Contracts II Outline Professor Maggs I. Contract Interpretation A. PAROLE EVIDENCE RULE PRIOR AGREEMENTS 1. RULES: a.

a. An integration is the final written expression of an agreement. Rest. 2nd 209(1). i. An integration is complete if it is intended to be the exclusive statement of the agreement. 210(1). Otherwise it is incomplete. 210(2). b. A complete integration discharges any terms of a prior agreement that are w/in its scope. 213(2). c. A partial integration discharges any terms of a prior agreement that are inconsistent. 213(1), 216(1). d. Willistons 4-Corners Test (Majority): courts determine whether an integration is complete by looking only w/in the 4 corners of the document i. Contract must appear on its face to be incomplete in order to permit parol evidence of addl terms ii. if it looks complete- integrated; if doesnt look complete- partially integrated e. Corbins All Circumstances Test (Minority): for issues of completeness, no relevant evidence, parol or otherwise, is excluded; no written document is sufficient standing alone f. A court may reform a written contract based on mutual mistake or fraud as to its content. 155. g. Merger clauses (i.e. Henningsen, p. 446) specifies this contract/document is an exclusive statement of all the terms as a complete integrated agreement 2. PATTERN OF ARGUMENTATION a. s claim: made a promise and did not keep it b. s defense: the alleged promise was discharged under the parol evidence rule b/c it was not included in our subsequent written agreement. c. s 1st reply: the promise was not discharged b/c it is outside the scope of the written agreement i. Gianni v. R. Russell- contract says Gianni cant sell tobacco; new drugstore in building; Held- the alleged prior agreement (exclusive right to sell soda) was w/in the scope of the lease (b/c would naturally be included in document)- given the clause giving up right to sell tobacco (4 Corners Test used) d. s 2nd reply: The promise was not discharged b/c the written agreement was only a partial integration, and the promise is not inconsistent (term not discharged b/c not inconsistent) i. Masterson v. Sine- Masterson sold ranch to sis, incl. in contract clause that he could repurchase w/in 10 yrs. for same consideration , he goes bankrupt, bankruptcy trustee wants to repurchase; Held-possible alleged prior agreement that the option was assignable only for family exists; remand to find parties intent e. s 3rd reply: The written agreement should be reformed to include the promise b/c we both mistakenly thought the promise was included or b/c fraudulently misled me to think it was included i. Bollinger v. Central Penn Quarry- Quarry deposits waste on Bolls farm; Boll alleges prior agreement they will cover all waste w/topsoil , which they did initially; Held- contract includes prior term- Quarry wouldnt have initially covered waste if they hadnt agreed to do so from beginning (court reformed lease to include the promise)

B. PAROL EVIDENCE RULE MEANING OF TERMS (discharge of prior agreements) 1. 2 QUESTIONS: 2.

a. Can parol evidence by admitted (to show the meaning of terms)? b. If extrinsic evidence is admitted, whose meaning controls? RULES:

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a. Traditional Plain Meaning Rule (Minority): if the contract has a plain/ clear meaning, then no extrinsic evidence can be introduced. i. Usage of Trade (Custom) Exception- some fields use terms w/special meaning that ppl in that trade understand; trade usage meaning can always be admitted Hurst- Lake contracted w/Hurst to buy meat scraps w/Lake having right to discount if meant < 50% protein, Lake took discount; Hurst- we meant 49.5% + protein; Heldallowed custom exception- trade meaning of the term b. Modern Intent Rule (Majority): if there is an ambiguity, you may introduce extrinsic evidence; 214(c); may ALWAYS introduce extrinsic evidence (doing away w/parol v. rule) i. Side-issues: Arguments for: goal- figure out intent of parties; language is not precise and difficult to figure out; this ev. should always come in Extrinsic evidence never excluded (unless irrelevant); problem- no certainty in contracts b/c can always bring in parole v. implies words inadequate to bind meaning ii. Pacific Gas- turbine dropped, damaged; Pacific- you have to pay for damage b/c you promised you would indemnify us; Thomas- indemnify meant only 3rd party prop. damage would be covered, not that owned by you; Held- plain meaning rule applies; damages covered under contract iii. Trident- Trident took out loan, interest rates fell, Trident wanted to pay off loan & get lower rate elsewhere; clause- shall not have right to prepay; Trident argues this mean you could prepay but there would be a 10% penalty; Held- evidence can come in c. When evidence shows that 2 parties attached different meanings to a term, if one party knew or should have known the meaning attached by the other party, it will be interpreted against the party who should have known the meaning attached by the other . 201(2). d. If neither partys meaning of a term prevails under the previous rule, the term cannot be enforced; if no fault, then no contract. 201(3). PATTERN OF ARGUMENTATION a. (Round 1) i. s claim: promised to do X, which means Y, and did not do it. ii. s defense: X means Z, and I did Z. Raffles v. Wichelhaus- s, Wichel, buying cotton from s to arrive ex Peerless; meant- any ship Peerless; meant- Oct. ship; cotton came on Dec. Peerless, s didnt pay; Held- parol evidence admitted; one party thought it meant one thing, other party thought it meant something else, neither should have known what other thought, so no binding contract Oswald- Allen had 2 coin collections, Swiss (only Swiss coins) and Rarity (some Swiss); , Oswald, wanted to buy all of the Swiss coins; thought just the Swiss collection; Held: parole v. shows parties construed different meanings of all Swiss coins, so no contract Frigaliment- BNS sells Frig chix; , Frig, meant broiler; meant any chicken; extrinsic evidence admitted, which conflicted; to win, Frig would have to show BNS knew/should have known what Frig meant or meant it as Frig did b. (Round 2) i. or : The court should conclude the X has my meaning based on the following extrinsic evidence: [description of evidence; i.e. Frigaliment- testimony as to meaning of chix]. ii. or : The court should not consider the other partys proffered extrinsic evidence (other than usage of trade evidence) b/c X has a plain meaning. i.e. in Raffles, seller asserted: plain under contract that as long as goods arrived on a ship called Peerless, doesnt matter when sailed (ct. rejected) c. (Round 3) i. or : My meaning of X should prevail b/c the other party knew or should have known what I thought X meant. Frigaliment- buyer said seller should have known b/c we used chicken in Engl. (tho rest in German) to convey meaning; ct. rejected ii. : If my meaning does not prevail, then the term has no meaning and cannot be enforced b/c I did not know and should not have known what thought X meant.

 Raffles, Oswald, Frigaliment- this defense succeeded in all; held- no agreement on that aspect, cannot be enforced C. FILLING GAPS W/IMPLIED TERMS 1. RULES a. Contracts may include not only their express terms, but also terms implied in law or implied in fact. b. Implied in fact: implied based on the particular circumstances of the contract at issue i. Wood v. Lucy- reasonable efforts implied; Lucy gave Wood exclusive right to market her products, then she gave someone else the rights, he sued; Held- implied duty of good faith that he would use reasonable efforts c. Implied in law- based on policy considerations, law says this term will be part of the contract; 2 Kinds: i. Mandatory (i.e. every contract includes duty of good faith)- cannot be waived/ altered, always present. 205 Dalton- Daltons SAT varies b/c he is sick 1st time; ETS wont release his score, relies on their handwriting expert; submits evidence, but ETS wont look at it; Held- implied duty of good faith ETS MUST evaluate materials he has submitted ii. Default (i.e. general assignability of contract rights, such as was waived in Masterson)implied in law, unless contract says otherwise parties may change. 317(2)(c). 2. PATTERNS OF ARGUMENTATION a. (Implied Promise) i. s claim: made an implied promise and did not keep it ii. s claim: I did not make the implied promise ct. must look at all circumstances of the case b. (Implied Condition) i. made a promise and did not keep it ii. s defense: my performance was excused by the non-occurrence of an implied condition iii. s response: the implied condition does not exist or, in the alternative, was satisfied II. Performance and Breach A. EXPRESS CONDITIONS 1. RULES a. The non-occurrence of an express condition excuses performance subject to the condition , regardless whether it has a material effect on the performance. i. defense- party being sued claims they didnt have to perform b/c their performance was subject to a condition (which didnt occur) ii. Strict Compliance Rule- unless the condition is strictly met, the party whose performance is condition doesnt have to perform iii. Luttinger v. Rosen- Luttinger agrees to buy Rosens house if he gets an interest rate < 8.5%, he doesnt (non-occurrence of express condition); s offer to reduce the house price so payments stay the same; Held- may reject the offer; new offer irrelevant b/c there must be strict compliance w/the orig. terms of bargain b. A party may condition performance on a subjective event/ standard (i.e. satisfaction w/the other partys performance). But when practicable, courts will interpret a condition of satisfaction to mean satisfaction of a reasonable person. 228. i. Gibson v. Cranage- Gibson, artist, offered to enlarge Cranages small portrait of his dead daughter subject to condition that Cranage would only pay if satisfied; Held- subjective standard okay if Cranage evaluated photo and acted in good faith 2. PATTERN OF ARGUMENTATION a. s claim: made a promise and did not keep it b. s defense: My performance of the promise was excused by the non-occurrence of an express condition. B. CONSTRUCTIVE CONDITION OF PRIOR PERFORMANCE 1. RULES a. Prior performance by one party may be a constructive condition to the other partys performance (when facts suggest one performance is dependent on another). 237

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b. Substantial performance (performance w/o a material breach) will satisfy the constructive condition. c. Courts determine whether a material breach has occurred by considering a variety of circumstances. 241. In general, courts are hesitant to find a material breach. PATTERN OF ARGUMENTATION a. s Claim: made a promise and did not keep it. b. s Defense: My performance was excused b/c s prior performance was a constructive condition to my performance, and did not perform as promised. c. s 1st Reply: There was no constructive condition of prior performance; our performances were meant to be independent of each other. i. Kingston () v. Preston- Kingston was to buy Prestons business and provide security (i.e. mortgage thru bank); he did not provide security, Preston didnt deliver business; Lord Mansfield, Held- evidence, sense, and meaning of the contract there was logically a constructive condition here; promises not independent of each other d. s 2nd Reply: Even though I did not perform exactly as promised, I substantially performed (no material breach) and therefore satisfied the constructive condition. (claim used in regard to what remedy should be; must still pay, but allow damages) i. Jacobs & Youngs v. Kent- J & Y promise to build house w/Reading pipe (constructive condition?) in exchange for payment; Held- there was substantial performance, wrong pipe not material breach, so Kent must perform/pay (Court may subtract allowance for damages) ii. Walker & Co. () v. Harrison- Harrison, , contracted w/W & Co. for them to install and maintain a sign; cobwebs, graffiti, tomato, Harrison defaulted; Held- poor maintenance not severe (no material breach), so not excused from paying iii. Plante () v. Jacobs- Plante built Jacobs a house, they didnt pay, asserted non occurrence of constructive condition building house to the contract (no downspouts, kitchen cabinets, wall in living rm. 1 ft. off); Held- Plante substantially performed, no change in value of house, Jacobs must pay example of some courts reluctance to find a material breach, even when breach is somewhat substantial

C. RESTITUTION DESPITE A MATERIAL BREACH 1. RULES

D.

a. In some jurisdictions, a party to a contract may recover in restitution despite having committed a material breach. 374(1). b. The measure of recovery is the benefit conferred in excess of any loss caused. 374(1). 2. PATTERN OF ARGUMENTATION a. s claim: I conferred a benefit on in attempting to perform a promise, and although I breached, would be unjustly enriched if he did not pay for the benefit. i. Britton v. Turner- Britton agrees to work on Turners farm for 12 mos., but leaves after 9.5 and isnt paid; Held- Britton can recover under a theory of restitution, should be compensated for benefit; Damages = contract price (cost of completion + other loss) ex. of court requiring restitution despite a s breach DIVISIBILITY OF PERFORMANCES 1. RULES a. When practicable, a court may divide a single contract into 2 or more separate contracts. 240. b. Even if a materially breached the undivided contract, the s performances are not excused in any of the separate contracts which the has substantially performed. 2. PATTERN OF ARGUMENTATION a. s Claim: made a promise and did not keep it. b. s Defense: My performance was excused b/c s prior performance was a constructive condition to my performance, and committed a material breach. c. s Reply: Although I committed a material breach, I substantially performed one or more divisible parts of the contract. s performance is not excused for those parts.

i. Kirkland v. Archbold- Builder, Kirkland, making repairs to Archbolds house; he started, she stopped him and refused to pay b/c he used wrong siding; Held- not practical to divide one construction project (where separate payment installments) E. IMPRACTICABILITY AND FRUSTRATION OF PURPOSE 1. RULES a. A partys performance may be excused by the occurrence of an event that renders the performance impracticable, if both parties assumed that the event would not occur. 261. b. A partys performance may be excused by the occurrence of an event that frustrates the partys principle purpose, if both parties assumed that the event would not occur. 265. 2. PATTERN OF ARGUMENTATION a. s Claim: made a promise and did not keep it. b. s 1st Defense: My performance was excused b/c an event occurred that rendered my performance impracticable, and we both assumed that the event would not occur. i. examples: death, illness, destruction; non-occurrence of the constructive condition- that something wouldnt happen to make performance impracticable ii. Taylor v. Caldwell- Taylor to rent Caldwells property for concerts, hall burnt; Held- implied constructive condition that if something happens to render performance impracticable (that the parties hadnt specified in contract b/c they didnt consider it happening), you dont have to perform iii. Limitations: promisors fault promisors negligence (courts are divided) contrary indications in contract c. s 2nd Defense: My performance was excused b/c an event occurred that frustrated my principle purpose, and we both assumed that the event would not occur. i. Krell v. Henry- Krell agreed to rent Henry his apt. to see procession of coronation of Edward VII; parade rescheduled, Henry didnt pay; Held: Henry does not have to pay b/c his purpose had been frustrated III. Who May Enforce a Contract A. INTENDED 3RD PARTY BENEFICIARIES 1. RULES a. An intended 3rd party beneficiary of a promise may enforce the promise. 304. b. A person is an intended 3rd party beneficiary of a promise if the promise intended to give the person the benefit of the promise and a right to enforce would effectuate the parties intention. 302. 2. PATTERN OF ARGUMENTATION a. s Claim: made a promise and didnt keep it. b. s Defense: is not a person entitled to enforce. c. s reply: I am an intended 3rd party beneficiary. i. Bain v. Gillispie- Gillispie, whose store sells sports memorabilia, sues Bain, the referee, for making a bad call; Held- Bain cannot recover b/c no close relation/ he was not an intended beneficiary (as promisee or 3rd party) ii. Seaver v. Ransom- Mrs. Beman wants to leave her house to her niece, but no time to modify; husband agrees to convey the house to her niece, he doesnt; niece sues; Heldthe niece can enforce the promise as an intended 3rd party beneficiary B. ASSIGNEES 1. RULES a. An assignee of contract rights may enforce those rights. b. A party may assign rights under a contract, unless (1) the assignment would increase the burden on the promisor; (2) the assignment is forbidden by statute; or (3) the assignment is precluded by contract. 317(2). c. To assign a right under a contract, a party must manifest an intention to surrender the right permanently to another person. 2. PATTERN OF ARGUMENTATION a. s Claim: made a promise and did not keep it.

b. s Defense: is not a person entitled to enforce. c. s Reply: The promisee assigned his or her rights to me. d. s Argument: The assignment wasnt valid. Or- there was a restriction. i. Shiro v. Drew- Drew gives loan to Fiberlast for manufacturing radome to go to Counter; Fiberlast promises any $ received from Counter would be remitted to Drew; Held- no assignment b/c $ is still going thru Fiberlast (who isnt giving up right to receive payment), Drew isnt able to force payment from Counter b/c there is no assignment ii. Herzog v. Irace- Jones injured in motorcycle accident; Irace obtains settlement for him; Jones gets surgery done by Herzog, , agreeing to assign his right to the settlement proceeds; Jones tells Irace to pay him directly and that hell pay Herzog, he doesnt; Held- this was a valid assignment to Herzog IV. Scope of Article 2 A. RULES 1. Provisions of Art. 2 apply to contracts for the sale of goods, supplementing or replacing the common law rules that apply to other kinds of contracts. See, e.g. 2-201(1), 2-314(1). See also 2-102. 2. THE TERM GOODS INCLUDES: a. things movable at identification 2-105(1) i. things- must have tangible, physical properties; ambiguity- electricity, natural gas ii. does not include services (getting a haircut) or intangible properties (copyright); does not include real estate or things attached to real estate iii. transformation is possible (repaving driveway- concrete movable before mixed/laid) b. unborn young of animals 2-105(1) i. i.e. calf after its born c. growing crops 2-105(1) i. i.e. corn still growing in the field d. minerals to be severed by the seller 2-107(1) i. coal, gold ii. only if severed by seller b/c if buyer severs, will need other property rights (easement, etc.) e. structures to be severed by the seller 2-107(1) i. i.e. items attached to realty and capable of severance f. other things severable w/out material harm 2-107(2) i. i.e. fixtures at time of purchase that can be torn out w/o harm (presumably to the realty)i.e. fireplace g. timber to be cut 2-107(2) h. future goods 2-105(2) i. i.e. doesnt fit into a category at the time, but will in the future meet def. of goods 3. The term goods does not include anything not covered by the preceding definition (i.e. real estate or services), and 3 items are expressly excluded from the definition (non-goods: money in which the price is to be paid, securities, things in action, or legal claims) 2-105(1). 4. A sale of goods is a transaction in which title to the goods passes from the seller to the buyer for a price. 2-106(1). This definition excludes transactions like leases, bailments, and gifts. 5. The term contract for sale includes both a contract to sell in the future and a present sale, even though a present sale may not involve any promises. 2-106(1). 6. A HYBRID CONTRACT is a contract for sale of both goods and non-goods. a. Predominant Purpose Test (Majority) most courts will apply Art. 2 provisions to a hybrid contract when the predominant purpose of the contract is the sale of goods. b. Gravaman of the Complaint Test (Minority) - some courts will apply Art. 2 provisions to a hybrid contract if the complaint of the suit concerns the sale of goods (if complaint is about services, UCC will not apply, and common-law will apply). i. Anthony Pools v. Sheehan- Pools constructs a pool for Sheehan, who slips off the diving board and is injured; Pool- 2-314 doesnt apply b/c sale of services, not goods; Held- Ct applies gravamen of complaint test b/c diving board = sale of good 7. Most courts will apply Art. 2 provisions to a transaction that is not a contract for the sale of goods but is analogous.

a. Hoffman v. Horton- Hoffman bids on property, gavel comes down, new bidder says he had bid more, price went up $17k, Hoffman still bout, but sued for difference; Held- UCC doesnt apply b/c involves property, but okay for trial court to borrow UCC rule and hold ok to continue bidding when there was nothing in the common law b. Zapatha () v. Dairy Mart- DM cancels its franchise agreement w/Zapatha, who refused to keep store open longer hrs.; Zapatha- clause allowing cancelation of franchise violates UCCs good faith req, 1-203, and termination clauses can be unconscionable, 2-302.; Heldcontract not w/in scope of UCC (tho it involved sale of goods, thrust was franchise fee), but applies UCC by analogy c. Some courts take an inclusive approach to Art. 2 based on policy considerations. i. Advent Systems v. Unisys- see below, top of p. 8; i.e. one reason ct. decided to apply Art. II is that software is sold like other goods

a. s Claim: breached the implied warranty of merchantability in 2-314(1). b. s Defense: 2-314(1) does not apply (and therefore no implied warranty of merchantability was made) b/c this is not a contract for the sale of goods. 2. Example 2: AVAILABILITY OF A DEFENSE a. s Claim: made a promise and did not keep it. b. s Defense: The promise is not enforceable b/c the requirements of the statute of frauds in 2-201(1) were not satisfied. c. s Reply: 2-201(1) does not apply b/c this is not a contract for the sale of goods. i. Advent Systems v. Unisys- Unisys backed out of contract to buy software from Advent; Unysis defends- SOF, no signed writing; Advent- SOF doesnt apply b/c software not a good; Held: software is a good b/c 1. once on floppy disk, its tangible; 2. good to have a uniform rule to apply to software 3. Example 3: AVAILABILITY OF AN EXCEPTION TO A DEFENSE a. s Claim: promised to keep an offer open and broke the promise. b. s Defense: The promise is not enforceable b/c gave no consideration in exchange. c. s Reply: No consideration is needed b/c of the exception for firm offers in 2-205. d. s Response: 2-205 does not apply b/c this is not a contract for the sale of goods. V. Article 2 Basic Concepts A. MERCHANT RULES 1. RULES a. Art. 2 applies to both merchants and non-merchants, but it contains some provisions applicable only to merchants. i. i.e. the SOF in 2-201(1) applies to everyone, but the confirmation exception in 2-201(2) applies only to contracts btw 2 merchants. b. A party can be a merchant by: i. dealing in goods of the kind involved in the transaction; ii. having knowledge or skill as to the goods involved in the transaction, for the purpose of goods provisions like 2-314 on the implied warranty of merchantability; iii. having knowledge or skill as to the practices involved in the transaction, for the purpose of practices provisions like 2-201(2) or 2-205 on firm offers Decatur Coop v. Urban- Urban offers to sell wheat to Decator Coop, who then contracts to sell it to a grain elevator; price of grain increases, and Urban denies making the contract, asserts SOF; Held- Urban is non-merchant, does not have knowledge in the business practice; exception to SOF non-applicable iv. hiring an agent who has the knowledge or skill to qualify as a merchant. 2-104 & cmt. 2. c. A person can be a merchant for the purpose of some UCC provisions or some transactions but not others. 2. PATTERN OF ARGUMENTATION a. s Claim: breached a promise to buy or sell goods. b. s Defense: My promise is not enforceable b/c the SOF is not satisfied. 2-201(1)

B. PATTERN OF ARGUMENTATION 1. Example 1: AVAILABILITY OF A CLAIM

c. s Reply: The SOF is satisfied b/c failed to respond to my confirmation w/in 10 days. 2201(2) d. s Response: The confirmation exception does not apply b/c I am not a merchant. 2104(1) i. Decatur Coop (see above)

B. MODIFICATION OF CONTRACT TERMS 1. RULES

C.

a. Common law- consideration reqd. Rest. 72, Alaska Packers b. Art. 2- no consideration reqd. 2-209(2) i. But- request for modification must be made in good faith (must have a good reason, not just intent to extort more $) ii. Contract may bar oral modification c. Waiver of Contract Rights i. Common law- waiver permitted. Swartzreich- Swartzreich received a job offer, then got another offer for more $; his current employer offered him more $ and tore up the old contract; Held- free to waive your contractual rights ii. Art. 2- same- may waive your contractual rights for the sale of goods. 2-209(4) Wisconsin Knife v. Natl Metal Crafters- Natl agreed to make blanks for Wis. Knife; Natls delivery was late; Wis. Knife initially accepted late orde rs and then sued when they continued to be late; Held- Wis. Knife waived right to insist on timely deliver, and Natl relied on that waive Majority- must have reliance for a waiver to be enforceable (problem- not in code) Takeaway- UCC is different from common law in that it doesnt require consideration for modifications UNCONSCIONABILITY 1. RULES a. A court may refuse to enforce a contract or term of a contract that it finds unconscionable. 2-302(1). Q: does enforcing the clause shock the conscious? i. Some arguments a party might assert to an objectionable term: may argue for strict construction, may argue lack of adequate notice (Klar), may argue its unenforceable b/c it violates public policy b. Courts monitor contracts for oppression (substantive unconscionability), perhaps produced by remedy meddling or excessive prices, and for unfair surprise (procedural unconscionability), perhaps resulting from hidden contract terms or contracts offering no meaningful choice. 2-302 cmt. 1. i. Substantive unconscionability- oppression; i.e. limiting remedies (Bloomfield Motors) or modification of warranties restriction of recovery for personal injury more commonly viewed as unconscionable than restricting recovery of economic loss ii. Procedural unconscionability- unfair surprise; manner in which the contract is made is unconscionable; i.e. tiny terms one cant read, terms one wouldnt ordinarily expect, no meaningful choice over terms, such as an adhesion contract c. Courts rarely invalidate contract provisions as unconscionable, especially in contracts btw merchants. Note- dont get carried away. 2. A & M Produce case- A & M purchased a tomato sorting machine from FNC, machine defective, tomato crop lost; A & M claims breach of express and implied warranties; FNC- contracts disclaimer says no consequential damages; Held- procedurally uncons. b/c: 1. terms in small print on back of form contract; 2. unequal bargaining power; substantively uncons. b/c: 1. unreasonable disclaimer on mass-produced product; 2. FNC is expert, relied upon by A & M; 3. consequential damages foreseeable; 4. manufacturer should bear risk machine wont work

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E.

a. FNCs response (common, decent arg.)- 2-316 specifies method by which warranties can be excluded (writing must be conspicuous and mention merchantability), and we complied w/this, so it was not unconscionable 3. PATTERN OF ARGUMENTATION a. s Claim: breached the implied warranty of merchantability. 2-314(1). b. s Defense: The implied warranty of merchantability was disclaimed. 2-316(2). c. s reply: The attempted disclaimer is unconscionable and therefore not enforceable. 2302(1). GOOD FAITH 1. RULES a. Some UCC provisions expressly require good faith. I.e.- the buyer under a requirements contract must specify the quantity of goods required in good faith. 2-306(1). b. All UCC contracts also contain an implied duty of good faith in their performance and enforcement, though not in their formation. 1-203. c. The general definition of good faith requires only honesty in fact. 1-201(19). d. The merchant definition of good faith requires honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. 2-103(1)(b). The existence of commercial standards of fair dealing in the trade must be proved. 2. PATTERN OF ARGUMENTATION a. s Claim: breached the implied duty of good faith when did X. 1-203. b. s Defense: There was no dishonesty and (if is a merchant) has not shown that standards of fair dealing in the trade prohibit X. i. Zapatha v. Dairy Mart (see p. 7)- Zapatha had not proved existence of fair dealing UCC STATUTE OF FRAUDS SPECIAL RULES 1. RULES a. Contract must specify only the quantity of the goods (not essential terms). 2-201(1), cmt. 1 i. Cant rely on SOF if you received a written confirmation and didnt object ii. Merchant exception. 2-201(2) a writing in confirmation of the contract satisfies the writing requirement of 2-201(1) if btw merchants and sent w/in a reasonable time unless written notice of objection to the contents is given w/in 10 days after receipt Decatur Coop- p. 8 b. Special manufacture- if manufacturer started work, cant assert SOF as a defense c. Admissions- if you admit you made the promise, cant assert SOF as a defense i. Unique Designs- Court rejected SOF argument ruling oral agreement was valid b/c it was undisputed the parties had made the agreement ii. Partial delivery- the contract is not enforceable beyond amount of goods admitted. 2201(3)(b); if seller only admits to part, that is all that is enforceable d. Paid/Received. 2-201(3)(c)- if youve paid/accepted or received/accepted the goods, cant assert SOF as a defense e. Electronic transactions can substitute a signed writing; i.e. clicking buy online f. Is promissory estoppel an exception to the SOF? i. Non-UCC states Rest. 139, Monarco Majority- yes, promissory estoppel may be used to overcome a lack of writing when a signed writing is required by the SOF ii. UCC states Majority- yes; most states have agreed promissory estoppel may be an exception to the SOF o Decatur (p. 8); 1-103 Minority- no o Union Oil v. Lige Dickson- Lige does paving contracting, buys asphalt from Union; Union promised not to raise prices for existing contracts Lige had, broke that promise and alleged theyd not made it; Held- promissory estoppel claim fails, 2-201(3) states all exceptions, need uniformity, dont want an increase in litigation 2. PATTERN OF ARGUMENTATION

a. s Claim: made a promise and didnt keep it. b. s Defense: SOF c. s Reply: promissory estoppel F. SUPPLEMENTAL GENERAL PRINCIPLES 1. RULE- Unless displaced by particular provisions of the UCC, otherwise applicable principles of law and equity supplement the UCCs provisions . UCC sits on top of the common law and other statutes, leaving them intact and applicable. 2. PATTERN OF ARGUMENTATION a. Supplemental Claims i. s Claim: In performing our contract for the sale of goods, s conduct gave me a claim under a state statute applicable as a supplemental general principle of law. Zapatha v. Dairy Mart- see p. 7 b. Supplemental Defenses i. s Claim: promised to buy or sell goods and did not do it. ii. s Defense: Promise is not enforceable b/c it was induced by a statement constituting a misrepresentation under common law rules applicable as supplemental general principles. VI. Article 2 Offer and Acceptance A. MISCELLANEOUS RULES 1. FIRM OFFERS 2-205 a. Option Contract = promise to keep offer open (exception to requirement of consideration) i. common law- basis for enforcement reqd; enforceable promise not to revoke a promise for a certain period requires consideration Dickinson v. Dodds-; Dick found out informally the property was being sold to another; Held- no obligation to keep offer open b/c no consid.; before complete acceptance by Dick, Dodds could contract w/another ii. Art. 2- exception for firm offers by merchants (if requirements met). 2-205. An option contract by a merchant is not revocable during the time stated if the following requirements are met: 1. offeror is a merchant and; 2. merchant promises in writing to keep the offer open. If reqs met, offer must be kept open for the stated period but for no more than 3 mos. If not in writing, requires consideration iii. Friedman v. Sommer- Sommer, owner of NY apt. building decides to sell apt.s as co-ops; Sommer offers: purchase at current price for 30 days; Sommer then revokes, and Friedman attempts to accept; Held- Sommer may revoke the offer b/c the terms are nonexclusive; saying itll lapse after 30 days different from saying it will be open for 30 days b. Revocation i. prevented from revoking if: binding option contract (promise to keep offer open) exception for firm offers by merchants applies. 2-205 party makes offer, other party relies on the offer, and no promise to keep the offer open ii. Drennan v. Star Paving- , general contractor, relied on Star Pavings offer in submitting a large bid; Held- enforceable on promissory estoppel; s reliance makes s offer irrevocable iii. E.A. Coronis case- Gordon Construction, contractor, solicited bids for a bldg project; E.A. promised to sell Gordon steel structural gods and then revoked; Held- reliance could make an offer revocable, but must prove elements of promissory estoppel iv. UCC sits on top of the common law, and if its not precluded by the UCC, UCC may be supplemented w/the common law Response may argue something is precluded by the UCC (as in Lige Dickson, where promissory estoppel couldnt overcome SOF b/c couldnt creat addl exceptions to those already listed in UCC) 2. FORM OF ACCEPTANCE 2-206(1)(a) a. Offeror is master of the bargain

10

B.

b. If offeror does not specify how to accept, any reasonable manner of acceptance is ok c. You can make a promise by beginning performance but doesnt count as acceptance unless you provide notice d. Means of Acceptance: i. promise to ship ii. shipment policy- prevent unilateral trick; trickster may argue no acceptance b/c no complete performance; UCC- if you ship the goods, whether conforming or non-conforming, you are accepting the contract; if defective- youve breached e. Pittard () v. Unique- Pittard helped Unique sell their lathe w/understanding Unique would buy a lathe from Pittard, they didnt; Unique- contract too indefinite to enforce (2-204(3)) b/c not agreed upon and course of dealing shows no formation (1-205); Held- 2-305- price can be settled later, just must be reasonable; & 1 prior contract does not equate to a course of dealing 3. NOTICE OF ACCEPTANCE 2-206(2) a. If youre merely promising to perform, notice of acceptance is required (unless waived, as in Corlies & Tift) 4. CHARACTERIZATION OF ORDERS 2-206(1)(b) a. ORDERS ARE OFFERS b. important b/c at common-law, it was important to look carefully at the communication to determine whether it was an offer or just preliminary communications 5. CONDUCT SHOWING AGREEMENT 2-204(1) a. courts do not need to determine precisely what was the offer and what was the acceptance; so long as the parties can be shown to make an agreement, it is enough (even w/o specific characterization of 1 offer and 1 acceptance) 6. DEFINITENESS 2-204(3) a. promise is sufficiently definite to enforce so long as it can be shown the parties intended to enter an agreement and there is a reasonable basis for providing an appropriate basis b. open term (e.g. price), 2-303(1); even if there are open terms, enforceable if clear there was intent to form a contract; price must just be reasonable PATTERNS OF ARGUMENTATION 1. NO OFFER a. s Claim: Breach of contract. b. s Defense: There was no offer. c. s 1st Reply: An order for goods may be characterized as an offer under 2-206(1)(b). d. s 2nd Reply: No distinct offer is necessary if the conduct of the parties shows the existence of a contract. 2-204(1). 2. OFFER REVOKED BEFORE ACCEPTANCE a. s Claim: Breach of contract. b. s Defense: The offer was revoked before acceptance. c. s Reply: promised to keep the offer open. d. s Response: There was no consideration for the promise to keep the offer open. e. s Reply: No consideration is needed under 2-205 (option contract in writing by merchant must be kept open). 3. NO ACCEPTANCE a. s Claim: Breach of contract. b. s Defense: There was no proper acceptance c. s Reply: The attempted acceptance was made in manner and medium reasonable under the circumstances. 2-206(1)(a). d. s Response: There was no consideration for the promise to keep the offer open. e. s 2nd Reply: The acceptance was made by a promise to ship or a prompt or current shipment of conforming or nonconforming goods . 2-206(1)(b). f. s 3rd Reply: No distinct acceptance is necessary if the conduct of the parties shows the existence of a contract. 2-204(1).

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4. NO NOTICE OF ACCEPTANCE

C.

a. s claim: breach of contract. b. s defense: There is no contract b/c you did not provide notice of your acceptance of my offer before it lapsed. Notice was required b/c you attempted to accept by beginning performance. 2-206(2). 5. AGREEMENT TOO INDEFINITE TO ENFORCE a. s claim: Breach of contract. b. s defense: The agreement is too indefinite to enforce b/c obligations of parties are unclear. c. s reply: The contract is sufficiently definite b/c the facts show the parties intended to make a contract, and there is a reasonably certain basis for giving an appropriate remedy, in particular ______. 2-204(3). THE BATTLE OF THE FORMS 1. Is there a contract? a. RULES i. mirror image rule Rest. 59, 1-103 common law rule- a purported acceptance which contains different or addl terms to the offer is not really an acceptance but a counteroffer, no contract o Columbus Rolling Mill- , Rwy., rejected by making new offer; Held- a proposal to accept on terms different from those offered = rejection of offer, ending the negotiation, unless other party accepts ii. exception to mirror image rule 2-207(1)s 1st Clause may form a contract even if there are different/ addl terms in the purported acceptance, unless the offer says the offeree has to agree to the stated terms (proviso) iii. proviso (exception to exception) 2-207(1)s 2nd Clause exception subject to proviso- may form a contract even if addl/different terms UNLESS acceptance is made expressly conditional on assent to the addl terms i.e. if purported acceptance contains addl terms and if the acceptance requires assent to those terms to form a contract, there is no contract (mirror image rule applies) iv. contract by conduct 2-207(3) conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract (even if the writings dont acknowledge a contract) i.e. buyer sends want 200 cds; acceptance- will ship Tues. but only if you agree to this price; buyer doesnt agree to price but takes cds and sells them binding contract What are the terms of a contract formed by conduct but not by forms? 2-207(3) o terms on which the writings agree 2-207(3)s 2nd sent.; the terms will consist only of those terms that are common to both forms; addl terms cut out o AND any gap fillers supplied by UCC e.g., 2-309(1) must be reasonable o Pattern of Argumentation s Claim: broke a promise to do X. s Defense: Our contract was formed by conduct and X is not a term on which the writings agree. s Reply: The term X becomes part of the contract as a gap filler supplied by the UCC. b. PATTERN OF ARGUMENTATION i. s Claim: Breach of contract. ii. s Defense: No contract was formed b/c the purported acceptance was not a mirror image of the offer. Rest. 59. iii. s 1st Reply: A contract may be formed even if the acceptance contains addl or different terms under the exception in 2-207(1)s 1st clause.

12

iv. s Response: The exception does not apply b/c the acceptance in this case expressly required the offeror assent to the different or addl terms. 2-207(1)s 2nd clause. v. s 2nd Reply: A contract was formed by our conduct even if the forms do not create a contract. 2-207(2). 2. What are the terms of the contract formed by the exception to the mirror image rule? a. RULES i. Additional Terms General Rule- A contract has been formed, but it doesnt contain the addl terms, which are just proposals for modifying the terms. 2-207(2)s 1st sent. Merchant Rule- If btw merchants, the terms become part of the contract unless the offeror objects to them (in advance, or after seeing them, w/in reasonable time) or unless they materially alter the contract (where merchant rule wont apply). o usually doesnt apply, would just use general rule ii. Different Terms; 3 different ways to deal w/them: same as additional (minority)- treat them as proposals for modifying the contract; different terms become part of the contract if the two parties are merchants unless they would materially alter or buyer objects. 2-207 cmt. 3 knock out (majority)- if different terms btw offer and acceptance, knock-out the different terms, change the terms to what is reasonable (i.e. gap-filler). 2-207 cmt. 6; Prof. White offer controls- b/c 2-207 doesnt say you must do anything, just ignore them and say the terms of the offer control (Prof. Summers) iii. Gap Fillers- i.e. default- reasonable price. e.g. 2-305(1) gap fillers specify a rule if the contract does not; i.e. if no specification of when it is to be performed, must be w/in a reasonable time b. PATTERN OF ARGUMENTATION i. s Claim: broke a promise to do X. ii. s Defense: I did not promise to do X in my offer. iii. s 1st Reply: The term X was included in my acceptance and became part of the contract under the merchant rule in 2-207(2)s 2nd sent. iv. s Response: The merchant rule in 2-207(2)s 2nd sent. does not apply b/c its elements are not satisfied. At most the term is a proposal for modifying the contract, which I did not accept. 2-207(2)s 1st sent. v. s 2nd Reply: The term X is part of the contract as a gap filler supplied by the UCC b/c either our agreement does not address the issue or b/c the offer and acceptance have different terms on the issues; a court should apply the knock -out approach. vi. s Response: The court should not apply the knock-out approach. c. C. Itoh & Co., Inc. v. Jordan Intl Co.- Itoh sent purchase order for steel coils; Seller, Jordan, sent acknowledgement that contained addl terms- express condition required arbitration if dispute arose; Held- falls under proviso; there is a contract b/c parties acted like there was, knock out addl terms (arbitration clause) i. Hypo- what if no express condition? there would be a contract, under 2-207(1), but the arbitration clause would just be a proposal; merchant rule would apply- unless objected to, it would be part of the agreement; C. Itoh could argue it materially alters the agreement d. Hypo- Prob. 3, p. 77- offer for goods ship Oct. 15, purported acceptance- ship Dec. 15; majority- knock out 2 dates and just requires shipment w/in reasonable time VII. Terms in the Box Is a buyer bound by terms in the box? Is the contract formed before or after the buyer saw the terms in the box? 2 Views: 1. View #1: Hill v. Gateway- Hill orders/ pays for Gateway comp.; arrival- Hill finds terms in the box- if you keep the comp. past 30 days, agree disputes will be arbitrated; Hill - clause inconspicuous (rejected by court), and only bound by terms they knew about when contract made; Held- seller is master of the bargain and may specify how acceptance is formed

13

at most a proposal to modify/ amend the contract, 2-207; terms of the contract are whatever was agreed to when the computer was bought VIII. What Courts May Consider in Determining the Meaning of an Agreement A. 1-205(4) Hierarchy: Express Terms Course of Performance Course of Dealing Usage of Trade 1. Express terms- first in the hierarchy 2. Course of performance, 2-208(1)- a course of performance acquiesced to is evidence of the terms of the agreement 3. Course of dealing, 1-205(1)- past transactions (previous contracts) have established a common basis of understanding for interpretation of the parties dealings 4. Usage of trade, 1-205(2)- any practice/ method of dealing done regularly in a place/ trade as to justify an expectation that it will be observed w/respect to the transaction in question B. Nanakuli v. Shell- Shell promised to protect price of asphalt for Nanakuli, asphalt paver, and breached; Held- upheld protection b/c price protection is regularly practiced for existing contracts in the asphaltic paving trade, 2 instances enough to establish course of perf., exception to express terms (paying posted terms at delivery), not a negation 1. For Lige Dickson case, (holding oral agreement to protect price unenforceable b/c of SOF), could have used usage of trade arg. instead of relying on the oral agreement IX. Art. 2 Receipt, Inspection, and Warranties A. RECEIPT AND INSPECTION 1. Rules a. BUYERS RIGHTS AND DUTIES i. Duty to pay. 2-301 if goods tendered. 2-507(1) after inspection. 2-513(1), (2) o if defective, seller has to pay cost of inspection (otherwise, they are buyers cost) ii. Right to reject 2-601(a) perfect tender required- if they fail to conform to contract, buyer has right to reject good faith 1-203; buyer has general duty of good faith, must act honestly and abide by reasonable standards of commercial dealing in the trade (i.e. trade might not permit rejection if only slight defect) iii. Methods of acceptance. 2-606(1) signifying acceptance, 2-606(1)(a) failing to reject, 2-606(1)(b) acting inconsistently, 2-606(1)(c): i.e. buyer rejects but continues to use, sells, or leases the good iv. Right to revoke acceptance. 2-608(1) & (3); i.e. if buyer discovers after acceptance the goods have a defect, which substantially impairs the value of the goods to the buyer, and buyer was unable to discover defects prior to paying (b/c latent b/c or seller had assured no defect), then buyer may revoke b. SELLER i. Duty to deliver. 2-301. if price tendered by buyer. 2-511(1) ii. Right to cure (mitigates perfect tender rule) early tender. 2-508(1); seller may try again to deliver perfect goods surprise reject. 2-508(2); i.e. if seller thought the goods would be acceptable to the buyer; may cure by making conforming tender w/in reasonable time (and will get purchase price; however, seller must still pay damages, since they werent conforming, i.e. if late) iii. Effect of cure seller gets price. 2-607(1) seller pays damages. 2-714(1) 2. Pattern of Argumentation a. SELLERS CLAIM AND BUYERS DEFENSES

2. View #2: Klocek v. Gateway- buyer orders goods, seller accepts by shipping; Held- terms in box are

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i. Ss Claim: B did not pay for the goods. 2-301 ii. Bs 1st Defense: S did not tender the goods. 2-507(1). iii. Bs 2nd Defense: S did not let me inspect the goods. 2-513(1). iv. Bs 3rd Defense: I rejected the goods b/c they were not perfect. 2-601(1). v. Ss 1st Reply: You in fact accepted the goods b/c you did an act consistent w/my ownership of them, etc. 2-606(1)(c). vi. Ss 2nd Reply: Although you rejected, I subsequently cured the defect. I had a right to cure b/c I tendered early or b/c I had reasonable grounds for thinking the goods would be accepted. 2-508(1) & (2). (If seller cures, buyer must accept and pay for goods, but may have a claim for damages caused by the non-conformity) vii. Bs 4th Defense: I revoked acceptance. I had a right to revoke acceptance b/c (1) the goods were non-conforming; (2) the non-conformity substantially impaired their value to me; and 3(a) I reasonably assumed the non-conformity would be cured or (3)(b) I did not discover the non-conformity during inspection b/c of the difficulty of discovery or b/c of your assurances. 2-608(1) & (3). b. BUYERS CLAIM AND SELLERS DEFENSES i. Bs Claim: S failed to deliver the goods. 2-301. ii. Ss Defense: B failed to tender payment for the goods. 2-511(1).

B. WARRANTIES 1. RULES

a. Types of Warranties i. EXPRESS WARRANTY 2-313(1)(a) & cmt. 3; any assertion of fact seller might make about the good; doesnt necessarily have to be case that buyer relies on the statement Common arguments by sellers in express warranty cases: o no intent to make warranty always invalid- intent unnecessary; goods must be described in some way; if seller makes an affirmation about product, it creates an express warranty o no reliance by buyer always invalid; there is no requirement of reliance; if description is made, that warranty is enforceable b/c its part of the bargain o seller disclaimed warranty (contract says there is no express warranty) always invalid; may not disclaim express warranties; will look at disclaimer and description to try to make them consistent o buyer waived warranty violation (by not objecting though buyer knew the description was false) sometimes valid; q: whether buyer waived or not o mutual mistake Rest. 152, 154(1); sometimes valid; 154(1)- usually seller should bear the risk that they are mistaken when making a warranty (b/c they are the expert) o just puffing/ opinion 2-313(2), Tyson; sometimes valid Doug Connor, Inc. v. Proto-Grind, Inc.- Doug buys wood-grinding machine from P-G, who said it would grind up Palmettos; it didnt; Doug asserts breach of express warranty; P-G: oral affirmations were puffing/ opinion and buyer didnt rely (b/c he knew a competitor who the machine didnt work for); Held: finder of fact could reas. conclude the promise were more than just puffing ii. IMPLIED WARRANTIES F.F.P.P., 2-315 o Fitness For a Particular Purpose- the goods will be useful for whatever you bought them for (i.e. seller recommends a particular item for a certain use) opinions may create it, merchantability doesnt matter, seller doesnt have to be a merchant, not typically disclaimed

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Tyson v. Ciba-Geigy Corp.- farmer, Tyson, planting no-till soybeans needed pesticide; seller recommended Dual 8E, but it didnt kill Tysons crabgrass; Heldno express warranty (just puffing) but there was breach of FFPP Merchantability 2-314(1) & (2) o if the seller is a merchant, unless there is a disclaimer, there is an implied warranty that the goods will be merchantable: fit for their ordinary use (ordinary purposes for which such goods are used) [2-314(2)(c)] and properly packaged and labeled o Ambassador Steel Co. v. Ewald Steel Co.- Ambassador sold Ewald steel, which Ewald sold to another co.; steel cracked when used on RR tracks, co. didnt pay Ewald, who wouldnt pay total $ to Ambassador; Held- the steel wasnt merchantable, not fit for ordinary purposes b/c it wasnt w/in the commercial range Morrow v. New Moon Homes- Marrows buy a mobile home from Golden Heart (immediate retailer), manufactured by New Moon Homes; many defects; Held- s may recover from GH under FFPP and warrant of merchantability for difference btw what home is worth and would have been worth if warranted, as well as for consequential damages (i.e. to property); o tho 2-318 doesnt address vertical privity: Held: Morrows may also recover from NMH; Rule: consumer may bring a warranty action against the manufacturer even tho consumer has no privity w/manufacturer o policy reasons: consumer inability to protect himself; manufacturer more able to handle risk, has more info; promotes circularity of litigation Title 2-312(1); seller warrants that seller has good title when selling the goods Other 2-314(3) -that arise from facts of the cases (new, when you buy from store) b. Warranty Issues i. 3rd-Party Beneficiaries 2-319, esp. alt. C Alternative C (Majority)- the warranty extends to anyone who could be reasonably be expected to use or be affected by the goods ii. Damages loss in value of the product itself 2-714(2) i.e. you get the difference in value btw what you were promised and what you got (difference btw value of goods as they are and what value they would have had if as warranted) consequential damages 2-714(3), 2-715(2)(a) o economic loss- recoverable, provided it was foreseeable o personal injury 2-715(2)(b); foreseeability not required; so long as injury was proximately caused by breach of warranty, buyer/ injured party may recover o may recover for property if damages were foreseeable Morrow v. New Moon Homes iii. Privity connectedness btw the parties/ who can bring suit Vertical Privity (can buyer recover from remote seller (vs. immediate seller)?) o UCC doesnt address vertical privity Horizontal Privity (can injured non-buyer recover from a seller?) Hypo- Maggs car accelerates due to defect and he and passengers (family and guests) crash into his garage) o warranty theory- good claim car is not merchantable, buyer can recover from immediate seller o Can buyer, non-buyer, and intended 3rd party occupants recover? 2-714- if breach of warranty, buyer may recover the measure of damages, which is the difference at the time of acceptance btw value of goods accepted and value they would have had if as warranted; may also recover consequential damages Alternative A (Majority)- A sellers warranty, express or implied, extends to buyer, and his family and guests, if reas. to assume they might be affected by the goods (addressing horizontal privity) c. Disclaimers o

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i. Express warranties 2-316(1) cant be disclaimed ii. Implied warranties 2-316(2) can be disclaimed, provided req.s are met Implied warranty of merchantability- almost all sellers attempt to disclaim this Disclaimers invalid if there is non-compliance w/formalities, 2-316(3): o Writing must be conspicuous and mention merchantability conspicuous = reasonable person ought to have noticed it o FFPP disclaimer- must be in writing, be conspicuous, and mention merchantability Sierra Diesel v. Burroughs- Burroughs sold SD a computer for billing/ tracking inventory, didnt function as expected; Held- disclaimer of merchantability and FFPP not conspicuous b/c on back of page, lack of heading, right in middle, small font Exceptions: with all faults or as is no implied warranty of merchantability (i.e. used car, e-bay) iii. Unconscionability 2-302(1) efforts to disclaim when breach results in person injury typically unconscionable Martin v. Joseph Harris- Martin bought Harris seeds, which had fungus and developed a disease; Held- unconscionable even tho min. req.s of 2-316 met 2. PATTERN OF ARGUMENTATION a. s Claim: made an (express or implied) warranty that the goods would be __, and the goods are not __, b/c __. 2-312(1), 2-313)1), 2-314(1), 2-315 b. s 1st Defense: I did not make the warranty; the elements of __ are not satisfied b/c __. i. Coakley & Williams v. Shatterproof Glassc. s 2nd Defense: I did not make the warranty to you b/c you are not the person who might have been reasonably expected to use, consume or be affect by the goods. 2-318, alt. C. d. s 3rd Defense: I disclaimed the warranty in accordance w/the requirements of 2-316(1). e. s 1st Reply: The warranty is an express warranty and cannot be disclaimed. 2-313(1). f. s 2nd Reply: The disclaimer is unconscionable in this case b/c __. 2-302(1). i. Martin v. Joseph Harris g. s Remedy: I am entitled to damages equal to the value of the goods accepted and the value they would have had if they had been as warranted, plus incidental and consequential damages. 2-714(1), (2); 2-715(1) & (2). X. Buyers Remedies (if there is breach of contract) A. RULES 1. CANCEL/ STOP PAYMENT/ RECOVER PAYMENTS, 2-711(1), 2-601, 2-608 a. When can buyer cancel and withhold/ recover payment? i. upon sellers failure to deliver/ repudiation, 2-711 ii. upon buyers justified rejection of goods (i.e. if damaged at time of delivery), 2-601 (may reject unless otherwise agreed) perfect tender/ good faith, 2-601, 1-203 o perfect tender rule- if the goods (or tender of delivery) fail in any respect to conform to the contract, the buyer may reject the goods this is contrary to the rule of substantial performance & material breach (i.e. Jacob & Youngs v. Kent- use of Cohost instead of Redding pipe not a material breach; see also Walker & Young v. Harrison- duty to maintain neon sign subst. performed) why different? w/goods, you can generally give the goods back, so much less of a hardship o obligation of good faith- i.e. if tender is nearly perfect- oh come on rule o DP Technology v. Sherwood Tool- DP creates custom computer system for Sherwood, hardware came 16 days late and Sherwood doesnt pay; Heldapplies minority rule- no material breach b/c substantially performed sellers right to cure, 2-508(1), (2) if: o early tender (time of performance hasnt occurred yet) OR surprise rejection (reasonable grounds to believe the goods would conform), 2-608(1) o seller has a limited right to try again, to get it right; mitigates harshness of perfect tender rule

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2.

3.

duty to hold goods for seller, 2-602(2)(b), (c)- buyer must hold w/reasonable care for sufficient time for seller; dont have to send back unless previously agreed iii. upon buyers justified rejection of acceptance (buyer accepts goods and then decides to revoke acceptance) Requirements: o the defect must cause substantial impairment of value to buyer (substantial breach) o it must b/c of assumption of cure/ difficulty of discovery (i.e. difficult to discover it wouldnt work or seller assured it would work) o reasonable time Jorgensen v. Presnall- buyers purchased mobile home, which had many defects; they sought to revoke acceptance/ cancel the contract; Held- there was a substantial impairment of value, seller has limited number of chances to cure FORCE DELIVERY OF GOODS, 2-716, 2-502 a. Ways buyer can force delivery of goods if seller fails to deliver goods/ repudiates i. Specific performance if goods are unique or other proper circumstances (not really defined by UCC), 2-716(1) Sedmak v. Charlies Chevrolet- Charlies reneged on its promise to sell a corvette pace car to the Sedmaks; Held- specific performance is appropriate b/c, although the car is not unique, it would have been impossible to obtain otherwise w/o considerable expense and inconvenience Hilmor Sales Co. v. Supronica Corp.- claims lipstick and nailpolishes ordered at closeout prices are unique; Held- specific performance not granted; could cover at a higher price and obtain the difference ii. Replevin (pre-judgment seizure), 2-716(3) Requirements: o goods identified, 2-501(1)(a) i.e. not if future-made, custom goods or seller doesnt have them o unable to cover (buyer is unable to make a reasonable purchase in substitution after reasonable effort), 2-712(1) iii. Recovery after partial payment, 2-501(1) Requirements: o special property interest (i.e. goods have been identified) o buyer pays unpaid portion o buyer may only recover if: consumer goods (since 1999) or seller becomes insolvent RECOVER DAMAGES FOR NON-ACCEPTED GOODS, 2-712, 2-715 a. cover difference, 2-712, i. Cover- price at which buyer buys substitute goods; can charge seller who breached the difference ii. Requirements: good faith w/o reasonable delay reasonable purchase; must be a commercially reasonable substitute if not the same in substitution; cant buy addl goods; must be substituting goods seller didnt supply b. market difference, 2-713(1) difference btw market price at time buyer learned of breach and contract price, together w/consequential damages, less expenses saved i. measuring market price? location, 2-713(2) o non-delivery place of tender o if rejection occurs place of arrival i.e. NY buyer buys eggs from Atlanta seller, FOB; rejects; here, use market price at place of arrival; if FOB, buyer not entitled to recover shipping costs b/c they are not incidental; other incidentals- cost of storing/ selling the eggs; consequential- lost profit possibly time when buyer learned of breach, 2-713(1)

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4.

5. 6.

branch of trade same as contract, 2-713 o i.e. if farmer selling corn to elevator breaches, elevator can recover cost to cover (minus contract price) from another farmer, not the market price elevators are selling for ii. Limitations on buyers ability to recover market damages under 2-713? none mentioned, so none; sometimes buyer gets a windfall if f buyer decides not to use the market damages to buy the goods (and there is a dramatic change in price) 2-711, cmt. 3; 1-106: remedies should be liberally administered to put aggrieved party in as good a position as if the other party had performed Allied v. Victor- Allied to buy raisins from Victor, resell to Jap. buyer; price of raisins shot up, Victor didnt deliver, Allied sues; Jap. co. never sues Allied; Held- recovery not allowed under 713; aggrieved party should be put in as good a position as if the other party performed requires limiting award of damages to buyer to its actual loss (expected profit) o general statement of 1-106 (putting aggrieved party in same place they would have been in) vs. specific rule that buyer can recover the market price difference; general rule: specific controls (ct. here disagreed) But See TexPar Energy v. Murphy Oil- Texpar to buy asphalt from Murphy and then sell it to Starry; price of oil shot up; Murphy breached, forcing TexPar to breach w/Starry (who it settled w/); Held- specific provision of 2-713 applies, TexPar entitled to market price damages (allows non-breaching party the windfall) What if buyer has already covered? o Can buyer recover market price if buyer has covered at a lower price ? courts are divided; most courts- no, b/c buyer would then be better off some courts- always entitled to market damages (even if cover damages are less) why? someone will get a windfall, why give it to the breaching party; benefit of buyer being a good negotiator/shopper should not be given to the seller, who breached o 2-712- if you pay over the market price, in good faith, you may recover the difference c. incidental damages, 2-715(1)- damages that arise in the ordinary case, expenses reasonably incurred; may recover post-rejection costs d. consequential damages, 2-715(2)- loss that is foreseeable and unavoidable OBTAIN DAMAGES FOR ACCEPTED GOODS, 2-714, 2-715 a. General Rules i. buyer may accept some or all goods, 2-601(b),(c) ii. duty: payment for goods accepted, 2-607(1); must be at the contract price iii. duty: notice to seller, 2-607(3)(a): must be w/in a reasonable time after you realize goods are defective b. damages for accepted goods may be for breach of warranty, 2-714(2), (3) i. difference btw value of goods as accepted and value they would have had if as warranted ii. Chatlos Systems v. NCR- NCR sold Chatlos a computer for bookkeeping; contract price$40k, value of accepted goods- $6k, value if as warranted- over $200k (use of expert testimony to prove); Held- s recover difference btw value of goods if as warranted (over $200k) minus value of goods accepted ($6k) c. damages may be for other problems (i.e. lateness, etc.), 2-714(1),(3) i. J.V. Zimmerman v. General Mills- JVZ delivered toys for GMs cereal late; JVZs defense that GM didnt provide notice of defect fails- JVZ knew delivery was late; GM wants $ for airfreight, overtime, and cartons it destroyed; Held- GM recovers airfreight and overtime (but not cartons b/c not date-stamped, couldve used in another box) AWAIT DELIVERY/ RETRACTION OF REPUDIATION RECOVER IN RESTITUTION DESPITE BUYER HAVING ALSO BREACHED a. Seller fails to deliver, but buyer is also in breach; buyer may recover in restitution any payments buyer has made to seller, but must subtract either $500 or 20%, whichever is less.

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a. Ss claim: B promised to accept and pay for goods and did not do it. b. Bs 1st defense: I had a right to suspend my payment b/c S gave me reasonable grounds for feeling insecure (and I demanded that S provide me w/adequate assurance of performance). 2-609(1). c. Bs 2nd defense: I had a right to cancel the whole contract b/c S repudiated the whole contract or breached the whole by failing to deliver when payment was due. 2-610(b), 2711(1). d. Bs 3rd defense: I had a right to cancel w/r/t one installment b/c S repudiated the obligation to deliver the installment or failed to deliver it when payment was due. 2-610(b), 2-711(1). 2. BUYERS REQUEST FOR THE PRICE PAID AND MARKET DAMAGES a. Bs claim: S promised to transfer and deliver the goods and did not do it. b. Bs damage request: S should have to pay damages equal to the price already paid and the difference btw the market price and the contract price, plus incidental and consequential damages but less expenses saved. 2-711(1)(b), 2-713(1). c. Ss reply: B is not entitled to the market price difference b/c B covered. 2-713 cmt. 5. 3. BUYERS REQUEST FOR THE PRICE PAID AND COVER DAMAGES a. Bs Claim: S promised to transfer and deliver the goods and did not do it. b. Bs damage request: S should have to pay damages equal to the price already paid and the difference btw the cover price and the contract price, plus incidental and consequential damages but less expenses saved. 2-711(1)(a), 2-712(2). c. Ss reply: B is not entitled to the cover price difference b/c B did not make in good faith, and w/o unreasonable delay, a reasonable purchase in substitution from those due from me. 2711(2). 4. BUYERS ATTEMPT TO FORCE DELIVERY a. Bs claim: S promised to transfer and deliver the goods and did not do it. b. Bs 1st request: I am entitled to replevin b/c the goods have been identified and I am unable to cover. 2-716(3). c. Bs 2nd request: I am entitled to recover the goods identified b/c the seller became insolvent w/in 10 days after receipt of the 1st installment for their price. 2-502(1). d. Bs 3rd request: The court should award specific performance b/c the goods are unique or there are other proper circumstances. 2-716(1). e. Ss reply: The court has the discretion to deny specific performance for equitable reasons. 2-716 cmt. 1. 5. BUYERS REQUEST FOR RESTITUTION a. Bs claim: Although I breached the contract (by repudiating or by failing to pay the full price when due), I am entitled to restitution of the payments made to the seller, minus $500 or 20%, whichever is less. 2-718(2). See Davis Chemical v. Diasonics. b. Ss counterclaim: B failed to pay and accept the goods and is liable for damages. 2718(3); 2-703. 6. NON-CONFORMING DELIVERY a. Bs claim: S delivered non-conforming goods. b. Bs 1st remedy request: Having accepted and paid for the goods, I am entitled damages measured in any reasonable manner. 2-714; 2-703. c. Bs 2nd remedy request: Having rejected the goods, I am entitled to recover the price and damages. 2-711(1). XI. Sellers Remedies A. If buyer repudiates/ failure to pay (see XII): Seller may (2-610b), seek any remedy available for any other type of breach; withhold/suspend delivery; cancel the contract; suspend performance; or reclaim the goods. B. What DAMAGES can the seller recover from the buyer? 2-713 1. FULL CONTRACT PRICE (recovery of full purchase price) when: a. goods accepted, 2-709(1)(a)- if buyer has accepted goods, he must pay full purchase price i. issue: when does acceptance occur?

B. PATTERN OF ARGUMENTATION 1. BUYERS DEFENSES BASED ON REMEDY PROVISIONS

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2.

3.

4.

5.

6.

ii. Bloom v. Skelly- issue: when does acceptance occur? Skelly agreed to buy candelabras from Bloom; delivery attempted multiple times to her home, eventually she said she would not accept them; Held- if you dont reject or inspect (w/opportunity to do so), implied acceptance, Bloom recovers [Skelly might assert there was implied rejection] b. white elephants, 2-709(1)(b), (2)- buyer has not accepted goods, but seller cant resell them at a reasonable price after reasonable efforts (seller entitled to full contract amt.) i. i.e. buyer contracts for mink coat in large size w/large flare; might be able to resell, but unlikely for reas. price; best for seller to recover full purchase price so that buyer can actually get the coat (rather than paying a high amt. of difference and getting zip) DIFFERENCE BETWEEN CONTRACT PRICE AND THE MARKET PRICE a. seller will seek damages b/c contract price higher than market damages; if buyer seeking market damages, b/c market is higher than agreed to b. measure market price at time/place for tender; if repudiation occurs before tender, consider market price at time seller learns of repudiation (i.e. anticipatory damages) DIFFERENCE BETWEEN CONTRACT PRICE AND RESALE PRICE a. if resale is made in a commercially reasonable manner, seller can recover difference btw contract price and resale price, even if its lower than the market price b. if there is a resale, and resale (35.5) is higher than market price (35), cant get difference btw contract (36) and market- must get difference btw contract and resale price c. Is the seller barred from using 2-708(1) (difference btw contract and market price) if: i. seller actually resells? Yes, Tesoro Holborn Oil v. Tesoro- Holborn to buy oil at $1.30, price fell to .80, repudiated; Tesoro resold gasoline for $1.10 (higher than market!); Tesoro wants diff btw market and contract (we should benefit from our negotiating skills, could have made 2 sales), Holborn btw resale and contract; Held- 1-106, seller should be limited to difference btw contract and resale, not recover more than expected profit ii. market damages would exceed lost profit under 2-708(2)? No, Southwire Transworld v. Southwire- contract for sale of aluminum, monthly deliveries, price dropped, buyer repudiates; Held- seller may recover difference btw contract price and market price (which exceeds lost profit); ok for seller to get windfall; risk taken by both parties market price would rise/fall RULE: buyer may get retain the deposit up to a certain limit: a. amount of liquidated damages i. if buyers deposit exceeds the liquidated damages, buyer can recover the difference btw the deposit and the liquidated damages b. buyer can recover deposit, less 20% of the value of the total performance to which buyer is obligated under the contract or $500, whichever is smaller, 2-718(2)(b) c. amount of actual damages, 2-718(3)(a) LIQUIDATED DAMAGES, 2-718(1) a. seller may recover liquidated damages stipulated in contract at an amount reasonable in light of the harm caused by the breach b. sellers often ask for % of contract price, or the deposit; Courts have usually found a % of contract price to be a reasonable amount c. Martin v. Sheffer- buyer, Martin, rejected (wrongfully) printer on b/c late; Martin had paid 50% deposit and sues to get it back; seller counterclaims for liquidated damages; Held- full purchase price liquidated damages not unreasonable (they are getting goods at price they contracted for; sophisticated parties, UCC- businesses can vary terms) LOST PROFIT, 2-708(2) a. restitution offset to showing of sellers ability to recover damages b. impt measurement b/c in many cases, contract price will be the same as market price, and resale is often the same as contract/market price c. Test for whether seller could have made another sale & is due lost profit under 2-708: i. seller had capacity to make another sale (Majority) Neri v. Retail Marine Corp.- Neri hospitalized, couldnt buy boat, Retail refused to refund his deposit; Held- Neri entitled to his deposit, less Retails lost profit (another boat sale), less incidental damages (storing boat until resale)

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ii. seller had the capacity and could have made one more sale profitably (Diasonics) Diasonics v. Davis- Diasonics contracted to sell MRI to Davis, who breached; Heldcase remanded to determine if seller could have made another sale profitably o most sellers are already producing at max capacity d. Calculation of lost profit i. 2-208(2)- measure of damages may be the profit which seller would have made if buyer had fully performed: [profit expected + overhead] + incidental costs + costs incurred payments/ proceeds (usually 0) o profit expected is contract price cost of procurement o cost expected = direct cost expected + overhead o profit + overhead = contract price direct costs expected ii. Bulldozers Inc.- lost profit is 30k (contract price) (20k, direct cost, + 1k, commission) + 0 + 0 0 = $9k lost profit changes when # of bulldozers sold changes b/c the cost of fixed overhead changes when spread over 10 vs. 9 bulldozers

C. Pattern of Argumentation 1. SELLERS DEFENSES BASED ON SELF-HELD REMEDY PROVISION

2.

3.

4.

5.

6.

a. Bs Claim: S promised to transfer and deliver goods and did not do it. b. Ss 1st Defense: I had a right to suspend my performance b/c B gave me reasonable grounds for feeling insecure (and I demanded assurance). c. Ss 2nd Defense: I had a right to cancel the whole contract b/c B repudiated the whole contract or breached the whole by failing to pay when payment was due. d. Ss 3rd defense: I had a right to cancel w/respect to 1 installment b/c B repudiated the obligation to pay for it or failed to pay for it when payment was due. e. Ss 4th defense: I had a right to refuse to deliver except for cash b/c I discovered Bs insolvency. f. Ss 5th Defense: I had a right to stop delivery b/c B repudiated or failed to pay or b/c I discovered Bs insolvency. SELLERS REQUEST FOR THE CONTRACT PRICE a. Ss claim: B promised to accept and pay for goods and did not do it. b. Ss damage request: B should have to pay the contract price for the goods. c. Bs reply: S is not entitled to the contract price b/c I did not accept the goods and the goods could be resold for a reasonable price after reasonable efforts. SELLERS REQUEST FOR THE RESALE DAMAGES a. Ss claim: B promised to accept and pay for goods and did not do it. b. Ss damage request: B should have to pay the difference btw the contract price and the resale price, plus incidental damages less expenses saved. c. Bs reply: S cannot recover the resale price difference b/c S did not resell the goods in good faith and in a reasonable manner. SELLERS REQUEST FOR THE MARKET DAMAGES a. Ss claim: B promised to accept and pay for goods and did not do it. b. Ss damage request: B should have to pay the difference in the market price and the contract price, plus incidental damages, less expenses saved. c. Bs reply: S cannot recover market damages b/c S resold the goods at a price above the market price. (Southwire) SELLERS REQUEST FOR LOST PROFIT a. Ss claim: B promised to accept and pay for goods and did not do it. b. Ss damage request: B should have to pay my lost profit as measured by 2-708(2). c. Bs reply: S cannot recover lost profit b/c S is not a lost volume seller. S could not have profitably made another sale if it had delivered the goods to me. (Davis v. Diasonics) SELLERS REQUEST TO RECLAIM GOODS a. Ss claim: I have a right to recover goods from B b/c the goods were delivered before I discovered Bs insolvency.

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b. Bs 1st defense: S did not assert a claim for the goods w/in 10 days after their receipt and the buyer did not fraudulently misrepresent solvency in writing w/in 3 mos. before delivery. 2702. c. Bs 2nd defense: I purchased the goods from the buyer in the ordinary course or in good faith, and thus acquired good title. XII. Diminished Expectation of Future Return Performance A. Insecurity and Insolvency 1. BUYER AND SELLERS REMEDIES FOR INSECURITY/INSOLVENCY a. If a party has reasonable grounds for feeling insecure about the other partys performance, they may demand adequate assurance the other party will perform and suspend performance until receipt of assurance i. 2-609(1)- when you make a contract, you not only promise to perform, but also implicitly promise not to impair the other persons expectation you will perform ii. Standard for insecurity? very low: just a report from an apparently reliable source iii. If no adequate assurance is given? 2-609(4): after receipt of demand for assurance, failure to provide assurance w/in a reasonable time, not to exceed 30 days, is repudiation of the contract (treated as a breach- recover thru ordinary means) iv. CPMT v. Panama Canal- PC chartered tugboat from CPMT- option to purchase boat w/clear title; PCC heard CPMT had 3rd mortgage, wasnt making payments on 1st mortgage from broker, said itd w/hold payment until receipt of assurance; Held- PCCs feeling of insecurity and request for assurance reasonable (didnt have to exercise due diligence to find out if info true); PCC had a right to suspend performance b. Sellers remedies upon discovering buyers insolvency i. refuse to deliver except for cash (even if contract requires otherwise), 2-702(1) ii. stop delivery (even if title has passed) 2-401(2)- when title passes from seller to buyer: o if seller responsible to get goods to carrier, title passes at start of shipment 2-705- requirement of notice to stop deliver, but notice to buyer not required iii. reclaim goods already delivered, 2-702(2); seller must make reclaim for goods w/in 10 days (10 day period does not apply if buyer misrepresented solvency in writing w/in 3 mos. before contract was made) what if buyer has sold them to another? 2-702(3) seller may still recover them unless they were bought in good faith c. Definition of insolvency, 1-201(2): i. have ceased to pay debts ii. have ceased to pay debts as they are due (may not have defaulted yet, but wont be able to pay debts as they come due) iii. meet definition of insolvency under federal bankruptcy law: if your assets exceed your liability (total amount of $ you owe) 2. BUYERS OR SELLERS REPUDIATION a. ways to repudiate i. by language or conduct i.e. common to call and repudiate by saying youll only perform if contract terms are changed Ducks ex.- Motion Pix finds out that Robles leased the WW2 Duck to someone else; Motion may cover immediately, even before performance is due; Motion does have a duty to mitigate ii. by not providing assurance b. retraction of a repudiation- buyer may retract a repudiation unless the seller treated it as final / took action in reliance c. permitted responses to a repudiation i. may immediately resort to any remedy that is available for breach ii. await performance, for a commercially reasonable amount of time d. Oloffson v. Connor- Coomer to sell corn, 2 installments; repudiates; Oloffson proceeded as if no repudiation, then tried to charge Coomer $ to cover on each date of installment; Heldupon repudiation, Coomer could wait a commercially reas. time (here, none) or cover

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immediately; why? clear repudiation, easy to contract w/another; trade custom to pay diff. btw contract/market price date of repudiation

B. Cancellation of Installment Contracts 1. SELLERS REMEDIES WHEN BUYER BREACHES W/RESPECT TO ONE INSTALLMENT:

2.

a. recover price of accepted goods (whether 1 or several installments) b. suspend future deliveries until buyer provides adequate assurance c. cancel remainder of contract if breach substantially impairs the value of the whole i. breach of the whole: when a nonconformity substantially impairs value of the whole contract; whole contract should not be cancelled lightly if only sellers security is impaired, seller has a right to demand assurance, but not to cancel whole contract BUYERS REMEDIES WHEN SELLER BREACHES W/RESPECT TO ONE INSTALLMENT: a. accept installment and seek damages b. reject installment and seek damages (if breach substantially impairs value of installment and cannot be cured) c. suspend future payments until seller provides adequate assurance d. cancel remainder of contract if breach substantially impairs the value of the whole i. i.e. if 1st breach suggests there will be future breaches that cant be cured ii. Graulich Caterer v. Hans Holterbausch- Graulich to provide microwavable meals for World Fair exhibit; 1st 2 installments not as warranted, Hans cancelled entire contract; Heldsubst. impairment of whole contract, ok to cancel; time was of the essence, no time to wait for cure iii. Midwest Mobile Diagnostic v. Dynamics- Midwest to buy 4 trailers from Dynamics; 1st couldnt be certified by MRI co. and wasnt attractive; Held- grounds to cancel entire contract b/c 1st had substantial impairment and needed all 4 w/in period of time e. perfect tender rule does not apply in installment contracts; can only reject if there hasnt been substantial performance; defects in prior installments are cumulative in effect

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