UCC 2: DRAFTING SALES OF GOODS CONTRACTS (60 … · Contract Formation Under The UCC •Reduced...

UCC 2: DRAFTING SALES OF GOODS CONTRACTS

First Run Broadcast: April 8, 2016

1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes)

The sale of goods is one of the most common forms of commercial transactions. The sales

contracts governing these transactions can be quite complex and they must all comply with the

Uniform Commercial Code Article 2. The UCC governs contract formation, express and implied

warranties, and outlines forms of breach of contract and types of remedies. Compliance with its

extensive provisions ensures enforceability of the contract and expeditious remedies for breach.

However, when its many requirements are overlooked, contracts for sale of goods may be invalid

and the underlying transaction void. This program will provide you with a practical guide to

drafting and reviewing contracts for the sale of goods under UCC Article 2.

Drafting and reviewing sales contacts – UCC Article 2/Sales compliance, essential terms,

legal and practical considerations

Timeline of a sales contract – contract formation, delivery, acceptance or rejection by

buyer

Contract formation – “battle of forms,” methods of acceptance or rejection, and electronic

contracting

Forms of breach – failure to deliver, non-conforming product, repudiation, failure to pay

Remedies and measure of damages for buyer and seller breach

Express and implied warranties – fitness for purpose, merchantability, title infringement

Effective disclaimer of warranties and other techniques to limit scope of liability

Special issues related to installment contacts

Speaker:

Christopher Tompkins is a partner in the Chicago office of Jenner & Block, LLP, where he

counsels clients in such areas as breach of contract, the Uniform Commercial Code, equipment

leasing, business torts, and intellectual property. He has handled all phases of litigation in state

and federal court and before arbitration tribunals, including pre-litigation investigation, motion

practice, discovery, working with expert witnesses, trial and appeal. Previously, he served as a

legislative intern for the National Council of Commissioners on Uniform State Laws where he

worked on legislation related to commercial law. Mr. Tompkins received his B.A., cum laude,

from The Catholic University of America and his J.D., magna cum laude, from Loyola

University Chicago School of Law.

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UCC 2A: Drafting Sales of Goods Contracts Teleseminar April 8, 2016 1:00PM – 2:00PM

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Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: April 8, 2016 Seminar Title: UCC 2A: Drafting Sales of Goods Contracts Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

Sales Law: Contract Formation, Warranty & Breach

Christopher Tompkins

Jenner & Block – Chicago

(o) (312) 840-8686

[email protected]

mailto:[email protected]

Agenda

1. Scope Of UCC Article 2

2. Contract Formation

3. UCC Warranties & Limitations

4. Breach Of Sales Contract

1

Pre-Acceptance Remedies Post-Acceptance Remedies

Timeline Of A Typical Sale

2

Contract

On September 1 National Motors contracts to buy 100 widgets from Acme.

Tender of Delivery

On September 30 Acme delivers 100 widgets.

Acceptance

On October 1 National Motors inspects & accepts 100 widgets.

Agenda





3

Transactions Governed By UCC Article 2

UCC § 2-102. Scope—Certain Security and Other Transactions Excluded From This Article.

Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers, or other specified classes of buyers.

UCC § 2-105. Definitions: Transferability; “Goods”; “Future” Goods; “Lot”; “Commercial Unit”

(1) “Goods” means all things, including specially manufactured goods, which are movable at the time of identification to the contract for sale other than money in which the price is to be paid, investment securities (Article 8) and things in action. “Goods” also includes unborn young of animals and growing crops and other identified things attached to realty as described on goods to be severed from realty (Section 2-107).

(2) Goods must be both existing and identified before any interest in them can pass. Goods which are not existing and identified are “future” goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.

4

Scope of UCC Article 2

• UCC Article 2 applies to “transactions in goods.” – UCC Article 2 does not apply to transactions in real

estate, stocks, bonds, intangibles, or services.

– Leases of goods are not governed by Article 2 but by Article 2A.

• Transactions with parties in foreign countries may be governed by the CISG.

• Other statutes may also apply to sales of goods. – Consumer protection statutes.

– Deceptive practices statutes.

– Magnuson Moss Warranty Act.

5

Hybrid Transactions

• Scope issues often arise when contracts involve both goods and services or goods and intangibles. – Contracts that contemplate both equipment &

installation services.

– Contracts involving both tangible and intangible property.

– Distributorship or franchise contracts.

• The majority of states apply the predominate purpose test.

• What is the “raison d’etre” for the contract.

6

Agenda





7

Common Misconceptions

• Agreements to purchase goods are not enforceable unless they are in writing.

• Agreements need to include all material terms.

• Where the buyer and seller exchange their own forms, the provisions in the last document delivered govern.

• Warranties need to be in writing.

8

Contract Formation Under The UCC

• Reduced Emphasis On Formalities: – UCC § 2-201 — 0nly term that must be in writing under the

UCC’s statute of frauds is quantity.

– UCC § 2-204 — can be shown in any manner sufficient to show agreement, including conduct.

– UCC § 2-207 — contract can be formed even if the parties’ forms are not in complete agreement on all terms.

• Electronic Contracting: – UETA & E-Sign validate contracts formed electronically.

– Any symbol, such as typed name on an e-mail, can be a signature.

– Parties can accept terms they haven’t seen.

9

Statute Of Frauds UCC § 2-201. Formal Requirements—Statute of Frauds.

(1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.

(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.

10

Statute Of Frauds UCC § 2-201. Formal Requirements—Statute of Frauds.

(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or

(b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or

(c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-206).

11

Statute Of Frauds

• A writing is not required to enforce: – Contracts for sale less than $500. (UCC § 2-201(1).)

– Contracts for specially manufactured goods for which a substantial beginning has been made. (UCC § 2-201(3)(a).)

– Contracts admitted in court pleadings or testimony. (UCC § 2-201(3)(b).)

– Contracts for goods delivered and paid for. (UCC § 2-201(3)(c).)

• Where a contract involves merchants, the writing need not have originated from the party against whom enforcement is sought. (UCC § 2-201(2).)

12

“Battle Of The Forms”

UCC § 2-207. Additional Terms In Acceptance Or Confirmation. (1) A definite and seasonable expression of acceptance or a written confirmation

which is sent within a reasonable time operates as an acceptance 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.

(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:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

(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.

13

Rejection Of Mirror Image Rule

• UCC § 2-207(1):

“A definite and seasonable expression of acceptance

or a written confirmation which is sent within a reasonable time operates as an acceptance 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.”

14

“Expressly Conditional”

• UCC 2-207(1) permits the offeree to make acceptance “expressly conditional” on acceptance of additional or different terms.

• UCC 2-207(2) permits the offeror to expressly condition acceptance on acceptance of terms of the offer.

• These provisions are construed strictly. – Language such as “subject to” is often not sufficient.

– Some courts suggest that boilerplate “expressly conditional” language is not sufficient.

15

“Expressly Conditional”

16

1. OFFER, ACCEPTANCE. This Purchase Order is an offer to Seller by Buyer to enter into a purchase and supply agreement for the goods described. Seller’s commencement of work thereunder will constitute acceptance of the offer. Acceptance is expressly limited to the terms of Buyer’s offer. Once accepted, such Purchase Order together with these terms and conditions will be the complete and exclusive statement of the purchase agreement. Any modifications proposed by Seller are expressly rejected by Buyer and shall not become part of the agreement in the absence of Buyer’s written acceptance.

1. ACCEPTANCE. Seller’s acceptance of Buyer’s purchase order relating to the

products is expressly made conditional on buyer’s acceptance of these term and

conditions, which are in lieu and supersede any additional or different terms contained

in buyer’s own purchase order form or any other document or communication

pertaining to buyer’s order or the products, which additional or different terms shall be

deemed ineffective and rejected.

Was There Acceptance?

• By signing the other side’s contract document;

• By sending a responsive document, even if it has additional or different terms;

• By otherwise evidencing agreement to the other side’s contract document, such as – by signing a letter accepting the other document;

– by e-mail,

– by clicking “I Accept”; or

• By performance.

17

What Terms Govern?

UCC § 2-207(2): – The additional terms are treated as proposals

for addition to the contract.

– Between merchants such additional terms become part of the contract unless:

• “(a) the offer expressly limits acceptance to the terms of the offer;”

• “(b) they materially alter it; or”

• “(c) notification of objection to them is given.”

18

“Additional” Terms

• Additional terms are provisions addressing an issue that is addressed in one of the contract documents, but not the other.

• Additional terms become part of the contract, unless they are “material.”

19

“Material” Additional Terms

• An additional term is material if it would “result in surprise or hardship if incorporated without express awareness by the other party.” (Official Comment 4.) – Terms such as warranty disclaimers are generally thought to

be material. (Official Comment 4.)

– Terms such as a reasonable limitation on time for complaints are generally thought to be not material. (Official Comment 5.)

• Prior course of dealing may impact materiality. − Course of dealing can establish acceptance. − Course of dealing can negate unfair surprise.

• Materiality is a question of fact for the court or jury.

20

“Different” Terms?

• “Different” terms are conflicting terms.

• They address the same issue, but reach inconsistent results. – For example, the purchase order and invoice call for a

different method of delivery.

• UCC § 2-207(2) does not expressly address “different terms.”

21

The “Knock-Out” Rule

• Most jurisdictions follow the “Knock-Out” rule. – Under the “knock-out” rule, different terms in the

purchase order and the invoice are dropped from each.

– They are replaced by the appropriate gap-filler provisions of the Code.

• Minority view is that the different term in the acceptance drops out.

22

UCC § 2-207(2) In A Nutshell

• Where invoice and purchase order contain different or additional terms from each other, the contract consists of:

– Terms in offer not in conflict with acceptance;

– Non-material additional terms, and

– The UCC's “gap-filler” provisions.

23

Contract Formation Through Conduct

• Contract documents may not form contract, such where acceptance is made “expressly conditional” under UCC § 2-207(1).

• However, often the parties proceed as if there is a contract despite the lack of a binding agreement based on the documents exchanged.

• In the event of a dispute, the contract consists of the terms on which the writings of the parties agree, together with any supplementary terms provided by the UCC. (UCC § 2-207(3).)

• Most jurisdictions reject the “Last Shot” rule.

24

Agenda





25

Potential Warranties Under The UCC

• Express Warranties. – Description or affirmation of fact or promise regarding the

goods that was part of the basis of the bargain. (UCC § 2-313.)

• Implied Warranties. – Implied warranty of merchantability. (UCC § 2-314.)

– Implied warranty of fitness for a particular purpose. (UCC § 2-315.)

– Warranty of title and against infringement. (UCC § 2-312.)

26

Sources Of Express Warranties

• Oral representations

• Contract documents

• Catalogs

• Brochures

• Specifications

• Plans & Blueprints

• Product manuals

• Correspondence

• Inspection Reports

• Appraisals

• Packaging & Labels

• Package Inserts

• Material Safety Data Sheets

• Advertisements

• Models & Samples

27

“Basis Of The Bargain”

• Focus is whether or not the claimed warranty was part of the bargain between the parties.

• While some case law refers to a requirement of reliance, it is not necessarily required under the UCC.

• Official Comment 3 to the UCC § 2-313 suggests that a seller’s affirmation of fact about the goods is presumed to be a part of the basis of the bargain and no particular reliance need be shown.

• The “basis of the bargain” limitation has been read to exclude representations that could not have been part of the agreement, such as statements remote in time to the sale.

28

Specific Language; Fact Or Puffing?

• Words such as “guarantee,” “warranty” or specific intent to create a warranty are not required. (UCC § 2-313(2).)

• However “an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.” (Id.)

29

Implied Warranty Of Merchantability

• Unless disclaimed or modified, all sales of goods by a merchant of goods of that kind include an implied warranty of merchantability. (UCC § 2-314(1).)

• As discussed earlier, an attempt to limit the implied warranty of merchantability is likely to be considered a material additional term.

30

Merchantability

• To be merchantable, the goods must: – pass without objection in the trade under the contract description; and – in the case of fungible goods, are of fair average quality in the trade under

the contract description; and – are fit for the ordinary purpose for which such goods are used; and – run, within the variations permitted by the agreement, of even kind,

quality and quantity within each unit and among all units involved; and – are adequately contained, packaged, and labeled as the agreement may

require; and – conform to the promises or affirmations of fact made on the container or

label if any. (UCC § 2-314(2).)

• Other implied warranties may arise from course of dealing or usage of trade. (UCC § 2-314(3).)

31

Fitness For Particular Purpose

• If not disclaimed or modified, a sales contract may also contain an implied warranty of fitness for particular purpose under UCC § 2-315.

• To establish the warranty of fitness for particular purpose under UCC § 2-315, the buyer must establish: 1. the seller had reason to know of the particular purpose for

which the buyer bought the goods; 2. the seller had reason to know the buyer was relying on the

seller’s skill or judgment to select suitable goods; and 3. the buyer actually relied on the seller’s skill or judgment.

32

Warranty Of Title & Against Infringement

• The Seller warrants that it will convey good title, free from any security interest, lien or other encumbrance of which Buyer has no knowledge. (UCC § 2-312(1).)

• The warranty of title is not strictly an “implied warranty” and may only be disclaimed in accordance with the provisions of UCC § 2-312(2), which requires language informing the buyer that the seller does not claim title and is selling only the right or title that he may have.

• A merchant also warrants that goods will be delivered free of any rightful claim of infringement. (UCC § 2-312(3).) However, a buyer must hold a seller harmless for infringement where it furnishes specifications. (Id.)

33

Limiting Warranty Liability

• Sellers can limit or modify warranty liability in one of two ways: 1. Disclaim or modify applicable warranties. (UCC §

2-316.)

2. Modify or limit the remedies for breach of warranty. (UCC § 2-719.)

34

Disclaimer Of Implied Warranties

• To exclude or modify the implied warranty of merchantability, the disclaimer must mention merchantability and must be conspicuous. (UCC § 2-316(2).)

• A disclaimer of the implied warranty of fitness for a particular purpose must be in writing and must be conspicuous. (UCC § 2-316(2).)

• Use of language such as “As Is” and “With All Faults” is also sufficient to disclaim implied warranties. (UCC § 2-316(3)(a).)

35

Disclaimer Of Implied Warranties

• Implied warranties may also be disclaimed in other ways: – A buyer’s examination of the goods or a sample can

exclude implied warranties for defects the examination ought to have revealed. (UCC § 2-316(3)(b).)

– Course of dealing, course of performance or usage of trade may exclude or modify implied warranties. (UCC § 2-316(3)(c).)

• Exactor technical specifications displace general language or implied warranties. (UCC § 2-317.)

36

Disclaimer Of Express Warranties

• Words or conduct creating or negating express warranties are to be construed as consistent when possible but negations or limitations are inoperative if the provisions cannot be harmonized. (UCC § 2-316(1).)

• An integrated writing may exclude extrinsic evidence of other express warranties. (UCC § 2-202(b).)

37

Limitation Of Remedies

• A seller can also limit warranty exposure by limiting remedies available for breach of warranty. – An agreement may provide for remedies in addition to or in

substitution of those provided by the UCC, such as limiting remedies to repair or replacement or limiting damages to the purchase price. (UCC § 2-719(1)(a).)

– An agreement may limit or exclude consequential damages, unless that exclusion is unconscionable. (UCC § 2-719(3).)

• If the limited remedy “fails of its essential purpose” a buyer may resort to any UCC remedy. (UCC § 2-719(2).)

38

Agenda





39

Seller’s Breach

• Generally a Seller can breach a contract for sale of goods by: – Repudiating its obligation to deliver before the

delivery date;

– Failing to deliver the goods;

– Delivering the goods late; or

– Delivering defective or non-conforming goods.

40

Pre-Acceptance Remedies

Repudiation

41

Contract


On September 15 Acme states it will not deliver.

Repudiation & Adequate Assurances

• What is Repudiation? – A party repudiates a contract by expressing an intention

not to honor his obligations under the contract, or by taking action that demonstrates he will not perform. (UCC § 2-610 cmt. 1.)

• Adequate Assurance of Future Performance. – Parties may request adequate assurance if reasonable

grounds exist for insecurity regarding performance. (UCC § 2-609(1).)

– Failure to provide adequate assurance is a repudiation of the contract. (UCC § 2-610(4).)

42

Buyer’s Rights After Repudiation

• If Seller repudiates, and the loss will substantially impair the value of the contract, the Buyer may: – Wait for performance (UCC § 2-610(a)); or

– Resort to any remedy for breach (UCC § 2-610(b)); and

– Suspend his own performance (UCC § 2-610(c)).

• Seller may retract its repudiation by indicating it will perform unless: – The buyer has cancelled the agreement; or

– The buyer has changed his position or stated he considers the repudiation final. (UCC § 2-611(1).)

43


Failure To Deliver

44

On September 30 Acme fails to deliver.

Contract

On September 1 Natinoal Motors contracts to buy 100 widgets from Acme.

Failure To Deliver

• Seller may also breach the contract by failing to deliver the goods.

• The date of delivery will be either: – The date specified in the contract; or

– If no time is specified, within a reasonable time. (UCC § 2-309(1).)

• The place of delivery will either be: – The manner specified in the contract; or

– If no place or means of delivery is specified, the Seller’s place of business. (UCC § 2-308.)

45


Non-Conforming Delivery

46

After inspection National Motors discovers widgets are defective or order is incomplete.

Contract


Tender of Delivery


Tender Of Non-Conforming Goods

• Where the Seller tenders non-conforming goods, the Buyer may: – Reject all the goods;

– Accept them all; or

– Accept any “commercially acceptable units” and reject the remainder. (UCC § 2-601.)

47

Seller’s Cure Of Non-Conformity

• Where tender of delivery is rejected because it is non-conforming, but the time for delivery has not yet expired, Seller may notify Buyer of his intention to cure and make conforming delivery within the time provided by the contract. (UCC § 2-508(1).)

• If Seller had reasonable grounds for believing Buyer would accept non-conformity, Seller is permitted a reasonable time to make conforming tender. (UCC § 2-508(2).)

48

Installment Contracts

• A contract which calls for delivery in separate lots to be separately accepted is considered an “Installment Contract.” (UCC § 2-612(1).)

• A breach with respect to one or more installments is a breach of the whole contract only if the value of the entire contract is substantially impaired. (UCC § 2-612(3).)

• The entire contract will be reinstated if Buyer pursues a remedy for only the defaulted installments and demands performance of future installments. (UCC § 2-612(3).)

49

Installment Contracts

• For installment contracts, the Buyer must accept an installment if the value of the installment is not substantially impaired and the Seller gives adequate assurance that the non-conformity will be cured. (UCC § 2-612(2).)

• Buyer can only cancel the contract based on a single non-conforming delivery if the breach substantially impairs the value of the entire contract. (UCC § 2-612(3).)

50

Rightful Rejection

• Buyer must notify the Seller that the goods are rejected within a reasonable time after delivery, or within the time for rejection set forth in the contract. (UCC § 2-602.)

• Notification should specify the defects, since the Buyer will not be able to recover for unidentified defects if the Seller could have remedied them had he received such notice. (UCC § 2-605.)

• If both parties are merchants, failure to identify the defects upon request can waive rights to recovery. (Id.)

51

Buyer’s Duties Upon Rejection

• If Buyer has possession, he must store the goods for a sufficient time for Seller to reclaim them, at Seller’s expense. (UCC § 2-602.)

• If Buyer does not receive shipment instructions, Buyer may return the goods at Seller’s expense, or resell them for Seller’s account, offset by Buyer’s expenses for storage and sale. (UCC § 2-604.)

• Buyer may have a duty to take reasonable efforts to sell perishable goods. (UCC § 2-603(1).)

52



53

Contract


Tender of Delivery


Acceptance

On October 1 National Motors inspects & accepts 100 widgets.


• Under UCC § 2-711 Buyer may cancel the contract (if the breach goes to the whole), recover any portion of the price already paid, and either: – “Cover” by obtaining substitute goods and recover the

difference between the cost of substitute goods and the contract price, plus incidental and consequential damages, but less any expenses saved (UCC § 2-712); or

– Recover the difference between the market price at the time the Buyer learned of the breach and the contract price, plus incidental and consequential damages, but less any expenses saved (UCC § 2-713).

54

Buyer’s Incidental Damages

• Buyer’s incidental damages are defined as “expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incidental to the delay or other breach.” (UCC § 2-715(1).)

55

Buyer’s Consequential Damages

• Buyer’s consequential damages are defined as “(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty.” (UCC § 2-715(2).)

56

Buyer’s Recovery Of Goods

• If the Seller fails to deliver the goods by the contract date, or repudiates the contract before then, the Buyer can, under certain circumstances, recover the goods themselves, as an alternative to the “cover” remedy and market price remedies. (UCC § 2-711(2).)

57

Buyer’s Recovery Of Goods

• Buyer may be entitled to specific performance when the goods are unique or in other proper circumstances. (UCC § 2-716(1).)

• Buyer may have the right to replevin when the goods have been identified to the contract, and – the Seller becomes insolvent within 10 days after receipt of

the first installment payment. (UCC § 2-502.); or

– the Buyer is unable to purchase substitute goods or circumstances indicate efforts to do so would be unsuccessful. (UCC § 2-716(3).)

58

Breach Discovered After Acceptance

59

Widgets are defective when used on production line

Contract

On September 1 National Motors contracts to buy 100 widgets from Acme

Tender of Delivery

On September 30 Acme delivers 100 widgets

Acceptance

On October1 National Motors inspects & accepts 100 widgets

Post-Acceptance Remedies

Acceptance Of Goods

• The Buyer “accepts” the goods when the Seller has tendered delivery, the Buyer has had adequate opportunity to inspect them, and the Buyer: – Tells the Seller the goods conform to the contract;

– Tells the Seller the goods will be accepted despite non-conformity;

– Fails to reject the goods by notifying the Seller within a reasonable time; or

– Takes action inconsistent with Seller’s ownership of the goods. (UCC § 2-606(1).)

60

Revocation Of Acceptance?

• Buyer can revoke acceptance of goods within a reasonable time after he discovers or should have discovered their non-conformity if: – The non-conformity of the goods substantially affects their

value, and the Buyer accepted the goods based on a reasonable assumption seller would cure and seller has failed to do so; or

– When the Buyer had not discovered the non-conformity either due to the difficulties of discovery or seller’s assurances of conformity. (UCC §2-608(1)-(2).)

• If acceptance is properly revoked, the measure of damages will be based on non-delivery.

61

Consequences Of Acceptance

• After accepting the goods, if the acceptance is not properly revoked, the Buyer must pay the contract price. (UCC § 2-607(1).)

• Acceptance waives ability to revoke acceptance due to non-conformity Buyer knew about at the time unless the goods were accepted with the reasonable assumption that non-conformity would be cured. (UCC § 2-607(2).)

• Acceptance gives rise to the duty to notify Seller of any non-conformity within a reasonable time of discovery. (UCC § 2-607(3).)

• After acceptance, Buyer has the burden of proving breach of warranty. (UCC § 2-607(4).)

62

Breach Of Warranty

• The primary remedy for non-conforming goods after acceptance is breach of warranty.

• A contract for sale of goods may have several warranties: – Express warranties. (UCC § 2-313.)

– Implied warranty of merchantability. (UCC § 2-314.)

– Implied warranty of fitness for a particular purpose. (UCC § 2-315.)

– Warranty of title and against infringement. (UCC § 2-312.)

63

Damages For Breach Of Warranty

• After acceptance, Buyer may recover any damages “resulting in the ordinary course of events from the seller breach as determined in any manner which is reasonable.” (UCC § 2-714(1).)

• The standard formula for breach of warranty damages is the difference between the value of the goods at time and place accepted and the value the goods had they been as warranted, plus, in a proper case (i.e. they were foreseeable), incidental and consequential damages. (UCC § 2-714(2).)

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Special Circumstances

• In “special circumstances” a Buyer may establish losses that do not fit within the standard breach of warranty damage formula to ensure full compensation for its losses. (UCC § 2-714(2).)

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Excuses For Seller’s Non-Performance

• Prior breach by Buyer. – Buyer’s repudiation.

– Buyer’s failure to accept conforming delivery.

– Buyer’s failure to make payments.

• Unexpected difficulties with performance. – Casualty to identified goods. (UCC§ 2-613.)

– Commercial impracticability. (UCC§ 2-615.)

– Force majeure clause.

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Commercial Impracticability

• Performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. (UCC§ 2-615(a).)

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Buyer’s Breach

• A Buyer can breach by: – Repudiating obligation to accept or pay for goods.

– Refusing to accept conforming goods.

– Wrongful revocation of acceptance.

– Failure to pay.

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Seller’s Remedies

• Upon a buyer’s breach, UCC § 2-703 permits a seller to: – Withhold or stop delivery.

– Identify goods to the contract.

– Recover the goods.

– Resell the goods.

– Seek damages for non-acceptance, or in appropriate cases price.

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Seller’s Damages

• Difference in market price at the time of tender and the unpaid contract price plus incidental damages. (UCC § 2-708(1).)

• Where difference in price is inadequate to fully compensate, the profit the Seller would have earned plus incidental damages. (UCC § 2-708(2).)

• A seller can recover the unpaid price for any accepted conforming goods, goods lost or destroyed after risk of loss passes, or goods seller is unable to resell after reasonable efforts. (UCC § 2-719.)

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Questions?

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UCC 2: DRAFTING SALES OF GOODS CONTRACTS (60 … · Contract Formation Under The UCC •Reduced...

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Transcript of UCC 2: DRAFTING SALES OF GOODS CONTRACTS (60 … · Contract Formation Under The UCC •Reduced...