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Add. Info: Identifying Goods for Resale or Salvage—If a buyer breaches while goods are still
with the seller, the seller may identify the goods conforming to the contract if not identified
previously. After identifying, the seller has two options:
1. Finish manufacturing the goods, if necessary, and resell them to another buyer, 2-704(1)(b),
or
2. Sell unfinished goods for their scrap or salvage value 2-704(2)
The seller’s decision must express a reasonable commercial judgment to minimize losses.
Add. Info: Reselling Goods—After a buyer has breached, the seller might minimize losses by
reselling the goods to another buyer. The seller may use a public or a private sale—as long as
the manner, time, place, and terms of the resale are commercially reasonable. After the sale, the
seller may look to the original buyer to make up any difference between the contract price and
the resale price. The seller does not have to give the original buyer any profit obtained from a
resale. 2-706
Seller’s Damages—Under Article 2, the seller can seek incidental damages for recovery of costs
resulting from the breach. Costs may include expenses of stopping delivery, transporting and
taking care of the goods after the breach, returning or reselling the goods, and taking any other
necessary action. Attorneys’ fees are not allowed as incidental damages. 2-710
Buyer’s Remedies—A seller usually breaches in one of these ways: 1) repudiates the contract
before tendering the goods; 2) fails to make a scheduled delivery on time; or, 3) delivers
non-conforming goods. The buyer may cancel the contract, arrange to obtain goods from another
supplier, and sue the non-performing seller for damages.
Add. Info: Buyer’s Disposition of Rejected Goods—After rightfully rejecting a tender of goods
or revoking a prior acceptance, a buyer may be concerned about getting the seller to refund
advance payments. Payments are recoverable when the seller breaches by repudiation, failing to
make a timely delivery, or tendering nonconforming goods. To use the UCC, the circumstances
of the breach must give the buyer temporary possession of any goods identified to the contract.
2-711(1)
Add. Info: Resale of Rejected Goods—The buyer may resell contract goods in his possession to
recover all advance payments. (The buyer may still sue to recover damages for the seller’s
breach.) The buyer must resell the goods according to the same rules the UCC imposes on
sellers—that is, the buyer may use either a public or a private sale as long as the manner, time,
place, and terms of the resale are commercially reasonable. But unlike sellers, a buyer who
resells contract goods after breach may only keep proceeds equaling payments and expenses.
Any excess over this amount must be remitted to the seller. 2-711(3)
Add. Info: Other Disposition of Rejected Goods—A buyer does not have to resell goods that
remain in his possession following a seller’s breach. The buyer must use reasonable care in
holding rejected goods so the seller can reclaim them. 2-602(2)(b) Normally, the buyer
surrenders goods in exchange for a refund of holding costs and advance payments. When the
seller has been given timely notice of the buyer’s rejection or revocation of acceptance, but
provides the buyer with no instructions for disposing of the goods, the buyer may store or reship
the goods. 2-604 If goods are perishable, or will decline rapidly in value, buyer must make a
reasonable effort to resell them for the seller. 2-603(1)
Buyer’s Damages—Like the seller’s provisions, the buyer is allowed to seek damages for
recovery of costs resulting from the seller’s breach.
Cover—When a seller has breached the contract, the buyer often protects himself by obtaining
similar goods from another supplier. That enables a producer to keep production going, a retailer
to maintain an adequate inventory for sale, and a consumer to continue using goods as planned.
The UCC uses the term cover to describe the buyer’s arrangements to get substitute goods
following a breach of contract by the seller. The buyer may recover damages from the
non-performing seller equal to the difference between the contract price and the cover price, plus
incidental and consequential damages. In principle, this remedy puts the buyer in the same
position as if the seller had performed the contract. 2-712
Add. Case: Huntington Beach High School v. Continental Info. Sys. (9th Cir., 1980)--The
School District (SD) requested bids for a computer system to be installed by the end of July. Bids
were opened and the contract awarded on July 12. The winner was Continental with a bid of
$332,939. It was a broker who bought systems from other companies. It had not yet acquired a
system for the SD. By July 31 Continental had no computer system. SD covered by rebidding,
which caused installation to be delayed 3 months. The new bid was for $59,425 more than
Continental’s. SD sued Continental for breach. The trial court awarded limited damages because
SD knew Continental did not have the system on July 12. SD appealed.
Decision: The appellate court found that the trial court had erred in its calculations of damages.
Cover damages should be $59,425, the difference between the new bid and Continental’s bid (§§
Add. Info: Damages When the Buyer Elects Not to Cover—It is not always desirable for a
buyer to cover a seller’s non-delivery or repudiation. With perishable goods, the breach may
occur so late in the season that the buyer cannot purchase goods from another supplier. Also, the
breach may motivate the buyer to change plans so that the goods are no longer needed. Still, the
buyer has been injured—changing plans can produce expenses that should be compensated by
the non-performing seller. When the buyer elects not to cover, damages are the difference
between the market price of the goods at the time the buyer learned of the breach, and the price
in the original contract.
Incidental Damages—Includes the reasonable costs of inspecting, receiving, transporting and
storing the goods while in would be buyer’s possession. If no delivery, this includes the costs
from delay.
Consequential Damages—Consequential damages are the foreseeable, although not necessarily
foreseen, damages that result from the seller’s breach. They differ from incidental damages in
that consequential damages result from the buyer’s relations with parties other than the seller.
2-715
CASE: QVC v. MJC America (Dist. Ct., PA, 2012)—The TV channel QVC sold portable
heaters made in China for Soleus (MJC). QVC writes contracts with suppliers that have strong
warranty terms. Safety problems became known and a recall of heaters was ordered. Soleus
claimed there was no real problem. The district court held that Soleus breached. The decision is
very good at explaining categories of damages that exist either because specified in the contract
or are the kind calculated under the UCC.
Decision: Calculated damages are in seven specific categories, in detail, plus other costs and
Questions: 1. Why does the UCC detail such costs rather than allow general lump-sum
judgments that the court may think appropriate?
The UCC focuses on real costs and reasonable profit estimates, not vague guesses and hopes for
2. Can Soleus recover against the Chinese manufacturer?
Yes, if it had a tightly-written contract as QVJ had with it and it could receive fair treatment by
Chinese courts, as it likely would have to, at a minimum, enforce any judgment in court in
Add. Case: Kramer v. ATW Axtell Tech Wholesale (Ct. App., Iowa, 2010)—Kramer owned an
internet service provider; he wanted to upgrade from dial-up service to wireless beamed from
towers. The system installed by Axtell did not provide the level of service expected. Trial court
awarded $95,000 in damages for cost of replacing the poor system, loss of Kramer’s time, loss of
use of the rented tower, and lost profits from lost business. Kramer appealed for higher damages.
Decision: Affirmed. Evidence supported the amount in each category granted by the trial court.
Kramer was arguing for larger sums that would provide a better system than what was
Add. Case: Grams v. Milk Products (Sup. Ct., Wisc., 2005)—The Grams raise calves
commercially, buying newborns and keeping them for 4 months. The calves eat “milk replacer”
sold by Milk Products. Grams asked for a cheaper product, which there was, as it lacked
medications. The death rate of calves tripled and more were sick. They sued Milk Products for
breach and intentional misrepresentation. The district court held for Milk Products; Grams
appealed.
Decision: Affirmed. The sale was under the UCC; there is no tort claim here. Hence, the case is
Add. Case: Mississippi Chemical Corp. v. Dresser-Rand Corp. (5th Cir., 2002)--Miss. Chem.
bought specially designed compressors to make ammonia from Dresser. The contract included a
warranty that the system would be free from defects and Dresser would repair and replace any
defects. The system broke several times, shutting down Miss. Chem. production. It sued for
breach of warranty and breach of warranties of merchantability and fitness for particular
purpose. Jury held that the original warranty had failed and awarded $4.42 million for lost
profits while system shut down. Dresser appealed.
Decision: Affirmed. The original warranty was fine, but if a repair or replacement remedy fails,
after the buyer has used it, then there may be suit. The compressors failed in their essential
Add. Case: Figgie Intl. v. Destileria Serralles (4th Cir., 1999)--Figgie sold bottle labeling
equipment to Serralles, a rum maker. After months of fiddling with the equipment, Figgie could
not get it to work properly for Serralles, so took the equipment back and refunded the purchase
price. The contract called for repair, replacement or refund in case of equipment problem.
Serralles sued for consequential damages to cover lost sales. District court held for Figgie.
Decision: Affirmed. As 2-719 notes, parties to a contract may specify the remedies in case of
breach. The parties here did so. Furthermore, looking to trade usage or custom, it has been
Add. Case: Best Buy v. Fedders North America (8th Cir., 2000)--Best Buy bought window
A/Cs from Fedders. The contract included terms, including an inventory assistance provision
(IAP) which stated that “Any of the five ‘core’ models that Best Buy has in inventory on June
30th can be returned for full credit. The units must be in factory sealed cartons.” In the third
year of the agreement Best Buy invoked the IAP and told Fedders in mid-July that it would
return unsold units. Fedders refused, contending it had to be notified by June 30. Fedders
claimed that date had been agreed to orally when the contract was signed; Best Buy denied any
modification to the contract. A lower court decision was appealed.
Decision: The evidence supported a finding that return deadline provisions were not included in
the IAP. Fedder’s oral testimony was inconsistent with other evidence, so the oral return notice
INTERNATIONAL SALES—Increase in global business made clear the importance of having
fair “rules of the game” under which parties would not be concerned about being at a
disadvantage doing business under the law of a particular country.
General Principles—Parties to international deals have great control over the law that will
govern their relationship and the forum for adjudication of disputes.
U.N. Convention on Contracts for the International Sale of Goods—The CISG has been
adopted by most nations in the past decade plus. Since it is an international treaty adopted by
Congress, it prevails in the U.S. Unless otherwise specified by the parties to a contract, two
parties from different countries that engage in a sales contract will automatically have the CISG
govern their contract.
Sales Covered by the CISG—The focus is on commercial sales according to place of businesses,
not citizenship of the parties. Certain sales are excluded: auctions, consumer goods for personal
use, labor contracts; certain goods are excluded: electricity, ships and aircraft, and securities and
money.
International Perspective: Contracts in China
China adopted a Uniform Contract Law (UCL) in 1999. It is much like the UCC for offer and
acceptance and terms required. However, it does not require consideration unlike the UCC—in
that regard it is more like the civil law of contracts in Europe. The state retains strong power to
negate contracts that violate “social ethics” and “social and economic order.” It has a provision
similar to the Statute of Frauds, but does not place a higher burden on merchants as does the
UCC. The UCL provides express warranties but is unclear about warranties in general, so parties
remain concern about the lack of practice doing contracts under the UCL.
Similarities to UCC—The CISG is quite similar to the UCC and the commercial codes of most
code nations; it is based on the way most business is transacted in practice, not on highly formal
rules.
Formality. If there is no clear written contract, the judge is instructed to look at all the evidence,
such as past dealings, trade practices, and such. This leeway can be avoided if a written contract
states that all terms of the contract are within the writing and that other evidence is not to be
considered.
Offers. Much like the UCC, general offers are invitations to enter into negotiations. Offers made
to one or two specific parties can be accepted to form a contract, if the offer is sufficiently clear
as to quantity and price. In case a terms is not clear, the judge is to look to trade practice.
Issue Spotter: What Law Applies, and Where, to Your Contract?
The CISG would apply, presuming that Indonesia, where Borneo is located, has signed the
Convention. (Assuming the furniture factory is located in that part of Borneo, not the Malaysian
part or the Brunei part.) But you still have to go to a court that has jurisdiction and, assuming the
seller established a business presence in the U.S., is it very likely that a small firm will go to the
expense of defending itself? You may win a default judgment, but then you have a court order
hard to enforce, as the company will have no assets in the U.S., and good luck going to
Indonesian courts for enforcement of the verdict. An arbitration clause would have been a good
idea, but even with that, if you go against a small seller, they are likely to default and your
chances of collection are minimal. So, accept the fact that commerce is not perfect and that you
will eat your share of losses when you work in fringe markets.
Acceptance. As usual, acceptance must be within a reasonable time unless a specific time limit
is set in the offer. Any reasonable communication of acceptance works. Silence is not acceptance
unless the offer is one that allows performance to be acceptance: “Please ship me 100 cartons of
dog food” may be accepted by performance.
Battle of the Forms. If the difference in forms that cross between the parties is material, then the
reply containing the different term is a counter-offer, not an acceptance that forms a contract.
Non-material terms that differ do not prevent the contract from being formed. CISG is a bit more
formal than the UCC on this point, as there is less filling in the gaps of material terms.
Duties of the Parties. Similar to the UCC. Parties must act in good faith to notify the other side
of problems and be given reasonable chances to mend the problem. Buyers must notify sellers of
defects in goods delivered as soon as practical.
Remedies. In case of defective performance, as with the UCC and common law, both parties
have a duty to minimize damages. But under the CISG, the buyer must give the seller more
chances to cure defects. There must be something like the German Nachfrist notice from buyer to
seller that there is a problem and a chance to cure will be allowed.
CASE: Dingxi Lonhai Dairy v. Becrood Technology (8th Cir. 2011)—Dingxi agreed to send
four shiploads of Inulin (dietary fiber extract) to Becwood, from China to New Hampshire. After
receiving the first two shiploads, Becwood paid for one but refused to pay for the second due to
mold on the packaging. Dingxi recalled the 3rd and 4th loads and sued Becwood for breach. Trial
court held for Dingxi on the 2nd load, but found no damages for the 3rd and 4th shipments. Dingxi
appealed.
Decision: Reversed as to 3rd and 4th shipments. CISG applies. Article 2 of UCC is similar at least
for this case to provide guidance. Dingxi delivered the goods FOB China. Becwood made clear it
Questions: 1. Why would this case be tried under the CISG rather than the UCC or the UCL of
China?
Either the parties agreed in the contract to be under CISG or maybe they did not specify what
law governs, so the court noted the CISG would. A surprising number of contracts do not address
2. What damages would you think Dingxi might be due for the third and fourth shipments?
As the court notes, it is unlikely to get the full value of the shipments unless the delay resulted in
their becoming totally worthless. Usually the damages would be price minus resale revenue
Add. Case: Treibacher Industrie v. Allegheny Technologies (11th Cir. 2006)—Treibacher of
Austria sold a metal powder (TaC) for delivery “on consignment” to Allegheny’s subsidiary TDY
in Alabama. When it found a cheaper source, TDY cancelled the order, forcing Treibacher to sell
for a loss, so it sued for damages. TDY claimed “on consignment” meant no sale occurred
unless and until TDY used the TaC; Treibacher claimed that in seven years of dealings the
parties understood the term meant TDY was obliged to pay for all TaC ordered, but Treibacher
did not bill until the powder was used. The trial court held that under the CISG, evidence of how
the parties dealt with each other controlled rather than the traditional meaning of the term.
Hence, there was a sale that was cancelled and TDY lost over $5 million for which TDY was
liable. It appealed.
Decision: Affirmed. Art. 9 of CISG states that parties are bound by the terms of usage they have
established between themselves. “On consignment” in their dealing was different than its
Add. Case: Chicago Prime Packers v. Northam Food Trading (D. Ill., 2004)--Chicago, a food
broker, sold Northam, a Canadian company, a load of meat. Parties agree that the contract
existed, the problem was inspection and warranty and payment. Chicago had the load delivered
to Northam’s client, who signed for the meat but did not inspect it to discover that it was bad.
Chicago paid its supplier and billed Northam. Later, when Northam’s client processed the meat,
the problem was found and USDA ordered the meat destroyed. The client would not pay
Northam, who would not pay Chicago, which sued Northam.
Decision: Since the parties did not specify what law governed, the CISG does. Under it, the
buyer has a duty to examine the goods in “as short a period as is practicable.” That was not
done. Also, the buyer loses the right to rely on a lack of conformity if the seller is not given
International Sales Disputes: The Dominance of Arbitration—Most commercial contracts
specify arbitration for resolution of disputes. Few parties wish the time, cost and uncertainty of
litigation in another country. Parties are free to pick their arbitrator who will resolve the dispute
under the CISG (or other law chosen). The Convention on the Recognition and Enforcement of
Foreign Arbitrable Awards encourages the use and acceptance of arbitration. Since the U.S. has
adopted the Convention, international arbitration is enforceable in the U.S.
Full Circle—Centuries ago, merchants often relied, in international dealings, on private rules of
commerce. The use of international codes, such as the CISG, and the dominance of arbitration
again means that the way business is generally done is the dominant rule, not artificial rules
determined by a legislature that foreigners especially do not care much to operate under.
Discussion Question
The UCC replaced older less comprehensive statutes such as the Uniform Sales Act. The
National Conference of Commissioners on Uniform State Laws (founded in 1892 to promote
uniformity in laws, especially commercial law) and the American Law Institute (founded in 1923
to prepare the restatements of the common law) believed a more comprehensive commercial
statute was needed. Work began in 1945. The chief reporter, and principal author, of the UCC
was Karl Llewellyn of Columbia. The text and comments were finished in 1952; Pennsylvania
was the first state to adopt the UCC. It was revised in 1958 and 1962. By 1967 every state except
Louisiana had adopted the 1962 version. Various revisions have been issued since. The intent
was to write the Code as business was generally transacted.
The benefits are 1) to have similar law in all states so that attorneys do not have to study the
common law differences in each state in which their clients operate and 2) to be more flexible in
determining when a contract has come into being, as many contracts, while usually treated as
contracts by businesses, in fact did not meet the letter of contract law. The disadvantages of the
Code are that it restricts innovations in the law by codifying practices that are prevalent at the
time the Code is drafted; the common law may adapt more quickly to changes in business
practices than does a cumbersome code, and the advantage of slightly different rules in different
states is that the states are a “laboratory” for experiments in what rules work best.
Case Questions
1. “The sales forms exchanged between the two parties resulted in a binding contract.” See
2-207. It allows reasonable changes in terms of an offer in an acceptance sent as confirmation. If
Cal-Cut objected to the December 15 date, it could, under the Code, immediately reject that
change. Under the common law there would have been no contract, but under the UCC there
was. The change made by Idaho Pipe appears to have been reasonable and the response by
2. Polygram wins on summary judgment. 2-201 holds “that ‘between merchants if within a
reasonable time a writing in confirmation of the contract and sufficient against the sender is
received and the party receiving it has reason to know its contents’ then it satisfies the statute of
frauds unless written notice of objection to the confirmation is given within ten days.” The
3. (answer on Internet for students) Marquette was not in good faith; Norcem was correct and
could refuse to buy. “The contract between the parties specifically states that the parties were to
negotiate the sale price of certain shipments of cement. Because every contract imposes an
4. The common law of Oklahoma applies. The contract did not specify which law governed, so
the court looked to the default rules. The primary value in the contract came from the trademark
5. (answer on Internet for students) Besides the statements in the ad, Dresser’s contract stated
assorted technical information relevant to storm strength. Dresser’s contract also stated that there
was an express warranty, in lieu of any other warranty, giving a six month warranty that the
tower was free from defects. Dresser claimed this specific term eliminated liability for failure
otherwise. “Although we agree with Dresser that a seller cannot be held to be the insurer of its
product, Dresser nevertheless provided the catalog to Community to induce purchase of its
6. (answer on Internet for students) Affirmed. “Where the seller at the time of contracting has
reason to know any particular purpose for which the goods are required and that the buyer is
relying on the seller’s skill or judgment to select or furnish suitable goods, there is ... an implied
warranty that the goods shall be fit for such purpose.” Leavitt established that he had detailed
7. Bosarges won. The jury award of $9,100 damages plus attorney fees was upheld. UCC 2-314
holds that “(1) A warranty that the goods shall be merchantable is implied in a contract for their
sale if the seller is a merchant with respect to goods of that kind... (2) Goods to be merchantable
must be at least ... (c) ... fit for the ordinary purposes for which such goods are used....” See also
8. Case was dismissed. Hart agreed to arbitrate in Beijing; he may not later say it is too hard to
go there or that he does not trust Chinese arbitration (which was implied in his suit also). The
arbitration clause was a standard clause requiring arbitration of all disputes. Hart may not avoid
9. No, it had no right to bring suit. The contract specified arbitration of such disputes, under the
rules of the trade association. That was the exclusive remedy, so the federal court would not
Ethics Question
Such codes can, of course, allow contracts to be ended on the spot when violations are
uncovered, so there is some value to them for retailers that use them. Enforcement is hard
because many suppliers take in supplies from numerous sources, including “mom and pop”
operations in scattered small towns. If all supplies must come from one factory that can be
checked more easily for violations, it will put out of business many of the small, legitimate
operations and force further urbanization or centralization of the population. In some countries,
such as Pakistan, the government has no interest in enforcing child labor laws that are on the
books, so it is that much more difficult to police what is going on. If retailers only buy from, say,
union shops in the U.S., their prices may be so much higher than their competitors that they will
have a hard time in the market.
Essay Questions from Cases
In January, T. W. Oil purchased fuel oil at sea on the tanker Khamsin. After the purchase, T. W.
Oil contracted to sell the oil to Consolidated Edison (ConEd). The contract called for delivery
between January 24 and 30 and for the oil to have a sulfur content of 0.5 percent. During
negotiations with ConEd, T. W. Oil learned that ConEd was authorized to use oils with sulfur
contents up to 1.0 percent. The Khamsin arrived on time. However, the oil tested at 0.92 percent
sulfur, 0.42 percent higher than specified in the contract. On February 14, ConEd rejected the
shipment. T. W. Oil offered ConEd a reduced price. ConEd rejected the lower price offer. T. W.
Oil offered to cure by providing a substitute due to arrive on February 28. ConEd rejected T.W.
Oil’s offer to cure. Was T. W. Oil’s offer to cure properly rejected by ConEd? Was ConEd
required to accept the substitute shipment tendered by T. W. Oil? [T. W. Oily. Consolidated
Edison, 443 N.E.2d 932, Ct. App., NY (1982)]
Answer: According to the court, although the shipment was clearly nonconforming, T.W. Oil’s
offer to cure was improperly rejected by ConEd. The seller can be provided with time to cure
beyond the time for performance with the buyer’s consent. In addition, the seller may have a
right to cure after the time allowed for performance. To establish this right, Article 2 requires that
a seller must have had reasonable grounds to believe that the nonconforming goods sent would
be acceptable to the buyer. 2-508(2) Frequently, the seller will provide the buyer with a price
Hartwig Farms bought seed potatoes from Pacific, which bought them from Tobiason. The seed
potatoes were stated to be “blue tag certified,” meaning they were certified by the North Dakota
State Seed Department not to have more than 1 percent infection with a disease that ruins
potatoes. Hartwig planted the seeds, but almost the entire crop turned out to be infected. Hartwig
sued for damages from the loss of the crop. Tobiason defended, noting that when the seeds were
shipped the invoice had a disclaimer: “Tobiason...gives no warranty, express or implied, as to
description, variety, quality, or productiveness, and will not in any way be responsible for the
crop. All claims must be reported immediately on receipt... or no claim will be allowed.” Hartwig
claimed that this was not a part of the contract since nothing before the actual shipment of the
seeds with the invoice said anything about a disclaimer. Is the disclaimer a part of the contract?
[Hartwig Farms v. Pacific Gamble Robinson, 625 P.2d 171, Ct. App., Wash. (1981)]
Answer: Hartwig wins. The UCC allows sellers to give warranties and to limit or exclude them,
but they are not favored and so it must be shown that the disclaimer was explicitly negotiated or
bargained for and it must set forth exactly what is being disclaimed. UCC 2-316 “A disclaimer
which is made after a sale is completed cannot be effective because it was not a part of the
bargain between the parties.” Here the sale of seed was oral (by phone). The initial confirmation,
Internet Assignment
UNCITRAL (United Nations Commission on International Trade Law:
www.uncitral.org/uncitral/en/index.html Pace Law School Institute of International Commercial
Law: www.cisg.law.pace.edu/
American Society of International Law: http://www.asil.org
Go to these three websites for excellent materials on international commercial law, including the
CISC.
