1 professor of law loyola law school, los angeles chapter 1 introduction

1 Copyright © 2005 by Bryan D. Hull. All rights reserved.

2 Louisiana has subsequently adopted many provisions of the UCC, but not Article 2.

3 See G. Gilmore, The Ages of American Law 85 (1977).

4 U.S. Const. art. VI, Paragraph 2.

5 15 U.S.C. §§ 2301-2312.

6 49 USC 80101, et. seq.

7 For a listing of the laws promulgated by UNCITRAL, see www.uncitral.org. See also www.unidroit.org and www.hcch.net/e/.

8 The Hague Conventions were promulgated by the Hague Conference on Private International Law, which is an intergovernmental organization that seeks to unify the rules of private international law. At present, there are 64 member nations of the Hague Conference, including the United States. For more information, visit http://www.hcch.net. At the time of this writing (Summer, 2004), the following states had adopted the 1955 Hague Convention: Belgium, Denmark, Finland, France, Italy, Niger, Norway, Sweden and Switzerland. The 1986 Hague Convention has not yet been ratified by a sufficient number of states to be effective.

9 At the time of this writing (Summer, 2004), the following states were members of the European Union: Austria, Belgium, Cypress, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, The Netherlands and the United Kingdom.

10 At the time of this writing (Summer, 2004), only Mexico and Venezuela have ratified the Convention.

11 See Reich & Halfmeier, Consumer Protection in the Global Village: Recent Developments in German and European Union Law, 106 Dick. L. Rev. 111 (2001) (seller’s performance is normally the characteristic performance under the contract since all that the buyer does is pay).

12At the time of this writing (Summer, 2002), Denmark, Finland, Norway and Sweden have opted out of Part II of the CISG.

13 [fn. 2] In describing the second (offer-acceptance) situation to which Section 2-207 was intended to apply, Official Comment No. 1 describes the acceptance as a "wire or letter" but makes no such reference to a written offer. As in the situation where there is but one written confirmation sent subsequent to an oral agreement-which is expressly referred to in Comment No. 1-we believe the drafters anticipated cases, such as the present one, where a written acceptance would be sent in response to an oral offer.

14 [fn. 6] Apparently believing that Collins & Aikman's acknowledgments were acceptances "expressly . . . conditional on assent to the additional or different terms" under the Subsection 2-207(1) proviso, the District Court recognized contracts between the parties under Subsection 2-207(3) since the subsequent performance by both parties clearly recognized the existence of a contract. Absent our conclusion that Collins & Aikman's acknowledgments do not fall within the Subsection 2-207(1) proviso, we believe that the District Court correctly applied Subsection 2-207(3) to Collins & Aikman's "acceptances" notwithstanding the fact that some of the language of that Subsection appears to refer to the typical situation under Section 2-207 where there exist both a written offer and a written acceptance. Although we recognize the value that writings by both parties serve in sales transactions, where Subsection 2-207(3) is otherwise applicable we do not believe the purposes of that Subsection should be abandoned simply because the offeror chose to rely on his oral offer. In such a case, we believe that the District Court's comparison of the terms of the oral offer and the written acceptance under Subsection (3) would have been correct.

15 [fn. 8] While [UCC § 2-207], Official Comment Nos. 4 and 5 provide examples of terms which would and would not materially alter a contract, an arbitration clause is listed under neither. Although we recognize the rule "that the agreement to arbitrate must be direct and the intention made clear, without implication, inveiglement or subtlety," Matter of Doughboy Industries, Inc., and Pantasote Co., 17 A.D.2d 216, 218, 233 N.Y.S.2d 488, 492 (1962) (indicating in dictum that an arbitration clause would materially alter a contract under 2-207(2) (b)), we believe the question of material alteration necessarily rests on the facts of each case. See American Parts Co. v. American Arbitration Ass'n, 8 Mich.App. 156, 171, 154 N.W.2d 5, 14 (1967).

16 At the time of this writing (November, 2003) the following nations have either made a declaration under Article 96 or otherwise stated that they are not bound by Article 11: Argentina, Belarus, Chile, Estonia, Latvia, Lithuania, Russian Federation and the Ukraine. For an up-to-date listing of nations making various declarations under the CISG, see the UNCITRAL website, www.uncitral.org.

 The facets of ideal-cut diamonds are cut to provide maximum brilliance at the expense of size and strength. At the time of the original contract, ideal-cut diamonds appear to have been relatively rare in this country.

17 [court fn. 1] Presumably DMV received notice of the theft. (See Veh. Code, § § 10500, 10503). On receiving notice, DMV is required to "place an appropriate notice in the electronic file system which will identify such vehicles during the processing of new certificates of registration, ownership, or registration and ownership." (Veh.Code, § 10504.) This safeguard operates to prevent creation of a second chain of title for a stolen vehicle under its authentic VIN. Obviously, it is not proof against registration of a stolen vehicle under the VIN assigned to a similar car not registered in California. Although the stipulated facts do not explain the origin of the spurious VIN used here, one can speculate that it came from a heavily damaged Mercedes registered in Louisiana, probably acquired from a wrecking yard by the thief or an accomplice at the cost of its salvage value and then falsely presented to the Louisiana vehicle registration authority as "rebuilt."

18 Only the express warranty issue is considered here – Ed.

19 [fn.5] As the supplier of the asbestos-containing product and as its installer, Johnson provided both goods and services to the Commonwealth. We are satisfied that Johnson is a "merchant" with respect to the asbestos product. In its memorandum of law in support of its motion for judgment n.o.v., Johnson implied that it should be viewed as a service provider rather than as a merchant, but it has not pressed this argument on appeal.

20 [fn.13] We note that it is a matter of some dispute as to when the dangers of asbestos became either known or scientifically discoverable. See Borel v. Fibreboard Paper Prods. Corp., 493 F.2d 1076, 1083-1086 (5th Cir.1973), cert. denied, 419 U.S. 869, 95 S.Ct. 127, 42 L.Ed.2d 107 (1974) (reviewing history of knowledge as to risks of exposure to asbestos)[According to the court, asbestosis was a known disease as early as the 1920’s – Ed.].

21 Only the part of the opinion dealing with the disclaimer or warranties is reproduced here - Ed.

22 [fn.2] We note that the cases expanding the potential plaintiff class deal with personal injury. The Illinois Supreme Court has declined to extend Berry and abolish the privity requirement in cases involving solely economic losses. Szajna v. General Motors Corp., 115 Ill.2d 294, 311, 503 N.E.2d 760, 767, 104 Ill.Dec. 898, 905 (Ill.1986). The Illinois Supreme Court later made clear that the privity requirement was not abolished in all cases where plaintiff alleges physical harm as a result of breach of warranty. Board of Educ. of City of Chicago v. A, C and S, Inc., 131 Ill.2d 428, 461-62, 546 N.E.2d 580, 595-96, 137 Ill.Dec. 635, 650-51 (Ill.1989)

2 The Magnuson-Moss Warranty Act, 15 U.S.C. s 2301, et seq. (Supp. 1975 to 1980), does not apply to this case because the mobile home in question was manufactured before the effective date of that act. 15 U.S.C. s 2312 (1976).

23 [fn. 1] A "flathouse" is a noncylindrical grain storage facility. It is basically a rectangular building with a heavy steel frame, sheet metal liner, and sheet metal walls and roof. The flathouse in this case is 1 1/2 times the length of a football field.

24 [fn.1] There is no dispute that the rail siding contemplated was at the Chrysler plant in Fenton, Missouri.

25 The statute of frauds was not raised in this case as a defense. There was some written evidence of a contract – Ed.

26 Denmark, Finland, Norway and Sweden have made such a declaration.

27 A “factoring company” is in the business of purchasing accounts receivable. One way for a business to obtain credit is to sell its accounts receivable to a factor, at a discount. That way, the business receives money immediately rather than waiting for its customers to pay – Ed.

28 For a discussion of the workings of the UCC rules governing tender, acceptance, rejection and revocation, see Whaley, Tender, Acceptance, Rejection and Revocation – The UCC’s “TARR-Baby,” 24 Drake L. Rev. 52 (1974).

29 [fn. 4] Appellant would be entitled to an offset for the reasonable value of appellee's continued use of the automobile after revocation but for the former's failure to adduce evidence of such value at trial.

30 White & Summers, Uniform Commercial Code § 8.3 (5^th ed.).

31 In UCC parlance the contract would be “cancelled” if the contract was ended due to breach. A contract is “terminated” under Article 2 if the contract is ended for reasons other than breach. See UCC § 2-106(3) & (4).

32 [fn.3] This is not a case where UTZ has rejected the potatoes because they were a week (or a month late) or where the quantities were lower than anticipated. Such nonconformity would not constitute "substantial impairment" of this contract because timing and quantity are not its critical components. See, e.g., Emanuel, supra, (delay in installment shipment of bar review study aids not significant where shipment was still timely for the purposes of the contract); Hudson Feather & Down Products, Inc. v. Lancer Clothing Corp., 128 A.D.2d 674, 513 N.Y.S.2d 173 (2d Dep't 1987) (delay in installment payment did not substantially impair value of whole contract).

33 For a very good discussion of the factors taken into account in determining if a breach is fundamental, see Robert Koch, The Concept of Fundamental Breach of Contract under the United Nations Convention on Contracts for the International Sale of Goods, in Pace, ed, Review of the Convention on Contracts for the International Sale of Goods 177-354 (1998). This discussion can be found on the internet at http://www.cisg.law.pace.edu/cisg/biblio/koch.html.

34 These factors are discussed in the Koch paper cited above.

35 Ziegel, Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods, Article 79, found on the internet at http://www.cisg.law.pace.edu/cisg/text/ziegel79.html.

36 See R. Posner, Economic Analysis of the Law 107, 117-19 (5^th ed. 1998).

37 See Macneil, Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical and Relational Contract Law, 72 Nw. U.L. Rev. 854 (1978); Speidel, The New Spirit of Contract, 2 J. Law & Comm. 193 (1982)(discussing Aluminum Co. of America v. Essex Group, 499 F. Supp. 53 (W.D. Pa. 1980)).

38 [fn. 6] The contracts contained the following provision:

"4.06 Increased or Decreased Contract Quantities.

"When the accepted quantities of work vary from the quantities in the bid schedule, the Contractor shall accept as payment in full, so far as contract items are concerned, payment at the original contract unit prices for the accepted quantities of work done.

"The Engineer may order omitted from the work any items or portions of work found unnecessary to the improvement and such omission shall not operate as a waiver of any condition of the Contract nor invalidate any of the provisions thereof, nor shall the Contractor have any claim for anticipated profit.

"No allowance will be made for any increased expenses, loss of expected reimbursement therefor or from any other cause."

39 The Robinson-Patman Act, 15 U.S.C. § 13, forbids a seller of goods from engaging in price discrimination (i.e. charging lower prices to some of its distributors than others) when the effect would be to create a monopoly. Whether the contract in this case would violate that law was not further discussed in the case - Ed.

40 [fn. 3] MAC urges that we should follow the "majority" of courts to address the issue and hold that notice-via-lawsuit is insufficient as a matter of law, citing cases such as Chemtrol Adhesives, Inc. v. American Mfrs. Mut. Ins. Co., 42 Ohio St.3d 40, 537 N.E.2d 624, 638 (1989), and Lynx, Inc. v. Ordnance Prods., Inc., 273 Md. 1, 327 A.2d 502, 514 (1974). But MAC's assertion that this is the "majority" position recognizes that courts in other jurisdictions disagree. In fact, the Chemtrol Adhesives, Inc. court declined to adopt such a per se rule. See 537 N.E.2d at 638. We decline to resolve this issue of first impression under Delaware law.

41 [fn.3] At oral argument, counsel for appellant responded to questions from the bench, as follows:

Judge Rosenn: Your position also is that you agree, number one, that the fair market value is the measure of damages here.

Counsel for Appellant: Yes, sir.

Judge Rosenn: The fair market value you say, in the absence of other evidence to the contrary that is relevant, is the contract price. That is the evidence of fair market value.

Counsel: That's right.

Judge Rosenn: Now seeing that had the expert or had the plaintiff been able to establish testimony that there were other machines on the market that were similar to your machine-

Counsel: Yes.

Judge Rosenn: That the fair market value of those was $50,000, that would have been relevant evidence but it had to be the same machine-same type machine.

Counsel: Well, I would say that the measure of damages as indicated by the statute requires the same machine-"the goods"-in an operable position.

42 [fn.4] We find the following analogy, rather than the Rolls Royce-Ford analogy submitted by appellant, to be on point:

Judge Weis: If you start thinking about a piece of equipment that is warranted to lift a thousand pounds and it will only lift 500 pounds, then the cost of something that will lift a thousand pounds gives you more of an idea and that may be-

Counsel for Appellee: That may be a better analogy, yes.

Judge Weis: Yes.

43 [fn.10] The speculative nature of his estimate is revealed by his reply on cross-examination:

Q: Now, your estimate of $103,000 was based on the use of what packages, payroll, accounts receivable, order entry, inventory control, etcetera; what packages did you include in your estimate of $102,000?

A. I assumed that we would be able to obtain through competitive bidding packages from vendors in the computer field to meet most of these requirements, if not all of those requirements, and that to the extent that we could not meet the Chatlos requirements they could be modified by a programmer to meet those requirements.

Q. Do you know or did you make an estimate of the purchase price for the various programs that you have told us about, packages?

A. I only made estimates, sir, because no decision as to machine is available, therefore, it is impossible to go out and shop for specific packages.

Q. Does the cost of a package depend on the machine?

A. In part.

Q. You estimated a cost of $102,000 but you don't know how much the packages cost; is that right?

A. Well, I did obtain some estimates of packages from, as I mentioned the foremost package sales organization in the country, just so that I would have a basis for making sure that my numbers were not unreasonable.

44 More about the application of this section when we discuss the obligations of carriers and other bailees in the next chapter.

45 See Perillo, Misreading Oliver Wendell Holmes On Efficient Breach and Tortious Interference, 68 Fordham L. Rev. 1085 (2000).

46 Is the UCC limited only to sales of goods by merchants? – Ed.

47 The trial court had held that evidence of lost profits would not be admissible because the evidence was too speculative. In another part of the opinion, the court holds that the evidence should have been admissible and that it is apparently also relevant on the issue of the reasonableness of the liquidated damages provision. – Ed.

48 The CLPISG was promulgated in 1974 and and amended in 1980 to make it conform to the CISG. The CLPISG, as amended in 1980, has been acceded to by 18 nations, including the United States. Some of the nations that adopted the 1974 CLPISG have not adopted the 1980 amendments. For a complete listing, see www.uncitral.org under the link “status of texts.”

49 CLPISG Art. 10.

50 CLPISG Art. 11.

51 [fn. 1] Eventually, Western had to dedicate a repair department, with as many as ten technicians, exclusively for repairing (free of charge) the delamination problems. In total, Western has had, or will have, to repair more than twenty percent of the Filon-sided RVs that it laminated with Adhesive.

52 The only part of the opinion being reproduced here deals with the applicability of the statute of limitations – Ed.

53 Only the part of the opinion relating to the UCC warranty claim is presented here – Ed.

54 The revisions mostly accommodate the creation of electronic documents of title and modernize the terminology of Article 7.

55 This type of transaction would be subject to UCC Article 9. See UCC § 9-313.

56 See UCC § 5-107 for the duties of advising and confirming banks.

57 For the list of countries ratifying or signing the Convention, see the UNCITRAL website at http://www.uncitral.org/en-index.htm.

58 [fn. 1] The "GmbH" designation means "Gesellschaft mit beschrankter Haftung," or "company with limited liability." GmbH is a common form of corporate organization in Germany and is similar to the "Inc." designation in the American corporate system.

59 [fn. 2] In a case like this one, international letters of collection are issued by the seller's bank (Edeka) and sent to the buyer's bank (NBC Bank), which in turn presents the letter and its documents to the buyer. To receive the documents and collect the goods, the buyer pays the amount due to its bank, which then forwards the funds to the seller's bank. Enforcement of these letters is governed by the International Chamber of Commerce's International Rules for Collection.

60 [fn. 4] There is no evidence in the record as to the price paid at auction, or whether that amount was more than the customs and wharfage fees.

61 See generally White & Summers, Uniform Commercial Code § 21-2 (2d ed.).

62 See 49 USC §§ 11706, 14706; UCC § 7-309; White & Summers, Uniform Commercial Code § 21-1 (2d ed.); 8A Am. Jur. 2d Aviation § 75.

63 See, e.g., UCC § 7-309(2).

64 See 46 App. USC § 1300 et. seq.; 49 USC § 40105 (note following statute reprints Warsaw Convention). The Carriage of Goods by Sea Act largely follows the 1924 Brussels Convention, which has been ratified by most of the significant commercial countries. The United Nations Convention on the Carriage of Goods by Sea was finalized in Hamburg in 1978, and is in force in 29 countries at the time of this writing (Fall, 2004). For a list of countries adopting the “Hamburg Rules,” visit www.uncitral.org.

65 See Gold Star Meat Co. v. Union Pac. R.R. Co., 438 F.2d 1270 (10^th Cir. 1971).

66 [fn. 6] The treaty is formally known as the Protocol to Amend the Convention for the Unification of Certain Rules Relating to International Carriage by Air signed at Warsaw on 12 October 1929, Sept. 28, 1955, 478 U.N.T.S. 371. The Hague Protocol did not enter into force for the United States until the Montreal Protocol No. 4 was ratified by the Senate on September 28, 1998 and became effective on March 4, 1999--after the shipment at issue here. Accordingly, the Hague Protocol does not govern here, but we look to it as an amendment to the Warsaw Convention that may provide insight into the shared understanding of the Warsaw Convention's contracting parties.