I.

UCC Article 2
a. Goods All things which are movable at the time of identification to the K, unborn young of animals and growing
crops (
i. Does not include money in which the price is to be paid, investment, securities and things in action.
 Milau v. North Avenue Development (sales v. service) When service predominates, and the transfer of
personal property is but an incidental feature of the transaction, the exacting warranty standards for
imposing liability without proof of fault will not be imported from the law of sales to cast purveyors of
medical services in damages.
Cannot separate the goods from the services, “service predominates”
 Factors/Test
o Relative valuesof the goods portion and the service portion: if the value/price of the
goods is greater than the value/price of the service portion. If, in the K, the buyer
specifies that the goods are specific and particular may indicate that he is more interested
in the sale of goods rather than the services portion of the hybrid.
o Gravamen Test: focus on where the defect arose
 Anthony Pool
 The contract = hybrid transaction  in part a contract for the rendering
of services and in part a contract for the sale of goods.
 The test = whether “the predominant factor …, the thrust, the purpose,
reasonably stated, is a transaction of sale with labor incidentally
involved.” If follows that, if “the service aspect predominated, no
warranties of quality were imposed in the transaction.”
 Used the majority test to determine what the predominant factor was:
the P’s hired D to install a pool, the sale of the board was incidental to
the construction of the pool. Although the diving board is “goods” it
was not purchased in a separate agreement and therefore not protected
by implied warranty.
o Predominance Test: fact intensive inquiry. Characterization of the transaction as a
whole as either a sales transaction or a service transaction. This characterization is
applied to all parts of the transaction.
b. Merchant a person who deals in goods of the kind or otherwise by his occupation holds himself out as having
knowledge or skill.
i. Person making an isolated sale is not a merchant and warranty of merchantability will not apply.
 Sieman v Alden (rip saw)In order to evoke the protection of 2-314. In order to evoke the
protection of 2-314 the seller must be a merchant.
a. 2-315 fitness for particular purpose. D knew the particular purpose for which the product
will be use and the buyer relied on the expertise of the seller.
ii. Applies as soon as person hold themselves out to be expert. Does not matter if they are new to business.
II. Contract Formation
a. Statute of Frauds(2§201)even if a K was formed, the K is not enforceable. Court lacks the power to enforce a
contract even if there was a breach. CLall its terms and conditions had to be in writing, or the contract was not
enforceable
i. Requirements
 Sale of goods > $500
 Requires only “some” writing to shows a K has been made (example)
a. It is not insufficient if it omits a term or a term is incorrectly stated.
 Signed by the party by which enforcement is sought.
 Quantity has to be included, however, it doesn't have to be correct. K can't be enforced beyond
the quantity stated.
 Signed: includes using any symbol executed or adopted with present intention to adopt or accept
writing.
 Between M's; objection to the written conformation must be received within 10 days. This satisfies
the writing requirement that must be signed by the party in which action is sought.
ii. Exceptions (Common thread is objective evidence that there was a K) (This is not an exhaustive list, there
is room here to be creative)
  Specifically manufactured for the buyer
 Payment has been made and accepted
 Party admission (testified in deposition or pleading)
iii. Public Policy: the legislature was trying to prevent fraud. Discourage people from making oral agreements.
All substantial transactions should be included because the stakes are higher for both b/s.
iv. If the P can successfully beat the SOF the next step is the enforcement action. SOF is simply proving that a
K exists. Plaintiff has to overcome this obstacle.

*A K for the sale of cable service does not qualify as the sale of goods. This is different than the sale of electricity and/or water.
Reasoning: Because they do not generate the signals that they transmit to the subscribers. 2. Quantity is not easily identifiable. Kaplan
v. Cable Vision of PA Inc.

Merchant: a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill.

Class #3: August 29, 2010

-In a sale of goods K you always have Buyers and Sellers, Merchants, Consumers

Problem 2 (p.24)
-Student sells car to another student. Does A2 Apply? 2-314?
-Yes. No 2-314, because the seller is not a merchant.

Sieman v. Alden (p. 24)

Issue:

Ruling: 2-314The B did not prove that he was relying on the expertise of S. The B already knew the type of saw he wanted to buy. 2-
315 He was not found to be a merchant because this was an isolated sale.

Problem 3
a) Teacher quit on Friday and opened hat store on Monday. Lack of experience isn't a defense for being a merchant. (...a person who
is dealing in goods of a certain kind) As a matter of public policy we want to get people to get to know the area business. Encourages
people to be informed about their business. Why are merchants held to a higher standard? because of the lack of equality in the
bargaining process and sophistication. Bright-line Rule: applies across the board.

b) Farmer sells fish at farmers market. Are they a merchant?If there is an issue of consumer protection it is likely that the Seller will
be considered a merchant.

International Sales
-Conventional allows parties to exempt themselves at the time the K is written.
-The convention does not apply to sales of consumer products.
Problem 5

Chapter 2: Statute of Frauds

-Only applies when the K for the sale of goods over $500.
-Some writing that shows a K has been made
-Signed by the party by which enforcement is sought.
-Only minimal writing is required. It is not insufficient if it omits a term or a term is incorrectly stated.
-Quantity has to be included, however, it doesn't have to be correct. K can't be enforced beyond the quantity stated.
-Signed: includes using any symbol executed or adopted with present intention to adopt or accept a writing.
-Between M's; objection to the written conformation must be received within 10 days. This satisfies the writing requirement that must
be signed by the party in which action is sought.
Exceptions (Common thread is objective evidence that there was a K) (This is not an exhaustive list, there is room here to be creative)
-specifically manufactured for the buyer
-payment has been made and accepted
-party admission (testified in deposition or pleading)
Public Policy: the legislature was trying to prevent fraud. Discourage people from making oral agreements. All substantial
transactions should be included because the stakes are higher for both b/s.
-If the P can successfully beat the SOF the next step is the enforcement action. SOF is simply proving that a K exists. Plaintiff has to
overcome this obstacle.

St. Ansgar Milss v. Streit

Next class will start with Problem 7 on page 43.

Class #5 September 3, 2010: Formation  Performance  Breach/Remedies

Parole Evidence Rule
 See book/notes
 Columbia Nitrogen Corp v. Royster Co.
o Why do private parties want to enter into contracts? To make money and to hold the other part accountable to terms
that are advantageous to them.
 Fixed price terms: PP so that business can plan
o They were shifting the risk of market fluctuation to the other party.
o The ultimate goal of US K law is freedom of K
o Royster could have included a merger clause that states no other evidence should be able to come in. However,
merger clauses are often litigated.
o Courts tend to decide in the favor of equity.
Offer and Acceptance
 2-204: Formation in General
o A K for the sale of goods may be made any manner (if you behave like you have an agreement than the law treats
you as if you have an agreement)
o Applies even if it is unknown when the K was made
o Even though one or more of the terms are left out.
 2-205: Firm Offers
o An offer buy a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be
held open even if it is not supported by consideration. Only requires the person holding offer open to be a merchant.
 2-206: Offer and Acceptance in Formation of a K
o See book
 Problem 10
o When was the K formed? It was formed upon shipment.
 Problem 11
o Firm Offers/option K have to include a signed writing.
The Battle of Forms
 2-207 Additional Terms in Acceptance or Confirmation
o This was intended to change mirror image rules. The acceptance is valid even when there are terms that differ from
the offer. It is the OR phrase that is causing the problem. This seems to address when there was first an oral
agreement.
o (1)A definite and seasonable expression of acceptance or a written confirmation which is sent w/in a reasonable time
(emphasizes both the principles of freedom of contract and the desirability of making judgments based on the
circumstances of an individual transaction) operates as an acceptance (means to bind both parties) even though it
states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made
conditional on assent to the additional or different terms. Tries to make all offers of acceptance valid, unless you
basically copy the language of 2-207. Explicit attempt to vary the mirror image rule.
 o (2)The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms
become part of the contract unless:
 The offer expressly limits acceptance to the terms of the offer;
 They materially alter it; or
 Notification of objection to them has already been given or is given w/in a reasonable time after notice of
them is received.
o (3)Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale
although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular
contract consist of those terms on which the writings of the parties agree, together with any supplementary terms
incorporated under any other provisions of this Act.
 Problem 12
 People in business tend to rely on form documents detailing all manner of terms and conditions.
 Under common law, the exchange of forms would probably not result in a binding contract  “mirror image rule”; any
additional terms/conditions were considered counteroffers.
 The common law of “offer and acceptance” was altered significantly by the UCC. Much of the evolution of the common law
has been brought about by Article 2 of the UCC, in particular.
 It is now clear that a contract for sale may be created by the parties’ having exchanged forms which contain different terms as
long as the differences are not of the type which in the commercial environment usually make or break a deal.
 Generally, the terms of the offer are the terms of the contract.
 Under §2-207, there are 2 ways that an additional term in the acceptance can become part of the contract:
 Implicit in the statement that such additional terms are to be “construed as proposals for additions to the contract.”  An
“additional term” can become part of the contract by is express acceptance by the original offeror.

 Diamond Fruit Growers, Inc. v. Krack Corp. (1986)

 What constitutes an assent ? Is acquiescence enough to give consent?

Facts: Krack (B) manufacturer of cooling units containing tubing supplied by Metal Matic (S).
o At beginning of each yr. B sent blanket purchase order to MM stating how much tubing it would need for the year.
Then B would send release orders and MM would respond w/acknowledgment form and shipping of tubing.
o MM’s acknowledgement form disclaimed all liability for consequential damages and limited MM’s liability for
defects in tubing to refund of the purchase price or replacement or repair of the tubing. (these terms were not found
in K’s purchase order).  ‘acceptance made conditional on additional terms’ [see reverse side for terms and
conditions = printed on signature side of acknowledgement form]
o K objected to the terms, but they were never changed, and K continued to buy.
o K then sold one its cooling units to Diamond Fruit Growers (P).
o Unit began leaking ammonia. Found a pin-hole leak in cooling coil. P sued for lost produce. K brought MM in as a
third party complaint.
o Jury found for P; MM was liable for 30%.
Issue is whether the disclaimer was ever a part of the contract with K.
o K argues 2-207 applies (it does apply to commercial transactions in which parties exchange printed forms). In this
case, they exchanged forms w/ different terms.
o 2-207 changes the common law mirror image rule: “converts a common law counteroffer into an acceptance even
though it states additional or different terms” The only requirement is that the responding form contain a definite
and seasonable expression of acceptance; if the offeror assents, the parties have a contract w/additional terms; if
offeror doesn’t assent, but performs, then there is a contract w/additional terms.
o MM argues that K agreed based on conversations and then continued buying.
o But, 2-207 does away with common law’s “last shot rule” which gives advantage to the party who sent the last form.
Instead, all the terms on which the parties’ forms do not agree drop out, and the UCC supplies the missing terms. 2-
207(3)
o Accepting MM’s argument would in effect reinstate the last shot rule.
Holding: Because K’s conduct did not indicate unequivocally that it intended to assent to MM’s terms, that conduct did not
amount to assent. [if the seller truly doesn’t want to be bound unless the buyer assents to its terms, it can protect itself by not
shipping until it obtains that assent].
 Class #6 September 13, 2010 Formation  Performance  breach/remedies
Problem 15: “knock-out” rule. The Majority of courts agree with this. Terms of the K include those upon which the parties
agreed and gap fillers provided by the U.C.C.
-MinorityRule: Permits the terms of the offer to control. ** in exam point out that you don’t know if the form has
the “unless provisio”.
Problem 16: On May 6th when it was shipped was there a K? They were shipped so this was valid acceptance. Did the S
make a warranty? Provisio. There is no valid consent because it was made expressly conditional on assent to the terms so there isn’t a
2-???K but there is a 207(3) the buyer will have a 2-314 warranty.

Leonard Pevar Co. v. Evans Products Co. (1981)

Facts: Pevar (B) Evans (S)
1. P sued breach of implied and express warranty; he entered into an oral agreement for the purchase of plywood. P sent p/o but
it didn’t mention warranties, etc. D sent his acknowledgement form in boilerplate fashion stating that the contract of sale
would be expressly contingent upon P’s acceptance of all terms contained in the document.
2. S argues that there was no K because oral agreement is unenforceable: in violation of statute of frauds which holds that if an
agreement is in excess of $500 it is unenforceable.
a. There is an exception because they are both merchants Section 2-201 however, holds an exception: if written
confirmation is sent to the receiving party and party doesn’t object w/in 10 days, then the oral agreement is
enforceable. The buyer was able to overcome the SOF. There was sufficient writing sent and with merchants
written confirmation is sufficient to satisfy the requirements.
3. S also argues that the B actually assented within the meaning of 2-207(1) actually received and paid for goods and therefore
assented to the counter offer. This is familiar Acceptance of a counter offer is expressed by the conduct of the parties. (This
is the Diamond Fruit case)
4. Where 2-207 applies:
a. Where an oral agreement has been reached followed by sending of forms containing terms not discussed. The
additional terms will be part of the agreement unless they materially alter it; if they do, then the standard “gap
fillers” provisions of article 2 will provide the terms of the agreement.
b. Where the parties have not entered into an oral agreement but have exchanged writings which do not contain
identical terms.
5. Court rejected the last shot rule (D’s argument)
Class #7 (Mini Review) Formation  Performance  breach/remedies
FormactionSOFPERFOO&A

Klocek v. Gateway, Inc.

Issue: Whether the arbitration that came with the standard terms and conditions became part of the K.
Gateway said that we have a clause the if you keep the computer for 5 days then you assent to the terms
Analysis: The court used 2-207(2) What hat was Klockek wearing? He was a consumer. So we know that the second sentence doesn’t
apply because we need two merchants to go on.
-merely doing business is not enough to evoke. When additional terms are issued as proposals in order to make those apart of
the K there needs to be express agreement.
Formations
-The first question you ask is Does the offer unambiguously indicate a manner of acceptance

What is the first question you have to ask?

 Does Article 2 Apply?
o A2 is for the sale of moveable goods (see what these include)
o There is a tricky situation when there is a hybrid contract (service goods and customized goods)
 If you get this question then you need to talk about the tests. The Predominance Test and the Governance
test.
 Predominance test you look at the facts. This is a fact intensive inquiry.
 Governance test focus on where the defect arose (see diving board case)
 Is the K in writing?
o This raises a SOF question and especially if you see a number in the fact pattern.
o How does the P overcome the SOF defense
 Some writing to show that
  Only applies when the K for the sale of goods over $500.
 Some writing that shows a K has been made
 Signed by the party by which enforcement is sought.
 Only minimal writing is required. It is not insufficient if it omits a term or a term is incorrectly stated.
 If the P sends something within reasonable time; (depends on the nature and circumstances)
 Exceptions
o Customized goods
o Party admission
o Look up the third one
 Parole Evidence Rule
 Firm Offer
o This applies to merchants
o This changes the CL rule that an option K is not enforceable unless accompanied with consideration
o However, it has to be a signed writing but it doesn’t have to be supported by consideration
September 22, 2010
Formation-performance-remedies/breach
Recap of last class
Warrany
 Title
o 2-312 (Statutory imposed warranty; don’t use implied warranty) Important to remember 2-316 doesn’t apply
o Extremely difficult to disclaim, next to impossible.
 Quality
Implied Warranties
 Only applies to a merchant seller
 Are automatically part of the K unless the S or circumstance does something affirmative to get rid of them.
 The seller intention to create any implied warranty is completely irrelevant.
 Merchantability
o Shaffer V. Victoria Station, Inc.
 Broken wine glass
 D argument was that they were a restaurant and they didn’t sell the wine glass
 Casino giving away free drinks is it the same analysis
 You are paying for your drink my gambling
o How does this work in reality?
 Can you sue cigarette manufactures
o Problem 24(b): Only a merchant can give an implied warranty of merchantability. Ones standing in the community
does not change this.
o Problem 25(b): There should be a minimum expectation of safety. The implied warranty would fail here.
o Daniell v. Ford Motor Co.
 Girl tried to kill her self by locking her self in the trunk and she was in there for 9 days.
 Court held that IWM did not apply
 The P’s use of the trunk was not foreseeable
o Implied Warranty: Fitness for Particular Purpose
 Where the seller at the time of contracting has reason to know any particular purpose for which the goods
are required and that the buyer is relying on the sellers skill or judgment to select or furnish suitable goods,
there is unless excluded or modified under the next section an implied warranty that the goods shall be fit
for such purpose.
 Problem 26: There was an implied warranty because he had special knowledge of the room and knew that it
would not be powerful enough.
 Problem 27: Paint didn’t match and it had an order. Fitness for particular use
 Problem 28: Broken denture with olive pit
 Problem 29: Hair dye burns people.
o Webster v. Blue Ship Tea Room, Inc.
 Fish bone in fish chowder
 Whether the restaurant breached the warranty
  No, she should reasonably anticipate and guard against eating a piece of shell/bone.
September 27, 2010

Warranty Disclaimers and Limitations

Warranty disclaimer is a disclaimer of obligation; it is an attempt to reduce or eliminate the scope of obligation it assumes.
Without more, the merchant/seller assumes that the goods are fit for purposes ABCD. However, he may only wish to accept the
obligation for ABC, and therefore wants to reduce the scope of the warranty of merchantability (that risk is then transferred to the
buyer). If the seller is willing to assume goods are fit for ABCD, but unwilling to pay the full damages if the goods are unfit, then
what the seller needs is a Limitation. 2-316
Remedy LIMITATION for consequential damages; here the obligation is unaffected, the only thing changed is the amount of
damages he must pay in the event there is a breach.
It is very difficult to disclaim an express warranty

2-316 Exclusion or Modification of Warranties

1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or
limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the
provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to
the extent that such construction is unreasonable.
2. Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the
language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify
any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all
implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend
beyond the description on the face thereof.”
3. Notwithstanding subsection (2)
a. Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like
“as is”, “with all faults” or other language which in common understanding calls the buyer’s attention
to the exclusion of warranties and makes plain that there is no implied warranty; and
b. When the buyer before entering into the contract has examined the goods or the sample or model as
fully as he desired or has refused to examine the goods there is no implied warranty with regard to
defects which an examination ought in the circumstances to have revealed to him; and
c. An implied warranty can also be excluded or modified by course of dealing or course of performance
or usage of trade.
4. Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation
or limitation of damages and on contractual modification of remedy. (section 2-718 and 2-719) (Limitation)
Bell Sports, Inv. V. Yarusso
Issue:
Facts:
Rules/Reasoning: 2-316(1) analysis; possible to conclude that the disclaimer was not affective.
Prof: P. 108; had the K stopped after the 5 year limited Warranty clause the case may have been decided differently.

Cate v. Dover Corp. (1990)

Issue: enforceability of a disclaimer of implied warranty; when a disclaimer is considered conspicuous.
Facts: P purchased 3 lifts manufactured and designed by Dover Corp. The lifts never functioned properly. B claims that S is barred
from recovery based on a disclaimer contained w/in a written, express warranty. The disclaimer, although contained in a separate
paragraph w/in the warranty text, is in the same typeface, size, and color as the remainder of the text. D argues that a lesser standard of
conspicuousness should apply to a disclaimer made to a merchant.
Rules/Reasoning:
1. An implied warranty of merchantability arises in a contract for the sale of goods unless expressly excluded or modified by
conspicuous language.
2. Whether a disclaimer is conspicuous is a question of law  a term or clause is conspicuous when it is so written that a
reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals is conspicuous;
language in a body of a form is conspicuous if it is larger or of other contrasting type or color. But in a telegram, any stated
term in conspicuous. (1-201 section 10)
3. “Although the warranty in its entirety may be considered conspicuous, the disclaimer is hidden among attention-getting
language purporting to grant the best warranty available.” S’s disclaimer fails to attract the attention of a reasonable person.
 4. Because the object of the conspicuousness requirement is to protect the buyer from surprise and an unknowing waiver of his
or her rights, inconspicuous language is immaterial when the buyer has actual knowledge of the disclaimer. This knowledge
can result from the buyer’s prior dealings with the seller, or by the seller specifically bringing the inconspicuous waiver to the
buyer’s attention. (code recognizes that buyer knowledge makes the inconspicuous waiver immaterial; also course of dealing
or usage of trade can also act as an exclusion of implied warranty).  The seller has the burden of proving the buyer’s actual
knowledge of the disclaimer.
5. D failed to establish that P understood warranty’s limitations or exclusions.
6. (Dissent) 2-316 undermines implied warranties. Implicitly it adopts the position that disclaimers should be enforced because
society benefits when parties to contract are allowed to set all the terms of their agreement. It ignores the fact that
governmental implication of protective terms into private contracts is commonplace and rests on the faulty premise that
contractual disclaimers are generally freely bargained for elements of a contract. Marketplace reality suggests that freedom of
contract in the sale of goods is actually nonexistent; a buyer can either take the contract w/the disclaimer attached or leave it
and go w/o the good.  this reality would seem to demand that the legislature prohibit implied warranty disclaimers by
repealing 2-316 (w/o this action, courts have to rely on the unconscionability or conspicuous requirements to reach a fair
result.
7. PP: Purpose of implied warranty  they create incentives to produce and market higher quality products; they discourage
shoddy workmanship and unethical trade practices; they place responsibility on those who profit from the sale of goods, have
the greatest control over the products, and are better able to bear the risk of loss.

Problem 31
a. A statement buried in the fine print of a used car purchase agreement states that “There are no express or implied
warranties that are part of this sale.”
i. Are the implied warranties effectively disclaimed?
1. NO. The disclaimer was not conspicuous. Also, as a side note, the disclaimer may have failed the
unconscionability test as well.
ii. If the car dealership asks you to redraft this clause so as to comply with the Code, what changes would you
make in the language?
1. You would include “as is” or “with all the defects”, etc.
iii. What changes would you make in the physical appearance of the clause in the contract? Is it all right to put
the disclaimer in the clause labeled WARRANTY?
1. You cannot put the disclaimer in the section labeled warranty because it would not call attention to
itself. Changes made the physical appearance of the contract would include a change in font or
type face, color, or separation from the rest of the warranty provisions.
iv. Can the car dealer win the legal dispute by arguing that the usage of trade permits the burial of warranty
disclaimers in the fine print?
1. He may win, however, the usage of trade and course of dealing argument can be used the other
way as well: it is a usage of trade and course of dealing presumption that buyers don’t read the
fine print, especially in boilerplate forms.
b. The words AS IS are written with soap in large letters across the front windshield of the used car. Is this effective to
disclaim implied warranties? Express warranties? Must the “as is” language be conspicuous?
i. The writing is specific and conspicuous; should meet the test of enforceability.
c. The car salesman asks the buyer, “Would you like to examine the car?” and the buyer, who is in a hurry, says,
“NO.” Effective disclaimer?
i. If buyer refused to examine the goods then the resulting injuries likely resulted from buyer’s own action
rather than from breach of warranty. An examination could have revealed defects; the buyer had a
responsibility to inspect the goods he was purchasing.
d. Remember Ted Traveler (problem 19) who walked into the men’s room of the bus depot and bought an expensive
watch? We decided that there was no warranty of title in that transaction; however, a warranty of quality is a
separate question. Are there implied warranties in this sale?
i. Yes. There is an implied warranty of fitness and merchantability; an implied warranty that the car will
work, etc.
September 29, 2010
Formation-Performance-Breach/remedies

Bowdoin v. Showell Growers, Inc. (1987)

Issue: whether the S effectively disclaimed the implied warranties of fitness and merchantability w/respect to a high pressure spray rig
that caused injury to B’s.
Facts: Spray rig. The safety shield on the rig was defective and injured the B. The disclaimer was included in the instruction manual;
the manual was delivered to Ps after the sale. The disclaimer stated: “The foregoing warranty is expressly in lieu of any and all other
warranties, express, implied, statutory or otherwise (including, but w/o limitation, the implied warranties of merchantability and
fitness for a particular purpose).
Manufactures Argument: Argues that the B was a sophisticated B, however, the court found no case law to support. Conspicuous; a
post sale disclaimer is no effective merely because it was otherwise conspicuous. B should be on notice because of prior dealings
which manual contained the same provisions. Argument failed because it must be conspicuous before the sale.
Rules/Reasoning:
1. Post-sale disclaimers are not effective because they do not for a part of the basis of the bargain b/w the parties of the sale.
Seems to be arguing a pro se law.
2. The buyer is not bound by the disclaimer to which he had never agreed at the time of the sale and which first appears in the
manufacturer’s manual delivered to the buyer with the goods or the manufacturer’s printed material brochure, or warranty
booklet that accompanies the goods.
Prof: Counter Argument: 2:316(c)(3);

Rinaldi v. Iomega Corp

Facts: Defective Zip Drives; disclaimer inside of the plastic package
Issue: Whether the complaint should be dismissed because S disclaimer of implied warranty of merchantability was not conspicuous.
Rules/Reasoning:
1. Follows Hill v. Gateway: held arbitration clause was effective; term physically located outside the K was enforceable term of
the K. Mortenson v. Timberline
2. D sales of the drives to P were not consummated until after each P had an opportunity to inspect and then to reject or to
accept the product with the additional terms that were enclosed within the packaging of the Zip drive.
3. The commercial practicalities of modern retain purchasing make in reasonable for a seller to a product such as a zip drive to
place a disclaimer of the IWM within the plastic packaging.
Remedy Limitations
All of these issues will present themselves together. Question with all warranties, disclaimers and limitations.
2-719 Contractual Modification or Limitation of Remedy
1. Subject to the provisions of subsection (2) and (3) of this section and of the preceding section on liquidation and limitation of
damages,
a. The agreement may provide for remedies in addition to or in substitution for those provided in this Article and may
limit or alter the measure of damages recoverable under this Article, as by limiting the buyer’s remedies to return of
the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and
b. Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is
the sole remedy.
2. Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in
this Act.
3. Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of
consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of
damages where the loss is commercial is not.

Wilson Trading Corp. v. David Ferguson, LTD. (1968)

Facts: Yarn purchased and B did not pay S. P suing based on theory of unmarketability (yarn shaded); D’s defense is that P did not
perform all of the conditions of the contract  “no claims relating to excessive moisture content, short weight, count variations, twist,
quality or shade shall be allowed if made after weaving, knitting, or processing, or more than 10 days after receipt of shipment.”; also
included a merger clause. P alleges that the yarn had latent defects that could not have been detected until after the yarn was
processed; D does not seem to argue that the yarn was unmerchantable, but instead relies on the theory that P did not give notice of the
breach of warranty until after the specified time had run. The warranty limited remedies to 10 days and before knitting & processing;

Issue: whether notice of the alleged breach of warranty for defect in shading was not given within the time expressly limited and is
not now available by way of defense or counterclaim.
 a. Any clause purporting to modify or limit the remedial provisions of this Article in an unconscionable manner is
subject to deletion and in that event the remedies made available by this Article are applicable as if the stricken
clause had never existed.
Rules/Reasoning:
1. Where an apparently fair and reasonable clause because of circumstances fails in its purpose or operates to deprive either
party of the substantial value of the bargain, it must give way to the general remedy provisions of this Article.
2. The contract limits the remedies for the breach and tries to alter the warranty of merchantability; attempt to warrant and then
refuse to warrant goods creates ambiguity in which one term must yield to the other.
3. 2-719: it is clear that it is the very essence of a sale K that at least minimum adequate remedies be available for its breach.
4. (top of page 13?: either that clause will be viewed as either seller’s warranty regarding defects in the product was unimpaired,
but the seller was disclaiming any damages brought to its attention after the period of 10 days (warranty disclaimer clause);
or it could be viewed as a contraction to the warranty, so that it would be viewed as a contractual relation stating that it would
not cover any damages after 10 days.)

Warranty limitations and buyer disclaimers try to limit the liability of the seller trip back the scope of the warranty (there is no
warranty for certain losses); these are difficult drafting decision that are faced because you have to account for the probability that any
disclaimer, etc. will even stand up to the unconscionability test. (disclaimers are subject to stricter regulations than warranty
limitations).

October 4, 2010

Problem 34: On Nov. 1, Jack bought a car from King. J used the car to get to work during the week in the winter and for fun on
the weekends. The contract he signed stated that the seller warranted the vehicle was merchantable, but that, in the event of
breach, “the buyer’s remedy was limited solely to repair or replacement of defective parts.” Moreover, the contract conspicuously
stated that the seller was not responsible for “any consequential damages.” One week after J received the car, he noticed a rumble
in the engine; he took it back and the machine was allegedly repaired; the same thing happened several times. 4 weeks later, J was
seriously injured; he lost the use of his arm, incurred hospital expenses, lost pay, and lost the cost of vehicle. K defended on the
grounds that his liability was limited to the cost of repair or replacement. J argued the remedy limitation was unconscionable.
How should the suit result?
o The personal injury losses: hospital expenses, lost pay, lost use of left arm. Could he recover from those losses? The
contract limited liability for “consequential damages”. Does this argument work?
o NO, any attempt to limit the liability for injury is an unconscionable attempt and they are excluded leads to the
deletion of the objectionable clause 2-719 and 2-302. There must be some argument that the seller can use to offer an
exemption from liability? What is it that makes a provision unconscionable? :Concealment, etc. 2-719 1b seems to say
that this is a limited warranty; attempt to recover damages for personal injury is precluded by 2-719 1b and 1a. If you
were advising the buyer facing these damages, what call would you make? It is still unconscionable and this argument
still trumps the seller’s argument. The distinction between failure of essential purpose and unconscionability is big. The
agreement to a limited remedy represents a bargain. This bargain should be made to function perfectly; when it doesn’t,
the limited remedy has failed in its essential purpose.
o If the buyer cannot prove that the damages were caused as a proximate result, then he cannot recover. This is a matter of
foreseeability, etc. which may prevent recovery despite contract limitations, etc. The remedy limitations: 1. no
consequential damages, 2. the only remedy is for replacement. As far as consequential damages, the limitation is
unconscionable; on the damages for non-consequential damages or damages that are injury, but not consequential, the
problem is that w/ so many repeated failures, the buyer is going to be able to argue that the limitation failed in its
essential purpose and therefore should be excluded from the contract.

Warranty limitations and buyer disclaimers try to limit the liability of the seller trip back the scope of the warranty (there is no
warranty for certain losses); these are difficult drafting decision that are faced because you have to account for the probability that any
disclaimer, etc. will even stand up to the unconscionability test. (disclaimers are subject to stricter regulations than warranty
limitations).

October 4, 2010
Formation  performance  breachremedies
Warranties, disclaimed, limited
Pierce v. Catalina, Yachts
Facts:
Issue:
Reasoning:

2-714 Buyer’s Damages for Breach in Regard to Accepted Goods

1. Where the buyer has accepted goods and given notification (subsection 3) of Section 2-607 he may recover as damages for
any non-conformity of tender the loss resulting in the ordinary course of events from the seller’s breach as determined in any
manner which is reasonable.
2. The measure of damages for breach of warranty is the difference at the time and place of acceptance b/w the value of the
goods accepted and the value they would have had if they had been aw warranted, unless special circumstances show
proximate damages of a different amount.
3. In a proper case any incidental and consequential damages under the next section may also be recovered.

NOTE: in a commercial setting where the buyer is not a consumer, courts tend to hold that disclaimer limiting consequential
damages is enforceable despite the failure of the limited warranty.

Defenses in Warranty Actions

Notice
In all warranty actions a buyer loses all UCC rights if he fails to give the seller notice of the breach w/in a reasonable time after the
breach should have been discovered.
 Problem 33
o The notice that Dave had given was too late; he waited 60 days after delivery. The notice section allows the seller the
right to cure the breach/problem; if the notice is given too late, then the opportunity to cure will likely lapse.
o 2-607
o What is S argument; industry practice, course of dealing, the opportunity to cure has lapsed. Apples are perishable.
o Dave’s argument would fail because he waited too long.

Fitl v. Strek (Mickey Mantle Baseball Card)

Issue: Whether a defective condition that was discovered two years after the date of purchase was timey
Analysis:

2-607 Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation
to Person Answerable Over.
1. The buyer must pay at the contract rate for any goods accepted.
2. Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity
cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be
seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity.
3. Where a tender has been accepted
a. The buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of
breach or be barred from any remedy (time begins to run when buyer becomes aware or should have been aware;
there is a general obligation to inspect the goods); and
b. If the claim is one for infringement or the like and the buyer is sued as a result of such a breach he must so notify the
seller w/in a reasonable time after he receives the notice of the litigation or be barred from any remedy over for
liability established by the litigation.
4. The burden is on the buyer to establish any breach w/respect to the goods accepted.
5. Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over
a. He may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and
that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact
common to the 2 litigations, then unless the seller after seasonable receipt of the notice does come in and defend he
is so bound.
b. If the claim is one for infringement or the like the original seller may demand in writing that his buyer turn over to
him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to
bear all expenses and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand
does turn over control the buyer is so barred.
 6. The provisions of 3, 4, and 5 apply to any obligation of a buyer to hold the seller harmless against infringement or the like.

2-515 Preserving Evidence of Goods in Dispute

In furtherance of the adjustment of any claim or dispute
A. Either party on reasonable notification to the other and for the purpose of ascertaining the facts and preserving evidence has
the right to inspect, test and sample the goods including such of them as may in the possession or control of the other; and
B. The parties may agree to a third party inspection or survey to determine the conformity or condition of the goods and may
agree that the findings shall be binding upon them in any subsequent litigation or adjustment.

2-508 Cure by Seller of Improper Tender or Delivery; Replacement

1. Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet
expired, the seller may seasonably notify the buyer of his intentions to cure and may then w/in the contract time make a
conforming delivery.
2. Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable w/
or w/o money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a
conforming tender.

Problem 34
o Here, the seller knew: the shipment was five months late. Was notice necessary? Here there is an installment contract; so
notification of a breach in the first installment would give the seller the opportunity to make up for it in the second
installment. Without notice, the delay is not deemed to be important. Even if the seller was aware of the importance of
timely delivery, if he had been notified then the seller would reasonably be able to do something to avoid delay.
o If 2-607 is not satisfied, then you’re left with no remedy.
o When the second delay occurs, the buyer sends a notice; seller argues that it is insufficient notice to satisfy 2-607.
Comment 4 says that all is necessary to be included in the notice is that the transaction is troublesome. However, the
weak letter doesn’t tell the seller that something needs to be done. “notification need only be such as informs the seller
that the transaction is claimed to involve a breach, and thus opens the way for normal settlement through negotiation.”
Especially if you’ve attained legal advice on the matter, you should include the word breach and make it clear that the
breach has not been waived.
o Would filing of a suit be sufficient? The purpose of notice is to give the seller time to cure the breach or offer a
settlement. If the buyer files suit right away, then those rights are taken away. Even if one wasn’t looking for a cure,
there are other means of settlement. In a sense, one could argue that those settlements are all short circuited by skipping
the notice portion. Seller could argue that 2-607 says that if there is no notice, you are barred from any remedy. Some
courts have held that no serious negotiation occurs before filing of suit. However, to be safe, if you were giving advice,
you would not want to skip that step (unless, of course, you were facing imminent bankruptcy of the seller, etc.).

Problem 36
o 2-318 extends to third party beneficiaries the warranty of merchantability. (Alternative A is the most restrictive; but the
alternative that applies varies by jurisdiction).
o 2-607(5); the retailer can protect itself.
o Does Sancho have to give notice in order to maintain an action? NO. 2-607 speaks only of buyers, Sancho is not a buyer.
Would it make sense to require an non-buyer to give notice? The comment suggests that even though 3rd party
beneficiaries are not required to give notice of breach, they may required to give notice of injury. Is there a real
difference? Plus, how would Sancho give notice? Sancho doesn’t know anything about Carrasco. Notice of breach
sections make a lot of sense when you’re talking about buyers and sellers (all the information is available); however,
when you include 3rd parties, it’s more difficult to hold them to a notice requirement because they lack the information
necessary. The comment doesn’t make clear what a notice of injury is. Most courts hold that individuals claiming under
alternative A or B have held that they don’t need to give notice (a court can ignore the comment).
o What about Alonzo himself (the buyer) is held to a notice requirement? What if he wanted to sue La Mancha, not
Carrasco? Alonzo is claiming breach of merchantability w/contract to Carrasco. He could claim under alternative B
because he in the foreseeable range of use of the product. Would he have to give notice to La Mancha? Courts have
tended to ignore the notice injury requirement for 3rd party. However, he does fall w/in the term buyer (he bought from
Carrasco). Courts still hold that he is a 3rd party and tend to hold that he is not required to give notice.
 o Are there any other warranty claims? If you were representing Alonzo, you’d want a stronger claim? How would you
argue that there is a direct warranty to Alonzo? Can you find a contract b/w the manufacturer and Alonzo? This is a
heavily advertised product. With respect to mass circulation, highly advertised products, the representation made to
buyers acts as a direct contractual relationship between the buyer and the manufacture. Alonzo could argue that he was
persuaded by La Mancha’s advertisements, etc. and by acting upon that advertisement he directly engaged in a contract
(consideration included, the representations then become express warranties). If he’s suing on express warranty, then he
would have to satisfy the notice requirements under 2-607.

Privity
Suits on warranties are contract actions. Buyer must establish that there was in fact and in law a contract b/w the parties = privity. The
problem of how far back up the distribution chain the buyer can go is said to be an issue of vertical privity. Horizontal privity
deals with identifying to whom the retail seller is liable other than the immediate purchaser.

Problem 37
o Mr. Gauss could use alternative C (the jurisdiction would have to have adopted this provision) to sue. If the jurisdiction
did not adopt C, could he establish a direct warranty/contract b/w himself and the manufacturer? Consideration has to be
something that is reasonably/conceivably conclusive on part of the seller. It would be difficult to construct a contract out
of that. He would have to depend on Alternative C (as far as the dog is concerned); or Alt B for injuries to himself.
o Cayley could establish a direct contract w/manufacture (not the paint company though) and therefore was protected by
the express warranty.
o Can Mr. Gauss bring a tort action based on strict product liability?  a defect in the product maintained by strict
liability. All he would have to prove is a defect that is unreasonably dangerous.

2-318 Third Party Beneficiaries of Warranties Express or Implied (states select one alternative)
Alternative A
A seller’s warranty whether express or implied extends to any natural person who is in the family or household of his buyer
or who is a guest in his home if it is reasonable to expect that such a person may use, consume or be affected by the goods and who is
injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section. (This is the most restrictive
alternative)
Alternative B
A seller’s warranty whether express or implied extends to any natural person who may reasonably be expected to use,
consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the
operation of this section. (This is broader than the first alternative; does not limit it to family members or guests of a household)
Alternative C
A seller’s warranty whether express or implied extends to any person, who may reasonably be expected to use, consume or
be affected by the goods and who is injured by breach of the warranty. A seller may not exclude or limit the operation of this section
with respect to injury to the person or an individual to whom the warranty extends. (This is the broadest of the alternatives; it includes
corporations as well as injuries that are not personal, such as financial).

October 5, 2010

Strict Products Liability in Tort

 Strict products liability permits recovery by an injured consumer in a suit against the manufacture as long as the
consumer can prove that the manufacturer distributed into commerce a product that contained a dangerous defect.
There is no necessity of proving either negligence or privity.

The primary source of the doctrine is 402(1) Restatement of Torts

 Section 402A Special Liability of Seller of Product for Physical Harm to User or Consumer
1. One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is
subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if
a. The seller is engaged in the business of selling such a product, and
 b. It is expected to and does reach the user or consumer w/o substantial change in the condition in which it is sold.
2. The rule stated in subsection 1 applies although
a. The seller has exercised all possible care in the preparation and sale of his product, and
b. The user or consumer has not bought the product from or entered into any contractual relation with the seller.
A cause of action based on strict product liability is very similar to UCC implied warranty
 Differences b/w strict liability action and breach of implied warranty of merchantability:
1. 402A does not require notice
2. 402A damages are limited to physical injury
3. 402A has the statute of limitations imposed by state law for tort actions; UCC is governed by 2-725; time
periods may vary significantly.
4. 402A is not affected by disclaimers or remedy limitations
5. 402A does not consider privity
6. 402A requires that the product contain a defect; UCC warranty may be breached even if the product is not
defective.

East River Steamship Corp. v. Transamerica Delaval, Inc. (1986)

Ruling: The Ct of Appeals held that damage only to a defective product is actionable in tort only when the defect creates an
unreasonable risk of harm to persons or property other than the product itself; here, P was disappointed w/the product’s quality which
was protected under warranty  strict liability and negligence were not cognizable claims.
 Products liability was a policy judgment affording greater protection from dangerous products than warranty law provides.
o These types of actions are ones where it is reasonably certain to place life and limb in peril; here D would be liable
regardless of negligence b/c public policy demands responsibility to be fixed to reduce hazards to life and health
caused by dangerous products.
o This COA would also attach if there was additional property damage (reasoning is that the case would distinguish
itself from the warranty COA and make it a strict liability action).
o However, usually defective products fall under the contract law causes of action.
 Rule  A manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory
to prevent a product from injuring itself.
 Damage to a product is understood as a warranty claim; disappointment in a product’s failure can be insured as protection;
liability in tort would create unnecessary costs to the public.
 A warranty action also has a built in limitation on liability, whereas a tort action could subject the manufacturer to damages
of an indefinite amount; in a warranty action where the loss is purely economic, the limitation derives from the requirements
of foreseeability and of privity, which is still generally enforced for such claims in a commercial setting.

Facts:
 Transamerica Delaval Inc. designed and manufactured propulsion systems for four supertankers. The propulsion systems
eventually failed due to design and manufacturing flaws. Only the propulsion systems themselves were damaged - no other
part of the ship was damaged, and no one was injured
 In 1969, Seatrain Shipbuilding Corp. (Shipbuilding), a wholly owned subsidiary of Seatrain Lines, Inc. (Seatrain), announced
it would build four oil-transporting supertankers #1) T.T. Stuyvesant, #2) T.T. Williamsburgh, #3) T.T. Brooklyn, and #4)
T.T. Bay Ridge.
 Each tanker was constructed pursuant to a contract in which a separate wholly owned subsidiary of Seatrain engaged
Shipbuilding. Shipbuilding in turn contracted with the D (Transamerica Delaval Inc. (Delaval)), to design, manufacture, and
supervise the installation of turbines
 When each ship was completed, its title was transferred from the contracting subsidiary to a trust company (as trustee for an
owner), which in turn chartered the ship to one of the Ps., which are also subsidiaries of Seatrain. P (Queensway Tankers,
Inc.), chartered the Stuyvesant; P (Kingsway Tankers, Inc.), chartered the Williamsburgh; P (East River Steamship Corp.)
chartered the Brooklyn; and P (Richmond Tankers, Inc.), chartered the Bay Ridge.
 Each P operated under a bareboat charter, by which it took full control of the ship for 20 or 22 years as though it owned it,
with the obligation afterwards to return the ship to the real owner. Each charterer assumed responsibility for the cost of any
repairs to the ships.
 The #1 Stuyvesant which was the first tanker finished sailed on its maiden voyage in late July 1977. In January 1978, an
examination of the high-pressure turbine revealed that the first-stage steam reversing ring virtually had disintegrated and had
caused additional damage to other parts of the turbine. The damaged part was replaced with a part from the #4 Bay Ridge,
which was then still under construction. In April 1978, the ship again was repaired, this time with a part from the #2
 Brooklyn. Finally, in August, the ship was permanently and satisfactorily repaired with a ring newly designed and
manufactured by D.
 The #2 Brooklyn and the #3 Williamsburgh were put into service in late 1973 and late 1974, respectively. In 1978, as a result
of the #1 Stuyvesant's problems, they were inspected while in port. Those inspections revealed similar turbine damage.
Temporary repairs were made, and newly designed parts were installed as permanent repairs that summer.
 When the #4 Bay Ridge was completed in early 1979, it contained the newly designed parts and thus never experienced the
high-pressure turbine problems that plagued the other three ships. The complaint appears to claim damages as a result of
deterioration of the #4 Bay Ridge's ring that was installed in the #1 Stuyvesant while the #4 Bay Ridge was under
construction. In addition, the Bay Ridge experienced a unique problem. In 1980, when the ship was on its maiden voyage, the
engine began to vibrate with a frequency that increased even after speed was reduced. It turned out that the astern guardian
valve, located between the high-pressure and low-pressure turbines, had been installed backwards. Because of that error,
steam entered the low-pressure turbine and damaged it. After repairs, the Bay Ridge resumed its travels.
 The charters’ second amended complaint invoked admiralty jurisdiction. It contains five counts alleging tortious conduct on
the part of the D and seeks an aggregate of more than $8 million in damages for the cost of repairing the ships and for income
lost while the ships were out of service.
Procedural History:
 The DC granted SJ for the D, and the COA affirmed.
o The COA held that damage solely to a defective product is actionable in tort if the defect creates an unreasonable
risk of harm to persons or property other than the product itself, and harm materializes. Disappointments over the
product's quality, on the other hand, are protected by warranty law.
o The charterers were dissatisfied with product quality: the defects involved gradual and unnoticed deterioration of
the turbines' component parts, and the only risk created was that the turbines would operate at a lower capacity.
Issues:
 Whether public policy requires manufacturers to be liable in tort to buyers in a commercial transaction when a product
malfunctions, injuring only the product itself and causing only economic losses?
Analysis:
 Public policy argument regarding products liability action
o The paradigmatic products-liability action is one where a product “reasonably certain to place life and limb in peril,”
distributed without reinspection, causes bodily injury. MacPherson v. Buick Motor Co.. The manufacturer was liable
whether or not it is negligent because “public policy demands that responsibility be fixed wherever it will most
effectively reduce the hazards to life and health inherent in defective products that reach the market.”
 Property damage is covered because it is so akin to personal injury.
 In this case there was no damage to other property; only to the product itself
o “Since all but the very simplest of machines have component parts, [a contrary] holding would require a finding of
‘property damage’ in virtually every case where a product damages itself. Such a holding would eliminate the
distinction between warranty and strict products liability.”
 5th count negligent installation damaged the propulsion system
 The injury suffered failure of the product to function properly is the essence of a warranty action, the K party can
recoup the benefit of its bargain
 Whether injury to a product itself (courts differing opinions)
o Majority approach: the case that created the majority land-based approach), held that preserving a proper role for
the law of warranty precludes imposing tort liability if a defective product causes purely monetary harm.
o minority based approach, held that a manufacturer's duty to make nondefective products encompassed injury to
the product itself, whether or not the defect created an unreasonable risk of harm.
 The courts adopting this approach, including the majority of the COAs sitting in admiralty that have
considered the issue, find that the safety and insurance rationales behind strict liability apply equally where
the losses are purely economic. These courts reject the Seely approach because they find it arbitrary that
economic losses are recoverable if a P suffers bodily injury or property damage, but not if a product injures
itself. They also find no inherent difference between economic loss and personal injury or property damage,
because all are proximately caused by the D's conduct. Further, they believe recovery for economic loss
would not lead to unlimited liability because they think a manufacturer can predict and insure against
product failure.
o Intermediate approach
 Permits a products-liability action under certain circumstances when a product injures only itself. These
cases attempt to differentiate between “the disappointed users ... and the endangered ones,” permit only the
 latter to sue in tort. The determination has been said to turn on the nature of the defect, the type of risk, and
the manner in which the injury arose.
o Court adopts Seely/majority approach
 a manufacturer in a commercial relationship has no duty under either a negligence or strict products-
liability theory to prevent a product from injuring itself.
o Reasons why should be left to K remedies
o Tort concern with safety when injury is only to the product itself
o Economic losses can be insured
o Increased cost to the publicThe court did not reach the issue whether a tort cause of action can ever be stated in
admiralty when the only damages sought are economic. “The distinction that the law has drawn between tort
recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the
‘luck’ of one P in having an accident causing physical injury. The distinction rests, rather, on an understanding of
the nature of the responsibility a manufacturer must undertake in distributing his products.” When a product injures
only itself the reasons for imposing a tort duty are weak and those for leaving the party to its contractual remedies
are strong.
o Parties are able to set the terms of their own agreements.
 The manufacturer can restrict its liability, within limits, by disclaiming warranties or limiting remedies. In
exchange, the purchaser pays less for the product. Since a commercial situation generally does not involve
large disparities in bargaining power, the court saw no reason to intrude into the parties' allocation of
the risk.
o A warranty action also has a built-in limitation on liability, whereas a tort action could subject the
manufacturer to damages of an indefinite amount. The limitation in a contract action comes from the
agreement of the parties and the requirement that consequential damages, such as lost profits, be a
foreseeable result of the breach.
o whether stated in negligence or strict liability, no products-liability claim lies in admiralty when the only injury
claimed is economic loss.The court held that the fourth count should have been dismissed. The court affirmed the
entry of judgment for the D.
Rule:A manufacturer in a commercial transaction has no liability in tort for a product malfunctioning and only causing damage to the
product itself and other economic losses

Problem 37  The axle on Monty’s car snapped while driving; Monty skidded across median and ran into Bystander. What is the
best cause of action: negligence, 402A, or 2-314? Whom should you sue?
o 402A is probably the best COA. Subject to liability for the physical harm. You don’t have to establish negligence or
privity. Although Bystander was not a consumer; part 2b states that it applies even if the user or consumer did not buy
the product himself. All you have to prove is that manufacturer distributed into commerce a product that contained a
dangerous defect that caused actual harm. Also, the damages are limited to personal injury, so you wouldn’t be suing for
merchantability of the product, but rather for personal injury damages. As Bystander attorney I would sue, Monty and
the car manufactured, and the company who manufactured the axel.
Consumer protection—Magnuson Moss et al.
 There are two relevant sources of law in the area of consumer protection:
o 1. The Magnuson Moss Act (MM Act)
o 2. Additionally, consumer protection regulations are relevant
 MM Act
 States the basic idea of the MM Act§102: This section applies only if a consumer product is sold
 To require certain disclosure of information with regards to consumer warranties.
 The idea is that consumers, provided with this information, will be able to
understand what protections that they are getting
o in real life, this objective of the MM Act has not been met.
 “consumer product is:
 §101(1): any tangible personal property which is distributed in commerce and which
is normally used for personal, family, or household purposes
o A written warranty is what triggers application of the MM Act
 All written warranties under the MM Act are also express warranties under the UCC
 The counter is not true: all express warranties under the UCC are not necessarily
written warranties under the MM Act
 That is, written warranties (under MM Act) are a subset of express warranties (under
UCC)
o For example: oral warranties are warranties under Article 2, but are not
warranties under the MM Act
o §103
 This provision basically says that every written warranty on a consumer product must be labeled
either as a full warranty or a limited warranty
 To be labeled a full warranty:
 The warranty must meet the requirements of §104.
o For example: if you want to have a full warranty, you cannot place any
limitations on any implied warranties
 Every warranty that does not meet the standards of §104 must be labeled a limited
warranty
o As a practical matter: Almost always, every written warranty is a
limited warranty
 The reason for this is by labeling a written warranty as a limited
warranty, you do not have to meet the requirements of §104.
o §108:
 This is one of the most important provisions of the MM Act.
 Section 108(a) is triggered if there is a written warranty
 But unlike the disclosure requirement of 102 and 103, 108 is also triggered by a “service
contract”
 The definition for “service contract” defined in §101(8):
o Service contract means a contract in writing to perform over a fixed period
of time or for a specified duration, services relating to the maintenance or
repair (or both) of a consumer product
 Section 108(b) gives the permissible disclaimers
 Basically this says that you cannot completely disclaim implied warranties, but you can limit
their duration
 How to reconcile this with §104(a)?
o
o §104 only applies if you want to label your warranty a full warranty
 If you are willing to label your warranty a limited warranty, then
108 applies
 That is, you cannot fully disclaim an implied warrant,
but you can limit its duration
  Section 109 does not apply to consumer sales unless there is either a written warranty or a service
contract
o §110
 This section governs remedies
 Cunningham case (p. 227 CB):
 Issue: whether a consumer is bound to arbitrate because of an arbitration agreement
 The argument is that a requirement of a consumer to arbitrate is inconsistent with the
MM Act.
 Ruling: Court disagreed with the above argument
 That is, that the MM Act does allow for arbitration and does not limit resolution to
things in §110(a)
o However, the Court here held that the arbitration clause had not been
promulgated to the consumer in compliance with the MM Act
 That is, notice of the arbitration clause was not given to the
consumer in a single written document.
 As a result, in this particular case, the consumer was not bound to
arbitrate, though arbitration is allowed under the MM Act
 110(b)
 This provision says that you can sue to enforce a written or implied warranty under MM Act
 §110(d)(2) gives a reason why you would want to bring suit:
o 110(d)(2) permits you to recover attorney’s fees
 Under Article 2, bringing suit for violation of a warranty will not
allow a party to recover attorneys fees
 This is why in consumer actions, people try to bring their
actions under MM Act—to recover attorney’s fees
 Skelton case (p. 223 CB)
 Issue: allegation that Gm had stated, in writing, that transmissions would perform in a way
that they didn’t actually perform
 The consumers wanted to sue under the MM Act
 Rule:
 In order to sue under §110(d)(1) of MM Act, the consumer had to sue to find a
breach of implied warranty (which was not here) or written warranty (which was not
here)
o §101(6) provides a definition of “written warranty”:
 A written warranty is a:
 Written affirmation of fact or promise (present in this
case)
 Made in connection with consumer product (present in
this case)
 Between buyer and seller (present in this case), which:
Relates to the nature of the workmanship (might be
present here) or; that makes promises that the material is
defect free (not met here); or that makes promises that the
material will meet a specified level of performance over a
specified period of time (not met here)
 It seems like the writing here is not a written warranty under §101
 Basic thing to take away from this case:
 In order to sue for breach of “written warranty” under the MM Act, it must meet the
definition of §101(6)
o Three important things about the MM Act:
 1. You can recover attorney’s fees under the MM Act
 2. If a consumer product is sold with a written warranty, as defined by the MM Act, implied
warranties cannot be completely disclaimed
 Durations of implied warranties, however, can be limited in certain circumstances
 3. Disclosure requirements in the MM Act
o Miscellaneous
 The minimum amount in controversy requirement for suit under the MM Act is $50k
 But this is only if you want to sue in federal court
 If you want to sue in state court, there is no amount in controversy requirement
 Saying that a product is “new” is not a written warranty under the MM Act
 Reason: the definition of a written warranty under the MM Act is really geared towards
classic warranties that you get on consumer products
 These warranties basically say that a product is warranted from defects
 §101(6) is a narrow definition for a written warranty, and saying that something is “new” does
not, by itself, meet 101(6)
 What if a car dealer doesn’t himself make a written warranty, but rather conveys the manufacturer’s
warranty to the buyer? Is the car dealer making a “written warranty” under MM Act?
 §110(f) addresses this:
 Says that if the dealer just passes along the manufacturer’s warranty, the dealer
cannot be sued under the MM Act.
o But if the dealer is not careful and does actually adopt the manufacturer’s
warranty, then the dealer might be liable.
 To see if the dealer is careful or not careful to adopt the
manufacturer’s warranty is left up to state law.
 Examples of what is and is not a consumer product [under §101(1)]:
 1. If someone purchases a 27” TV for her home?
 Yes, it is a consumer product
 2. If someone purchases a 27” TV for the waiting room in her office at work?
 This is likely a consumer product
o But see regulation 700.1
 This regulation asks if the product is “normally used” (as opposed
to the use in the particular case)
 The reason for the “normal use” requirement versus a
“particular use” requirement is because the seller must be
able to know whether or not it is governed by the MM Act
before the sale occurs
 3. If an investor purchases a $3M jet aircraft for flights to a vacation home?
 Here, the aircraft is being bought in the particular case for personal purposes
 But the aircraft is not normally used for consumer purposes
o As a result, this is t i a consumer product
 Note that when it is unclear whether it is for personal or commercial use, then
the product is classified as being a consumer product.
 Is a post-formation “written warranty” valid under the MM Act?
 Suppose that A buys a consumer product
 At the time of purchase, A does not receive a written warranty. Upon delivery,
however, A receives a written warranty
o Is this a written warranty under MM Act?
 Remember that though this can meet the requiremens under Article
2, it may not meet the reuqrirements under the MM Act for
written warranty definition.
 Part 700.11 of the regulations address the question:
 The basis of the bargain requirement for purposes of the
MM Act must be given at the time the contract is
entered into
 Note that this is a different definition of the “basis of
the bargain” under Article 2
 But look at section 700.11(c)
 This basically says that a post-formation written warranty
is probably a service contract
  This means that you can sue under 110(d)(1) and recover
attorney’s fees.
 G buys a coffee pot. When he opens the package, he finds two documents: (1) a folded printed sheet
containing a “limited warranty” warranting the pot against defects in materials and workmanship for a
period of 90 days and limiting the implied warranty of merchantability for a like period; (2) a
“warranty registration card” which stated that the buyer had to fill out the card and return it or the
limited warranty would be void. G neglected to return the card. G discovers a defect in the pot 30
days later. Does G have a claim under the MM Act?
 Because this appears to be a written warranty under the MM Act, §103 requires that this
warranty be labeled either “full” or “limited.
 This warranty is labeled as “limited” because it is seeking to limit the duration of the
implied warranty
o Note that if the warranty was labeled “full,” then no duration limits can be
placed on the implied warranty
 Question in this situation: can you use a warranty registration card in a transaction with a
written warranty subject to the MM Act?
 §104(b)(1) provides guidance:
o This section makes it sound like you cannot use a warranty registration
card.
o But see 700.7 of the regulations:
 Warranty registration cards cannot be used for full
warranties, but they might be used for limited warranties
 A person sells consumer products through its web site. The products are covered by written warranties
within the meaning of the MM Act. How should this person comply with the MM Act’s disclosure
requirements?
 Look at 702.3(c)—are these regulations close enough so that they apply to websites?
 A note about 702.3:
 Basically, this regulation says that a direct seller that makes no written warranties is
not liable for manufacturer’s warranties unless the seller adopts it.
October 11, 2010 formation  performance  breach/remedies
Exam
Figure out situations where the merchant rule would apply and figure out a way to memorize that (SOF, Firm Offer,
Warranty (remember the four situations)
Economic law doctrine
*** do not talk about title warranties as implied warranties****

Ventura v. Ford Motor Corp. (lemon law case)***did not read this case***
Facts: bought car, car had problems and P sued for damages.
P Argument:
- MMA as it relates to the awarding of attorneys fees

Warranties in International Sale of Goods

- Read and find the advantages and disadvantages of having a K in the convention or out of the convention.
WARRANTY REVIEW
You are representing the seller --? What is the first question you want to ask?
1. What kind of warranty has the seller given to the buyer
a. Title
i. This is not an implied warranty
b. Quality
i. Express
1. (buyer will likely argue this; you need to find facts to rebute this)
a. One exception that the sellers are allowed to do is a certain amount of “puffing”.
ii. Implied
The second question is whether the disclaimer is valid
 2. It is difficult to disclaim; except in situations where circumstances suggest there was no warranty in the first place. **be very
familiar with 2-316**
a. Talk about each disclaimer separately
i. Disclaimer of Implied
1. Look at and know the line of cases (necessary language)
2. If you are a seller the Rinalidi/Zip Drive case would be good for you because the post sale
disclaimer doesn’t void the warranty
ii. Disclaimer of Expressed
1. Valid only if it cam be construed consistently with the express warranty
b. Pay attention to the timing
i. When did the buyer get the disclaimer; Did this come at the time the K was made or post sale (computer
purchase where the
The third question is if there is a limited remedy
3. Under 2-719 the seller can limit the remedy but it is invalid if it fails its essential purpose.
a. The limited remedy has to provide adequate limited remedy; if it leaves the buyer without any remedy then it is not
minimum and it would fail of its essential purpose.
i. A replace and repair is usually okay (sailboat case; breached in bad faith issue: limited remedy fails and
can the seller still limit consequential damages
ii. If you are Seller you want to adopt Pierce (independent approach). P bad faith breach rendered the limit
on consequential damages invalid. Gives the seller two shots to limit its damages.
The fourth question is what are the defenses
4. What are the defenses anyone to blame
a. Breach
b. Privity
c. Vouching in (2-607)
Other proof issues
-Causation and damages (if this is not there do not spend time writing about this)
Other theories that affect warranty issues

Warranties
Disclaimers
Limitation
Defenses
MMWA/Statute of Limitations

October 13, 2010

Chapter 4: Terms of The Contract
Formation performance breach remedies
***There is a preference to find a K under Article 2; if the parties intended to K then that is what matters this is where the
gap fillers come in****
***One of the goals is to encourage commercially reasonable behavior and trade usage***

Gap Fillers
At common law  if parties left terms out of contract, courts could find n o legally enforceable agreement.
Today  courts try to save a contract by implying reasonable terms where possible: “gap filling”
2-305 – 2-311

Problem 43:Is there a valid K where the price term is missing? Under 2-305 a K existed.

2-305 Open Price Term

2. The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a
reasonable price at the time for delivery if
a. Nothing is said as to price; or
b. The price is left to be agreed by the parties and they fail to agree; or
 c. The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or
agency and it is not so set or recorded.
3. A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
4. When a price left to be fixed otherwise than by agreement of the party fails to be fixed through fault of one party the other
may at his option treat the contract as cancelled or himself fix a reasonable price.
5. Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no
contract. In such a case the buyer must return any goods already received or if unable to do so must pay their reasonable
value at the time of delivery and the seller must return any portion of the price paid on account.

2-306 Output, Requirements and Exclusive Dealings

1. A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or
requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in
the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or
demanded.
2. A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless
otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to
promote their sale.

2-307 Delivery in Single Lot or Several Lots

Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on
such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be
apportioned may be demanded for each lot.

2-308 Absence of Specified Place for Delivery

Unless otherwise agreed
a) The place for delivery of goods is the seller’s place of business or if he has none his residence; but
b) In a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some
other place, that place is the place for their delivery; and
c) Documents of title may be delivered through customary banking channels.

2-309 Absence of Specific Time Provisions; Notice of Termination

1. The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a
reasonable time.
2. Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but
unless otherwise agreed may be terminated at any time by either party.
3. Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be
received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.

2-310 Open Time for Payment or Running of Credit; Authority to Ship Under Reservation
Unless otherwise agreed
a) Payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is
the place of delivery; and
b) If the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of
title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is
inconsistent with the terms of the contract; and
c) If delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment is
due at the time and place at which the buyer is to receive the documents regardless of where the goods are to be
received; and
d) Where the seller is required or authorized to ship the goods on credit the credit period runs from the time of
shipment but postdating the invoice or delaying its dispatch will correspondingly delay the starting of the credit
period.

2-311 Options and Cooperation Respecting Performance

 1) An agreement for sale which is otherwise sufficiently definite to be a contract is not made invalid by the fact that it leaves
particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and w/in
limits set by commercial reasonableness.
2) Unless otherwise agreed specifications relating to assortment of the goods are at the buyer’s option and except as otherwise
provided in subsections (1)C and (3) of 2-319 specifications or arrangements relating to shipment are at the seller’s option.
3) Where such specification would materially affect the other party’s performance but is not seasonably made or where one
party’s cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in
addition to all other remedies
a. Is excused for any resulting delay in his own performance; and
b. May also either proceed to perform in any reasonable manner or after the time for a material part of his own
performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.
Landrum v. Devenport (1981)
Facts:
1. P brought act for breach of contract & violations of Texas Deceptive Trade Practices – Consumer Protection Act.
2. P wanted to buy Indy Pace Car for sticker price; D agreed to deal; P gave D $100; by the time the car came in, the
market value had increased. D didn’t want to continue on w/the agreement, he wanted to raise the price. P bought the car
for the increased price but protested.
3. Trial court found that no contract was formed because there was no express price on the purchase order.
4. But, 2-305 establishes that even if the price was not expressed, the law will imply that a reasonable price was intended;
the contract was otherwise complete: both parties had signed and P had tendered performance.
5. Estoppel was not established: estoppel arises when a representation or act by one party causes the other to do an act
which would operate to his detriment if the first party is allowed to complain, or where a party recognizes the validity of
a transaction and accepts benefits from it and then attempts to repudiate it.
6. Court reversed and ordered a new trial.

Unconscionability
2-302 Unconscionable Contract of Clause
(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time
it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the
unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any
unconscionable result.
(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties
shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid
the court in making the determination.

In the name of freedom of contract, caveat emptor, and the duty to read, courts have permitted some rapacious merchants to insulate
themselves in legally formidable contracts that have bordered on fraud and were filled with “I win—you lose” provisions  adhesion
contracts (because the lesser party had to adhere to the will of the stronger).
 Professor divided “unconscionability” into:
a) Procedural unconscionability: unfair conduct in the formation of a contract.
b) Substantive unconscionability: unfairness in the terms of the resulting bargain.
 He said that both should be required before a court can make a finding of 2-302 unconscionability.

Identification of the Goods

-
2-501 Insurable Interest in Goods; Manner of Identification of Goods
1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which
the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such
identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit
agreement identification occurs
a. When the contract is made if it is for the sale of goods already existing and identified;
b. If the contract is for the sale of future goods other than those described in paragraph C, when goods are shipped,
marked or otherwise designated by the seller as goods to which the contract refers;
 c. When the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the
sale of unborn young to be born within twelve months after contracting or for the sale of crops to be harvested
within twelve months or the next normal harvest season after contracting whichever is longer.
2) The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and
where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the
identification is final substitute other goods for those identified.
3) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.
Comment 2  if identification in tentative or contingent, it is the general policy to resolve all doubts in
favor of identification.

Problem 45
o Seller, a fisherman, contracts to sell his entire catch for the coming season. Does the identification occur on the making
of the contract, on the catching of the fish, or on their packaging with a label indicating they belong to this particular
buyer?
1) 2-501 1B when the contract is for future goods (not growing crops or unborn young) identification is when
goods are shipped, marked or otherwise designated by the seller. So, in this case, identification occurred when
he packaged the fish w/ a label indicating they belonged to that particular buyer.
o Circus contracted to sell the unborn calf of Nancy the elephant as soon as it was born; the contract was made when
Nancy was 2 months pregnant. Does the identification occur on the date of contracting, on the calf’s birth, or when the
calf is marked for shipping?
1) The identification was made on the date of contracting because the calf had already be conceived by then.
Identification takes place on the conception of the unborn young (which in this case was also the date of the
contracting). 2-501 1C
o Carl agreed to sell ½ of the grain he stored in a place where it was mixed w/other grain. Does the identification occur on
contracting or on segregation of the grain?
1) Identification occurs at the time of contracting; the portion of the grain is part of an undivided share of
identifiable bulk with presumably equal units.
o W contracted to sell 5000 widgets to a buyer. Its warehouse contained 2 million, all alike. Does identification occur on
contracting or when the goods are picked out and marked as pertaining to this contract?
1) 1-201 [17] “Fungible” with respect to goods or securities means goods or securities of which any unit is, by
nature or usage of trade, the equivalent of any other like unit. Goods which are not fungible shall be deemed
fungible for the purposes of this Act to the extent that under a particular agreement or document unlike units are
treated as equivalents.
2) If the contract left it up to W (implicitly or explicitly) then identification would occur when W makes the
selection (picks it out and marks it as pertaining to the contract). If the contract stated that B would go by the
warehouse and pick out the items, then identification would occur when B made his selections. Note: the
comments state that the code favors the earliest possible identification of the goods.

Risk of Loss When There is No Breach

 Prior to the adoption of the UCC, the question of who bore the risk of loss was dominated by the notion of title. The UCC
however eliminated all mention of title in considering risk of loss problems.
 Comment 1 of 2-509  “the underlying theory of these sections on the risk of loss is the adoption of the contractual
approach rather than an arbitrary shifting of the risk with the ‘property’ in the goods”; Comment 3 makes clear that the
attempt in these sections is to place the risk on that party who is more likely at the moment of loss to have insurance on the
goods.


2-509 Risk of Loss in the Absence of Breach

1) Where the contract requires or authorizes the seller to ship the goods by carrier
a. If it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the
goods are duly delivered to the carrier even though the shipment is under reservation (this is shipment contract; he is
NOT actually responsible for them getting where they are going) (section 2-505); but
 b. If it does require him to deliver them at a particular destination and the goods are there duly tg svzcendered while in
the possession of the carrier, the risk of loss passes t the buyer when the goods are there duly so tendered as to
enable the buyer to take delivery. (this is a destination contract; seller has an added layer of obligation and takes
ultimate responsibility that the goods will get if not literally into Buyer’s hands as least to the ‘particular
destination’)
2) Where the goods are held by a bailee (a person engaged in the business of storing goods for hire) to be delivered without
being moved, the risk of loss passes to the buyer(In many contracts, the seller must arrange for the warehouse company
(bailee) to change its records to show the buyer as the new owner; this section sets out the rules as to when the risk of loss
passes to the buyer in this situation)
a. On his receipt of a negotiable document of title covering the goods; or
b. On acknowledgment by the bailee of the buyer’s right to possession of the goods; or
c. After his receipt of a non-negotiable document of title or other written direction to deliver, as provided in subsection
4b of section 2-503.
3) In any case not within subsection 1 or 2, the risk of loss passes to the buyer on his receipt (means taking physical possession
of them, 2-103) of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery. (applies
only when paragraph 1 and 2 do not)
4) The provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on
approval (section 2-327) and on effect of breach on risk of loss (section 2-510)

The general rule on the transfer of the risk of loss is that, absent contrary agreement,
o Where the seller is a merchant, the risk of loss passes to the buyer on the buyer’s actual receipt of the goods; and
o Where the seller is not a merchant, risk of loss passes to the buyer when the seller tenders delivery.

Problem 46 W bought car from J. He paid price in full and J promised delivery on the next Mon. On Mon. the car was ready
and J called W to come “take it away”. W said he was busy and that he would pick it up the next day; J agreed. That night the car
was stolen from the lot due to no fault of J who had taken reasonable precautions against such a thing. Who had the risk of loss?
o J has risk of loss; W had to take actual receipt of the car; J who was to make actual 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.
Problem 46  J decided to have a garage sale to clean up her home. In the course of the sale, B offered J $200 for the piano. J
said, “take it”. B said she’d be back the next day. That night J’s home burned to the ground, and the piano was destroyed. Did the
risk of loss pass from J to B? (2-503) If B never picked up the piano and if it was destroyed in a fire 6 months after the sale, what
result? (2-709 1a)

2-503 Manner of Seller’s Tender of Delivery

1) Tender of delivery requires that the seller put and hold conforming goods at the buyer’s disposition and give the buyer any
notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the
agreement and this Article, and in particular
a. Tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably
necessary to enable the buyer to take possession; but
b. Unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods.
2) Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions.
3) Where the seller is required to deliver at a particular destination tender requires that he comply w/subsection 1 and also in
any appropriate case tender documents as described in subsections 4 and 5 of this section
4) Where goods are in the possession of a bailee and are to be delivered w/o being moved
a. Tender requires that the seller either tender a negotiable document of title covering such goods or procure
acknowledgment by the bailee of the buyer’s right to possession of the goods; but
b. Tender to the buyer of a non-negotiable document of title or of a written direction to the bailee to deliver is
sufficient tender unless the buyer seasonably objects, and receipt by the bailee of notification of the buyer’s rights
fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the
bailee to honor the non-negotiable document of title or to obey the direction remains on the seller until the buyer has
had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to
obey the direction defeats the tender.
5) Where the contract requires the seller to deliver documents
 a. He must tender all such documents in correct form, except as provided in Article with respect to bills of lading in a
set; and
b. Tender through customary banking channels is sufficient and dishonor of a draft accompanying the documents
constitutes non-acceptance or rejection.

2-709 1A Action for the Price

1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under
the next section, the price
a. Of goods accepted or of conforming goods lost or damages w/in a commercially reasonable time after risk of their
loss has passed to the buyer (Once the risk of loss has shifted to the buyer, seller is entitled to payment of the
price).
b. of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or
the circumstances reasonably indicate that such effort will be unavailing.
2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are
still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the
judgment. The net proceeds of nay such resale must be credited to the buyer and payment of the judgment entitles him to any
goods not resold.
3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has
repudiated (section 2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded
damages for non-acceptance under the preceding section.

Jason’s Foods, Inc. v. Peter Eckrick & Sons, Inc. (1985)

Issue: Whether acknowledgment to the seller complies with the statute; defendant maintains that acknowledgment must be to the
buyer.
Facts:
1. Jan 13 Jason’s requested the transfer be made to E’s account; a clerk at the warehouse noted the transfer immediately on the
books but did not send receipt until Jan 17 or 18; E did not receive notice of the transfer till Jan. 24. The goods were
destroyed in a fire on Jan. 17. If the risk of loss transferred to E before the fire, then Jason’s is entitled to the contract price.
2. Jason argues that the risk transferred on the 13th because he lost all rights to the goods and should not bear the risk of loss. E
owned them and would be covered by insurance; Jason’s on the other hand did not own them and therefore would not be
insured for the loss.
3. Case can’t be decided by reference to what the parties knew or didn’t know; can’t be decided on the basis of which party
could have insured against the loss.
4. Section 2-509 (2) separates title from risk of loss. Title to the ribs passed to E when the warehouse made the transfer on its
books from Jason’s account to E’s, but the risk of loss did not pass until the transfer was “acknowledged”.
5. Jason argues that it was sufficient to make the acknowledgment to the seller (part B of 2 doesn’t say to whom the
acknowledgment must be made); BUT, if the draftsmen of B had meant the risk of loss to pass when the transfer was made,
one would think they would have said so, and not complicate life by requiring “acknowledgment”.
6. Comment 4 states “where the agreement provides for delivery of the goods as b/w the buyer and seller w/o removal from the
physical possession of the bailee, the provisions on manner of tender of delivery apply on the point of transfer of risk.”

October 19, 2010

Formation performancebreach/remedies
Delivery Terms (only need to remember shipment vs. destination not all the terms) **exam will not have ships**
 Shipment Contract: in sales contracts the parties often agree that the seller need only get the goods to the carrier and then the
buyer will take the risk of loss. (Comment 5 of 2-503 says that this is the normal type of contract)
 Destination Contract: the parties agree that the goods must be delivered by the carrier before the risk of loss passes from
seller to buyer. (this is the variant type)
 F.O.B. = “free on board”; can indicate a shipment or destination contract; the risk of loss transfers at the named place.
o FOB(Seller location)=Shipment
o FOB (buyer location)= Destination
 F.A.S. = “free along-side”
 C.I.F. (always a shipment K)= “cost, insurance, freight”; always indicates a shipment contract; also, means the stated price
includes the cost of the item, the insurance premium, and the freight charge; here buyer agrees to pay insurance
  C & F. (always a shipment K) = “cost and freight”; always indicates a shipment contract; same as C.I.F. except buyer doesn’t
agree to pay for insurance because usually a blanket insurance policy already covers goods the buyer owns.
 Ex-ship = “off the ship”

2-504 Shipment by Seller

Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a
particular destination, then unless otherwise agreed he must
(a) put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable
having regard to the nature of the goods and other circumstances of the case; and
(b) obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the
goods or otherwise required by the agreement or by usage of trade; and
(c) promptly notify the buyer of the shipment.
Failure to notify the buyer under paragraph C or to make a proper contract under paragraph A is a ground for rejection only if material
delay or loss ensues.

2-319 F.O.B. and F.A.S. Terms

1) Unless otherwise agreed the term F.O.B. (which means ‘free on board’) at a named place, even though used only in
connection with the stated price, is a delivery term under which
a. When the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in
this Article 2-504 and bear the expense and risk of putting them into the possession of the carrier; or
b. When the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to
that place and there tender delivery of them in the manner provided in this Article 2-503
c. When either (a) or (b) them term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own
expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an
appropriate case the seller must comply w/the provisions of this Article on the form of bill of lading (2-323)
2) Unless otherwise agreed the term F.A.S. vessel at a named port, even though used only in connection with the stated price, is
a delivery term under which the seller must
a. At his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock
designated and provided by the buyer; and
b. Obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading.
3) Unless otherwise agreed in any case falling w/in subsection 1a or c or subsection 2 the buyer must seasonably give any
needed instructions for making delivery, including when the term is F.A.S or F.O.B. the loading berth of the vessel and in an
appropriate case its name and sailing date. The seller may treat the failure of needed instructions as a failure of cooperation
under this Article 2-311. He may also at his option move the goods in any reasonable manner preparatory to delivery or
shipment.
4) Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required
documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.
2-320 C.I.F. and C & F Terms
1) The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named
destination. The term C&F or C.F. means that the price so includes cost and freight to the named destination.
2) Unless otherwise agreed and even though used only in connection with the stated price and destination, the term CIF
destination or its equivalent requires the seller at his own expense and risk to
a. Put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading
covering the entire transportation to the named destination; and
b. Load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the
freight has been paid or provided for; and
c. Obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at
the port of shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by
the bill of lading and providing for payment of loss to the order of the buyer or for the account of whom it may
concern; but the seller may add to the price the amount of the premium for any such war risk insurance; and
d. Prepare an invoice of the goods and procure any other documents required to effect shipment or to comply with the
contract; and
e. Forward and tender with commercial promptness all the documents in due form and with any endorsement
necessary to perfect the buyer’s rights.
 3) Unless otherwise agreed the term C&F or its equivalent has the same effect and imposes upon the seller the same obligations
and risks as a CIF term except the obligation as to insurance.
4) Under the term CIF or C&F unless otherwise agreed the buyer must make payment against tender of the required documents
and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.
2-321 CIF or C&F: “Net Landed Weights”; “Payment on Arrival”; Warranty of Condition on Arrival
Under a contract containing a term CIF or C&F.
1) Where the price is based on or is to be adjusted according to “net landed weights”, “delivered weights”, “out turn” quanitity
or quality or the like, unless otherwise agreed the seller must reasonably estimate the price. The payment due on tender of the
documents called for by the contract is the amount so estimated, but after final adjustment of the price a settlement must be
made with commercial promptness.
2) An agreement described in subsection 1 or any warranty of quality or condition of the goods on arrival places upon the seller
the risk of ordinary deterioration, shrinkage and the like in transportation but has no effect on the place or time of
identification to the contract for sale or delivery or on the passing of the risk of loss.
3) Unless otherwise agreed where the contract provides for payment on or after arrival of the goods the seller must before
payment allow such preliminary inspection as is feasible; but if the goods are lost delivery of the documents and payment are
due when the goods should have arrived.
2-322 Delivery “Ex-ship”
1) Unless otherwise agreed a term for delivery of goods ex-ship (from the carrying vessel) or in equivalent language is not
restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination
where goods of the kind are usually discharged.
2) Under such a term unless otherwise agreed
a. The seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the
carrier under a duty to deliver the goods; and
b. The risk of loss does not pass to the buyer until the goods leave the ship’s tackle or are otherwise properly unloaded.
2-323 Form of Bill of Lading Required in Overseas Shipment; “overseas”
1) Where the contract contemplates overseas shipment and contains a term CIF or C&F or FOB vessel, the seller unless
otherwise agreed must obtain a negotiable bill of lading stating that the goods have been loaded in board or, in the case of a
term CIF or C&F, received for shipment.
2) Where in a case w/in subsection 1 a bill of lading has been issued in a set of parts, unless otherwise agreed if the documents
are not to be sent from abroad the buyer may demand tender of the full set; otherwise only one part of the bill of lading need
be tendered. Even if the agreement expressly requires a full set
a. Due tender of a single part is acceptable w/in the provisions of the Article on cure of improper delivery (2-508
subsection 1); and
b. Even though the full set is demanded, if the documents are sent from abroad the person tendering an incomplete set
may nevertheless require payment upon furnishing an indemnity which the buyer in good faith deems adequate.
3) A shipment by water or by air or a contract contemplating such shipment is “overseas” insofar as by usage of trade or
agreement it is subject to the commercial, financing or shipping practices characteristic of international deep water
commerce.
2-324 No Arrival, No Sale Term
Under a term “no arrival, no sale” or terms of like meaning, unless otherwise agreed,
(a) the seller must properly ship conforming goods and if they arrive by any means he must tender them on arrival but he
assumes no obligation that the goods will arrive unless he has caused the non-arrival; and
(b) where without fault of the seller the goods are in part lost or have so deteriorated as no longer to conform to the contract or
arrive after the contract time, the buyer may proceed as if there had been casualty to identified goods (2-613)

Problem 48  Seller in NY contracted to sell 80 boxes to B in Ga. Delivery term was “$1800 FAS SS Seaworthy, NYC”. S delivered
the goods to the dock alongside the ship and received a bill of lading from the ship as a receipt. Before the boxes could be loaded, the
dock collapsed, and everything thereon disappeared into the water. Must B pay anyway? What if the delivery term had been “ex-ship
SS Seaworthy, Savannah” and the boxes had been properly unloaded just before the dock collapsed. Would 2-322 make B pay?
 Part one; this is a shipping contract. Under 2-319(2) the seller need only deliver and tender a receipt. Once the seller
put the goods in the hands of the carrier, the risk shifted to the buyer.
 Part two: the buyer still assumes the risk of loss because the ex-ship section specifies that the risk transfers when the
goods are properly unloaded. (destination contract)
Problem 49  S in MI contracted to sell and ship 50 T’s to B in AL. Assume lightning strikes, destroying all vehicles after the carrier
has received them, but before they are loaded on board the railroad car that was to take them to AL. Who had the risk of loss if (a) the
contract said FOB Detroit; (B) the contract said FOB railroad cars Detroit; (C) the contract said CIF Birmingham?
 Buyer ; this is a shipment contract; goods were delivered to the carrier; risk passed.
 Seller; this is a shipment contract however the goods never reached the RR cars in Detroit so the risk never passed.
 Buyer; if seller met all the requirement of 2-320 then the risk shifted to the buyer; this is a shipment contract.
Commercially reasonable buyer would purchase insurance which is why this area of law doesn’t have much
litigation.

Problem 50  Dispatcher of PP, Inc. just finished loading 5 boxcars of product on board the cars of an independent RR carrier when
he received notice from PPI’s sales department that it agreed to sell one of them to GKFS “FOB seller’s processing plant”. The
dispatcher agreed to divert one of the cars to GK, but before he could do so, a hurricane destroyed all five cars and their contents. Who
bears risk of loss?
 2-501 identification problem  we don’t know what box car the items were in. The risk is never passed to the
buyer because there was no identification of goods.

Cook Specialty Co. v. Schrlock (1991)

Facts:
(a) Terms: FOB MSI’s warehouse in Schaumburg, Illinois.
(b) Carrier took possession of goods from warehouse; while in transit to P’s warehouse good was damaged.
(c) Carrier was negligent; P got $5000 from carrier’s insurance but the machine was worth $28000.
(d) Risk of loss passes to the buyer when the goods are duly delivered to the carrier; however, seller must satisfy 2-504.
(e) P argues that the goods were not duly delivered because seller did failed to ensure that carrier had sufficient insurance
coverage to compensate P for a loss in transit. However, court held that “reasonableness of shipper’s conduct” regards the
mode of transportation selected.
Holding; Buyer bore the risk of loss in transit.

Rheinberg-Kellerei GmbH v. Vineyard Wine Co. (1981)

Facts:

Problem 51 CSIG Articles 67-68. Upon signing of the K the buyer has assumed the risk of loss.
Problem 52
October 25, 2010 (didn’t take notes Performance of the K)
October 27, 2010 Formation – Performance breach/damages
pl