Contracts II outline – Professor Maggs Contract Interpretation



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§ 2-714- if breach of warranty, buyer may recover the measure of damages, which is the difference at the time of acceptance btw value of goods accepted and value they would have had if as warranted; may also recover consequential damages

  • Alternative A (Majority)- A seller’s warranty, express or implied, extends to buyer, and his family and guests, if reas. to assume they might be affected by the goods (addressing horizontal privity)

  • Disclaimers

    1. Express warranties § 2-316(1) – can’t be disclaimed

    2. Implied warranties § 2-316(2) – can be disclaimed, provided req.s are met

      • Implied warranty of merchantability- almost all sellers attempt to disclaim this

      • Disclaimers invalid if there is non-compliance w/formalities, 2-316(3):

        • Writing must be conspicuous and mention merchantability

          • conspicuous = reasonable person ought to have noticed it

        • FFPP disclaimer- must be in writing, be conspicuous, and mention merchantability

      • Sierra Diesel v. Burroughs- Burroughs sold SD a computer for billing/ tracking inventory, didn’t function as expected; Held- disclaimer of merchantability and FFPP not conspicuous b/c on back of page, lack of heading, right in middle, small font

      • Exceptions: “with all faults” or “as is” – no implied warranty of merchantability (i.e. used car, e-bay)

    3. Unconscionability § 2-302(1)

      • efforts to disclaim when breach results in person injury typically unconscionable

      • Martin v. Joseph Harris- Martin bought Harris seeds, which had fungus and developed a disease; Held- unconscionable even tho min. req.s of 2-316 met

  • Pattern of Argumentation

    1. Π’s Claim: Δ made an (express or implied) warranty that the goods would be __, and the goods are not __, b/c __. §§ 2-312(1), 2-313)1), 2-314(1), 2-315

    2. Δ’s 1st Defense: I did not make the warranty; the elements of § __ are not satisfied b/c __.

      1. Coakley & Williams v. Shatterproof Glass-

    3. Δ’s 2nd Defense: I did not make the warranty to you b/c you are not the person who might have been reasonably expected to use, consume or be affect by the goods. § 2-318, alt. C.

    4. Δ’s 3rd Defense: I disclaimed the warranty in accordance w/the requirements of 2-316(1).

    5. Π’s 1st Reply: The warranty is an express warranty and cannot be disclaimed. § 2-313(1).

    6. Π’s 2nd Reply: The disclaimer is unconscionable in this case b/c __. § 2-302(1).

      1. Martin v. Joseph Harris

    7. Π’s Remedy: I am entitled to damages equal to the value of the goods accepted and the value they would have had if they had been as warranted, plus incidental and consequential damages. 2-714(1), (2); 2-715(1) & (2).

  • Buyer’s Remedies (if there is breach of contract)

    1. Rules

      1. Cancel/ Stop Payment/ Recover Payments, 2-711(1), 2-601, 2-608

        1. When can buyer cancel and withhold/ recover payment?

          1. upon seller’s failure to deliver/ repudiation, 2-711

          2. upon buyer’s justified rejection of goods (i.e. if damaged at time of delivery), 2-601 (may reject unless otherwise agreed)

            • perfect tender/ good faith, 2-601, 1-203

              • perfect tender rule- if the goods (or tender of delivery) fail in any respect to conform to the contract, the buyer may reject the goods

                • this is contrary to the rule of substantial performance & material breach (i.e. Jacob & Youngs v. Kent- use of Cohost instead of Redding pipe not a material breach; see also Walker & Young v. Harrison- duty to maintain neon sign subst. performed)

                • why different? w/goods, you can generally give the goods back, so much less of a hardship

              • obligation of good faith- i.e. if tender is nearly perfect- “oh come on” rule

              • DP Technology v. Sherwood Tool- DP creates custom computer system for Sherwood, hardware came 16 days late and Sherwood doesn’t pay; Held- applies minority rule- no material breach b/c substantially performed

            • seller’s right to cure, 2-508(1), (2) if:

              • early tender (time of performance hasn’t occurred yet) OR surprise rejection (reasonable grounds to believe the goods would conform), 2-608(1)

              • seller has a limited right to try again, to get it right; mitigates harshness of perfect tender rule

            • duty to hold goods for seller, 2-602(2)(b), (c)- buyer must hold w/reasonable care for sufficient time for seller; don’t have to send back unless previously agreed

          3. upon buyer’s justified rejection of acceptance (buyer accepts goods and then decides to revoke acceptance)

            • Requirements:

              • the defect must cause substantial impairment of value to buyer (substantial breach)

              • it must b/c of assumption of cure/ difficulty of discovery (i.e. difficult to discover it wouldn’t work or seller assured it would work)

              • reasonable time

            • Jorgensen v. Presnall- buyers purchased mobile home, which had many defects; they sought to revoke acceptance/ cancel the contract; Held- there was a substantial impairment of value, seller has limited number of chances to cure

      2. Force Delivery of Goods, 2-716, 2-502

        1. Ways buyer can force delivery of goods if seller fails to deliver goods/ repudiates

          1. Specific performance if goods are unique or other proper circumstances (not really defined by UCC), 2-716(1)

            • Sedmak v. Charlie’s Chevrolet- Charlie’s reneged on its promise to sell a corvette pace car to the Sedmaks; Held- specific performance is appropriate b/c, although the car is not unique, it would have been impossible to obtain otherwise w/o considerable expense and inconvenience

            • Hilmor Sales Co. v. Supronica Corp.- Π claims lipstick and nailpolishes ordered at close-out prices are unique; Held- specific performance not granted; Π could cover at a higher price and obtain the difference

          2. Replevin (pre-judgment seizure), 2-716(3)

            • Requirements:

              • goods identified, 2-501(1)(a)

                • i.e. not if future-made, custom goods or seller doesn’t have them

              • unable to cover (buyer is unable to make a reasonable purchase in substitution after reasonable effort), 2-712(1)

          3. Recovery after partial payment, 2-501(1)

            • Requirements:

              • special property interest (i.e. goods have been identified)

              • buyer pays unpaid portion

              • buyer may only recover if: consumer goods (since 1999) or seller becomes insolvent

      3. Recover Damages For Non-Accepted Goods, 2-712, 2-715

        1. cover difference, 2-712,

          1. Cover- price at which buyer buys substitute goods; can charge seller who breached the difference

          2. Requirements:

            • good faith

            • w/o reasonable delay

            • reasonable purchase; must be a commercially reasonable substitute if not the same

            • in substitution; can’t buy add’l goods; must be substituting goods seller didn’t supply

        2. market difference, 2-713(1) – difference btw market price at time buyer learned of breach and contract price, together w/consequential damages, less expenses saved

          1. measuring market price?

            • location, 2-713(2)

              • non-delivery – place of tender

              • if rejection occurs – place of arrival

                • i.e. NY buyer buys eggs from Atlanta seller, FOB; rejects; here, use market price at place of arrival; if FOB, buyer not entitled to recover shipping costs b/c they are not incidental; other incidentals- cost of storing/ selling the eggs; consequential- lost profit possibly

            • time – when buyer learned of breach, 2-713(1)

            • branch of trade – same as contract, 2-713

              • i.e. if farmer selling corn to elevator breaches, elevator can recover cost to cover (minus contract price) from another farmer, not the market price elevators are selling for

          2. Limitations on buyer’s ability to recover market damages under 2-713?

            • none mentioned, so none; sometimes buyer gets a windfall if f buyer decides not to use the market damages to buy the goods (and there is a dramatic change in price)

            • 2-711, cmt. 3; 1-106: remedies should be liberally administered to put aggrieved party in as good a position as if the other party had performed

            • Allied v. Victor- Allied to buy raisins from Victor, resell to Jap. buyer; price of raisins shot up, Victor didn’t deliver, Allied sues; Jap. co. never sues Allied; Held- recovery not allowed under 713; aggrieved party should be put in as good a position as if the other party performed – requires limiting award of damages to buyer to its actual loss (expected profit)

              • general statement of 1-106 (putting aggrieved party in same place they would have been in) vs. specific rule that buyer can recover the market price difference; general rule: specific controls (ct. here disagreed)

            • But See TexPar Energy v. Murphy Oil- Texpar to buy asphalt from Murphy and then sell it to Starry; price of oil shot up; Murphy breached, forcing TexPar to breach w/Starry (who it settled w/); Held- specific provision of 2-713 applies, TexPar entitled to market price damages (allows non-breaching party the windfall)

            • What if buyer has already covered?

              • Can buyer recover market price if buyer has covered at a lower price?

                • courts are divided; most courts- no, b/c buyer would then be better off

                • some courts- always entitled to market damages (even if cover damages are less)

                  • why? someone will get a windfall, why give it to the breaching party; benefit of buyer being a good negotiator/shopper should not be given to the seller, who breached

              • 2-712- if you pay over the market price, in good faith, you may recover the difference

        3. incidental damages, 2-715(1)- damages that arise in the ordinary case, expenses reasonably incurred; may recover post-rejection costs

        4. consequential damages, 2-715(2)- loss that is foreseeable and unavoidable

      4. Obtain Damages For Accepted Goods, 2-714, 2-715

        1. General Rules

          1. buyer may accept some or all goods, 2-601(b),(c)

          2. duty: payment for goods accepted, 2-607(1); must be at the contract price

          3. duty: notice to seller, 2-607(3)(a): must be w/in a reasonable time after you realize goods are defective

        2. damages for accepted goods may be for breach of warranty, 2-714(2), (3)

          1. difference btw value of goods as accepted and value they would have had if as warranted

          2. Chatlos Systems v. NCR- NCR sold Chatlos a computer for bookkeeping; contract price- $40k, value of accepted goods- $6k, value if as warranted- over $200k (use of expert testimony to prove); Held- Πs recover difference btw value of goods if as warranted (over $200k) minus value of goods accepted ($6k)

        3. damages may be for other problems (i.e. lateness, etc.), 2-714(1),(3)

          1. J.V. Zimmerman v. General Mills- JVZ delivered toys for GM’s cereal late; JVZ’s defense that GM didn’t provide notice of defect fails- JVZ knew delivery was late; GM wants $ for airfreight, overtime, and cartons it destroyed; Held- GM recovers airfreight and overtime (but not cartons b/c not date-stamped, could’ve used in another box)

      5. Await Delivery/ Retraction of Repudiation

      6. Recover in Restitution Despite Buyer Having Also Breached

        1. Seller fails to deliver, but buyer is also in breach; buyer may recover in restitution any payments buyer has made to seller, but must subtract either $500 or 20%, whichever is less.

    2. Pattern of Argumentation

      1. Buyer’s Defenses Based on Remedy Provisions

        1. S’s claim: B promised to accept and pay for goods and did not do it.

        2. B’s 1st defense: I had a right to suspend my payment b/c S gave me reasonable grounds for feeling insecure (and I demanded that S provide me w/adequate assurance of performance). § 2-609(1).

        3. B’s 2nd defense: I had a right to cancel the whole contract b/c S repudiated the whole contract or breached the whole by failing to deliver when payment was due. §§ 2-610(b), 2-711(1).

        4. B’s 3rd defense: I had a right to cancel w/r/t one installment b/c S repudiated the obligation to deliver the installment or failed to deliver it when payment was due. §§ 2-610(b), 2-711(1).

      2. Buyer’s Request for the Price Paid and Market Damages

        1. B’s claim: S promised to transfer and deliver the goods and did not do it.

        2. B’s damage request: S should have to pay damages equal to the price already paid and the difference btw the market price and the contract price, plus incidental and consequential damages but less expenses saved. §§ 2-711(1)(b), 2-713(1).

        3. S’s reply: B is not entitled to the market price difference b/c B covered. § 2-713 cmt. 5.

      3. Buyer’s Request for the Price Paid and Cover Damages

        1. B’s Claim: S promised to transfer and deliver the goods and did not do it.

        2. B’s damage request: S should have to pay damages equal to the price already paid and the difference btw the cover price and the contract price, plus incidental and consequential damages but less expenses saved. §§ 2-711(1)(a), 2-712(2).

        3. S’s reply: B is not entitled to the cover price difference b/c B did not make in good faith, and w/o unreasonable delay, a reasonable purchase in substitution from those due from me. § 2-711(2).

      4. Buyer’s Attempt to Force Delivery

        1. B’s claim: S promised to transfer and deliver the goods and did not do it.

        2. B’s 1st request: I am entitled to replevin b/c the goods have been identified and I am unable to cover. § 2-716(3).

        3. B’s 2nd request: I am entitled to recover the goods identified b/c the seller became insolvent w/in 10 days after receipt of the 1st installment for their price. § 2-502(1).

        4. B’s 3rd request: The court should award specific performance b/c the goods are unique or there are other proper circumstances. § 2-716(1).

        5. S’s reply: The court has the discretion to deny specific performance for equitable reasons. § 2-716 cmt. 1.

      5. Buyer’s Request for Restitution

        1. B’s claim: Although I breached the contract (by repudiating or by failing to pay the full price when due), I am entitled to restitution of the payments made to the seller, minus $500 or 20%, whichever is less. § 2-718(2). See Davis Chemical v. Diasonics.

        2. S’s counterclaim: B failed to pay and accept the goods and is liable for damages. §§ 2-718(3); 2-703.

      6. Non-Conforming Delivery

        1. B’s claim: S delivered non-conforming goods.

        2. B’s 1st remedy request: Having accepted and paid for the goods, I am entitled damages measured in any reasonable manner. §§ 2-714; 2-703.

        3. B’s 2nd remedy request: Having rejected the goods, I am entitled to recover the price and damages. § 2-711(1).

  • Seller’s Remedies

    1. If buyer repudiates/ failure to pay (see XII): Seller may (2-610b), seek any remedy available for any other type of breach; withhold/suspend delivery; cancel the contract; suspend performance; or reclaim the goods.

    2. What DAMAGES can the seller recover from the buyer? 2-713

      1. Full Contract Price (recovery of full purchase price) when:

        1. goods accepted, 2-709(1)(a)- if buyer has accepted goods, he must pay full purchase price

          1. issue: when does acceptance occur?

          2. Bloom v. Skelly- issue: when does acceptance occur? Skelly agreed to buy candelabras from Bloom; delivery attempted multiple times to her home, eventually she said she would not accept them; Held- if you don’t reject or inspect (w/opportunity to do so), implied acceptance, Bloom recovers [Skelly might assert there was implied rejection]

        2. white elephants”, 2-709(1)(b), (2)- buyer has not accepted goods, but seller can’t resell them at a reasonable price after reasonable efforts (seller entitled to full contract amt.)

          1. i.e. buyer contracts for mink coat in large size w/large flare; might be able to resell, but unlikely for reas. price; best for seller to recover full purchase price so that buyer can actually get the coat (rather than paying a high amt. of difference and getting zip)

      2. Difference Between Contract Price and the Market Price

        1. seller will seek damages b/c contract price higher than market damages; if buyer seeking market damages, b/c market is higher than agreed to

        2. measure market price at time/place for tender; if repudiation occurs before tender, consider market price at time seller learns of repudiation (i.e. anticipatory damages)

      3. Difference Between Contract Price and Resale Price

        1. if resale is made in a commercially reasonable manner, seller can recover difference btw contract price and resale price, even if it’s lower than the market price

        2. if there is a resale, and resale (35.5) is higher than market price (35), can’t get difference btw contract (36) and market- must get difference btw contract and resale price

        3. Is the seller barred from using 2-708(1) (difference btw contract and market price) if:

          1. seller actually resells? Yes, Tesoro

            • Holborn Oil v. Tesoro- Holborn to buy oil at $1.30, price fell to .80, repudiated; Tesoro resold gasoline for $1.10 (higher than market!); Tesoro wants diff btw market and contract (we should benefit from our negotiating skills, could have made 2 sales), Holborn btw resale and contract; Held- 1-106, seller should be limited to difference btw contract and resale, not recover more than expected profit

          2. market damages would exceed lost profit under 2-708(2)? No, Southwire

            • Transworld v. Southwire- contract for sale of aluminum, monthly deliveries, price dropped, buyer repudiates; Held- seller may recover difference btw contract price and market price (which exceeds lost profit); ok for seller to get windfall; risk taken by both parties market price would rise/fall

      4. Rule: buyer may get retain the deposit up to a certain limit:

        1. amount of liquidated damages

          1. if buyer’s deposit exceeds the liquidated damages, buyer can recover the difference btw the deposit and the liquidated damages

        2. buyer can recover deposit, less 20% of the value of the total performance to which buyer is obligated under the contract or $500, whichever is smaller, 2-718(2)(b)

        3. amount of actual damages, 2-718(3)(a)

      5. Liquidated Damages, 2-718(1)

        1. seller may recover liquidated damages stipulated in contract at an amount reasonable in light of the harm caused by the breach

        2. sellers often ask for % of contract price, or the deposit; Courts have usually found a % of contract price to be a reasonable amount

        3. Martin v. Sheffer- buyer, Martin, rejected (wrongfully) printer on b/c ‘late’; Martin had paid 50% deposit and sues to get it back; seller counterclaims for liquidated damages; Held- full purchase price liquidated damages not unreasonable (they are getting goods at price they contracted for; sophisticated parties, UCC- businesses can vary terms)

      6. Lost Profit, 2-708(2)

        1. restitution offset to showing of seller’s ability to recover damages

        2. impt measurement b/c in many cases, contract price will be the same as market price, and resale is often the same as contract/market price

        3. Test for whether seller could have made another sale & is due lost profit under 2-708:

          1. seller had capacity to make another sale (Majority)

            • Neri v. Retail Marine Corp.- Neri hospitalized, couldn’t buy boat, Retail refused to refund his deposit; Held- Neri entitled to his deposit, less Retail’s lost profit (another boat sale), less incidental damages (storing boat until resale)

          2. seller had the capacity and could have made one more sale profitably (Diasonics)

            • Diasonics v. Davis- Diasonics contracted to sell MRI to Davis, who breached; Held- case remanded to determine if seller could have made another sale profitably

              • most sellers are already producing at max capacity

        4. Calculation of lost profit

          1. 2-208(2)- measure of damages may be the profit which seller would have made if buyer had fully performed:

            • [profit expected + overhead] + incidental costs + costs incurred – payments/ proceeds (usually 0)

              • profit expected is contract price – cost of procurement

              • cost expected = direct cost expected + overhead

              • profit + overhead = contract price – direct costs expected

          2. Bulldozers Inc.- lost profit is 30k (contract price) – (20k, direct cost, + 1k, commission) + 0 + 0 – 0 = $9k

            • lost profit changes when # of bulldozers sold changes b/c the cost of fixed overhead changes when spread over 10 vs. 9 bulldozers



      1. Pattern of Argumentation

        1. Seller’s Defenses Based on Self-Held Remedy Provision

          1. B’s Claim: S promised to transfer and deliver goods and did not do it.

          2. S’s 1st Defense: I had a right to suspend my performance b/c B gave me reasonable grounds for feeling insecure (and I demanded assurance).

          3. S’s 2nd Defense: I had a right to cancel the whole contract b/c B repudiated the whole contract or breached the whole by failing to pay when payment was due.

          4. S’s 3rd defense: I had a right to cancel w/respect to 1 installment b/c B repudiated the obligation to pay for it or failed to pay for it when payment was due.

          5. S’s 4th defense: I had a right to refuse to deliver except for cash b/c I discovered B’s insolvency.

          6. S’s 5th Defense: I had a right to stop delivery b/c B repudiated or failed to pay or b/c I discovered B’s insolvency.

        2. Seller’s Request for the Contract Price

          1. S’s claim: B promised to accept and pay for goods and did not do it.

          2. S’s damage request: B should have to pay the contract price for the goods.

          3. B’s reply: S is not entitled to the contract price b/c I did not accept the goods and the goods could be resold for a reasonable price after reasonable efforts.

        3. Seller’s Request for the Resale Damages

          1. S’s claim: B promised to accept and pay for goods and did not do it.

          2. S’s damage request: B should have to pay the difference btw the contract price and the resale price, plus incidental damages less expenses saved.

          3. B’s reply: S cannot recover the resale price difference b/c S did not resell the goods in good faith and in a reasonable manner.

        4. Seller’s Request for the Market Damages

          1. S’s claim: B promised to accept and pay for goods and did not do it.

          2. S’s damage request: B should have to pay the difference in the market price and the contract price, plus incidental damages, less expenses saved.

          3. B’s reply: S cannot recover market damages b/c S resold the goods at a price above the market price. (Southwire)

        5. Seller’s Request for Lost Profit

          1. S’s claim: B promised to accept and pay for goods and did not do it.

          2. S’s damage request: B should have to pay my lost profit as measured by § 2-708(2).

          3. B’s reply: S cannot recover lost profit b/c S is not a lost volume seller. S could not have profitably made another sale if it had delivered the goods to me. (Davis v. Diasonics)

        6. Seller’s Request to Reclaim Goods

          1. S’s claim: I have a right to recover goods from B b/c the goods were delivered before I discovered B’s insolvency.

          2. B’s 1st defense: S did not assert a claim for the goods w/in 10 days after their receipt and the buyer did not fraudulently misrepresent solvency in writing w/in 3 mos. before delivery. § 2-702.

          3. B’s 2nd defense: I purchased the goods from the buyer in the ordinary course or in good faith, and thus acquired good title.
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