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In Part II, we examined contract performance and remedies under common law. In this chapter, we examine performance and remedies under Article 2, the law of sales, of the Uniform Commercial Code (UCC). In the next chapter, we cover special remedies for those damaged or injured by defective products.
The parties often set out in their contracts the details of performance. These include price terms and terms of delivery—where the goods are to be delivered, when, and how. If the parties fail to list these terms, the rules studied in this chapter will determine the parties’ obligations: the parties may agree; if they do not, the UCC rules kick in as the default. In any event, the parties have an obligation to act in good faith.
The general duty of the seller is this: to make a timely delivery of conforming goods.Uniform Commercial Code, Sections 2-301and 2-309.
By agreement or stipulation, the parties may fix the time when delivery is to be made by including statements in contracts such as “Delivery is due on or before July 8” or “The first of 12 installments is due on or before July 8.” Both statements are clear.
It thus turns on the criteria as to “reasonable time” and on good faith and commercial standards set forth in Sections 1-202, 1-203 and 2-103. It…depends on what constitutes acceptable commercial conduct in view of the nature, purposes and circumstances of the action to be taken.
(c)	in any other case, within a reasonable time after the conclusion of the contract.
The parties may agree as to how delivery shall be accomplished; if they do not, the UCC fills the gap.
(c)	in other cases—in placing the goods at the buyer’s disposal at the place where the seller had his place of business at the time of the conclusion of the contract.
The parties may use any language they want to agree on delivery terms.
If the parties do not stipulate delivery terms or if their agreement is incomplete or merely formulaic, the UCC describes the seller’s obligations or gives meaning to the formulaic language. (Because form contracts are prevalent, formulaic language is customary.) You recall the discussion in Chapter 9 "Title and Risk of Loss" about when title shifts: we said title shifts when the seller has completed delivery obligations under the contract, and we ran through how those obligations are usually expressed. A quick review here is appropriate.
The contract may be either a shipment contract, a destination contract, or a contract where the goods are not to be moved (being held by a bailee). In any case, unless otherwise agreed, the delivery must be at a reasonable time and the tenderOffer of money or performance to satisfy a debt. (the offer to make delivery) must be kept open for a reasonable time; the buyer must furnish facilities “reasonably suited to the receipt of the goods.”Uniform Commercial Code, Section 2-503.
In a shipment contract, the seller has four duties: (1) to deliver the goods to a carrier; (2) to deliver the goods with a reasonable contract for their transportation; (3) to deliver them with proper documentation for the buyer; and (4) to promptly notify the buyer of the shipment (UCC, Section 2-504). The contract may set out the seller’s duties using customary abbreviations, and the UCC interprets those: “F.O.B [insert place where goods are to be shipped from]” means “free on board”—the seller must see to it that the goods are loaded on the vehicle of conveyance at the place of shipment. “F.A.S. [port of shipment inserted here]” means the seller must see to it that the goods are placed along the ship on the dock ready to be loaded (Section 2-319). Price terms include “C.I.F.,” which means the sale price includes the cost of the goods, insurance, and freight charges, and “C. & F.,” which means the sales price includes the cost of the goods at a cheaper unit price and freight but not insurance.Uniform Commercial Code, Section 2-320. If it is clear from the contract that the seller is supposed to ship the goods (i.e., the buyer is not going to the seller’s place to get them) but not clear whether it is a shipment or a destination contract, the UCC presumes it is a shipment contract.Uniform Commercial Code, Section 2-503(5).
If it is a destination contract, the seller has two duties: to get the goods to the destination at the buyer’s disposal and to provide appropriate documents of delivery.Uniform Commercial Code, Section 2-503. The contract language could be “F.O.B. [place of destination inserted here],” which obligates the seller to deliver to that specific location; “ex-ship,” which obligates the seller to unload the goods from the vehicle of transportation at the agreed location (e.g., load the goods onto the dock); or it could be “no arrival, no sale,” where the seller is not liable for failure of the goods to arrive, unless she caused it.Uniform Commercial Code, Sections 2-319, 2-322, and 2-324.
If the goods are in the possession of a bailee and are not to be moved—and the parties don’t stipulate otherwise—the UCC, Section 2-503 says delivery is accomplished when the seller gives the buyer a negotiable document of title, or if none, when the bailee acknowledges the buyer’s right to take the goods.
If nothing at all is said about delivery, the place for delivery is the seller’s place of business or his residence if he has no place of business.Uniform Commercial Code, Section 2-308.
As always, the parties may put into the contract whatever they want about the goods as delivered. If they don’t, the UCC fills the gaps.
The parties may agree on what “conforming goods” means. An order will specify “large grade A eggs,” and that means something in the trade. Or an order might specify “20 gross 100-count boxes No. 8 × 3/8 × 32 Phillips flathead machine screws.” That is a screw with a designated diameter, length, number of threads per inch, and with a unique, cruciform head insert to take a particular kind of driver. The buyer might, for example, agree to purchase “seconds,” which are goods with some flaw, such as clothes with seams not sewed quite straight or foodstuffs past their pull date. The parties may also agree in the contract what happens if nonconforming goods are delivered, as we’ll see later in this chapter.
If nothing is said in the contract about what quality of goods conform to the contract, then the UCC default rule kicks in. The seller is to make a perfect tenderThe UCC’s requirement that the seller tender exactly what was contracted for.: what is delivered must in every respect conform to the contract.Uniform Commercial Code, Section 2-601. And if what is delivered doesn’t conform to the contract, the buyer is not obligated to accept the goods.
If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter. If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter.
(2)	The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment.
(3)	Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole.
(1)	Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.
(2)	Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.
The seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention. If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.
So, again, the seller’s duty is to make a timely delivery of conforming goods. Let’s take a look now at the buyer’s duties.
The seller’s obligation under the UCC is to make a timely delivery of conforming goods. For each element of the duty—timely, delivery, conforming goods—the parties may agree in their contract. If they do not, the UCC fills in default rules.
If the parties do not specify a time for delivery, what is the UCC’s default position?
What are the seller’s obligations in an F.O.B. shipment contract? In an F.O.B. destination contract?
Compare the UCC’s perfect tender rule to the common-law substantial performance doctrine.
Understand what the general duties of the buyer are.
Recognize what rights the buyer has if the seller tenders a nonconforming delivery.
The general duty of the buyer is this: inspection, acceptance, and payment.Uniform Commercial Code, Sections 2-301 and 2-513. But the buyer’s duty does not arise unless the seller tenders delivery.
The buyer waives the right. If the parties agree that payment must be made before inspection, then the buyer must pay (unless the nonconformity is obvious without inspection). Payment under these circumstances does not constitute acceptance, and the buyer does not lose the right to inspect and reject later.
The delivery is to be made C.O.D. (cash on delivery).
Payment is to be made against documents of title.
If the buyer fails to inspect, or fails to discover a defect that an inspection would have revealed, he cannot later revoke his acceptance, subject to some exceptions.
Acceptance is clear enough: it means the buyer takes the goods. But the buyer’s options on improper delivery need to be examined, because that’s often a problem area.
Words. The buyer, after a reasonable opportunity to inspect, tells the seller either that the goods conform or that he will keep them despite any nonconformity.
Silence. The buyer fails to reject, after a reasonable opportunity to inspect.
Action. The buyer does anything that is inconsistent with the seller’s ownership, such as using the goods (with some exceptions) or selling the goods to someone else.
Once the buyer accepts, she is obligated to pay at the contract rate and loses the right to reject the goods.Uniform Commercial Code, Section 2-607. She is stuck, subject to some exceptions.
The parties may specify in their contract what payment means and when it is to be made. If they don’t, the UCC controls the transaction.Uniform Commercial Code, Sections 2-511 and 2-512.
Obviously if the delivery is defective, the disappointed buyer does not have to accept the goods: the buyer may (a) reject the whole, (b) accept the whole, or (c) accept any commercial unit and reject the rest (2-601, 2A-509), or (d)—in two situations—revoke an acceptance already made.
Under UCC, Section 2-601(a), rejection is allowed if the seller fails to make a perfect tender. The rejection must be made within a reasonable time after delivery or tender. Once it is made, the buyer may not act as the owner of the goods. If he has taken possession of the goods before he rejects them, he must hold them with reasonable care to permit the seller to remove them. If the buyer is a merchant, then the buyer has a special duty to follow reasonable instructions from the seller for disposing of the rejected goods; if no instructions are forthcoming and the goods are perishable, then he must try to sell the goods for the seller’s account and is entitled to a commission for his efforts. Whether or not he is a merchant, a buyer may store the goods, reship them to the seller, or resell them—and charge the seller for his services—if the seller fails to send instructions on the goods’ disposition. Such storage, reshipping, and reselling are not acceptance or conversion by the buyer.
The buyer need not reject a nonconforming delivery. She may accept it with or without allowance for the nonconformity.
The buyer may accept any commercial unit and reject the rest if she wants to. A commercial unitA unit of goods as by usage is a single whole for sale and division. means “such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine), a set of articles (as a suite of furniture or an assortment of sizes), a quantity (as a bale, gross, or carload), or any other unit treated in use or in the relevant market as a single whole.”Uniform Commercial Code, Sections 2-105 and 2A103(1).
A contract for an installment sale complicates the answer to the question, “What right does the buyer have to accept or reject when the seller fails to deliver properly?” (An installment contractA contract where payment or performance is in discrete units. is one calling for delivery of goods in separate lots with separate acceptance for each delivery.) The general answer is found in the UCC at Section 2-612, which permits the buyer to reject any nonconforming installment if the nonconformity cannot be cured if it substantially impairs the value of that particular installment. However, the seller may avoid rejection by giving the buyer adequate assurances that he will cure the defect, unless the particular defect substantially impairs the value of the whole contract.
Suppose the Corner Gas Station contracts to buy 12,000 gallons of regular gasoline from Gasoline Seller, deliverable in twelve monthly installments of 1,000 gallons on the first of each month, with a set price payable three days after delivery. In the third month, Seller is short and can deliver only 500 gallons immediately and will not have the second 500 gallons until midmonth. May Corner Gas reject this tender? The answer depends on the circumstances. The nonconformity clearly cannot be cured, since the contract calls for the full 1,000 on a particular day. But the failure to make full delivery does not necessarily impair the value of that installment; for example, Corner Gas may know that it will not use up the 500 gallons until midmonth. However, if the failure will leave Corner Gas short before midmonth and unable to buy from another supplier unless it agrees to take a full 1,000 (more than it could hold at once if it also took Seller’s 500 gallons), then Corner Gas is entitled to reject Seller’s tender.
Is Corner Gas entitled to reject the entire contract on the grounds that the failure to deliver impairs the value of the contract as a whole? Again, the answer depends on whether the impairment was substantial. Suppose other suppliers are willing to sell only if Corner Gas agrees to buy for a year. If Corner Gas needed the extra gasoline right away, the contract would have been breached as whole, and Corner Gas would be justified in rejecting all further attempted tenders of delivery from Seller. Likewise, if the spot price of gasoline were rising so that month-to-month purchases from other suppliers might cost it more than the original agreed price with Seller, Corner Gas would be justified in rejecting further deliveries from Seller and fixing its costs with a supply contract from someone else. Of course, Corner Gas would have a claim against Seller for the difference between the original contract price and what it had to pay another supplier in a rising market (as you’ll see later in this chapter).
A revocationThe withdrawal of an offer by the offeror. of acceptance means that although the buyer has accepted and exercised ownership of the goods, he can return the goods and get his money back. There are two circumstances in which the buyer can revoke an acceptance if the nonconformity “substantially impairs its value to him”:Uniform Commercial Code, Section 2-608.
if the acceptance was due to a latent defect that could not reasonably have been discovered before acceptance.
Consider two examples illustrated in the next paragraph. The first deals with point a (buyer thought nonconformity would be cured and it was not within a reasonable time), and the second gets to point b (latent defect).
In August 1983, the Borsages purchased a furnished mobile home on the salesperson’s assertion that it was “the Cadillac of mobile homes.” But when they moved in, the Borsages discovered defects: water leaks, loose moldings, a warped dishwasher door, a warped bathroom door, holes in walls, defective heating and cooling systems, cabinets with chips and holes, furniture that fell apart, mold and mildew in some rooms, a closet that leaked rainwater, and defective doors and windows. They had not seen these defects at the time of purchase because they looked at the mobile home at night and there were no lights on in it. The Borsages immediately complained. Repairmen came by but left, only promising to return again. Others did an inadequate repair job by cutting a hole in the bottom of the home and taping up the hole with masking tape that soon failed, causing the underside of the home to pooch out. Yet more repairmen came by but made things worse by inadvertently poking a hole in the septic line and failing to fix it, resulting in a permanent stench. More repairmen came by, but they simply left a new dishwasher door and countertop at the home, saying they didn’t have time to make the repairs. In June 1984, the Borsages provided the seller a long list of uncorrected problems; in October they stopped making payments. Nothing happened. In March 1986—thirty-one months after buying the mobile home—they told the seller to pick up the mobile home: they revoked their acceptance and sued for the purchase price. The defendant seller argued that the Borsages’ failure to move out of the house for so long constituted acceptance. But they were repeatedly assured the problems would be fixed, and moreover they had no place else to live, and no property to put another mobile home on if they abandoned the one they had. The court had no problem validating the Borsages’ revocation of acceptance, under the section noted earlier, if they ever had accepted it. The seller might have a right to some rental value, though.North River Homes, Inc., v. Borsage, Mississippi (1992).
In April 1976, Clarence Miller ordered a new 1976 Dodge Royal Monaco station wagon from plaintiff Colonial Dodge. The car included a heavy-duty trailer package with wide tires. The evening of the day the Millers picked up the new car, Mrs. Miller noticed that there was no spare tire. The following morning, the defendant notified the plaintiff that he insisted on a spare tire, but when he was told there were no spare tires available (because of a labor strike), Mr. Miller told the plaintiff’s salesman that he would stop payment on the check he’d given them and that the car could be picked up in front of his house. He parked it there, where it remained until the temporary registration sticker expired and it was towed by the police to an impound yard. Plaintiff sued for the purchase price, asserting that the missing spare tire did not “substantially impair the value of the goods to the buyer.” On appeal to the Michigan Supreme Court, the plaintiff lost. “In this case the defendant’s concern with safety is evidenced by the fact that he ordered the special package which included spare tires. The defendant’s occupation demanded that he travel extensively, sometimes in excess of 150 miles per day on Detroit freeways, often in the early morning hours.…He was afraid of a tire going flat…at 3 a.m. Without a spare, he would be helpless until morning business hours. The dangers attendant upon a stranded motorist are common knowledge, and Mr. Miller’s fears are not unreasonable.” The court observed that although he had accepted the car before he discovered the nonconformity, that did not preclude revocation: the spare was under a fastened panel, concealed from view.Colonial Dodge v. Miller, 362 N.W.2d 704 (Mich. 1984).
The duty of the buyer in a sales contract is to inspect, accept, and pay. Failure to discover a defect that an inspection would have revealed is a waiver of right to complain. Normally the goods are conforming and the buyer accepts them, but upon discovery of a defect the buyer may reject the whole nonconforming delivery, part of it (the buyer has some duties if she has possession of the rejected goods), or in some cases reject one installment of an installment sale or, if one defective installment is serious enough to vitiate the whole contract, the buyer may consider the contract terminated. If goods have been accepted because the seller promised to fix defects or because the defects were latent, then the buyer may revoke the acceptance where the nonconformity substantially impairs the value of the contract to the buyer.
If a buyer takes possession of goods and shortly thereafter discovers they are nonconforming, what duty does the nonmerchant buyer have with respect to the goods? What duty does the merchant buyer have with respect to the goods?
What is the difference between rejection and revocation?
Under what circumstances will a defective installment allow the buyer to reject that installment? Under what circumstances would a defective installment allow the buyer to terminate the contract?
Recognize how parties are discharged if the goods are destroyed.
Determine what defenses are valid when it becomes very difficult or impossible to perform.
Understand the UCC’s position on the right to adequate assurances and anticipatory repudiation.
In contracts for the sale of goods, as in common law, things can go wrong. What then?
As always, the parties may agree what happens if the goods are destroyed before delivery. The default is Sections 2-613 and 2A-221(a) of the Uniform Commercial Code (UCC). The UCC says that “where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer,…then (a) if the loss is total the contract is avoided; and (b) if the loss is partial the buyer may nevertheless accept them with due allowance for the goods’ defects.” Thus if Howard ships the original Bruegel to Bunker but the painting is destroyed, through no fault of either party, before delivery occurs, the parties are discharged. If the frame is damaged, Bunker could, if he wants, take the painting anyway, but at a discount.
Sections 2-614(1) and 2A-404(1) of the UCC require reasonable substitution for berthing, loading, and unloading facilities that become unavailable. They also require reasonable substitution for transportation and delivery systems that become “commercially impracticable”; if a practical alternative exists, “performance must be tendered and accepted.” If Howard agreed to send the prints by rail, but a critical railroad bridge is unusable and no trains can run, delivery by truck would be required.
Section 2-615 of the UCC says that the failure to deliver goods is not a breach of the seller’s duty “if performance as agreed has become impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic government regulation or order whether or not it later proves to be invalid.” Section 2A-405(b) of the UCC is similar for leases.
Suppose that Howard has cause to suspect that if he does deliver the goods, Bunker won’t pay. Howard may write to Bunker and demand—not request—assurances of adequate performance. If such assurances are not adequately forthcoming, Howard may assume that Bunker has repudiated the contract and have remedies.
If, through no fault of either party, the goods are destroyed before the risk of loss has passed from the seller to the buyer, the parties are both discharged. If the expected means of performance is impossible, but an alternative is available, the alternative must be utilized. If performance becomes impracticable because of an unexpected contingency, failure to deliver the goods is excused. But a party who has concerns whether the other side will perform is entitled to adequate assurances of performance; if they are not forthcoming, the worried party may suspend performance. Where a party repudiates a contract before performance is due, the other side may sue immediately (anticipatory repudiation) or may wait until the time performance comes due and then sue.
Suppose Plaintiff sues Defendant for breach of contract, and Defendant successfully raises an excuse for nonperformance. What liability does Defendant have now?
The contract read that the goods would be “shipped F.O.B. Seattle, by Burlington Northern Rail to the buyer in Vancouver, B.C.” Due to heavy rain and mudslides, the rail line between Seattle and points north was impassable. Buyer insists Seller is obligated to send the goods by motor truck; Seller insists her performance has become impossible or at least that shipment must await the rail-line clearance. Who is correct? Explain.
Buyer manufactured ceramic insulators and ordered the dies into which the liquid ceramic would be poured for hardening and finishing from Seller, to be delivered April 15. The first test batch of a dozen dies arrived on February 15; these dies were defective. Buyer wrote inquiring whether the defects could be remedied in time for the final delivery. Seller responded, “We are working to address the problems here.” Buyer again inquired; Seller responded, “As I said, we are working on the problems.” Buyer fretted that the deadline—two months in the future—would not be met. What remedy, if any, does Buyer have now?
Hartzell v. Justus Co., Inc.
This is a diversity case arising out of the purchase by Dr. Allan Hartzell of Sioux Falls, South Dakota, of a log home construction kit manufactured by the defendant Justus Homes. Dr. Hartzell purchased the package in 1977 for $38,622 [about $135,000 in 2010 dollars] from Del Carter, who was Justus Homes’ dealer for the Sioux Falls area. He also hired Carter’s construction company, Natural Wood Homes, to build the house. Hartzell, who testified that the home eventually cost about $150,000, was dissatisfied with the house in many respects. His chief complaints were that knotholes in the walls and ceiling leaked rain profusely, and that the home was not weather tight because flashings were not included in the roofing materials and because the timbers were not kiln-dried and therefore shrank. He also complained that an undersized support beam, which eventually cracked, was included in the package. This latter defect was alleged to have resulted in cracks in the floor and inside doors that would not close. Hartzell further alleged that these structural defects were only partially remediable, and that the fair market value of the house was reduced even after all practicable repairs had been made. Alleging breach of implied and express warranties and negligence, he sought damages for this loss in value and for the cost of repairs. After a two-day trial, the jury returned a plaintiff’s verdict for $34,794.67.
(b)	Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.
The jury’s verdict for the plaintiff in an amount almost exactly equal to the plaintiff’s evidence of cost of repairs plus diminution in market value means it must have found that the structural defects were not entirely remediable. Such a finding necessarily means that the limited warranty failed of its essential purpose.
An analogous case is Select Pork, Inc. v. Babcock Swine, Inc. [Citation], applying § 2-719 as adopted in Iowa. The defendant had promised to deliver to plaintiff certain extraordinary pigs known as Midwestern Gilts and Meatline Boars. Instead, only ordinary pigs were delivered. Plaintiff sued for breach of warranty, and defendant claimed that its damages, if any, should be limited to a return of the purchase price by an express clause to that effect in the contract. The District Court held that the clause was unenforceable because it was unconscionable, see § 2-719(3), and because it failed of its essential purpose. We affirmed,…“Having failed to deliver the highly-touted special pigs, defendants may not now assert a favorable clause to limit their liability.” So here, where the house sold was found by the jury to fall short of the seller’s promises, and where repairs could not make it right, defendant’s liability cannot be limited to the cost of repairs. If the repairs had been adequate to restore the house to its promised condition, and if Dr. Hartzell had claimed additional consequential damages, for example, water damage to a rug from the leaky roof, the limitation-of-remedies clause would have been effective. But that is not this case.
There was no double recovery here: the verdict was not for cost of repair plus the entire decrease in market value, but rather for cost of repair plus the decrease in market value that still existed after all the repairs had been completed.
What did the seller here limit itself to do in case of defects? What was the limitation of remedy?
Did Justus Homes disclaim implied and expressed warranties with its contract language regarding limitation of remedies?
Was the essential purpose of the limitation of remedy to protect the party benefiting from it—here, the seller of the log home kit—or was the essential purpose of the limitation of remedy, as the court said, “effective enjoyment of implied and expressed warranties”?
In a part of the opinion excised, the court wrote, “A finding of unconscionability is, as a matter of logic, simply unnecessary in cases where § 2-719(2) applies.” Would it be easier simply to say that the limitation of liability here was unconscionable?
This is an appeal from an order of the trial court granting rescission of a sales contract for a color television set and directing the return of the purchase price plus interest and costs.
Appellee [Mrs. Kolley’s father] purchased the set in question on November 4, 1965, paying the total purchase price in cash. The transaction was evidenced by a sales ticket showing the price paid and guaranteeing ninety days’ free service and replacement of any defective tube and parts for a period of one year. Two days after purchase the set was delivered and uncrated, the antennae adjusted and the set plugged into an electrical outlet to “cook out.” When the set was turned on however, it did not function properly, the picture having a reddish tinge. Appellant’s delivery man advised the buyer’s daughter, Mrs. Kolley, that it was not his duty to tune in or adjust the color but that a service representative would shortly call at her house for that purpose. After the departure of the delivery men, Mrs. Kolley unplugged the set and did not use it.
Appellant does not contest the jurisdiction of the trial court to order rescission in a proper case, but contends the trial judge erred in holding that rescission here was appropriate. He argues that he was always willing to comply with the terms of the sale either by correcting the malfunction by minor repairs or, in the event the set could not be made thereby properly operative, by replacement; that as he was denied the opportunity to try to correct the difficulty, he did not breach the contract of sale or any warranty thereunder, expressed or implied.
(2)	Where the buyer rejects a nonconforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.
Removal of a television chassis for a short period of time in order to determine the cause of color malfunction and ascertain the extent of adjustment or correction needed to effect full operational efficiency presents no great inconvenience to the buyer. In the instant case, appellant’s expert witness testified that this was not infrequently necessary with new televisions. Should the set be defective in workmanship or parts, the loss would be upon the manufacturer who warranted it free from mechanical defect. Here the adamant refusal of Mrs. Kolley, acting on behalf of appellee, to allow inspection essential to the determination of the cause of the excessive red tinge to the picture defeated any effort by the seller to provide timely repair or even replacement of the set if the difficulty could not be corrected. The cause of the defect might have been minor and easily adjusted or it may have been substantial and required replacement by another new set—but the seller was never given an adequate opportunity to make a determination.
We do not hold that appellant has no liability to appellee, but as he was denied access and a reasonable opportunity to repair, appellee has not shown a breach of warranty entitling him either to a brand new set or to rescission. We therefore reverse the judgment of the trial court granting rescission and directing the return of the purchase price of the set.
Why did the seller “have reasonable grounds to believe [the television] would be acceptable”?
What did Mrs. Kolley want?
Does this case require a buyer to accept patchwork goods or substantially repaired articles in lieu of flawless merchandise?
On March 1, 2008 and March 11, 2008, plaintiff made payments to defendant of $3,000 each, in connection with the purchase of a mobile home located in Fort Pierce, Florida. Thereafter, on March 13, 2008, plaintiff and defendant signed an agreement which had been prepared by defendant. The agreement described the subject property by its location, recorded the fact that plaintiff had paid defendant deposits totaling $6,000, set forth a closing date of March 25, 2008, and specified that “the remaining $27,000.00” was payable at closing to defendant by a guaranteed financial instrument. Plaintiff never paid the outstanding balance and brought this action to recover the $6,000 deposit she paid to defendant. Following a nonjury trial, judgment was awarded in favor of defendant dismissing the complaint.
Because the sale of a mobile home constitutes a contract for the sale of goods rather than of real property [Citations], the parties’ agreement was governed by the Uniform Commercial Code. The agreement, which was made after plaintiff had made the two $3,000 “deposit” payments, constituted a memorandum in confirmation of an oral agreement and, even though it omitted some terms, was sufficient to satisfy the statute of frauds [Citations].
(b)	[in the absence of contractually fixed terms] twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.
(b)	the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.
Here, notwithstanding the fact that plaintiff, as buyer, had breached the contract, defendant failed to demonstrate any damages resulting therefrom; nor did defendant establish that plaintiff had received any benefits directly or indirectly by reason of the parties’ agreement (see UCC 2-718). Therefore, pursuant to UCC 2-718(2), plaintiff was entitled to the return of all but $500 of her deposit.
The order of the District Court dismissing the complaint is accordingly reversed, and judgment is awarded to plaintiff in the principal sum of $5,500.
If the plaintiff had been a dealer in mobile homes and the unit here had been part of his inventory, he would be entitled to claim lost profits on the sale of one unit. Here, apparently, the plaintiff seller was a private party. Why was he not entitled to any damages greater than $500?
New York adopted the UCC in 1964. Five hundred dollars in 1964 would be worth about $3,500 in 2010. Why isn’t the change in the dollar’s value recognized here?
In late September through mid-October 1992, plaintiff Johnathan James Furlong (“Furlong”) contacted defendant Alpha Chi Omega Sorority (“AXO”), by phoning the chairperson of its social committee, Emily Lieberman (“Emily”), between a dozen and a dozen and a half times.
Ultimately (about the first week in October), Furlong received Emily’s order for one hundred sixty-eight imprinted sweaters at $21.50 each (plus one free sweater) for delivery on Friday, October 23, 1992, so as to arrive in time for AXO’s Midnight Masquerade III on the evening of Saturday, October 24, 1992.
The price was to be $3,612, [about $5600 in 2010 dollars] payable as follows: $2,000 down payment when the contract was made, and $1,612 balance when the sweaters were delivered.
An oral contract for the sale of goods (the imprinted sweaters) was made between Furlong and AXO, at a definite price and with specified dates for payment and for delivery.
At some point in those phone calls with Furlong, Emily said that the sweaters were to be custom designed with the following specified design: namely, with three colors (hunter green letters on top of maroon letters outlined in navy blue, and hunter green masks). Furlong promised to have them so imprinted (by a third party whom he would select).…Thereafter, he delivered to Emily an Ohio Wesleyan sweater with maroon letters to show her the maroon color.…Additionally, he faxed to Emily a two-page description of the sweaters, which not only included the designs for the fronts and the backs of the sweaters, but also included arrows showing where each of the three colors would go (hunter green letters on top of maroon letters outlined in navy blue, and hunter green masks).
The design was a “dickered” aspect of the individual bargain and went clearly to the essence of that. Thus, the express warranty was that the sweaters would be in accordance with the above design (including types of colors for the letters and the mask, and the number of colors for the same). Further, the express warranty became part of the contract.
On October 13, 1992, AXO mailed Furlong a $2,000 check for the down payment; he deposited it in his bank account on October 16, 1992. Thereafter, as discussed below, Furlong had the sweaters imprinted (on Thursday, October 22) and delivered to AXO (on Friday, October 23). Upon receipt of the delivery, AXO gave a check to Furlong’s agent in the amount of $1,612 for the balance of the purchase price. However, later on that day, AXO inspected the sweaters, discovered the design changes (mentioned below), caused AXO’s bank to stop payment on the check, and stated AXO’s objections in a phone call with Furlong. AXO has never paid Furlong that balance on the purchase price.
Furlong’s obligation as the seller was to transfer and deliver the goods in accordance with the contract. AXO’s obligation was to accept and pay in accordance with that contract. [2-301] We will now discuss whether it legally did so.
The first change was to delete the agreed-upon outline for the letters (namely, the navy blue outline).
The second change was to reduce the agreed-upon number of colors for the fronts and the backs (from three colors per side to two colors per side).
The third change was to alter one of the agreed-upon colors (from maroon to red).
The fourth change was to alter the agreed-upon scheme of colors for the letters on the fronts and the backs (namely, both sides were to have the same two colors of maroon and hunter green; whereas in fact the backs had neither of those colors, and instead had a navy blue color for the letters).
The fifth change was to alter the agreed-upon color of the masks (from hunter green to maroon—actually red).
The court specifically finds that the color was red (actually, scarlet) and was not maroon (like the maroon-colored letters on the Ohio Wesleyan sweater).
On Friday morning (October 23), Furlong picked up the five to six boxes of sweaters from Argento and had a friend deliver them from Columbus to Bowling Green. The boxes arrived at the AXO house around midday. Sometime thereafter on the same day, Emily inspected one of them and screamed her dismay upon discovering that the sweaters were not what AXO had ordered.
The court rejects Furlong’s assertion that he did all that he could do under the circumstances. The obvious answer is that he did not do enough. He should have gotten AXO’s prior consent to the changes. He could have done this by providing for more lead time-between the time that Argento prepared the art work and the time that it printed the sweaters. Instead, he had both done at the same time (Thursday morning).
Finally, and alternatively, plaintiff should have entered into a contract that gave him discretion to make design changes without AXO’s consent. We must remember that “these sweaters,” as Furlong himself admits (and describes), were to be “custom-designed” for AXO. Thus, they were to be printed according to AXO’s specifications, and not according to Furlong’s discretion.
Next, Furlong asserts that AXO—after learning of the changes—should have agreed to his offer of compromise: namely, that he would reduce the unit price of the sweaters in exchange for AXO’s keeping them and paying the reduced price. Also, Furlong asserts that AXO should have communicated his compromise offer to AXO’s members and pledges. In both respects, the court disagrees: Although the law allowed AXO to do so, it did not require AXO to do. Instead, AXO did exactly what the law allowed: AXO rejected the nconforming goods in whole.
About 4:00 p.m. on the same day that the sweaters arrived at the AXO house (Friday, October 23), Amy—as the AXO president—phoned Furlong. She said that the sweaters were not what AXO had ordered. She stated the specifics as to why the sweaters were not as ordered. She offered to return the sweaters to him, but he said “No.” AXO still has possession or custody of the boxes of sweaters.
[The UCC] provides: “Rejection of goods must be within a reasonable time after their delivery * * *. It is ineffective unless the buyer seasonably notifies the seller.” [2-602] AXO did what this statute requires.
That statute further provides: “[I]f the buyer has before rejection taken physical possession of goods * * *, he is under a duty after rejection to hold them with reasonable care at the seller’s disposition for a time sufficient to permit the seller to remove them[.]” [2-602(2)(b)] AXO has done this, too. From the above, it is seen that AXO legally rejected the sweaters on the same day that AXO received physical possession of them.
The court disagrees with Furlong’s assertion that AXO accepted the sweaters. He is confusing a layman’s understanding of the term accept (“to receive a thing [with a consenting mind]),” Webster’s Collegiate Dictionary (5 Ed.1947), at 6, with the statutory meaning of the term. The mere fact that AXO took physical possession of the sweaters does not, by itself, mean that AXO legally “accepted” them.
In regard to…seller’s remedies, Furlong has no legal remedies because AXO did not breach the contract. Thus, he is not entitled to an award for the $1,612 balance that he claims is due on the contract price.
Also, as concluded above, AXO still has rightful possession or control of the sweaters. AXO has a security interest in the sweaters in its possession or control for the part payment made on the purchase price—but when reimbursed for that part payment AXO must return the sweaters to Furlong.
The court will prepare, file, and serve a judgment entry as follows: dismissing with prejudice Furlong’s claim against all defendants; dismissing with prejudice Emily Lieberman’s and Amy Altomondo’s counterclaims against Furlong; granting AXO’s counterclaim (for $2,000, plus ten percent per annum postjudgment interest and costs).
Further, that entry will order AXO’s attorney (Mr. Reddin) to retain possession of the sweaters either until further court order or until AXO’s judgment is satisfied in full (whereupon he shall surrender the sweaters to Furlong if Furlong picks them up within thirty days thereafter, or, if Furlong does not, he may then dispose of them as abandoned property without any liability).
Surely the plaintiff could not have thought that the radically altered design would be acceptable for the young women’s masquerade ball. On what basis did he think he would be entitled to the full payment contracted for?
Whether Amy Altomondo knew it or not, she did what the UCC says a buyer should do when nonconforming goods are delivered. What are those steps?
What does it mean that AXO has a security interest in the sweaters? Security for what?
As with most of the Uniform Commercial Code (UCC), the parties may specify the terms of their performance. Only if they fail to do so does Article 2 (and 2A) provide the terms for them. The seller’s duty is to make a timely delivery of conforming goods. In the absence of agreement, the time for delivery is a reasonable one, and the place of delivery is the seller’s place of business. All goods must be tendered in a single delivery, unless circumstances permit either party the right to make or demand delivery in lots.
If the seller ships nonconforming goods but has time to meet his contractual obligations or if he reasonably believed the goods would be suitable, he may notify the buyer of his intention to cure, and if he does so in a timely manner the buyer must pay.
The buyer’s general obligation is to inspect, accept, and pay. If an inspection reveals that the goods are nonconforming, the buyer may reject them; if he has accepted because defects were latent or because he received assurances that the defects would be cured, and they are not, the buyer may revoke his acceptance. He then has some duties concerning the goods in his possession. The buyer must pay for any conforming goods; payment may be in any manner consistent with current business customs. Payment is due at the time and place at which the buyer will ultimately receive the goods.
The general policy of the UCC is to put an aggrieved party in as good a position as she would have been had the other party fully performed. The parties may specify or limit certain remedies, but they may not eliminate all remedies for a breach. However, if circumstances make an agreed-on remedy inadequate, then the UCC’s other remedies apply; parties may not unconscionably limit consequential damages; they may agree to liquidated damages, but not to unreasonable penalties.
In general, the seller may pursue the following remedies: withhold further delivery, stop delivery, identify to the contract goods in her possession, resell the goods, recover damages or the price, or cancel the contract. In addition, when it becomes apparent that the buyer is insolvent, the seller may, within certain time periods, refuse to deliver the remaining goods or reclaim goods already delivered.
The buyer, in general, has remedies. For goods not yet received, she may cancel the contract; recover the price paid; cover the goods and recover damages for the difference in price; or recover the specific goods if they are unique or in “other proper circumstances.” For goods received and accepted, the buyer may recover ordinary damages for losses that stem from the breach and consequential damages if the seller knew of the buyer’s particular needs and the buyer could not reasonably cover.
The UCC provides some excuses for nonperformance: casualty of the goods, through no fault of either party; the nonhappening of presupposed conditions that were a basic assumption of the contract; substituted performance if the agreed-on methods of performance become impracticable; right to adequate assurances of performance when reasonable grounds for insecurity of performance arise; anticipatory repudiation and resort to any remedy, before time for performance is due, is allowed if either party indicates an unwillingness to perform.
Anne contracted to sell one hundred cans of yellow tennis balls to Chris, with a delivery to be made by June 15.
On June 8, Anne delivered one hundred cans of white tennis balls, which were rejected by Chris. What course of action would you recommend for Anne, and why?
Assume Ann had delivered the one hundred cans of white balls on June 15; these were rejected by Chris. Under what circumstances might Anne be allowed additional time to perform the contract?
If the contract did not specify delivery, when must Anne deliver the tennis balls?
When Anne delivers the tennis balls, does Chris have a right to inspect them? If Chris accepts the white tennis balls, may the acceptance be revoked?
Assume Chris decided she could use twenty-five cans of the white balls. Could she accept twenty-five cans and reject the rest?
Suppose Anne delivered white tennis balls because a fire at her warehouse destroyed her entire stock of yellow balls. Does the fire discharge Anne’s contractual duties?
If Chris rejected the white tennis balls and Anne refused to deliver yellow ones, may Chris recover damages? If so, how would they be calculated?
They said the painting “performed” by being an authentic Vuillard—a French artist—and that the warranty of authenticity not only guaranteed the present “being” of the painting but also extended, as required by 2-725(2), to the future existence as a Vuillard. Therefore, they contended, explicit words warranting future performance would be superfluous: a warranty that promises authenticity “now and at all times in the future” would be redundant. How should the court rule?
Atlas shall have the right to recover from Purchaser the price of all matchbooks and packaging delivered and/or identified to this agreement at the time of Purchaser’s breach hereof and shall be additionally entitled to recover fifty percent (50%) of the contract price of matchbooks and/or packaging ordered hereby, but not delivered or identified to this Agreement at the time of Purchaser’s breach. Purchaser agrees that the percentage as specified hereinabove…will be reasonable and just compensation for such breach, and Purchaser hereby promises to pay such sum as liquidated damages, not as penalty in the event of any such breach.
On appeal, Speedi complained that the liquidated damages clause was a penalty. Is the matter settled by the contract saying the liquidated damages are reasonable? On what criteria would a court determine whether liquidated damages are reasonable?
Mrs. Kaiden made a $5,000 deposit on the purchase of new 1973 Rolls-Royce automobile. Lee Oldsmobile, the seller, confirmed the request by transmitting a regular order form, which Mrs. Kaiden signed and returned. The price was $29,500.00 [about $150,000 in 2010 dollars]. Some of the correspondence and a notation on Mrs. Kaiden’s check indicated that delivery was expected in November. The order form, however, specified no delivery date. Further, it contained a disclaimer of liability for delay in delivery beyond the dealer’s control, and it provided that the dealer had the right, upon failure of the purchaser to accept delivery, to retain as liquidated damages any cash deposit made. On November 21, 1973, Mrs. Kaiden notified Lee by telephone that she had purchased another Rolls-Royce elsewhere. She told the salesman to cancel her order. On November 29, Lee Oldsmobile notified Mrs. Kaiden that the car was ready for delivery. She refused delivery and demanded the return of her deposit. The dealer refused. In January 1974, the dealer—without notice to the Kaidens—sold the Rolls-Royce to another purchaser for $26,495. Mrs. Kaiden sued Lee Oldsmobile for the $5,000 deposit. The dealer carefully itemized its losses on the Kaiden deal—$5080.07. On what basis did the court dismiss the liquidated damages clause? What is the consequence of the dealer’s failure to give notice of the private sale under UCC, Section 2-706(3)?
Hemming saw an advertisement for a Cadillac convertible once owned by the famous early rock ’n’ roll singer Elvis Presley. He contracted to buy it from Whitney for $350,000 and sent Whitney $10,000 as a deposit. But, after some delay, Whitney returned the $10,000 and informed Hemming that the car had been sold to another purchaser. What remedy does Hemming have?
Murrey manufactured and sold pool tables. He was approached by Madsen, who had an idea for a kind of electronic pool table that would light up and make sounds like a pinball machine. Madsen made a $70,000 deposit on an order for one hundred tables but then encountered difficulties and notified Murrey that he would be unable to accept delivery of the tables. Murrey broke the tables up, salvaging materials worth about $15,000 and using the rest for firewood. The evidence was that the tables, if completed by Murrey, could have been sold for $45,000 as regular pool tables. Madsen gets his deposit back less expenses incurred by Murrey. But what principle affects Murrey’s measure of damages, his right to claim expenses incurred?
In January 1992, Joseph Perna bought an eleven-year-old Oldsmobile at a New York City police auction sale for $1,800 plus towing fees. It had been impounded by the police for nonpayment of parking tickets. The bill of sale from the police to Perna contained this language: “subject to the terms and conditions of any and all chattel mortgages, rental agreements, liens, conditional bills of sale, and encumbrances that may be on the motor vehicle of the [its original owner].” About a year later Perna sold the car to a coworker, Elio Marino, for $1,200. Marino repaired and improved the car by replacing the radiator, a gasket, and door locks. Ten months after his father bought the car, Marino’s son was stopped by police and arrested for driving a stolen vehicle; Mario paid $600 to a lawyer to get that matter resolved, and he never got the car back from the police. Is Perna liable to Marino for the value of the car? Is Perna liable for the consequential damages—the attorney’s fees? The relevant UCC sections are 2-312(2) and 2-714.
William Stem bought a used BMW from Gary Braden for $6,600 on Braden’s assertion that as far as he knew the car had not been wrecked and it was in good condition. Less than a week later Stem discovered a disconnected plug; when connected the oil-sensor warning light glowed. Mechanics informed Stem that the car was made up of the front end of a 1979 BMW and the rear end of a 1975 BMW, and the front half had 100,000 more miles on it than Stem thought. Six weeks after he purchased the car, Stem wrote Braden a letter that he refused the car and intended to rescind the sale. Braden did not accept return of the car or refund the money, and Braden continued to drive it for seven months and nearly 9,000 miles before suing. He had no other car and needed to transport his child. These issues were before the Alabama Supreme Court, construing UCC, Section 2-608: did Stem’s use of the car, notwithstanding his letter of rescission, constitute such use of it as to be an acceptance? And if not, does Stem owe Braden anything for its use?
Donnelly ordered a leather motorcycle jacket from Leathers Inc. The jacket was specially designed according to Donnelly’s instructions: it had a unique collar, various chromed studs throughout, and buckles, and he required an unusually large size. The coat cost $6,000. Donnelly paid $1,200 as a deposit, but after production was nearly complete, he telephoned Leathers Inc. and repudiated the contract. What should Leathers do now?

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