Sales Final
"As Is" (Implied Warranty of Title). UCC 2-312, cmt. 6.
"As Is" language will NOT exclude the implied warranty of title.
"Conspicuous" (1-201[10])
"Conspicuous", with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is "conspicuous" or not is a decision for the court. Conspicuous terms include the following: (A) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and (B) language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language.
Express Warranties (2-313): Part of the "Basis of the Bargain" (cmt 1.)
"Dickered", bargained-for aspect of the deal; goes to the essence of the transaction such that any general disclaimer would be "repugnant" to the basic dickered terms. "Basis of the bargain" is not defined in the code. Under UCC 2-313, cmt 8, every statement relating to the goods made by a seller goes to the basis of the bargain unless otherwise proven. 2-313, cmt. 8. Courts tend to hold that a seller's statement goes to the basis of the bargain if there was any possibility it might have induced the purchaser into buying. There is a specificity aspect to the basis of the bargain analysis which centers around what it is the buyer uniquely seeks to acquire, and what the seller does in response (through act or statement) that "drives" at that buyer's seeking. And if in so attempting to close the deal, the seller lines the road with promises of gold, then UCC 2-313 will not allow that gold to be only glitter.
Usage of Trade, Identification: Incorporation by Reference
"Usage of Trade" can govern a K if it is incorporated by reference to a standard set of "rules and regulations". That means that even though the particular K doesn't include the provision, if incorporated by reference, usage of trade can govern identification for a transaction if incorporated by reference and that reference alludes to rules and regulations of standard commercial practices set forth therein.
Identification: Sale of Crops
(1) Those harvested within 1 year, or (2) Next normal harvest season = whichever is longer. -Includes nursery stock too. Excludes "timber crop" because "harvest season" isn't a thing for them.
Risk of Loss, Generally
-Risk of loss passes to non-merchant buyers when the goods are delivered (2-509[3]). -Risk of loss does not hinge on whether payment was made. -Rules are different when goods are transported (2-509[1]) or held by a bailee (2-509[2]). -Parties can stipulate one of them provide insurance. -Parties can contract as to when risk of loss is passed. Where there is no K provision included, general rules apply.
Express Warranties (2-313): Formation takes Affirmative Act or Statement
1. Affirmation of fact about the goods; 2. Promise about the goods; 3. Description of the goods; 4. Sample/model of the goods; even words not necessary to form warranty if goes to basis of the bargain
Exceptions to Perfect Tender Rule
1. Agreement of Parties: Parties can contract to an exception to the PTR. 2. Seller's Right to Cure: When any tender of delivery is rejected due to non-conforming goods AND time for performance has not yet expired, a seller can: -Notify the buyer of the seller's intention to cure; and -Repair, adjust, or replace the non-conforming goods within the time for performance specified in the K. 3. Substitution of Carriers: Manner of delivery is impracticable or unavailable through no fault of either party, then seller can use a commercially reasonable substitute at his or her own expense and it will constitute sufficient tender. 4. Installment Contracts: If K requires delivery in 2 or more separate lots to be paid for and accepted separately, buyer can only reject tender if : a. Non-conformity substantially impairs the value of the installment and; b. Cannot be cured. 5. Commercial Impracticability: PTR no longer applies if occurrences unforeseen by either party at K formation make performance commercially impracticable. No breach if: a. Seller notifies buyer as soon as practicable, and if he is still obligated to partially perform, seller must: i. Allocate (fair and reasonable manner) any remaining production & deliveries to buyer as obligated; and ii. Notify buyer of allocation, which the buyer can freely accept or reject.
Courts have generally found a provision to be conspicuous if it is in any of the following:
1. Capitalized letters. 2. Bold typeface. 3. Italicized letters. 4. A different color. While there are many ways to differentiate the warranty disclaimer from the rest of the document, it commonly appears in both capitalized and bold letters.
Predominant Purpose Factors (Audio Visual Artistry v. Tanzer):
1. Contract language: refers to "purchase"; "buyer"; "seller"; "equipment"; Title of document says "service contract" or "sales contract"; mentions the word "goods"; 2. Nature of supplier's business: What "role" goods and services play in the seller's business. For example, whether seller's business renders services merely tangentially as a means to effectuate selling goods, or whether in the rendering of services, goods are incidentally included in transactions. 3. Contract's purpose: Touchstone is the consumer's "ultimate goal" in entering the contract; if to "acquire a product" --> goods; if to procure a service --> service. 4. Respective amounts paid for goods and services: If goods are but a small portion of the overall contract price --> suggestive of a service, and vice versa. Percentage of the overall contract cost? -(In Audio Visual, 82% equipment cost weighed heavily in favor of a UCC sale).
Implied Warranties under Article 2
1. Implied Warranty of Merchantability (2-314). 2. Implied Warranty of Fitness for a Particular Purpose (2-315). 3. Implied Warranty of Title (2-312[1]). 4. Implied Warranty Against Infringement (2-312[3]). 5. Implied Warranty From Course of Dealing (2-314[3]). 6. Implied Warranty From Usage of Trade (2-314[3]).
Which implied warranties can a seller disclaim with "as is" language?
1. Implied Warranty of Merchantability (using specific language and must be conspicuous). 2. Implied Warranty for a Fitness for a particular purpose (must be in writing and be conspicuous).
Features of a True Lease
1. Leased good is possessed, so long as it's paid for; 2. Lessee can terminate her lease at any time; 3. Lessee never becomes the goods owner under the agreement.
Tests for True Lease vs. "disguised sale"
1. Ownership at the end of the lease period: If lessee becomes owner of the property for little or no consideration at the end of the contract period --> Disguised Sale. 2. "Walk-Away" Test: If contract permits lessee to terminate the lease at any time and return the leased good --> True Lease. 3. Economic Life of Good Test: If lease's duration is for the entire economic life of the good, with or without the option for renewal --> Disguised Sale.
"Merchantable Goods" under the Implied Warranty of Merchantability (2-314[2]). Unless properly disclaimed, a seller-merchant warrants her goods are sufficiently "merchantable". Goods which are merchantable under the UCC must:
1. Pass without objection in the trade under the contract description (UCC § 2-314(2)(a)). 2. In case of fungible goods, be of fair average quality within the description (UCC § 2-314(2)(b)). 3. Be fit for the ordinary purposes for which they are used (UCC § 2-314(2)(c)). 4. Within variations permitted by the agreement, be of even kind, quality, and quantity within each unit and among all units (UCC § 2-314(2)(d)). 5. Be adequately packaged and labeled as the agreement may require (UCC § 2-314(2)(e)). 6. Conform to any promises or affirmation of facts on the container or label, if any (UCC § 2-314(2)(f)). The implied warranty of merchantability also applies to sales of food and drinks, which have to pass the fit-for-ordinary-purposes component of the merchantability test (UCC § 2-314(1), official cmt. 5).
Statute of Fraud Exceptions (2-201[3]). These contracts will be upheld despite not meeting SOF requirements (i.e.., contract not in writing, value under $500/$1000 for leases, omitted quantity)..
1. Specially Manufactured Goods (2-201[3][a]). 2. Admits in Legal Proceeding (2-201[3][b]). 3. Part Performance (2-201[3][c]). 4. Merchant's Confirmatory Memo (2-201[2]).
Parol Evidence Rule, Official Comment 1; 2-202.
1. This section definitely rejects: (a) Any assumption that because a writing has been worked out which is final on some matters, it is to be taken as including all the matters agreed upon; (b) The premise that the language used has the meaning attributable to such language by rules of construction existing in the law rather than the meaning which arises out of the commercial context in which it was used; and (c) The requirement that a condition precedent to the admissibility of the type of evidence specified in paragraph (a) is an original determination by the court that the language used is ambiguous.
2-314(3): Other Implied Warranties can arise through...
1. Usage of Trade (1-303[c]). 2. Course of Dealings (1-303[b]).
2 Types of Warranty
1. Warranty of Title (2-312). 2. Warranty of Quality -Express (2-313) -Implied (2-314)
Identification (2-501) -Prerequisite for passing the risk of loss -Provides an insurable interest to the goods -First step: Identify the goods the contract
2-501 states how the seller marks specific goods as those to be the ones delivered to a buyer for a K; the specific goods to which that K refers. Parties can contract as to when identification has occurred. Identification is not an action automatically arising out of K formation (although identification and K formation can occur at the same time in many cases). For example, if goods are already existing and identified, "identification" occurs when K is formed. It does not require the goods be paid for and delivered.
Shaken Faith Doctrine
A buyer's peace of mind in a good is "shaken" and its integrity is substantially impaired, courts won't make a buyer take a seller's cured goods if the seller's "faith was shaken" in the good's integrity, and thus the goods are "substantially impaired" as to that buyer. E.g., buyer's car engine blows up; court is not going to make those poor people take back that car, or even the same make and model, even if it runs fine after cure.
Merger Clause
A clause in a contract that stipulates that it is a complete integration and the exclusive expression of the parties' agreement.
Disclaimer Must Be Conspicuous (2-316[2])
A conspicuous provision is one that a reasonable person against whom the provision is enforced should have noticed (UCC § 1-201(b)(10)). Courts have generally found a provision to be conspicuous if it is in any of the following: 1. Capitalized letters. 2. Bold typeface. 3. Italicized letters. 4. A different color. While there are many ways to differentiate the warranty disclaimer from the rest of the document, it commonly appears in both capitalized and bold letters.
SOF Exception: Specially Manufactured Goods (2-201[3][a])
A contract for goods specially manufactured for a buyer which are not suitable for sale to other purchasers in the ordinary course of business is enforceable, even without a writing, but only if: 1. The seller made a substantial beginning in manufacturing the goods; or 2. The seller commits to their purchase before the buyer repudiates. -Merchant statute not required.
Implied Warranty of Merchantability: Failure to Warn. Hines v. Wyeth.
A failure to warn can give rise to a breach of IWM where a seller fails to warn or instruct regarding dangerous characteristics of a product, even absent a flaw in design or manufacturing. Failure to warn is even used as evidence of a breach of warranty by the manufacturer in certain courts (See Hill v. Searle Labs). "Failure to warn" is a factor in determining whether a good is fit for its ordinary purpose.
Leases, Statute of Frauds (2A-201)
A lease agreement, whose total value is $1,000 or more, must be evidenced in writing to be the basis of a UCC action. Under the UCC Statute of Frauds 2A-201, a lease agreement made for goods must include: 1. Indication an agreement with obligations exists between the parties; 2. Signature by party against whom enforcement is sought; 3. Description of goods leased (must "reasonably identify" what's described, but specificity is not required); 4. Term/duration of the lease.
True Lease (Art. 2A)
A lease is a limited transfer of the right to possess and use a transferred good for a set period of time in exchange for consideration, and which falls short of an actual "sale".
Adequate Assurances—§2-609
A party that is insecure about the other's performance may request they provide adequate assurances that it will perform. Buyer can request seller do that for delivery or perfect tender, and a seller can do that for timely and full payment. · B has reasonable grounds to demand a seller's adequate assurance of performance if he delivered a non-conforming installment. · If seller provides adequate assurances it will cure a nonconforming installment, B cannot reject the installment.
Sales, Statute of Fraud (2-201[a]) Ellig v. Molina.
A sale of goods whose total contract value is $500 or more must be evidenced in writing to bring a UCC action in court. Under the UCC Statute of Frauds 2-201(a), a contract for the sale of goods must include: 1. Indication an agreement with obligations exist between the parties; 2. Signature by party against whom enforcement is sought; and 3. A specified quantity of goods. Ellig v. Molina.
"Signature" (1-201[b][7])
A signature is any symbol executed or adopted with present intention to adopt or accept a writing. 1-201(b)(7). The touchstone for what a constitutes a valid signature is a signer's intent to assent to form a contract by signing. Both the UCC and courts take a liberal view of what constitutes a signature for SOF purposes. For example, a check, indicating only a quantity amount and bearing the name of the issuing party, was sufficiently detailed to uphold a contract. A person's email signature or their consenting in electronic "click wrap" can be sufficient to form a contract.
Breach and Rejection of Single installment
A single non-conforming installment sale does not automatically breach an entire installment K unless nonconformity substantially impairs the value of the entire K [§2-612(3)]. Buyer can reject delivery from an installment sale, but would have to show: (1) the nonconformity substantially impairs its value; and (2) Cannot be cured.
"Basis of the Bargain"
A term used when a buyer relied on the seller's statements in making a purchase decision. In creating an express warranty, a statement made by a seller that will become an express warranty must go to the "basis of the bargain" if its naturally tendency is to induce the buyer to purchase. Most courts hold that this is a statement with any substance to it such that it might have played some part in the buyer's decision to buy. The burden is on the seller to prove that the buyer did not rely on the statement. If the seller cannot meet this burden, the buyer has the benefit of an express warranty.
Implied Warranty of Title (2-312[1])
A warranty, arising by operation of law, warranting: 1. Seller owns the goods and has the right to sell them to the buyer; and 2. Goods purchased are not subject to challenges from third parties claiming ownership or a security interest in goods. Every contract for the sale of goods carries with it an implied warranty indicating: 1. The seller conveys good title. 2. The transfer is legitimate; and 3. Seller delivers the goods free from any security interest, lien, or encumbrance.
Electronic Signatures (JBB Investment Partners, Ltd. v. Fair).
An electronic signature can be used to execute a contract, but the sound, symbol, mark, or process serving as the signature must be executed or adopted by a person with actual intent to sign the document. JBB Investment Partners, Ltd. v. Fair.
Breach of the Entire Installment Contract
An entire installment-K is breached only if one or more of the nonconformities substantially impairs the entire K.
Warranty about Future Performance. In re Toshiba.
An express warranty about future performance is possible, but a breach can stem only from a seller's act or statement which is specific enough to form a warranty.
CISG
Article 1A: CISG applies to the international sale of goods to parties in contracting countries. If only one party is in a contracting state, traditional choice of law rules apply. Parties can choose which law will apply to a contract. Article 10: If a business has businesses in multiple contracting countries, the "place of business" is the one that has the closest relationship to the contract and the contract's performance, considering the circumstances known to or contemplated by the parties. "Goods" is not defined: CISG only states what is excluded. CISG does not apply to leases. Article 3.2 (Hybrid Transactions): CISG does not apply to contracts in which the preponderant part of the furbishment of the goods is the rendering of services. Basically the predominant purpose test. Article 3: Contracts for production and manufacturing of goods are "sales" unless the purchaser undertakes efforts to provide the raw materials for a substantial part of the production. Article 11: No SOF required. Contract of sale need not be evidence in writing. Art 96: Removes the "no SOF requirement" provision , but still no SOF unless country adopting CISG stipulates to apply its own SOF provision. Many domestic courts continue to apply SOF requirements in international disputes.
Identification: Undivided share in a fungible bulk (2-501, cmt. 5)
At K formation. Undivided share in fungible bulk is different than stuff that's all ours. Think of the giant grain silo with 5 people's grain in it. The silo is holding all 5 people's grain. Identification is different in that case versus us owning an entire warehouse with only OUR inventory in it.
Identification: Wrecked Helicopter In re Phoenix Heliparts, Inc.
At K. Chopper owner made deal to repair it before selling it to Sheeta. Chopper filed bankruptcy before doing any repairs.
What is "tender" and what does it require? (2-503; 2-301; 2-507)
Basically a condition precedent to a buyer's acceptance of goods, and entitles the seller to acceptance of the goods and payment under K. (2-507). The tender must meet certain requirements (2-503; see below). Requires seller: (1) Have and hold conforming goods at the buyer's disposal; and (2) Give her reasonable notice so give the buyer can take delivery. -Must be tendered at a reasonable hour and for a reasonable period of time to allow the buyer to take possession. -Must be tendered in a single delivery unless circumstances dictates either party can rightfully request it be delivered in lots.
Express Warranties (2-313): Buyer Reliance (cmt. 3)
Buyer reliance on seller's statements not required.
Consistent Additional Terms not Reduced to Writing (2-202, cmt. 3)
Consistent additional terms, not reduced to writing, may be proven unless the court finds that the contract was intended to be a complete and exclusive statement of the terms. If a court determines the "additional oral terms" would definitely have been added to the contract (in the court's view), then it must keep this evidence away from the fact finder.
Admitting 1-303(a-c) as Evidence to Aid a Court in Construction & Interpretation Columbia Nitrogen Corp v. Royster Co..
Courts can and will admit the following as evidence to aid in the construction of an agreement: 1. Usage of trade (1-303[c]); 2. Course of dealing (1-303[b]); and 3. Course of performance (1-303[a]). The test for admitting 1-303(a-c) as evidence is whether the proffered evidence can reasonably be construed as consistent with the express terms of the agreement. A contract can explicitly state that course of dealing, usage of trade, and course of performance cannot be used to supplement a written contract.
Entrustment (2-403): Any delivery and acquiescence in retention of possession regardless of any condition expressed between the parties and regardless of larceny.
Delivery & acquiescence of the good is required. Must be a dealer merchant (not a pawn broker) who buys and sells things of this kind in the ordinary course of business. A merchant dealing in goods of a kind is given full power to transfer the rights of the "entrustor" to a buyer in the ordinary course of business. Under the Doctrine of Entrustment, a merchant can pass good title to a buyer for goods that have been "entrusted" to them, even though the merchant does not own the goods nor have actual authority to sell them. A buyer in the ordinary course of business is one who without knowledge and in good faith, violates the rights of another person in goods when purchasing from a seller-merchant in the business of selling goods of that kind (cannot be a pawnbroker; (1-201[b][9]).
"Disguised Sale"
Despite what the transacting parties say about the nature of a deal, a court may treat a transaction as a sale disguised as a lease. A "disguised sale" is a sale on credit taking the appearance of a lease agreement which in actuality is a "secured transaction" governed by UCC Art. 9. Such sales typically give the seller a right to repossess a good by placing a lien on it if the buyer fail to make the necessary payments. It need not be the case that the transacting parties intended to obfuscate or "skirt the line" between a lease and a sale. For varying reasons, the parties could have attempted but failed to create a true lease, and a secured transaction resulted. That notwithstanding, if a court finds a disguised sale has taken place, Article 9 will govern the deal.
Disclaiming Warranties (2-316[2]) Sellers may disclaim both express and implied warranties under 2-316.
Disclaiming Implied Warranty of Merchantability (2-316[2]); Disclaimer Must: 1. Specifically mention merchantability; and 2. Be Conspicuous. Unlike disclaiming IW of FFPP, the IWM disclaimer does not NEED to be in writing, but in practice, it should be.
Software as a "Specially Manufactured Good" = Still UCC "Goods". Simulados citing Micro Data Base Systems, Inc.
Even when software is customized, a UCC good will be found if the customization was performed to effectuating the sale of goods. Simulados citing Micro Data Base Systems, Inc. The Court in Micro Data Base justified its reasoning by noting that the UCC definition of goods extends to "specially manufactured goods".
UCC Parol Evidence Rule: (2-202)
Excludes evidence of any prior agreement or contemporaneous oral agreement. Courts can and will however admit the following as evidence to aid in the construction of an agreement: 1. Usage of trade (1-303[c]); 2. Course of dealing (1-303[b]); and 3. Course of performance (1-303[a]). -Parties can contract out of allowing these supplements to aid a construction analysis.
Disclaimer Example, Basis of the Bargain
For example, a contract for the sale of "100% silk scarves" may also include a general disclaimer of "all warranties, express or implied." Under Article 2, the seller's general disclaimer is not enough to negate the specific, bargained-for attributes of the bargain, namely, the sale of scarves made entirely of silk.
Software, Generally Simulados Software, Ltd. v. Photon Infotech Private, Ltd.
Generally, mass-produced, standardized, and readily available software is treated as a UCC good. This is true even if the software is modified and ancillary services like training, installation, and technical support given the services included are not "substantially different" from those generally included in a hybrid sale of a computer system and software. Simulados. Software as a "Specially Manufactured Good" = Still UCC "Goods": Even when software is customized, a UCC good will be found if the customization was performed in lieu of effectuating the sale of goods. Simulados citing Micro Data Base Systems, Inc. The Court in Micro Data Base justified its reasoning by noting that the UCC definition of goods extends to "specially manufactured goods".
Goods "supplied" in the sale. 2-314(c); 2-314(e). Shaffer v. Victoria Station, Inc.
Goods "supplied" under a contract of sale--Like the glass served when a customer orders wine--must also be reasonably fit for the purpose for which it was supplied (i.e., holding wine). 2-314(c). When the good's container is itself dangerous, the product is sold in a defective condition. 2-314(e).
Course of Dealing (1-303[b])
How parties dealt with each other in prior dealings creates a history (i.e., an expectation) of what will reasonably happen in subsequent transactions.
Identification: Car, Machinery, Boat, etc.
Identified when its serial number is listed on sales or lease contract.
Identification: Goods already existing and identified (2-501[1][a])
If K is for goods already existing and identified, "identification" occurs when K was made.
Exception to Perfect Tender Rule: Installment Contracts
If K requires delivery in 2 or more separate lots to be paid for and accepted separately, buyer can only reject tender if : a. Non-conformity substantially impairs the value of the installment and; b. Cannot be cured.
Disclaiming the Implied Warranty of Title in a Cotract (cmt. 5)
If a seller wants to disclaim IMT in a contract it must generally use a disclaimer that is: 1. Specific; 2. In writing; 3. Conspicuous. "As Is" language will NOT exclude the implied warranty of title. UCC 2-312, cmt. 6.
Revocation of Acceptance
If buyer does not want the goods post-acceptance, she can effectuate a revocation of acceptance, notwithstanding the seller's good faith efforts to cure. Buyer not only retrieves price of goods, but consequential damages as well (Cmt. 1 to §2-608; 2-711(1); 2-715, cmt. 1). · Waddell v. LRVR
Reinstatement: Buyer Accepts Nonconforming Installment K
If buyer subsequently accepts a nonconforming installment without notifying the seller of cancellation, the K is reinstated.
Identification: Unborn Cattle (2-501[c])
If gestation is within 1 year --> upon conception. If gestation is longer than 1 year--> at birth.
Express Warranties (2-313): Timing (Cmt. 7)
Immaterial; can be formed at any time, even after close of sale. Question is whether the language or act are fairly regarded as part of the contract. § Before Sale: Negotiations; seller can use merger clause to try to disclaim before deal closes. § At Close of Sale: Limit express warranty to those made at time of sale and disclaim all others. § After Sale: Modification under (§2-209); no additional consideration is required.
Rolling Contract
In a rolling contract, a consumer orders and pays for goods before seeing most of the terms, which are contained on or in the packaging of the goods. Upon receipt, the buyer enjoys the right to return the goods for a limited period of time.
When Software is a Service Simulados Software v. Photon Infotech.
In assessing whether a software transaction is one for goods or services, courts invoke the "predominant purpose/factors test". The common law will govern where the predominant purpose, thrust, and essence of a contract is the acquisition of the seller's "knowledge, skill, and ability" in designing, developing, and installing a software to meet a purchaser's specific "needs and objectives". Id. citing Wharton Mgmt. Grp. Courts will look to what a purchaser "bargained for" in the exchange (i.e., the contract's purpose). If the "essence" of the contract at issue is found to be the development of software, the buyer has contracted for a service. Simulados citing Systems America. This may be particularly true when a seller develops and creates custom software from scratch. Id. And even if the deal hinges on a seller producing a physical prototype of the software, the UCC does still not govern agreements to "design and develop" software because the thrust of the deal was one for the rendering of services.
Creating Express Warranties: "Basis of the Bargain"
In creating an express warranty, a statement made by a seller that will become an express warranty must go to the "basis of the bargain" if its naturally tendency is to induce the buyer to purchase. Most courts hold that this is a statement with any substance to it such that it might have played some part in the buyer's decision to buy. The burden is on the seller to prove that the buyer did not rely on the statement. If the seller cannot meet this burden, the buyer has the benefit of an express warranty.
Hybrid Transactions: Predominant Purpose/Factor Test (Audio Visual Artistry v. Tanzer)
In the case of hybrid transactions, courts employing the "Predominant Purpose Test" will look to the "primary purpose" of a transaction. In doing so, they will ask whether the thrust of the transaction is one for the sale of goods or the rendition of services. If the goods are "incidental" in the transaction, common law will apply. But if the "services" portion is "incidental" to the goods, UCC will govern. Predominant Purpose Factors: 1. Contract language; 2. Nature of supplier's business; 3. Contract's purpose; 4. Respective amounts paid for goods and services. Audio Visual v. Tanzer.
Hybrid Transactions: Gravamen Test (Anthony Pools v. Sheehan)
In the case of hybrid transactions, courts using the "Gravamen Test" will assess whether the breach and injury alleged arose from "sales" or "services" portion of the transaction in question. Under the Gravamen Test, the 'nature' of the transactions (i.e., it's "primary purpose") is irrelevant, so long as the "goods portion" of the deal retained their character as consumer goods following the sale. If it is found that the UCC goods retained their "character" post-transaction, IWM applies as to those goods, and attempts to disclaim warranties thereby is ineffective (unless disclaimer was properly made). There is a strong policy argument associated with the Gravamen Test. The court in Anthony Pools observed that were it to use the predominant purpose test in that case, no warranty of merchantability would extend to the injured plaintiff, and the defendant would escape liability. In citing to Newark v. Gimble (among many others), it rendered its holding in accordance with precedent which chose to deviate from the predominant purpose test. In doing so, they elected to rule more akin to that in a bona fide consumers protections case. The Gimble case cited to in Pools bears an almost "products liability" aspect to it, in that although the underlying transaction seemed to be primarily made for services, the ensuing liability and plaintiff injury could not be meaningfully or satisfactorily assessed and remedied under a predominant factors analysis. The court's ruling affords recognition to UCC 1-103, that the code "shall be liberally construed and applied to promote its underlying purposes and policies...". UCC's purposeful insistence on insulating buyers in transactions bolsters their stance.
Usage of Trade (1-303[c])
Industry customs that bind all those who should know about it, including customers at times.
Risk of Loss: Title (2-401[1]).
Irrelevant. Who bears risk of loss has nothing to do with who has technical title, rather, who has formed an insurable interest in the goods to the K.
Sufficient Specificity for Express Warranties? More than "Mere Puffery". In re Toshiba America HD DVD Marketing and Sales Practices Litigation.
Laudatory statements; "great car"; "you'll love it"; confirming the value of the goods; giving an opinion about the goods; commending the goods; will be deemed mere puffery and not provide enough specificity to form an express warranty.
Exception to Perfect Tender Rule: Substitution of Carriers
Manner of delivery is impracticable or unavailable through no fault of either party, then seller can use a commercially reasonable substitute at his or her own expense and it will constitute sufficient tender.
"Buyer in ordinary course of business" (1-201[9])
Means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind.
Express Warranties (2-313): Models or Samples (cmt. 3 & 6) The seller creates an express warranty by showing a buyer a sample or model of the goods being sold. 2-313(1)(c). Seller warrants that all of the items being sold will conform to the sample or model provided. Includes: technical specs, drawings, blueprints.
Model or Sample (Cmt. 3;6): Assumption is that any exhibition of sample or model is meant to go to the basis of the bargain; less strong in the case of a model because a sample originates from the goods themselves; A model does not (cmt 6). § Illustrative Sample (Cmt. 6): Context indicates whether the seller was displaying the sample as suggestive of the good or what the good would "be". · Sample pulled from existing inventory: Regarded as describing values of the goods contracted for unless seller denies so.
Express Warranties Express warranties do not exist unless the seller brought these warranties into being.
Must go to the "basis of the bargain". When a seller does something affirmative to create buyer expectations about the characteristics or performance of the goods; typically means seller makes oral or written representations about product via advertising, verbal sales pitch, or written contract.
Express Warranties (2-313[2]): "Formal" Words
No specific or "formal" words are necessary in creating an express warranty.
Breach of Warranty of Good Title (2-312[1])
Notice: If a seller's breach of warranty title was innocent, the buyer must inform the seller of breach within a "reasonable time". If the breach was NOT innocent, the seller cannot claim he was misled or prejudiced by the notice delay. Cmt. 2: Under [2-725], the breach of the warranty of good title occurs when tender of delivery is made since the warranty is not one which extends to "future performance of the goods."
Identification of Fungible Goods in a Bulk
Our stuff = we need to sort it out. Other people's stuff in there = as soon as K is formed.
Exception to Perfect Tender Rule: Commercial Impracticability
PTR no longer applies if occurrences unforeseen by either party at K formation make performance commercially impracticable. No breach if: a. Seller notifies buyer as soon as practicable, and if he is still obligated to partially perform, seller must: i. Allocate (fair and reasonable manner) any remaining production & deliveries to buyer as obligated; and ii. Notify buyer of allocation, which the buyer can freely accept or reject.
Exceptions to Perfect Tender Rule: Agreement of Parties
Parties can contract to an exception to the PTR.
Measuring Quantity by Seller's Output or Buyer's Needs (2-306)
Parties can use seller's output or buyer's needs to form the basis for the quantity of K. But the actual output requirements requested must made in "good faith" (2-306[1]) as measured at K formation. No misrepresentation of actual requirements to take advantage of market conditions, or resell to another at a higher price.
Risk of Loss: Free on Board (F.O.B.)
Risk of loss shifts at the place designated (e.g., FOB, Boston). Once that shipment hits Boston, the seller is home free. ROL has shifted to the buyer.
Evidence that Negates Express Contract Terms. Southern Concrete Services, Inc. v. Mableton Contractors, Inc.
Section 2-202 of the Uniform Commercial Code does not allow for the introduction of evidence that negates the express terms of the contract. While it might be custom in the concrete industry that the quantity is understood to be subject to renegotiation, the court will not construe section 2-202 of the UCC to allow for industry custom to completely negate a clearly contracted for term. Included a Merger Clause: This ruling is further supported by the clause in the contract that stated that "No conditions which are not incorporated in this contract will be recognized."
What happens if a disguised sale is found?
Seller must or must have already followed Article 9's requirements for secured transactions. Failure to do so puts him at risk of losing his right of repossession and/or having junior priority in the goods to other creditors or a bankruptcy trustee.
Express Warranties (2-313): Seller's Intent to Form (cmt. 3)
Seller's intent in forming or not forming an express warranty is immaterial.
"Merchant": (2-104; Frix v. Integrity Med. Systems, Inc.)
Someone who: 1. Deals in goods of the kind subject to the transaction; or 2. Holds himself out as having knowledge or skill particular to the goods or practices involved in the transaction by virtue of his occupation. Notes: -Applies to deals within the seller's "mercantile capacity" (2-104, cmt. 2; subject to her specialized knowledge by virtue of her occupation). -If someone is a merchant with respect to goods of that kind, the IWM attaches automatically to the goods involved (2-314).. -Frequency of transactions is irrelevant (Ellig v. Molina). -Exceptions: Retention or entrustment by SWRGK.
Express Warranties (2-313): Disclaiming "All Warranties Express or Implied" (cmt. 4)
Such general disclaimers will not work because a contract for sale is for something "describable and described".
Disclaiming Implied Warranty of Title (2-312[2]) Notice: If a seller's breach of warranty title was innocent, the buyer must inform the seller of breach within a "reasonable time". If the breach was NOT innocent, the seller cannot claim he was misled or prejudiced by the notice delay. Cmt. 2: Under [2-725], the breach of the warranty of good title occurs when tender of delivery is made since the warranty is not one which extends to "future performance of the goods."
The implied title warranty under 2-312 can be disclaimed by a seller through: 1. Specific language referring to title; OR 2. By circumstances which give the buyer reason to know that the seller: -Does not claim title; or -Is selling title that it or a 3rd party owns. In a contract (cmt. 5): If seller wants to disclaim IMT in a contract it must generally use a disclaimer that is: 1. Specific; 2. In writing; 3. Conspicuous.
IWM: Food & Drinks
The implied warranty of merchantability also applies to sales of food and drinks, which have to pass the fit-for-ordinary-purposes component of the merchantability test (UCC § 2-314(1), official cmt. 5).
SOF Exception: Admits in Legal Proceeding (2-201[3][b]).
The party against whom enforcement is sought admits in a pleading, testimony, or otherwise in court that a contract was made. -Enforceable only up to the quantity admitted.
SOF Exception: Partial Performance (2-201[3][c]).
The party against whom enforcement is sought: (1) Paid and accepted; or (2) Received and accepted the goods under 2-606.
Express Warranties (2-313): Burden on Seller
The seller must prove the buyer did not rely on the seller's statement or promise. If he fails to do so, the buyer receives the benefit of the warranty.
Risk of Loss: Transportation Contract (C.I.F.)
The term "C.I.F." designates a shipment K. Under a transportation K, risk of loss shifts upon shipment. Parties may also stipulate when ROL shifts.
"Merchants-Only" Provisions
These three provisions apply only to merchants as to the particular goods involved: 1. Implied Warranty of Merchantability (2-314). 2. Entrustment (2-403). 3. Against Infringement (2-312[3]).
General Obligations of the Parties (2-301)
This section uses the term "obligation" in contrast to the term "duty" in order to provide for the "condition" aspects of delivery and payment insofar as they are not modified by other sections of this Article such as those on cure of tender. It thus replaces not only the general provisions of the Uniform Sales Act on the parties' duties, but also the general provisions of that Act on the effect of conditions. In order to determine what is "in accordance with the contract" under this Article usage of trade, course of dealing and performance, and the general background of circumstances must be given due consideration in conjunction with the lay meaning of the words used to define the scope of the conditions and duties.
Purpose of Identification
To take the seller's materials as uninsurable by the buyer and turn them into the thing that is the subject of the contract. Identification has an effect on risk of loss, casualty to goods, and damages analyses.
Single-Delivery Sales, Perfect Tender Rule
To win against a buyer's rejection despite tendering perfect goods, a seller must have complied with all the terms of the K and the buyer still refused to take the goods. A buyer does not have the same bargaining power in a single-sale situation, where she will only have opportunity to receive a tendered good once.
Buyer's Rights, Perfect Tender Rule
Under the UCC Perfect Tender Rule, a buyer may do any of the following if goods delivered or the tender of delivery fails in any respect to conform with the terms of the contract: 1. Accept the goods; 2. Reject the entire shipment; or 3. Accept part and reject part.
Identification: Fisherman's Catch Fisherman seller has contracted to sell his entire catch for the coming season. When does identification occur?
Upon catching. No reason to wait until we package them to ID them because "every fish" is part of the K.
Implied Warranty Against Infringement (2-312[3])
Warrants that merchant-sellers furnish goods free from third-party claims of infringement, including patent infringement, trademark, copyright, and other IP rights. But the seller manufacturers goods pursuant to a buyer's specifications, the buyer must indemnify the seller for any infringement claims arising out of the transaction.
Exception to Perfect Tender Rule: Seller's Right to Cure
When any tender of delivery is rejected due to non-conforming goods AND time for performance has not yet expired, a seller can: -Notify the buyer of the seller's intention to cure; and -Repair, adjust, or replace the non-conforming goods within the time for performance specified in the K.
Risk of Loss: Goods held by a Bailee (2-509[2][a])
When goods are held by a bailee, the risk of loss passes when a negotiable document covering the goods is delivered to the buyer.
Risk of Loss: Seller is a Merchant (2-509[3])
When seller is a merchant, risk of loss transfers upon receipt of the goods. (3) "In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery."
Software: Service or Good?
When software is sold, issues arise in transaction transactions involving a hybrid of services (like cloud storage, regular updates, customization, and training) and goods (like hardware, component parts, printers, etc).
Identification: Identified Fungible Bulk (2-501, cmt. 5)
When the goods are picked out. Goods part of a larger mass of goods are identified when the specific merchandise is designated. When we own all the goods (in a warehouse or silo) we identify those specific goods once we pick them out as specific to the K. E.g., food processor contracts for 150 cases of oranges from a farmer who 1,000 cases of oranges. Buyer's goods are identified when the seller explicitly separates for or tags to that specific buyer the 150 cases. This is different than if we shared our warehouse or grain in a silo with 5 other farmers. In that case, identification occurs as soon as the K is formed.
"Proper tender of delivery"
When you make a tender of goods, it is proper if you provide enough time for the buyer to actually get the goods (or to effectuate delivery).
Entrustment: Merchant-Buyers have a Heightened, Duty of Inquiry. Lindholm v. Brant.
Where a merchant buyer is involved in a sale of entrusted goods, she will have a heightened duty of inquiry when a reasonable merchant in her position would have doubts or questions regarding the seller's authority to sell good to which he was entrusted.
SOF Exception: Merchant's Confirmatory Memo (2-201[2])
Where both parties to a transaction are merchants, an oral contract that is confirmed in a writing that satisfies the UCC SOF requirements will be binding if the merchant receiving the memo: 1. Has reason to know of the confirmation's contents; and 2. Does not object to it within 10 days of its receipt. -Signature by PAWES not required.
Commercial Impracticability, "Impossibility" of Performance
Where unexpected events make the fulfillment of a K or performance of K impossible, or, as termed by the UCC, "commercially impracticable".
Conducting a Transaction Electronically (JBB Investment Partners, Ltd. v. Fair).
Whether parties have agreed to conduct a transaction by electronic means is determined from: 1. Context; 2. Surrounding circumstances; 3. Parties' conduct. -If there is no explicit agreement to deal electronically, a court will consider this a relevant factor, but is not dispositive of the issue.
"Conforming" Good
Whether the good conforms to the terms of the contract. A good that breaks warranty is a non-conforming good.
Test for the admissibility of course of dealing, usage of trade, and course of performance as evidence. Columbia Nitrogen Corp. v. Royster.
Whether the proffered evidence can reasonably be construed as consistent with the express terms of the agreement. A contract can explicitly state that course of dealing, usage of trade, and course of performance cannot be used to supplement a written contract.
Perfect Tender Rule If you ordered 100 red gumballs and 99 are green and 1 red, seller has not effectuated a perfect tender.
· UCC Rule which says that a K for sale, the seller must supply goods that conform perfectly to the buyer's demands. · Single Delivery Sales: To win against a buyer's rejection despite tendering perfect goods, a seller must have complied with all the terms of the K and the buyer still refused to take the goods. A buyer does not have the same bargaining power in a single-sale situation, where she will only have opportunity to receive a tendered good once.
