978-1285428222 Chapter 11 Lecture Note Part 3

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Add. Info.: Open Payment Term—If the parties do not specify terms of payment, it is due in

full at the time and place where the buyer receives the goods. 2-310(a) If unspecified, payment

can be made in any manner used in the ordinary course of business, including check or credit

card. If the seller demands cash, the buyer must be given a reasonable time to secure it. 2-511(2)

PERFORMANCE AND OBLIGATIONS—The general duties and obligations assumed by

each party to a contract for the sale of goods include those duties and obligations specified by the

contract, imposed by the UCC, and, where necessary, provided by trade custom.

Add. Case: Daughtrey v. Ashe (Sup. Ct., Va., 1992)–Ashe, a jeweler, sold Daughtrey a bracelet

for $15,000. On an appraisal form (for insurance) Ashe listed the value as $25,000 and stated

that the diamonds were of a certain quality. Daughtrey later found out the diamonds were of a

lower quality and demanded specific performance, not a refund, since diamonds had risen in

value. Trial court held that the particular quality of the diamonds was not a condition of the

sale. Daughtrey appealed.

Decision: Reversed for Daughtrey. Ashe’s statements about the quality of the diamonds are a

Seller’s Rights and Obligations—The seller must transfer and deliver conforming goods to the

buyer. Obligations include the appropriate manner and timeliness of delivery, and the place and

quality of tender.

Tender–Under the common law perfect tender rule, the seller’s tender of delivery was required

to conform in detail to the terms of the agreement. The buyer could reject the delivery or accept

it. The UCC restates the rule to provide that the buyer may (a) reject the whole; (b) accept the

whole; or, (c) accept part and reject the rest. 2-601 Buyers are entitled to receive those goods

they have bargained and paid for and not something less. However, the UCC provides three

modifications to the buyer’s right to reject the goods for failure to comply. By contract, the

parties may agree to limit the operation of the perfect tender rule.

Right to Cure by the Seller—The UCC provides opportunities for a seller to cure an improper

tender rejected by the buyer. After the buyer rejects a shipment for not conforming to the

contract, the seller may cure if: (1) The time for the seller’s performance under the contract has

not yet passed; (2) The seller notifies the buyer in a timely manner of an intent to cure the defect;

and (3) The seller properly repairs or replaces the defective goods within the time allowed for his

performance. 2-508(1)

Add. Case: Ramirez v. Autosport (Sup. Ct., NJ, 1982)–On July 20, the Ramirez contracted to

buy a van from Autosport. The Ramirez agreed to turn in their old van immediately and to take

delivery of the new van on Aug. 3. On Aug. 3 the new van was not ready. It had scratches and

damaged parts. Autosport agreed to fix the problems by Aug. 14, but then the van was not ready.

Delivery was then set for Sept. 1, but again the van was not ready. In October, the Ramirez

returned with their attorney, canceled the contract, and demanded the return of their old van, but

Autosport had sold it. Ramirez sued for rescission of the contract and recovery of the value of

their old van. Autosport counterclaimed for breach of contract. The trial court found for

Ramirez; Autosport appealed.

Decision: Affirmed. The Ramirez properly rejected the new van despite Autosport’s efforts to

cure defects. The UCC permits a buyer who rightfully rejects goods to cancel a sales contract.

Add. Info.: With buyers’ consent, sellers can have extra time to cure beyond the time for

performance. For the seller to establish a right to cure after the time allowed for performance,

Article 2 requires the seller to have reasonable grounds to believe the nonconforming goods

would be acceptable to the buyer. In such cases, the sellers may offer the buyer a discount for

taking nonconforming goods.

Buyer’s Rights and Obligations—The buyer is required to accept conforming goods, and to

pay for them according to the contract. The decision to accept or reject the goods dictates how

the seller will continue to perform. If the buyer accepts, the seller awaits payment. If the buyer

rejects as nonconforming, the seller may need to remedy the problem.

Buyer’s Right of Inspection—Unless the parties have otherwise agreed, the buyer has a right to

inspect the goods before accepting or paying for them. 2-513(1)

Buyer’s Right of Rejection—A buyer who receives non-conforming goods may reject them and

withhold payment. The buyer may also cancel the contract and recover from the seller any

prepayments made. The buyer must notify the seller of a rejection in a timely manner to allow

the seller to cure or reclaim the goods. 2-601(a)

Add. Case: Carmichael & Carmichael v. Nicholstone Co. (Ct. App., Tenn.,

1993)–Carmichael made educational tapes. It contracted with Nicholstone for cassettes and

accompanying written materials. Before delivery, Carmichael requested mock-ups. On later

orders, it did not request mock-ups and did not inspect later shipments. A year later, Carmichael

discovered that binders were mislabeled. Carmichael called Nicholstone, which offered paste-on

patches at its expense. Carmichael rejected this and demanded a refund. Nicholstone refused;

Carmichael sued. The trial court found that Carmichael had revoked acceptance of the binders

in a timely manner and awarded $10,000. Nicholstone appealed.

Decision: Reversed. The buyer’s revocation was ineffective. While the UCC does not require a

buyer to inspect goods, Article 2, by implication, includes an obligation to inspect and to accept

or reject goods within a reasonable time after delivery. If a buyer does not inspect goods before

Buyer’s Duty of Acceptance—When the seller has tendered conforming goods properly, the

buyer has the duty to accept them. The buyer may notify the seller, pay for the goods, use the

goods, or simply put the goods into inventory. 2-606; 2-607

Add. Info.—Accepting goods from the seller imposes several obligations on the buyer.

Acceptance obligates the buyer to pay the seller at the contract rate. By accepting, the buyer is

precluded from rejecting the goods; but, the buyer may revoke acceptance later if nonconformity

is discovered. The nonconformity must have been difficult to discover on inspection and

substantially impair the value of the goods. Substantial impairment depends on the

circumstances of the transaction. Done properly, such revocation provides the buyer with

virtually the same rights as if the goods had been rejected.

Obligation of Payment—Unless otherwise agreed then, payment is due at the time and place at

which the buyer actually receives the goods. Payment upon receipt gives the buyer a chance to

inspect the goods before paying for them. 2-507

SALES WARRANTIES—In general, a warranty is a representation by a seller that goods being

sold conform to the specified standards of quality, safety, performance and title. If the goods then

do not conform to the warranty standards, the seller can be liable for damages. Article 2 provides

5 warranties.

Add. Case: Hoover Universal v. Brockway Imco (4th Cir., 1987)–Imco sold Hoover equipment

for $3.5 million to make plastic bottles. Handouts about the machines incorrectly overstated

production capability. The contract stated that since Hoover had inspected the equipment and

become familiar with it that there were no warranties. Hoover later discovered the lower

production capability and sued for breach of warranty and fraud. Trial court held that the

warranty disclaimer clearly eliminated these charges. Hoover appealed.

Decision: Affirmed. The warranty term was specifically written to this contract; it was not

boilerplate. The mistake in the handout was a mistake, not fraud. The buyer had plenty of chance

Warranty of Title—Is a promise that the seller is the rightful owner of the goods sold. Article 2

overrides the common law’s implied warranty of title, and imposes an obligation of a warranty of

title. Warranties of title under Article 2 require good title and rightful transfer, the absence of any

liens or other interests, and the absence of any infringements (for example, on the trademarks or

copyrights of others). In most sales contracts these warranties of title arise automatically. 2-312

Litigation arises when a third party asserts ownership over the goods. A buyer must show that the

third party made a credible claim of ownership. Then, the buyer can show that the seller has

breached a warranty of title.

Add. Case: Jefferson v. Jones (Ct. App., Md., 1979)–Jefferson bought a motorcycle from Jones,

who signed his title. The state issued title in Jefferson’s name. Two years later, the police asked

Jefferson to prove ownership. They believed the cycle had been stolen. The vehicle ID number on

the title did not match the number on the motorcycle and police seized it. Jefferson sued the

police to get it back and won because no other person could be found with a superior title.

Jefferson demanded that Jones reimburse him for legal expenses. Jones refused; Jefferson sued

for breach of warranty of title under the UCC. The trial court found that no breach occurred

because Jefferson had failed to prove that someone else had superior title. Jefferson appealed,

arguing that the disruption in use and enjoyment of the cycle by a seemingly genuine claim of

superior title was sufficient to breach the warranty of title.

Decision: Reversed. Warranty of title provided by section 2-312 does not require proof of a

Express Warranties—An express warranty is created by a seller’s promise as to the quality,

safety, performance, or title to the goods being sold. Article 2 provides three circumstances

where an express warranty may be created:

1. Seller’s confirmation or promise of fact made to the buyer regarding the goods.

2. Seller’s description of the goods provided to the buyer.

3. Seller’s sample or model of the goods. 2-313

Note that the seller’s intentions are irrelevant in determining whether the statements or actions

create an express warranty of quality.

Add. Case: Wendt v. Beardmore Suburban Chevrolet (Sup. Ct., Neb., 1985)–GM

repossessed cars from a dealership and sold them to other dealers. The Chevy in question, which

Beardmore bought, had been wrecked and repaired. GM did not reveal the car’s history to

Beardmore, which sold the car “as is” as a demo. After Wendt bought the car, problems

indicated it had been in a wreck. He sued for breach of express warranty on two bases: 1) the

car was sold as new and 2) it was sold as not having been wrecked. Trial court dismissed; Wendt

appealed.

Decision: Affirmed. UCC 2-313 provides “‘Any description of the goods which is made part of

the basis of the bargain creates an express warranty that the goods shall conform to the

description.’ Since an express warranty must have been ‘made part of the basis of the bargain,’ it

is essential that the plaintiffs prove reliance upon the warranty. … Damages in a breach of

Add. Case: Rogath v. Siebenmann (2nd Cir., 1997)–Rogath bought a painting from Siebenmann

for $570,000. “In the Bill of Sale, Siebenmann described the provenance of the Painting and

warranted that he was the sole owner of the Painting, that it was authentic, and that he was not

aware of any challenge to its authenticity.” When Rogath sold the painting three months later for

$950,000, the new buyer challenged its authenticity and demanded a refund. Rogath sued

Siebenmann for breach of contract, breach of warranty, and fraud. The trial court granted

summary judgment for $950,000 damages to Rogath for breach of warranty. Siebenmann was

unsure of the provenance of the painting and knew that its authenticity was unclear. Other claims

dismissed due to “full recovery” on warranty claim. Both parties appealed.

Decision: Remanded. UCC 2-313 provided that “any description of the good which is made part

of the basis of the bargain creates an express warranty that the goods shall conform to the

description.” Siebenmann knew there were questions about the painting. There is conflicting

Implied Warranties—A minimum quality standard imposed by operation of law. In the sale of

goods, implied warranties are imposed by Article 2; it exists regardless of whether it is written

into the sales contract. Article 2 provides two implied warranties of quality: (1) An implied

warranty of merchantability; and (2) An implied warranty of fitness for a particular purpose.

Implied Warranty of Merchantability—Unless the parties expressly agree otherwise, an implied

warranty of merchantability accompanies every sale by a merchant. Article 2 imposes an

obligation on the merchant/seller that the goods are reasonably fit for the purposes for which

they are being sold. It also requires that they be of fair, average, merchantable quality. 2-314

Add. Case: Edwards v. Hyundai (Ct. App., Mo., 2005)–The Edwards bought a new Hyundai in

2001. It had a six-year or 72,000 mile bumper-to-bumper warranty. The car had numerous

problems and the defects could not be cured. In 2004, the Edwards sued for breach of written

warranty and breach of implied warranty of merchantability. The trial court dismissed their suit,

holding that the statute of limitations under the Lemon Law had expired; the Edwards appealed.

Decision: Reversed and remanded. The Missouri Lemon Law does not supersede the UCC in all respects with

regard to nonconforming new vehicles. The Lemon Law, which refers only to express warranties, did not preclude

Add. Case: Jacobs v. Yamaha (Sup. Ct., Mass., 1995)–Jacobs bought a new Yamaha

motorcycle in 1983 for $5,162. The warranty stated the cycle was “free from defects in material

and workmanship” and that any authorized dealer would make needed repairs. In the first year,

Jacobs returned the cycle to the dealer 15 times with problems. The 15th time, Jacobs said he

wanted his money back; the dealer refused, so Jacobs called Yahama’s warranty department in

California. Both times he called he was told the company would get back to him, but it never did.

Jacobs sued Yamaha (the dealer had gone out of business). The jury awarded him $8,500 for

breach of implied warranty of merchantability. Yamaha appealed.

Decision: Affirmed. “Yamaha’s attempted disclaimer of implied warranties was ineffective. Any

language by which a manufacturer of consumer goods seeks to exclude or modify an implied

Add. Case: Buettner v. RW Martin & Sons (4th Cir., 1995)–Buettner worked in a commercial

laundry. One day her sweater got caught in the feed drive at the front of the ironer, which

resulted in the loss of her arm below the elbow. The laundry bought the used ironer four years

earlier from Martin, a company that bought, sold, and renovated laundry equipment. The

machine was sold “as is.” It did not have a guard to cover the feed drive roll and industry

custom was not to have such guards. Buettner sued Martin for breach of implied warranty of

merchantability. District court held for defendant. Buettner appealed.

Decision: Affirmed. Under UCC 2-314, “a warranty of merchantability is implied in every

contract for the sale of goods unless the warranty is ‘excluded or modified’” as allowed under

UCC 2-316. Martin disclaimed warranties by selling the used equipment “as is,” so there was

Add. Case: Venturelli v. Cincinnati, Inc. (1st Cir., 1988) Background: A worker had the tip of a

finger crushed in 1981 in a “plate-shearing” machine built in 1947 that was used at his place of

employment. He sued the manufacturer alleging that it had sold a defective machine in breach of

warranty of merchantability. Jury held for worker. Producer appealed.

Decision: Affirmed. “A warranty of merchantability that goods ‘are fit for the ordinary purposes

for which such goods are used’ is implied in a contract for their sale.” UCC §2-314. “The

implied warranty of fitness includes uses which are reasonably foreseeable but does not include

Add. Info.—Article 2 provides minimum requirements that goods must satisfy to be considered

merchantable:

1. Conform to Contract Description. The goods received must conform to the trade meaning of

the goods described in the contract. This requirement has been interpreted to mean fair or

average quality. The seller is not obligated to supply the highest quality of the goods described

in the contract and the buyer is not obligated to accept the lowest quality.

2. In the Case of Fungible Goods. If the goods are bulk agricultural (i.e., wheat or corn) or other

fungible commodities, they must be of “fair average quality.” Goods are fungible if one unit is

roughly identical to any other unit.

3. Fit for Ordinary Uses. To be merchantable, the goods must be fit for the ordinary purposes for

which they are used. They must be capable of performing the functions ordinarily required of

similar goods.

4. Even Kind, Quality, and Quantity. The goods must have an evenness of kind, quality, and

quantity in each unit. This is intended to protect a buyer who expects that goods sold in large

lots are inter-changeable. The buyer and seller may agree to limited variations between the

units, to the extent trade usage allows. They may also agree that the seller will replace units

exceeding specified tolerances.

5. Adequacy of Packaging and Labeling. In the event the goods are to be packaged and/or

labeled, that must be as adequate as the agreement between the parties may require.

6. Conform to Label Description. If the goods come in a container, or with a label, they must

conform to statements or promises on the label. Labeling must be accurate, even if it is not

required by the terms of the contract. This reflects the expectation of buyers that goods will not

be delivered with false representations on the package.

Issue Spotter: How Much Advice Should Retailers Give?

No doubt such suits happen, but they must be rare, as stories about them do not seem to show up

very much, and the retailers find it to their advantage to be known as being helpful. Despite the

fact that they issue advice without disclaimers, it is unlikely that they will be liable for dumb

mistakes made by a homeowner. Sales reps cannot know if you really understand the problem

and if you are handy with tools, so unless they go too far in encouraging someone to do

something pretty drastic, it is unlikely that such a warranty applies as they sell you the goods

needed to do repairs.

Implied Warranty of Fitness for a Particular Purpose—Article 2 is more demanding about a seller

who had reason to know the buyer’s particular purpose for purchasing the goods. If the buyer

relies on the seller’s skill or judgment to select the goods for that purpose, an implied warranty

that the goods are suited for that purpose is created. The goods must be intended for something

more specific than the general purpose for which they were made. 2-315

Add. Info.: Conflicting Warranties—A single sales contract between a buyer and a seller may

involve several warranties. While such warranties are generally compatible, there are cases

when they are inconsistent or even in conflict with one another. In such cases, the UCC provides

that the warranties will be construed as consistent and cumulative wherever possible. 2-317

Warranty Disclaimers—Under Article 2, a seller can exclude any express or implied warranty,

limit the time period in which a warranty is to be effective, or limit the buyer’s remedies for

breach of warranty. How a warranty can be limited or excluded is defined specifically.

CASE: Lee v. R&K Marine—Lee bought a new boat from R&K. It was clearly sold with a

warranty disclaimer. Three years later, the boat had fallen apart. The maker was out of business,

so Lee used the marina that sold him the boat. Trial court granted R&K summary judgment. Lee

appealed.

Decision: Affirmed. The UCC allows warranties to be disclaimed so long as it is conspicuous.

Question: 1. There was no evidence that the retailer knew the boat was junk, but suppose that

could have been shown. How might that have changed the case?

Then there may have been a suit for fraud, which is a different matter and there could have been

2. Would there be any reason to sue the boat manufacturer?

No, it was bankrupt (for good reason); no sense wasting money on litigation when there are no

Add. Case: Bimini Boat Sales v. Luhrs Corp. (App. Div., NY, 2010)–Bimini Boat Sales bought

a fishing boat from Luhrs, a boat manufacturer, for the purpose of reselling the boat to the

public. Finding many defects, the boat needed extensive repairs before it could be made

merchantable. Bimini sued Luhrs, claiming the boat was unmerchantable and unfit for the

particular purpose of reselling to the general public. Hence, Bimini sued Luhrs for breach of

warranties and for damage to its business reputation. The trial court dismissed the suit; Bimini

appealed.

Decision: Affirmed. Bimini established a clear case entitling it to judgment to recover damages

for breach of the implied warranty of merchantability and breach of the implied warranty of

Add. Info: Disclaiming Express Warranties—The UCC intends to protect buyers from sellers

who make express warranties during negotiations between the parties and disclaim them later in

a form contract, or who put language in an agreement that creates and disclaims a warranty.

Suppose a contract said: “The digital components supplied by the seller are warranted against

defective workmanship for a period of one year.” Another clause reads: “Seller hereby excludes

all warranties, express and implied.” Article 2 directs that when possible, words or conduct

excluding or limiting an express warranty shall be interpreted as consistent with any other words

or conduct that created the warranty. If not possible to make the warranties consistent, the

disclaimer is ineffective. The express warranty exclusion in this example is inoperative because

it is not consistent with other warranty. This gives courts latitude to strike down seller’s

disclaimers. 2-316(1)

Add. Info: Disclaiming Warranties of Title—A seller can exclude or limit the warranty of title,

but only in one of two ways: (1) By specific language in the contract or (2) By circumstances

informing the buyer that the seller either does not claim full title or is selling only whatever title

he may have. These latter includes, for example, the purchase of goods at a sheriff’s sale. In such

instances, buyers know or should know that the goods have been seized to satisfy unpaid debts.

Thus, they are not the property of the party selling them. 2-312(2)

Add. Info: Disclaiming Implied Warranties—The implied warranty of merchantability can be

excluded or limited by a “conspicuous writing” that includes the word “merchantability.”

General statements may suffice as a proper disclaimer. For example: “SELLER MAKES NO

WARRANTY OF MERCHANTABILITY WITH RESPECT TO GOODS SOLD UNDER THIS

AGREEMENT” works if the seller brings it to the attention of the buyer. Language like “as is”

and “with all faults” is effective to alert the buyer that there are no implied warranties of any

kind. An implied warranty of fitness for a particular purpose can also be excluded by a

conspicuous writing. The UCC provides model language sufficient to disclaim any implied

warranty of fitness: “THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THE

DESCRIPTION ON THE FACE HEREOF.” Other language can also operate as a disclaimer if

it specifically excludes or limits an implied warranty specifically. 2-316

Add. Info: Third Party Beneficiaries of Warranties—The UCC extends any express warranty

made by the seller to third parties. It also extends the implied warranty of merchantability. All

warranty disclaimers made to the buyer by the seller also apply to third parties. However, the

seller is barred from giving a warranty to the buyer but excluding or limiting its application to

third parties. 2-318 Which third parties were to be covered by the rule generated disagreement

among the states. To minimize those concerns, three alternative versions for the imposition of

liability under Article 2 were drafted. States may choose to limit third parties to the buyer’s

family and house quests 2-314A; to any natural person 2-314B; or to any person which would

also include businesses. 2-314C

REMEDIES AND DAMAGES—When a party breaches a contract, the UCC provides the

non-breaching party with remedies to place the non-breaching party in the same position as if the

contract had been performed according to its terms. The UCC directs the courts to interpret

remedies liberally. 1-106

Seller’s Remedies—The buyer may default by rejecting a tender of goods that conforms,

wrongfully revoking an acceptance, repudiating the contract, failing to make a payment, or by

failing to complete some other performance required by the contract. The seller’s remedies

include:

1. Withholding delivery of the goods;

2. Stopping delivery by a carrier or bailee;

3. Identifying the goods to the contract, and salvaging them if necessary;

4. Reselling the goods and recovering any deficiency as damages;

5. Recovering damages for wrongful acceptance or, in some cases, recover the purchase price;

and,

6. Canceling the contract.

Add. Info: Withholding Deliveries—If the buyer wrongfully rejects goods or revokes

acceptance, fails to make a payment due on or before delivery, or repudiates the contract, the

UCC protects the seller from further loss by allowing delivery to be withheld. If the goods have

been shipped but have not been received when the buyer breaches, the seller may be able to stop

delivery of the goods by the carrier. A seller who rightfully stops delivery to a non-performing

buyer regains all original rights to the goods. 2-703(a)