Opinion ID: 755785
Heading Depth: 3
Heading Rank: 1

Heading: U.C.C. Section 2-607(3)

Text: Does Apply 18 By its terms, U.C.C. section 2-607(3) applies to this case because this is a situation [w]here a tender [of goods, i.e., the valves] has been accepted. Section 2-607(3) bars a breach of contract claim by a buyer, such as Aqualon, who has accepted the seller's, such as MAC's, tender of goods unless Aqualon gave MAC notice of the alleged breach within a reasonable time. 19 Section 2-607(3) is based on section 49 of the Uniform Sales Act. See U.C.C. § 2-607, cmt. (Prior Uniform Statutory Provision). Professor Williston, the author of the Uniform Sales Act, has explained that section 49 ameliorated the harsh rule that acceptance of a tender of goods acted as a release by the buyer of any claim that the goods did not conform to the contract. See 5 Williston on Contracts § 714 (3d ed.1961). But the Uniform Sales Act did not go entirely to the other extreme by allowing the buyer to accept goods without objection and then assert claims for breach of contract at any time within the statute of limitations period. See id. Instead, the Act allow[ed] the buyer to accept the offer without waiving any claims, provided the buyer gave the seller prompt notice of any claimed breach. Southeastern Steel Co. v. W.A. Hunt Constr. Co., 301 S.C. 140, 390 S.E.2d 475, 478 (1990). Courts have held that the same understanding applies to section 2-607(3) of the U.C.C. See, e.g., id.; Eastern Air Lines, Inc. v. McDonnell Douglas Corp., 532 F.2d 957, 971 (5th Cir.1976). 20 Aqualon has argued that the U.C.C. provision does not apply to this case because MAC had actual knowledge that its valves were inadequate long before Aqualon's acceptance. Requiring further notice after acceptance would be pointless, Aqualon argues. In support, Aqualon cites Jay V. Zimmerman Co. v. General Mills, Inc., 327 F.Supp. 1198 (E.D.Mo.1971). In Jay V. Zimmerman Co., the seller was unable to deliver the goods by the date specified in the contract. The seller clearly knew that it was in breach of the contract when it delivered the goods late, and the buyer did not formally notify the seller of its intent to sue for breach after accepting the late goods. The court found that section 2-607(3) did not apply in the situation where the seller had actual knowledge of the breach at the time of delivery, holding that [i]t would be an unreasonable, if not absurd, construction of the statute to require a renewed notice of breach after acceptance of the goods in those circumstances. Id. at 1204. 21 Both previous and subsequent cases have rejected the reasoning of Jay V. Zimmerman Co. Under the Uniform Sales Act predecessor to section 2-607(3) it was irrelevant whether a seller had actual knowledge of a nonconforming tender. Instead, the critical question was whether the seller had been informed that the buyer considered him to be in breach. Eastern Air Lines, Inc., 532 F.2d at 972 (rejecting Jay V. Zimmerman Co.); see also 5 Williston on Contracts § 714, at 409-10 (3d ed. 1961) (It might be urged that the seller needs no notice in case of delivery delayed beyond a date expressly fixed in the contract, for he must be aware that he is violating the provisions of the contract, but though he knows this he does not know whether the buyer is willing to accept deferred delivery as full satisfaction, and in any event the words of the Statute seem plain.). As the Southeastern Steel Co. court noted, Judge Learned Hand eloquently disposed of this imaginative, but fallacious, argument, 390 S.E.2d at 480, that a seller's knowledge of a defective tender was sufficient notice of breach: 22 The plaintiff replies that the buyer is not required to give notice of what the seller already knows, but this confuses two quite different things. The notice of the breach required is not of the facts, which the seller presumably knows quite as well as, if not better than, the buyer, but of buyer's claim that they constitute a breach. The purpose of the notice is to advise the seller that he must meet a claim for damages, as to which, rightly or wrongly, the law requires that he shall have early warning. 23 American Mfg. Co. v. United States Shipping Bd. Emergency Fleet Corp., 7 F.2d 565, 566 (2d Cir.1925); see also Oxford Boatyard Co. v. Warman, 192 F.2d 638, 639 (4th Cir.1951) (It is not enough that the defendant knew of the defect ... since it did not know that plaintiff was claiming breach of warranty on that account.). 24 Aqualon responds to this argument by pointing out that Judge Hand was interpreting the predecessor to U.C.C. section 2607(3). Aqualon admits that U.C.C. section 2-607(3) was patterned on the statute interpreted by Judge Hand, but claims that the U.C.C. provision was drafted with an eye towards achieving less harsh results where the buyer is a 'retail consumer.'  25 But numerous courts have applied Judge Hand's reasoning to cases involving U.C.C. section 2-607(3). See, e.g., Standard Alliance Indus. v. Black Clawson Co., 587 F.2d 813, 825 (6th Cir.1978); Eastern Air Lines, Inc., 532 F.2d at 972-73. The reasoning is persuasive, and it produces no harsh results in this case. Aqualon was required by section 2-607(3) to give formal notice to MAC, after accepting the valves, that it still found the transaction troublesome. Only then would MAC know not to assume a position of repose, but that it should attempt either to cure the defect, negotiate a settlement or prepare for litigation. 26 Aqualon cites Arcor, Inc. v. Textron, Inc., 960 F.2d 710 (7th Cir.1992), for the proposition that we should reject the cramped construction of section 2-607(3) adopted by the district court in favor of a more practical construction. In Arcor, Inc., Aqualon argues, the Seventh Circuit recognized that the notice requirement was fulfilled where the seller has actual knowledge of the product's failure based on the seller's own observations. Id. at 715. Aqualon asserts that the Seventh Circuit has recognized that it would be absurd to require buyers to notify sellers of a breach of which they were already aware. 27 Arcor, Inc. is easily distinguishable from the instant case, however. The buyer in Arcor, Inc. notified the seller that the product would not perform as required shortly after the buyer accepted it. During the following two years, the seller visited the buyer approximately thirty times on service calls, attempting to correct the problem with the machine. When these attempts were unsuccessful, the buyer sued for breach of warranties. See id. at 711. 28 The Seventh Circuit was right to hold that in that case the seller had actual knowledge of its breach and further notice would be pointless. The seller clearly knew that the buyer found the transaction still troublesome. But that holding does not apply to the present situation, in which the buyer made no complaints after accepting the seller's tender. Here, after Aqualon accepted and paid in full, MAC had no way to know that Aqualon found the transaction still troublesome. 29 MAC admits it knew when it delivered the valves that they leaked more than it had estimated, but it was not aware that Aqualon would consider this to be a breach of anything. Although it had estimated maximum leakage amounts before being awarded the contract, MAC had made it clear that any performance warranty would be contingent upon MAC's approval in writing of the final equipment-installation and convey-route line drawings. The drawings were never approved by MAC. MAC and Aqualon later discussed a specific performance guarantee that Aqualon was supposed to draft, but Aqualon never drafted one. Furthermore, after Aqualon's original purchase order was sent, MAC executed an Order Acknowledgment that expressly disclaimed both express and implied warranties. MAC did not know, therefore, that Aqualon would claim that the valves' excessive leakage rates constituted a breach of contract or breach of warranty. 30