附：自编选读资料（一） Chapter 1 Introduction: Scope of the Uniform Commercial Code and the CISG
This is a course about risk allocation.
Commercial enter into deals because they trust their partners.
The law in this area does two things:
Creates a background allocation of risks, so it tells us who bears the risk.
Law becomes important when trust breaks down. Parties enter into commercial contracts in order to predict things when normal mechanisms turn out to be insufficient.
A seller is going to sell 20 carloads of coffee beans every month for 3 years and the buyer says that he would pay x amount of dollars subject to a consumer price index (so if the index goes up the price paid goes up) for the coffee beans.
Let’s say the beans are different type than what expected, but the same value, does the buyer has to pay for those coffee beans? Same value but different type, what should we do?
The lawyer’s job is to anticipate the problems.
The role model for this course is the planner and the adviser that can avoid the problems and takes care of the problem before they arise.
国际条约 Uniform Commercial Code
It has to be interpreted in a holistic way.
Article 2 is state law, it’s not federal law. This survived intact from the 60’s to the 90’s, but later there were technological things that needed to be added. Finally a few years ago, there was a revision and 0 states have adopted the provision.
United Nations Convention
1990 the United Nations Convention was drafted by representatives of a lot of countries drafted it and as of today 65 states have adopted it. However, England, Japan and Brazil have not adopted.
These statutes are intended to govern a wide range of transactions. Interpretation
A lot of this course is about interpretation.
The CISG doesn’t become the law of the nation, unless it’s adopted it. Non-uniformity:
This is enforced by national courts, there’s no international tribunal for this disputes. As a result, some level of non-uniformity is inevitable.
There are 6 authoritative versions of CISG in different languages. Therefore, there’s some non-uniformity because the courts are going to interpret it in different ways.
Also non-uniformity will arise from political issues because courts from other countries will be reluctant to follow interpretation from other courts
Article 2 of UCC 对ucc第2条的分析
The contract, not the property (title) dominates article 2. The rights and duties of the parties under the Code are determined by their contract so as to capture the intention of the parties, the Factual Bargaining of the buyer and seller.
Applies to transactions in goods.
Goods are defined in 2-105:
Goods: all things including manufactured goods which are moveable at the time of identification to the contract for sale. It also includes other identified things attached to realty. So a house is not a good because it’s not moveable.
An interest in goods can only be passed if the goods are both existing and identified. If they are not then they are “future goods”.
Natural goods: Goods attached to realty such as minerals, oil, gas, etc. These are goods if they are to be severed by the seller, but as realty if they are to severed by the purchaser. Growing crops are goods.
Fixtures: this are other goods that may become attached to the realty, such as air conditioning, water heater, etc. However, article 2 avoids the use of the term fixtures.
Most of the substantive provisions of article 2 apply to sales or contract for sales or to buyers or sellers.
Sale: passing of title from the seller to the buyer for a price.
Scope of Article 2 First assignment problem –
You have entered into a binding contract with a cabinet maker to construct custom-made cabinets that are designed to hold stereo equipment in your home. The day after you enter into the contract, the cabinetmaker repudiates prior to completing manufacture of the cabinets.
In order to answer those questions, please be thoroughly familiar with sections 2-102, 2-105, 2-106, 2-401, and 2-501 of the UCC and with Articles 1-4, 7, 10, and 95 of the CISG.
Are the rights of the parties under the contract governed by Article 2 of the Uniform Commercial Code (UCC) are their rights governed under article 2?
This are future goods under 2-105 (2), so they are goods and this is a transaction goods under 2-105 if the cabinets are moveable at the time of identification of the contract for sale, not now.
Now, let’s see if there’s a sale, under 2-106 there’s a saleif there’s passing of title, if the title doesn’t pass then there isn’t a sale. Under 2-401(2) the title passeswhen the goods are delivered, but the title hasn’t passed but, 2-106 says a contract could be for the present orfuture sale of goods.
But the goods have to be moveable at the time of identification, under 2-501(b) the identification takes place when the goods are shipped, marked or designated by the seller as goods for the contract for sale.
So for purposes for article 2 this are goods, they will become goods at the time of the cabinets are made.
But in this case the cabinets weren’t build, so does article 2 apply or not? It seems this was but, article 2 deals with issues of repudiation, 2-610 talks about repudiation and deals with performance not yet due, so the cabinets are taken as goods for purposes of article 2.
2-102 doesn’t really govern all transactions in goods, because goods are defined as in sales, then leases and other things are not governed by article 2.
Hybrid contracts / Hypothetical
Seller will sell books to buyer at $10,000 and the buyer is going resale the same goods back to the seller for $10,500.
Is this governed by article 2? It look like a secured loan. There might be non-sale non-commercial reasons to do this, so if it really is a secured loan, then it’s governed by article 9, but not by article 2, even though the parties made it look like it.
Let’s say a lessor and a lessee entered into a transaction for a computer lease for 10 years and if the lessee is up to date with payments at the end of the 10 years, the lessee can purchase the computer for 1 dollar. so, the good has no value at the end of the 10 years. But if the buyers intended an installment sale why is it a lease? It could be for tax reasons. But the fact that we treat the transaction as a lease for tax purposes, it doesn’t mean it’s a lease for purposes of article 2 if the parties enter into a transaction that has all the characteristics of a sale, and then we treat it as a sale. Possible solutions:
Bonebrake Test (Princess cruise article): We could ask whatthe predominant purpose of the transaction is.
We could also separate the transactions.
So, we have different tests to deal with the transactions, so why favor one test over the other. The majority of courts use the predominant purpose test.
案例选读及分析 Loughridge v Goodyear Tire & Rubber Issue – is it a good or a fixture? Facts
Heatway sells parts for hydronic radiant heating systems.
Goodyear manufactured and sold a hose used in Heatway’s radiant system.
Plaintiffs bring claims for breach of express warranty, breach of implied warranty of merchantability, and breach of implied warranty of fitness for a particular purpose against Goodyear.
Goodyear’s argument: the claims should be dismissed because the transaction didn’t involve a sale of goods but rather a fixture or realty.
The hose was moveable at the time of the identification of the contract for sale, making it a good.
Separate units of goods which are later incorporated into a home or building are still goods at the time that they are procured for installation.
The fact that materials sold might later be installed and would assume the character of fixtures doesn’t undermine the primary purpose of the contract as one for a sale of goods.
Princess Cruises v General Electric Company Issue - Is it services or goods? Facts
GE, the original manufacturer of the ship’s turbines, provided a Princess’s ship with routine inspection services and parts incidental to the ship’s inspection and repair.
Princess canceled two cruises due to the delayed in the repairs.
Princess allegued breach of contract, breach of express warranty, breach of implied maritime warranty and negligence.
This transaction concerned the rendering of services.
The UCC also applies to certain mixed contracts for goods and services, but it depends on the purpose of the transaction, whether the contract primarily concerns the furnishings of goods or the rendering services.
Granted that goods and service are mix, it should be looked at its predominantfactor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved (artist doing a painting) or is a transaction of sale, with labor incidentally involved (installation of water heater).
Other issues to note:
First a court must decided whether the predominant purpose of the transaction is the sale of goods. Once this has been performed, the court may decide whether to apply common law, the UCC or other statutory law.
Factors to determine the nature of contract / Coakley factors:
The language of the contract: the language of the contract indicated that although GE planned to supply certain parts, the parts were incidental to the contract’s predominant purpose.
The nature of the business of the supplier: GE’s correspondence and quotation came from GE’s installation and Service Engineering Department.
The intrinsic worth of the materials: the value of the items weren’t itemized separately.
Whether courts should draw on UCC principles or on common law doctrines when assessing the formation of a maritime services contract is undecided.
Restatement of contracts:
section 59- a reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter offer.
Section 61 – an acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made to depend on an assent to the changed or added terms.
Scope of CISG CISG的适用
If the parties are in different countries, are their rights governed by the United Nations Convention on Contracts for the Sale of International Goods?
The CISG doesn’t defined sale or goods.
Article 2 – doesn’t apply to sales of goods for personal use, auctions, execution, sales of securities, ships, vessels, hovercraft or aircrafts and sales of electricity.
So, article 2 and 3 gives us some ideas of the scope of the CISG, but it doesn’t really say where the CISG applies.
Does the contract involve an international sale to which the CISG applies? It applies.
Article 1(1)(a) - it is an international contract since the place of business are in different states.
States = Nations
Contracting States = Nations that have adopted the CISG.
Things to note:
1. The nationality is irrelevant.
If the business are in the same nation, but the fact that one of the business is operated by a company from another country it doesn’t matter. Is irrelevant where the negotiations occur and where the contract was signed.
2. The only thing that matter is the “Place of Business” and where the parties are located.
3. Hypothetical: the goods never crossed an international boundary but the one party’s place of business was abroad, then CISG applies.
Unawareness of buyer that seller is from different country
Neither knew the manufacturer was foreign. The answer would have changed and the convention wouldn’t have applied.
According to article 1(2), the CISG doesn’t apply if the parties didn’t know the other one was foreign.
Business with multiple offices
German manufacturer negotiated through an office in the country of the buyer. The CISG applies, since the manufacturing takes place in Germany.
Article 10(a) The business with the closest connection to the contract and performance would be the one that is taken into account.
b) Providing specifications.
A software constitutes a good.
Article 3(1) - Then CISG applies.
the convention would apply since it’s not supplying materials necessary for such goods.
What happens if the buyer provides material. The convention would apply depending on the interpretation of the word “substantial”,
Article 3(1) - the convention wouldn’t apply if the buyer supplied a substantial partof the materials necessary. Substantial interpretation:
ii) Sale and maintain computers for 10 years. The convention would apply since the main purpose of the contract is the sale of computers and the service is incidental. Article 3(2) – The CISGdoesn’t apply to where the contracts have apreponderant part consist of service contracts.
* Preponderant in 3(2) makes you think that substantial in 3(1) is not a quantitative interpretation. Because preponderant makes you think of majority.
c) i) Suit is filed in NY does the CISG apply? the convention applies. NY court applies, but NY includes federal law, the CISG is federal law, so CISG apply. Or the court could say German law apply and since Germany has ratified the CISG, the CISG applies.
ii) Suit is filed in Germany – the convention applies. Same answer as above.
iii) Suit filed in England - the convention is applied. Even if England has not adopted the CISG, doesn’t mean the CISG won’t apply because they’ll look at conflict of laws and if the law of NY or the law of Germany apply, then CISG will apply.
Buyer’s country is Brazil, Brazil hadn’t ratified the CISG at the time of the contract. The application of conflict of laws leads to the application of German law. So, 1(1)(a) doesn’t apply because Brazil wasn’t a contracting States. But 1(1)(b) might apply which refers to the conflict of law rule, so if German law applies, then the CISG applies, even though Brazil is not a contracting State.
This is an argued rule because why would the residents of a country that didn’t adopt the convention should be governed by the CISG. So, article 95 allows to opt out of 1(1)(b).
e) buyer’s country is US. The convention doesn’t apply.
Even though we have an international transaction, even if one country adopted CISG and even the law governing is CISG, that country wouldn’t apply the CISG because there’s a reservation of article 95 and this case the US would apply the UCC.
This reveals a certain political element, so the CISG is written by diplomats and law professor and their objective is different from commercial parties. So, how effective is the CISG for purposes of commercial law? This is a good thing to think about.
Article 6 / Party Autonomy
The CISG is open to the party autonomy. The parties can opt out of the CISG, so how do we know if they opt out. The Asante case tells us something about this.
Asante Technologies Inc. v PMC
In the absence of clear language indicating that both contracting parties intended to opt out of the Convention and in views of Defendant’s terms and conditions which would apply the convention, the court rejects plaintiff’s contention that he choice of law provisions preclude the applicability of the convention.
What do the parties mean? The court says that they can’t tell. So, if the assumption is California law and that means CISG what does it mean?
The court says that the language has to be clear that they are opting out of the CISG, such as “law of California not including CISG”.
Parties can opt out of CISG or from a part of it, but they have to be clear.
In the absence of clear language indicating that both parties intended to opt out of the Convention, the convention applies.
Party autonomy in commercial law
UCC and CISG both embrace the party autonomy, what does this tell you? We need a way of filling gaps. So, commercial law is a gap-filler in a particular way. Then the parties don’t have to agree anyway, they don’t have to negotiate, because they know that the law will cover what they didn’t negotiate, they can reach a deal with a handshake and if it doesn’t work there are laws that cover it.
There are background rules of law that govern the negotiation if the parties didn’t negotiate it, but the parties can opt out if they want to. Therefore, the law minimizes the cost of transactions, so there are more transactions taken place.
This reduces transactions cost.
The background rules are what a majority wants, but is it really like this? If there are political motivations, then it might not be true.
第 2 周
第 2 次课
Chapter 2： Formation of the Contract Offer and Acceptance
附：自编选读资料（二） Chapter 2 The Formation of the Contract Offer and Acceptance
Contract for UCC: total legal obligation that results from the parties’ agreement as determined by the UCC as supplemented by any other applicable law. Agreement: the bargain of the parties in fact as found in their language, or inferred form other circumstances, including course of performance, course of dealing or usage of trade.
The focus is on the agreement and the purpose is to discover the actual agreement.
A contract is formed as long as it is sufficient to show agreement (2-204(1)), even though it can’t be determined when exactly when the contract was made (2-204(2)) and even though numerous terms are missing from the agreement.
Acceptance: article 2 allows offers to be accepted in any reasonable manner and by any reasonable medium.
An offeror can dictated the manner of the acceptance only by unambiguously demanding it or where reasonable parties would contemplate it (2-206(1)(a)).
The “mirror image” rule is modified to allow the bargaining to dominate the fine printing (2-207).
Good faith modifications are enforced without consideration (2-209(1)).
The battle of the forms 2-207
It permits an expression of acceptance to operate as an acceptance even if it contains additional or different terms (2-207(1)).
Coastal & Native Plant v Engineered Textile
Coastal purchased PVC liners from Engineered Textile which had purchased the material to make the liners from Occidental Chemical.
Coastal allegedly suffered damages because the liners shrank and leaked chemicals and it sued Textile.
Textile ordered the material by sending purchase orders to Occidental which responded with invoices expressly conditioning its acceptance of the order on the buyer’s assent to the terms on Occidental’s invoice.
Issue – battle of the forms, the court must determine the manner in which the parties formed the contracts. Is it a contract or not? What kind is it?
Occidental invoices made its acceptance subject to and expressly condition upon Engineered assent to the terms and conditions printed on the reverse side of the invoices. Thus under UCC each invoice did not operate as an acceptance, however this doesn’t mean that the parties failed to form a contract.
Section 2-207(3) governs because the parties acknowledged the existence of a contract every time they conducted business with each other.
2-207(3) – conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writing of the parties do not otherwise establish a contract. 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.
Other issues to note
Can a party utilize section 2-207(2) to provide additional terms to a contract formed pursuant to section 2-207(3)? NO.
2-207(2)- the additional terms are to be construed as proposals for addition to the contact. 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
c) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
Terms of a contract created by conduct under section 2-207(3) are:
The terms on which the writing of the parties agree.
Supplementary terms: Limited to the standard “gap-filler” provisions of the UCC. This do not include the terms on which the writings of the parties do not agree.
Section 2 cannot be used. So, if additional terms are given and not agreed upon, the seller must accept the potential risk when he elects to perform without first obtaining buyer’s assent. Since the seller injected ambiguity into the transaction by including the “expressly conditional” clause, he most bears the consequences.
The acceptance in common law must match exactly the offer in a “mirror image”, so if the acceptance has new terms this would be a counter offer which would except an acceptance, this goes back and forth until somebody finally performs. This led to some level of dissatisfaction, because this formal procedure is inconsistent with reality. So, what did the UCC did? Reilly Foam Corp v Rubbermaid
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…
2-207(2) – the additional terms are to be construed as proposals for addition to the contract.
If the offer is accepted on different terms, should the terms of the offer control or should the acceptance be followed, or should the conflicting terms cancel each other out, to be replaced by gap fillers provided by the UCC?
The approach held by a majority of courts is known as the Knockout rule. That is that the conflicting terms do not become a part of the contract.
Comment 6: there would a cancellation of terms in both parties’ documents that conflict with one another, whether the terms are in confirmation notices or in the offer and acceptance themselves.
One should not be able to dictate the terms of the contract merely because one sent the offer. Merchants are frequently willing to proceed with a transaction even though all terms have not been assented to.
Article 16 Revocation of the offer
16(1) - The offer can be revoked before the offeree has dispatched an acceptance.
16(2) Irrevocable when
An offer cannot be revocable if there’s a fixed time for acceptance or that it is irrevocable.
If it is reasonable for the offeree to think the offer is irrevocable and the offeree has acted.
- An offer is generally revocable in common law countries until the acceptance. Hypothetical: the offer has the following legend “this offer may be accepted any time within the next 30 days” is this revocable? In most common law countries this statement would not prevent the revocability. In Civil countries this legend would not allow revocation within this time.
This clause would be interpreted differently in different countries.
COUNTER OFFER. Article 19(1): if there are different terms it’s treated as a counteroffer.
However, 2-207 seems to be written to seize on commercial reality and article 19 assumes that the commercial actors read the terms. So, under article 19 if we don’t have an acceptance to those new terms we don’t have a contract. Article 18(1): a statement made or other conduct of the offeree indicating assent to an offer is an acceptance. Therefore, acceptance of the goods means acceptance of the counteroffer. Therefore, the arbitration clause is valid and enforceable.
So it seems that article 19 is a continuation of the practice of 2-207.
Is there any argument that can be made that even before the acceptance of the good a contract came into existence?
Under article 19(2) if the acceptance contains additional or different terms which don’t materially alter the terms of the offer constitutes an acceptance.
So is the arbitration clause material? Under 19(3) there’s a list and since it mentions “settlement of disputes” then the arbitration clause is material.
Immaterial category: it seems to be a narrow category after the list of article 19(3).
Although it seemed that article 19 is a continuation of 2-207, after the list of article 19(3), it’s clear that it’s very different.
2-207 applied to writings that purported to be acceptance in confirmation, that is we might have a contract under the UCC through a phone call and the party sends a confirmation, that would be a contract. CISG talks about offer and acceptance, and the new terms, different or additional, if those new terms were provided not in the reply but in the confirmation of a contract that is already concluded, article 19 wouldn’t apply, unlike 2-207 which would apply.
Political background of CISG: some countries wanted the operation of UCC, but others didn’t.
CONTRACT FORMATION UCITA and the battle of the forms
Non-matching terms in an acceptance which are not material do not preclude formation of a contract under the UCITA provision. Such additional terms are treated as proposals, but, between merchants, the proposed nonmaterial additional terms become part of the contract unless the offeror gives notice of objection before or within a reasonable time after receiving the proposed terms.
The operative effect of post-purchase terms – Rolling or layered contracts.
ProCD v Zeidenberg rolling formation process or layering contracting theory. “inside the box” terms are enforceable.
Post-Purchase terms were enforced, enforcing the terms “inside the box” when an inconspicuous notice appears outside the box.
Software bought and was used to create a new commercial venture, violating a single user restriction in the license.
Issue – when was the contract formed?
Holding - The terms of ProCD’s license were enforceable even though Zeidenber saw then for the first time only after he had purchased the software.
Notice of the outside, terms on the inside, and a right to return the software for a refund if the terms are unacceptable may be means of doing business valuable to buyer and sellers alike.
It is a “rolling” formation process. The contract is formed until the buyer has an opportunity to learn of the terms inside the box and decide whether to accept them. The use of the product or the silence of the buyer constitutes an acceptance of theoffer made by theseller and the final “layer” of the formation process has been laid down.
Hill v. Gateway 2000 the contract is formed until the buyer has an opportunity to learn the terms inside the box and decide whether to accept them.
The Hills ordered a computer that came in a box and the terms of the contract are in the box. They are unhappy with the computer. They don’t return it on time. They want to sue, but Gateway says that they can’t because the terms in the box said that for a dispute they had to arbitrate it, there was an arbitration clause.
However, over the phone they never said anything.
Hills argument is that the contract was formed before they opened the box. Gateway says that there were other terms of the contract that came in the box.
Issue – when was the contract formed?
The contract is formeduntil the buyer has an opportunity to learn of the terms inside the box and decided whether to accept them.
In this case the buyer didn’t object to terms inside the box for the stated period of time, therefore the use of the product or the silence of the buyer constitutes an acceptance of the offer made by the seller. Even if there wasn’t a notice on the box, since in this case the box was not in a retail store, but was shipped.
Is this a 2-207 issue? We have an offer (phone), an acceptance (performance), confirmation (additional terms). The additional terms under 2-207(2) are proposals but since the Hills are not merchants they would have had to accept them to become part of the contract. However, Easterbrook says there’s something wrong with this assumption, the contract was not formed when there was performance because this is a rolling contract. So, 2-207 doesn’t apply because there aren’t additional terms.
Formation of the contract: The offer was performance and the acceptance was keeping the goods, some of the terms were through the phone call but not all of them, the others were in the box. When keeping the goods, the Hills accepted the terms. Easterbrook is saying that it doesn’t matter whether the terms are presented over the phone or in the box. Why would the Hills be allowed to avoid the terms? They shouldn’t just because no one reads the terms.
Arbitration clause: this is a way to get rid of class actions. What is the evidence of whether arbitration clauses are priced into the contract? There’s nothing, there aren’t studies that show how much the arbitration clause is. However, the value of the warranty clause is incorporated into the contract, so consumers pay more for a contract with a warranty than without one.
The question is whether we are going to allow the market practices to survive or to use the law to restrict the market practices: Easterbrook knew this and decided to let the market work. The risk is that the sellers would get advantage of consumers like having 3 days to return an item, but in practice there aren’t.
UCITA “layered” contracts and “mass market licenses”
The UCITA drafters adopted the ProCD analysis. The “layered contracting” theory.
UCITA 208 / Adoptingthe terms of Records: a party may adopt the terms of a record by agreeing to such terms through a manifestation of assent, which requires an “opportunity to review” (112). It rejects the idea that a contract and all terms must be formed at a single point in time. 209 / Mass-Market License: It allows a party to assent to terms after the initial agreement, but it must occur no later than during the initial use of the information. The terms of the agreement must be such that a reasonable person ought to have noticed them. 112(e) and 209 Return: if the party doesn’t agree with the license terms that it receives after acquiring computer information, his allowed for a return of the purchase price as well as any other reasonable expenses or foreseeable costs associated with attempts to use the info.
This is a contract of adhesion.
The reasonable expectations doctrine
Section 211 of Restatement of Contracts suggests that were the provider of a standardized form has ‘reason to believe” that the other party would not assent to certain boilerplate terms, they are not binding.
Doctrine of reasonable expectations: the test would bind a party to boilerplate terms that are “reasonable expected” but not to those that are not reasonable expected.
Electronic signature: no specific technology is required to create a valid signature. A voice on an answering machine may suffice if the requisite intention is present. Inserting one’s name into an electronic mail communication may also suffice, as may including a firm’s name on a facsimile. Both statutes emphasize that no one is required to use or accept electronic record or signatures and UETA insists that parties must agree to conduct their transactions by electronic means.
E-Sign does not mention attribution, but UETA provides that where a signature appear on an electronic record, the named party is not bound unless she produced the signature, ratified it, or is responsible for the agent who produced the signature.
Both statutes recognize contracts between electronic agents or between an individual and an electronic agent. Where an individual and an electronic agent interact, the contract will be formed when the individual perform actions that she is free to refuse to perform and which she knows will cause the electronic agent to complete the transaction or performance.
The clicking action will create an enforceable agreement.
第 3 周
第 3 次课
Chapter 3： Statute of Frauds and Parol Evidence
What constitutes a confirmation under 2-201(2).
Parol Evidence : Trade Usage, Course of Dealing, Course of Performance
Regard Plain Meaning Rule and Merger Clause
附：自编选读资料（三） Chapter 3 Statute of Frauds – Confirmations
The Pizza Inc. is a restaurant owned by Haber, who had lunch with Bill Armstrong,the sales manger of Dairyland Cheese. The parties discussed PFI purchase of 300 pounds of cheese per months for the next 12 months at $3 per pound. At the conclusion of the discussion Armstrong thought that a deal had been made. Haber didn’t think so. 2 days later PFI received a confirmation form from DC describing a contract to supply the a forth mentioned. Haber ignored it. Two weeks later, Haber signed a contract with another supplier. DC contends it has an enforceable contract with PFI. Quick Answer: There is a contract under 2-201(2) Answer by professor: Firs of all what requirements have to be satisfied?
Under 2-201(1) of UCC the requirements are that:
If amount of more than $500 is involved then it has to be written.
It has to be signed by the party against whom enforcement is sought.
Are these requirements satisfied here? No
Is there an alternative means to enforce the contract? Yes, under 2-201(2). Requirement of 2-201(2):
A contract is enforceable against a non-signing party as long as it is between merchants and there isn’t a written notice of objection from the non-signing party within 10 days after receiving the confirmation. This satisfies subsection (1).
2-201(2) satisfies subsection (1).
2-201(2) is effective against the sender and the non-signing party.
What’s the reason of 2-201(2)? It prevents the other party to renegotiate the deal just because it wasn’t written and it was an oral agreement. So if the confirmation is sufficient and the buyer tries to walk away, if the sender is committed, then he has the capacity to force the buyer as well in the absence of a respond. . It seems that we have an assumed relation between merchants. Underlying assumption of 2-201(2): were not going to have a lot of discrupolous or dishonest merchants sending confirmations, therefore this will return more benefits to the courts to interpret the terms of the contracts and this will outweigh the cots of the occasional dishonest confirmation.
In this case, Haber is going to end up with two contracts.
What constitutes a confirmation under 2-201(2)? 2-201(2): “a writing in confirmation of the contract and sufficient against the sender”, so we have to go to 2-201(1) to see this. Signature: 2-201(1) comment 1: “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”. It has to be signed by the party sending the confirmation.
Intent: You have an order saying “300 lbs. of cheese at $3 a piece” in a letterhead. So is this sign? It just needs the intent to authenticate the agreement between the parties. Even though there’s no signature in the common way it’s valid since signature in UCC it’s a broader definition. So, the absence of an actual signature is not a problem.
Reasonable Time of 2-201(2): “if within a reasonable time a writing in confirmation of the contract…” In this case, the confirmation was sent two days later, this is reasonable. To determine the reasonable time we have to look at the facts and especially check the volatility.
b) DC immediately sent a notice of objection stating that no contract had been formed. But it wasn’t received. What happens?
1-201(26) – there is no enforceable contract since the steps were “reasonably” to inform the other in ordinary course whether or not such other actually comes to know of it.
Not discussed in class.
c) on the facts of b), would it matter if Hber’s notice were addressed to DC’s corporate offices rather than to the particular agent with whom Haber dealt? It wouldn’t matter.
Under 1-201(26) b) it could be delivered to the place of business through which the contract was made or any other place held out by him as the place for receipt of such communications. Not discussed in class.
d) Pastor McNulty bargained with various food distributors. Food Inc. concluded that it had an exclusive contract and sent to the Pastor sent a memo confirming the assumption. Pastor ignored the confirmation. 3 weeks later FI claimed it had a contract.
Class: 2-201(2) doesn’t apply because the pastor is not a merchant, so 2-201(1) applies.
There isn’t a contract under 2-201(1) because it’s not signed by the pastor.
However, Food Inc. can depose the Pastor under 2-201(3)(b) in court by pleading, stipulation or oral statement agreeing that there is a contract.
e) Pastor left meeting concluding he had a contract with FI. He sent a confirmation to FI which didn’t object.
2-201(2) – it’s not a contract because the transaction is not between merchants.
Let’s say Haber gets a confirmation, but he wants out, is he bound? What could you do?
But keep in mind that the rules of professionally responsibility are:
3.1 Forbids a lawyer of using a frivolous defense.
4.1 Forbids a lawyer of a false statement.
f) Haber is a merchant and Pastor is not. If no confirmations had been sent, then there wasn’t an enforceable contract against Haber, Pastor case would have been the same.
2-201(3)(b) contract is enforceable if defendant admits that a contract was made, but since the defendant in this case didn’t admit a contract then there isn’t one. … (not discussed in class).
Let’s assume the contract is between a US buyer and a French seller cheese and the action is brought by the French seller. The US buyer says there’s no writing. What happens if there’s no written contract between different countries that have adopted the CISG? Article 11: Under article 11 of CISG there are no formal requirements in order to have an enforceable contract. It may be proved by any means, if you can prove an oral offer and an oral acceptance. Article 12 + Article 29: However, if a state uses article 12 to make a reservation under article 96, then article 11 doesn’t apply.
So, the statute of frauds would apply for the country that made the reservation where the party has the place of business in the country of the reservation.
If the lawsuit is brought in Russia (it made a reservation under 96), then the Russian courts would say that their own statute of frauds would apply, since article 11 doesn’t apply.
But what if the law suit is brought in the USA, what happens? Since, USA has adopted the CISG then it accepts article 12 and 96 and accepts that other countries might adopt reservations under article 96 and therefore is bound by the reservation adopted by Russia and written contract would be needed.
Some people say that if the lawsuit is brought in USA and it adopts article 11, even though the other country made a reservation under article 96, article 11 continues to apply.
THERE’S NO EASY ANSWER. A good advice for a client is to tell them that if you make a contract with a nation that has a 96 reservation, then it should comply with the statute of frauds of that country. But, the problem is if the client comes to you after he made the contract.
Amended section 2-201 “Record”, $5,000, Reliance, Admissions, and the one-year provision
The amount was raised from $500 to $5,000.
An electronic record would suffice as “writing” and an electronic signature would suffice as “signed”.
Dispute whether promissory estoppel can be used to avoid the UCC article 2 statute of frauds.
Courts admitting promissory estoppel point to 1-103 which permits the applicability of general principles of law.
Courts against it say that a writing is required except as otherwise required in the section.
Proposed amended 2-201 eliminates the phrase “except as otherwise provided in this section” this allows for judicially crafted exceptions such as the estoppel.
It would also include under 2-201(3)(b) admissions “in court” and “under oath but not in court”. This allows for admissions made through testimony in a deposition or by an affidavit.
Proposed amended 2-201(4): new subsection that insulates contracts from provisions of a general statute of frauds imposing writing requirements on contracts not performable within one year.
Parol Evidence Trade Usage, Course of Dealing, Course of Performance Parol Evidence: The common-law principle that a writing intended by the parties to be a final embodiment of their agreement cannot be modified by evidence of earlier or contemporaneous agreements that might add to, vary, or contradict the writing. (Black’s dictionary).
C-Thru Container Corporation V Midland Manufacturing Company
Iowa UCC says that trade usage is admissibly as parol evidence to supplement a fully integrated agreement governed by the UCC.
To opt-out of trade usage it has to be done clearly.
C-thru container entered into a contract with Midland.
Midland agreed to purchase bottle-making equipment from C-Thru and to make bottles for C-thru. Midland was to pay by giving C-Thru a credit against the bottle purchases.
If Midland failed to manufacture the bottles, it would have to pay the price plus interests.
C-thru never ordered bottles and purchased them form another supplier at a lower price. C-thru argues that they never got samples from Midland and that’s why they never ordered bottles. Midland indicated that it was unable to produce commercially acceptable bottles for C-thru.
C-thru seeks payment. Midland failed to pay. C-thru filed a petition.
Issue – under what circumstances can usage of trade be admissible as parol evidence? That is an interpretative aid in face of writings. Holding – the usage-of trade does not contradict an explicit contractual term, therefore it’s admissible. Article 2-202 governs this case.
Iowa UCC says that parol evidence may be used to supplement a fully integrated agreement governed by the UCC if the evidence falls within the definition of usage of trade.
Supplement: to add. The trade usage evidence is admissible even though it adds a new term to the contract.
Usage of Trade: Any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proves as facts. Article 1-205 UCC.
The court says that trade usage is admissible, but they could have opt-out of trade usage by clearly stating it.
There was an integration clause that limited the obligations to the writings of the contract, this would mean that you can’t look at trade usage, but 2-202 says that trade usage can even be used to supplement “final expression”, so this is even for integration clauses. In this case, the court rejects this possibility and says that if a party wanted to opt-out it has to do it clearly saying that is opting-out of trade usage specifically. This is a clear rule
In this case the defendant gives away his defense when he admits that there is a custom, but that the custom is not applicable here.
In this case we are told that the contract is required to order more than 500,000 to 900,000 bottles at a set price, but the buyer orders 450,000 bottles at a set price. The seller says you are in breach, but the buyer says that there’s a trade usage where he can order + or – 10% of that set amount. Let’s assume there is a trade custom like that, why would this custom exist? Because the set amount is an estimate and sometimes we underestimate our needs or overestimate them. The seller wouldn’t loose anything because sometimes some buyer order less and sometimes they order more.
Let’s say that the price of the bottles drop and the c-thru order 450,000 of bottles and gets the rest out in the market , what’s happening? The buyer is taking advantage of the price. Does the custom apply here? When does it make sense to apply the custom? When the situation of the bargain is constant, when the risk allocation are based on constant circumstances or stable markets. But when the circumstances changes, then the risk allocation is not the same as when the agreement was made. So, including trade usages is when we know how parties are going to allocate the risk, so it makes sense to say that no custom exists for this particular situation because the trade usages arise in contexts which is gone in this case.
Article 2-202 / Parol Evidence:
Under article 2-202 you could have a “final expression of their agreement” which could be added by evidence of “course of performance, course of dealing or usage of trade”. But under 2-202(b) you could also have a “complete and exclusive statement” that could be complemented by evidence of “consistent additional terms” which would be oral evidence.
For what purposes can you introduce usage of trade as parol evidence:
You can introduce evidence to supplement (add a new term).
You can introduce it for ambiguity.
You can’t introduce if it contradicts the terms of the contract.
Ambiguity in a contract is NOT a requirement for the admission of trade-usage evidence.
Even a “complete” contract may be explained or complemented by practices in the industry that don’t contradict express terms of the contract (parol evidence of trade usage).
If you introduce trade of usage to a complete contract, you might convert it in an ambiguous contract and therefore change the terms of the written contract to the trade of usage introduced as evidence.
But why is the “usage of trade” admissible?
The official comment 2 to 2-202 explains this, commercial sales contracts “are to be read on the assumption that the course of prior dealings between the parties and the usages of trade were taken for granted when the document was phrased”. The truth is that the parties assume the trade usages. The assumption is that most parties would like trade usages to apply. If article 2-202 wouldn’t exist then the parties would write it.
But wouldn’t this increase litigations costs? Yes, because courts will have to get expert testimony on trade usage.
Can you opt-out of trade usage?
Yes, you can opt-out by clearly stating it.
You can have a trade custom clause that provides a different usage, but this might be a contradiction. Therefore 2-202 trade custom cannot come in because it cannot contradict the “final expression”.
How did custom evolved?
By people doing business.
The parties intended that they needed to comply with certain aspects.
If custom is an act of generosity, then the parties could always change it.
Often seller may provide goods and buyer might say that is kind of defective but not worth to say anything about it, at the fourth time the buyer complaints and the seller says that the buyer waived the right to complaint about this defect because that’s the way they had been acting. But we could say that the buyer didn’t wave anything. So, all regularities are not necessary trade customs.
The parties can say that they are not bound by trade usage
MCC-Marble Ceramic Center, INC., v. Ceramica Nuova D'Agostino.
US Court of Appeals for the eleventh circuit, 1998
The CISG's language requires courts to consider evidence of a party's subjective intent when signing a contract if the other party to the contract was aware of that intent at the time.
article 8(3) is a clear instruction to admit and consider parol evidence regarding the negotiations to the extent they reveal the parties' subjective intent.
MCC is a Florida corporation engaged in the retail sale of tiles, and D'Agostino is an Italian corporation engaged in the manufacture of ceramic tiles.
MCC's president, Juan Carlos Mozon, met representatives of D'Agostino at a trade fair in Italy and negotiated an agreement to purchase ceramic tiles from D'Agostino.
Monzon, who spoke no Italian, communicated with Gianni Silingardi, then D'Agostino's commercial director, through a translator.
The parties arrived at an oral agreement on the crucial terms of price, quality, quantity, delivery and payment.
The parties then recorded these terms on one of D'Agostino's standard, pre-printed order forms and Monzon signed the contract on MCC's behalf.
According to MCC, the parties also entered into a requirements contract in February 1991.
MCC brought suit against D'Agostino claiming a breach of the February 1991 requirements contract when D'Agostino failed to satisfy orders in April, May, and August of 1991. D'Agostino responded that it was under no obligation to fill MCC's orders because MCC had defaulted on payment for previous shipments. In support of its position, D'Agostino relied on the pre-printed terms of the contracts that MCC had executed. The executed forms contained the following language: “The buyer hereby states that he is aware of the sales conditions stated on the reverse and that he expressly approves of them with special reference to those numbered 1-2-3-4-5-6-7-8. Default or delay in payment within the time agreed upon gives D'Agostino the right to . . . suspend or cancel the contract itself and to cancel possible other pending contracts and the buyer does not have the right to indemnification or damages”.
MCC responded that the tile it had received was of a lower quality than contracted for, and that, pursuant to the CISG, MCC was entitled to reduce payment in proportion to the defects. D'Agostino noted that clause 4 on the reverse of the contract states: “Possible complaints for defects of the merchandise must be made in writing by means of a certified letter within and not later than 10 days after receipt of the merchandise”.
MCC sought to rely on a number of affidavits that tended to show both that the parties had arrived at an oral contract before memorializing their agreement in writing and that they subjectively intended not to apply the terms on the reverse of the contractto their agreements.
The district court entered summary judgment in the defendant-appellee's favor.
Whether a court must consider parol evidence in a contract dispute governed by the CISG.
The CISG's language requires courts to consider evidence of a party's subjective intent when signing a contract if the other party to the contract was aware of that intent at the time. Article 8(3) allows to consider parol evidence.
If the finder of fact determines that the parties did not intend to rely on those provisions supported by the affidavits, then the more general provisions of the CISG will govern the outcome of the dispute. Accordingly, we REVERSE the district court's grant of summary judgment and REMAND this case for further proceedings consistent with this opinion.
Authorities Article 8 of the CISG governs the interpretation of international contracts for the sale of goods. Contrary to what is familiar practice in United States courts, the CISG appears to permit a substantial inquiry into the parties' subjective intent, even if the parties did not engage in any objectively ascertainable means of registering this intent. Article 8(1) of the CISG instructs courts to interpret the "statements . . . and other conduct of a party . . . according to his intent" as long as the other party "knew or could not have been unaware" of that intent. The plain language of the Convention, therefore, requires an inquiry into a party's subjective intent as long as the other party to the contract was aware of that intent.
The CISG's language requires courts to consider evidence of a party's subjective intent when signing a contract if the other party to the contract was aware of that intent at the time.
This is precisely the type of evidence that MCC has provided through the affidavits, which discuss not only Monzon's intent as MCC's representative but also discuss the intent of D'Agostino's representatives and their knowledge that Monzon did not intend to agree to the terms on the reverse of the form contract.
Article 11: The CISG contains no express statement on the role of parol evidence. It is clear, however, that the drafters of the CISG were comfortable with the concept of permitting parties to rely on oral contracts because they expressly provided for the enforcement of oral contracts. Compare CISG, art. 11 (a contract of sale need not be concluded or evidenced in writing) with U.C.C. § 2-201 (precluding the enforcement of oral contracts for the sale of goods involving more than $ 500).
Article 8(3): Moreover, article 8(3) of the CISG expressly directs courts to give "due consideration . . . to all relevant circumstances of the case including the negotiations . . ." to determine the intent of the parties.
Article 8(1): Given article 8(1)'s directive to use the subjective intent of the parties to interpret their statements and conduct, article 8(3) is a clear instruction to admit and consider parol evidence regarding the negotiations to the extent they reveal the parties' subjective intent.
There’s nothing in the CISG that expressly allows the use of parol evidence, but there’s nothing that prohibits it.
In this case, the court interprets other provisions of the CISG to conclude that there is evidence that permits external evidence to interpret the contract. It does it through 8(3): to interpret a contract you can look at any available evidence, not just the wording of the contract, so the court says that this is some evidence that parol evidence was not intended to be included.
Also, article 11 provides evidence that parol evidence is not included in CISG.
Also, article 8(1) because you have to look at the subjective intent of the parties as in means of forming the contract.
So, parol evidence is going to be allowed.
The buyer is trying to contradict the writing with the subjective intent. Therefore, the courts is allowing parol evidence even to contradict the contract.
This case gave us a definite way to opt-out of parol evidence.
Article 9(2): incorporates trade usage into the interpretation of the contract. It has to be an international trade usage, known internationally.
Problems with 9(2): maybe we have customs less desirable in international trade.
Some nations don’s want to incorporate trade usage because they thought that trade usages would benefit the more capitalized and industrialized nations. So, article 9(2) minimizes that risk by saying that the trade usage has to be known internationally. If the countries have different trade usages, then it wouldn’t be an international trade. So, the “international” requirement is a stop for more industrialized nations to impose their terms in less industrialized nations.
CISG Advisory Council Opinion No. 3 (SUPP.) --Parol Evidence Rule, Plain Meaning Rule, Contractual Merger Clause and the CISG
1. The Parol Evidence Rule has not been incorporated into the CISG. The CISG governs the role and weight to be ascribed to contractual writing.
2. In some common law jurisdictions, the Plain Meaning Rule prevents a court from considering evidence outside a seemingly unambiguous writing for purposes of contractual interpretation. The Plain Meaning Rule does not apply under the CISG.
3. A Merger Clause, also referred to as an Entire Agreement Clause, when in a contract governed by the CISG, derogates from norms of interpretation and evidence contained in the CISG. The effect may be to prevent a party from relying on evidence of statements or agreements not contained in the writing. Moreover, if the parties so intend, a Merger Clause may bar evidence of trade usages.
However, in determining the effect of such a Merger Clause, the parties' statements and negotiations, as well as all other relevant circumstances shall be taken into account.
1. INTRODUCTION 综述 1.1. Interpretation and Evidence under the CISG
The CISG provides norms and principles for the interpretation and evidence of international sales transactions. These include Article 8, which generally permits all relevant circumstances to be considered in the course of contract interpretation, Article 9, which incorporates certain usages into the contract, and Article 11, which indicates that a contract and its terms may be proved by any means, including by witnesses. These rules prevail over domestic rules on interpretation and evidence of contractual agreements. Since these are default rules, Article 6 permits the parties to derogate from them or vary their effect.
1.2. The Parol Evidence Rule
The Parol Evidence Rule refers to the principles which common law courts have developed for the purpose of determining the role and weight to ascribe to contractual writings. Basic purpose is "to preserve the integrity of written contracts by refusing to allow the admission of [prior] oral statements or previous correspondence to contradict the written agreement." The judge may exclude extrinsic or parol evidence. The Parol Evidence Rule applies to the general law of contracts, including the sale of goods law of common law jurisdictions.
The Parol Evidence Rule comes into play when two circumstances meet. First, the agreement has been reduced to writing. Second, one of the parties seeks to present extrinsic or parol evidence to the fact finder. Extrinsic or parol evidence includes evidence of the negotiations or of agreements related to the contractual subject matter which was not incorporated into the written contract.
In US law, the Parol Evidence Rule operates in two steps. A US court asks first whether the writing was "integrated," meaning whether the writing was intended to represent the final expression of the terms it contains. If the writing is integrated, neither party may introduce parol evidence to contradict the terms of the writing. If the writing is deemed to be integrated, the second step is to determine whether it is "completely integrated," namely whether it was intended to represent the complete expression of the parties' agreement. If the writing is completely integrated, parol evidence may not be introduced either to contradict or to supplement the writing's terms.
Different methods are used in US law to determine whether a writing is completely integrated. Some courts engage in a conclusive presumption that a writing fully incorporates the contract. Perhaps the most liberal method is that proposed by the Restatement (Second) of Contracts--all extrinsic evidence, including the negotiations, may be considered when determining whether the parties intended the writing to be the complete and final statement of their obligations. US sales law has adopted a similarly liberal approach.
The civil law generally does not have jury trials in civil cases and civilian jurisdictions usually do not place limits on the kind of evidence admissible to prove contracts between merchants. Though the French Civil Code, for example, incorporates a version of the Parol Evidence Rule for ordinary contracts, all forms of proof are generally available against merchants.
Statements, agreements, and conduct that arise after the conclusion of the writing are treated differently in the different common law systems. In US law, they are not considered parol evidence and are therefore not barred by the Parol Evidence Rule.
1.3. The Plain Meaning Rule
Parol evidence is generally still admissible for the purpose of interpreting terms found in the writing. Nonetheless, a US law doctrine known as the Plain Meaning Rule, where adopted, bars extrinsic evidence, particularly evidence of prior negotiations, for the purposes of interpreting a contract, unless the term in question has first been found to be ambiguous. The Plain Meaning Rule is based on the proposition that, when language is sufficiently clear, its meaning can be conclusively determined without recourse to extrinsic evidence. Only if the term is deemed ambiguous, may evidence of prior negotiations be admitted for purposes of clarification.
1.4. Merger Clauses
The parties may wish to assure themselves that reliance will not be placed on representations made prior to the execution of the writing. The Merger or Entire Agreement Clause (the "Merger Clause") has been developed to achieve certainty in this regard. The Merger Clause, which usually appears among the concluding terms of a written agreement, provides that the writing contains the entire agreement of the parties and that neither party may rely on representations made outside the writing.
2. THE PAROL EVIDENCE RULE The Parol Evidence Rule has not been incorporated into the CISG. The CISG governs the role and weight to be ascribed to contractual writing.
The CISG includes no version of the Parol Evidence Rule. To the contrary, several CISG provisions provide that statements and other relevant circumstances are to be considered when determining the effect of a contract and its terms. The most important of these are Articles 8 and 11.
Article 11 sentence 2 provides that a party may seek to prove that a statement has become a term of the contract by any means, including by the statements of witnesses. Article 8 concerns contract interpretation. Article 8(1) provides that, in certain circumstances, contracts are to be interpreted according to actual intent. When the inquiry into subjective intent proves insufficient, Article 8(2) provides that statements and conduct are to be interpreted from the point of view of a reasonable person. This evaluation according to Article 8(3) takes into account all relevant circumstances of the case, including the negotiations, any course of conduct or performance between the parties, any relevant usages, and subsequent conduct of the parties. In sum, the CISG indicates that a writing is one, but only one, of many circumstances to be considered when establishing and interpreting the terms of a contract.
There were several practical reasons for not including a Parol Evidence Rule in the CISG. First, most of the world's legal systems admit all relevant evidence in contract litigation. Secondly, the Parol Evidence Rule, especially as it operates in the United States, is characterized by great variation and extreme complexity.
The leading US case is MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostino, S.p.A.
The principal purpose of the Parol Evidence Rule is to respect the importance the parties may have accorded to their writing. Under the Convention as well, a writing constitutes an important fact of a transaction - it must be presumed to fulfill a function, otherwise it would not have been employed.
The special role of a writing, however, must be construed in accordance with the general principles that govern the CISG.
3. PLAIN MEANING RULE In some common law jurisdictions, the Plain Meaning Rule prevents a court from considering evidence outside a seemingly unambiguous writing for purposes of contractual interpretation. The Plain Meaning Rule does not apply under the CISG.
Article 8 specifies the Convention's method for contract interpretation. As a general rule, Article 8 mandates that all facts and circumstances of the case, including the parties' negotiations, are to be considered during the course of contract interpretation. Words are almost never unambiguous. Moreover, the application of the Plain Meaning Rule would impede one of the basic goals of contract interpretation under the CISG, which is to focus on the parties' actual intent. If contract terms are deemed to be unambiguous, the Plain Meaning Rule would prevent presentation of other proof of the parties' intent.
Under the CISG, therefore, the fact that the meaning of the writing seems unambiguous does not bar recourse to extrinsic evidence to assist in ascertaining the parties' intent.
4. MERGER CLAUSE A Merger Clause, also referred to as an Entire Agreement Clause, when in a contract governed by the CISG, derogates from norms of interpretation and evidence contained in the CISG. The effect may be to prevent a party from relying on evidence of statements or agreements not contained in the writing. Moreover, if the parties so intend, a Merger Clause may bar evidence of trade usages. However, in determining the effect of such a Merger Clause, the parties' statements and negotiations, as well as all other relevant circumstances shall be taken into account.
When the parties agree to a Merger Clause, its effect may be to derogate under Article 6 from norms of interpretation and evidence contained in the CISG. Merger Clauses have two objectives. The first objective is to bar extrinsic evidence that would otherwise supplement or contradict the terms of the writing. Merger Clauses mainly derogate from Article 11, which provides that a sales contract may be proved by any means, including witnesses. The second objective is to prevent recourse to extrinsic evidence for the purpose of contract interpretation. This objective would constitute a derogation from the Convention's canons of interpretation incorporated in Article 8.
The CISG does not deal with Merger Clauses and therefore does not contain similar distinctions. The dividing line may be blurred. Under the CISG there is authority for the proposition that a properly worded Merger Clause bars the consideration of extrinsic evidence. Extrinsic evidence should not be excluded, unless the parties actually intended the Merger Clause to have this effect.
Under the CISG, a Merger Clause does not generally have the effect of excluding extrinsic evidence for purposes of contract interpretation. However, the Merger Clause may prevent recourse to extrinsic evidence for this purpose if specific wording, together with all other relevant factors, make clear the parties' intent to derogate from Article 8 for purposes of contract interpretation.
A Merger Clause generally will not be held to exclude trade usages relevant under Article 9(1) or established practices concerning the implicit background of the transaction unless those usages and practices are specifically mentioned.
第 4 周
第 4 次课
Chapter 4： Open Terms and Relational Contracts
“Open” and implied terms
Can court measure the intention of the parties and fill the gaps?
Regard CISG Article 14,23,55.
Chapter 4 Open Terms and Relational Contracts
“Open” and implied terms – The “Anti-Technical” Environment
The basic philosophy – Section 2-204: Art. 2 is concerned with missing or implied terms, i.e., terms that the parties have not expressly addressed in their contract.
Section 2-204 establishes 3 significant policies concerning indefiniteness in contracts:
2-204(1): The manner in which a contract for the sale of goods is formed is irrelevant if the outward manifestations of the parties are sufficient to demonstrate “agreement”. Section 2-206 dealing with offer and acceptance in contract formation and allowing any reasonable medium of acceptance is an elaboration of this general policy of 2-204(1).
2-204(2): rejects the notion that the precise moment of contract formation be identified. If the manifestations of the parties evidence their factual bargain, the agreement must be enforced even if the exact moment of its making can’t be determined.
2-204(3): It allows open terms. The court should try to complete the terms of a contract and make the terms more precise. The court must try to fill the gaps. addresses the question of “open terms” and the extent to which courts should fill gaps: “Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy”. Once the 2 critical elements have been found (intention and reasonably certain basis for an appropriate remedy) even numerous “gaps” will not be fatal.
Part 3 of Article 2 supplies terms that the parties leave open:
Section 2-301 states the general obligations of the parties (the seller must transfer and deliver the goods, and the buyer must accept and pay for them);
Section 2-305 deals with open price terms;
Section 2-306 deals with the uncertainty of the quantity term by imposing an obligation of good faith on the party determining quantity;
Section 2-307 deals with the situation in which the parties have failed to specify whether the seller must deliver the goods in a single lot or in multiple installments;
Sections 2-308 and 2-309 supply appropriate terms where the parties have failed to specify the place or time of delivery;
Section 2-310 fills the gap left when the parties have not designated a time for payment, and deals with ambiguities relating to documentary transactions;
Section 2-314 and 2-315 refer to the warranties of merchantability (when parties fail to specify the standard of quality of the goods being sold).
Can court measure the intention of the parties and fill the gaps? We’ll see in Bloor
Bloor v Falstaff Brewing Corporation
United States Court of Appeals, Second Circuit, 1979.
Exclusive distribution arrangement by Falstaff.
Falstaff bought Ballantine brewing labels, trademarks, accounts receivable, distribution systems and other property except the brewery. The price was $ 4,000,000 plus a royalty of fifty cents on each barrel of the Ballantine brands sold between April 1, 1972 and March 31, 1978.
Ballantine had been a family owned business, producing low-priced beers primarily for the northeast market. Its sales began to decline in 1961, and it lost money from 1965 on.
After its acquisition of Ballantine, Falstaff continued the $ 1 million a year advertising program but sales declined and Falstaff claims to have lost $ 22 million in its Ballantine brand operations. In March and April 1975 Paul Kalmanovitz, having control of Ballantine, determined to concentrate on making beer, cut sales costs, decrease advertising and closed four of Falstaff's six retail distribution centers.
This is a long term arrangements that both parties seek assets specific to the arrangement. Ballantine buys the trademarks and thinks is in it in the long run for Falstaff. So, after this, what can Ballantine do? Falstaff is highly dependant on Ballantine’s cooperation. Why would Falstaff not act opportunistic? Because of the penalty clause. Just as Ballantine have some assets in this transaction that can only be used by them, Falstaff can only use the assets that bought for these arrangements. These parties need each other, so they have fewer incentives to exploit each other.
Why would they make an arrangement like this? Because Ballantine might have contracts that would get loans, because of costs. They can look in a distributor and have assurance that somebody will distribute the beer.
Sometimes makes sense to a party that they can act un-cooperative because they can gain more by not cooperating. So should the law step in and prohibit that behavior?
Action brought by James Bloor, Reorganization Trustee of Balco Properties Corporation, formerly named P. Ballantine , once a successful brewery.
Bloor claimed that Falstaff had breached the best efforts clause, 8(a), and that its default amounted to the discontinuance that would trigger the liquidated damage clause.
The trial court upheld the first claim and awarded damages but dismissed the second. Falstaff appeals from the former ruling, Bloor from the latter.
Both sides also dispute the court's measurement of damages.
Bloor sought to recover from Falstaff Brewing Corporation (Falstaff) for breach of a contract dated March 31, 1972.
The appeal concerns two provisions of the contract which are:
(a) After the Closing Date the (Buyer) will use its best effortsto promote and maintain a high volume of sales under the Proprietary Rights. Liquidated damages clause: 2(a)(v) (The Buyer will pay a royalty of $ .50 per barrel for a period of 6 years), provided, however, that if during the Royalty Period the Buyer substantially discontinues the distribution of beer under the brand name "Ballantine", it will pay to the Seller a cash sum equal to the years and fraction thereof remaining in the Royalty Period times $ 1,100,000, payable in equal monthly installments on the first day of each month commencing with the first month following the month in which such discontinuation occurs . . . “.
Issue – whether Ballantine breached the best effort clause by the way Falstaff operated. Holding - The Court concluded that Falstaff had breached its best efforts covenant and plaintiff should recover royalties.
The case is governed by 2-306 of the UCC.
§ 2-306. Out The put, Requirements and Exclusive Dealings
(1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
Buyer must make a good faith effort to see that substantial sales are done when there’s a best efforts clause and even without one when there’s a contract of exclusive dealing.
Overcompensation is allowable where plaintiff has shown liability in case with a best effort clause.
Falstaff argues that it was not bound to do anything to market Ballantine products that would cause "more than trivial" losses.
Falstaff was required at least to explore whether steps not involving substantial losses could have been taken to stop or at least lessen the rate of decline. However, Falstaff had engaged in a number of misfeasance and nonfeasance which could have accounted in substantial measure for the catastrophic drop in Ballantine sales. These included the closing of the North Bergen depot. Also, Falstaff's choose distributors for Ballantine products in New Jersey and New York which were also owners of a competing brand. Finally, Falstaff's put more effort into sales of its own brands which sold at higher prices despite identity of ingredients and were free from the $.50 a barrel royalty burden; etc.
With respect to its own brands, management was entirely free to exercise its business judgment as to how to maximize profit even if this meant serious loss in volume. Because of the obligation it had assumed under the sales contract, its situation with respect to the Ballantine brands was quite different. The royalty of $.50 a barrel on sales was an essential part of the purchase price. Even without the best efforts clause Falstaff would have been bound to make a good faith effort to see that substantial sales of Ballantine products were made, unless it discontinued under clause 2(a)(v) with consequent liability for liquidated damages.
Burden of proof: It was enough for Plaintiff to show that Falstaff didn't care about Ballantine's volume and was content to allow this to plummet so long as that course was best for Falstaff's overall profit picture, an inference which the judge permissibly drew. The burden then shifted to Falstaff to prove there was nothing significant it could have done to promote Ballantine sales that would not have been financially disastrous.
Computing the Royalties on the lostsales: The court concluded the most accurate comparison was with the combined sales of Rheingold and Schaefer beers, both, like Ballantine, being "price" beers sold primarily in the northeast, and computed what Ballantine sales would have been if its brands had suffered only the same decline as a composite of Rheingold and Schaefer. It is true, that the award may overcompensate the plaintiff since Falstaff was not necessarily required to do whatever Rheingold and Schaefer did. But that uncertainty is permissible in favor of a plaintiff who has established liability in a case like this.
CISG ARTICLES 14, 23, 55
Article 14: (formation of contract). A proposal for concluding a contract is an offer if it is sufficiently definite. It is sufficiently definite if it indicates the goods, the quantity and the price. Article 23: A contract is concluded when an acceptance becomes effective. Article 55: If a contract is validly concluded, but doesn’t expressly or implicitly determine the price, the parties are considered to have implied the price generally charged at the time of the conclusion of the contract.
United Technologies International Inc. v. Málev Hungarian Airlines
The Supreme Court of the Republic of Hungary, 1992.
United Technologies manufactured aircrafts and its engines.
Negotiations were conducted between United Technologies and Malev about the engines and the engine system of two different aircrafts (Tupolyev TU-154 aircrafts with PRATT JT 8D-219 engines).
On December 4, 1990 the parties signed a Letter of Intention about their negotiations.
They expressed their intention -- without undertaking any obligations -- to sign a final agreement in the future in accordance with those contained in the declaration. In the Letter of Intention the Plaintiff stipulated a condition that according to which the signing of the final agreement depended on Defendant's acceptance of Plaintiff's support offer for the purchase of PW 4000 series engines from Plaintiff by Defendant for the wide bodied aircrafts to be purchased.
Plaintiff submitted two purchase-support offers to Defendant with the aim of aiding the purchase of two aircrafts, supplied with Plaintiff's engines.
At this time Defendant was negotiating with two aircraft manufacturers and had not yet come to a decision about the type of the aircraft to be bought.
The offers were kept open by Plaintiff until December 21, 1990 on condition that the validity of Defendant's declaration of acceptance depends on the appropriate provisions to be made by the Government of Hungary and that of the United States.
Defendant did not sign either support offers, but in the presence of Plaintiff's proxy, composed a letter together with him, which was sent to the Vice-President of Plaintiff's company by telex, notifying him that they had selected the PW 4000 engine for the new wide bodied fleet of aircrafts.
Later, the Parties had a verbal discussion. Following that Defendant notified Plaintiff in writing that Defendant would not choose PW 4000 series engines for the Boeing 767 aircraft.
Lawsuit initiated by the Plaintiff, United Technologies International Inc. Pratt & Whitney Commercial Engine Business against the Defendant, MALÉV Hungarian Airlines in respect of validity of contract. The Supreme Court changes the partial judgment of the City Court of Budapest and rejects the Plaintiff's claim.
Plaintiff stated that Defendant had definitely and irrevocably committed itself to purchase the new 767 aircraft with PW 4000 engines; Defendant, refused to do so. Plaintiff initiated asking the court to declare that the contract between the Parties was enforceable as of December 21, 1990. Plaintiff claimed that Defendant, with its declaration, dated on December 21, 1990, accepted Plaintiff's contractual offer, dated on December 14, 1990, thus a valid, and legally binding contract was made for the sale and purchase of PW 4056 engines and spare engines. According to Plaintiff's position, the December 14, 1990 offer fully complies with the content of Section 14 of the CISG. For the offer clearly states the product, its quantity and contains data on the basis of which the price can be determined precisely.
Defendant asked for the dismissal of the suit. Defendant did not acknowledge entering into a contract with Plaintiff. According to Defendant's position, Plaintiff's December 14, 1990 offers could not be regarded as a contractual offer, for they did not contain the quantity, the price or the specified goods stipulated by Paragraph 1, Section 14 of the CISG. It just gave them options.
Issue – whether there was an enforceable contract. Holding – No, there isn’t a contract. Plaintiff must reimburse all costs that emerged during the first and the appeal procedure to Defendant.
Lacking an appropriately explicit offer from Plaintiff and not having a clear indication as to the subject of the service in Defendant's declaration of acceptance, no sales contract has been established between the Parties.
There’s no offer because there’s no price.
Article 14(1) in order to have sufficiency the price must be stated.
Bid: According to Paragraph 1, Section 14 of the Agreement a proposal to enter into a contract, addressed to one or more persons, qualifies as a bid if it is properly definedand indicates the bidder's intention to regard itself to be under obligation in case of acceptance. A bid is properly defined if it indicates the product, expressly or in essence defines the quantityand the price, or contains directions as to how they can be defined.
Indication of product, quantity and price are essential elements.
Plaintiff made two parallel offers for the same deal on December 14, 1990, depending on Defendant's choice of the Boeing or the Airbus aircraft. In case Boeing was selected, within the respective offer two separate engines were indicated. This offer did not contain the base price of the PW 4060 engine. In case Airbus was selected, within the respective offer two different jet engine systems, and two different spare engines were indicated. The base price of the jet engine systems is not included in the offer. In case there is no base price, value stability calculations have no importance.
Open price term / Article 55: The price cannot be determined according to Article 55 of the Agreement either, as jet engine systems have no market prices.
Plaintiff's offers were alternative, therefore Defendant should have determined which engine or jet engine system, listed in the offers, it chose. There was no declaration made, on behalf of Defendant, in which Defendant would have indicated the subject of the service, the concrete type of the engine or jet engine system, listed in the offers, as an essential condition of the contract. Defendant's declaration, that it had chosen the PW 4000 series engine, expresses merely Defendant's intention to close the contract, which is insufficientfor the establishment of the contract.
The court of first instance was mistaken when it found that with Defendant's December 21, 1990 declaration the contract was established with the "power" according to which Defendant was entitled to select from the indicated four types with a unilateral declaration later, after the contract had been closed. The opportunity to choose after closing the contract does not follow from the offer. If perhaps such a further condition would have been intended by Defendant, then this should have been regarded as a new offer on its behalf. Lacking an appropriately explicit offer from Plaintiff and not having a clearindication asto the subject of the service in Defendant's declaration of acceptance, nosales contract has beenestablished between the Parties.
It is a different issue, whether the series of discussions and Defendant's declaration of acceptance created such a special atmosphere of confidence, where Plaintiff could seriously count on closing the contract and failing that Plaintiff suffered economic and other disadvantages. With this question and with its legal grounds, no suit being initiated, the court of appeals was not entitled to deal with. Maybe the plaintiff had an estoppel theory, maybe they could have argued that they relied on the contract even if there wasn’t one and they could have used the estoppel against the defendants from denying they didn’t have a contract.
This is a narrow concept of what constitutes an offer.
United says that theirs is an offer because by the defendant choosing, they are bound to execute. But the court says that is not true, the defendant had to choose the goods and then the United would have had to make an offer on those terms and if the offeree would accept, then a contract was formed.
Why isn’t article 55 enough to form a contract?
Because engine systems don’t have market prices. But, what if you call an expert witness? Would they be able to determine a price range? They probably could, so could it really be the case that if the engines don’t have a market price then there’s no way to figure out what is generally charged for these systems? This seems to be a weak argument.
Besides article 55 doesn’t even mention “market prices”.
Article 55 use: You use article 55 when you have a validly concluded contract, but without a price.
Concluded Contract: Article 23 when an acceptance of an offer becomes effective.
Offer: article 14(1) says that you have an offer with specified goods, quantity and price. This is sufficient, but is not a necessary condition.
Acceptance: article 18 says that an acceptance becomes effective at the moment the indication of the assent reaches the offeror.
So how could you have a validly concluded contract without a price? It seems to be a contradiction here between article 14 and 55, how do you get out? Some commentators say that article 14 is not the exclusive means to form a contract. Also, other commentators say that even though article 14 says that an offer is “sufficiently definite if… has goods, price and quantity” it is not a requisite.
第 5 周
第 5 次课
Chapter 5：Insecurity about Performance and Repudiation
Anticipatory Repudiation under article 2 of UCC
Adequate assurance under article 2 of UCC
3. Prospective Nonperformance under the CISG
附：自编选读资料（五） Chapter 5 Insecurity about Performance and Repudiation
Anticipatory Repudiation under article 2 of UCC
Repudiation is permitted by the UCC.
But what about repudiation when the one repudiating actually retracts.
Repudiation has to be very specific.
The section covers the rules applicable if, before the time for performance arrives, a party to a contract appears unable or unwilling to perform.
Under pre-code doctrine an ambiguous or hedged suggestion of future nonperformance by one party did not trigger any relief even if it undercut the other side’s confidence in the contract and seriously impaired the purposes of the agreement. Thus it could trigger rescission and liability.
UCC deals with this through 2-610 and 2-611, it build on traditional common law with some changes.
2-610. Anticipatory Repudiation
When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may:
a) … await performance…
b) resort to any remedy for breach (2-703-seller’s remedies or 2-711-buyer’s remedies) even though he has notified the party that he would await the performance..
c) in either case suspend his own performance…
2-711: where the seller… repudiates… the buyer may cancel…
Section 2-609 is procedural.
Neptune Research & Development v Teknics Industrial Systems
Buyer manufactured solar-operated valves. Sule, the buyer’s founder, contacted Shepler, seller’s president. Sule placed an order for a machine on April 22, 1986 for $55,000 with a mid-June delivery date and gave a $3,000 deposit. Each page of the contract had notice saying “cancellation charge 15%”. The contract also stated that shipping dates were approximate.
Seller failed to make timely delivery. The machine wasn’t ready by mid-June. Seller and buyer that the machine could be delivered on September 3, but the machine wasn’t ready at that time either.
Sule decided to cancel the order and he sent a letter informing that. Sule wanted his deposit back and seller didn’t want to give it back.
Whether the seller repudiated when he said the machine could not be delivered on time.
Whether the seller be allowed to retract its repudiation because buyer did not change its position for the worse.
The statement that it couldn’t be delivered on time constituted an anticipatory repudiation within the meaning of 2-610.
Buyer is allowed to cancel the contract and therefore seller cannot retract under 2-611.
Rule An announcement that the seller cannotdeliver on time is repudiation under 2-610 and if the loss will substantially impair the value of the contract, the aggrieved party can await performance or resort to any remedy for breach. Therepudiating party can retract unlessthe aggrieved party has cancelled.
Repudiation: anticipatory repudiation centers upon an overt communication of intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance (2-610 comment 2).
“substantially impair the value of the contract”: The UCC comment to 2-610 states that the most useful test of substantial value is to determine whether material inconvenience or injustice will result if the aggrieved party is forced to wait and receive an ultimate tender minus the part or aspect repudiated.
The court says that it is reasonable totreat the “substantial value” interchangeable with the materiality standard(standard from Ross case) for which the Restatement sets forth the criteria in section 241. Factors are as follows:
The extent to which the injured party will be deprived of the benefit which he reasonable expected.
The extent to which the injured party can be compensated.
The extent to which the party failing to perform will suffer forfeiture.
The likelihood that the failing party will cure his failure.
The extent to which the behavior of the failing party comports good faith and fair dealing.
Factors c), d) and e) are especially relevant here. The seller suffered no forfeiture, buyer had reason to believe that buyer would not cure his failure and it seems that seller didn’t act in good faith. Therefore, not delivering on time is material going to the essence of the contract under the factors of 241 of the Restatement of contracts and the statement constitutes an anticipatory repudiation. (A contract doesn’t need to expressly state that time is of the essence).
Since it’s a repudiation its covered under section 2-610 and the buyer may resort to any remedy, therefore the buyer may cancel the contract under 2-711 and if the buyer cancels the contract then the seller can’t retract under 2-611.
2-610: if a party repudiates when a performance is not due, the aggrieved party can resort to any remedy for breach. 2-711: a buyer’s remedy for repudiation is cancellation (among others). Cancellation: when either party puts an end to the contact for breach by the other (2-106(4)). 2-611: The repudiating party can retract his repudiation unless the aggrieved party has since the repudiation cancelledormaterially changed his position or he indicated that he considers the repudiation final.
Traditional common law position requires repudiation to be an extremely clear indication of nonperformance.
In this case it’s clear that the buyer lost faith and trust, so they are going to validate the cancellation of Neptune. So, the repudiator party can’t retract by the mere words of “I cancel”.
Class notes: Repudiation requirements:
There has to be a substantial impairment. So mere non-performance is not enough.
So, when they defaulted the first time it’s not repudiation, but when they defaulted the second time it was repudiation.
In June, the buyer can be expected to wait, but by September 5th when the defendant hasn’t been in touch with Neptune and then tells them that they are going to be again late, then Neptune doesn’t trust them and they lost faith, so there’s no easy way to determine what constitutes repudiation.
Repudiation depends tremendously on context. So, whether or not there’s a substantial impairment of the contract, there’s going to be a relation to the circumstances. Nevertheless, one would hope that we could rely on a set of factors that would tell us that repudiation had happened. That substantial impairment happened or not.
Problem 68 / 2-610 and 2-609 UCC
In a transaction governed by article 2 of UCC, Ceres Crofter agreed to sell 50,000 bushels of corn to Moody Inc. for delivery by October 15. The purchase price was $100,000 and Moody would pay it as follows: $5,000 signing the agreement on April 15, $25,000 on September 1 and the rest upon delivery.
In which of the following scenarios is there repudiation which would allow the aggrieved party to cancel?
In late August, Crofter called the manager of Moody to say that she didn’t like the manager’s politics and would therefore not sell her corn to Moody.
There’s overt communication, therefore there’s repudiation and they can cancel.
Under 2-610 it would be anticipatory repudiation because:
the performance is not yet due,
because under 2-610 comment 1 the communication by Crofter “demonstrates clear determination not to continue with performance”.
It substantially “impairs the value of the contract” under the materiality standard of section 241 of the Restatement of contracts since the injured party will be deprived of the benefit, the failing party will not suffer forfeiture, doesn’t seem like Crofter will cur his failure and because it seems unfair dealing.
Therefore, Moody can cancel the contract under 2-610(b) and 2-711(1).
In late August the manager of Moody drove past Crofter’s farm and noticed that no corn had been planted.
There’s no repudiation in this case and therefore no right to cancellation.
Even though performance is not yet due, under comment 1 of 2-610, there is no communication or action which renders performance impossible or demonstrates a clear determination no to continue with performance. Besides, common law requires repudiation to be a clear indication of nonperformance. Class: maybe they have another farm, this could be taken as an action which renders performance impossible. There’s a risk for the buyer.
In late August Moody manager heard from Crofter’s seed supplier that Crofter had planted no corn on her farm. Because of the location and typography of the farm the manager could not personally confirm the seed supplier’s story. Despite at least 15 attempts in five days, the manager has been unable to reach Crofter by phone.
There is no repudiation for the same reasons stated above.
Class: Canceling the contract is risky here because there’s no clear indication of nonperformance. You can only cancel the contract when there’s an actual repudiation = an overt communication, an action that renders performance impossible or a clear determination not to continue.
Hypotheticasl: what if it never gets planted and then Moody sues on October 15 and the corn price has gone up. Then if you argue for Crofter, you can say that there was a repudiation since there was nothing planted, but it could be risky.
However, if Crofter told Moody early on that there was a repudiation and Moody waited until October and the corn prices went up. Here there are still some guesses to be made.
Let’s say the buyer cancels the contract and entered into a contract with somebody else, now can crofter retract? No, because under 2-611 the repudiator can’t retract if the other party cancelled.
Let’s assume they just canceled but didn’t enter into another contract? No, under 2-611 because it just needs cancellation or materially changed its position.
Same facts as c), but in addition the seed supplier has been involved in a dispute with Crofter concerning overdue payments for seed.
On October 12, the Moody’s manager learned that Crofter had not yet made good on a contract with a competitor to deliver 20,000 bushels of corn before the end of September. The price of corn has skyrocketed since Crofter and Moody entered into their contract.
Class Notes: Reasonable Grounds for Insecurity (from 2-609):
According to 2-609 there has to be “reasonable grounds for insecurity” in order to “demand in writing adequate assurance”.
The insecurity must be on the grounds of commercial standards.
But how could this rumor affect your contract? The basis for insecurity can arise from another contract.
Is there some way to conceptualize what constitutes “reasonable grounds for insecurity”? we should consider the following factors:
Good faith is mentioned in the comments – this tells us that we have to consider this in the commercial standards.
Probability of Successful Performance: We also have to consider this factor. So, if the event we’re looking at reduces the probability of the successful performance, then that cuts in favor for reasonable grounds of insecurity.
Consequences of Breach: We must also consider the Consequences of the Breach. If this increases, it would also be a variable that should be taken into account for the reasonable grounds of insecurity.
Possibility of mitigation: we must also take into account the mitigation from one or both parties.
If we have grounds for insecurity what else could we do?
Power of 2-609: In this case, the buyer must give a check to the seller, but doesn’t want to do it until he knows what’s going on. So, what should you do? You can write a letter demanding adequate assurance. If you don’t get a respond then you can suspend your own performance – this is the power of 2-609. So, even if the other party wasn’t going to repudiate you can suspend the performance under 2-609 if you have reasonable grounds of insecurity and you are not deemed breaching the contract. So, even without repudiation you can suspend the performance. In the letter you can say that under 2-609 you have reasonable grounds for insecurity, that you need assurance and if you don’t get it you could suspend the performance and consider the contract repudiated.
Adequate assurance: Let’s say the other party answers saying that they will perform and please send the check, then what to do? It depends on the facts of the particular case. If this person is known for repeated delinquencies then is not adequate assurance, but if this isn’t the case, then it’s adequate assurances.
Adequate assurance is a fact-based test.
2-609 allows you to suspend the performance, but it doesn’t allow you to change the deal.
On September 5, Crofter sent Moody a letter stating that unless she received the balance of the entire purchase price before the end of September she would not deliver any corn in October.
There’s repudiation under 2-610 comment 2 and the buyer can cancel.
In this case there’s a new condition and under comment 2 of 2-610 this is not repudiation by itself. However this new condition could amount to “a statement of intention not to perform except on conditions which go beyond the contract”, therefore there’s repudiation.
In the middle of August Crofter received a phone call from the manager of Moody explaining that because grain prices had been falling, Moody was experiencing “temporary but severe cash flow difficulties” and would “almost certainly” not be able to make the $25,000 by September 1. The manager indicated that mid-september was a “more realistic” date for payment. The manager also indicated that the elevator was depending on Crofter’s corn and that all balances would be paid in full upon delivery or at least they hoped so.
This isn’t a repudiation and the seller can’t cancel.
Under comment 2 of 2-610 a demand for more than the contract calls for is not a repudiation, additionally this there is an intention to perform.
Class notes re problem 68:
We need more certainty to resolve some of this problems, so if you include more specification in the contract such as “if we can’t contact you for 5 days then there’s repudiation”.
However, if you do this you are signaling to the other party that you don’t trust them. Second of all, a breach in a contract is of low probability, so the cost of negotiating this clause is not cost justified. You will be paying your lawyer extra time for that clause, but it may not be worthwhile to do it. Finally, it is very difficult to predict all the causes that may come up. Basically, it’s a bad signaling.
On one hand we have what constitutes breach, but on the other hand that’s not cost effective or signal effective. So, the UCC has some default clauses to cover this through the section 2-609.
So, the problem with UCC and 2-609 is that you can use it for ANY breach. If you don’t get adequate assurance you can take it as repudiation. 2-609 is a little more complicated to fulfill than 2-610. So, you can only call a repudiation if the breach is material.
So, 2-609 only works if you don’t receive an adequate assurance. If you don’t get it then it’s a repudiation and you don’t have to use 2-610.
Adequate assurance under article 2 of UCC
2-609. Right to Adequate Assurance of Performance.
(1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.
(2)Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.
(3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.
(4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.
Universal Resources Corp. v Panhandle Eastern Pipe Line
URC, as seller, and Panhandle, as buyer, entered into a 15 year gas purchase and sales agreement.
URC is required to deliver a certain quantity of gas to Panhandle.
There’s also a clause obligating Panhandle to take gas or pay for the tendered but not taken gas “take-or-pay clause”. Panhandle would then have to pay for the deficiency in the intake of gas, but could have makeup gas given by URC in the following years in relation to the deficiency.
URC notified Panhandle of the deficiency at the end of the year that would have to pay for, but Panhandle refused.
URC sued. Panhandle argued that since it was probable that URC wouldn’t be able to provide the makeup gas, then it shouldn’t pay the deficiency.
Whether Panhandle had a reasonable insecurity regarding URC’s future performance and therefore URC had to given Panhandle adequate assurance of future performance.
Panhandle fears of lack of makeup gas in the future did not rise to the level of reasonable insecurity as a matter of law.
Panhandle didn’t have a reasonable insecurity, so URC wasn’t required to give adequate assurance and its failure doesn’t excuse Panhandle from making the deficiency payments.
Without reasonable grounds of insecurity, the party can’t ask for an adequate assurance and therefore cannot suspend any performance.
The reasonable ground of insecurity is determined by commercial standards.
In this case there wasn’t an event after the execution of the agreement that would have given rise to a reasonable insecurity. The alleged insecurity was from subjective evaluations. There were unsupported assumptions about the market.
Demand for Adequate assurance
What must include in a demand for adequate assurance?
Nothing in statute addresses this question at the very least the demand
--should describe the grounds for insecurity;
--and make it clear that serious consequences will flow from a failure to respond or from a response that is not prompt and adequate.
Demands must be in writing, but some courts have allowedoral demands when they were unambiguously communicated and the recipient clearly understood their significance.
Parties can eliminate some of the uncertainties surrounding the adequate assurances process by specifying in the contract itself what circumstances will justify a demand for assurances, what assurances will be adequate, and the time within which assurances must be given (comment 6 to 2-609).
Adequate assurances and anticipatory repudiation under article 2A of the UCC and UCITA
Prospective Nonperformance under article 2A (just questions) Prospective Nonperformance under UCITA (just questions)
Prospective Nonperformance under the CISG Article 71 of CISG correlates to 2-610 and 2-609 of UCC
(1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of:
(a) a serious deficiency in his ability to perform or in his creditworthiness; or
(b) his conduct in preparing to perform or in performing the contract.
(2) If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller.
(3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and mustcontinue with performanceif the other party provides adequate assurance of his performance.
(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided.
(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.
(3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.
A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.
第 6 周
第 6 次课
Chapter 6：Risk of Loss （Burden of Proof）
1. Delivery Terms and Risk of Loss Under Pre-amendment UCC Art. 2
2. Delivery Terms Under Amended UCC Art. 2; INCOTERMS
3. Risk of Loss Under the CISG (Articles 66-70)
附：自编选读资料（六） Chapter 6 Risk of Loss （Burden of Proof）
(a) if it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation (Section 2-505); but
(b) if it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery.
(2) Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer
(a) on his receipt of a negotiable document of title covering the goods; or
(b) on acknowledgment by the bailee of the buyer's right to possession of the goods; or
(c) after his receipt of a non-negotiable document of title or other written direction to deliver, as provided in subsection (4)(b) of Section 2-503.
(3) In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery. (4) The provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on approval (Section 2-327) and on effect of breach on risk of loss (Section 2-510).
Tennessee Court of Appeals, 1997
This is a breach of contract case involving the sale of a horse called “Phantom Recall”.
Dunn was in charge of the general care of the horse and its training.
He was also considered to be by the court as a bailee of Harmon, this is like an agent. There is evidence that shows this.
Also there is evidence showing that Scarbrough knew the papers of ownership were in possession of Dunn and he did not ask for then when they met twice.
The appellee, Harmon, filed suit against appellant, William A. Scarbrough, after he stopped payment on a check tendered to Harmon for the purchase of the horse.
Significant here is the fact that within days of the tender, but prior to Scarbrough’s physical receipt of the documents transferring ownership, the horse became ill and died.
Thus, the issue is raised as to when the risk of loss passed and whether the horse’s condition was misrepresented or whether the parties were operating under a mutual mistake of fact. The trial court entered a judgment for Harmon, we affirm.
It results that the judgment of the trial court is affirmed and this cause remanded for any further proceedings.
Risk of loss is passed when buyer actually receives the object of sale.
Buyer’s receipt is required in order to effectuate the intended purpose of the Code which is “to shift the risk of loss when the buyer has received the ability to control the possession of the goods”.
It is reasoned that “in the case of negotiable documents, this occurs when he receives the document from the seller, since without it, no one should be able to procure the goods from the bailee”. Notwithstanding the foregoing, we find that under this particular set of facts; Scarbrough received the ability to control possession of the horse no later than July 1 regardless of the fact that he did not actually receive physical possession of the ownership documents at that time. The documents which were necessary for transfer of ownership and taking possession of the horse were already in the hands of the bailee.
The trial court gets it wrong. The risk of loss passed in the conclusion of sale and passing the title, no one denies that the sale was complete, but 2-509 doesn’t ask if the sale was complete, 2-509 ask who has the better situation to avoid risk of the goods.
It’s not entirely clear that the underlying principle in 2-509 solves the problem in this case. The court applies 2-509 well, but the court doesn’t get at the question of who has control of the horse? So, the facts weren’t well analyzed.
The Scarbroughs argue that under 2-509(3) the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant, otherwise it passes on tender of delivery.
The Harmon argued that they are not merchants, therefore the risk of loss passes on tender of delivery. Tender means when the good is available to be pass.
Dunn was an agent of Scarbrough, but when the Harmon delivered the papers, Dunn became an agent to Scarbrough, so this means that Harmons were merchants. So, receipt has already been done.
So, Dunn became an agent for Scarbrough and therefore that acknowledge the receipt and the risk of loss has passed.
2-509 is an effort to place the risk of loss on the party who by virtue of being in control of the goods is in the best position either in avoiding the harms or to insure the goods. – None of this has anything to do with ownership of the goods.
2-509 object is to place the risk of loss on the party that could avoid the loss or was able to insured it.
Delivery Terms and Risk of Loss Under Pre-amendment UCC Art. 2 Problem 78 Problem 80
Delivery Terms Under Amended UCC Art. 2; INCOTERMS
Proposed Amendments to Art. 2 would repeal the definition of shipping and delivery terms in S.2-319 and 2-324 because those definitions are seen as out of date with modern commercial practice. While the amendments suggest no substitute, earlier drafts of revisions to Art. 2 recommend that delivery terms be viewed in the light of trade usage, course of performance and course of dealing. INCOTERMS, produced by the International Chamber of Commerce and frequently used in international sales, were mentioned favorably.
INCOTERMS are a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. They are designed to eliminate, or lessen, the uncertainties of different interpretations of such terms in different countries.
The following are the INCOTERMS, as actually used, commencing with the Incoterm in which buyer has most of the obligations of the sale and ending in the Incoterm in which seller has most of the obligations of the sale: ExWorks; Free Carrier (FCA); Free Alongside Ship (FAS); Free on Board (FOB); Cost and Freight (CFR); Cost, Insurance and Freight (CIF); Carriage Paid To (CPT); Carriage and Insurance Pait To (CIP); Delivered at Frontier (DAF); Delivered Ex Ship (DES); Delivered Ex Quay - duty paid (DEQ); Delivered Duty Unpaid (DDU); Delivered Duty Paid (DDP). See page 328 for description of each of the INCOTERMS.
St. Paul Guardian Insurance Company v. Neuromed Medical Systems & Support
U.S. District Court of New York, 2002
Plaintiff St. Paul as subrogee to Shared Imaging, Inc., brought this action to recover $285,000 paid to Shared Imaging for damage to a mobile magnetic resonance imaging system (MRI) purchased by Shared Imaging from defendant Neuromed. Neuromed moved to dismiss the complaint on the ground that it failed to state a claim.
Shared Imaging, a U.S. corporation, and Neuromed, a German corporation, entered into a contract of sale for an MRI. The MRI was loaded, undamaged, abroad a vessel. When it reached its destination, it had been damaged, which led plaintiffs to conclude that the MRI had been damaged in transit. The contract provided that the “system will be delivered cold and fully functional”. Under “Delivery Terms” it provided, “CIF New York Seaport, the buyer will arrange and pay for customs clearance as well as transport to its final destination. In addition, under “Disclaimer” it stated, “systems remain property of Neuromed till complete payment has been received”. Preceding this clause is a handwritten note, allegedly initiated by Shared Imaging stating “Acceptance subject to inspection”.
Neuromed contended that because the delivery terms were “CIF” its contractual obligation, with regard to the risk of loss or damage, ended when it delivered the MRI to the vessel at the port of shipment. Plaintiffs argue that other provisions of the contract are inconsistent with the CIF term because Neuromed, pursuant to the contract retained title and thus, risk of loss. CISG governs this transaction because the parties are from different contracting states. CIF means that seller delivers when the goods pass “the ship’s rail in the port of shipment”. However, plaintiffs argue that Neuromed’s explicit retention of title in the contract modified the CIF term. INCOTERMS just address passage of risk, not transfer of title. Chapter IV of the CISG defines the time at which risk passes from seller to buyer pursuant to Art. 67(1) of the CISG. This article states that “the risk passes without taking into account who owns the goods”. Therefore, Neuromed’s retention of title did not implicate retention of risk of loss.
Plaintiffs also cite to the “Payment Terms” clause of the contract, which specified that final payment was not to be made upon seller’s delivery of the machine to the port of shipment, but rather, upon buyer’s acceptance of the machine in its final destination. These terms speak to the final disposition of the property, not to the risk for loss. Thus, inclusion of these terms does not modify the CIF clause.
Finally, plaintiffs emphasize the handwritten note “Acceptance upon inspection”. But, a reasonable recipient, acting in good faith, would understand that the buyer wanted to make sure the receipt of the good should not be construed as the acceptance of the buyer that the good is free of defects of design or workmanship and that the good is performing as specified. This addition does not relate to the place of delivery. Accordingly, despite plaintiffs’ arguments, the handwritten note does not modify the CIF clause and risk of loss remained with Neuromed. Neuromed’s motion to dismiss for failure to state a claim is granted.
Jason’s Foods, Inc. v. Peter Eckrich & Sons, Inc.
U.S. Court of Appeals for the 7th Circuit, 1985
S.2-509(2) of the UCC (Illinois) provides that where “goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer… (b) on acknowledgment by the bailee of the buyer’s right to possession of the goods.” We must decide whether acknowledgment to the seller complies with the statute.
Jason’s Foods contracted to sell 38K lbs. of “St. Louis style” pork ribs to Peter Eckrich delivered to be effected by a transfer of the ribs from Jason’s account in an independent warehouse to Eckrich’s account in the same warehouse without moving the ribs. On January 13, Jason phoned the warehouse and requested that the ribs be transferred to Eckrich’s account. The clerk of the warehouse did this immediately but notified Eckrich four days later. Just before Eckrich was notified, the ribs were destroyed in a fire. Jason sued Eckrich for the price. If, the risk of loss passed, on January 13, when the ribs were transferred to Eckrich’s account, or at least before the fire, Jason is entitled to recover the contract price; otherwise not. The district judge ruled that the risk of loss did not pass by then and therefore granted summary judgment for Eckrich.
Jason argues that when the warehouse transferred the ribs to Eckrich’s account, Jason lost all rights over the ribs, and it should not bear the risk of loss. Eckrich says that it can’t be made to bear the loss of goods that it does not know it owns. Title to the ribs passes to Eckrich when the warehouse made the transfer on its books from Jason’s account to Eckrich’s but the risk of loss did not pass until the transfer was “acknowledged”.
S.2-503(4)(a) makes acknowledgment by the bailee a method of tendering goods that are sold without being physically moved; but, like S.2-509(2)(b), it does not indicate to whom acknowledgment must be made. The official comments on this section indicate that it was not intended to change the corresponding section of the Uniform Sales Act, section 43(3). Such section expressly requires acknowledgment to be from the buyer.
Finally, Jason’s argument from trade custom or usage is unavailing. The method of transfer that the parties used was indeed customary but there was no custom or usage on when the risk of loss passed to the buyer. Affirmed. (Note: proposed amendment to S.2-503(4)(a) and S.2-509(2)(b) would make it clear that the bailee’s acknowledgment must be made to the buyer in order for risk of loss to pass.)
Breach of Contract and Risk of Loss Problem 84
Multiplastics, Inc. v. Arch Industries, Inc.
Supreme Court of Connecticut, 1974
Plaintiff is a manufacturer of plastic resin pellets and agreed with defendant on June 30, 1971, to manufacture and deliver 40,000 lbs. of brown polystyrene plastic pellets for nineteen cents a pound. Pellets were specially made for defendant, which agreed to accept delivery at the rat of 1,000 lbs. per day after completion of production. The defendant’s confirming order contained the notation “make and hold for release. Confirmation.” The plaintiff produced the order of pellets within two weeks and requested release orders from the defendant. The defendant refused to issue the release orders, citing labor difficulties and its vacation schedule. On August 18, 1971, the plaintiff sent the defendant a letter asking for release orders. Plaintiff also called defendant and defendant agreed to issue release orders but never did. On September 22, 1971, plaintiff’s plant containing the pellets was destroyed by fire.
The trial court concluded that the plaintiff made a valid tender for delivery by its letter of August 18 and by its subsequent requests for delivery instructions; that the defendant repudiated and breached the contract by refusing to accept delivery; that the period from August 20 to September 22 was not a commercially unreasonable time for the plaintiff to treat the risk of loss as resting on the defendant; and that the plaintiff was entitled to recover the contract price plus interest.
Risk of Loss Under the CISG (Articles 66-70) Problem 85
Seller puts the goods in an independent trucker to deliver to the vessel Star of the Sea which will bring it to New York and then to an independent trucker and then to the buyer.
S→ Ind Trucker → SS → NY → Trucker → Buyer
X – is where the goods are damaged.
Article 67 of CISG the risk does not pass to the buyer until the goods are handed to the carrier. The risk of loss doesn’t pass until the goods get to that particular place.
Article 68 the risk of loss for goods sold in transit passes to the buyer from the time of the conclusion of the contract (article 23 – when acceptance is effective). The risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the docs. If the seller knew that at the time of the conclusion the goods were lost, the risk is of the seller.
The issue here is the burden of proof to see when the lick ruined the chemicals and decided if the seller knew. However, this is impossible to prove, so whoever bears the burden of proof is going to loose because it’s almost impossible to demonstrate when the lick happened.
So, who bears the burden of proof? According to Chicago Prime, the buyer bears the risk of loss.
A buyer who accepts goods bears the burden of non-conformity.
The buyer bears that burden.
But in problem 85, the buyer hasn’t accepted the goods, second of all why is the court that’s supposed to use the CISG is using the UCC to determine the allocation of proof.
So, this decision might not apply to a case where a buyer hasn’t received the goods and there’s no representative of the buyer. So, who has the burden of proof?
Whoever has the burden of proof looses. – There’s nothing in the CISG that determines this issue.
We are assigning the cause of action here. Maybe instead of having a litigation to whom should we assign the burden of proof we want a bright line rule, but we just don’t have that certainty.
Article 67 and 68 Opt Out – the parties can opt out through article 6.
What happens if the buyer says he doesn’t want the goods because they are non-conforming when he gets them and before sending them back they get destroyed, so who bears the risk of loss? What happened under the risk of loss in the CISG?
Article 70: if the seller committed a fundamental breach of contract, article 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach. The article doesn’t say there is a shift in the risk of loss. The buyer would still bear the risk of loss, the breach does not impair the risk of loss. But the buyer would still retain a cause of action against the seller with respect to non-conformity.
So, let’s say the value of the goods is $1,000, but the contract is for $5,000, the good’s values is $1,000 because they are non-conformity. So, the buyer essentially has a contract damages claim against the seller for $4,000 and the buyer pays $1,000 to the seller and the buyer has an insurance claim for $1,000, so the buyer is not going to loose. So article 70 means that there is a risk of loss for the buyer for the actual value of the non-conformity goods. So, the CISG is a cleaner theory for risk of loss.
As opposed to the UCC by keeping the risk of loss on the breaching party which could be problematic because the breaching party may not have possession.
The CISG does not shift the risk of loss, but gives that non-breaching party a contract remedy against the breacher. The UCC shifts the risk of loss to the breaching party (2-510).
Burden of Proof (supplement) Chicago Prime Packers, Inc. v. Northam Food Trading Co.
U.S. Court of Appeals, 7th Circuit, 2005
Defendant-appellant Northam contracted with plaintiff-appellee Chicago Prime for the purchase of 40,500 lbs. of pork back ribs.
Chicago Prime is incorporated in Ontario, Canada. Chicago Prime purchases the ribs from meat processor Brookfield;
Brookfield stored the ribs in two independent cold storage facilities: B&B Pullman and Fulton Market.
Brookfield says that the temperature logs and quality control records for its own facilities were acceptable. However, records say that B&B temperatures were below acceptable. There is nothing said about Fulton.
On April 24, 2001, Brown Brother’s Trucking, on behalf of Northam, picked up the ribs from B&B.
Chicago Prime, the seller, never possessed the ribs.
When Brown accepted the shipment, it signed a bill of lading, thereby acknowledging the goods were “in apparent good order”. The bill of lading also stated that the “contents and condition of contents of packages were unknown”.
The next day, Brown delivered the shipment to Northam’s customer, Beacon Premium Meats.
Northam, the buyer, never possessed the ribs.
Upon delivery, Beacon signed a second bill of lading acknowledging that it had received the shipment “in apparent good order”, except for some problems not at issue.
Beacon, before selling the ribs, found out that they were “off condition”. An inspector from the U.S. Dept. of Agriculture (USDA) examined the ribs and declared them spoiled.
Then Northam and Chicago Prime learned of the potential problem of the ribs. The supervisor of the inspector also found the ribs to be rotten.
He concluded that the inspected product had arrived at Beacon in a rotten condition, and that it appeared to have been “assembled from various sources”; the entire product should be condemned.
After Northam informed Chicago Prime of the results, Chicago continued to seek payment an eventually filed suit.
Following delivery, Northam refused to pay Chicago Prime the contract price, claiming that the ribs arrived in an “off condition”. Chicago Prime files suit for breach of contract.
The District Court awarded Chicago Prime $178,000, the contract price, plus prejudgment interest of $27,242. Northam is now appealing and we affirm the judgment.
It was undisputed that the parties entered into a valid contract and that Chicago Prime transferred the rubs to a trucking company hired by Northam, and that Northan did not pay Chicago Prime.
Who bears the burden of proof?
We hold the District Court correctly assigned to Northam the burden of proving nonconformity and that it did not err in finding that Northam had not met this burden, we therefore affirm.
The District Court concluded that it was Northam’s burden to prove non-conformity, and held that Northam had failed to prove that the ribs from Chicago Prime were spoiled at the time of transfer to Brown. Northam even failed to prove that it examined the ribs or that it rejected or revoked acceptance of the ribs within a reasonable time after it discovered or should have discovered the alleged non-conformity.
The contract is governed by the CISG.
According to CISG, Chicago Prime is responsible for the loss if the ribs were spoiled at the time Northam’s agent, Brown, received them from Chicago Prime’s agent, Brookfield, while Northam is responsible if they did not become spoiled until after the transfer. Northam makes two arguments: (1) that the District Court erred in placing upon them the burden of proof; (2) that the evidence presented does not support that the ribs became spoiled after Brown received them from Brookfield.
The CISG does not state expressly whether the seller or buyer bears the burden of proof as the product’s conformity. Because there is little case law under the CISG, we interpret its provisions by looking to its language and to “the general principles” upon which it is based. A comparison with the UCC reveals that buyer bears the burden of proving non-conformity under the CISG. The buyer, when sued for the purchase price, may set up a breach of warranty as a defense to the seller’s action. In such an action it is the defendant-buyer’s burden to prove the breach of the warranty (S.2-314). The CISG approach under Art. 35(2) is similar to S.2-314 ofthe UCC and “produces results which are comparable to the warranty structure of the UCC”.
Non-conformity goods are not necessarily damaged.
The buyer’s payment obligation is not until he receives the goods, not when he gets the risk of loss. The buyer shouldn’t pay for the goods until he is sure that he’s getting what he ordered.
UCC 2-301, 2-310, 2-513
2-301 (obligations: deliver and acceptance)
2-310 (time to payment)
2-513 (right of inspection) → 2-601 (rejection of goods)
2-606 (acceptance of goods) 2-508(cure or replacement by seller)
2-607(effect of acceptance)
2-608(revocation of acceptance)
If the buyer has a right to inspect, then what constitutes an inspection? There’s no explanation in the UCC for what constitutes inspection.
Why is it important to figure out whether or not I already inspected the car? Because inspection triggers acceptanceor rejection.
After inspection the buyer could either:
When the buyer does have a right to inspect? 2-513(1): “When the goods are tendered or delivered or identified, the buyer has a right to inspect before payment or acceptance.
2-513(1) Doesn’t tell us whether the inspection is triggered by “tender, delivery or identify”. So, even if you saw the car yesterday, it wasn’t delivered until today. So there are many arguments that can be made under this article re when the inspection took place.
Long Distance Transaction
You can do a documentary Transaction. The seller compensates the risk of selling the goods to a long distance buyer. So, each party is a little concern about the other party’s performance.
The seller ships the goods to the buyer by a boat.
When the seller brings the goods to the carrier, the carrier gives the seller a description of the goods, this is the evidence that the buyer is going to use that the goods that the buyer ordered are the ones he ordered.
So the seller sends this documents to the buyer, this is called a “Bill of Lading”. The Seller will also include a bill or an invoice and “sight draft” (a check drawn by the seller on the buyer), the goods take a while but the documents get there quickly.
So, now the buyer has some confidence. The seller sends the goods and he knows that the buyer cannot get the goods until he presents the BOL to the carrier and in order to get the documents, the buyer has to pay for the “Sight Draft”.
This reduces the risk of transaction, not to zero, but to a certain point that will allow the transaction to go forward.
Inspection in Documentary Transactions: the buyer doesn’t get to inspect the goods before paying. The buyer is not making a payment against the goods itself. So under a documentary transaction the buyer and seller are necessary opting out of the sections regarding to inspection.
2-513(3): in a documentary transaction the default rule is that the buyer is not entitled to inspection prior to payment against the documents, unless otherwise agreed. So, the buyer has to pay to get the documents before receiving and inspecting the goods.
2-512: where the contract requires payment before inspection non-conformity of the goods does not excuse the buyer from so making payment unless: a) the non-conformity appears without inspection, b)
Under a normal shipping contract: The risk of loss is on the buyer when the goods have been delivered to the carrier. So, how does 2-512 (1)(a) fits here? Because it seems that said section understands that the risk of loss is on the seller. This isn’t logical.
Is there a reasonable limitation on the ability to reject the goods?
The Buyer’s courses of action upon receipt of goods under UCC Article 2
1. Rejection, Acceptance, and Revocation of Acceptances under Article 2: an overview
To perform a contract of sale the seller must “tender” the goods (e.g.: offer delivery of the goods by putting and holding them at the buyer’s disposal – Art. 2-503(1)). When a seller tenders the buyer faces a decision: it can refuse the delivery (art. 2 calls it “rejecting” the goods) or it can receive and retain the goods (art. 2 calls it “acceptance” of goods).
Basic provision governing the rejection of goods is Art. 2-601, which authorizes the buyer to reject “if the goods or the tender of delivery fail in any respect to conform to the contract”. The buyer has the right to reject goods if they breach a warranty or if the seller’s tender of delivery otherwise breaches the contract “in any respect”. This “perfect tender rule” is subject to limitations and conditions on the buyer’s right to reject. If the buyer rejects goods and the rejection is “rightful”, it relieves the buyer of the obligation to pay the price. Even “wrongful rejection” (e.g.: where the buyer did not have the right to reject but did so anyway) may relieve the buyer of liability for the price, although it may be liable for damages.
The alternative to rejection is acceptance of goods. It occurs if the buyer takes various affirmative actions with respect to tendered goods or if the buyer fails to reject the goods within a reasonable time after receiving them (2-206). Once the buyer accepts it can no longer reject and has to pay for the goods “at the contract rate” (2-207(1)), although it may retain remedies for breaches by the seller (2-607(2)). In certain circumstances the buyer who has accepted may be able to revoke its acceptance (2-608) and the revocation has the same effect as rejection (2-608(3)). If the buyer properly rejects or revokes the acceptance, it can thrust the goods back on the seller and, discharge its contractual obligations. An analogous situation arises in non-sales transactions when one party’s breach discharges the other party’s duty to perform.
2. Rejection / 2-601
2-601: If the goods delivered or tendered failed in any non-conformity in any respect to the contract, the buyer may reject them all, accept the whole, accept any units and reject the rest.
Problem 44 (page 237)
Can the buyer reject the five? Yes
Can he reject all 200? Yes. However, in this case we can worry that the buyer is not dissatisfied with the goods, but with the overall deal. So, the buyer is ceasing upon a technical non-conformity to try to get out of the deal. This concern is the one addressed in the Neumiller Farms case.
Note: Limitations on the Perfect Tender Rule
Perfect Tender Rule, 2-601: if the good or the tender of delivery fail in any respect to conform to the contract.
Ramirez v Autosport limits the perfect tender rule.
In Ramirez v. Autosport, the New Jersey S.C. commented that the seller is under the duty to deliver goods that conform precisely to the contract, to make a “perfect tender” and the buyer has the right to reject goods that do not conform to the contract … The chief objection of the perfect tender rule (as opposed to the doctrine of substantial performance) was that buyers in a declining market would reject goods for minor nonconformities and force the loss on surprised sellers … To the extent that a buyer can reject goods for any nonconformity, the UCC retains the prefect tender rule. Section 2-106 states that goods conform to a contract “when they are in accordance with the obligations under the contract”. Section 2-601 authorizes a buyer to reject goods if they “or the tender of delivery fail in any respect to conform to the contract”. The Code, however, mitigates the harshness of the perfect tender rule and balances the interests of buyer and seller.
2-106 → 2-601
Art. 2 mitigates the harshness of the perfect tender rule. Minor imperfections in the goods or the tender may not constitute a breach.The implied warranty of merchantability does not require flawless goods (unless the standards of the relevant trade or the requirements of ordinary use demand such). Another example involves delays by the seller or lessor. Unless the contract provides that time is of the essence, courts faced with delays that are only minor will sometimes treat delivery dates as mere estimates.
第 8 周
第 8 次课
1. Introduction: the warranty concept
Express Warranty under UCC article 2
3. Express Warranties – Leases, CISG and UCITA
4. The implied warranty of merchantability - 2-314
附：自编选读资料（八） Chapter 8 Warranties
Introduction: the warranty concept
The term “warranty” has been used in several distinct senses. They could be characterized as promises or conditions, however, that is no longer significant. They have taken on a life or their own.
Under article 2 of the UCC, four warranty sections are critical. Three are concerned with quality of the goods:
2-313 - Express warranties.
2-314 - implied warranties of merchantability.
2-315 - fitness for a particularpurpose.
The other two warranties have played smaller role in litigation. They are:
2-312(1) - Warranties of title.
2-312(2) - Warranties against infringement.
2-316 – warranty disclaimers. This topic is connected with remedies for breach of warranty. If all implied warranties are effectively disclaimed, the buyer has no remedy for defects in the goods because there is no breach, except for a breach of an express warranty.
If the buyer retains warranty protection but agrees to severely limit remedies for breach (2-719(1)), the existence of the warranties may give the buyer little actual benefit.
Parties are free to substitute their own remedies for breach in place of UCC remedies. Problem arises when the substitute remedy fails to achieve it essential purpose (2-719(2)). A given disclaimer of warranty or exclusion of consequential damages may prove to be unconscionable.
Let’s say the goods have been accepted, the buyer has modified the goods therefore he can’t send them back and revocation cannot occur. But if the buyer finds a defect, does that mean the buyer is out of luck? This is where a warranty kicks in.
In the express, implied and fitness for a particular purpose warranty you should look at the allocation of a particular quality. This allocation is made by the parties themselves, sometimes this allocation is made by the law.
If there’s a difference between the goods represented and the quality of the goods delivered, a warranty would cover it.
Why would the seller say that “this is a great piece of chalk” “this chalk won’t make a noise” when the consequence of doing that is a liability?
We have high and low quality sellers, and high and low quality buyers. Low quality sellers may misrepresent the quality of the good
Timing irrelevant: Comment 7 of 2-313 says that timing of comments are irrelevant and even if made after the sale, it would still be language of express warranty. So, post-contract statements are express warranties.
Conformity of Goods / Article 35(1): Goods must be of quantity, quality and description by the contract.
Remember there’s no parol evidence in the CISG and under article 8 statements made during negotiations are part of the contract.
Where there’s a statement made by the seller saying it’s just “my opinion” but if the buyer takes it as a description of the goods, the buyer’s interpretation governs. So, the seller must be clear in the info conveyed to the buyer, according to article 8(1).
Express Warranty under UCC article 2 – Facts v Commendations, Value or “Puff”
Web Press Services Corp v New London Motors
Supreme court of Connecticut, 1987
In July 1984 New London sold the plaintiff a used 1980 model vehicle to be used for off-the –road driving.
The defendant statements when selling the car was that the vehicle was an “excellent” and “unusual” one and that it was in “mint” and “very good” condition.
Plaintiff paid the purchase price and took delivery of the vehicle.
Mechanical defects developed immediately impairing the value of the vehicle to the plaintiff.
New London tried to remedy the defects without success.
The defendant in October 1984 tendered back the vehicle and notified New London of the revocation of acceptance and requested the return of the purchase price.
New London refused to return it.
Whether the defendant expression’s created an expressed warranty
The statements made by the defendant weren’t specific and the buyer was allowed to test drive and examine the car before buying it. Therefore, the trial court was right in finding no express warranty created.
The plaintiff bears the burden of proving the existence of an express warranty.
Whether an express warranty exists is based on the facts.
Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods conform to the description.
However, the UCC recognizes that some statements of seller are merely “puffing” and do not create express warranties (42a-2-313(2)).
Drawing the lines between puffing and the creation of warranties is difficult, but some factors have been identified such as:
The specifity of the statement. So, statements that the vehicle was in “good condition” have been held not to create express warranties.
If it is written or oral, the latter is more likely to be considered puffing.
Note Facts v Puff
Comment 10 to the proposed amended section 2-313 lists 8 factors relevant in drawing the line between representations and puffing:
whether the statements were oral rather than written
general rather than specific
related to the consequences of buying rather than the goods themselves
were hedged in some fashion
related to experimental rather than standard goods
concerned some aspects of the goods but not a hidden or unexpected nonconformity
were phrased in terms of opinion rather than fact
Were not capable of objective measurement.
A similar list is found in Federal Signal v Safety Factors.
Express Warranty Basis of the Bargain
Cipollone v Liggett Group
Court of Appeals Third Circuit, 1990
Mrs. Cipollone died of lung cancer.
She smoked from 1942 to 1984.
Mr. Cipollone sue Liggett and other tobacco companies and wants to held them liable for the death of his wife.
This is an appeal from a final judgment in a protracted products liability case.
Whether the advertisements are express warranty.
As long as Mr. Cipollone can prove that Mrs. Cipollone was aware of the advertisements and as long as Liggett doesn’t prove that she disbelieved them, there would be express warranty.
The instructions of the trial court were erroneous. First, they didn’t require the plaintiff to prove that Mrs. Cipollone had read, seen or heard the advertisement at issue. Second, they didn’t permit the defendant to prove that although Mrs. Cipollon had read, seen or heard the advertisements, she didn’t believe the safety assurances contained therein. Reverse and remand for a new trial.
The advertisements constitute an express warranty as long as they constitute a basis of the bargain.
To constitute a basis of the bargain, the buyer must have read, heard, saw orknewof the advertisementcontaining the affirmation of fact or promise, such proof will suffice “to weave” the affirmation of fact or promise “into the fabric of the agreement” and thus make it part of the basis of the bargain.
Once the buyer has become aware of the affirmation of fact or promise, the statements are presumed to be part of the “basis of the bargain” unless the defendant, by “clear affirmative proof”, shows that the buyer knew that the affirmation of fact or promise was untrue.
第 9 周
第 9 次课
Chapter 9：Warranty Disclaimers and Limitations on Remedies
1. Disclaimers under UCC Article 2
2. Warranty Disclaimers under UCC Article 2A
Precluding Obligations of Quality under the CISG
4. Limited Remedies Under UCC Article 2A, the CISG, and UCITA
附：自编选读资料（九） Chapter 9 Warranty Disclaimers and Limitations on Remedies
WARRANTY DISCLAIMERS Class notes:
Buyer of automobile for car races, tells the seller that she wants a car for car races. The buyer tests the car and purchases it.
Uses the car at a race and it goes out of control.
Can she bring a claim?
What makes car racing particular? Well it’s not ordinary purpose, so it’s not 2-314.
Particular Purpose: abnormality is not necessary, simply conveying to other people that the good will be used for different purposes.
2-315, comment 2 - Particular use: A particular purpose envisages a specific use by the buyer which is peculiar to the nature of his business whereas the ordinary purposes for which goods are used are those envisaged in the concept of merchantability and go to uses which are customarily made of the goods in question.
She can bring an implied warranty of a particular purpose under 2-315 of the UCC or 35(2)(b) of the CISG.
If the seller has reason to know a particular purpose - express or implied
If the seller knows that the goods are fit for a particular purpose expressly or implied.
At the time of contracting
At the time of the conclusion of the contract
The buyer must rely on the seller’s skill or judgment.
Unless the buyer didn’t rely on the seller’s skill and judgment.
If the seller is going to stop the buyer to make a further search, we want him to do so if only the seller actually has the info that he is conveying,
Underlying motivation for implied warranty of particular purpose: so the implied warranty for a particular purpose if to convey information that the seller has, but not give false information.
E.g.: the buyer says I need XX for a particular purpose (describes it) and add, if I don’t here about you in the next week I will assume it does and buy the goods. The goods are bought and they do not fit to the purpose. Is the silence a creation of an implied warranty of fitness? The seller knows that the buyer is relying on him. If the seller sells the products knowing that the buyer was relying on him. If the seller sells the products knowing that the buyer was relying on a response, it seems that all the elements of 2-315 and 32(2)(b) are satisfied. Prof: NO SOLUTION.
In 2-315 there’s a requirement of reasonable reliance on the seller’s statements. But this doesn’t solve the silence issues of the seller.
Is there a way to avoid express warranties? Sure, by not making them, but if you do make an express warranty and a disclaimer simultaneously will be a problem, it might look as the seller trying to be confusing. So disclaimers of express warranties seem to be disfavored under the UCC 2-316 (1) where words of conduct must be construed consistent with each other.
It may be that individual recognizes that bargaining around the disclaimer, which is getting the warranty back might be worthwhile, but that getting the warranty might be an excessive cost.
Let’s say we have a good at a price P w/o the warranty, but w/warranty the price is P+10, but if the expected loss of the good is $12, then P+10 is worthwhile. However, assume that in order to obtain the warranty I have to incur in negotiations costs of 3, so now, the total of getting the warranty is 13 and that it is not worthwhile. So even some people that recognize the necessity of the warranty, won’t negotiate it. However, if the warranty is given up front without the negotiations costs, then some people will get it.
Do we get more efficiency without the provisions or with it?
At least this is one way to think about it.
1. Disclaimers under UCC Article 2 Problem 37
Pg. 147 a) Truck sold is sold as is. The truck was worthless and had to be scrap.
The buyer brings an action for breach of the implied warranty merchantability.
What’s the result? 2-316. Exclusion or warranty: to exclude the warranty of merchantability the language must mention merchantability, be in writing and be conspicuous.
In this case it didn’t happen, however
2-316 (3)(a) states that phrases such as “as is”, “with all faults” work as an exclusion of warranties without having to add the word merchantability.
b) 2-316(3)(b) - if a buyer examines or declines to examine the goods there is no warranty with respect to the defects that might have been revealed in the examination.
In this case, the buyer didn’t want to try it, so the case might be that there’s no implied warranty.
However, an argument can be done that the buyer didn’t have the knowledge to notice that the bend blades were a defect.
Under some circumstances we might prefer that manufacturers want to disclaim, not be disclaim.
In some cases we have consumer purchasers rather than commercial purposes.
Some states in US have adopted a provision 2-316A which prohibits the disclaimer of warranties with respect to consumer goods.
If we think that the goods creates a safety risk, then we may be more concentrated about keeping goods out of the market (not accepting disclaimer of warranties), but it will be the opposite in regards to luxury goods.
However, will this be good for markets? If in fact we give this choice, it will be the case that people with few resources will end up with goods of lower quality without warranty and people with more resources will end up with higher quality goods. We will end up with a world of segmentation.
People may have different preferences about assuming risks.
There may be categories of individual who in fact won’t want the warranty and want the good, but are precluded of the goods because of governmental regulation.
There might be a provision to bargain in or out of the warranty.
2-316A changes the provision to a default rule, it says that you must have a warranty, so the minority that don’t want a minority are still stuck with a warranty.
James River Equip. Co. v. Beadle County Equip., Inc.
Supreme Court of South Dakota, 2002.
On February 23, 1994, the parties entered into a written agreement for James River to purchase Beadle County Equipment for approximately $ 1,800,000. As part of the transaction, James River purchased all used equipment inventory held by Seller as of the date of the agreement, valued at $ 1,361,000. Seller made various representations on regarding the equipment. Those representations included descriptions regarding the number of hours the equipment had been used. The agreement provided that "all representations and warranties by Seller set forth in the Agreement shall be true and correct in all material respects as of the Closing" and "Buyer acknowledges that the Purchased Assets to be purchased hereunder are being conveyed to Buyer in an 'AS IS' condition and that neither Seller nor Seller's agents or employees have made any representation to Buyer concerning the condition of the Purchased Assets, or any of them, except as specifically provided in this Agreement."
After the closing on February 24, 1994, James River learned that five of the used John Deere combines had substantially more hours of use than Seller had represented and that affected the value of the combines. The trial court found in favor of James River on several smaller claims which are not part of this appeal and awarded James River a total of $ 7,435.64 in damages. However, the trial court did not find in favor of James River on its claim for breach of express warranty.
Seller argues that James River had the opportunity to and did inspect the used equipment inventory before closing, and that opportunity and inspection negated any express warranties. With respect to implied warranties, the UCC provides that when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired, or has refused to examine the goods, there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him. But with regard to express warranties, the real test of whether an express warranty exists is whether the warranty became a part of the basis of the bargain, andthe Code does not exclude an express warranty where the buyer has the opportunity for inspection, or does inspect the goods.
Seller claimed that he sold the used equipment inventory on an "as is" basis, and that the "as is" clause of the purchase agreement disclaimed any express warranties made. The trial court agreed. UCC contemplates that only implied warranties can be disclaimed by use of "as is" clauses. The only UCC provision addressing "as is" clauses provides that "unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like 'as is,' 'with all faults' or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty”. UCC § 2- 316(3)(a). The official comment to that section confirms its plain meaning, i.e., that "only implied -- not express -- warranties are excluded in 'as is' transactions."
Regardless, "whether implied warranties have been excluded is immaterial when the buyer sues on an express warranty." Therefore, the UCC does not permit "as is" clauses to disclaim express warranties. Section 2-316 of the UCC protects buyers from disclaimers inserted into written contracts or similar forms which are inconsistent with express warranties. Thus, where an express warranty and a disclaimer of the express warranty exist in the same sale, there is an irreconcilable conflict and the disclaimer is ineffective.
Notes: May express warranties be disclaimed?
第 10 周
第 10 次课
Chapter 10：Conflicting Rights to Goods
What reasons are there to favor the original owner or the good faith purchaser?
2. Definition of Good Faith;
3. Ownership and variations on the theme；
4. Transferee’s right to undisturbed possession/ use under UCC article 2A, the CISG and UCITA
附：自编选读资料（十） Chapter 10 Conflicting Rights to Goods
X → thief, bailee, lesee - anyone who has no interest at all in the goods and who the original owner has a superior interest.
The problem is when X doesn’t have the good anymore and X transferred it to someone else who purchased it in good faith who is the Bona Fide Purchaser (BFP).
Now the original owner and the BFP have a conflict, but both are innocent.
Original owner was disposed of the good by someone who didn’t have an interest in the goods because he stole them or something else.
Now we have to figure out whether the goods go back to the original owner or whether the goods stay with the BFP and the original owner has rights to damages.
Many legal systems say that the original owner gets the goods and some others say BFP keep the goods, in the US is split, in some instances the goods go back to the original owner and sometimes the stay BFP.
Check 2-403, 2-312
What reasons are there to favor the original owner or the good faith purchaser?
OO has a watch → thief gets them → sell it to a professional watch repair/store → sells the watch to BFP
OO identifies her watch with precision.
Can she recover her watch? Yes, OO can recover the goods.
the BFP receives from the merchant “all rights of the entruster” (2-403(2)). However, the thief has no title, he has a void title, so no rights are transferred to the merchant, therefore the merchant DOESN’T transfer any right to the BFP, even though we have an entrusting situation, the OO gets the goods back.
2-403(1) only talks about voidable title, not void title.
2-403 doesn’t tell us what title the seller has, in this case the thief has, but property law will tell us that the thief gets no title.
Is this entrusting, 2-403(3) → says the definition of entrusting which is delivering the good, so the thief is entrusting.
BFP has a cause of action against the merchant.
Now let’s assume that the OO gave the watch to the merchant to repair.
What did the OO did? He entrusted the watch to the merchant under 2-403(3).
But under 2-403(2) - the merchant has good title (has ownership rights) and has power to transfer all rights of the entruster to a buyer in ordinary course of business.
So, BFP has good title and the OO can’t get the goods back.
If the entruster has good title, then the merchant passes the rights of the OO.
Why can the OO be dispossessed of their goods by a merchant and not by a thief?
2-403(2) Entrustment situation: the merchant gives to BFP whatever right the entruster has, when the OO delivered possession to the merchant that is the “entrustment”, that entrustment didn’t give the merchant good title, all the entrustment does allows the merchant to pass on whatever the entruster rights were to the BFP, the merchant can give something he doesn’t have. The merchant doesn’t have good title, but he has possession of the goods and entrustment of the goods, however he can pass the good title of the goods to the BFP.
OO → Buyer w/ bounced check → BFP
What if the check from the buyer bounces.
OO says I want the watch back.
The buyer got a voidable title.
Voidable title (good title): voluntary transfer of the goods (Inmi-Etti).
OO → lesee → merchant → BFP
Does the BFP get good title or the leasehold interests.
There are two arguments that could be made.
If you believe the all the merchants can pass the leasehold interest, the OO can get the goods back, on the contrary, good title would have passed to BFP.
The leasee could have good title, so the merchant could pass good title.
OO → voidable title → donee
The check bounces from the buyer.
OO wants the good back.
Can OO get it back? Yes
Purchase includes gifts.
The donee is good faith purchaser, so under 2-403(1) good title good have passed.
Definition of Good Faith;
OO → X → BFP1 → BFP2
What if the goods were stolen by OO and OO gets the goods back?
2-312, BFP 2 has a cause of action for breach of warranty against the seller, this is an implied warranty of title (that the goods are delivered free of any interest….) so when BFP1 didn’t have good title, then BFP1 has breached the warranty against BFP2 and BFP2 has a cause of action.
The warranty can be implied or expressed.
This is an allocation of risk.
The loss would come on the party who dealt with the thief - X.
So, it’s easier for those who deal with thieves to avoid the transaction.
So, the ultimate loss should lie on X, the party that deal with the thief.
This would also discourage BFP1 to enter into this business.
So if it’s stolen property the OO can get it back.
Incentive: to minimize the market for stolen goods.
If it’s entrusted property the OO can’t get it back.
Ownership and variations on the theme
The Sacred Principle Requires Modification:
One of the sacred principles of the common law is: “Nemo dat quod non habet” = You cannot give what you do not have, meaning that one cannot transfer a property title if you d”on’t posses it.
However, when the title ends up in the hands o a good faith buyer, the sacred principle becomes questionable.
Pre-Code law recognized an exception to the sacred principle where the true owner of goods had clothed the seller with apparent authority to dispose of the property and the innocent buyer had relied upon that authority. This concept is expanded in 2-403 of the UCC.
Comment 1 to 2-403: “the problem is to decide upon a fair allocation of the risk between the true owner and the innocent, good faith purchaser for value”.
Inmi-Etti v Aluisi
Inmi-Etti, purchased a new car for $8,500 cash, but he lost the car and the purchase price.
The buyer placed an order with Wilson Pontiac and Honda of Silver Spring, Md.
Mr. Butler, an acquaintance of the family, assisted with the purchase.
The buyer gave a deposit of $200
The buyer, a resident of Nigeria who was visiting the US, returned to Nigeria and left the cash balance with her sister, Ms. Dawodu.
The car was purchased on June 24, 1981.
A certificate of title was delivered to Butler.
Butler stole the car.
Butler allegued that Inmi-Etti had not given him the money for the car and that she had left to Nigeria without reimbursing it.
Butler sold the car to Pohanka Pontiac.
Since Butler couldn’t produce a certificate at that time Pohanka paid only a part for the car and the balance would be paid upon receipt of the certificate. However, the car was left in Pohanka’s lot.
Butler got a certificate with the Motor Vehicle Administration by filing an affidavit.
Pohanka paid the remaining balance.
Pohanka then sold the vehicle to another purchaser for $8,200.
The question is whether Butler had “void” or “voidable” title at the time of the purported sale to Pohanka.
In this case, Butler possessed void title when Pohanka deal with him, since Ms. Dawodu at no time made a voluntary transfer to Butler. Thus Pohanka obtained no title, and its sale of the vehicle constituted a conversion of he appellant’s property. Therefore Pohanka is liable.
A judicial sale never occurred.
Pohanka is not protected by the “good faith purchaser for value” under 2-403 since Butler didn’t possess a voidable title, but a void one (meaning no title at all).
Judgment is entered against Pohanka for $8,200 plus interest.
2-403(1) of the UCC governs this case. 2-403(2) and 2-403(3) don’t apply because Butler isn’t a merchant who deals in goods of that kind.
Void v Voidable:
If Butler had voidable title, then he had the power to vest good title in Pohanka.
If Butler had void title, then Pohanka received no title and is liable in trover for the conversion of the automobile.
Voidable title: the code doesn’t define it, therefore we must look at non-code state law.
2-403(1) doesn’t create a voidable title in the situation where the goods are wrongfully taken, as contrasted with delivered voluntarily.
Goods are not delivered for purposes of section 2-403 unless they are voluntarily transferred.
A thief who wrongfully takes goods is not a purchaser within the meaning of 2-403.
Butler didn’t obtain title merely from the fact that he was able to convince the Motor Vehicle Administration to issue a certificate of title. The erroneous issuance of such a certificate cannot divest the title of the true owner of the automobile.
Whether Pohanka converted the vehicle with innocent intent is immaterial.
The Restatement of Torts 229 provides: One who receives possession of a chattel from another with the intent to acquire for himself or for a third persona proprietary interest in the chattel which the other has not he power to transfer is subject to liability for conversion to a third person then entitled to the immediate possession of the chattel.
Warranties of title and against infringement under UCC article 2 - Disclaimers
Class notes: Warranties of title:
OO → Thief/Entrustee → BFP1 → BFP2
When the seller isn’t in such a good situation, like the sell of shares, so a disclaimer for warranty of title would be good.
What’s a breach of warranty of title? OO finds the goods in BFP2 and gives them back, but what if instead of a thief is a person to whom the goods were entrusted.
2-312: the goods are delivered free from security interest and other liens that were not revealed to the buyer before the contract was made.
But it suggests that the warranty of title is broader than that, that is a warranty of quite possession, it not only means that you don’t loose the title, but it also means that nobody is even going to ask you about the possession.
So, the mere fact that BFP2 had to litigate the title and get to keeps the goods is a breach of warranty of title. So, where possession was disturbed is a breach.
Obligations of sellers regarding ownership:
第 11 周
第 11 次课
Chapter 11：Buyer’s Remedies
1. Remedies Under UCC Article 2 – In General
UCC Remedies When the Buyer Does Not Receive or Retain the Goods.
Buyers’ Remedies Under the CISG
附：自编选读资料（十一） Chapter 11 Buyer’s Remedies
UCC provides remedies for buyers and sellers.
The UCC allows the parties to get:
What was specifically bargained for specific performance.
what was bargined for
substitute perf. both buyers and sellers can receive substitute perform
sell the goods not collected by buyer in market
Mkt P damgs
Are this mutual remedies or one set is treated differently than another set? We should keep this questions in mind
1-106 - all remedies are liberally construed in the manner that places the aggrieved party in as good position as if the other party had fully performed.
This means that the remedies of the UCC are supposed to give the aggrieved party the benefit of their bargain and protect the expectation of the aggrieved party, not simply to provide substitution, damages, but to place the aggrieved party in the same position as if the other party had fully performed.
A. Remedies Under UCC Article 2 – In General
According to a provision in Art. 1 of the UCC, Code remedies are to “be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed…” The availability of particular Art. 2 remedies depend on the factual situation. Section 2-715(2) forbids the recovery of consequential damages for losses that an aggrieved buyer could have avoided by taking reasonable actions – the mitigation principle – and for losses that were not foreseeable consequences of breach at the time the contract was entered into.
B. UCC Remedies When the Buyer Does Not Receive or Retain the Goods
Can the buyer recover the deposit of $10,000?
Yes according to 2-711(1) if the seller fails to make delivery, the buyer may cancel and recover so much of the price as has been paid.
Under 2-712, the damages are the difference between the cost of cover and the contract price together with any incidental or consequential damages.
Requirements for cover:
w/o reasonable delay
in good faith
In substitution - comment 2 the goods don’t have to be identical with those involved but commercially usable as reasonable substitutes under the circumstances of the particular case.
Arguments for the seller:
The purchase of the new computers was done with delay when the prices of the computers were going up, so they might have done it bad faith.
Arguments for the buyer:
They were waiting for the prices to drop, the firm is not a knowledgeable in the computer market.
Argument for in substitution - if you get a very different computer, then it might not be in substitution, but if that was the only thing available then it would be in substitution although, the computers weren’t exactly similar.
What if the seller says “I’ll perform after all” - courts might say that the buyer don’t have to get the products from the seller since the seller has already shattered the trust.
Let’s say the seller can demonstrate to the court that the buyer didn’t cover, what damages would the buyer be entitled? 2-713 would cover it: the measure for damages when there is no cover would be the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages.
This would raise the following questions:
What is the market price?
2-713(2) the market price is determined as of the place for tender or if it is rejection and revocation would be at the place of arrival.
1. Non-delivery = place of tender
2. Rejection and revocation (delivered) = place of arrival
Why is this? Comment 1 says that the measure is where the buyer would have obtained cover. This shows a favorable thing for cover.
In this case the place of tender is Chicago because seller is supposed to deliver the computers to the buyer’s office in their own trucks, so the computers would be put at the buyers disposition in their own offices, this would be a particular destination contract under 2-503(3).
So the market price would be the one from Chicago.
Even if the buyer is not purchasing goods from a Chicago seller, the buyer would bargained for terms as in Chicago.
When did the buyer learn of the breach?
On November 1, when seller notified of the non-delivery.
Dangerfield v. Markel
Supreme Court of North Dakota, 1979
This appeal arises as a result of our decision in Dangerfield v. Markel, in which we held that Markel, a potato grower, breached a contract with Dangerfield, a potato broker, to deliver potatoes, thus giving rise to damages under the UCC. On remand the DC awarded Dangerfield $47,510.16 in damages plus interest and costs less an award to Markel of $3,840.68 plus interest. Markel appeals contending that the DC made an erroneous award of damages to Dangerfield, and Dangerfield cross-appeals for an additional $101,675 in incidental and consequential damages. We affirm.
By contract dated June 13, 1972, Markel (seller) contracted to sell Dangerfield (buyer) 25,000 cwt. of chipping potatoes during the 1972-1973 shipping season. The seller allegedly breached the contract by refusing to deliver 15,055 cwt. Of potatoes during the contract period and the buyer was allegedly forced to purchase potatoes on the open market to fulfill a contract with potato processors.
The issue is whether or not the trial court made an erroneous award of damages to the buyer under the UCC. Seller submits that the market price at the time of breach between $3.75 and $4.25 per cwt. He argues that a proper measure of damages pursuant to the North Dakota Code (UCC 2-713), would be an average of $4.00 per cwt. minus the contract price at the time of breach. Buyer responds that due to the perishable nature of the product and the installment nature of the contract, he had to buy the potatoes from other sellers at a price that was increasing at that time (up to $6.00 per cwt.) and therefore the damages stated by the court were correct.
The pre-code measure of damages for a breach of contract for the sale of goods was to allow the aggrieved party the difference between his bargain (contract price) and the market price. This created problems, and S.2-712 was added to the buyer’s arsenal of remedies. This section allows the buyer to make a substitute purchase to replace the goods that were not delivered by the seller and the damages are measured by the difference between the cost of the substitute goods and the contract price.
Official comment to S.2-712 states that “the test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective.” Buyer must make a reasonable purchase in good faith without unreasonable delay in order for this section to apply. If buyer proves this then the burder of proof goes to the seller.
We do not feel that the seller met his burden of showing that cover was improperly obtained in these cases or that the DC’s findings were clearly erroneous. We affirm.
Notes on Dangerfield
According to Dangerfield, the purpose of cover damages is to allow an aggrieved buyer to make a good faith and reasonable substitute purchase and be assured that its expectation interest will be protected. An important purpose of the cover remedy under Art. 2 is to eliminate the difficulties of proving market price and that the remedy is available only when the cover price is in fact an appropriate was to measure the buyer’s loss bargain.
Sedmak v. Charlie’s Chevrolet, Inc.
Missouri Court of Appeals, 1981
This is an appeal from a decree of specific performance. We affirm.
第 12 周
第 12 次课
Chapter 12：Seller’s Remedies
1. Seller’s/ Lessor’s damages measured by Substitute Transactions or Market Prices
2. Seller’s Lost profit recovery
3. Seller’s Right to Specific performance，to the Price for Accepted Goods，to Recover Delivered Goods
4. Sellers’ Remedies Under the CISG
附：自编选读资料（十二） Chapter 12 Seller’s Remedies
Seller’s/ Lessor’s damages measured by Substitute Transactions or Market Prices
KP = $3,000 per computer
Total of = $600,000
Prepaid = $10,000
Nov I there’s breach by buyer.
Resale P = $400,000 ($2,000 per computer).
2-706 Damages when there’s resale.
It gives the seller the right to resell the goods.
The difference between the resale price and the contract price together with any incidental damages.
Resale must be done in good faith
In Commercially reasonable manner.
Argument for buyer:
The resale is not made in good faith because the seller waited in a decresing market and failed to mitigate damages.
The resale price is below the MktP on Nov 9. It was 2,100, and sold for 2,000.
Note: Types of Resales and Notice of Resale
An aggrieved seller can qualify for resale damages under 2-706 by reselling the goods in a “public sale” or in a “private sale”.
However, “every aspect” of the resale “including the method, manner, time, place and terms must be commercially reasonable”.
Public sales are subject to particular regulation 2-706(4).
Process of resale:
The seller must give the buyer notice of both public and private resales. Except when it’s a public sale and the goods are “perishable or threaten to decline in value speedily”. 2-706(3).
If failure to give notice, the seller cannot recover resale damages and the seller would be relegated to market price damages under 2-708.
Seller’s Lost profit recovery
2. S enters K with B2 for $28k
3. S enters K with B3 for $28K
4. S enters K with B4 for $28K
2 -706, 2-708
It’s clear that I didn’t want the car and I would have sold it after buying it, therefore I would have been the sellers competitive.
But if the buyer sells the car it would be in a different market and wouldn’t compete with new cars, but used cars do compete with new cars, so the seller wouldn’t be able to use this argument.
It’s unclear what the conditions are.
the seller would only recover incidental damages if allowed, but nothing re the price because the resale price was the same as the K price (2-706(1)).
If there’s no resale there’s no due credit. Damages would be zero.
Under 2-708, the seller could recover $6,000 which is the difference between the market price ($22,000) and the unpaid K price ($28,000).
Should it be up to the seller to prove his case? It’s a difficult burden to sustain what would have happened if buyer would have bought the car.
So if you are a seller you won’t be able to demonstrate damages by the occasional breacher.
A good idea would be to put a liquidated damages clause. Such as a non-refundable deposit which would be the same amount as the expected profit. In this case it would be $6,000.
The mere fact that the seller has access to more units to sell, doesn’t mean that the seller will take them and make more money of that. So, in our example the seller thought he could profitably sell 3 cars, even though he could get 4 cars it would cost him more because he only advertises for 3 cars. So, the seller could in theory obtain a 4th car and sell it to B4, but it wouldn’t have been financially foolish to do so. However, if B1 would have performed, the seller wouldn’t have obtained the fourth car, so now he has an extra car to sell and he will sell it to B4 which is in substitution of B1. seller wouldn’t have sold the car to B4 if he had sold it to B1.
So, the seller is in resale because the seller would have sold only limited goods and you wouldn’t have done it, so you are in 2-706 and are entitled to no damages. But how do you prove that.
Who has the burden of proof?
If the seller must prove every element, who has better info than the buyer, then we would place the obligation on the seller.
Are there clear cases where 2-708(2) ought to apply?
Measuring damages by resale or by market, 2-706 or 2-708(1) might not place the seller in as good place as if performed because ….. so, the best measure is the lost profits of 2-708(2).
If you have specially manufactured goods maybe 2-708(2) would apply because the goods are never going to be produced, so there will be no resale and no market price.
Kenco Homes v Williams
Court of appeals of Washington, 1999
Kenco buys mobile homes from the factory and sells them to the public. Sometimes it contracts to sell a home that the factory has not yet built. It has a virtually unlimited supply of product.
On September 27, 1994, Kenco and Williams signed a written contract whereby Kenco had not yet ordered from the factory.
The contract called for a price of $39,400 with $500 down.
On or about October 12, Williams gave Kenco a $600 check so Kenco could order an appraisal of the land on which the mobile home would be located.
Before Kenco could act, Williams stopped payment on the check and repudiated the entire transaction because he had found a better deal elsewhere.
When Williams repudiated, Kenco had not yet ordered the mobile home from the factory.
Kenco didn’t place the order after the repudiation.
Kenco’s only expense was a minor amount of office overhead.
On November 1, Kenco sued Williams for lost profits.
Under the UCC a non-breaching seller may recover “damages for non-acceptance” from a breaching buyer.
The statute’s purpose is to put the non-breaching seller in the position that he or she would have occupied if the breaching buyer had fully performed (or give the seller the benefit of his bargain).
A party claiming damages under subsection 2 bears the burden of showing that an award of damages under subsection 1 would be inadequate.
In general, the adequacy of damages under subsection 1 depends on whether the non-breaching seller has a readily available market on which he can resell the goods.
When a buyer breaches before either side has begun to perform, the amount needed to give the seller the benefit of his bargain is the difference between the contract price and the seller’s expected cost of performance.
Using market price, this difference can in turn be subdivided into two smaller differences:
The difference between the contract price and the market price, and
The difference between the market price and the seller’s expected cost of performance.
第 13 周
第 13 次课
Chapter 13：Incidental and Consequential Damages
1. Remedies for Breach of Warranty to a “Remote Buyer” under Proposed Amended Article 2.
2. Incidental, Consequential and Liquidated Damages Under the CISG.
附：自编选读资料（十三） Chapter 13 Incidental and Consequential Damages
Other Remedies Under UCC Article 2
Incidental and Consequential Damages Introductory note
Under the UCC, an aggrieved buyer can recover consequential damages, provided the losses meet the requirements imposed by the definition of consequential damages in 2-715(2), AND provided the parties have not agreed to exclude liability for consequential damages under 2-719(3). An aggrieved buyer is also entitled to incidental damages as defined in 2-715(1). These remedies are in addition to any direct or general damages (e.g.: cover damages, market price damages, or damages for accepted goods) to which it is entitled (See 2-712(2), 2-713(1) and 2-714(3)). An award of incidental or consequential damages may be included in a decree of specific performance, if the court deems such relief “just” (2-716(2)).
Under the pre-amendment version of Article 2 an aggrieved seller can recover incidental damages but is not authorized to recover consequential damages (See 2-706(1), 2-708(1)(2), 2-709(1), 2-710 and 1-106(1)). In the proposed amendment a seller can recover consequential damages except in consumer contracts.
The terms “incidental damages” and “consequential damages” under the UCC and how are they distinguished from “direct damages” is a matter of controversy.
Problem 116 (page 436)
City National Bank of Charleston v. Wells
Supreme Court of Appeals of West Virginia, 1989.
In 1982, plaintiff (Leonard Wells) bought a new Toyota truck from the defendant (dealership) for $ 8,520.00. Wells paid $ 1,000.00 down and financed the balance of the price with a bank. Problems with the truck, and following 9 months of unsuccessful attempts to repair the vehicle, Wells revoked his acceptance and stopped making payments to the bank on the note. In 1983 the bank repossessed the vehicle, sold it, applied the proceeds to Well’s debt, leaving a deficiency of $ 1,329 for which he was responsible. Wells settled with the bank and sued dealership for breach of express and implied warranties under the UCC. The Jury awarded Wells $10,333 in damages.
Defendant contends that trial court erred in allowing the jury to consider evidence that the plaintiff's credit rating was impaired following his default on the note and that this is not a proper element of consequential damages recoverable by the buyer under the UCC. As a general rule, a buyer who justifiably revokes his acceptance of nonconforming goods is entitled to recover any incidental and consequential damages.
Section 2-715(2): this provision is broad enough to encompass a variety of losses, including lost profits, interest and finance charges, and extra overhead, labor and expenses incurred as a result of the seller's breach. "To recover consequential damages, the buyer must establish: (1) causation, (2) foreseeability, (3) reasonable certainty as to amount, and (4) that he is not barred by mitigation doctrines." The burden of proving consequential damages is on the buyer.
Plaintiff sought consequential damages pursuant to W. Va. Code, 46-2-715(2)(a). The evidence showed that in 1985, St. Albans bank had refused to finance the plaintiff's purchase of an automobile for personal use. The notice from the bank listed "Delinquent credit obligations" and "Insufficient Equity" as reasons for the refusal, based information received in a report from the Credit Bureau of Charleston, a consumer reporting agency. When the plaintiff inquired further, he learned that his default on the loan for the Toyota truck had been made a part of his credit history. The plaintiff testified that he filed a letter of rebuttal, explaining the circumstances of the default, with the Credit Bureau and was subsequently able to obtain financing from a bank which did not require a credit check.
In 1986 plaintiff applied for another loan and the bank refused to give him the loan because of his damaged credit rating. The plaintiff testified that he needed the equipment immediately for a job he had contracted to do and was forced to pay other contractors with appropriate equipment $ 3,000.00 to perform the work until he was able to obtain financing one month later.
Defendant contends that any loss sustained by the plaintiff was attributable either to the Bank's action in reporting the default to the Credit Bureau or to the plaintiff's own conduct in defaulting on the obligation. Defendant argues that any loss suffered was not the proximate result of any breach on its part AND that the plaintiff failed to mitigate his losses by either continuing to make the payments or by returning the truck to the defendant for repairs.
In ACME Pump Co., Inc. v. National Cash Register Co.(1974), the purchaser of a bookkeeping machine sued the seller for breach of warranty when the machine proved defective. Plaintiff had financed the transaction through a lease arrangement with a third party (Granite). When the machine was defective, plaintiff ceased making payments. Granite repossessed the unit and obtained a deficiency judgment against the plaintiff. In its breach of warranty action against the seller, the plaintiff sought to recover the amount of the deficiency judgment as consequential damages. In ruling that the plaintiff was entitled to recover on this claim, the court in ACME Pump stated: "… the defendant's breach of warranty was the proximate cause of the Granite lawsuit. The judgment obtained by Granite . . . was in a reasonable amount. It could not have been avoided by any reasonable or prudent effort on the part of the plaintiff …“If a breach of contract is the cause of litigation between the plaintiff and third parties that the defendant had reason to foresee when the contract was made, the plaintiff's reasonable expenditures in such litigation are included in estimating his damages.” Restatement, 1 Contracts § 334. Since defendant helped to arrange the lease between the plaintiff and Granite, the defendant had reason to anticipate that if the machine were defective, the plaintiff might breach its lease with Granite and Granite thereafter might sue the plaintiff.”
We conclude that this approach is correct. The defendant's breach of warranty was the proximate cause of the plaintiff's default on the obligation held by the Bank. That, in turn, produced the bad credit which ultimately required the plaintiff to incur the expense of hiring additional men and equipment when he was turned down on another loan. As we have already noted, such expenses are recognized as a loss for which consequential damages may be awarded. There was evidence that the loss was foreseeable within the meaning of W. Va. Code, 46-2-715. The plaintiff advised the defendant when he purchased the truck that he intended to use it in his business; defendant was intimately involved in the financing arrangement and, thus, had reason to know that if the vehicle were defective, the plaintiff might legitimately refuse to make any further payments and that it was not unreasonable to assume that the plaintiff might suffer an impaired credit rating and incur additional business expenses.
Plaintiff here justifiably revoked his acceptance of the defective truck and had no obligation to afford the defendant yet another opportunity to repair it. We cannot say that the plaintiff's failure to allow the defendant an opportunity to cure or refusal to continue payments on the defective vehicle constituted an unreasonable failure to mitigate damages.
In sum, we conclude that the plaintiff's evidence of losses due to an impaired credit rating satisfies all the requirements of consequential damages recoverable under the UCC. W. Va. Code, 46-1-106(1). We find no grounds for reversing the judgment of the circuit court.
Problem 118 (page 440)
Indiana Glass Company v. Indiana Michigan Power Company
Court of Appeals of Indiana, 1998
Indiana Glass Company appeals the trial court's grant of summary judgment in favor of Indiana Michigan Power Company ("I&M") on Indiana Glass's claim for attorney's fees as incidental or consequential damages under the Indiana Uniform Commercial Code (the "UCC"). We affirm.
ISSUE: Whether a buyer may recover attorney's fees as incidental or consequential damages under the UCC for breach of the implied warranties of merchantability and fitness for a particular purpose.
FACTS: Indiana Glass manufactures glassware. I&M contracted to supply electricity to Indiana Glass pursuant to a written agreement. On several occasions between 1989 and 1990, I&M supplied electricity to Indiana Glass at a diminished or an increased voltage which caused damage to Indiana Glass's manufacturing processes. On 1991 Indiana Glass filed its complaint against I&M and alleged that I&M was negligent, or in the alternative, that I&M breached the UCC's implied warranties of merchantability and fitness for a particular purpose when it sold and delivered "defective" electricity. Trial court entered partial summary judgment in favor of Indiana Glass and concluded, as a matter of law, that electricity is a "good" under the UCC and that I&M had not disclaimed the UCC implied warranties of merchantability and fitness for a particular purpose in the parties' agreement. Thus, the trial court determined that Indiana Glass could pursue its UCC claims against I&M. The parties entered into a confidential settlement agreement resolving all issues except Indiana Glass's claim for attorney's fees as incidental or consequential damages under the UCC.
Following a hearing, the trial court granted summary judgment in favor of I&M and concluded that Indiana Glass could not recover attorney's fees as incidental or consequential damages under the UCC. Indiana Glass appeals that determination of law.
DISCUSSION AND DECISION: Attorney's Fees as Incidental or Consequential Damages. We begin with our well-settled rule that each party to litigation is responsible for his or her own attorney's fees absent statutory authority, agreement, or rule to the contrary. The contract between I&M and Indiana Glass makes no provision for the recovery of attorney's fees in the event of breach. We address Indiana Glass's argument that Indiana Code § 26-1-2-715 provides statutory authority for its proposition that a buyer is entitled to recover attorney's fees in the event of the seller's breach of the implied warranties. Although no Indiana court has had occasion to address this statutory argument under Indiana law, we have encountered this argument under Kentucky law. In Landmark Motors v. Chrysler Credit Corp., this Court considered whether attorney's fees were recoverable as incidental or consequential damages pursuant to Kentucky Revised Statutes, a provision identical to Indiana Code. We held that Kentucky law did not provide for the recovery of attorney's fees as incidental or consequential damages. Specifically, we relied on the Kentucky Court of Appeals decision in Nick's Auto Sales, Inc. v. Radcliff Auto Sales, Inc., (1979) in which the court held that, in accordance with the overwhelming weight of authority from other states, attorney's fees are not recoverable under § 2-715. White and Summers, a leading authority on the UCC, has suggested that "the recovery of legal fees is probably available in rare circumstances only."
However, Indiana Glass urges us to review the specific language of that section and hold differently. First, it points to § 2-715(1) which provides that incidental damages
第 14 周
第 14 次课
Chapter 14：Excuse and Adjustment of Terms
1. Commercial Impracticability
2. Force Majeure Clauses – Contracting for Excusable Non-Performance
3. Exemption under CISG article 79
附：自编选读资料（十四） Chapter 14 Excuse and Adjustment of Terms
Excuses for nonperformance of a contract include impossibility of performance, frustration of purpose and commercial impracticability.
The general common law rule required performance with some exceptions included death or injury of the promisor, performance prevented by operation of law and destruction of the subject matter of the contract without the fault of the promisor.
Destruction of subject matter of the contract without fault of the promisor: this was established in Taylor v Caldwell where the court said:
“In the absence of any express or implied warranty that the thins shall exist, the contract is not to be construed as a positive contract, but as subject to an impliedcondition that the parties shall be excused in case, before breach, performance become impossible from the perishing of the thing without default of the contractor. “
Section 2-615 follows this principle. It excuses a seller’s delay in delivery or nondelivery of goods “if 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”. Therefore, upon failure of the basic assumption the promisor is excused, provided it would render the promisor’s performance extremely difficult (impracticable).
Unforeseen contingency is crucial: A sudden raise in oil prices wouldn’t excuse performance. Almost anything is foreseeable raising the question of whether the standard should be “unexpected” rather than “unforeseen”.
Impracticability: Even if an unforeseen/unexpected contingency has occurred, the consequences of the event will excuse performance only if they are severe enough to render performance “impracticable”.
Causation: Claims of impracticability also raise the issue of causation. If the loss is attributable to the promisor’s own actions, inactions or decisions, he should hardly be excused from performing on the ground that performance has become impracticable.
Promisors have been notoriously unsuccessful in their attempts to escape contract obligations by claiming impracticability. The excuse has been typically invoked when a long-term supply contract proves highly unfavorable to one of the parties.
In sum, the impracticability provision of article 2 has caused surprisingly little change in judicial attitudes toward excusing performance based on events occurring after contract formation.
Specialty Tires of America Inc. v The Cit Group
US District Court, 2000
In December 1993, CIT, a major equipment leasing company, entered into a sale/leaseback with Condere for eleven tire presses located at Condere’s tire plant in Mississippi, under which CIT purchased the presses from Condere and leased them back to it for a term of years.
In May 1997, Condere ceased making the required lease payments and filed for Chapter 11 bankruptcy.
In September 1997, Condere rejected the executory portion of the lease agreement, and the bankruptcy court lifted the automatic stay as to CIT.
Thus, CIT found itself, unexpectedly with eleven tire presses it needed to sell.
In late December 1997, CIT and Specialty entered into a contract for the sale of the presses for $250,000. CIT warranted its title to and right to sell the presses.
When CIT attempted to gain access to the presses to have them rigged and shipped to Speciality, Condere refused to allow this equipment to be removed form the plant. This refusal was apparently because Condere had just tendered a check to CIT for $224,000 without the approval of the bankruptcy court. This position was rejected by CIT, which filed a complaint.
It was clear that Specialty wasn’t going to obtain it tire presses expeditiously.
Specialty demanded performance.
Traditionally were three kinds of supervening events that would provide a legally cognizable excuse for failing to perform:
Death of the promisor (if performance was personal).
Illegality of the performance.
Destruction of the subject matter.
Beyond this, the doctrine has grown to recognize that relief is most justified if unexpected events inflict a loss on one party and provide a windfall gain for the other or where the excuse would save one party from an unexpected loss while leaving the other party in a position no worse than it would have without the contract.
The Second Restatement of the contracts expresses the doctrine of impracticability this way:
If after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contact was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.
Article 2-615 also expresses the doctrine.
The principal inquiry in an impracticability analysis is whether there was a contingency the non-occurrence of which was a basic assumption underlying the contract.
This question turns on whether the contingency was “foreseeable”. However, this is an incomplete test, anyone can foresee a whole variety of potential calamities, but that doesn’t mean the parties will deem them worth bargaining for.
Foresseability doesn’t necessarily prove risk allocation. Parties to a contract are not always able to provide for all the possibilities of which they are aware.
Foreseeability is one factor in resolving in determine how likely the occurrence of the event in question was and the likelihood that the obligor should not merely foresee the risk, but because of the degree of its likelihood, the obligor should have guarded against it or provided for non-liability against the risk
While loss, destruction or a major price increase of fungible goods will not excuse the seller’s duty to perform, the rule is different when the goods are unique, have been identified to the contract or are to be produced form a specific, agree-uponsource. In such a case, the nonexistence or unavailability of a specific thing will establish a defense of impracticability.
Moreover, the Supreme Court of Pennsylvania has interpreted this section’s to include interference by third parties with a specific chattel necessary to the carrying out of the agreement.
This case is in accord with interference by third parties. All parties believed that CIT was the owner of the presses and was entitled to their immediate possession. Neither Specialty nor CIT had any reason to believe that Condere would subsequently turn an about-face and assert a possessory interest in the presses.
Thus, this is not the sort of risk that CIT should have expected to either bear or contract against. It can’t be said that with any reliability that either Specialty or CIT was able to avoid the risk of what Condere did at a lower cost.
On the other hand, Specialty was in a better position to know what consequences and damages would likely flow from nondelivery or delayed delivery. Therefore, Specialty is the appropriate party on which to impose the risk.
Judicial discharge of CIT’s promise under these circumstances leaves Specialty in no worse a position than it would have occupied without the contract, either way, it would not have these presses.
CIT is relieved from paying damages.
Excuse for impracticability would appear to be a Pareto-optimal move, increasing CIT’s welfare while not harming Specialty. This too is a valid policy reason for imposing the risk of loss on Specialty.
A basic assumption of any contract for the sale of specific goods is that they are available for sale.
This is not a case where CIT became insolvent and could not perform or where the prices spiked upward making the contract unprofitable. CIT didn’t assume the risk of Condere making it unable to perform by detaining the presses.
The risk was not sufficiently within the control of CIT that it should be inferred that it was assumed by that party.
This is temporary impracticability which relieves the promisor of the obligation to perform only as long as the impracticability lasts and for a reasonable time thereafter. Once it receives possession of the presses, CIT is willing to perform its contract.
Note: Failure to supply
Courts are reluctant to excuse sellers for commercial impracticability if they fail to supply the goods due to their source of supply failure.
The courts will excuse the seller only if he makes the contract expressly contingent on adequate supply and insists upon a clause excusing him if that identified source of supply fails.
Cliffstar Corporation v Riverbend Products
US District Court of NY, 1990
Riverbend processes and sells tomato paste and frozen citrus products.
On July 14, 1988, Cliffstar ordered 3.2 million pounds of tomato paste from Riverbend.
In the same order, Cliffstar attempted to purchase an option on an additional 500,000 pounds of paste.
Delivery of the paste was to be spread over the following year.
Riverbend’s director rejected Cliffstar’s requested option in writing by saying “at this time I am unable to give any options for any additional quantities due to the uncertainty of the incoming tonnage”.
About the time Cliffstar-Riverbend contract was entered, a shortage developed in the tomato crop in Arizona and California.
Riverbend received only 56-58% of tons of tomatoes of what it had contracted for.
Riverbend notified Cliffstar by letter of September 27 that all contracts would have to be reevaluated.
Riverbend notified Cliffstar by letter of November 21, the it would be allocated one million pounds of paste.
Therefore Riverbend failed to deliver the 3.2 million of paste, delivering less than 1 million.
Riverbend didn’t allocate to each customer an equal percentage of their orders.
Cliffstar demanded its full contract amount and this lawsuit ensued.
To prevail under 2-615, Riverbend must establish that:
A contingency has occurred,
The contingency has made performance impracticable and
The nonoccurrence of that contingency was a basic assumption upon which the contract was made.
The allocation to Cliffstar was fair and reasonable
It seasonably notified Cliffstar of its need to allocate and the amount Cliffstar was to receive.
Riverbend has the burden of proof on each element.
Under 2-615 the first question is whether the tomato crop shortage was a contingency, the non-occurrence of which was a basic assumption on which the contract was made.
This question in turn, hinges on whether the crop shortage was foreseeable at the time the contract was made.
If the contingency is foreseeable then 2-615 won’t apply, because the party affected might have been able to protect himself in the contract.
However non-foreseeability is not an absolute requirement.
After all, any occurrence can be foreseen but whether the foreseeability is sufficient to render unacceptable the defense of impossibility is one of degree.
The question to be decided is whether Riverbend’s shortages were the result of factors outside its control.
This raises the question of material fact whether the shortage forces Riverbend to allocate its available supply of tomato paste under 2-615.
Riverbend argues that 2-615 does not require equal allocation.
The question whether Riverbend allocation to Cliffstar was fair and reasonable is one fact to be decided by the jury.
In a hornbook is noted that although the seller must give notice to the buyer of delay or non-delivery, the seller should be protected if he gives seasonable notice of the delay and indicates in good faith that he is uncertain as to whether the delay will ripen into nondelivery and that he will keep the buyer informed.
In this case Riverbend informed of the shortage and that he wasn’t fully aware of the extent of the shortage, but he kept Cliffstar informed, so the notice was seasonable.
Force Majeure Clauses – Contracting for Excusable Non-Performance
A party may agree to assume greater risks than those allocated under 2-615 since section 2-615 begins with “except so far as a seller may have assumed a greater obligation..”.
It is not unusual for parties to include a “force Majeure” clause to describe events beyond the control of the parties that make performance impossible or impracticable.
Section 2-615 constitutes a “default” term that will govern in the absence of the parites own reallocation of risks.
Events such as natural disasters (floods, hurricanes, earthquakes), war, riots, terrorist attacks, labor strikes or other “Acts of God” are invariably included in force majeure clauses.
2-615 provides an excuse only to sellers.
However, several courts have concluded that the principles of 2-615 apply to buyers as well.
Proposed amended section 2-615 would replicate its predecessor with only minor language changes.
Courts require that “force majeure” events be beyond the control of the party seeking to be excused and be “unforeseeable”.
Perlman v Pioneer Limited partnership
US Court of Appeals for the Fifth Circuit, 1990.
This case considers the question of whether the parties may contract to allocate foreseeable risks that may be within the control of the excused party.
Pioneer entered into an Oil and Gas Lease with Perlman to “explore, drill, prospect and operate” for oil and gas on acreage located in Montana and Wyoming.
Perlman agreed to:
Pay Pioneer $137,676.65 in initial rent
Spend $1,500,000 in exploring and developing the acreage or alternatively to pay Pioneer the difference between $1,500,000 and the amount he spent.
Perlman also obtained the right to access to an use of land in Wyoming and Montana overlying and adjoining Pioneer’s acreage in exchange of paying Kendrick $60,000.
There was a “force majeure” clause in the less that stated:
This lease shall not be terminated nor lessee held liable in damages if compliance is prevented by an act of God … inability to obtain governmental permits or approvals necessary or convenient to Lessor’s operations… Lessee shall use all reasonable effort to remove such force majeure.
Perlman concluded unilaterally that the actions of the Wyoming regulators hindered his performance under the contract.
He also concluded that because Montana regulated its water similarly or more stringently than Wyoming, he would also be hindered there.
On this decisions, Perlman invoked the force majeure clause, taking the position that he was no longer bound to perform.
He notified Pioneer and Kendrick and filed this suit for a declaratory judgment.
The language in the force majeure clause is unambiguous and its terms were specifically bargained for by both parties. Therefore the “doctrine” of force majeure should not supersede the specific terms bargained for in the contract.
When the terms of a contract are unambiguous, the courts must give effect to the intentions of the parties expressed by the language they employ.
Because the clause doesn’t mandate that he force majeure event be unforeseeable or beyond the control of Perlman before performance is excused, the district court erred when it supplied those terms as a rule of law.
But even under the terms of the contract, performance of Perlman wasn’t excused until he was hindered by the regulatory process in Wyoming or Montana.
Wyoming officials refused to permit Perlman to use a gas well with his process. Perlman argues that he was “hindered” by his “inability to obtain governmental permits or approvals necessary to his operation”. He based his argument on a sole meeting with the official from the Wyoming Gas and Water commission.
However, the state officials never refused to permit Perlman’s operation, they merely required advance studies of the use, quantity, drainage and quality of the water Perlman’s process would affect. This requirement was not unusual.
Perlman’s obligation was not limited to the use of his patented process.
Therefore, no actual hindrance resulted from the regulations or the regulators in Wyoming because Perlman made no effort whatsoever to obtain the appropriate permist so rot begin drilling the wells.
Perlman’s self-serving conclusion that a force majeure existed was at merely speculation as to what might have happened had he attempted to drill the wells as planned.