1 professor of law loyola law school, los angeles chapter 1 introduction
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- B. Performance and Breach Under the UCC 1. Non-installment sales
- ZABRISKIE CHEVROLET v. SMITH
- Notes and Problems Problem 59
Notes, Questions and Problems 1) It appears that Spry had arranged with Metro for Metro to purchase accounts receivable that were due to Spry from its sale of Hornell products. This would provide funds to Spry in order to pay Hornell the amount it owed for the products. Why was this arrangement not as satisfactory as a bank loan? Even if Spry had fully disclosed to Hornell its arrangement with Metro, would that have constituted adequate assurance? Problem 57 – If this case were covered by the CISG, could Hornell have suspended performance? See CISG Art. 71. Could it have avoided the contract? You may assume that failure to pay for the goods in the future would constitute a “fundamental breach.” See CISG Articles 25, 26, 72 & 73. Problem 58 - Contract for the sale of a car. The contract calls for the buyer to provide a “trade-in” at the time of delivery. The parties set an initial price for the trade-in at $6500, but since the new car would not be delivered for about two months, the contract provided that there would be a reappraisal done at that time. Shortly before the delivery of the new car, the seller reappraised the trade-in for $500 less ($6000). The buyer protested, and suggested that the parties split the difference. The seller refused. The buyer asked that the seller notify the buyer when the new car arrived and left the dealership. The seller then canceled the contract and sold the new car when it arrived to somebody else. Assume that there was an enforceable contract pursuant to which the buyer was required to accept the appraisal done by the seller and go through with the deal. Which party repudiated the contract? If it was the buyer, could the buyer call back the seller and retract the repudiation? See UCC § 2-610, comment 2, § 2-611 & Amended UCC § 2-610(3). See also McDonald v. Bedford Datsun, 59 Ohio App. 3d 38, 570 N.E.2d 299 (1989). Are these types of cases analyzed the same way under CISG Art. 72? B. Performance and Breach Under the UCC 1. Non-installment sales In analyzing performance and breach under the UCC, we must first ask whether the contract calls for delivery of the goods all at once or over time in installments? If the goods are to be delivered all at once, then section 2-601 applies. If the goods are to be delivered in installments, then section 2-612 applies. We will first consider non-installment sales. UCC § 2-301 provides that “(t)he obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.” Section 2-507 indicates that “(t)ender of delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise agreed, to his duty to pay for them.” In a non-installment sales contract under the UCC, the so-called “perfect tender rule” applies. Under that rule, section 2-601, unless otherwise agreed, the buyer may reject any tender of goods that fails in any respect to conform to the terms of the contract. This right is subject to contrary contractual agreement, and we will see that usually sellers limit the buyer’s rights to have the seller repair any defects. See § 2-719. This right is also subject to the seller’s statutory right to cure defects in some circumstances, which we will also explore. See § 2-508. If the buyer decides to reject the goods, the buyer must give notice to the seller of the rejection. UCC § 2-602(1). The buyer is also required to hold the goods with reasonable care at the seller’s disposition. UCC § 2-602(2). In some situations, if the buyer is a merchant, the buyer may be required to follow reasonable instructions of the seller with respect to the goods and in the absence of instructions to re-sell the goods if they are perishable or threaten to decline speedily in value. UCC § 2-603. If the buyer decides to accept the goods, the buyer becomes liable to pay the contract price for the goods. UCC § 2-607(1). The buyer may, however, be able to recover any damages that are caused by any non-conformity of the tender. UCC § 2-714(1). In some situations, the buyer will accept the goods with the understanding that the seller will attempt to cure defects but the seller fails to do so. In other situations, a defect will be discovered subsequent to acceptance. If the failure to cure or the subsequently discovered defect result in a “substantial impairment in the value of the goods to the buyer,” the buyer may revoke acceptance of the goods and recover the purchase price.28 The buyer may in addition recover damages caused by the breach, as will be discussed in the next chapter. If the buyer fails to make a payment to the seller when due on or before the goods are delivered to the buyer, the seller is permitted to cancel the contract. UCC § 2-702. In some situations in which the goods have been delivered but are not paid for or where the buyer is insolvent, the seller has limited rights to reclaim the goods. See UCC §§ 2-507, 2-511 and 2-702. Seller’s remedies will be considered more fully in the next chapter. The following famous case demonstrates some of these principles. ZABRISKIE CHEVROLET v. SMITH Superior Court of New Jersey 99 N.J. Super. 441, 240 A.2d 195 (1968) This action arises out of the sale by plaintiff to defendant of a new 1966 Chevrolet automobile. Within a short distance after leaving the showroom the vehicle became almost completely inoperable by reason of mechanical failure. Defendant the same day notified plaintiff that he cancelled the sale and simultaneously stopped payment on the check he had tendered in payment of the balance of the purchase price. Plaintiff sues on the check and the purchase order for the balance of the purchase price plus incidental damages and defendant counterclaims for the return of his deposit and incidental damages. The facts are not complex nor do they present any serious dispute. On February 2, 1967 defendant signed a form purchase order for a new 1966 Chevrolet Biscayne Sedan which was represented to him to be a brand-new car that would operate perfectly. On that occasion he paid plaintiff $124 by way of deposit. On February 9, 1967 defendant tendered plaintiff his check for $2069.50 representing the balance of the purchase price ($2064) and $5.50 for license and transfer fees. Delivery was made to defendant's wife during the early evening hours of Friday, February 10, 1967, at which time she was handed the keys and the factory package of printed material, including the manual and the manufacturer-dealer's warranty, none of which she or her husband ever read before or after the sale was made, nor were the details thereof specifically explained to or agreed to by defendant. While en route to her home, about 2 1/2 miles away, and after having gone about 7/10 of a mile from the showroom, the car stalled at a traffic light, stalled again within another 15 feet and again thereafter each time the vehicle was required to stop. When about halfway home the car could not be driven in “drive” gear at all, and defendant's wife was obliged to then propel the vehicle in “low-low” gear at a rate of about five to ten miles per hour, its then maximum speed. In great distress, defendant's wife was fearful of completing the journey to her home and called her husband, who thereupon drove the car in “low-low” gear about seven blocks to his home. Defendant, considerably upset by this turn of events, thereupon immediately called his bank (which was open this Friday evening), stopped payment on the check and called plaintiff to notify them that they had sold him a “lemon,” that he had stopped payment on the check and that the sale was cancelled. The next day plaintiff sent a wrecker to defendant's home, brought the vehicle to its repair shop and after inspection determined that the transmission was defective. Plaintiff's expert testified that the car would not move, that there was no power in the transmission and in that condition the car could not move. Plaintiff replaced the transmission with another one removed from a vehicle then on plaintiff's showroom floor, notifying defendant thereafter of what had been done. Defendant refused to take delivery of the vehicle as repaired and reasserted his cancellation of the sale. Plaintiff has since kept the vehicle in storage at his place of business. Within a short period following these occurrences plaintiff and defendant began negotiations for a new 1967 Chevrolet, but these fell through when plaintiff insisted that a new deal could only be made by giving defendant credit for the previously ordered 1966 Chevrolet. This defendant refused to do because he considered the prior transaction as cancelled. Plaintiff urges that defendant accepted the vehicle and therefore under the Code (UCC § 2-607(1)) is bound to complete payment for it. Defendant asserts that he never accepted the vehicle and therefore under the Code properly rejected it; further, that even if there had been acceptance he was justified under the Code in revoking the same. Defendant supports this claim by urging that what was delivered to him was not what he bargained for, i.e., a new car with factory new parts, which would operate perfectly as represented and, therefore, the Code remedies of rejection and revocation of acceptance were available to him. These remedies have their basis in breach of contract and failure of consideration although they are also viewed as arising out of breach of warranty. The essential ingredient which determines which of these two remedies is brought into play is a determination, in limine, whether there had been an “acceptance” of the goods by the buyer. Thus, the primary inquiry is whether the defendant had “accepted” the automobile prior to the return thereof to the plaintiff. (The court quotes from UCC § 2-606). The New Jersey Study Comment to 2-606 states: 2. Subsection 2-606(1)(a) is similar to the first clause of section 48 of the U.S.A. (N.J.S.A. 46:30--54). See also, Paul Gerli & Co. v. Mistletoe Silk Mills, 80 N.J.L. 128, 76 A. 335 (1910).' The Gerli case states: The question arises whether the defendant accepted it. The defendant had a right to inspect and examine (Sales Act, s 47), and, if necessary, to test the goods even though the test involved destruction of a part. Williston on Sales, s 475. If, however, the defendant intimated to the plaintiff that it had accepted the goods, or if the defendant did any act inconsistent with the ownership of the plaintiff, or if, after the lapse of a reasonable time, it retained the goods without intimating to the plaintiff a rejection, then the defendant must be deemed to have accepted the goods and the right of rescission is gone. Sales Act, s 48.' (at p. 129, at p. 336 of 76 A.) The New Jersey Study Comment to 2-606 further states: 3. Subsection 2--606(1)(b) is in accord with Sections 47 and 48 of the U.S.A., N.J.S.A. 46:30--53 and 54, and the case law of the state. S. G. Young, Inc. v. B. & C. Distributors Co., 23 N.J.Super. 15, 92 A.2d 519 (1952); Woodward v. Emmons, 61 N.J.L. 281, 39 A. 703 (1898). Young states: If plaintiff had found the resistors defective or imperfect it had the right to reject them and demand replacement or refund, or it could confirm the agreement of purchase, waiving its rights and treating the goods as its own. It could not do both. Had it desired to reject the goods purchased for cause, it should have acted promptly and within a reasonable time after discovering that the resistors were defective or imperfect. (at p. 27, at p. 524 of 92 A.2d) And Woodward held: Where the vendees of machines intended or adapted for pulverizing stone and hard materials, and purchased under a warranty of fitness for such purpose, after testing them, and, discovering defects which cause dissatisfaction, continue to use them, not in order to make further tests, but merely for the purpose of their own convenience or profit, such use constitutes an acceptance, and concludes them from the defense of a total failure of consideration, and they must rely upon their warranty. It is clear that a buyer does not accept goods until he has had a “reasonable opportunity to inspect.” Defendant sought to purchase a new car. He assumed what every new car buyer has a right to assume and, indeed, has been led to assume by the high powered advertising techniques of the auto industry – that his new car, with the exception of very minor adjustments, would be mechanically new and factory-furnished, operate perfectly, and be free of substantial defects. The vehicle delivered to defendant did not measure up to these representations. Plaintiff contends that defendant had “reasonable opportunity to inspect' by the privilege to take the car for a typical 'spin around the block” before signing the purchase order. If by this contention plaintiff equates a spin around the block with “reasonable opportunity to inspect,” the contention is illusory and unrealistic. To the layman, the complicated mechanisms of today's automobiles are a complete mystery. To have the automobile inspected by someone with sufficient expertise to disassemble the vehicle in order to discover latent defects before the contract is signed, is assuredly impossible and highly impractical. Consequently, the first few miles of driving become even more significant to the excited new car buyer. This is the buyer's first reasonable opportunity to enjoy his new vehicle to see if it conforms to what it was represented to be and whether he is getting what he bargained for. How long the buyer may drive the new car under the guise of inspection of new goods is not an issue in the present case. It is clear that defendant discovered the nonconformity within 7/10 of a mile and minutes after leaving plaintiff's showroom. Certainly this was well within the ambit of 'reasonable opportunity to inspect.' That the vehicle was grievously defective when it left plaintiff's possession is a compelling conclusion, as is the conclusion that in a legal sense defendant never accepted the vehicle. Even if defendant had accepted the automobile tendered, he had a right to revoke under UCC § 2-608. [The court quotes from § 2-608.] The New Jersey Study Comment to 12A:2--608 reads: 3. Subsection 2--608(1) permits revocation of acceptance only where there has been a non-conformity which substantially impairs the value of the lot or commercial unit which was accepted. No similar restriction is placed on the buyer's rights to rescind under section 69 of the U.S.A. (N.J.S. 46:30-- 75). Under the U.S.A., however, the courts have not allowed rescission for a trivial breach of warranty. Therefore, the U.C.C. requirement of substantial impairment does not differ radically from the decisions under the U.S.A. See, in this connection, Miller & Sons Bakery Co. v. Selikowitz, 4 N.J.Super. 97, 66 A.2d 441 (1949) (“The right to rescind, however, is an extreme one and does not arise from every breach. * * * The general rule is that rescission will not be permitted for a slight or casual breach of contract, but only for such breaches as are So substantial * * * as to defeat the objective of the parties * * *”). 12 C.J. Sec. 661, p. 613; 17 C.J.S. Contracts s 435, p. 918. Nor did plaintiff have reasonable grounds to believe that a new automobile which could not even be driven a bare few miles to the buyer's residence would be acceptable. The dealer is in an entirely different position from the layman. The dealer with his staff of expert mechanics and modern equipment knows or should know of substantial defects in the new automobile which it sells. There was offered into evidence the dealer's inspection and adjustment schedule containing over 70 alleged items that plaintiff caused to be inspected, including the transmission. According to that schedule the automobile in question had been checked by the seller for the satisfaction of the buyer, and such inspection included a road test. The fact that the automobile underwent a tortured operation for about 2 1/2 miles from the showroom to defendant's residence demonstrates the inherent serious deficiencies in this vehicle which were present when the so-called inspection was made by plaintiff, and hence plaintiff was aware (or should have been) that the vehicle did not conform to the bargain the parties had made, and plaintiff had no reasonable right to expect that the vehicle in that condition would be accepted. There having been no acceptance, the next issue presented is whether defendant properly rejected under the Code. That he cancelled the sale and rejected the vehicle almost concomitantly with the discovery of the failure of his bargain is clear from the evidence. Section 2-602 indicates that one can reject after taking possession. Possession, therefore, does not mean acceptance and the corresponding loss of the right of rejection; nor does the fact that buyer has a security interest along with possession eliminate the right to reject. (The court quotes from § 2-602 and from § 2-106 which defines “conforming goods.”) The Uniform Commercial Code Comment to that section 2-106 states: 2. Subsection (2): It is in general intended to continue the policy of requiring exact performance by the seller of his obligations as a condition to his right to require acceptance. However, the seller is in part safeguarded against surprise as a result of sudden technicality on the buyer's part by the provisions of Section 2-508 on seller's cure of improper tender or delivery. Moreover usage of trade frequently permits commercial leeways in performance and the language of the agreement itself must be read in the light of such custom or usage and also, prior course of dealing, and in a long term contract, the course of performance. There was no evidence at the trial concerning any “custom or usage,” although plaintiff in its brief argued that it is the usage of the automobile trade that a buyer accept a new automobile, although containing defects of manufacture, if such defects can be and are seasonably cured by the seller. Perhaps this represents prevailing views in the automobile industry which have, over the years, served to blanket injustices and inequities committed upon buyers who demurred in the light of the unequal positions of strength between the parties. In the present case we are not dealing with a situation such as was present in Adams v. Tramontin Motor Sales, 42 N.J.Super. 313, 126 A.2d 358 (App.Div.1956). In that case, brought for breach of implied warranty of merchantability, the court held that minor defects, such as adjustment of the motor, tightening of loose elements, fixing of locks and dome light, and a correction of rumbling noise, were not remarkable defects, and therefore there was no breach. Here the breach was substantial. The new car was practically inoperable and endowed with a defective transmission. This was a “remarkable defect” and justified rejection by the buyer. Lastly, plaintiff urges that under the Code, § 2-508 it had a right to cure the nonconforming delivery. (The court quotes from § 2-508.) The New Jersey Study Comment to 12A:2--508 reads: 3. Subsection 2--508(2) has been applauded as a rule aimed at ending 'forced breaches'. See, Hawkland, Sales and Bulk Sales Under the Uniform Commercial Code, 120--122 (1958). * * * Section 2--508 prevents the buyer from forcing the seller to breach by making a surprise rejection of the goods because of some minor non-conformity at a time at which the seller cannot cure the deficiency within the time for performance. The Uniform Commercial Code Comment to UCC §2-508 reads: 2. Subsection (2) seeks to avoid injustice to the seller by reason of a surprise rejection by the buyer. However, the seller is not protected unless he had “reasonable grounds to believe” that the tender would be acceptable. It is clear that in the instant case there was no “forced breach” on the part of the buyer, for he almost immediately began to negotiate for another automobile. The inquiry is as to what is intended by “cure,” as used in the Code. This statute makes no attempt to define or specify what a “cure” shall consist of. It would appear, then, that each case must be controlled by its own facts. The “cure” intended under the cited section of the Code does not, in the court's opinion, contemplate the tender of a new vehicle with a substituted transmission, not from the factory and of unknown lineage from another vehicle in plaintiff's possession. It was not the intention of the Legislature that the right to “cure” is a limitless one to be controlled only by the will of the seller. A “cure” which endeavors by substitution to tender a chattel not within the agreement or contemplation of the parties is invalid. For a majority of people the purchase of a new car is a major investment, rationalized by the peace of mind that flows from its dependability and safety. Once their faith is shaken, the vehicle loses not only its real value in their eyes, but becomes an instrument whose integrity is substantially impaired and whose operation is fraught with apprehension. The attempted cure in the present case was ineffective. Accordingly, and pursuant to UCC § 2-711, judgment is rendered on the main case in favor of defendant. On the counterclaim judgment is rendered in favor of defendant and against plaintiff in the sum of $124, being the amount of the deposit, there being no further proof of damages. Defendant shall, as part of this judgment, execute for plaintiff, on demand, such documents as are necessary to again vest title to the vehicle in plaintiff. Notes and Problems Problem 59 – Note that the court in Zabriskie Chevrolet holds that receipt of the goods does not necessarily constitute “acceptance” as that term is defined in UCC § 2-606. Before “acceptance” occurs, the buyer must have a reasonable opportunity to inspect. Driving the car home from the dealership was within the reasonable opportunity provided. Assume that you purchase a crystal vase from a store. You don’t notice a crack in the vase until you arrive home with the vase. Have you “accepted” the vase, thus precluding rejection? Is there a difference between the sale of the vase and the sale of the car in terms of the time permitted to inspect the goods? Problem 60 – Assume a contract for the sale of two industrial machines used in a manufacturing plant. Each machine performs its functions separately. When the machines arrive, Buyer notices a minor scratch on the side of one of the machines. The machines were warranted to be merchantable. Do the goods “conform” to the contract? See UCC § 2-106(2), official comment 2. If the goods do not conform, may the buyer reject both machines? UCC §§ 2-601, 2-105(6). When the buyer rejects the goods, what is the buyer required to tell the seller? See UCC § 2-605. Problem 61 - Assume that a buyer purchases a television set and the contract has an enforceable disclaimer stating that the television is sold “as is.” When the buyer first plugs the television set into the wall, it works for a minute and then dies. May the buyer reject or revoke acceptance of the television? Does the television “conform” to the contract? Problem 62 - Assume that goods are sold “FOB Seller’s Plant.” See UCC § 2-319. If the goods are damaged in transit between the seller’s plant and the buyer’s place of business, may the buyer reject the goods? What if the seller fails to make a reasonable contract for shipment under section 2-504 and the damage to the goods is minor? See UCC § 2-504. Problem 63 – Assume a contract for the sale of watermelons in bulk to a wholesale food distributor. By mistake, the seller ships cantaloupes instead. What must the buyer do in this case to preserve its rights? See UCC §§ 2-602 – 2-606. Problem 64 - In Zabriskie Chevrolet, if the seller had offered the buyer a new car rather than simply taking a transmission out of another car and putting into the one that was sold to the buyer, would the buyer be legally required to accept that tender? To what extent does section 2-508 permit a seller to repair a defect rather than substitute a new, conforming product? Would Zabriskie Chevrolet have had a better argument for cure if it had delivered the defective Chevy to the buyer before the date indicated in the contract? Compare § 2-508(1) to 2-508(2). Would Zabriskie Chevrolet have had a right to cure if the court found that the buyer had revoked acceptance rather than having rejected the car? Compare UCC § 2-508 with Amended UCC § 2-508. Download 1.49 Mb. Share with your friends:
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