): Buyer and Car dealer agree on a price for a Rolls Royce. Buyer says he needs to
clear the deal with his wife b/f signing anything. Dealer says hell keep the price offer open until the next
day at noon. The next morning, a third party makes a better offer and the dealer accepts.
1. Does Buyer have a COA? NO there was no firm offer b/c no signed writing, only an oral
promise.
2. Under 1-103, equitable principles are still applicable under the UCC, and Dreamer might can sue
under promissory estoppel b/c he relied on sellers promise.
b.

BATTLE OF THE FORMS: Two

scenarios where battle of forms comes up: (1) Oral K followed by one or
both parties sending a confirmation document that includes additional or different terms; (2) Offer made in
writing, then acceptance letter comes stating additional or different terms.
i. 2-207. Additional Terms in Acceptance or Confirmation
1. Is there a contract at all? 2-207(1) a definite and seasonable expression of acceptance
operates as an acceptance even though it states terms additional to or different from those offered
or agreed upon, unless acceptance is expressly made conditional on assent to the additional or
different terms (proviso clause).
Meant to reverse the CL rule that an acceptance that was not the mirror image of the offer
was (impliedly) both a rejection and a counteroffer.
The acceptance must actually be an acceptance; i.e. not a letter purporting to further
negotiate the terms of the K;
If there is a proviso clause in the offerees acceptance, there is no acceptance and thus no K.
The effect of a proviso clause is to keep a K from being formed; absent offerors assent to
the additional or different terms. Cannot be used once a K has been entered into.
When utilizing a proviso clause, you must be 100% clear that you are conditioning your
acceptance on the other partys acceptance of additional/different terms; be very clear.
2. What are the K terms when K based on the parties writings? 2-207(2) the additional terms
are construed as proposals for addition to the K (when not b/w merchants). Between merchants
such terms [automatically] become part of the K unless:
(i) The offer expressly limits acceptance to the terms of the offer;
i.e. Offeror contracts to re-impose the CL mirror image rule
Note: There is a difference b/w (1) the offeror requesting that the offerees acceptance
mirror the terms of the offer (i.e. if offeree ignores, K still formed); and (2) the offeror
requiring the offeree to accept the terms of the offer (i.e. if offeree ignores, then no K
is formed).
(ii) The additional/different term materially alters the K; OR
Comment 4: clause/term would normally materially alter the K if it would result in
surprise or hardship if incorporated w/o express awareness by other party. Ex. change
in price, disclaimer of warranty; arbitration clause (depending on usage in the trade,
varies amongst situations and jurisdictions)
Always argue a material alteration if you are trying to get out of the contract

10

(iii)Notification of objection to them has already been given or is given within a reasonable time
after notice of them is received.
3. What are the K terms, when K is based on the conduct of the parties? 2-207(3) Conduct
by both parties which recognizes the existence of a K is sufficient to establish a K for sale although
the writings of the parties do not otherwise establish a K. In such case the terms of the particular K
consist of those terms on which the writings of the parties agree, together with any supplementary
terms incorporated under any other provision of this Act.
When the exchange of documents (Purchase Order & Acknowledgment Form) fails to create
a K, but the parties thereafter behave in a way indicating that they think they have an
agreement (i.e. make full/partial performance), under subsection (3), their conduct will
result in the formation of a K.
4. NOTE: To determine the terms of a K, you will never be under both (2) AND (3) only one
or the other is applicable.

Contract based on the writings of the parties 2-207(2)

Contract based on the conduct of the parties (no K est. by their writings) 2-207(3)

5. Additional v. Different (Conflicting) Terms: the theoretical difference b/w a different term
and an additional term is not clear under the Code. A different term is one that conflicts with, or
contradicts, an existing term. An additional term refers to a matter not covered by the prior
transaction and is thus supplementary and complementary rather than contradictory.
Knock-out Rule: when there are conflicting terms in a written offer and a written
acceptance, the conflicting terms cancel each other out. The K will then consist of the terms
expressly agreed to by both parties, with the Code supplying the contested terms (gapfillers)
- Because only the common terms become part of the K, no distinction needs to be made
as to whether the variation is the result of an additional or of a different term.
ii. HYPO: Buyer offers $9k for a Honda w/ 2 year warranty. Sellers acceptance says $9.5k, no warranty,
and arbitration clause
1. Minority rule: No meeting of the minds, material terms differ, no contract; Majority rule:
Enforce it! It is a contract under the UCC. Go to subsection (2) to determine whether the additional
terms become part of the contract?
2. What if the parties go ahead and perform; what terms are included in the K under subsection (3) ?
iii. Battle of the Forms Cases/Problems:
1. Problem 12: Oral offer followed by an acknowledgment form containing additional or different
terms. Here, a K was formed b/w the parties under 2-207(1). Sellers acknowledgment for
qualifies as an acceptance. The subject to language in the sellers acceptance did not amount to a
proviso clause.
2-207(2)(b) sellers disclaimer of warranties materially alter the K, and are therefore not
part of the contract. (Comment 3 disclaimer of warranties is per se material)
2. Problem 13: Seller in business of demolishing old buildings to clear sites for new construction.
Seller proposed to sell a large quantity of used bricks to Buyer on condition that Buyer pick up the
bricks. Seller made a formal written offer w/quantity, price, and delivery date (June 15). Buyer
accepted, enclosed check for full amt, and changed delivery date to July 20. Has Buyer breached
the K if it doesnt pick up the bricks on June 15?

11

There is a K based on the writings of the parties; even though the acceptance form contained
different terms. 2-207(2) will thereafter determine the terms of the K.
Knock-out Rule will apply; delivery dates knock each other out and a UCC gap-filler will
apply (2-309).

3. Diamond Fruit Growers v. Krack Corp. Offeree argued that Offeror assented to its proviso clause
b/c it continued to accept and pay for the contracted for goods. The court held that conduct does
not equal consent when it comes to a proviso clause. When an offerees acceptance includes a
proviso clause, UCC requires a specific and unequivocal expression of assent by the offeror.
Allowing an offerors conduct to equal consent under these circs would effectively reinstate the CL
last shot rule.
If the offeror does not give specific and unequivocal assent but the parties thereafter act in a
way which recognizes the existence of a K (shipment of/payment for goods), their behavior
will establish a K by conduct under 2-207(3) (which will also supply the terms of said K).

One of the principles underlying 2-207 is neutrality. If possible, the section should be
interpreted so as to give neither party an advantage simply b/c it happened to send the first or
in some cases the last form.
- 2-207(3) does away with the CL last shot: rule b/c this subsection gives neither party
the terms it attempts to impose unilaterally on the other.

4. Problem 14: An Arbitration Clause is likely to be deemed a material alteration under 2207(2)(b); but it could be argued that it isnt a material alteration depending on industry standards
and the parties knowledge. Also imp to look at state law (affected outcome in Bayway Refining)
Many jurisdictions hold that as a matter of law, an arbitration provision materially alters
ones legal rights under a contract. But this determination is very fact/circumstance specific.
5. Bayway Refining Co. v. Oxygenated Marketed & Trading A.G. the party opposing the inclusion
of an additional or different term bears the burden of proving that the term amounts to a material
alteration one that would result in surprise or hardship if incorporated without express
awareness by the other party.
Surprise includes both a subjective element of what a party actually knew and an objective
element of what a party should have known. A profession of surprise and raised eyebrows are
not enough: Conclusory statements, conjecture, or speculation by the party resisting inclusion
will not suffice.
- To carry the burden of showing surprise, a party must establish that, under the circs, it
cannot be presumed that a reasonable merchant would have consented to the additional
term.
Hardship you cannot walk away from a K that you can fairly be deemed to have agreed
to, merely b/c performance turns out to be a hardship for you, unless you can squeeze
yourself into the impossibility defense or some related doctrine of excuse.
6. Problem 15: Conflicting/Different Warranty Terms Knockout rule applies, so the warranty
terms are dropped and the UCC fills in the gap. Under the UCC, the implied warranty is only for a
reasonable period of time which may be less than the two years required by the offeror.
On the contrary, if you used the minority approach and treated the different warranty terms
the same, the offerors 2-year warranty term is in and the offerees disclaimer of all
warranties is out b/c it would amount to a per se material alteration (comment 4).
7. Leonard Pevar Co. v. Evans Products Co. (1981) Buyer sued seller for breach of express and
implied warranties in the sale of plywood. Rule: generally, clauses which disclaim warranties and

12

limit liability "materially alter" the agreement; but the issue of material alteration rests upon the
facts of each case.
UCC disfavors any attempt by one party to unilaterally impose conditions that would create
hardship on another party; thus, b/f a counteroffer is accepted, counter-offeree must expressly
assent to the new terms.
W/o express assent by the parties, no K is created pursuant to 2-207(1), unless acceptance is
expressly made conditional on assent to the additional or different terms.
8. Klocek v. Gateway, Inc. ordered a computer from ; the box arrived with a standard form K
inside containing an arbitration clause. brought a class action suit a/g for breach of warranty.
claimed the terms of the K, including the arbitration clause, became part of the K when kept
the computer beyond the 5 day return period.
Court: Since there was nothing to indicate that had made acceptance conditional on 's
assent to s Standard Terms, said terms constituted proposals for additional or different
terms. Therefore, since was not a merchant, under 2-207(2) any additional or different
terms did not become part of the parties agreement unless the expressly agreed to
them.
Rule: Conditional nature of an acceptance must be clearly expressed in a manner sufficient to
notify the offeror () that the offeree () is unwilling to proceed with the sales transaction
unless additional or different terms are included in contract.
9. Problem 16: Yes the conduct of the parties recognizes the existence of a K; under 2-207(3), this
is sufficient to establish a K for sale although the writings of the parties do not otherwise establish
a contract. The terms of the K consist of those terms on which the writings of the parties agree,
together with any supplementary terms incorporated under any other provision of the UCC.
rd
May 3 no K;
th
May 6 K formed under 2-207(3); UCC (2-314) would supply the implied warranty.
10. Oral agreement followed by confirmation: the K already exists A proviso clause in the
confirmation does nothing; it cannot disclaim the existence of a K b/c a contract already exists!
The additional terms in the confirmation are treated as proposals under 2-207(2) and where
both parties are merchants, the terms become part of the agreement unless they materially
alter the agreement
iv. TWEN Battle of Forms Problem: Use UCC 2-207 to answer the following questions:
1. Two merchants wish to buy and sell a dozen copy machines. Instead of sitting down and hashing out
every term of a written agreement, buyer sends a purchase order to seller that includes provisions that
indicate that seller will make certain express and implied warranties to buyer as part of the sale. Before
shipping the goods, seller sends an acknowledgement form to buyer that purports to disclaim all
implied warranties and says all disputes a/b this sale will be settled by binding arbitration. Is there a K
at this point?
Yes K formed by the exchange of documents EVEN THOUGH sellers acceptance contained
an additional or different term; 2-207(2) will determine whether the additional/different terms
become part of the K.
2. Does your answer to (1) change if the purchase order included the following statement Seller must
accept all of the terms of this offer or there will be no K?
Yes Buyers offer has re-imposed the mirror image rule; i.e. Seller was required to accept
the terms of Buyers offer. Offeror has conditioned its offer on the Sellers acceptance of the
Buyers terms. Offer is the master of the offer.

13

Had offeror merely requested that the Sellers acceptance mirror the offer, K would still have
been formed in this case.

3. Suppose seller sends the acknowledgement form w/the arbitration clause and disclaimer of implied
warranties, and then ships the machines. Buyer accepts the machines and begins using them. Later,
Buyer complains a/b the performance of the machines. Advise Buyer and Seller as to whether Seller has
made implied warranties and whether Buyer must bring its complaints to arbitration.
Here, the parties writings established the K for the sale of goods. Since both parties are
merchants, Sellers disclaimer of warranties materially alters the K; therefore, the implied
warranties become part of the K.
Sellers Arbitration Clause will automatically become part of the K unless Buyer can prove
that the term materially alters the K 2-207(2)(b). Varies among circumstances, and or
jurisdictions..
4. Suppose Sellers acknowledgement form, besides including additional and different terms, also
included a conspicuous statement that this acceptance is expressly made conditional on buyers
assent to the additional or different terms contained herein. Despite these terms, Seller shipped the
machines and Buyer accepted them. A few months following the sale, Buyer began having trouble
w/the machines and wanted to sue Seller for breach of implied warranty of merchantability. Advise
buyer and seller as to whether there is an implied warranty and whether the warranty claim needs to be
brought to arbitration.
Though the parties writings did not create a K because Sellers acceptance was expressly made
conditional on Buyers assent to additional or different terms, under 2-207(3), the conduct of
the parties' was sufficient to establish a K.

The TERMS of the K consist of those terms on which the writings of the parties agree, together
with any supplementary terms incorporated under any other provision of the UCC.
- B/c the parties writings disagree on whether there should be any implied warranties,
there will be no implied warranties unless provided by a UCC gap-filler (here 2-314).
-

The arbitration provision in Seller's acknowledgment form will not become a term of the
parties' K b/c the provision is not common to both writings.

5. Does your answer to question (4) change if the language in the acknowledgment form stated that this
contract is subject to the terms and conditions stated herein rather than the quoted language above?
YES the subject to language does not satisfy the expressly made conditional requirement;
therefore the K is based on the parties writings and 2-207(2) controls (i.e. Subject to language
does not amount to a proviso clause).

The conditional nature of an offerees acceptance must be clearly expressed in manner

sufficient to notify offeror that offeree is unwilling to proceed with the sales transaction unless
additional or different terms are included in contract.

v. PROFESSOR NELSON LOVES 2-207; its her favorite statute! EXAM- must explain every facet of
your answer; i.e. if using a merchant exception under (2), must first describe why you are using that
subsection (i.e. b/c b/w merchants) and why they qualify as merchants.

III. CH. 3 WARRANTIES:

1. WARRANTY OF TITLE a warranty that the seller of property has title to that property, that the transfer is rightful,
and that there are no liens or other encumbrances beyond those that buyer is aware of at the time of contracting.
(a) 2-312 Warranty of Title two warranties created under 2-312: Warranty of Title and Warranty against
Infringement.

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i. (1) Seller warrants that: (a) the title conveyed shall be good, and its transfer rightful; and (b) the goods
shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the
time of contracting has no knowledge (actual).
1. Applies to ALL sellers (whether merchant or not); Warranty of title runs from the original seller to
the immediate, or original, purchaser only. Thus, the warranty cannot be used to hold liable s/o
other than the original seller, such as an auctioneer.
2. 1-201(32) Purchase includes taking by sale, discount, negotiation, mortgage, pledge, lien,
security interest, issue or re-issue, gift, or any other voluntary transaction creating an interest in the
property. Ex: Alice gives necklace to Betty as a gift; Betty sells to Carla for $1,000. That
ownership right was transferred. There was good warranty of title.

If Alice had simply lent the necklace to Betty, and Betty subsequently sold it to Carla, Carla
would not have good and rightful title; b/c Betty didnt own the goods. Alice would then
have the right to reclaim the necklace from Carla, who could then sue Betty for breach of
warranty of title.

Bona fide purchasers in good faith still dont own the item- still belongs to the one with
rightful ownership if that interest isnt transferred (b/c title still lies with original owner).
ii. (2) Disclaimer of warranty of title occurs only by specific language or by circumstances which give
the buyer reason to know that the person selling does not claim title in himself or that he is purporting to
sell only such right or title as he or a third person may have
1. Examples of Specific Language:

Sell a car as is Not a disclaimer of warranty of title; As is refers to quality, not title

I disclaim warranty of title- Not a valid disclaimer; Seller must specifically explain what
the buyer will be receiving, specifically, an unsound title; (i.e. Seller must go the extra mile;
might say you, the buyer, are not getting good and rightful title)
2. Moore v. Pro Team Corvette Sales, Inc. all about how to effectively disclaim the warranty of
title. Party in this case specifically disclaimed warranty of title, but court said that wasnt enough.
There must be more specificity. There wasnt enough to put the buyer on notice of what they were
not getting.

Rule: When the language in a purported disclaimer expresses how sellers liability will be
limited rather than what title (or lack thereof) the seller purports to transfer, the purported
disclaimer is ineffective.

Focus should be on what buyer isnt receiving; that puts buyer on notice more effectively.
3. Disclaimer from Surrounding Circumstances (question of fact): Comment 5 ''sales by sheriffs,
executors, foreclosing lienors and persons similarly situated are so out of the ordinary commercial
course that their peculiar character is immediately apparent to the buyer and therefore no personal
obligation is imposed upon seller who is purporting to sell only an unknown or limited right.

Ex: an oral conversation in which seller allegedly told buyer that seller was only conveying
equip which had not been sold to another was held to be sufficient to put buyer on notice that
seller was only purporting to sell such title as he had.
iii. (3) Unless otherwise agreed, a seller who is a merchant regularly dealing in goods of the kind warrants
that the goods shall be delivered free of the rightful claim of any third person by way of infringement or
the like, but a Buyer who furnishes specifications to the seller must hold the seller harmless against any
such claim which arises out of compliance with the specifications
1. Only applies to Merchant Sellers. Comment 3: ''When the goods are part of seller's normal stock
and are sold in the normal course of business, it is his duty to see that no claim of infringement of a
patent or trademark by a third party will mar the buyer's title.''

15

Reason for limiting the infringement warranty to sales by merchants who regularly deal in the
product is that only such merchants can be assumed to have the expertise concerning the
product which justifies the imposition of the duty to avoid infringement.
Warranty against infringement includes infringements under the patent, copyright and similar
laws (i.e. intellectual property).

2. If Buyer furnishes specifications to Seller (i.e. where the goods are to be specially manufactured to
Buyers order/plans), the Buyer automatically makes a warranty to the Seller that protects the
Seller from infringement claims (i.e. s/o claiming that the plans infringe on their patent, etc.).
This is the only situation under the UCC where the Buyer is the warrantor; buyer who
furnishes the specification purports to have the expertise.
(b) Basics
i. State of mind of the seller doesnt matter under UCC; doesnt matter whether seller acted in good faith!
ii. Damages: Value Promised minus Value Received
(c) UCC 2-403 Power to Transfer: Deals with the quality of title that is received by a transferee of goods.
i. General rule on the passage of title, stated in 2-403(1), is that a purchaser of goods receives all title of
the transferor or all title the transferor had the power to transfer.
1. Ex. a thief, who typically has neither title nor power to transfer title, cannot confer good title.
Similarly, the transferee of a thief cannot confer good title on any subsequent transferee. Thus, if a
thief steals goods, no subsequent transferee of the goods can ever receive good title to them
ii. Alternatively, an owner with full title can elect to transfer less than full title to a purchaser. In that case,
the purchaser receives only that title that was actually conveyed by the owner; and therefore a transferee
of less than full title can transfer only the interest he received,
iii. Voidable Title Exception (2nd sentence of 2-403(1)): Rule: a person with voidable title can transfer
good title to a good faith purchaser for value.
1. VOID Title if the transferor had void title, then the true owner, who retained full title, was
protected even against a good faith purchaser.
2. VOIDABLE Title if the true owner conveyed some title, the owner was viewed as less entitled
to the protection of the equity court because the owner created the situation that permitted the good
faith purchaser to be misled into the belief that the transferor had and could convey full title.

i.e. the possessor of prop obtained via a worthless check has "voidable" title to prop - the
possessor has title, but the seller can avoid that title as against the buyer upon discovery of
the fraud.

In other words, the fact that the title is voidable means that the equitable remedy of recission
is available to the seller, whereas in an ordinary breach of contract situation the only remedy
available to the seller is damages
(d) WARRANTY OF TITLE PROBLEMS
i. Problem 18 Car owned by Mabel; stolen by Fast Eddie who drove it to Vegas where he sold it for
$500 to Sealed Lips who subsequently sold it for $2000 to Fredrick Duty, a bona fide purchaser, who
sold it for $1,900 to Samuel Pirate, another bona fide purchaser. The car is then impounded by police;
Pirate sued Duty for breach of the warranty of good title.
1. (a) Dutys defense that he thought he had good title wouldnt be successful. It doesnt matter that
he didnt know and was acting in good faith b/c an individual cannot transfer title that he doesnt
have. Rule: a thief cannot pass clear title to stolen goods; nor can his successors; irrelevant that the
successors claim that they didnt know the goods were stolen. Successors could not obtain title
from the thief.

16

2. (b) UCC 2-403(1)(b) covers the power of a seller to transfer title in the goods sold as well as the
extent to which a buyer may acquire greater title than that possessed by the seller. In particular, this
section covers the ability of a seller with voidable title to vest good title in a good faith purchaser
for value.
3. (c) Fast Eddie bought the car from Mabel with a Bad Check here, Fast Eddie would have
received a voidable title Mabel had a right to take that title back, but that doesnt mean there
wasnt a rightful transfer free of liens. But Mabels right to take back the car must happen before it
is transferred to another bona fide purchaser.
a. In this situation, Fast Eddie would have title and authority to transfer. Once he does that,
original owner may lose right to take that item from the bona fide buyer.
b. Having created the situation that allowed the subsequent good faith purchaser for value
to be deceived, the true owner's (Mabel) rights are subordinated to those of the good faith
purchaser.
4. (d) The law provides Duty relief; procedure of vouching in 2-607(5)(a) Under this
procedure, the allegedly liable third party (Fast Eddie) may be made a party to the underlying law
suit (b/w Pirate & Duty) and will be bound by the judgment in that proceeding. Not a mandatory
procedure, but rather a procedural device for innocent sellers who are sued for breach of warranty
of good title.
ii. Problem 19 Comment 1 declares that one of the purposes of the warranty of title is to provide for a
buyer's basic needs in respect to a title which he in good faith expects to acquire by his purchase, namely,
that he receive a good, clean title transferred to himso that he will not be exposed to a lawsuit in
order to protect it.
1. The language in Comment 1 evidences an intention to allow a buyer to est a breach of warranty of
title even if a seller did indeed deliver legally valid titlea buyer may est a breach of warranty
of title by showing a disturbance of quiet possession
iii. Problem 20 (p. 99)
1. As is clause: under 2-312(2), specific language is required to disclaim warranty of title. This
isnt an implied warranty like the implied quality warranties. Requires statement like Im only
transferring as much interest as I have in the item
2. They also get a warranty- its still a purchase and transfer of goods.
3. No warranty of title in this transaction. Under 1-205, this isnt a common occurrence that would
lead to an expectation of any warranties.
2. WARRANTIES OF QUALITY (2 types: Express Warranties and Implied Warranties)
(a) Express warranties (2-313)
i. An express warranty arises when the seller does something affirmative to create buyer expectations about
the characteristics or performance of the goods
1. Can be oral or a written representation; Representations must have some substance to them (i.e.
more than mere puffing)
2. Requirements: The statement(s):
Must be an affirmation of fact
- Can also be a description, a model, a sample
Must relate to the goods
- Cannot relate to the delivery date of the goods, for instance. If you breach that delivery
date, you have not breached the express warranty of quality
Must become part of the basis of the bargain
- A statement goes to the basis of a bargain if its natural tendency is to induce the buyer
to purchase (even though that is not the sole reason)
3. Buyer does not need to prove reliance on the statement
Not a separate requirement; goes to the basis of the bargain requirement

17

If the statement, however made, has any substance to it so that it might have played some part
in the buyers decision to buy, the burden is on the seller to prove that the buyer did not rely.

ii. Problem 21
1. Car is in A-1 shape, says the dealer. It breaks down the next day.
a. Is this just puffing? Yes (according to most courts). This is not specific enough.
b. What if the seller says the car is in mint condition?
- Probably still just puffing.
- A little closer to an express warranty maybe you are talking about a specific
characteristic, so could be an express warranty.
2. Young chickens look sick, farmer says once they are put on full feed they will straighten up and
fly right; they would do a good job in your chicken house
a. Probably is an express warranty; sets up an expectation that they will be healthy
b. Rule: statement is in writing, it is a question of law; if statement is oral, it is a question of
fact for the jury
3. This is a great car; youre going to love it! Just puffing
4. Car is in mechanically perfect condition
a. An express warranty Forms the basis of the bargain; part of why buyer decides to purchase
the car.
b. What if she had it checked out by her own mechanic (after dealers mechanic checked it out
and said is was in mechanically perfect condition)
- Then there is no reliance on sellers statements, so it wasnt a basis of the bargain.
- Buyer can come back and say she relied on both statements (i.e. dealers and mechanics)
iii. Problem 22
1. Various representations about wallpaper
a. Finest in the store Probably not an express warranty but close call
b. Goes up easily An express warranty; a characteristic
c. Can put up with any paste An express warranty; a characteristic
d. Dries immediately Express warranty; a characteristic
e. Would look wonderful Sales talk; no express warranty
f. Was used by Mary Magic No express warranty
2. You can have express warranties created after the completion of the transaction (after you sign on
the dotted line)
a. This is a contract modification w/o consideration, which is valid in this situation
b. But how did it become a part of the basis of the bargain?
iv. Problem 23 Paul buys a wig; the wig changes color; he sees an ad a year later that says it doesnt
change color. An identical ad was published a week before he bought it. Paul can still bring suit, even if
he admits he never saw the ad before he bought. Still an express warranty we punish the seller.
v. 2003 revision creates express warranties (that have been recognized by many courts, but not specifically
incorporated until now)
1. Found in packaging
2. Made via advertisements to the public at large
3. Unless the remote purchaser enters into a transaction of purchase with knowledge of and with the
expectation that he goods will conform, the warranty is not breached
4. But of course this hasnt been adopted! Many states still have their state CL running contra.

18

(b) Implied Warranties legal opposite of express warranties. An express warranty is created only where seller
does s/t affirmative. Implied warranties are automatically part of K unless seller does s/t affirmative to get rid
of them.
i. Implied Warranty of Merchantability
1. Basics: (2-314) no precise definition; basic idea is that the item must be saleable and conform to
the normal expectations of the parties. Merchantable: fit for sale in the usual course of trade.
2. Requirements:
Merchant Seller with respect to goods of the kind sold (i.e. only a merchant makes an implied
warranty of merchantability)
Sale of goods (i.e. wouldnt be implied where a merchant gifts a good to s/o)
3. Main warranty 2-314(2)(c) goods fit for the ordinary purposes for which such goods are used
Comment 13 There must be a breach and proximate cause in order to recover
4. Shaffer v. Victoria Station, Inc. (Wash. 1978) drinking wine at restaurant; wine glass broke
and cut his hand. sued for breach of implied warranty, etc. argued restaurant was not a
merchant with respect to wine glasses and that since the glass itself was not sold, there was no
passing of title as required under 2-106 (i.e. not a merchant & no sale of goods)
2-314(1)Under this section the serving for value of food or drink to be consumed either
on the premises or elsewhere is a sale for purposes here
- Inquiries: Whether a sale occurred; and whether served that drink for value.
- 2-314(2)(e) Goods must be adequately contained, packaged, and labeled as the
agreement may require.
Court: sold and served the glass of wine to to be consumed by on the premises; the
wine could not be served as a drink nor could it be consumed w/o an adequate container. The
wine sold to includes the wine and the container, both of which must be fit for the ordinary
purpose for which used.

What if you didnt buy the wine; i.e. absolutely free wine tasting? It would not be for
value, thus there would be no implied warranty; may recovery in tort.

What if youre at a casino playing blackjack getting served free drinks?

- Levondosky v. Marina Associates , casino, was offering complimentary drinks to its
patrons. Nonetheless, it was not offering these drinks out of any sense of hospitality or
charity. The complimentary drinks were offered by as an incentive to patrons to
gamble, and therefore enhance 's business. (Patrons dont pay for the drinks, but they give
the casino their patronage in return.

Does it matter whether the seller was negligent?

- According to comment 13, negligence does matter to an extent (evidence indicating that
the seller exercised care is relevant to the issue of whether the warranty was in fact
broken); nevertheless, courts ignore this
- Breach of the implied warranty of merchantability is generally strict liability.

5. Problem 25: swerved to avoid a deer and collided with a tree; as a result, smashed up against
the sharp points of the driver side door handle, window lever and an ashtray. sued car
manufacturer on the theory that the manufacturer should have designed a much safer car.
General rule: It is the duty of a manufacturer to use reasonable care under the circumstances to so
design his product as to make it not accident or foolproof, but safe for the use for which it is

19

intended. This duty includes a duty to design the product so that it will fairly meet any emergency
of use which can reasonably be anticipated.
The manufacturer is not an insurer that his product is, from a design viewpoint, incapable
of producing injury.

6. Nelsons favorite policy reason: We dont want to discourage commercial transactions; courts will
give UCC implied warranty provisions broadly to hold merchant sellers responsible. ( Other side
i.e. we dont want to impose implied warranty of merchantability on non-merchant sellers; it would
discourage people selling)
7. Daniell v. Ford Motor Co. (N.M. 1984) tried to commit suicide by locking herself in the trunk
of her car; at some point she changed her mind and couldnt get out. The court granted summary
judgment for , finding that the trunk was not defective or unreasonably dangerous, and that 's
use was not an ordinary purpose- no breach of warranty.
a. Court: any implied warranty of merchantability in this case requires that the product must be
fit for the ordinary purpose for which such goods are used. The usual
ii. Fitness for a particular purpose
1. Basics; UCC 2-315 Requirements: (1) Seller has reason to know of buyers particular purpose
(could a purpose outside the ordinary purpose, or one that is particular to the buyer); and (2) Buyer
relies on the sellers skill or judgment.
2. Problem 26: No COA for breach of 2-314 b/c the heater was fit for its ORDINARY purpose;
warranty of merchantability was created, but not breached. No COA under 2-315 No reliance
on sellers skill or judgment.
Comment 5 where buyer insists on a particular brand he is not relying on the sellers skill
and judgment, so no warranty results.
3. Problem 27 (1): no particular purpose; paint isnt supposed to smell like that when it dries, so
that should just be about merchantability and ordinary purpose. (2): particular color was a
particular purpose- relied on the clerks skill to mix correctly.
4. Problem 28 reasonable expectation test; whether the consumer should have reasonably expected
to find a pit in the olive What is to be reasonably expected by the consumer is a jury question.
Note: cases involving injury from a natural object found in food; diffeent from a patron
finding a foreign substance in their food.
5. Webster v. Blue Ship Tea Room, Inc. (Mass. 1964) , who grew up in New England, ate at s
restaurant and got a bone stuck in her throat after eating fish chowder. Issue: whether a fish bone in
a hearty fish chowder merchantable and fit for its particular purpose?
The court determined that there was no breach of warranty, b/c one eating fish chowder in a
restaurant on Boston Harbor ought to know/expect that a good chowder will have bones in it;
i.e. she should have been aware of the danger inherent in eating fish chowder.
Argument: The ordinary purpose of chowder is to eat, and if you swallow bones in eating it
and injure yourself, it is not fit for its ordinary purpose
iii. Problem 29 bought a hair product that contained alcohol, she has an alcohol allergy that only affect
.5% of the population. Is there an implied warranty breach?
1. But these goods would pass without objection in the trade
2. We are talking about the expectations of the ordinary purchaser, not that of an unusual or
extraordinary purchaser
Otherwise, we would lose predictability

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iv. EXAM: Discuss (1) the creation of the warranty; (2) the breach of the warranty; and (3) any applicable
disclaimers/limitations. Dont jump straight to disclaimer when one is included. Must discuss how the
warranty was created; breached; and THEN discuss whether it was disclaimed or not.
(c) Warranty Disclaimers and limitations
i. 2-316(1) Disclaiming express warranties:
1. Express warranties are virtually impossible to disclaim
2. Making a warranty is inconsistent with a disclaimer of warranty (i.e. you can get around the parol
evidence rule!);
3. To disclaim an express warranty, it must be consistent w/the express warranty, which is virtually
impossible.
4. Bell sports, Inc. v. Yarusso (Del. 2000) Defective motocross helmet case; jury found no
negligence, but found a breach of warranty; Issue: Was there a breach of express warranty or
implied warranty?
Holing: Yes, there can be a breach of warranty w/o negligence; Negligence focuses on the
manufacturers conduct, whereas a breach of warranty claim evaluates the product itself
- Express warranty created by textual representations found in helmet's manual were not
disclaimed by manual's five year limited warranty, such that manufacturer could
avoid liability for off-road motorcyclist's neck injury that resulted in paraplegia;
- Manual's representations that the helmet's liner was designed to reduce harmful effects
of a blow to the head constituted essential elements of valid express warranty that could
not be disclaimed as matter of law under state's UCC.
You cant create a warranty in one provision, then later in the same doc disclaim the express
warranty. Just b/c the product fails doesnt mean all warranties are breached
ii. Warranty disclaimers: the basics what it takes to have a valid disclaimer
1. Express Warranty: must be consistent with the creation of the express warranty
2. Implied Warranty of Merchantability: must mention the word merchantability. Not required to
be in writing, but conspicuous, but if a writing is used, then the disclaimer must be conspicuous.
Policy Reason for Behind the Requirement that a Disclaimer of IWM Mention the
Word Merchantability: at the heart of every transaction is the expectation of the Buyer
that the goods will work.
3. Implied Warranty of Fitness for a Particular Purpose: must be in writing and conspicuous. No
magic words must be used; can use general disclaimer language.

iii. Problem 30 Car doesnt get nearly the advertised expected miles per gallon; Clauses in contract:
1. This is the entire contract, and there are no other matters agreed to by the parties that are not
contained herein.
Merger clause, used to get around PE evidence if it is found to be a complete integration
IWM: Doesnt mention merchantability: No Disclaimer.
IWFPP: Doesnt say anything about a warranty disclaimer; must at least have that kind of
language to function as a warranty disclaimer
2. There are no other express or implied warranties except those contained herein.
they shouldnt have made an express warranty in the first place. Under 2-316(1)- disclaimer
must be consistent with express warranties and its not here.

21

Not enough to overcome merchantability, but it is sufficient for some implied warranties if
conspicuous.

3. No person has the authority to give express warranties other than those contained herein
iv. Example: All warranties, including express and implied warranties, are disclaimed
1. Warranty of title: Doesnt disclaim
2. Express warranty: Doesnt disclaim almost impossible to disclaim EW; get around this provision
with 2-316(1) and PE rule
3. Merchantability: Doesnt disclaim Must use the word merchantability and be conspicuous if it
is in writing
4. Fitness for a particular purpose: Doesnt disclaim Must be in writing and conspicuous
v. Disclaiming Implied Warranties
1. Cate v. Dover Corp. (Tex. 1990) bought car lifts from , then sued when they did not operate
properly. s warranty provision was conspicuous: it had a heading in a colored font and larger size
and was displayed on its own page. But the disclaimer was embedded in this warranty provision, in
the same typeface, color, and size as the rest of the warranty language. Therefore, the Texas S.Ct.
reversed summary judgment for , holding that the disclaimer was not conspicuous.
The disclaimer was hidden among attention-getting language purporting to grant the best
warranty available.
Court also held that if buyer had actual knowledge of the disclaimer, that would override the
question of conspicuousness; it placed the burden of proving actual knowledge on the seller.
2. What does it take to be conspicuous? Best practice is to:
Put it in bold
Set it apart, with a title like warranty disclaimer
Signature/initial next to the clause
Change font/size, insert blocking, etc.
3. As is, or with all faults means what you see is what you get; Effective for implied warranties
but not the express ones.
Unless the circumstances indicate otherwise, all implied warranties are excluded by
expressions like as is or with all faults. (i.e. language which in common understanding
calls the Buyers attention to the exclusion of warranties and makes plain there is no implied
warranties.
Nothing in 2-316(3)(a) requires this language to be in writing and conspicuous; but most
courts require it (i.e. best practice is to put as is language in writing and conspicuously).
4. Problem 31 heading Terms of Warranty or Warranty create an ambiguity and are likely to
fail to alert consumer that an exclusion of the warranty was intended (these words indicate the
making of a warranty)
2-316(3)(b): Examination not sufficient that the goods are available for inspection; there
must in addition be a demand by the seller that the buyer examine the goods. In these
circumstances, if Buyer refuses Sellers demand to inspect the goods, there is no implied
warranty with regard to defects which such an examination ought to have revealed to him.
BUT, Buyer can argue that the defect was latent (i.e. it wouldnt have been noticed
in an examination).
Rule: latent defects cannot be excluded by a simple examination.

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5. Problem 32 Guy orders a car; car is delivered; warranty disclaimer in the owners manual, which
is located in the glove box. Is this disclaimer of warranties effective? No not a basis of the
bargain.
Post-Sale Disclaimers are ineffective b/c not part of the basis of the bargain; i.e. cannot
unilaterally impose a K term after the K has been entered into.
6. Bowdoin v. Showell Growers, Inc. (11th Cir. 1987) ordered a spray rig. Instruction manual
was included w/the spray rig when it was delivered to , which on the last page included a
warranty disclaimer; trial court concluded that a disclaimer found in the manual that accompanied
the spray rig when it was delivered to the purchaser was conspicuous and therefore effective.
Holding: Even assuming that the disclaimer was otherwise conspicuous, it was delivered to
the purchaser after the sale. Such a post-sale disclaimer is not effective b/c it did not form a
part of the basis of the bargain between the parties to the sale.

Rule: the buyer is not bound by the disclaimer to which he had never agreed at the time of
the sale and which first appears in the manufacturers manual delivered to the buyer with the
goods or the manufacturers printed material brochure, or warranty booklet that accompanies
the goods.

7. Rinaldi v. Iomega Corp. (Del. 1999) purchasers of a defective zip drive sued -manufacturer for
breach of the implied warranty of merchantability; court considered the issue of conspicuousness of
a disclaimer of the implied warranty of merchantability included in a shrink-wrap agreement.
Court: held that a disclaimer of the implied warranty of merchantability contained in the
package of the product is conspicuous even though the buyer cannot possibly see the
warranty until after the purchase.
Commercial practicalities make it reasonable to have the buyer read the disclaimer after
payment and, if unacceptable, to reject the K thereafter.
- The physical location of the disclaimer of the implied warranty of merchantability
inside the ZIP drive packaging does not make the disclaimer inconspicuous and thus
ineffective; i.e. the disclaimer was effective.
8. Policy Behind 2-316 serves to protect a buyer from unexpected and unbargained for language
of disclaimer.
9. Do the decisions in Bowdoin and Rinaldi conflict? Not quite In this situation, the manufacturer
gives the buyer the opportunity to take it home, read the warranty contained within the packaging,
and return the good if they dont like the terms of the contract.
The two cases define the time of sale differently; but the disclaimer must still be bargainedfor.
10. As is disclaims implied warranty of merchantability and implied warranty of fitness for a
particular purpose, but not warranty of title or express warranties
11. Sophistication of the parties: in SC, this is a material factor in the determination of whether a
purported disclaimer was conspicuous. (See Myrtle Beach Case [843 F.Supp. 1027] for a
discussion factors used in SC by courts to determine whether a term is conspicuous)
(d) LIMITATIONS ON THE WARRANTY Seller is willing to give a warranty to Buyer, but wants in some way to
limit the scope of the liability that a breach of said warranty creates.
i. 2-316 (4) Remedies for breach of warranty may be limited in accordance with 2-718 and 2-719.

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ii. 2-718(1) Liquidation or Limitation of Damages.

1. Text: Damages for breach by either party may be liquidated in the agreement but only at an
amount which is reasonable in the light of the anticipated or actual harm caused by the breach,
the difficulties of proof of loss, and the inconvenience or non-feasibility of otherwise obtaining an
adequate remedy. A term fixing unreasonably large liquidation damages is void as a penalty
a. The amount must be reasonable in light of anticipated OR actual harm;
b. Have to look at whether the liquidated damages clause is a veiled attempt to impose a penalty
on the breaching party; under the law of contracts, UCC, etc. punitive damages are not
allowed for the breach; breaching party required to make the non-breaching party whole.
- Punitive damages for breach of warranty, etc, would stifle freedom of k; contradict the
goals of the UCC
c. Efficient Breach sometimes we want Ks to be breached, so that the goods or services go
to a more valuable purpose. A penalty would limit considering an efficient breach.
iii. 2-719 Contractual Modification or Limitation of Remedy
(1) Subject to the provisions of subsection (2) & (3) of this sectionand 2-719:
(a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article
and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer's
remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming
goods or parts; and
(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in
which case it is the sole remedy.

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

The general remedy provisions of the UCC apply when circumstances cause an exclusive or
limited remedy to fail of its essential purpose. (i.e. leaves aggrieved party w/o a remedy at all,
then the limitation clause will be stricken and the UCC remedies flood back in).
Comments: where an apparently fair and reasonable clause b/c of circumstances fails
in its purpose or operates to deprive either party of a substantial value of the bargain,
it must give way to the general remedy provisions of the UCC.

Typically, a remedy fails its essential purpose where: (1) the seller is unsuccessful in repairing
or replacing the defective part, regardless of the good or bad faith, or (2) there is unreasonable
delay in repairing or replacing defective components
(3) Consequential damages may be limited or excluded unless the limitation or exclusion is
unconscionable. Limitation of consequential damages for injury to the person (i.e. personal injury) in the
case of consumer goods is prima facie unconscionable but limitation of damages where the loss is
commercial is not.

If seller says no consequential damages and buyer has personal injury and commercial
consequential damages, the clause is thrown out and buyer recovers all damages.

2 ways to defeat limitation on consequential damages: (1) Personal injury + consumer product
(per se unconscionable); or (2) Limitation/Exclusion is Unconscionable. (Pierce v. Catalina
Yachts, Inc.)
Some courts have read the statute to imply a conspicuousness requirement for these clauses;
otherwise it is unconscionable
Are (2) and (3) dependent on one another? If fails essential purpose; everything comes in,
including consequential damages.

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When a limited remedy fails, and a separate provision of the warranty bars consequential
damages, does this clause also fail?
The majority of courts hold that the two provisions are independent of each other (See
Pierce, below); i.e. when a limited remedy fails, a separate provision barring
consequential damages will survive under 2-719(3) as long as the bar itself is not
unconscionable.

iv. Wilson Trading Corp. v. David Ferguson, Ltd. (N.Y. 1968) K bars all claims for shade and other
specified defects made after knitting and processing. Issue: Whether the time limitation provision on
claims in the K (10 days) was unreasonable since the defect in the color of the yarn was latent and could
not be discovered until after the yarn was processed and the finished product washed.
1. Holding: the limitation was unenforceable b/c it left the aggrieved party w/o any remedy. The
effect of sellers limitations is to eliminate any remedy for shade defects not reasonably
discoverable w/in the time limitation period. So, it was stricken from K and UCC provisions apply.
2. Rule: Any clause purporting to modify or limit the remedial provisions of the UCC in an
unconscionable manner is subject to deletion.
v. Pierce v. Catalina Yachts, Inc. (Ala. 1999) bought a boat from , who gave a limited warranty,
promising to repair or pay for repair of the boats gel coat, but warranty expressly disclaimed s
responsibility for consequential damages. Issue: how a warranty provision that creates a limited remedy
interacts with another provision that excludes consequential damages i.e. if the limited remedy fails,
should the exclusion of consequential damages survive?
1. Holding: court adopted the majority view that 2-719(2) and (3) are independent clauses; when a
warranty fails, a separate provision barring consequential damages will survive under 2-719(3) as
long as the bar itself is not unconscionable.

Case at Bar: The remedy failed its essential purpose, and even though they are independent,
the limitation on consequential damages is also ineffective because of a bad faith actor.

Court: this approach balances the purposes of subsections 2-719(2) and (3) by allowing
parties latitude to K around consequential damages, while protecting buyers from
unconscionable results.
2. Unconscionability and unfairness play a role in both sections; so although they are technically
independent; in practice they tend to go together
vi. Problem 33 Sale of snowmobile with express warranty, a repair or replacement clause, and a
disclaimer of consequential damages. Buyer took machine to seller on numerous occasions for engine
repairs; Buyer later crashes after engine blew up. Sustained personal injury, snowmobile destroyed, lost
wages, property damage (camera) and required to rent a snowmobile to get to work. What happens?
vii. EXAM Issue spotting with warranties
1. Treat each warranty (merchant, fitness, express, title, etc.) as separate issues; go thru each
separately
2. Sub-issues: (a) Creation of warranty; (b) Breach of warranty; (c) Disclaimer of warranty; (d)Notice
(or treat separately, if it applies to all warranties)
(e) Defenses in Warranty Actions
i. NOTICE 2-607(3)(a) A buyer loses all UCC rights if there is a failure to give the seller notice of the
breach within a reasonable period of time after the breach should have been discovered.
1 Reasonable time from when he discovered or should have discovered the breach
2 Purpose Puts seller on notice of the problem (i.e. alleged breach) so he can come in and fix
(Cure) the problem. Additionally, the notice requirement encourages the parties to
negotiate/resolve the problem themselves.

25

This doesnt apply only to breach of warranty; applies to all sorts of breaches
a. If seller delivers 5 months after delivery date, buyer still has the burden to notify
b. The point of notice is not to tell seller what is wrong (they may already well know), but they
dont know that you have a problem with it unless you notify them that youre discontent

Best practices: what should the notice look like?

a. Lenient jurisdictions: You dont have to be specific; You are on notice that the brakes arent
working
b. Stricter jurisdictions, say:
- What is wrong (Use the word breach);
- Say what occurred; Give dates (timeline)
- Ask for a remedy; Put it in writing; Send it certified mail
- Dont necessarily have to threaten a lawsuit
c. When in doubt, over-comply be as specific as possible

Problem 34 Seller showed an apple, but said the ones he sells will be 1/5 smaller and have less
color. Seller delivers apples 1/3 smaller than sample. Buyer waited to notify seller until seller billed
60 days later. The sample was not the warranty at all; 1/5 + less color was the warranty. Action is
barred; notification of breach not within a reasonable time

ii. BURDEN OF PROOF In a warranty suit, bears the burden of proving (1) the creation of the warranty;
(2) its breach; (3) its causal connection to 's injury (proximate cause); and (4) the fact and extent of
injury.
1. Flippo v. Mode ODay Frock Shops of Hollywood (Ala. 1970) bitten by a spider while trying
on pants in s store. claimed that had breached the implied warranty of merchantability b/c
the presence of the spider in the pants rendered said pants unfit for their ordinary use.
a. Court: the pair of pants itself was fit for the ordinary purposes for which stretch pants are
used; there was nothing wrong from a manufacturing standpoint; i.e. the spider was not a part
of the manufactured article, and the injury to was caused by the spider, and not the product.
b. Rule: in cases involving the sale and use of alleged defective products, there must be
substantial evidence of negligence, such negligence being a proximate cause of the injuries
sustained b/f recovery will be permitted.
iii. PRIVITY (is so connected to the transaction that he should be responsible for the s damages?) b/c
suits on warranties are K actions, -Buyer must establish that there was in fact and in law a contract
between the two parties (i.e. privity); 2-318 gives the states three versions to choose from to address
the issue of privity; S.C. is alternative B.
1. Vertical Privity the legal relationship b/w parties in a product's chain of distribution (such as a
manufacturer and a seller); addresses the problem of how far back up the distribution chain the
buyer can go.
2. Horizontal Privity the legal relationship between a party and a nonparty who is related to the
party (such as a buyer and a member of the buyer's family); deals with identifying to whom the
retail seller is liable other than the immediate purchaser (ex. Purchasers wife; car passenger; etc.)
3. Problem 37
Hamilton Paint Co.

Girard Inst. Corp.

Leibnitz Dept. Store

26

Sylvester Cayley Joan Cayley Children Mr. Gauss

Can Mr. Gauss sue Leibnitz? Question of horizontal privity.

Can Mr. Cayley sue Hamilton Paint Co.? Question of vertical privity.
Can Mr. Gauss sue Hamilton Paint Co? Question involving both horizontal and vertical
privity.

(f) EXAM: Issue statements; rule applications, arguments, counterarguments more important than our
final conclusion.
(g) Magnuson-Moss Warranty Act (15 U.S.C. 2301 2312) Enacted in 1975; federal statute that governs
warranties on consumer products; enacted in response to widespread misuse by merchants of express
warranties and disclaimers. The purpose of the Act is to make warranties on consumer products more readily
understood and enforceable and to provide the Federal Trade Commission with means to better protect
consumers.
i. The statute is remedial in nature and is intended to protect consumers from deceptive warranty practices.
Consumer products are not required to have warranties, but if one is given, it must comply with the
Magnuson-Moss Act.
ii. Does not create any warranties itself; but it sets up standards and rules about written warranties; as
well as other express and implied warranties under the UCC
iii. Just b/c something doesnt qualify as a written warranty under the Act, a buyer may still sue under
UCC (i.e. for breach of express warranty)
iv. 2301(6) Written Warranty (A) any written promise made in connection with the sale of a
consumer product by a supplier to a consumer that relates to the material and/or workmanship and that
affirms that the product is defect-free or will meet a certain standard of performance over a specified
time; or (B) any undertaking in writing in connection with the sale by a supplier of a consumer product to
refund, repair, replace, or take other remedial action with respect to such product in the event such
product fails to meet the specifications set forth in the undertaking.
v. 2303 Designation of Written Warranties (Full v. Limited Warranty) Must specifically designated
as either a full warranty or a limited warranty
1. Full warranty is one that meets the federal minimum standards for a warranty. Such warranties
must be "conspicuously designated" as full warranties; a limited warranty does not comply; falls
short of the standards
vi. 2308 Implied Warranties: If you have made a written warranty, any purported disclaimer of implied
warranty is ineffective! (for either a full warranty or limited warranty)
1. Full Warranty Cannot disclaim or limit the duration of implied warranties.
2. Limited Warranty You cannot disclaim implied warranties if you have a limited written
warranty But if you have a limited warranty, and it is limited in duration, you can also limit the
duration of the implied warranty
a. Ex. Ford Motors Handout Limited Express Warranty The warranty is for 12 months
or 12,000 miles, whichever comes first
- To the extent allowed by law, any implied warranty of merchantability or fitness
applicable to this vehicle is limited to the 12-month / 12,000 mile duration of this
written warranty.
vii. 2310 Remedies in Consumer Disputes: Main Provision: (d)

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1. Under subsection (d), a consumer who has been injured by the noncompliance of a supplier may
bring an action in state court if the amount in controversy is between $25 and $50,000. If the
jurisdictional amount exceeds these limits, such an action may be brought in federal district court.
2. The M-M Act action is better than a standard UCC action b/c you can recover attorneys fees under
2310(d)(2) So if there is any breached written warranty or implied warranty (but not an oral
express warranty), you can recover attorneys fees under this Act
viii. Problem 39 Company purchasing a company car. Is the company entitled to the protection of the MM Act?
1. 101(1) applies to products normally used for personal family or household purposes
2. Yes, the company car can be deemed a consumer product and the company is entitled to the
protection of the M-M Act Company qualifies as consumer if it is buying a consumer product
ix. Problem 40 Sometimes a written warranty does not qualify as a written warranty under this Act; and
thus it is treated the same as an oral express warranty
x. Privity: This Act eliminates horizontal privity (any person to whom the buyer transfers) What about
vertical privity? A little less clear, but maybe.
(h) WARRANTY REVIEW
i. EXAM: If the warranty is not breached, you dont have to bring it up as an issue
ii. Professor Whaley v. Professor Nelson
1. Whaley, the author, said that a stand-alone implied warranty is not covered by the M-M Act, and
thus you cannot recover attorneys fees and file suit in federal court. Whaley says that an action
under the M-M Act doesnt arise unless there is a written warranty. But Professor Nelson, and a
bunch of other contracts professors agree that:
2. 110(d), M-M Act provides a federal cause of action for breach of implied warranty
a. For Nelsons position: Chase v. Kawasaki, 140 F.Supp.2d 1280 (M.D. Ala. 2001)
b. For Nelsons position: Moffit v. Icynene, 407 F.Supp. 2d 591 (D. Vt. 2005)
c. Against Nelsons position: McNamara v. Nameco, 26 F.Supp.2d 1168 (D. Minn. 1998)
3. Whaley says it wasnt Congresss intention to turn the state COA into a federal COA
iii. Express Warranty (2-313)
1. Affirmative promise;
2. Relate to the goods in question;
3. Basis of bargain;
4. Was there a disclaimer?
5. No reliance defense
6. Puffing defense
iv. You know those Accords. Theyre like camels. Probably puffing, but could relate to the goods b/c you
were talking about gas mileage at the time
1. I promise that this car will give you at least 30 mpg in the city Express warranty. Part of the
basis of the bargain
2. Was the warranty breached? Supposed to get 30 mpg, only gets 20-25 mpg; yes, it is breached
3. Was the warranty disclaimed? All automobiles sold by bobs affordable wheels are sold with all
faults. Not disclaimed; not consistent with the statements creating the express warranty
v. Implied Warranty merchantability; 2-314 (1) Merchant seller (of goods of the type in question),
automatically created; and (2) Fit for the ordinary purposes

28

vi. Implied Warranty fitness for a particular purpose; 2-315 (1) Seller knows or has reason to know a
particular purpose; and (2) Buyer relies on sellers skill. Practice (Midterm) Question

IV. CHAPTER 4 TERMS OF THE CONTRACT

1. FILLING IN THE GAPS (p.215 221)

(a) 2-204: General Contract Formation Provision; (3) Even if one or more terms are left open, a K for sale does
not fail for indefiniteness if the parties have intended to make a K and there is a reasonably certain basis for
giving an appropriate remedy.

(b) 2-305. Open Price Term: (1) the parties if they so intend may conclude a K for sale even if the price is not
settled. In such a case the price is a reasonable price at the time for delivery if:
(a) nothing is said as to price;
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person
or agency and it is not so set or recorded.

(c) Policy reasons behind UCC Gap Filler provisions:

i. We want to promote commercial transactions
ii. We want to bind parties who intended to bind themselves
(d) Problem 43 Buyer sent a letter to Seller stating he wanted to buy 100 cases of motor oil, some cases to
be Type A (expensive) and some to be Type B (cheaper kind). Buyer told Seller he would let him know
later how much he wanted of each type. Seller informed Buyer that Type B was selling for $30 a case, but
that price of Type A was fluctuating so sales price would have to be set at the time of delivery. The parties
signed a written K for delivery of 100 cases, types to be specified by Buyer one week prior to delivery
(April 8). On April 1, Seller contacted Buyer to ask how much he would take of each type; Buyer said
April Fool! Im not taking any, and hung up the phone.
i. There is an enforceable K; to determine the undefined terms, Seller must look first to 2-305; Open
Price Term Commercially reasonable to set the price as the market price at the time of delivery.
But under (4), if the parties intend not to be bound unless the price is fixed, there is no K. So you need
specific K language to get over that hurdle.
ii. 2-311(1) Buyer has right to decide the assortment, but that right goes to seller if not done w/in a
seasonable period of time; still implicit requirements of good faith and setting a reasonable amt.
Reasonable amount? Maybe 50-65% of type A based on prior dealings.

iii. What if Buyer just said April Fool and hung up? Repudiation? 2-610: Anticipatory
repudiation- getting out of the K before the time of performance comes due. If youre not sure if the
repudiation occurred, you can wait for performance or go ahead and sue as soon as you find out about the
repudiation. Either way, they have the right to suspend their performance.
Repudiation can result from action which reasonably indicates a rejection of the continuing
obligation. SO, April Fool! alone probably isnt enough for repudiation.
iv. 2-609 Right to Adequate Assurance of Performance When reasonable grounds for insecurity
arise with respect to the performance of either party the other may in writing demand adequate assurance
of due performance and until he receives such assurance may if commercially reasonable suspend any
performance for which he has not already received the agreed return.

Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance
offered shall be determined according to commercial standards.

29

If buyer doesnt respond within a reasonable time (not longer than 30 days), the seller can deem it
to be a repudiation; go to 2-610

(e) Landrum v. Davenport (Tex. App. 1981) Parties agreed to sticker price of the limited edition Corvettes
the dealer was getting in, which they knew would be somewhere between $14k and $18k. The Corvettes
comes in; the seller refuses to sell for the sticker price ($14k), but demands the market price ($22k). Buyer
buys under protest for the $22k. Issue: Is there an enforceable K even though the price term was left
open? Yes 1-207 Performance of Acceptance under Reservation of Rights; without prejudice or
under protest, reserves the partys rights at law
2. UNCONSCIONABILITY seeks to prevent oppression & unfair surprise; protect those unable to protect themselves.
(a) Procedural unconscionability unconscionablility resulting from improprieties in the formation of the K
(i.e. material misrepresentation, or disparities in bargaining position) rather than from the terms of the K
itself.
(b) Substantive unconscionability unconscionability resulting from the actual K terms that are unduly
harsh, commercially unreasonable, and grossly unfair given the existing circumstances (i.e. exorbitant
interest rates).
(c) Definition? The terms are so one-sided as to oppress or unfairly surprise the other party but the code
never defines it!
i. Whether a contract is unconscionable is a question of law, for the judge
ii. A 2-302 unconscionability hearing is mandatory as a technical step prior to a finding of
unconscionability
iii. All these rules apply to leases of goods under Article 2A
(d) 2-302; Comment 1 Test: whether in light of the general commercial background and the commercial
needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under
the circumstances existing at the time of the making of the K.
Important element of Unconscionability: lack of meaningful choice.
(e) Remedies Available under 2-302 Courts have a variety of solutions when they find a clause
unconscionable
i. Refuse to enforce the K as a whole if it is permeated by the unconscionability;
ii. It may strike any single clause or group of clauses which are so tainted or which are contrary to the
essential purpose of the agreement; or
iii. It may simply limit unconscionable clauses so as to avoid unconscionable results.
(f) Just b/c you get a bad deal doesnt mean the contract was unconscionable
(g) Williams v. Walker-Thomas Furniture Company (D.C. Cir. 1965) Under the payment plan, you never
paid anything off until you paid everything off. And if you miss a payment, they have the right to
repossess everything.
i. Holding: Remand to find if it is unconscionable.
ii. Dissent: If you let this be unconscionable, people will always be pleading unconscionability.
Freedom of contract should govern.
3. IDENTIFICATION OF THE GOODS NOT ON THE EXAM!!!
(a) 2-501 Identification of Goods
i. Identification of the goods may take place at any time explicitly agreed to by the parties (does not
have to be that formal; as long as it is recognized) In the absence of agreement, identification occurs:

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1. When the contract is made if for goods already existing and identified (i.e. I want to buy
THAT gown)
2. For future goods (not existing and identified), when goods are shipped, marked or otherwise
designated by the seller as goods to which the contract refers upon identification
a. i.e. you see a floor model, and want a warehouse version of it.
b. 2-105 Future Goods goods that are not both existing and identified are future goods
3. When crops are planted or unborn young are conceived
(b) Cause of action: Sellers Action for Price the sellers request for specific performance. Only comes up
in situations where the goods have already been identified
4. RISK OF LOSS: NO BREACH; Risk of loss issues arise when s/t bad has happened to the goods.
(a) General Rules Matters when something happens to the goods before or during delivery to the buyer
whos responsible (and whose insurance company has to pay?) This situation is where there is no breach:
the goods are conforming, no repudiation, etc.
i. 2-509(3) General rule of risk of loss:
1. Where seller is a merchant, risk of loss passes to buyer on buyers actual receipt of the goods
2. Where seller is not a merchant, the risk of loss passes to buyer when seller tenders delivery
a. 2-503 Definition of Tender tender of requires that seller put and hold conforming
goods at buyers disposition and give buyer any notification reasonably necessary to
enable him to take delivery. The manner, time and place for tender are determined by the
agreement and this Article
b. Where the party is required to deliver at a particular destination tender requires that he
comply with 2-509(1) and also in any appropriate case tender documents associated
therewith
(b) SPECIFIC RULES
i. 2-509(1): (use where the K requires or authorizes seller to ship the goods by carrier)
1. Shipment contract risk of loss shifts to buyer when goods are delivered to the carrier; (i.e.
Seller bears the risk of loss only up until the goods are delivered to the carrier; risk shifts to
Buyer once goods are delivered to the carrier).
2. Destination contract risk of loss shifts to buyer when goods reach the buyers destination
3. Presumption: when no delivery term is included, the presumption is in favor of a shipment K.
ii. Delivery Terms: shorthand methods of stating whether sale calls for a shipment or a destination K.
1. F.O.B. free on board can mean either destination OR a shipment contract, depending on
what comes after it:
a. F.O.B. ([Buyers location]) tells us it is a destination contract
b. F.O.B. (Port of Miami [sellers location; location of carrier]) is a shipment contract
c. Presumption is for a shipment contract, for instance if the F.O.B. (__________) is left
blank.
2. C.I.F. and C.&F. always indicate a shipment contract.
iii. Problem 48 Seller in NYC, buyer in Savannah. F.A.S. (free alongside S.S. Seaworthy, NYC)
Seller got it to the dock, and the dock collapsed (though no fault). Who bears the risk of loss? This
is a shipment contract; buyer bears the risk of loss when the dock collapses
1. 2-319 Definition of F.A.S. seller is only responsible for getting it to the dock

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2. What if it said Ex-ship S.S. Seaworthy, Savannah? This is a destination contract; seller bears
the risk of loss until they reach the Savannah port, unloaded from the ship. When the Savannah
dock collapses, the buyer bears the risk of loss.
iv. Problem 49 Seller in Michigan; Buyer in Alabama. One vehicle is destroyed by lightning after
carrier received them but before loaded on railroad car. F.O.B. Detroit Shipment contract. After
carrier has received them, risk shifts to buyer.
1. What if it said F.O.B. railroad cars Detroit? Still a shipment contract, but seller bears the
loss in this situation b/c they werent loaded on yet
a. Remember, F.O.B. can be either shipment or destination
b. F.O.B. means loaded onto the carrier, F.A.S. just means alongside the carrier
2. What if it said C.I.F. Birmingham? Still a shipment contract, risk has shifted to the buyer
(c) RECAP: Risk of loss in a non-breach situation
i. Default rules, 2-509(1):
1. Merchant seller risk of loss changes when buyer receives goods
2. Nonmerchant seller risk of loss changes when seller tenders goods
ii. When the K requires or authorizes the seller to ship the goods by carrier, 2-509(1):
1. Shipment contract risk of loss shifts when goods are shipped
2. Destination contract risk of loss shifts when goods reach their destination
iii. CIF or C&F = shipment contract, no matter what comes after it. See 2-320; Even if it says CIF
(destination), it means that risk of loss passes when the goods get to the carrier at the port for
shipment, covering the cost for shipping
(d) Delivery Terms
i. Cook Specialty Co. v. Schrlock Rule: Seller has a duty to set up a prudent arrangement with a
responsible carrier; he cant just hire a crappy carrier, make a shipment contract, and not give a rats
ass what happens during transit
If seller selects a crappy carrier, the risk doesnt shift to buyer
ii. Rheinberg-Kellerei GmbH v. Vineyard Wine Co. Rule: Seller has a duty to put the buyer on notice
when seller is shipping, so that buyer has the opportunity to start his insurance running. If seller does
not notify the buyer of shipment, the risk doesnt shift to buyer

V. Ch. 5 PERFORMANCE OF THE CONTRACT

1. General Rule: Sellers Basic Duty tender conforming goods; Buyers Basic Duty pay for goods tendered.
2. Installment Sales In installment contracts (2-612), substantial performance is still the law. Seller is entitled
to payment even where the tender of the goods fails to conform exactly to the K as long as it substantially
conforms (i.e. shipment of nonconforming goods still qualifies as acceptance of an offer (unless accompanied by
a note, in which case it can be a counteroffer)).
(a) 2-612 Installment Contract; Breach

(2) The buyer may reject any installment which is nonconforming if the nonconformity substantially
impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the
required documents, but if the non-conformity does not fall w/in subsection (3) and the seller gives
adequate assurance of its cure the buyer must accept that installment
1. Nonconformity can be because of time, quantity, assortment, anything

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2. Parties can establish by agreement explicitly what amounts to substantial impairment of value
impossible to cure.

(3) Whenever nonconformity or default with respect to one or more installments substantially
impairs the value of the whole contract there is a breach of the whole.
1. 100% conformity is not the standard. Look at surrounding circumstances from an objective
point of view to determine if there is substantial impairment.
2. Its an objective plus test; if impairment is extremely egregious, a problem w/one installment
may be enough to substantially impair the value of the whole K- but its a high standard.
3. If the parties want perfect tender to apply, they can contract for that. It must be clear.

(b) Problem 53 Shipment one: 1 of 20 statues packed upside-down is broken. Seller cures. Shipment two:
still packed upside-down; 10 of 20 are broken. Shipment three: no statues, mistaken shipment of 20
paintings. No benefit of the bargain at all! Probably cancel-able under subsection (3).
3. PERFECT TENDER RULE Applies to single-delivery Ks; goods must comply with ALL K terms (the substantial
performance rule has never applied to single-delivery contracts b/w merchants)
(a) 2-601 Buyers Rights on Improper Delivery Subject to the provisionson breach in installment
contracts (2-612) and unless otherwise agreed under the sections on contractual limitations of remedy ( 2718 and 2-719), if the goods or tender of delivery fail in any respect to conform to the K, buyer may:
i. Reject the whole;
ii. Accept the whole; OR
iii. Accept any commercial unit or units and reject the rest
2-105(6): Commercial unit means such a unit of goods as by commercial usage is a single
whole for purposes of sale and division of which materially impairs its character or value on the
market or in use (i.e. stand alone goods that can be sold separately).

A commercial unit may be a single article (i.e. a machine) or a set of articles (i.e. a suite of furniture
or an assortment of sizes) or a quantity (i.e. a bale, gross or carload) or any other unit treated in use
or in the relevant market as a single whole.

(b) Problem 54 Lady buys 5 new cars, test drove them and returned 3 (b/c audio system was broken, another
the carpeting in trunk was ripped)
i. The common law de minimis exception to the perfect tender rule doesnt apply; superseded by UCC
1. Of course there are critics of 2-601 as too harsh on sellers
2. Bad faith buyer can get out of a deal he entered into by finding some minor defect
ii. Does the car deal have the right to cure under 2-508? Yes, probably
iii. What if this is commonly done among car dealers? Is usage of trade admissible?
1. Yes, they are presupposed in all agreements
2. Thus, you can use usage of trade to show how perfect the perfect tender should be
a. i.e. you order 10,000 yards of fabric, and are a little off, but usage of trade shows that
plus or minus 5% is normally acceptable
3. If you want to contract around the usage of trade, put a provision in the contract saying so
and it will trump the default rules!
4. CURE The buyers right to reject under 2-601 is subject to the sellers right to cure under 2-508.
(a) 2-508 Cure by Seller of Improper Tender or Delivery; Replacement
i. Where any tender or delivery by Seller is rejected b/c non-conforming and the time for performance
has not yet expired has not expired, seller automatically has right to cure w/in the K time;

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Subsection (1) permits a seller who has made a non-conforming tender in any case to make a
conforming delivery w/in the K time upon seasonable notification to the buyer.
It applies even where Seller has taken back the non-conforming goods and refunded the
purchase price. He may still make a good tender w/in the K period.

ii. When Buyer rejects a non-conforming tender which Seller had reasonable grounds to believe that the
goods would be accepted with or without money allowance Seller may if he seasonably notifies
Buyer have a further reasonable time to substitute a conforming tender.
English: if Seller reasonably thought that either: (1) the goods, though non-conforming, would
be acceptable to the buyer; or (2) Buyer would be satisfied with a money allowance, Seller gets
additional time to cure after the time under the K has passed.
iii. Courts have taken a liberal view towards allowing cure; forgiving to sellers who try to cure
(b) Shaken faith doctrine if you almost died in a faulty new car, your faith in the car has been shaken and
you dont have to let the seller cure by replacing the engine; Not a sure-fire argument; not in the statute
5. REJECTION AND ACCEPTANCE
(a) When Seller makes a tender of goods, Buyer must choose b/w: (1) Rejection (2-602); and (2)
Acceptance (2-606 & 2-607)
i. A buyer cannot do both since rejection and acceptance are mutually exclusive actions. One of the two
things always happens (even if buyer does nothing, in which case he accepts);
If a Buyer has not accepted goods, he may reject them i.e. cancel K and make Seller take
back the goods.
ii. Two important rules derived from abovementioned sections: (1) Buyer is entitled to a reasonable
trial-use period to see if the goods conform (See 2-517:a reasonable opportunity to inspect); and
(2) On acceptance, the burden of proof as to defect shifts to the Buyer (See 2-607(4)).
Prior to acceptance, Seller must prove that a perfect tender was made under 2-601.
(b) 2-602 Manner and Effect of Rightful Rejection
i. (1) Rejection of goods must be w/in a reasonable time after their delivery or tender. It is ineffective
unless buyer seasonably notifies seller.
ii. Subsection (2) lays down the normal duties of Buyer upon rejection: (a) Buyer should not exercise
ownership; and (b) where Buyer has before rejection taken physical possession of goods, he must
hold them w/reasonable care at sellers disposition for a time sufficient to permit seller to remove
them.
Comment 3: 2-602 applies only to rightful rejection by Buyer; if Seller has made a tender
which in all respects conforms to the K, Buyer has a positive duty to accept and his failure to
do so constitutes a wrongful rejection which gives Seller immediate remedies for breach.
(c) 2-508 seller may cure a rejected, defective tender in 2 situations: (1) if the time for performance has not
yet expired, seller may notify buyer of its intention to cure and then may, w/in the K time, make a
conforming tender; and (2) even if the time for performance has expired, seller may, w/in a reasonable
time, substitute a conforming tender if seller had reasonable grounds to believe that its tender would be
acceptable to buyer with or w/o a money allowance and if seller seasonably notifies buyer of its intent to
cure.
i. Read literally, the right to cure applies only when a buyer has rejected nonconforming goods; the
language of the statute fails to mention revocation, but most courts have read the sellers right to cure
into the revocation context.
(d) 2-606 What Constitutes Acceptance of Goods

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i. Acceptance occurs when Buyer (after a reasonable opportunity to inspect goods):

Signifies to Seller that the goods are conforming or that he will retain them in spite of their
nonconformity; or
Fails to make an effective rejection (i.e. does nothing); or
Acts in a way inconsistent with a claim of rejection i.e. acts as if he owns the goods.
ii. Acceptance of any part of a commercial unit is acceptance of the entire unit (i.e. cannot say that you
are accepting a part of a commercial unit)
iii. Comment 4: under (c), any action taken by the buyer, which is inconsistent with his claim that he
has rejected the goods, constitutes an acceptance. White & Summers: conclude that (c) should apply
only where a Buyer attempts to reject the goods but then continues to use the goods.
(e) 2-607 Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance;
i. (3) Where a tender has been accepted: (a) the Buyer must w/in a reasonable time after he discovers or
should have discovered any breach notify the seller of breach or be barred from any remedy.
Comment 4: Need only be such as informs the seller that the transaction is claimed to involve
a breach, and thus opens the way for normal settlement through negotiation. Not required to
demand damages; or threaten litigation; etc.
ii. (4) The burden is on the BUYER to establish any breach w/respect to the accepted goods.
(f) Problem 56 Midwestern Seafoods (Iowa) ordered 50 live lobsters from Maine Exports (Portland) F.O.B.
Portland (shipment k). On September 1, Seller loaded the lobsters on board an airplane in Portland;
shipped to Boston and then to Des Moines. Seller failed to notify Buyer of the date of the flight until two
days later, when Buyers purchasing agent called to inquire. When Buyer picked up the lobsters (which
had been sitting in Des Moines for a day) 20 were dying (15 due to bad handling by Seller before
they were handed over to airline and 5 due to damage in transit) and 30 were fine.
i. Is Sellers failure to notify Buyer of the shipment a ground for rejection? Under 2-504(c), the
failure to notify Buyer of the shipment is a ground for rejection ONLY if material delay or loss
ensues. So here, depends on if the loss of 20 lobsters is material enough.
ii. May Buyer reject b/c of the 20 defective lobsters? 2-601 (perfect tender); at least 20 of the
lobsters were non-conforming; therefore, b/c this was not an installment K, Buyer could: (1) reject
the whole; (2) accept the whole; or (3) accept any commercial unit(s) and reject the rest.
Court would likely look at each lobster as a separate commercial unit b/c each could be
individually sold.
iii. How quickly must Buyer act if it wishes to reject? What technical steps must Buyer take? 2-602,
Buyer must reject the goods w/in a reasonable time after their delivery or tender and seasonably
notify seller of its rejection.
Here, a reasonable time would probably be w/in a day (transaction involved perishable goods)
Buyer must look after the goods so long as they are in his control; would be entitled to recoup
any expenses incident to holding the goods for Seller.
iv. Must Buyer reship the goods to Seller if the latter offer to pay the freight? Yes; under 2-603(1), a
Buyer must obey any reasonable instructions received from Seller with respect to the goods and in
the absence of such instructionsmake reasonable efforts to sell them for sellers account if they are
perishable or threaten to decline in value speedily, only if all 3 of the following conditions are
met:
(1) Seller has no agent or place of business at the market of rejection; (2) Buyer is a merchant;
and (3) The goods are in Buyers possession or control.

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v. If Buyer decides to keep 30 of the lobsters for resale, is this allowed? Yes, under 2-601, Buyer
may keep the 30 good lobsters and reject the rest (assuming each one is a commercial unit).
vi. If Buyer rejects the goods, must it give its reasons in the notice of rejection? What penalty is there for
not doing so? Buyer cannot rely on an unstated defect to justify rejection under 2-605; in giving
notice of rejection, buyer must give its reason for doing so, so that seller has an opportunity to cure
(if available)
If you dont do so it amounts to commercial bad faith & causes of action based on those defects
are unavailable
vii. If Buyer gives a valid notice of rejection w/in a reasonable period of time after the lobsters are
delivered, what should it then do with the lobsters? 2-602(2) Buyer should hold them for the
seller or try to get them back to the seller.
(g) Ramirez v. Autosport (1982) Courts are generally very pro-cure Before acceptance, buyer may reject
goods for any nonconformity. Because of sellers right to cure, however, buyers rejection does not necessarily
discharge the K. Within the time set for performance in the K, the sellers right to cure is unconditional.
i. Rule If the rejection occurs after the time set for performance, seller has a further reasonable time to
cure if he believed reasonably that the goods would be acceptable with or without a money allowance. (2508(2))
The determination of what constitutes a further reasonable time depends on the surrounding circs,
which include the change of position by and the amount of inconvenience to buyer. Those circs also
include the length of time needed by seller to correct the nonconformity and his ability to salvage
the goods by resale to others.
Policy Thus, the Code balances buyers right to reject nonconforming goods with a second
chance for seller to conform the goods to the K under certain limited circumstances.
ii. Rule After acceptance, the Code strikes a different balance: buyer may revoke acceptance only if the
nonconformity substantially impairs the value of goods to him

(h) Problem 57 Sinon (Colorado) ordered a giant horse statue from Epeius of Paris, which arrived in 6 boxes
to be assembled by Sinon. After putting horse together, Sinon was displeased w/horses tail. The horse had
been specially designed by Epeius, and the scale model Sinon had seen had a different tail. Sinon removed
the tail and substituted one of his own design; & he returned the original to Epeius w/a letter of
rejection. Three months later (after displaying and painting the horse black) Sinon shipped the entire
statute back to Epeius.
i. Did Sinon make a rejection or an acceptance? Acceptance, b/c he displayed it for 3 months (i.e.
failed to reject w/in a reasonable time); and he painted it a different color (i.e. exercised
control/ownership over the good; 2-606(1)(c)).
ii. If the tail did not conform to the model, is that a ground for rejection? It would be a ground for
rejection under 2-602 (the perfect tender rule).
iii. If Sinon had made a technical acceptance, does that fact preclude a suit for breach of warranty? (see
2-607(2)) No; just because you accept non-conforming goods doesnt mean youve precluded
your right to sue for damages
i.e. acceptance precludes Buyers right to reject; but not his right to sue for damages for breach
The model created an express warranty that the product would conform to the model.
iv. What steps should Sinon take to preserve his legal rights? (see 2-607(3)(a)) Within a reasonable
time after discovering the defect, Sinon should notify seller (in writing) of the alleged breach;

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v. What reasons lie behind the notice requirement? (see 2-508, 2-515) To inform the Seller of the
alleged breach and allow seller a chance to cure said defect.

6. REVOCATION OF ACCEPTANCE: Once acceptance has been made, buyer cannot reject; so the only way he can
walk away from the K is to effectively revoke his acceptance.
(a) 2-608 Revocation of Acceptance in Whole or in Part
i. Buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially
impairs its value to him if he has accepted it:
On the reasonable assumption that its nonconformity would be cured and it has not been
seasonably cured; or
Without discovery of such nonconformity and if his acceptance was reasonably induced either
by the difficulty of discovery before acceptance or by the sellers assurances.
ii. Buyers revocation must be made in a timely manner; i.e. w/in a reasonable time after buyer
discovers or should have discovered the ground for it and b/f any substantial change in condition of
the goods which is not caused by their own defects. It is not effective until buyer notifies seller of it.
(b) Rester v. Morrow (Miss. 1986) Lemon automobile Dealer fixed each problem, but Buyer wanted to
revoke acceptance after a couple of months b/c of the big hassle.
i. Substantial impairment: facts and circumstances test; no bright line rule (totality of circumstances)
TEST: Part Subjective; Part Objective (i.e. Subjective Plus) The to him language [of 2608] requires that courts proceed by reference to the unique circumstances of the Buyer. Once
those circumstances have been determined, the court proceeds to an objective determination of
whether the nonconformity would substantially impair the value of the good to a reasonable
person in the circumstances of the Buyer.
ii. You dont look at the particular defect that finally made the buyer reject, you look to the totality of
the circumstances of everything that has gone wrong since the sale
iii. Under 2-608, the Buyer must show not only a defect, but that this defect is of significance to the
particular use to which he wanted to put the goods.
2-105(5): Lot a parcel or a single article which is the subject matter of a separate sale or
delivery, whether or not it is sufficient to perform the K.
(c) NOTES: Under 2-711(3) buyer is given a security interest in those goods in the buyer's possession or
control, when buyer has rightfully rejected them or has justifiably revoked their acceptance. This security
interest extends to any payments already made by buyer on the purchase price and any expenses reasonably
incurred in inspection, receipt, transportation, care, and custody of the goods.
(d) Lemon Law a statute designed to protect a consumer who buys a substandard auto, usu. by requiring the
manufacturer or dealer either to replace the vehicle or to refund the full purchase price.
(e) Problem 58 Day after Buyer purchased a new car, the fender fell off. May she use 2-608? The best
way to go may be to use 2-602 (perfect tender rule) as grounds for rejection b/c Buyer may not have
actually accepted the car at that point; Seller has right to cure though.
i. The first time it rained all the paint washed off the car Revoke? could be argued that all the
paint washing off amounts to a substantial impairment.

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ii. After the last time, can revoke because this isnt what she contracted for, especially since she is
purchasing a new car. The sellers right to cure isnt limitless.
iii. 2-609: Buyer can demand adequate assurance of due performance if there is reasonable grounds
for insecurity (must be in writing). After receipt of a justified demand failure to provide w/in a
reasonable time not exceeding 30 days such assurance of due performance as is adequate under the
circs of the particular case is a repudiation of the K
iv. Rental Car Expenses Recoverable? Yes Buyer entitled to consequential damages under 2-715
(f) Problem 59 Same facts as Prob. 58, but here the K limits remedy for breach to repair or replacement of
defective parts; if remedy fails of its essential purpose, buyer may pursue another remedy such as
revocation of acceptance
i. 2-719(2) An exclusive remedy fails of its essential purpose if circumstances arise to deprive the
limiting clause of its meaning or one party of the substantial value of its bargain. [2-719; Comment 1].
So long as Seller repairs the goods each time a defect arises, a repair-and-replacement clause does
not fail of its essential purpose. But if repairs are not successfully undertaken within a reasonable
time, the Buyer may be deprived of the benefits of the exclusive remedy.
ii. Strikes limitation of remedy clause if seller doesnt provide the agreed to limited remedies. But if
seller is fixing all that went wrong under the limited remedies agreed to, havent they performed?
On the other hand, buyer could say that since its a new car but things still keep breaking down,
you arent getting what you bargained for. At some point, you are no longer being afforded
adequate remedy by mere repair and replacement.
(g) Problem 60 B bought computer; S sent different, newer model. B sent S a letter of acceptance w/a check.
B later realized the computer was turned on by a hidden switch under front panel, which evoked horrible
childhood memories b/c B had witnessed his dad lose a finger when he reached under a machine to turn it
on. B sought to revoke his acceptance.
i. 2-608; Comment 2 Revocation of acceptance is possible only where the non-conformity
substantially impairs the value of the goods to the buyer.
For this purpose the test is not what Seller had reason to know at the time of contracting; the
question is whether the non-conformity is such as will in fact cause a substantial impairment of
value to Buyer though Seller had no advance knowledge as to Buyer's particular circumstances.
Objective Element reasonable person in buyers circs wouldnt want a machine theyre afraid
ii. 2-508(2) Where Buyer rejects a non-conforming tender which Seller had reasonable grounds to believe
would be acceptable with or without money allowance Seller may if he seasonably notifies Buyer have a
further reasonable time to substitute a conforming tender.

(h) Problem 61 B bought a car from S; after the car broke down with the same defect 6 times, B sought to
revoke acceptance and return the car to S; but when he went to return the car B found out that S had gone
bankrupt and was out of business. May B revoke acceptance a/g the manufacturer of the car (which
had covered the car with a limited warranty)?
i. Most courts would allow revocation a/g the manufacturer; usually do away with privity requirement.
ii. Fode v. Capital RV Center, 575 N.W.2d 547 (Wisc. App 2002) Manufacturer was seller of motor
home, for purposes of buyers' revocation of acceptance claim, under UCC; Dealer's sales K and
manufacturer's limited warranty passed manufacturer's warranty to buyers and specified motor home was
warranted in dealer's name, and sales K and manufacturer's warranty were so closely linked both in time
of delivery and subject matter, that they blended into a single unit at time of sale.
7. RISK OF LOSS: BREACH

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(a) REVIEW: 2-509 Risk of loss in non-breach situation: (4 Rules)

i. General Rule: 2-509(3) when seller isnt required to ship the goods via 3rd party carrier:
1. Merchant Seller risk of loss shifts upon receipt by Buyer
2. Nonmerchant Seller risk of loss shifts upon sellers tender of delivery (ex. hey, youre cars
ready)

ii. 2-509(1) Risk when there is a third party carrier:

1. Shipment contract- Seller not required to deliver to a particular place; risk of loss passes to
buyer once the goods are delivered to the carrier; (e.x. F.O.B. Sellers location = shipment
contract)
2. Destination contract- If the place listed is where Buyer is, Seller has risk until the goods reach
that destination, where risk then passes to buyer. (e.x. F.O.B. buyers location = destination K)
(b) 2-510. Effect of Breach on Risk of Loss (3 Rules)
i. Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection
the risk of loss remains on the seller until cure or acceptance
Make sure to give the reason why buyer has the right of rejection
As soon as cure happens, risk of loss shifts back to the buyer
ii. Where Buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective
insurance coverage treat the risk of loss as having rested on Seller from the beginning
Here, the risk of loss is on Seller only to the extent that Buyers insurance doesnt cover the
cost (i.e. sellers risk is mitigated by the buyers insurance).
iii. Where Buyer [of conforming goods] repudiates or is otherwise in breach before the risk of loss has
passed to him, Seller may to the extent of any deficiency in his effective insurance coverage treat
the risk of loss as resting on Buyer for a commercially reasonable time.
i.e. when Buyer breaches (doesnt pay; has no right to reject; etc.) b/f the risk of loss has passed
to him, the risk of loss will still pass to Buyer, but only to the extent Sellers insurance doesnt
cover the loss.
(c) Rules under 2-510, restated:
i. If B can reject; risk of loss in on S until cure/acceptance
ii. If B revokes; risk of loss is on S only to the extent Bs insurance doesnt cover
iii. If B breaches; risk of loss is on B only to the extent Ss insurance doesnt cover
(d) Jakowski v. Carole Chevrolet, Inc. (N.J. 1981) B buys Camaro w/ undercoating. Delivered w/o
undercoating. B turns it back into dealer to get fixed; car got stolen off the lot. Risk of loss is on the seller.
(e) Problem 64 Shipment contract of Sphinx, Gargoyle, and Centaur.
i. Centaur stolen from sellers warehouse after buyer repudiated contract (never shipped)
1. Did seller waive its right to sue for that breach by shipping the other two items? No, no
waiver by providing the other goods (like a reservation of rights)
2. 2-510(3) buyer was in breach (repudiated K prior to date of performance); Buyer had risk of
loss, but only so far as sellers insurance didnt cover
ii. Sphinx sunk w/ship shipment contract, normally Buyer would have risk of loss once on the ship
1. But because the statue was a phony, risk of loss was on seller (i.e. Seller cannot the risk of
loss to the buyer unless his action conforms w/all the conditions of the K)

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2. 2-510(1) buyer had a right of rejection (doesnt matter if buyer has actually rejected; all
that matters is that Buyer have that right under the circs)
iii. Gargoyle destroyed in a fire
1. Seller has breached b/c the gargoyle is not Old World, but from Hoboken
2. 2-510(2) buyer rightfully revoked acceptance
3. Seller has risk of loss, but only to the extent that buyers insurance doesnt cover; But
buyer is fully insured, so buyers insurance pays
4. Seller doesnt have to pay anything under risk of loss, but seller is still liable for breach of
contract and liable for resulting damages
iv. When seller shipped the gargoyle by air instead of by sea, could buyer have treated this as an
imperfect tender and rejected the gargoyle for that reason?
1. No, under 2-614 you can use a commercially reasonable substitute and buyer may not reject
8. RISK OF LOSS REVIEW CLASS
(a) 2-510 Risk of loss: breach
i. B has right of rejection: ROL on seller until S cures or B accepts
ii. B revokes acceptance (substantial impairment): ROL on seller to extent that Bs insurance doesnt
cover it
iii. B breaches: ROL on buyer to extent that Ss insurance doesnt cover it
9. IMPOSSIBILITY OF PERFORMANCE (defense)
(a) Identification of Goods: (Skipped chapter; NOT on EXAM) 2-501 that point in time when the
goods that you are contracting for have been designated as the goods particular to the K; ex. Buy a washing
machine from Sears off the showroom floor; identified when say, it is pulled off of display and placed
aside to prepare for shipment.
i. Deals with the manner of identifying goods to the K so that an insurable interest in the Buyer and the
rights set forth in the next section will accrue.
(b) 2-613 Casualty to Identified Goods (Only use when K requires identification of goods at time of K)
i. Where the contract requires for its performance goods identified when the K is made, and the goods
suffer casualty w/o fault of either party b/f the risk of loss passes to Buyerthen:
1. if the loss is total the K is avoided; and
2. if the loss is partial, Buyer has the right to inspect the goods; upon inspection, Buyer has the
option to avoid the K or accept the goods subject to a decrease in price

FAULT: is intended to include negligence and not merely willful wrong.

(c) UCC 2-614 Substituted performance
i. Where w/o fault of either party the agreed upon carrier or method of delivery becomes unavailable or
commercially impracticable, Seller can use a commercially reasonable substitute
ii. If the agreed means or manner of payment fails b/c of domestic or foreign govt regulation, seller
may withhold delivery until buyer finds a commercially reasonable substitute
(d) 2-615 Excuse by Failure of Presupposed Conditions
i. Delay in delivery or non-delivery by seller (as long as he complies w/(b) & (c)) is not a breach of his
duty under a K by the occurrence of a contingency the non-occurrence of which was a basic
assumption on which the K was made (i.e. unforeseen occurrence; parties did not contemplate the
occurrence at time K formed) or by compliance in good faith with any applicable foreign or domestic
governmental regulation or order whether or not it later proves to be invalid;

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ii. Seller must allocate production and deliveries among his customers but at his option may include
regular customers not then under K as well as his own requirements for further manufacture. He may
so allocate in any manner which is fair and reasonable
Seller cannot now renegotiate the bargain b/c the remaining ones are now more valuable
iii. Seller must notify Buyer seasonably that there will be a delay or non-delivery and, when allocation is
required under (b), of the estimated quota thus made available for Buyer.
(e) UCC 2-616 Procedure on notice claiming excuse (dont worry about)
(f) Problem 65 Buyer contracted for sundial for $250. 12 sundials in stock; earthquake shook Sellers
building; 9 sundials were destroyed, and remaining 3 were damaged. Buyer insists on right to inspect the
damaged ones and choose one to buy, possibly at a reduced price Is 2-613 or 2-615 relevant?
i. 2-615 applies here b/c the sundial wasnt identified at time of contract; Even though under 2-615
Buyer still has right to inspect the goods and if he so chooses, to buy one of the remaining sundials at
a reduced price;
Seller cannot walk away from K; Seller must allocate remaining goods among its customers
ii. Under 2-615, Seller can decide how to allocate the remaining goods and how to distribute its
resources. If the only K is with this Buyer, Seller has a good faith obligation to give the Buyer one of
the three that arent destroyed.
(g) Problem 66 The sundial wasnt required (which 2-613 requires) to be identified at the K formation. So
this would also fall under 2-615. So Virgil should still get one of the remaining sundials b/c he was a
buyer already under K.
(h) Arabian Score v. Lasma Arabian Ltd. (1987) Horse died earlier than anticipated- before had spent a lot
of the promotion money for it, so wanted to get back that money that wouldve been spent on promotion.
Claimed commercial frustration- that you cant promote a dead horse.
i. Court says that doesnt work because they took the risk in spending the money that the horse would
die, so couldnt avoid the contract. Horses death wasnt an unforeseeable event.
ii. If a foreseeable risk, it shouldve been dealt with at contract formation. Failure to do so means you
accepted the risk of this foreseeable event happening.
iii. It wasnt unusual for to promote deceased horses; and purchased insurance, which showed that
the death was foreseeable- P took on that risk in formation of the contract.
(i) Louisiana Power & Light Co. v. Allegheny Ludlam Industries, Inc. (1981) entered into K with , under
which agreed to supply condenser tubing. Raw material and labor prices rose; Seller wanted to get out of
K, claiming commercial impracticability.
i. Holding: Seller cannot get out of K based on commercial impracticability. 58% increase in price is
not enough to excuse performance. Furthermore, this will not bankrupt the seller; seller is doing
alright. They are losing out on this one contract, but are still running a profitable business.
In order to use commercially impracticable defense, the loss given performance must be
excessive, severe, and unreasonable
They should have left the price term open, to leave wiggle room for fluctuations in the market
price of raw materials
The party pleading commercial impracticability as a defense cannot be the person who
assumed the risk of the peril involved.
ii. RULE: 2-615 There are 3 conditions which must be met pursuant to 2-615 before performance
under a K can be excused b/c of commercial impracticability: (1) a contingency must occur; (2)

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performance must thereby be made impracticable; and (3) the non-occurrence of the contingency
must have been a basic assumption on which the K was made.
iii. Cant get out of contract based on impracticability because of increase in the cost of performance of
the contract. The loss must be excessive, severe, unreasonable, etc.The loss must be beyond the
reasonable contemplation of the parties.
iv. There are ways at contract formation to deal with these issues: if in a market with price
contingencies, make the price term flexible.
v. Elements to sustain a defense of commercially impracticable:
1. Contingency must occur
2. Contingency must make performance impracticable
3. The non-occurrence of that contingency was a basic assumption of the contract (Not
foreseeable)
(j) Review
i. Under the UCC, there is a broader standard than impossibility under the common law
ii. 2-613
iii. 2-615
iv. Elements of commercially impracticable
1. Contingency occurs
2. Performance becomes impracticable
3. The contingency was unforeseeable

VI. CHAPTER 6 REMEDIES

1 Special Remedies
(a) REMEDIES ON INSOLVENCY Reclamation possible remedy where one of the parties becomes insolvent;
way to protect the interest of the party that has not gone insolvent; exceptions to general rules for breach.
i. 2-502 Buyers right to goods on sellers insolvency
1. Allows for recovery in 2 circs: 1(a) consumer goods when partial payment has been made; 1(b)
all other cases, seller insolvent w/in 10 days after receipt of the first installment payment on
their price (i.e. 10 days after Buyers first payment).
2. Buyer has right to go in and reclaim goods from an insolvent seller, if paid for in whole or in
part. Doesnt always work, so sometimes you have to resort to action for breach.
ii. 2-702 Sellers remedies on discovery of buyers insolvency
1. If seller discovers buyer is insolvent before delivery, seller doesnt have to deliver
2. Seller has right to reclaim goods w/in 10 days of receipt if it discovers buyer is insolvent;
unless buyer made a misrepresentation as to his solvency in writing w/in 3 months before
receipt of goods, then 10 day limit doesnt apply
(b) LIQUIDATED DAMAGES (liquidated damages clause provide predictability and notice for the parties;
encourages freedom of contract; sets what the damages will be in event of breach.)
i. 2-718(1) Liquidation of Damages: Must be reasonable in light of anticipated OR actual harm
caused by the breach.
ii. But in practice it must be reasonable in light of BOTH the anticipated harm AND the actual harm;
i.e. the court will test the validity of the liquidated damages clause against the actual harm caused.
(c) THE BREACHING BUYERS RESTITUTION

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i. 2-718(2) Breaching Buyers Restitution purpose is to prohibit unjust enrichment: where

breaching buyer has paid a portion of the price (deposit, installment, etc), but in the end seller has the
goods and buyers money, and buyer has nothing
1. Where the seller justifiably withholds delivery of goods b/c of buyers breach, buyer is
entitled to restitution of any amount by which the sum of his payments exceeds:
a. The amount to which seller is entitled to liquidated damages; OR
b. In the absence of a liquidated damages clause, 20% of the value of total performance for
which buyer is obligated under the K or $500, whichever is smaller
- Buyers recovery (no liquidated damages) = Amount paid 20% of total K price
(or $500).
2. Buyers right to restitution is subject to Sellers right to recover damages.
ii. Problem 68 Contract: $300 down payment + $2000 in 20 monthly payments. Buyer makes $1500
worth of payments, plus down payment, then goes under. No liquidated damages clause in the K, so
Buyer must resort to 2-718(2)(b) to prevent Seller from keeping both the elephant and money Buyer
paid under the K.
1. Recovery = Amount paid by Buyer ($1500 + $300) 20% of total K price (.2 x $2300) or
$500, whichever is smaller.
a. $1800 $460 = $1340
b. However, Buyers $1340 damages will be subject to a set-off for Sellers damages
c. So, if Seller is able to resell the elephant for $1,000, his loss due to Buyers breach
would be 1300, which you would set-off against Buyers restitution award ($1340
$1300 = 40); so Buyer would end up with $40.
2 Sellers remedies
(a) 2-703 Sellers remedies in general
i. List of 6 remedies in the event of buyers breach: aggrieved Seller may:
1. Withhold delivery of such goods;
2. Stop delivery by any bailee (2-705);
3. Proceed under the next section respecting goods still unidentified to the contract (Seller has
right to go ahead and identify the goods, even if not identified at the time of K);
4. Resell and recover damages (2-706);
5. Recover damages for non-acceptance (2-708) or in a proper case the price (2-709);
6. Cancel.
(b) ACCEPTED GOODS
i. 2-709 Action for the Price (i.e. Similar to Buyers Specific Performance Remedy)
1. When Buyer fails to pay the price as it becomes due Seller may recover, together with any
incidental damages, the price:
a. Of goods accepted or of conforming goods lost or damaged w/in a commercially
reasonable time after risk of loss has passed to buyer, AND
b. Of goods identified to the K if seller is unable after reasonable effort to resell them at a
reasonable price or the circumstances reasonably indicate that such effort will be futile
- May apply where the goods are specially manufactured and Seller believes that no
one on the open market will want them.
2. Seller must hold for Buyer goods which have been identified to the K and are still in his control
a. Except that if resale becomes possible he may resell them at any time prior to the
collection of the judgment.
b. The net proceeds of any such resale must be credited to Buyer and payment of the
judgment entitles him to any goods not resold

ii. PLAIN ENGLISH: There are 3 situations where Seller is entitled to sue for entire K price:
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1. Goods have been accepted by Buyer and he refuses to pay;

2. Goods have been lost or damaged w/in a reasonable time after risk of loss passed to Buyer; or
3. Goods have been identified to the K, and Seller is unable to resell them at a reasonable price
(or it appears under the circs that any attempts to resale will be futile)

Seller must put forth a good faith effort to resell.

ii. 2-706(1). Sellers Resale including contract for resale (Contract/Resale Differential)
1. If the resale is made in good faith and in a commercially reasonable manner Seller may
recover the difference between the resale price and the unpaid K price together w/any
incidentals damagesbut less expenses saved in consequence of Buyers breach.
a. Use when there is an ACTUAL resale of the goods contracted for. If resale price is
higher then original K price, Seller may keep extra profit rather than turning it over to
original Buyer. Here, Seller does not need to recover anything from buyer to put him in
the position he would have been in had the K been completed (i.e. no harm, no foul).

Ex. Resale Price ($11,000) K Price ($10,000) = Seller gets extra profit of $1,000.

Ex. Resale Price ($7500) K Price ($10,000) = Seller gets $2500 from Buyer.
b. Damages = Resale price K price + Incidental/Conseq Damages Expenses Saved

Cant recover any expenses saved: if fulfilling K to buyer would have cost an extra
$500 to ship a special way, then you subtract that out of your recoverable damages

Incidentals are perhaps expenses you incur in reselling, such as advertising.

Under 2-706, no Consequential Damages are available for an aggrieved Seller; but
the Courts generally allow these (and Amended version includes these).
2. Resale must be commercially reasonable: method, manner, time, place, and terms
3. The resale may be at either a public sale (i.e. an auction) or at a private sale (i.e. sale affected
by solicitation and negotiation; i.e. anything not an auction). Notice requirement: Under either
method of resale, seller must notify buyer of his intention to resell
a. Doesnt necessarily need to be in writing
b. Does seller have an affirmative duty to notify buyer (in cases where buyer was notified
by somebody else)? Most courts say yes.
iii. 2-708 Sellers Damages for Non-acceptance or Repudiation (Use when Seller doesnt resell the
goods).
1. 2-708(1); Contract/Market Differential: Subject to (2)the measure of damages for non
acceptance or repudiation by Buyer is the difference between the market price at the time and
place for tender and the unpaid K price together with any incidental damagesbut less expenses
saved in consequence of Buyer's breach.
a. Damages = Market Price K Price + Incidental Damages Expenses Saved
2. 2-708(2); Lost Profits: If the measure of damages provided in subsection (1) is inadequate to put
Seller in as good a position as performance would have done then the measure of damages is the
profit (including reasonable overhead) which Seller would have made from full performance by
Buyer, together with any incidental damagesless due allowance for costs reasonably incurred
and due credit for payments or proceeds of resale.
a. Seller can recover the profits he would have made on the sale, even though he made the
resale and made that profit
b. This section is applicable when you have an unlimited supply (i.e. Sears with a
warehouse full of washing machines).
c. Drafting Error: due credit for payments or proceeds of resale defeats purpose of .

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iv. Problem 69 Guy bought a car, drove it for a month, revoked acceptance for no reason. Parked car
on street and told seller to pick it up; car was stolen.
1. Wrongful revocation of acceptance b/c no substantial impairment under 2-608
2. Risk of loss passed to buyer; Even if he had made a rightful revocation, he has a duty to care
for the goods before sellers recovers them
3. Under 2-709(1)(a), Seller entitled to recover the K price from Buyer
4. What if seller had rejected the goods in the first place?
(c) UNACCEPTED GOODS When Buyer repudiates b/f delivery or rejects the goods, the relevant UCC section is
2-706 if Seller resells the goods to s/o else. If no resale occurs, damages are measured under 2-708.

i. 2-708(2): Reasonable Overhead Sellers recovery is K Price minus Variable Costs associated
with the particular item, but not overhead costs (i.e. the fixed costs: rent, utilities, support staff
salaries, etc.) which Seller would have incurred whether or not he had ever sold the item.
ii. Problem 70 Seller (Austin) sells 80 neon light fixtures for $1,500 to Buyer (San Antonio), F.O.B.
Austin (shipment K) and to be shipped March 15. On March 5, Buyer phoned Seller to cancel K
(anticipatory repudiation). Seller then picked 80 light fixtures from her large stock, and sold them to
Carl Customer for $1,000.
1. This is a private resale (b/c not an auction); this resale is improper b/c Seller did not give
notice to Buyer of her intention to resell the light fixtures.
a. You cant get damages under 2-706 if you fail to effectuate a proper resale you can
only get damages under 2-708 (using market price);
2. Under 2-708(1); Damages = 900 1500 = $600
a. If she had given proper notice to Buyer, and been entitled to recovered under 2-706:
Damages = 1000 1500 = $500
b. Thus, seller gets a windfall for failing to meet UCC notice req for resale or do they?

iii. Problem 71 Seller sells standard above-ground swimming pool to Buyer for $2,000 (retail price).
The pools components are purchased by Seller at a wholesale price of $800 and are assembled into
the finished product, a process which costs Seller $400. Buyer repudiates the K. Current market
price for such a pool is $2,000; and Seller is certain it can find another buyer at that price.
1. Does Seller have any damages? If Seller can prove he is a lost volume seller (i.e. a seller
whose supply is greater than the demand); then damages will be measured under 2-708(2).
a. Contract Price ($2000) Cost to Seller ($1200) = Lost Profit ($800)

iv. Lost Volume Seller: "one who had there been no breach by Buyer could and would have had the
benefit of both the original contract and the resale contract"
v. Teradyne, Inc. v. Teledyne Industries, Inc., 676 F.2d 865 (Ct. App. 1st Cir., 1982) Seller, a lost
volume seller, was entitled to damages based on the profit, including reasonable overhead, which it
would have made from full performance by Buyer. Wages of testers, shippers, installers, and other
employees of Seller who directly handled the machine, as well as the fringe benefits of those persons,
were not part of the overhead, and, as direct costs, should have been deducted from the K price for
the purpose of determining Seller's damages upon Buyer's failure to perform
HOLDING: "it is universally agreed that in a case where after Buyer's default a Seller resells the
goods, the proceeds of the sale are not to be credited to Buyer if Seller is a lost volume seller"

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Rule: When Buyer has repudiated the K, the concept of mitigation of damages does not require
Seller to enter into a new agreement, an aspect of which is the surrender of a claim for
damages, b/c of Buyer's repudiation

vi. Problem 72 Seller entered into a k with the City of Plantation, Miss. (Buyer), whereby Seller was
to design and manufacture a special computer that would regulate the timing of subway trains. The
price was $20,000 F.O.B. Sellers Plant in Atlanta, Ga. When the computer was half completed,
Buyers new city leaders canceled the order. According to Seller, as scrap the computer and its
components are worth $5,000; but Seller believes that if the computer is finished, three other cities
may want to buy the computer for b/w $15,000 and $20,000. It will cost Seller $9,000 to complete
computer.
1. Should Seller stop the manufacture of the computer and sell it for scrap or complete
manufacture and then try to resell it? (2-704(2) and Comment 2)
a. Option 1 (Stop): Cost to Seller ($9,000) Scrap Value ($5,000) = $4,000 Loss
b. Option 2: (Finish): Cost to Seller ($18,000) Resale (b/w $15,000 and $20,000) = b/w
$3,000 loss and $2,000 gain.
2. If Seller completes manufacture and then, after a good faith effort, is unable to find a new
buyer for the computer, can it make Buyer pay for the finished product? (2-709(1)(b) and
Comment 1 to 2-704)
(d) Summary of Sellers Remedies Provisions
i. 2-703: List of Remedies Available to Seller

ii. 2-706: Hypothetical Resale (Contract/Resale Differential): when seller resells the goods, formula is:
Resale Price Contract price + incidental/consequential damages expenses saved.
iii. 2-708: (1) Contract/Market Differential: Market Price K Price + Incidental/Consequential Expenses
Saved; (2): Lost Profits: if resale doesnt put seller in position that performance would have; allows
seller to recover profit. Deduct amount it takes to produce the goods from the contract price. To qualify,
you must have an unlimited supply.
iv. Courts have been allowing a seller who has not been made whole under 2-706 to seek additional
damages under 2-708(2)
v. 2-709: sellers specific performance. Applies when:
1. goods have been accepted
2. risk of loss is on the buyer; or
3. there has been identification, but no resale.
vi. 2-710: incidental/consequential damages (amended provision also includes consequential). Could also
make a common law argument for consequential damages.
(e) NELSONS COMMENTS:
i. Aggrieved seller turns to 2-703, and then may pick and choose which remedies they wish to go after,
and if the facts allow it, go after more than one type of damages.
ii. Seller not required to resell the goods in order to recover under 2-706.

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iii. If Seller does resell the goods, is he limited to recovery under 2-706? Maj view is that even when Seller
resells the goods, he may look to recover under 2-706 OR under 2-708 (i.e. if the aggrieved seller feels
that he may recover more under the K/Market Differential of 2-708, then he may elect to do so).
3 Buyers Remedies
(a) Generally
i. 2-711 General list of buyers remedies this section also gives the Buyer a right to cancel and
recover the price if the Buyer has already paid.

(b) ACCEPTED GOODS

i. 2-714. Buyers damages for breach in regard to accepted goods Provides for damages for breach
of warranty, or any nonconformity with the terms of the K. Even if buyer has accepted the goods,
buyer must still notify seller as to the nonconformity so that seller has a chance to cure (and avoid
litigation)
1. When Buyer has accepted goods and given notification (2-607(3)) he may recover as damages
for any nonconformity of tender the loss resulting in the ordinary course of events from
Sellers breach as determined in any manner which is commercially reasonable
2. The measure of damages for breach of warranty is the difference at the time and place of
acceptance b/w the value of the goods accepted and the value they would have had if they had
been as warranted
a. A buyer is damaged only when it receives goods worth less than those to which it was
entitled; i.e. Buyer is damaged to the extent that ''the value [the goods] would have had if
they had been as warranted'' exceeds ''the value of the goods accepted.''
b. Damages = value as warranted value as accepted
3. In a proper case, incidental and consequential damages under 2-715 may also be recovered.

ii. 2-715. Buyers incidental and consequential damages

1. Incidental damages: 2-715(1) provides a nonexclusive list of examples
a. Expenses reasonably incurred in inspection, receipt, transportation and care and
custody of goods rightfully rejected, and any commercially reasonable charges,
expenses or commissions in connection with effecting cover and any other reasonable
expense incident to the delay or other breach
2. Consequential damages (2-715(2)) resulting from sellers breach include:
a. Any loss resulting from general or particular requirements of which the seller knew of
had reason to know and which could not have been prevented by cover or
otherwise(foreseeability required); and
b. Injury to person or property proximately resulting from any breach of warranty (no req
of forseeability).

iii. There is no duty to cover, but you must cover if you want to recover consequential damages;
1. Seller doesnt have to have expressly agreed to pay consequential damages seller need not
have explicitly accepted this risk;

The test is whether the damages were reasonably foreseeable to the seller
iv. Problem 74 Pianist bought an electric piano for $3k under an oral K (statute of frauds issue). After
three moths of use, Buyer started to go deaf b/c of the interaction b/w the high-pitched whine
emanating from the piano and a metal plate in his head; when buyer realized that the piano had
caused his deafness, he chopped it to pieces w/an axe and brought suit for breach of warranty.
47

1. There is a strong argument that no warranty was breached. But Buyer will try to argue breach
of implied warranty of merchantability;

i.e. Merchant Seller and piano not fit for its ordinary purpose (i.e. not meant to cause
deafness)
2. Which, if any, of Buyers damages are recoverable under 2-714? Could try to recover
price of piano if there was a breach (i.e. if could successfully argue the piano was not
merchantable).
3. Which, if any, of the items claimed are incidental damages under 2-715? $500 paid to
experts to examine piano to determine if it caused Buyers deafness is probably recoverable
4. The 2-715(2)(a) test of consequential damages w/its reason to know language is a
restatement of our old friend Hadley v. Baxendale. Is it relevant here?

No that section doesnt apply b/c to recover, seller must have reason to know of
particular circumstance and there must be no way to prevent the damage by getting
substitute goods. In this case, it was not foreseeable that this particular plaintiff would
have this condition and this reaction to the whine

Under (b) in 2-715, proximate result is the only test. So the buyer could argue that he is
entitled to consequential damages like doctors bills because his injury proximately
resulted from breach (not fit for ordinary purpose). So no, (a) isnt relevant here.

5. What about consequential damages? ($5 for the axe no way!)

Lost income seems to fall under a 2-715(2)(a) standard rather than (2)(b)- so lost income
probably wont be awarded; would be a double recovery to compensate both for lost
hearing and lost income. Windfall?

But probably cannot recover any consequential damages b/c they werent foreseeable
but what about the eggshell plaintiff rule (only applicable in tort?)
v. Problem 75:
1. Under 2-717, Buyer can deduct what she owes from the amount of her damages- in this case
refusing to pay the bill entirely b/c it is less than her alleged damages.

If the buyer feels obligated to pay only part of the bill, look to 3-311, which says she should
include w/the payment a written statement setting forth that the amount she is paying is what
she feels she owes; i.e. that the partial payment is satisfaction of the bill.
2. Are the consequential damages for which Buyer asked too speculative? Loss can be
determined in any way that is reasonable under the circumstances. Damages werent too
speculative b/c expert witnesses testified that she is the best and was likely to win.

But the amount she is requesting may be unreasonable in light of what she stood to receive
had she won; i.e. $10k.
3. Is knowledge of the possibility of consequential damages alone sufficient to impose liability on
Seller or does such liability only attach if Seller has agreed to assume the risk?

When you look at 2-715(2)(a), reason to know is enough; i.e. no tacit agreement is required;
Buyer put him on notice of what she planned to use the cord for.
4. May Buyer recover her attorneys fees as consequential damages? There must be some other
authority to get past the general rule that attorneys fees arent recoverable; b/c such fees are penal
in nature and UCC does not authorize punitive damages.

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5. Shes basically trying to cover lost profits rather than personal injury, so the facts fall under (2)(a)
rather than (2)(b).
vi. Problem 76 2-719(3) recognizes the validity of clauses limiting or excluding consequential
damages but makes it clear that they may not operate in an unconscionable manner. The storage
costs would be considered incidental damages.

(c) UNACCEPTED GOODS where Seller never delivers the goods or where Buyer rejects or revokes
acceptance, 2-711 states that Buyer may recover the price and other damages, including incidental and
consequential damages (2-715).
i. 2-712. Cover; Buyers procurement of substitute goods (Equivalent to sellers resale remedy)
1. After a breach, Buyer may cover by making in good faith and w/o unreasonable delay any
reasonable purchase of or contract to purchase goods in substitution for those due from Seller.
2. Damages = Cover price K price + incidental/consequential damages expenses saved
3. Failure of Buyer to cover does not bar him from any other remedy, but it could limit the
amount of consequential damages he could recover.

Comment 2: Test of Proper Cover is whether at the time and place Buyer acted in good
faith and in a reasonable manner, and it is immaterial that hindsight may later prove that
the method of cover used was not the cheapest or most effective.

Comment 3: Cover is not a mandatory remedy for Buyer. The Buyer is always free to
choose b/w cover and damages for non-delivery under 2-713.

ii. 2-713. Buyers Damages for Non-Delivery or Repudiation (Hypothetical Cover)

1. Damages = Market price K price + incidental/consequential damages expenses saved
2. Place: Market price is to be determined as of the place for tender OR, in cases of rejection
after arrival or revocation of acceptance, as of the place of arrival.

Time: Market price at the time when the buyer learned of the breach

Comment 5: This section provides a remedy which is completely alternative to cover

under 2-712 and applies only when and to the extent that the Buyer has not covered.

iii. 2-716. Buyers right to specific performance or replevin (when buyer has NOT accepted the goods)
1. Specific performance may be decreed where the goods are unique or in other proper
circumstances (i.e. NELSON: Extremely limited remedy!)

For uniqueness, doesnt have to be one of a kind- look to circumstances.

2. The decree for specific performance may include such terms and conditions as to payment of
the price, damages, or other relief as the court may deem just.
3. Buyer has a right of replevin for (1) goods identified to the K (2) if after reasonable effort he
is unable to effect cover for such goods or the circumstances reasonably indicate that such
effort will be unavailing or (3) Buyer has the right of replevin for the goods which have been
shipped under a reservation if Buyer has satisfied Seller's security interest under the reservation
and has made, or tendered, satisfaction of the security interest

iv. Problem 77 K for mobile home for $8k. Seller breached; Buyer bought a bigger one from another
dealer for $15k three months after the delivery/repudiation date under the K. Up until Buyer bought
new mobile home, it cost only $10k and Buyer saved $500 b/c new mobile home did not require
Buyer to build a foundation.
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1. What damages can the Buyers get? Under 2-712, Buyer may cover by a reasonable
purchase made in good faith. Damages = cost of cover K price expenses saved (here, no
incidental or consequential damages). So, 15000 8000 500 = $6500.

You dont have to buy identical goods, but must act in a commercially reasonable manner.

There is also a requirement that there be no unreasonable delays, but there is time to shop
around. Under 1-204(2), reasonable time depends on the nature, purpose, and circumstances.

Should Buyers damages be decreased b/c they are getting a better product? Most
scholars say no- Defendant-Seller would have to prove that Buyer did not act in a
commercially reasonable manner; or that buyer unreasonably delayed purchase.

v. Tongish v. Thomas (Kn. Ct. App. 1992) Issue: What is the proper method of calculating damages?
wants damages to be under 2-713: Hypothetical cover: Market price K price (i.e. $5000);
wants 1-106: General expectancy damages: put buyer in a position he would have been in with full
performance by seller (i.e. $455).
1. Holding: wins; 2-713 applies; under the principles of statutory interpretation, when there
is a conflict b/w a statute dealing generally with a subject (i.e. 1-106) and another statute
dealing specifically with a certain phase of it (2-713), the specific statute controls unless it
appears that the legislature intended to make the general act controlling.
vi. 2-717. Deduction of damages from the price
1. If the buyer owes $5000 under the contract, and he claims damages of $1000, buyer can deduct
that $1000 from the amount he owes (he now pays $4000)
TWEN Damages Practice Problem
(1) Seller in Breach; Buyer covers; $12,000 (cover price) - $10,000 (K price) = $2,000 damages
(2) Buyers Breach; Sellers resale;
o 2-706. Hypothetical Resale: Resale Price K price + incidental damages expenses saved
$24,000 $25,000 + $750 = $1750
BUT Seller cannot recover the $1750 that he normally would be entitled to recover, b/c he
failed to give the Buyer proper notice of the resale, as required by 2-706.
o 2-708(1) Market/K Differential: Market Price K price + incidental damages expenses saved
$27500 $25000 + $750 = $3250
Buyer not obligated to pay b/c Seller came out ahead on resale; Seller must turn to 2-708(2).
o 2-708(2). Lost Profit Damages. Expected Profit + Incidental Damages
Here, Sellers expected profit was $0.50 per foot; Lost Profit: $0.50 x 5000 = $2500
(3) What remedy would afford Buyer most complete recovery?
o 2-712: Cover price (here, since Buyer didnt cover, use current market price) K price
$700 $600 = $100
o 2-713: Market price (at time Buyer learned of breach) K price
$650 $600 = $50

VII.

Anticipatory Repudiation

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(a) Anticipatory Repudiation Repudiation of a contractual duty b/f the time for performance, giving the
injured party an immediate right to damages for total breach, as well as discharging the injured party's
remaining duties of performance.
o Repudiation A contracting party's words or actions that indicate an intention not to perform the
contract in the future; a threatened breach of K).
(b) 2-610. Anticipatory repudiation When either party repudiates the K with respect to a performance not
yet due the loss of which will substantially impair the value of the K to the other, the aggrieved party
may:
i. (a) for a commercially reasonable time await performance by the repudiating party; or
ii. (b) resort to any remedy for breach (2-703 or 2-711), even though he has notified the repudiating
party that he would await the latter's performance and has urged retraction (i.e. not req. to wait until
delivery date); and
iii. (c) in either case, suspend his own performance or proceed in accordance with the provisions of this
article on the sellers right to identify goods to the K notwithstanding breach or to salvage unfinished
goods (2-704).
iv. Comment 1: Anticipatory repudiation centers upon an overt communication of intention or an action
which renders performance impossible or demonstrates a clear determination not to continue with
performance.
When such a repudiation substantially impairs the value of the K, the aggrieved party may at any
time resort to his remedies for breach, or suspend his own performance while he negotiates with, or
awaits performance by, the other party.
But if he awaits performance beyond a commercially reasonable time he cannot recover resulting
damages which he should have avoided.
(c) Problem 80 Seller entered K w/Buyer for purchase of 1000 lbs of beef for $5k, delivery Oct. 8. The
price of beef rose sharply, and Seller repudiated the K on July 10 when the market price was $6k. Later,
Buyer found they could cover for $7k, but decided not to. By Oct. 8, the market price for beef had risen to
$8k.
i. How do we calculate damages? 2-713. Hypothetical cover:
1. Mkt price (when B learned of breach) K Price + Incidental/Consequentials Expenses Saved
2. $6k $5k = $1k Damages for Sellers Anticipatory Repudiation.
ii. 2-610. Anticipatory repudiation: If you have the right to await performance, then use market price
at the time of performance (Damages = Market Price (at time of performance) K Price).
1. 8k 5k = $3k Damages for Sellers Anticipatory Repudiation.
iii. What about commercially reasonable time? Then possibly market price should be at the time the
$7k price was discovered (i.e. $7k $5k = $2k). Many courts have taken this approach: give buyer a
commercially reasonable amount of time to find cover
VIII. The Statute of Limitations
(a) 2-725. Statute of limitations in contracts for sale
i. An action for any breach of K for sale must be commenced within four years after the cause of
action has accrued. By the original agreement the parties may reduce the period of limitation to not
less than one year but may not extend it.

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ii. A COA accrues when the breach occurs, regardless of the aggrieved partys lack of knowledge of
the breach (i.e. the moment the suit can be brought). A breach of warranty occurs when tender of
delivery is made, EXCEPT that where a warranty explicitly extends to future performance of the goods
and discovery of the breach must await the time of such performance the COA accrues when breach
is or should have been discovered.
When you have a standard warranty, the COA for breach begins to accrue when the goods are
delivered.
However, when you have a warranty of future performance (express wtty as to future
performance of goods) the COA accrues when the breach is or should have been discovered.
(b) South Carolina differs from the UCC approach.
o 36-2-725: provides a 6 Year S.O.L, which cannot be reduced by K.
(c) Problem 81 Four years and two days after delivery of his new car, Joe was killed when one of his tires
burst due to a manufacturing flaw.
o (a) Warranty: These tires are Merchantable. SOL has run b/c this warranty is not one as to
future performance of the good.
(d) Joswick v. Chesapeake Mobile Homes, Inc., 362 Md. 261, 765 A.2d 90, 43 UCC Rep.Serv.2d 479 (2001) A
warranty of future performance of a product must expressly provide some form of guarantee that the product
will perform in the future as promised in order for the discovery rule of limitations statute for the sale of goods
to be invoked. UCC 2-725(2).
o When a warranty simply states that the goods have a certain positive quality or are free from all or certain
defects, but states no time period during which the goods will continue to have that quality, it does not
reference or extend to any future performance, and thus, does not invoke the discovery rule of limitations
statute for the sale of goods. UCC 2-725(2).

EXAM REVIEW 11/21/08

3 hour exam; but get 4 hours to take it.

EXAM: You dont have to cite code sections; it is a closed book exam!

3 questions: (1) 2 fact patterns (each issue contained in these worth 10 points); (2) 1 policy question (worth
10 total points) (broad, i.e. favorite code section and why; respond to a quote, etc.)

Look over Study Document on TWEN.

Issue Spotting (each issue worth 10 points) (Enforceable under SOF; Battle of Forms; etc. Dont just apply
the rule w/o discussing why it applies) For each issue you spot, writ a separate paragraph for each in
IRAC form.
Issue (i.e. Whether we have a K under Statute of frauds; etc)
Just state the part of the code section/rule applicable to the situation; DO NOT DISCUSS THINGS
NOT BEING TESTED.
Analysis: Arguments, counter-arguments, any relevant policy issues, cases, etc Use the facts from
the question to make your argument and counterargument (ie. Back your answer up with facts).
Only need to mention that UCC applies if there is a hybrid (goods/services K) situation.

CISG & Leases = NOT on EXAM

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Warranties: (1) how created; (2) how/why breached; (3) any discussion of disclaimers. Rule statements for
each implied and express warranty (discuss separately). If it applies, discuss Magnuson Moss separately as
well

BATTLE OF FORMS: either under subsection (2) or (3) to determine the terms of the K; not both.

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