Sales Law Outline

8/18/2019 Sales Law Outline

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Sales Outline

I. CHAPTER 1 – BASIC CONCEPTS 1 Introduction

a. The UCCi. 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 together2. Terms of the contract – UCC sets default rules, set in place unless parties contract otherwise3. Performance of the contract – i.e. delivery4. 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. SChas 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 forward2. 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. Doesn’t apply to: (1)Service contracts; (2) Security interests; (3) Intangible rights (“things in action”) – even if the right isrepresented 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: Noiii. 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 good1. 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 §2-107iv. Building materials: Yes

1.

Unless you are contracting for the finished product, the house. Then it is really a servicecontract 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).

2 SCOPE OF ARTICLE 2


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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 applya. 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 inservice contracts

ii. Analysts International Corp. v. Recycled Paper Products Inc. (N.D. Ill 1987) – Issue: is the sale ofcustom software a “good” and governed by the UCC? Yes

1. Predominant (Dominant) purpose test: When determining whether hybrid transaction isone for “services” of for “goods” governed by the UCC, you ask what was the essence of thecontract; i.e. what was really contracted for?

a. When an agreement involves both goods and services, the court must inquire whether theessence or dominant factor in the formation of the K was the provision of goods orservices; 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 Anthonywith a diving board that was an itemized expense in the K. Sheehan claims a faulty diving board afterhe slipped and fell off of it.

1. Gravamen test (source of complaint test): Where consumer goods are sold which retain theircharacter as consumer goods and where monetary loss or personal injury is claimed to haveresulted from a defect in the consumer goods, the provisions of UCC apply to the consumergoods, 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 don’t know if your K will be governed by the UCCuntil something goes wrong; you don’t know what you are contracting for b/f you makethe K!

iv. Majority of courts use the Dominant Purpose test – What if it is a close call? State it in thecontract! “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 employment1. 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


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iv. Siemen v. Alden (Ill. App. 1975) – Π went to manufacturer, who referred Π to Δ, who sold him a usedsaw; the saw later malfunctioned. Issue: Is Δ a “merchant” subject to §2-314 and §2-315warranties? 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 oneand 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, Δ was not in the business of selling saws. Making an isolated sale will not subject youto 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 letteroutlining the terms, she doesn’t reply. When you show up with the check she says she won’t sell it forless 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, can’t 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, ifit 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 don’t require too much.

1. §2-201 doesn’t 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 contractii. 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 incorrectlystates a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity ofgoods shown in such writing

http://www.law.cornell.edu/ucc/2/article2.htm#contract#contracthttp://www.law.cornell.edu/ucc/2/article2.htm#sale#salehttp://www.law.cornell.edu/ucc/2/article2.htm#Goods#Goodshttp://www.law.cornell.edu/ucc/2/article2.htm#Contractforsale#Contractforsalehttp://www.law.cornell.edu/ucc/2/article2.htm#Goods#Goodshttp://www.law.cornell.edu/ucc/2/article2.htm#Goods#Goodshttp://www.law.cornell.edu/ucc/2/article2.htm#Contractforsale#Contractforsalehttp://www.law.cornell.edu/ucc/2/article2.htm#Goods#Goodshttp://www.law.cornell.edu/ucc/2/article2.htm#sale#salehttp://www.law.cornell.edu/ucc/2/article2.htm#contract#contract


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1. Revision: $5000.2. Requirements: 1) writing, 2) quantity, 3) signed by other party (the party trying to walk away;

generally Δ), 4) suf ficient 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 Qualityof 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 oraccept 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 inconfirmation of the contract and sufficient against the sender is received and the party receiving it hasreason to know its contents, it satisfies the requirements of subsection (1) (§2-201(1)) against such partyunless written notice of objection to its contents is given within 10 days after it is received. The firstexception 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 thegoods are for the Buyer, has made either a substantial beginning of their manufacture orcommitments for their procurement (§2-201(3)(a)); or

2. if the party against whom enforcement is sought admits in his pleading, testimony or otherwisein 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 beenreceived 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 therequirements 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 thatyou know what the contents are once received.

5. Received within a reasonable time6.

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 MCM1. 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

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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 ofgood 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 inhis 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 goodsenforceable w/respect to the goods for which payment has been made. Receipt and acceptance either ofgoods 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 doesn’t meet this exception.

2. Indivisible Contract (i.e. single good/object; not apportionable) – the majority view is thatthe part performance exception applies in these instances even where the payment is for lessthan 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 transaction1.

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 forthe 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 watertank 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 check’s memo line. Buyerlater denies the enforceability of the K.i. Does the check satisfy §2-201(1)? Yes – The quantity is one huge water tank and that’s on the memo line

of the check. The comments are not law! The only place where it says a quantity is required is in thecomments. The text says only “not enforceable beyond the quantity of goods shown”


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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 can’t just resell a giantgolf ball tank, especially with part of the town’s 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 defeatingexistence 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. 2-201(1) doesn’t always require a specific quantity. Under 2-306, quantity may be actual output or buyer’srequirements 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 allthe goods or services that a seller produces during a specified period and at a set price. The quantity term ismeasured by the seller's output. (i.e. as long as you put in the method for computing quantity, it satisfiesSOF)

i. TWEN Statute of Frauds Practice Question

j. EXAM: SOF doesn’t apply unless it’s the sale of goods over $500 and someone is arguing that there is nocontract. You don’t need to talk about it on the exam unless the above conditions are met.

2 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 contemporaneousoral 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 alsoas 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 didn’t reallyreach an agreement?

1. Integrated: at least shows that the parties have agreed to some of the terms;

2.

Non-integrated: doesn’t 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 andsupersedes all informal understandings and oral agreements relating to the subject matter ofthe K.”

Have a place to initial beside the merger clause so nobody can claim they didn’t see it


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2. Also look at the surrounding circumstances of the deal.3. Generally, the assumption is that is it is partially integrated.

We don’t 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 oftrade, 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 terms2. 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 wouldhave 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 thewriting (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 performancei. 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 Kiii. Course of performance: how the parties have behaved in the course of performing that particular Kiv. 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 elsesays “no, we agreed to this” i. Exam: Always give the counterarguments, esp. when the prof asks “what are the Δ’s best arguments?”

ii. Write exam in IRAC format. Don’t state the conclusion first, you will miss counterarguments. In“analysis”, show how each ter m either is or is not met.

e. RECAP: §2-202: What is admissible:

i.

Integrated document? If not, everything inii. Assumption of partially integrated

1.

Contradictory terms out2. UOT, COD, COP in3. 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 outiii. If completely integrated

1. Contradictory terms out


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2. UOT, COD, COP in3. No additional terms

f. Problem 9i. 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 introduceevidence 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 beable to claim that it’s 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 fullrefund if they didn’t like it (it is a custom plane).

1. This is an inconsistent term, so it is inadmissible ---- i.e. would’ve 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 standardin the industry, they’re probably out of luck.

g. Columbia Nitrogen Corp. v. Royster Co. (1st Cir. 1971) – Royster sold phosphate to Columbia. There was aminimum quantity term and a price term. The price of phosphate fell; Columbia wanted to walk away fromthe K (or at least buy products at a price much less than the min (k) amount). Columbia claims that the tradeusage in this industry lets the price fluctuate with the market. Issue: Can usage of trade come in to explain orsupplement the contract? Yesi. 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 toexplain or supplement the contract

2.

Course of dealing and usage of trade, unless carefully negated, are admissible to supple the termsof ANY writing

3. In this case - this usage of trade is NOT contradictory to the stated price. The contract is silentabout adjusting prices and quantities to reflect a declining market. It neither permits nor prohibitsadjustment; 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, butwhether the proffered evidence of course of dealing and trade usage reasonably can be construed asconsistent 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 reachthat 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.


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i. HYPO: Part I: Parties have agreed to a sale of 100 granny smith apples, price is open, delivery date isopen. Is this an enforceable contract? §2-204 Formation – Even though one or more terms are left open, acontract 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 stillhave an agreement? Yes - §2-206(1)(b) – acceptance can by made by prompt shipment of conforminggoods or non-conforming goods.

ACCOMADATION LETTER

- only way to get around §2-206(1)(b) –

If the seller doesn’t 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 counter-offer (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 applesw/accommodation letter.

ENGLISH – when a seller ships non-conforming goods w/o an accompanying accommodationletter, under UCC he has accepted buyers offer and therefore a K is formed. Thereafter, the buyer isentitled 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; doesn’t have to be for mal (broadrule of K formation); (3) Even though one or more terms are left open a K for sale does not fail forindefiniteness if the parties have intended to make a K and there is a reasonably certain basis for givingan 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 offeror’s right torevoke 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 cannotrevoke 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 merchant4. Doesn’t 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 theoffer 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 byan accomadation letter will not constitute an acceptance.

vi. Problem 10 (p. 58): Mastervoice orders 2,000 fuses from GE. Purchase order says “reply by returnmail.” 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 ofnonconforming goods (even when unaware of their non-conformance) w/o an accompanyingaccommodation letter suffices as an acceptance. See §2-206(1)(b)


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2. GE discovered it no longer made the ordered fuses, but shipped similar fuses with anaccommodation 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. (Attemptto 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 toclear the deal with his wife b/f signing anything. Dealer says he’ll keep the price offer open until the nextday 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 oralpromise.

2. Under §1-103, equitable principles are still applicable under the UCC, and Dreamer might can sueunder 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 inwriting, 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 acceptanceoperates as an acceptance even though it states terms additional to or different from those offeredor agreed upon, unless acceptance is expressly made conditional on assent to the additional ordifferent terms (“proviso clause”).

Meant to reverse the CL rule that an acceptance that was not the mirror image of the offerwas (impliedly) both a rejection and a counteroffer.

The “acceptance” must actually be an acceptance; i.e. not a letter purporting to furthernegotiate the terms of the K;

If there is a proviso clause in the offeree’s acceptance, there is no acceptance and thus no KThe effect of a proviso clause is to keep a K from being formed; absent offeror’s assent tothe 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 youracceptance on the other party’s 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 termsare construed as proposals for addition to the K (when not b/w merchants). Between merchantssuch 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 offeree’s acceptancemirror 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 Kis 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. changein 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


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(iii) Notification of objection to them has already been given or is given within a reasonable timeafter 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 althoughthe writings of the parties do not otherwise establish a K. In such case the terms of the particular Kconsist 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 anagreement (i.e. make full/partial performance), under subsection (3), their conduct willresult 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 oneor 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, orcontradicts, an existing term. An “additional term” refers to a matter not covered by the priortransaction 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 termsexpressly agreed to by both parties, with the Code supplying the contested terms (“gap-fillers”) - 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. Seller’s 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 additionalterms 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). Seller’s acknowledgment forqualifies as an acceptance. The “subject to” language in the seller’s acceptance did not amount to a

proviso clause. §2-207(2)(b) – seller’s 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). Buyeraccepted, enclosed check for full amt, and changed delivery date to July 20. Has Buyer breachedthe K if it doesn’t pick up the bricks on June 15?


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There is a K based on the writings of the parties; even though the acceptance form containeddifferent 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 willapply (§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 offeree’s acceptance includes a proviso clause, UCC requires a specific and unequivocal expression of assent by the offeror .Allowing an offeror’s 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 behaviorwill 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 beinterpreted so as to give neither party an advantage simply b/c it happened to send the first orin 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 §2-207(2)(b); but it could be argued that it isn’t a material alteration depending on industry standardsand 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

one’s 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 inclusionof an additional or different term bears the burden of proving that the term amounts to a materialalteration – one that would “result in surprise or hardship if incorporated without expressawareness 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 arenot enough: Conclusory statements, conjecture, or speculation by the party resisting inclusionwill 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 additionalterm.”

Hardship – “you cannot walk away from a K that you can fairly be deemed to have agreedto, merely b/c performance turns out to be a hardship for you, unless you can squeezeyourself into the impossibility defense or some related doctrine of excuse.”

6.

Problem 15: Conflicting/Different Warranty Terms – Knockout rule applies, so the warrantyterms are dropped and the UCC fills in the gap. Under the UCC, the implied warranty is only for areasonable 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 offeror’s 2-year warranty term is in and the offeree’s disclaimer of allwarranties 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 andimplied warranties in the sale of plywood. Rule: generally, clauses which disclaim warranties and


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limit liability "materially alter" the agreement; but the issue of “material alteration” rests upon thefacts 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 expresslyassent to the new terms.

W/o express assent by the parties, no K is created pursuant to §2-207(1), unless acceptance isexpressly made conditional on assent to the additional or different terms.

8.

Klocek v. Gateway, Inc. – П ordered a computer from ∆; the box arrived with a standard form Kinside containing an arbitration clause. П 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 П keptthe computer beyond the 5 day return period. Court: Since there was nothing to indicate that ∆ had made acceptance conditional on П's

assent to ∆’s Standard Terms, said terms constituted proposals for “additional or differentterms.” Therefore, since П was not a merchant, under §2-207(2) “any additional or differentterms did not become part of the parties’ agreement unless the П expressly agreed tothem.”

Rule: Conditional nature of an acceptance must be clearly expressed in a manner sufficient tonotify the offeror (П) 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), thisis sufficient to establish a K for sale although the writings of the parties do not otherwise establisha 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. May 3rd – no K; May 6th – 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 theconfirmation 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 materiallyalter 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 outevery term of a written agreement, buyer sends a purchase order to seller that includes provisions thatindicate that seller will make certain express and implied warranties to buyer as part of the sale. Beforeshipping the goods, seller sends an acknowledgement form to buyer that purports to disclaim allimplied 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 seller’s 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 mustaccept all of the terms of this offer or there will be no K”?

Yes – Buyer’s offer has re-imposed the “mirror image” rule; i.e. Seller was required to acceptthe terms of Buyer’s offer . Offeror has conditioned its offer on the Seller’s acceptance of theBuyer’s terms. Offer is the master of the offer.


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Had offeror merely requested that the Seller’s 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 impliedwarranties, 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 hasmade 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, Seller’s disclaimer of warranties materially alters the K; therefore, the impliedwarranties become part of the K.

Seller’s Arbitration Clause – will automatically become part of the K unless Buyer can provethat the term materially alters the K – §2-207(2)(b). Varies among circumstances, and or jurisdictions..

4.

Suppose Seller’s acknowledgement form, besides including additional and different terms, alsoincluded a conspicuous statement that “this acceptance is expressly made conditional on buyer’sassent to the additional or different terms contained herein.” Despite these terms, Seller shipped themachines and Buyer accepted them. A few months following the sale, Buyer began having troublew/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 Seller’s acceptance was expressly made

conditional on Buyer’s assent to additional or different terms, under §2-207(3), the conduct ofthe parties' was sufficient to establish a K.

The TERMS of the K consist of those terms on which the writings of the parties agree, togetherwith 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 “thiscontract 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” languagedoes not amount to a proviso clause).

The conditional nature of an offeree’s acceptance must be clearly expressed in mannersufficient to notify offeror that offeree is unwilling to proceed with the sales transaction unlessadditional or different terms are included in contract.

v. PROFESSOR NELSON LOVES §2-207; it’s 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 thatsubsection (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 againstInfringement.


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i. (1) Seller warrants that: (a) the title conveyed shall be good, and its transfer rightful ; and (b) the goodsshall be delivered free from any security interest or other lien or encumbrance of which the buyer at thetime of contracting has no knowledge (actual).

1. Applies to ALL sellers (whether merchant or not); Warranty of title runs from the original seller tothe immediate, or original, purchaser only. Thus, the warranty cannot be used to hold liable s/oother 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. Thatownership 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, Carlawould not have good and rightful title; b/c Betty didn’t own the goods. Alice would thenhave the right to reclaim the necklace from Carla, who could then sue Betty for breach ofwarranty of title.

Bona fide purchaser s in good faith still don’t own the item- still belongs to the one withrightful ownership if that interest isn’t 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 tosell 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 oftitle. Party in this case specifically disclaimed warranty of title, but court said that wasn’t enough.There must be more specificity. There wasn’t enough to put the buyer on notice of what they werenot getting.

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

Focus should be on what buyer isn’t 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 commercialcourse that their peculiar character is immediately apparent to the buyer and therefore no personalobligation 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 conveyingequip 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 warrantsthat the goods shall be delivered free of the rightful claim of any third person by way of infringement orthe like, but a Buyer who furnishes specifications to the seller must hold the seller harmless against anysuch 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 stockand 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.''


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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 theproduct which justifies the imposition of the duty to avoid infringement.

Warranty against infringement includes infringements under the patent, copyright and similarlaws (i.e. intellectual property).

2. If Buyer furnishes specifications to Seller (i.e. where the goods are to be specially manufactured to

Buyer’s order/plans), the Buyer automatically makes a warranty to the Seller that protects theSeller 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) Basicsi. State of mind of the seller doesn’t matter under UCC; doesn’t 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 athief 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 transfereeof 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 transfergood 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 entitledto the protection of the equity court because the owner created the situation that permitted the goodfaith 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 ofthe fraud.

In other words, the fact that the title is voidable means that the equitable remedy of recissionis available to the seller, whereas in an ordinary breach of contract situation the only remedyavailable 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, whosold 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) Duty’s defense that he thought he had good title wouldn’t be successful. It doesn’t matter thathe didn’t know and was acting in good faith b/c an individual cannot tr ansfer title that he doesn’thave. Rule: a thief cannot pass clear title to stolen goods; nor can his successors; irrelevant that thesuccessors claim that they didn’t know the goods were stolen. Successors could not obtain titlefrom the thief.


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2. (b) UCC § 2-403(1)(b) covers the power of a seller to transfer title in the goods sold as well as theextent to which a buyer may acquire greater title than that possessed by the seller. In particular, thissection covers the ability of a seller with voidable title to vest good title in a good faith purchaserfor value.

3. (c) Fast Eddie bought the car from Mabel with a Bad Check – here, Fast Eddie would havereceived a voidable title – Mabel had a right to take that title back, but that doesn’t mean therewasn’t a rightful transfer free of liens. But Mabel’s 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 valueto 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 lawsuit (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 warrantyof 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, namelythat he receive a good, clean title transferred to him…so that he will not be exposed to a lawsuit inorder to protect it.”

1. The language in Comment 1 evidences an intention to allow a buyer to est a breach of warranty oftitle even if a seller did indeed deliver legally valid title…a buyer may est a breach of warrantyof title by showing a d isturbance 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

isn’t an implied warranty like the implied quality warranties. Requires statement like “I’m onlytransferring 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 isn’t 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 aboutthe 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


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

ii. Problem 211. 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 specificcharacteristic, so could be an express warranty.

2. Young chickens look sick, farmer says once they are put on full feed “they will straighten up andfly 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 jury3. “This is a great car; you’re 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 dealer’s mechanic checked it out

and said is was in mechanically perfect condition)- Then there is no reliance on Δ seller’s statements, so it wasn’t a basis of the bargain. - Buyer can come back and say she relied on both statements (i.e. dealers and mechanics)

iii. Problem 221. 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 characteristicc. “Can put up with any paste” – An express warranty; a characteristic d. “Dries immediately” – Express warranty; a characteristice.

“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 onthe 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 doesn’tchange 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 specificallyincorporated until now)

1. Found in packaging2. Made via advertisements to the public at large3. 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 breached4. But of course this hasn’t been adopted! Many states still have their state CL running contra.


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(b) Implied Warranties – legal opposite of express warranties. An express warranty is created only where sellerdoes s/t affirmative. Implied warranties are automatically part of K unless seller does s/t affirmative to get ridof them.

i. Implied Warranty of Merchantability1. 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 impliedwarranty of merchantability)

Sale of goods (i.e. wouldn’t 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) – П drinking wine at ∆ restaurant; wine glass brokeand cut his hand. П sued ∆ for breach of implied warranty, etc. Δ argued restaurant was not amerchant 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 eitheron 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 П to be consumed by П on the premises; the

wine could not be served as a drink nor could it be consumed w/o an adequate container. Thewine sold to П includes the wine and the container, both of which must be fit for the ordinary purpose for which used.

What if you didn’t buy the wine; i.e. absolutely free wine tasting? – It would not be “forvalue”, thus there would be no implied warranty; may recovery in tort.

What if you’re 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 orcharity. The complimentary drinks were offered by ∆ as an incentive to patrons togamble, and therefore enhance ∆'s business. (Patrons don’t pay for the drinks, but they givethe 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 thatthe 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: П swerved to avoid a deer and collided with a tree; as a result, П smashed up againstthe sharp points of the driver side door handle, window lever and an ashtray. П sued ∆ carmanufacturer 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


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intended. This duty includes a duty to design the product so that it will fairly meet any emergencyof use which can reasonably be anticipated.

The manufacturer is not an insurer that his product is, from a design viewpoint, incapableof producing injury.’

6. Nelson’s favorite policy reason: We don’t want to discourage commercial transactions; courts willgive UCC implied warranty provisions broadly to hold merchant sellers responsible. ( Other side – i.e. we don’t want to impose implied warranty of merchantability on non-merchant sellers; it woulddiscourage people selling)

7. Daniell v. Ford Motor Co. (N.M. 1984) – П tried to commit suicide by locking herself in the trunkof her car; at some point she changed her mind and couldn’t get out. The court granted summary judgment for ∆, finding that the trunk was not defective or unreasonably dangerous, and that П'suse was not an ordinary purpose- no breach of warranty.

a. Court: “any implied warranty of merchantability in this case requires that the product must befit for the ordinary purpose for which such goods are used.” The usual

ii. Fitness for a particular purpose1. Basics; UCC §2-315 – Requirements: (1) Seller has reason to know of buyer’s particular purpose

(could a purpose outside the ordinary purpose, or one that is particular to the buyer); and (2) Buyerrelies on the seller’s 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 relianceon seller’s skill or judgment. Comment 5 – where buyer insists on a particular brand he is not relying on the seller’s skill

and judgment, so no warranty results.

3. Problem 27 – (1): no particular purpose; paint isn’t 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 clerk’s 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) – Π, who grew up in New England, ate at Δ’srestaurant and got a bone stuck in her throat after eating fish chowder. Issue: whether a fish bone ina 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 – Π 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 applicabledisclaimers/limitations. Don’t jump straight to disclaimer when one is included. Must discuss how thewarranty was created; breached; and THEN discuss whether it was disclaimed or not.

(c) Warranty Disclaimers and limitationsi. §2-316(1) – Disclaiming express warranties:

1.

Express warranties are virtually impossible to disclaim2.

Making a warranty is inconsistent with a disclaimer of warranty (i.e. you can get around the parolevidence rule!);

3. To disclaim an express warranty, it must be consistent w/the express warranty, which is virtuallyimpossible.

4. Bell sports, Inc. v. Yarusso (Del. 2000) – Defective motocross helmet case; jury found nonegligence, but found a breach of warranty; Issue: Was there a breach of express warranty orimplied warranty? Holing: Yes, there can be a breach of warranty w/o negligence; Negligence focuses on the

manufacturer’s 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 couldavoid 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 effectsof a blow to the head constituted essential elements of valid express warranty that couldnot be disclaimed as matter of law under state's UCC.

You can’t create a warranty in one provision, then later in the same doc disclaim the expresswarranty. Just b/c the product fails doesn’t mean all warranties are breached

ii. Warranty disclaimers: the basics – what it takes to have a valid disclaimer1. 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 theWord “Merchantability”: at the heart of every transaction is the expectation of the Buyerthat the goods will work.

3. Implied Warranty of Fitness for a Particular Purpose: must be in writing and conspicuous. Nomagic words must be used; can use general disclaimer language.

iii. Problem 30 – Car doesn’t 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 notcontained herein.” Merger clause, used to get around PE evidence if it is found to be a complete integration IWM: Doesn’t mention merchantability: No Disclaimer. IWFPP: Doesn’t 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 shouldn’t have made an express warranty in the first place. Under 2-316(1)- disclaimer

must be consistent with express warranties and its not here.


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

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: Doesn’t disclaim

2.

Express warranty: Doesn’t disclaim – almost impossible to disclaim EW; get around this provisionwith 2-316(1) and PE rule3. Merchantability: Doesn’t disclaim – Must use the word “merchantability” and be conspicuous if it

is in writing4. Fitness for a particular purpose: Doesn’t disclaim – Must be in writing and conspicuous

v. Disclaiming Implied Warranties1. Cate v. Dover Corp. (Tex. 1990) – Π bought car lifts from Δ, then sued when they did not operate

properly. Δ’s warranty provision was conspicuous: it had a heading in a colored font and larger sizeand was displayed on its own page. But the disclaimer was embedded in this warranty provision, inthe same typeface, color, and size as the rest of the warranty language. Therefore, the Texas S.Ct.reversed summary judgment for Δ, holding that the disclaimer was not conspicuous.

The disclaimer was “hidden among attention-getting language purporting to grant the bestwarranty available.”

Court also held that if buyer had actual knowledge of the disclaimer, that would override thequestion 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 understandingcalls the Buyers attention to the exclusion of warranties and makes plain there is no impliedwarranties.

Nothing in §2-316(3)(a) requires this language to be in writing and conspicuous; but mostcourts 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 lik ely tofail to alert consumer that an exclusion of the warranty was intended (these words indicate themaking of a warranty)

§2-316(3)(b): Examination – not sufficient that the goods are available for inspection; theremust in addition be a demand by the seller that the buyer examine the goods. In thesecircumstances, if Buyer refuses Seller’s demand to inspect the goods, there is no impliedwarranty with regard to defects which such an examination ought to have revealed to him.

-

BUT, Π Buyer can argue that the defect was latent (i.e. it wouldn’t have been noticedin 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 owner’s manual, whichis 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) – Π ordered a “spray rig.” Instruction manual

was included w/the spray rig when it was delivered to Π, which on the last page included awarranty disclaimer; trial court concluded that a disclaimer found in the manual that accompaniedthe 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 ofthe sale and which first appears in the manufacturer’s manual delivered to the buyer with thegoods or the manufacturer’s printed material brochure, or warranty booklet that accompaniesthe 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 oa 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 thewarranty 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 thusineffective; i.e. the disclaimer was effective.

8.

Policy Behind §2-316 – serves to protect a buyer from unexpected and unbargained for languageof disclaimer.

9. Do the decisions in Bowdoin and Rinaldi conflict? Not quite – In this situation, the manufacturergives the buyer the opportunity to take it home, read the warranty contained within the packaging,and return the good if they don’t like the terms of the contract. The two cases define the time of sale differently; but the disclaimer must still be bargained-

for.

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 adiscussion 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 tolimit 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 anadequate 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 notallowed 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 UCCc. “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 section…and §2-719:

(a) the agreement may provide for remedies in addition to or in substitution for those provided in this Articleand 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-conforminggoods or parts; and

(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, inwhich case it is the sole remedy.

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

The general remedy provisions of the UCC apply when “circumstances cause an exclusive orlimited 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.”

Typic

Documents

Sales Law Outline