1-103(a) UCC to simplify, clarify, and modernize the law governing commercial transactions (1-103(a)(1)), to permit the continued

d expansion of commercial practices through custom, usage, and agreement of the parties (1-303(a)(2)) facilitate the formation of K 1-103(b) Where is mistake under UCC Art.2? Not found, which means it is not incorporated under Art.2. Mistake is not found under definition section of Art.1 (1-201), either. Then, refer to 1-103(b), which states that o The principles of law and equity (= common law), including the law merchant and the law relative to capacity to contract, principal and agent, estoppels, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions. listing not exhaustive. 2-100

1-201: General definition Scope 2-200 Offer & Acceptance, consideration, statute of frauds, customary law Statute of frauds (2-201, 2-201(2)) Loeb: Merchant, Mills: within a reasonable time Sales v. Leases: e.g. 2-313 v. 2A-210; 2-314 v. 2A-212; 2-315 v. 2A-213 Consideration: 2-205 and 2-209 1. 2-205: Firm offer = irrevocable offer For firm offer, dont need consideration. Requirement: (1) offeror = merchant, (2) signed in writing: eg. If the offer indicates 5 days and it is accepted within 4 days, then K. - Note. 2-104: The definition of offeror Subject matter decides whether one is a merchant or not. K For firm (irrevocable) offer Common law Consideration is required Consideration is required UCC Consideration is required - When Offeror=merchant, and signed in writing, consideration is not required. - If not, consideration is required. Irrevocable offers: The ordinary offer is revocable at the will of the offeror. (This is true even if it states something like, This offer will remain open for two weeks.) However, there are some exceptions to this general rule of revocability: 1. Offerees providing consideration. e.g., money. However, remember that consideration can be non-monetary. Consideration should be given to keep the option open. Promise to keep open itself is not enough. Eg, As offer is irrevocable for the week, because Bs return promise to travel is consideration. 2. Option contract: First, the offeror may grant the offeree an option to enter into the contract. The offer itself is then referred to as an option contract.: (a) promise to keep the offer open that's (b) paid for (consideration) 1

a. Common law requires consideration: The traditional common-law view is that an option contract can be formed only if the offeree gives the offeror consideration for the offer. And once the consideration is given, the offer is irrevocable. (An option contract is a type of contract that protects an offeree from an offeror's ability to revoke the contract. Consideration for the option contract is still required as it is still a form of contract. Typically, an offeree can provide consideration for the option contract by paying money for the contract or by rendering other performance or forbearance.) 3. Firm offers under the UCC 2-205: The UCC is even more liberal in some cases: it allows formation of an irrevocable offer even if no recital of the payment of consideration is made (= without consideration). By 2-205, an offer to buy or sell goods is irrevocable if it: is by a (1) merchant (i.e., one dealing professionally in the kind of goods in question); (2) is in a signed writing by offeror and gives explicit assurance that the offer will be held open. Such an offer is irrevocable even though it is without consideration. a. Three months limit (MAXIMUM): (1) During the time stated or (2) if no time is stated for reasonable time, but in no event may such period of irrevocability exceeds three months, unless consideration is given. b. The promise to keep open has to be in writing. Read questions carefully. Not every signed written offer by a merchant is a firm offer. c. Forms supplied by offeree: If the firm offer is on a form drafted by the offeree, it is irrevocable only if the particular firm offer clause is separately signed by the offeror. 2. 2-209: Modification Common law (E.g. architecture, lawyer service K): Consideration is required for modification. - Under pre-existing duty rule, modification is not enforceable if no consideration. - E.g. 10% increase of salary for service is unenforceable if no consideration. 2-209: For modification, consideration is not required, if it is good faith. Any parties (whether or not merchants). No merchant requirement. - If a post-transactional affirmation in fact becomes part of the basis of the bargain, it can be deemed a modification of K, and will be effective without any new consideration. E.g. Warranties can be added after the sale is over. - Exception: 2-201 Step 1: 2-209(1) Step 2: 2-209(3) Common Law: Pre-existing duty rule (= legal duty): If a party does or promises to do what he was already legally obligated to do, or if he forbears or promises to forbear from doing something which he is not legally entitled to do, he has not incurred a detriment for purposes of consideration. No new legal detriment Non enforceable. Contract (Modification): This general rule means that if parties to an existing contract agree to modify the contract for the sole benefit for one of them, the modification will usually be unenforeceable at common law, for lack of consideration. In other words, to modify, consideration is required. Be on the lookout for this scenario especially in construction cases. PAY LESS: One party has performed their end of the bargain, but then the other party refuses to pay unless the amount owed is lowered. 2

PAY MORE: One party refuses to perform unless paid more money than the price bargained for. UCC 2-209(1): You need no consideration to modify. UCC abolishes the pre-existing duty rule. 2-209(1) provides that an agreement modifying a contract needs no consideration dto be binding. It conflicts with the common law. UCC eliminates the legal duty rule so long as the modifications are made in good faith (= legitimate commercial reason) and writing. The Statute of Fraud must be dealt with, so a writing is necessary if the contract as modified fits within the Statute of Frauds. For purposes of the UCC, a contract must be in writing if it is for the sale of goods over $500. 3. 2-208 (customary law) 1-303 4. 2-201 Statute of Fraud Written K not required. Written memo is ok. Signed by one party or two parties? signed by one party is ok.. can be enforced against the party who signed it. Good? 2-105 (1) Policy facilitate commerce and evidentiary. General Rule 2-201(1): more than 500. Writing and signature. Exception o 2-201(2): Loeb; Mills In Loeb, knows cotton, but doesnt know selling it.. not a merchant, 2-201(2) does not apply, so 2-201(1) applies. Between merchants both parties Reasonable time to send written confirmation (signed by sender) reasonable time is not fixed Recipient had reason to know its content doesnt have to read it. Just received it. Can be enforced against recipient who did not sign it. Enforceable against recipient unless he objects within 10 days after it is received. 10 days is fixed. o 2-201(3): 2-201(3)(a), or o Specially manufactured goods (doesnt have to be unique). E.g. among little more memory, different color, different logo, different logo would have the best defense. and o Not for ordinary course of business. and o Seller started working on goods for Buyer. 2-201(3)(b), admission, or 2-201(3)(c): partial acceptance 5. 2-207 Additional terms in acceptance or confirmation 2-207: Counter-offer Offer Acceptance 1 1 2 2 3 3 4 4 3

When counter-offer terminates the offer. Acts as rejection No acceptance No K No damages (Mirror-image applies.) 1. If the offeree makes a counter-offer, her power to accept the original offer is terminated just as if she had flatly rejected the offer. (mirror-image applies.) 2. Conditional acceptancean acceptance which is equivocal or upon condition or with a limitation in some material respect from the offer prevents the formation of contract. (i.e., I accept if you throw in the furniture). a. Using any of these terms ("on the condition that," "provided that," "so long as," "if") is just like saying "No." This is actually a counter-offer and not an acceptance. b. An acceptance must be definite and unequivocal to be effective. Thus, an acceptance may not impose additional conditions on the offer, nor may it add limitations.

When it is true acceptance even when counter-offer was made. No counter-offer Acceptance K (Mirror-image does not apply.) 1. Make the counter-offer under advisement 2. An acceptance coupled with a mere inquiry, request or suggestion is a true acceptance. (i.e., I accept, but would you consider throwing in the furniture?) 3. Mere addition of a collateral, immaterial or incidental (small) condition will not prevent the formation of a contract. Acceptance accompanied by comment of protest is acceptance. 4. Condition implied in the terms of the offer (Eg. I accept your offer on the condition that you give me clean title.) 5. UCC 2-207(1): Definite and seasonable expression acts as acceptance even though it states terms additional to or different from offered term.. An acceptance containing additional or different terms does not operate as a rejection under 2-207(1): This applies whether or not the offeror and offeree are merchants. UCC 2-207(2) : Between merchants, the additional terms are to be construed as proposals for addition to the contract and such terms automatically become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer, or (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. 6. UCC 2-207 by analogy (Trend ?) 7. Contrary statement: as with a rejection, a counter-offer does not terminate the power of acceptance if either offeror or offeree indicates otherwise.

p.35

Bar exam: If fact patters are about goods, then UCC applies, and K. If fact patterns are about real estate, then common law applies, and no K. Offer Acceptance 1 1 2 2 3 3 4 4 5 Offer & acceptance First question should be offer e.g. price, quality, place, payment, quantity o Under common law, without these, no K. o Under UCC, gap fillers (e.g. reasonable price). Note. Quantity missing no offer no K Mirror image o Common law: required o UCC: not necessarily 2-207(1) : Is there K? doesnt matter whether they are merchants. 2-207(2): If K, what are terms? between merchants. o between merchants o material alternation Comment 4 and 5. o additional terms (2-207(1)) o definite & seasonable expression 2-207(3) o K? o If K, what are terms? agreed upon + gap fillers

Step 1: K or Not? 2-207(1)

Step 2: What are terms? 2-207(2) Mirror image 1 1 2 2 3 3 4 4 1. What parties agreed to 2. Gap fillers (e.g. reasonable price) Non-mirror image 1 1 2 2 3 3 4 4 5 1. What the parties originally agreed to 2. Additional proposal 3. Gap fillers (e.g. reasonable price) 4. If 1, 2 and 3 are not met, are both of them merchants? If they are not merchants, the additional term 5 is not part of K. If they are merchants, look at 2-207(2) (a), (b) and (c). Unless the additional term belongs to 2-207 (2) (a), (b) and (c), then the additional term becomes part of K. 2-207 (2)(b) How to determined material alteration? 6

Comment 4: material alternation Comment 5: non-material alteration

Non-material alteration becomes part of K if both parties are merchants, and the additional term does not belong to 2-207(a) or (c).

Loeb & Co. v. Schreiner, 294 Ala. 722 2-104 (+ comment 2), 2-201 exception of statute of frauds. Facts: The company was engaged in the marketing of raw cotton ( goods under 2-105). The farmer was engaged in the farming of cotton. The farmer alleged that the company orally contracted with him during a telephone conversation to purchase 150 bales of cotton. The statute of frauds for Article 2 of the Alabama Uniform Commercial Code was set forth in Ala. Code 2-201 (1940). The trial court found that there was an oral contract, but that it was unenforceable under Ala. Code 2-201(2) (1940) because the farmer was not a "merchant." Holding: The court affirmed that the oral contract was void under the statute of frauds because the farmer was not a "merchant," as defined in the Alabama Uniform Commercial Code. Reasoning: The court affirmed that the farmer was not a "merchant" within the meaning of Ala. Code 2-104. o First, he did not hold himself out as being a professional cotton merchant solely by his occupation. o Second, the farmer was not a dealer in goods because there was no evidence that he sold any product other than his own. o Accordingly, the oral agreement was not "between merchants" and was not enforceable under the statute of frauds. St. Ansgar Mills, Inc. v. Streit, 613 N.W.2d 289 2-201 (2) execption of statute of frauds Issue: The reasonableness of time between an oral contract and a subsequent written confirmation. The reasonableness of conduct is determined by the facts and circumstances existing at the time. Whats the notice within reasonableness? Facts: Defendant regularly purchased feed corn from plaintiff grain dealer by phoning orders to plaintiff. It was not abnormal for defendant not to return or sign purchase confirmations for a long time. Defendant ordered corn by phone. Plaintiff held the confirmation to give to defendant, as it was close to the first of the month when defendant normally came to plaintiff to settle his accounts. Defendant got the confirmation when he came in 40 days later and later refused delivery of the corn. Corn prices had plummeted. Plaintiff brought the breach of contract action to recover damages equal to the difference between the contract price and the market price of the feed corn at the time defendant refused delivery. Defendant claimed the oral contract was unenforceable under the statute of frauds. Holding: Factors of volatile market conditions, large sale price, custom and practice of the parties in the delivery of confirmations, long-time amicable business relationship, and defendant's practice of regularly coming to plaintiff's business revealed a genuine dispute over the reasonableness of delivering the written confirmation of the sale as an exception to the statute of frauds. Hertz Commercial Leasing Corp. v. Transportation Credit Cleari..., 59 Misc. 2d 226 2A-214 2(2) Art.2 does not apply, because it is a lease. Art.2 can apply by analogy. o Facilitate commerce 1-103(a)(1) o Transactions > sales, and lease is transaction. 2-102 7

Extended by analogy change common law (lease is controlled by common law) - how about service, real estate..? Facts: The lessor alleged a separate cause of action based on each of four leases and the guarantee. With respect to the first lease, the lessee claimed that the lessor failed to maintain and repair the machine, and that the lessor had breached certain warranties to the effect that the equipment was merchantable. Holding: The court held that the UCC was intended to apply to commercial lease transactions as well as sales. Thus, the lessor's disclaimer of warranties had to be tested in light of the provisions of N.Y. U.C.C. Law 2-316. The disclaimer did not appear to have been specifically bargained for, or "conspicuous" as defined in N.Y. U.C.C. 1-201(10). Therefore, there were disputed issues of fact that could not be decided on a summary judgment motion. o

Perlmutter v. Beth David Hospital, 308 N.Y. 100 Facts: Plaintiff filed suit against defendant for injuries caused by a blood transfusion with blood that contained jaundice viruses and impurities. Plaintiff claimed defendant's transfer of blood to her constituted a sale under the Sales Act, and, as such, defendant breached the implied warranties of fitness and merchantability of the Sales Act by providing her with "bad blood." Defendant moved to dismiss the complaint. Issue: Whether there was created a vendor-vendee relationship between Defendant and Plaintiff. Holding: The contract was for services and not for the sale of goods, thus plaintiff's claim did not state a cause of action for breach of an implied warranty under the Sales Act. Reasoning: o The patient bargained for, and the hospital agrees to make available, the human skill and physical material of medical science to the end that the patients health be restored. o Sale and transfer are not synonymous, and not every transfer of personal property constitutes a sale. A contract of sale is not constituted merely by reason that the property in the materials is to be transferred. o Furnishing of blood was only an incidental and very secondary adjunct to the services performed by the hospital, and therefore, the contract between plaintiff and defendant was one for services and not for the sale of goods that fell within the provisions of the Sales Act. Rule: Mixed case (goods & services) o Predominant purpose test looks at the transaction as a whole to determine whether its predominant purpose was the sale of goods or the provision of a service. If it was predominantly a contract for the sale of goods, it falls under the UCC, and the warranty provisions of Article 2 apply. If it was predominantly a contract for service, it falls outside the UCC, and the warranty provisions of Article 2 are inapplicable. - The party seeking application of the UCC bears the burden of proof to show that the predominant purpose of the contract was the sale of goods. In opposition, patients (buyer) may argue they were concerned about clean blood of good quality, with fear of HIV and contaminated blood supply. falls under the provision of a service. Hospital (seller) may argue that, between merchants, the patient (buyer) did not object. 2-201(2). o Division where breach happened? - Goods part or services part: Most jurisdictions dont like this because division is too difficult where goods and services are interconnected. 8

Pass v. Shelby Aviation, Inc., 2000 WL 388775 Facts: The plaintiffs' decedents were killed in an airplane crash. The estates sued the aviation company that performed the annual inspection on the airplane, on a theory of breach of warranty. Issue: Whether the transaction between the Plaintiff and Defendant is governed by Article 2. Holding: The transaction in this case was predominantly the provision of a service, not subject to the warranty provisions of the UCC. Reasoning: The transaction between Mr. Pass and Shelby Aviation involved both the rendering of services and the sale of goods. In order to determine whether the predominant purpose of a mixed transaction is the sale of goods or the provision of a service, we examine the (1) language of the parties' contract, (2) the nature of the business of the supplier of the goods and services, (3) the reason the parties entered into the contract (i.e. what each bargained to receive), and (4) the respective amounts charged under the contract for goods and for services. Regardless of how the percentage of the cost of goods is calculated, viewing the transaction as a whole, we must conclude that the predominant purpose of the transaction was the provision of a service rather than the sale of goods. Steiner v. Mobil Oil Corporation, 20 Cal. 3d 90 (Cal. 1977) 2-207 Issue: Terms concerning discount can be removable or irrevocable? o Steiner: Irrevocable v. Mobile: Revocable Facts: Plaintiff service station operator made an offer to defendant corporation for a retail dealer contract, under which defendant was to supply the down payment for plaintiff to purchase his station, and, in exchange, plaintiff was to purchase all gasoline from defendant for 10 years. Additionally, defendant was to provide a guaranteed competitive allowance reducing its price by 1.4 cents per gallon. Upon acceptance of the offer, plaintiff was not advised that the guaranteed allowance had been removed. Defendant subsequently reduced the competitive allowance, and plaintiff filed suit seeking declaratory and monetary relief. Holding: The court held that defendant's acceptance was not expressly conditional on plaintiff's assent to remove the guaranteed allowance. Thus, under Cal. Com. Code 2207(1), a contract was formed. Under Cal. Com. Code 2207(2), defendant's revocable discount provision did not become part of the contract because plaintiff's offer expressly limited acceptance to the terms of the offer, and the alteration was material. Accordingly, the judgment was affirmed. p.35. 1. K or not? 2207: (1) definite and seasonable expression of acceptance, or (2) written confirmation. In this case, both (1) and (2) are met. 2. What are terms?: Mobils proposal (= additional terms) becomes part of K unless UCC 2207(2)(a), (b) and (c). In this case, the proposal falls with 2-207(a) and (b). Therefore, it does not become part of K. 1-303: Hierarchy of construction terms Course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other.

If such a construction is unreasonable prefers immediacy (when) and personal (who): our parties > others / now > past The more closely related the term is to the transaction at issue, the more weight is given to it. If an express term was not mentioned on K, you can argue either (1) no limit, so any of CP, CD or UT can be used or (2) should be limited to expressly determined terms

1. Express Terms of the contract at issue (both parties + now + words). 1-303(e)(1).
Control over

Control over

2. Course of Performance (1-303(a)) in performing this particular K (both parties + now + conduct) o It is particularly appropriate when there are repeated occasions for performance without objection, as in an installment contract. 1-303(e)(2). Not one time performance. Objection can be either express by words or implied by conduct. o Think about what constitutes performance. E.g. Buyers performance is delivery or adding on? Sellers performance is paying the bill? 3. Course of Dealing (1-303(b)) that these specific parties have held in the past with each other (both parties + past) 1-303(e)(3). o Refers to the parties past contracts with each other. If the parties have dealt together in the past, what they did then is thought to give insight to their current agreement. 4. Usage of Trade (1-303(c)) , i.e. the custom in the industry at large (Others + past & now) o It binds all of those who should know about it, sometimes even including consumers. 2-300 Historical background: o Personalized system (where they know each other (face-to-fact K), everybody will know the bad product, under common law) v. o Depersonalized system (where strangers make K, no one will know bad product, under UCC) Warranties (goods are most expensive when sellers responsibility is high) v. No warranties (goods are the cheapest when sellers responsibility is low) v. Warranties but limitation on remedies (the price is somewhere between warranties and no warranties) 2-312: Warranty of Title o Good title means you dont have to go to court to contest the title.; in peace, free from doubt, no substantial shadow (American, p.64); not exposed to lawsuit (Comment 1). Cf. Valid title means court decided that it is valid. o Quiet possession is abolished. Comment 1. Practically, disturbance of quiet possession is one way in which the breach of the warranty of title may be established. - Under 2-725, actions must be commenced within 4 years after the cause of action has accrued (2-725(1)). A cause of action is considered to have accrued when the breach occurs (regardless of whether the aggrieved party knew of the breach) and a breach of warranty occurs when tender of delivery is made (2-725(2)).

Control over

10

o o o o

Seller = anyone Implied, even if not designated as implied. cf. 2-314, 2-315 implied warranty Limitation of remedy: 2-719 Disclaimer (= no warranties = modification or exclusion): 2-312(2) Comment 6: 2-316(3) does not apply (resolved internally) not designated as an implied warranty, and hence is not subject to 2-316(3). Two ways: - Specific language. - Circumstances which give the buyer reason to know (not actual knowledge): (Comment 5). E.g. Sheriffs, executors, certain foreclosing lienors and persons similarly situated. Case: American Container Corp. v. Hanley Trucking Corp

2-313: Express warranties by Parties o Express warranties trade talk, puffing o Seller = anyone o part of the basis of the bargain 2-313(1)(a): Affirmation or promise 2-313(1)(b): Description 2-313(1)(c): Sample or model o An affirmation of fact or promise creates an express warranty if it is made after K has been made (p.52) under 2-313. Comment 7: The precise time when words of description or affirmation are made or samples are shown is not material. The sole question is whether the language or samples or models are fairly to be regarded as part of K. If language is used after the closing of the deal (as when the buyer when taking delivery asks and receives an additional assurance), the warranty becomes a modification. Under 2-209(1), the modification need not be supported by consideration if it is otherwise reasonable and in orders. cf. under common law? NO. o Disclaimer: 2-313, 2-316(1) o Limitation of remedies: 2-719 o Heil: promise v. trade talk or puffing; As long as inducement becomes part of the bargain, then express warranties. 2-314: Warranty of Merchantability Implied by legislature o Goods shall be merchantable. o Seller = merchant o 2-314(2): at least 11

o o

Comment 7: 2-314(2)(a) and 2-314(2)(b) are to be read together. Fair average is a term directly appropriate to agricultural bulk products 2-314(2)(c): Ordinary purposeS Purposes can be plural. Ordinary purposes are determined by (1) how well known? (2) Where is it advertised? (3) Who is seller? (4) Price?.... E.g. Fear: Meat and breeding are ordinary purposeS of cattle (2-314(2)(c)). Hypo 1: spring tension: 4 10% (industry standards). If indicated as 3.6, cause of actions? 2-314(2)(a): all minus 2-314(2)(b): not average - Fungible means all are identical, and you cant tell the difference. - Fair Average Quality Comment 7: 2-314(2)(a) and 2-314(2)(b) are read together, a term directly appropriate to agricultural bulk products and means goods centering around the middle belt of quality Therefore, 3.6 is not conforming and not merchantable.

o o o o

Spring is used to make smoke alarming detectors which are sold most in fall. If a buyer lost his profit, consequential damages. - Sellers defense: (1) You got what you ordered. You bought it because its cheaper with less tension. (2) This is not agricultural bulk product. Seller may defend himself arguing that 2-314(2)(b) says fungible, not fungible agricultural. Also, fungible means you cant tell the difference. Hypo 2. Mixed nuts case: 2-314(2)(d) not even kind, quality Disclaimer: 2-316 Limitation of remedies: 2-719 Case: Fear Ranches, Inc. v. Beerry; Fair Farm

2-315: Fitness Implied by legislature o Goods shall be fit for purpose. o Seller = anyone; Here, the seller does not have to be a merchant. However, he would probably be a merchant because this provision requires the sellers skill or judgment. o Particular purpose o Element: (1) seller has reason to know (NOT KNOWLEDGE1) any particular purpose (NOT ORDINARY PURPOSE), (2) buyer relies on sellers skills or judgment. o Disclaimer: 2-316 o Limitation of remedies: 2-719

Here, knowledge is determined under reasonable person standard.

12

Case: Lewis v. Mobil Oil Corp.

Conspicuous

2-316: Disclaimer (cf. another disclaimer = 2-312(2)) 1) 2-316(1): Express warranties- The following shall be construed consistently whenever possible: Words or conduct relating to the creation of an express warranty v. words or conduct tending to negate or limit such warranties. If language of express warranties (= the creation, 2-313(1)(a)(b)(c)) and language of disclaimer (= negation or limitation) conflict, express warranty wins. This is technically possible, but practically difficult. 2) 2-316(2): Implied warranties Merchantability: Magic word = merchantability must mention merchantability. Oral disclaimer is ok. If in writing, it must be conspicuous. Fitness: No magic word Must be in writing and conspicuous. 3) 2-316(3): Implied warranties 2-316(3)(a): - Fairchild held that the disclaimer (as is) had to be by a writing and conspicuous. The words as is and with all faults are sufficient to put the buyer on notice that there are no implied warranties, but only when they are brought to the attention of the buyer by making them conspicuous. To bring it to the attention of the buyer; Intent of legislature is to not have buyer subject to unexpected surprising; Policy: if as is is hidden, it makes no sense. - Other language which in common understanding calls the buyers attention e.g. in its present condition 2-316(3)(b): Examination of goods or had a chance but refused. - to him subjective test (to the buyer) - Comment 8: Must be a demand This responsibility is assumed by the seller. - Comment 8: The particular buyers skill and the normal method of examining goods in the circumstances determine what defects are excluded by the examination. 4) Conspicuousness Factors: refer to 1-201(10). Under the situations below, the court is justified in finding that the language excluding the implied warranties of merchantability and fitness for a purpose was conspicuous. Avenell (p.78) a. The limiting language is located on the first page of the contractual document titled General Conditions b. All of the type indicating that contractual conditions is large and readable (there is no fine print). c. The limiting language is simple, direct, and easily understood. d. There is a printed heading in capital letters which reads: Limitation of Liability. e. The person against whom the limiting language is to operate is a prominent, sophisticated entity. 2-719: Limitation of remedy o Express warranties + Implied warranties (merchantability + fitness)

13

o
Conspicuous

2-719(2): The general Article 2 remedies will apply where an exclusive or limited remedy clause either: (a) fails in its essential purpose2 because of the circumstances (whether it is K or remedy), (b) operates to deprive either party of the substantial value of the bargain. 2-719(3): Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Consequential damages = lost profit limited or excluded: You cant say damages are not irrevocable. Cf. Another unconscionability 2-302 Avenell (p.78): A clause limiting remedies pursuant to 2-719 must be by a writing and conspicuous. The limitation must be a part of the parties bargain in fact. If it is contained in a printed clause which was not conspicuous or brought to the buyers attention, the seller had no reasonable expectation that the buyer understood that his remedies were being restricted to repair and replacement. As such, the clause cannot be said to be a part of the bargain or agreement of the parties.

2-718(1): Liquidated damages o Reasonable (anticipated or actual harm) enforceable o Unreasonable penalty and void. 2-302: Unconscionability o If the court as a matter of law finds unconscionable. Reasonableness = fact based. The court (Judges) makes the decision on it. It is a fact based decision, then why not juries? Objectivity o General statement: Remember, hurdle is very high to get across. Therefore, mere disparity of bargaining power or high prices does not make K unconscionable. Tip. Dont jump on this word without considering other options.

2-302(1): (1) Court, (2) K or any clause (dont have to be the whole K), (3) at the time it was made, (4) may discretion of judge, (5) K(X), K(O), Clause(X), K-Clause (O), fix

Fail of its essential purpose: e.g. K for automobile. Limitation of remedy: This auto doesnt come with warranties. Any remedies warranted are limited to replace defective parts. If the car was totally demolished owing to a brake, and Seller provides a new brake, it fails of its essential purpose.

14

Comment 1: The Basic Test is whether the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of K. The principle is one of the prevention of oppression and unfair surprise. Substantive: How bad terms are oppressive. Procedural: Circumstances existing is unfair surprise. Either of them suffices.

Hypo Buyer from VT Seller Last week, he sold a used car to buyer ($50,000).

Asked to seller, he wants to drive the car to California. Have concern about high altitude in rookies. I dont know about high altitudes driving, but the car would have no mechanical trouble between here and Kansas. (Note. There are no mountains between VT and Kansas) Whiling driving to California, engine blew up in Ohio and he deposed of the car. Brought suit. 2-313(1)(a). Affirmation of facts or promise Buyer relied on the words, no mechanical trouble between Vermont and Kansas by driving the car off. Seller breached express warranties. A. The words were opinions as opposed to facts pro promise. Trade talk or puffing. (Heil) Reasonable person (objective) standards are used. Also, a reasonable person knows that there are no high altitudes between Vermont and Kansas, and seller said he didnt know about high altitudes. B. Even if argument A is denied, no express warranties. Considering timing of words spoken, the words were not part of basis of the bargain, because the words came after K was made. Basis of the bargain means inducement. 2-313. comment 7: This is modification after K was made. 2-209(1): The modification needs no consideration. 2-209(3) 2-201(1): Statute of fraud applies. But there is no writing signed for the words. 2-201(3)(C): Statute of fraud does not apply.

15

Fair Farm Sales and Rentals v. Monaldi (p.74) Monaldi (Buyer) Words - merchantability (X) 2-316(2) - As is (X) 2-316(3)(a)

Fair Farm (Seller) Words in its present condition falls under 2316(3)(a): other language which in common understanding calls the buyers attention Conspicuousness: considering conspicuousness factors under Avenell - One-page typed form contract (O) - In slightly larger print and in a slightly darker share (O) - No representations or warranties (O) - Capitalized (O) Below average English? 50% of people belong to it. Therefore, no language skills problem Work for insurance company as typist? You know contract language It is placed in the bottom, but it was in signature line and you signed it, therefore, it was conspicuous. Monaldi could have examined it as fully as he desired. Therefore, 2-316(3)(b) is met.

Conspicuousness - Considering his language skills, lack of sophistication, it was not conspicuous. - All letters were capitalized. - Fair Farm told Fair Farm takes care of everything. made Monaldi not go over the agreement. - ALL CONTRACTS SUBJECT TO THE FOLLOWING WARRANTIES Actually it was not a warranty.

2-316(3)(b): to him which means it is a subjective test (to this buyer). Comment 8. Particular buyers skill This particular buyer has no skills, and Seller knew this buyer had no skills. Monaldi Everything Phrase Unsophisticated Understanding No meaningful choice No meaningful warranties So one-sided Cant return the tracker back

Fair Farm Understanding Sophisticated Puffing No modification Meaningful choices available Not one-sided - 8,400 includes profits for 4 years. - Monaldi did not pay 8,400 yet (risk of payment): High risk for Seller because Buyer is not skilled. - When returning the tracker, it would be destroyed. - I am helping Buyer satisfy his dream.

Procedural unconscionability

Substantive unconscionability

Heil v. Standard Chemical Mfg. Co. 2-313 Holding: The court held that there was enough evidence on the record to support the jury's finding that the promises made by the company's representative were warranties and not 16

just "trade talk" or "puffing." Lewis v. Mobil Oil Corp. 2-315 Facts: Plaintiff brought suit alleging that defendant supplied plaintiff with an oil that was warranted fit for use in plaintiff's hydraulic system. Holding: A warranty of fitness for a particular purpose existed. Reasoning: (1) The oil was purchased for his system, that (2) P didnt know what oil should be used, and that (3) P was relying on Mobil to supply the proper product. Fear Ranches, Inc. v. Berry 2-314 Facts: Plaintiff buyer examined Defendant seller's cattle which resided on Defendant rancher's property. Six months after Plaintiff took delivery, he slaughtered the cattle to prevent the spread of a disease. The lower court found for Defendants in Plaintiff's action for damages as the result of the sale of infected cattle. Plaintiff buyer sought review of a decision of a United States District Court, which held in favor of Defendants, seller and rancher, in Plaintiff's action asserting that an implied warranty of fitness for a particular purpose, or an implied warranty of merchantability was breached when Defendant sold it infected cattle. Holding: On appeal, the court agreed with the lower court that Defendant rancher was not a merchant because its sale to Defendant seller was its first to a non-packer, and, therefore, it involved a different type of business and goods. The court held that the proof, which included evidence that Plaintiff decided to buy before contacting Defendants, supported the findings that (1) Defendants did not make representations or warranties of fitness, that (2) Plaintiff used judgment in picking what he wanted, and that (3) he did not divulge his plans for the cattle or discuss his activities. However, although the lower court concluded that the cattle were merchantable, it did not determine when or where the disease was contracted, or the custom regarding an implied warranty to disease-free cattle. The court vacated the verdict and remanded for findings about custom, usage, and merchantability.

American Container Corp. v. Hanley Trucking Corp., 2-312 Facts: Defendant seller purchased a vehicle from third-party defendant seller and sold it to plaintiff buyer. Plaintiff brought an action for rescission of the contract after the vehicle was impounded as allegedly stolen. Defendant filed a complaint against third-party defendant and all parties moved for summary judgment. The court granted plaintiff's motion because defendant's breach of the implied warranties of good title and quiet possession was a failure of consideration. Defendant was the equitable owner of the vehicle due to its contract with third-party defendant and held the instrument of legal title, which was endorsed in blank. Plaintiff gave timely notice of its election to rescind and defendant could have sought to establish ownership and to repossess the vehicle within 90 days. Defendant was entitled to the vehicle's depreciation value for the time of plaintiff's possession. Defendant's motion was denied as to rescission because it did not give third-party defendant timely notice and thereby elected to treat the contract as valid, but was granted against third-party defendant as to breach of contract damages. Holding: The court granted plaintiff buyer's summary judgment motion rescinding its contract with defendant seller because defendant breached the implied warranties of good title and quiet possession. Because defendant did not give timely notice of its election to rescind, its motion for summary judgment against third-party defendant seller was denied. Defendant's 17

motion was granted for breach of contract damages against third-party defendant. American > Harley < Heschel (timely notice) (no timely notice) Cf. rescission (rescind) v. reformation (No K) (true agreement of the parties, must be proven by preponderance of evidence)

Fairchild Industries v. Maritime Air Service, Ltd. 2-316(2)(a) Facts: The seller argued that the express words of the contract stated that the aircraft was sold in "as is" condition and that the seller made no representation or warranties express or implied. The court ruled that under Md. Code Ann., Com. Law I 2-316(2)(a) the seller could exclude the implied warranty of merchantability by the use of "as is" or statements that there are no warranties. However, the statute required that the language in the case of a writing must be conspicuous. The seller contended that where the use of "as is" was used, the conspicuous requirement was not applicable, as the requirement only applied when disclaiming the warranty of merchantability. The court disagreed. The court, interpreting the statute in light of its intended purpose, held the requirement that the words "as is" be conspicuous was insure that exclusions of warranties were brought to the attention of the buyer. Issue: 2-316 requires use of the word merchantability, and if in writing that it be conspicuous. An as is disclaimer eliminates the requirement of the word merchantability, but it is not clear from this language that the disclaimer, if in writing, need not be conspicuous. Holding: The court ruled that in order to exclude or modify the implied warranty of merchantability, the disclaimer (as is) had to be by a writing and conspicuous. The words as is and with all faults are sufficient to put the buyer on notice that there are no implied warranties, but only when they are brought to the attention of the buyer by making them conspicuous. Cyclops Corp. v. Home Ins. Co. v. Fischbach & Moore, Inc. 2-719 Holding: The court held that provision in sales contract relieving manufacturer of liability for consequential damages barred buyer's recovery for lost profits; and that such limitation could not be avoided on ground of unconscionability. Rule of Loss 2-509: No Breach o Case: Caudle; Consolidated o Parties agreement (2-509(4)) Carrier (2-509(1)) Bailee (2-509(2)) Default (2509(3)) 2-509(4) - Parties agreement: Clear and Convincing. 2-509(1) - Carrier (e.g. UPS): No particular destination (= shipment K) v. particular destination (= destination K). - The risk of loss depends on whether the goods are shipped by a carrier pursuant to a "destination" or "shipment" contract. - The policy is that a party who had control over the handling of the goods should bear their loss. The party in control is in the best position to handle properly the

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goods, to contract for shipment with a reliable carrier, and to insure the goods. Caudle - Therefore, the seller must bear the risk of loss until the goods reach the control of the carrier, if it is a "shipment" contract, or the buyer, if it is a "destination" contract. Caudle 2-509(2) - Bailee: Commercial bailee Caudle 2-509(3) - Default: Risk passes to Buyer - When he receives the goods if Seller is a merchant - Upon tender of delivery if Seller is not a merchant - Comment 3 The underlying theory of this rule is that a merchant who is to make ,physical delivery at his own place continues meanwhile to control the goods and can be expected to insure his interest in them. The buyer, on the other hand, has no control of the goods and it is extremely unlikely that he will carry insurance on goods not yet in his possession.

2-510: Breach o Case: Multiplastic after commercially reasonable time, risk of loss shifts to Buyer. 2510(3) o Vandalism, arson, theft Neither Seller nor Buyer is wrong. o Generally, in the breach of K, breaching party has more responsibility than non-breaching party.

Caudle v. Sherrard Motor Co. (p.86) 2-509 Commercial bailee Facts: Appellant bought a house trailer from appellee. While appellee was making the trailer ready, appellant left town to attend to some business and told appellee he would return to take possession of the trailer. Before he could return, the trailer was stolen. Appellant stopped payment on the check he had given appellee who then filed suit for the contract price. Reasoning: o It is apparent that the drafters of the UCC contemplated a common law commercial bailee, such as a warehouseman, when using the term "bailee" in Tex. Bus. & Com. Code Ann. 2.509(b) (1968). The plaintiff was not a bailee under the Code. o A contract which shifts the risk of loss to the buyer before he receives the merchandise is so unusual that a seller who desires to achieve this result must clearly communicate his intent to the buyer. o It was not the intention of the parties to transfer the risk of loss of the trailer prior to delivery of possession to appellant. To hold otherwise would be to set a trap for the unwary. If parties intend to shift the burden of the risk of loss from the seller to the buyer before delivery of the goods, then such must be done in clear and unequivocal language. Holding: The contract failed as a matter of law for want of consideration since the trailer was stolen before the risk of loss had passed to buyer under Texas law. Consolidated Bottling Co. v. Jaco Equipment Corp. v. United States Fidelity & Guaranty Co. (p.90) Facts: Appellant seller brought his action to recover the purchase price for a piece of equipment it had contracted to sell to appellee purchaser. The contract contained the term "f.o.b." Prior to being loaded for shipment, the equipment was damaged by vandals. Because these parts could be replaced only at great expense, buyer refused to accept the machine in its 19

unworkable condition. Reasoning: Under N.Y. U.C.C. Law 2-319(1)(c) (1964), the seller must, at his own expense and risk, load the goods on board for the purchaser. The risk of loss did not pass to appellee until the goods were loaded for shipment. Holding: The court held that risk of loss did not pass to appellee until the goods were loaded for shipment.

Multiplastics, Inc. v. Arch Industries, Inc. (p.93) 2-510(3) Facts: Plaintiff manufacturer brought suit for breach of contract seeking to recover the contract price of pellets destroyed during a fire while being held in a warehouse for defendant. The plaintiffs fire insurance did not cover the loss of the pellets. Holding: The court found that defendant's defenses of waiver and repudiation could not stand, because defendant breached the contract and plaintiff continued to enforce the terms of the contract. The court further found that the period of time between the breach and the fire that destroyed the goods was a reasonable period of time for plaintiff to hold on to the goods while attempting to enforce the contract. Prior to Performance Including Rule of Loss Parties: repudiating party = the party failing to give adequate assurance of performance, aggrieved party = the party demanding assurance of performance 2-610. Anticipatory Repudiation. unequivocal clearly and unequivocally 2-611. Retraction of Anticipatory Repudiation o The repudiating party may retract his repudiation if His next performance still not yet due The aggrieved party has - Not canceled the contract - Not materially changed its position = Not detrimentally relied on the repudiation - Not indicated that it considers the repudiation final 2-609. Right to Adequate Assurance of Performance o A party will be excused from performing any contractual obligation (=can suspend your performance) if Reasonable person standard: The party had reasonable grounds of insecurity as to whether the other party will perform according to the contract The party sends a written notice to the other party demanding adequate assurance of due performance - Adequate assurance = depends on facts and circumstances. E.g. show inventory or surplus; bring in third party (e.g. insurance) to certify the surplus. The other party did not yet respond to the demand (= did not provide adequate assurance) It is commercially reasonable to suspend such performance The party did not receive payment (or other return) for the obligations it plans to suspend. After Performance 2-601: If the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may 20

o o o o

2-601(a): Reject the whole 2-601(b): Accept the whole 2-601(c): Accept any commercial unit, and reject the rest. Perfect Tender Rule: Non-conformity in any respect makes the goods non-conforming goods. In any respect: time, place, methods. This rule is subject to 2-612: Breach of installment K 2-718 and 2-719: Liquidated remedy agreements If conforming goods -Buyer accepts the goods -Buyer pays them 2-607(1) Sellers remedies -2-703: General index -2-706: Resale expectation damages; mitigating damages -2-708(1): Expectation damages -2-708(2): Lost profit: If unlimited amount of goods and prices are the same: profit = price cost -2-709: Expectation damages If not conforming goods: 2-601 General rule: Buyer may reject under the Perfect Tender Rule (e.g. non-installation K) Exception: Buyer may not reject under installment K. (i.e. Non-conforming + Installment K) -2-612(1): Definition of Installment K. -2-612(2): Buyer rejects one installment which is non-conforming if the nonconformity substantially impairs the value of that installment -2-612(3): When non-conformity substantially impairs the value of the whole contract, you can cancel the K. Holiday Notify to reject: -General notification v. particularized notification (bw merchants, seller asks) -2-606(1)(b) Acceptance of goods occurs when the buyer fails to make an effective rejection after a reasonable opportunity to inspect doesnt reject it then it is deemed to accept. -2-605: particularized notification: If Buyer does not give specific reasons for rejecting goods, he waives the right to reject them Manner to reject: -2-602(2) hold: dont send the goods back right away after rejection. Buyer will have an obligation to hold the goods with reasonable care for a reasonable time after rejection. -2-603: Follow Sellers instruction. When no instruction, and if perishable or threaten to decline in value speedily, sell them. -2-604: If no instruction, store, reship, resell 21

Do Buyers obligation If Buyer fails to perform his duties: Sellers remedies

Reject goods 2-601(a)

Accept goods 2-601(b)

-2-508(1): Cure. -2-508(2): additional time to cure. -2-607(3)(a): Notify the seller of any breach within a reasonable time after discovering such a breach. If not, no remedy. -2-608(1): If accepted goods, you can revoke acceptance if non-conformity substantially impairs its value. Buyers Remedies -2-711: Remedies in general -2-712: Expectation damages -2-716(1): Specific performance- unique or proper circumstances. Kaiser, The test of uniqueness under this section must be made in terms of the total situation which characterizes the contract... Uniqueness is not the sole basis of the remedy under this section for the relief may also be granted in other proper circumstances and inability to cover is strong evidence of other proper circumstances. -2-715: Consequential damages

Accept some, reject the rest 2-601(c)

By commercial unit. E.g. 12, 24,36, not 50.

Performance Motors v. Allen, (p.97) 280 N.C. 385 2-608; Implied warranties of merchantability Facts: Plaintiff mobile home seller brought an action to recover the balance due on a promissory note, executed by defendant mobile home purchaser upon buying the home, and defendant counterclaimed, contending that plaintiff had breached its warranties. The trial court refused to give instructions as requested by plaintiff, and the jury awarded damages to defendant. Rule: o 2-607(2): Effective rejection means (1) rejection within a reasonable time after delivery or tender and (2) seasonable notice to the seller. o 2-608(1): Buyer may revoke his acceptance if (1) the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured, and (2) the nonconformity substantially impairs the value of the goods. Reasoning: The court held that defendant's implied warranty of merchantability extended for a reasonable time after delivery in order to allow inspection and that an inspection in the showroom did not terminate that warranty. The court found that defendant did not reject the 22

home, as she lived there and paid several payments on it. However, upon retrial, if sufficient evidence indicated that defendant had revoked her acceptance (e.g. constant complaint from September to December with cessation of payment would seem to constitute sufficient notice of revocation of acceptance.), then damages for the amount paid, together with incidental damages, would be awarded. If no revocation occurred, then defendant would owe the balance due. Holding: Defendant mobile home purchaser was entitled to a reasonable time after delivery of the mobile home to inspect it and then reject it, if not in conformance with the implied warranty of merchantability. Upon further development of the facts, appropriate damages to either party would be awarded.

Holiday MFG. Co. v. B.A.S.F. Systems (p.108) 2-612(3) Facts: The plastics manufacturer filed an action for damages for wrongful cancellation against the tape manufacturer. The tape manufacturer counterclaimed for damages. The court entered judgment in favor of the plastics manufacturer, holding that the parties had an installment contract but that the parties did not agree to all the terms of the contract at the time it was formed. The court found that the parties made refinements regarding what constituted acceptable cassettes. The court also found that UCC 2-612(3) gave the tape manufacturer the right to cancel the whole contract if one or more of the cassettes was defective and impaired the value of the contract. The court stated that to cancel the contract the tape manufacturer would have to show that the whole contract was substantially impaired. The court also stated that even though the plastics manufacturer was consistently late in production, the tape manufacturer tolerated it. The court found that the defects cited by the tape manufacturer could be cured and did not substantially impair the value of the cassettes. Thus, the court held that the tape manufacturer was liable for damages incurred when it cancelled the contract. Holding: The court entered judgment for the plastics manufacturer and awarded damages for the tape manufacturer's wrongful cancellation of the contract. Neri v. Retail Marine Corp. (p.114) 2-708 Facts: Defendant alleged an incorrect assessment of damages under N.Y. U.C.C. Law 2-708. The court held that damages had not been properly determined, and that under 2-708, the correct measure of damages was the loss of profits and incidental damages. Prior law had limited damages to the difference between the contract price and the market price. Under new provisions of the law, if the measure of damages under the difference in price was inadequate to put the seller in as good a position as performance would have done, then the seller was entitled to its profit together with any incidental damages. The court affirmed the order as modified. Holding: The court affirmed the lower court's order as modified after reassessing the damages under the Uniform Commercial Code and awarding lost profits plus incidental expenses for repudiation of a contract. Duval & Co. v. Malcolm Specific performance Facts: Growers tendered to buyer a signed document constituting a proposed contract offering to sell their entire crop of cotton. The price and terms were set out. Without executing the document, the buyer added language to estimate the projected yield. Growers believed that no contract existed. The buyer filed suit and sought specific performance of the purported 23

agreement, as cotton prices had subsequently soared. Holding: The buyer failed to show that it was entitled to specific performance under the test of uniqueness. The mere fact that cotton prices soared after this alleged contract is not in itself adequate to show buyer entitled to specific performance.

Kaiser Trading Co. v. Assocated Metals & Minerals Corp. specific performance Holding: Specific performance is no longer limited to goods which are already specific or ascertained at the time of contracting. The test of uniqueness under this section must be made in terms of the total situation which characterizes the contract. Output and requirements contracts involving a particular or peculiarly available source or market present today the typical commercial specific performance situation. However, uniqueness is not the sole basis of the remedy under this section for the relief may also be granted in other proper circumstances and inability to cover is strong evidence of other proper circumstances.

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