Commercial Law

Class 7
Performance
Professor Rowe
Spring 2015

Broad Course Overview

Article 2 (Sales)
o
o
o
o
o
o
o

Scope
The UCC Take on General Contract Principles
Property Interests
Warranties
Performance
Remedies
Rights of Third Parties

Article 9 (Secured Transactions)

o
o
o
o

Introduction
Perfection
Priorities
Default

 2-601: Buyers Rights on

Improper Delivery
If the goods or the tender of delivery fail in any respect to
conform to the contract, the buyer may reject the whole, accept
the whole, or accept any commercial unit(s) and reject the rest.
o This is the perfect tender rule

Installment contracts are subject to a different rule. (See 2-612)

The parties are always free to contract around this, i.e., by
limiting the buyers remedies or requiring the buyer to accept
goods even if there is a non-conformity.

Limitations on Perfect Tender Rule

1. In a shipment contract, failure to make proper contract for
transportation or to notify buyer is a ground for rejection only
if material delay or loss ensues. ( 2-504)
2. Where an agreed manner of delivery becomes commercially
impracticable, a commercially reasonable substitute must be
tendered and accepted. ( 2-614(1))
3. In an installment contract, buyer may not reject any installment
which is non-conforming if the non-conformity does not
substantially impair the value of that installment. ( 2-612(2))
4. There may be an enforceable agreement that buyer will accept
goods even though there is a non-conformity. ( 2-601)

Limitations on PTR
5. Course of dealing, usage of trade, course of performance and the obligation
of good faith may afford some leeway.
6. Seller in appropriate circumstances has the right to cure an improper tender
or delivery. ( 2-508)
7. Buyer, if he does not meet certain procedural requirements, i.e., timely
notice of rejection, will have accepted the goods. ( 2-602(1); 2-606(1)
(b))
8. Buyer, after accepting, may revoke his acceptance (which gives buyer the
same rights as if he had rejected the goods), but only if the non-conformity
substantially impairs the value of the goods to buyer. ( 2-608)

 2-602: Manner and Effect of

Rightful Rejection
The buyer must reject within a reasonable time after the delivery or tender of the
goods. ( 2-602(1))
The buyers rejection is ineffective unless he seasonably notifies the seller. ( 2602(1))
After rejection, any exercise of ownership by the buyer as to the goods is
wrongful as against the seller. ( 2-602(2)(a))
If the buyer has taken physical possession of the goods before rejection, he has a
duty after rejection to hold the goods with reasonable care for a sufficient time
to permit the seller to remove them. ( 2-602(2)(b))
The buyer has no further obligations with regard to goods rightfully rejected. (
2-602(2)(c))

How to Determine Reasonable

Time for Rejection
1. The difficulty of discovering the defect
2. The terms of the contract
3. The relative perishability of the goods
4. The course of performance after the sale and before the
formal rejection.

 2-603: Merchant Buyers Duties As

to Rightfully Rejected Goods
If the seller has no agent or place of business at the market of
rejection, a merchant buyer has a duty after rejection of goods in
his possession or control to follow any reasonable instructions
received from the seller with respect to the goods. ( 2-603(1))
In the absence of instructions from the seller, a merchant buyer
must make reasonable efforts to sell the goods for the sellers
account if they are perishable or threaten to decline in value
speedily. ( 2-603(1))
If the merchant buyer sells the goods, he is entitled to recover his
expenses and a reasonable commission. ( 2-603(2))

 2-604: Buyers Options As to Salvage

of Rightfully Rejected Goods
If the seller gives no instructions within a reasonable time after
notification of rejection, the buyer may store the rejected
goods for the sellers account, reship them to him, or resell
them for the sellers account. (What Magic West argued in
Borges v. Magic West case)
These actions do not constitute acceptance or conversion.

 2-605(1): Waiver of Buyers Objections

by Failure to Particularize
The buyers failure to state in connection with rejection a
particular defect which could be ascertained by reasonable
inspection precludes him from relying on the unstated defect to
justify rejection or establish breach in two circumstances:
o Where the seller could have cured the defect if it had been stated
seasonably
o Between merchants, where the seller has after rejection made a written
request for a full and final written statement of all defects on which the
buyer proposes to rely

 2-606: What Constitutes

Acceptance of Goods
Acceptance of goods occurs when the buyer, after a reasonable
opportunity to inspect, signifies to the seller that the goods are
conforming or that he will take or retain them in spite of their
non-conformity. ( 2-606(1)(a))
Acceptance also occurs when the buyer fails to make an effective
rejection, but not until the buyer has had a reasonable
opportunity to inspect the goods. ( 2-606(1)(b))
Acceptance also occurs when the buyer does any act inconsistent
with the sellers ownership; but if such act is wrongful as against
the seller it is an acceptance only if ratified by him [seller]. ( 2606(1)(c))

 2-607(1), (2): Effect of Acceptance

The buyer must pay at the contract rate for any goods
accepted. ( 2-607(1))
Acceptance of goods by the buyer precludes rejection of the
goods accepted. ( 2-607(2))
() If acceptance is made with knowledge of a non-conformity, it
cannot be revoked because of the non-conformity unless the
acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. ( 2-607(2))
() Acceptance does not of itself impair any other remedy for nonconformity. ( 2-607(2))

Borges v. Magic Valley Foods, Inc.

Weil v. Murray

Use After Rejection or

Revocation of Acceptance
General rule is that buyer cannot continue to use the
goods. If buyer does, then that is an acceptance. The
buyer should return the non-conforming good,
purchase a replacement, and sue for breach.
EXCEPTIONS:
o The cost of replacement or inconvenience to buyer is high
(e.g., lemon mobile home in North River, pp. 165-66)
o Seller refuses buyers return of the goods (e.g., seller refused
the return of labels in Credit Institute, p. 166)
o NOTE: This is fact specific, depending on the nature of the
goods.

2-602(1): Reasonable
Time for Rejection
Buyer must reject the goods within a reasonable
time after their tender or delivery, or the rejection
will be ineffective.
See Fanok v. Carver Boat, p. 167 (buyers use of
yacht with minor nonconformities for three months
before it was destroyed was an acceptance)
Reasonable time factors: difficulty of discovering the
defect, terms of the contract, relative perishability of
the goods, and course of performance after sale and
before formal rejection

 2-607(3), (4): Notice of Breach;

Burden of Establishing Breach
Where a tender has been accepted, the buyer must within a
reasonable time after he discovers or should have discovered
any breach notify the seller of the breach or be barred from
any remedy. ( 2-607(3))
The burden is on the buyer to establish any breach with
respect to the goods accepted. ( 2-607(4))

Hobbs v. General Motors Corp.

Justifications for Notice Requirement

1. Prevent stale claims
2. Allow the seller to marshal evidence for a
defense
3. Allow the seller to correct the defect or
mitigate damages

Other Rules on Notice

Third-party beneficiaries of consumer warranties who suffer personal injury
do not have to give notice. Filing suit is sufficient, because injury has
already occurred.
Buyers suing on warranties for economic loss must give notice
Usually notice to retail seller is sufficient for notice to manufacturer
Notice must be pled in the complaint for economic injury
Reasonable notice is a question of fact for the jury unless no notice was
given (see Hobbs v. General Motors)
Failure to give timely notice bars buyer from a remedy only to the extent
seller was prejudiced

Timeliness of Notice
Mazur Bros. & Jaffe Fish, Inc.

Other Notice
Requirements
See notes pp. 172-74
Contractual time limits will be usually be upheld unless it
deprives buyer of any meaningful remedy
Must give particularized description of defects (see example at
top of p. 173)
No notice required if seller has actual knowledge of defect in
that particular product (sellers general knowledge of product
defects is NOT sufficient; must notify seller that there are
problems with that particular transaction is troublesome &
must be watched)