Sales Outline

SALES

BJERRE

SPRING 2012

CHAPTER 1: DEFAULT RULES, INCLUDING WARRANTIES

INTRODUCTION TO DEFAULT RULES

“Gap Filler” Provisions

· Parties often fail to include in their express agreement even certain important terms of their “deal.” Whatever the explanation, most parties in such situations believe they have entered into a binding contract, and ordinarily the Code will support that belief. Therefore, much of Article 2, Part 3 is designed to complement UCC § 2-204 (see below) and related sections.

· Trade Usage, Course of Performance, Course of Dealing: These are considered “silent terms” of the agreement and can always be used to interpret the contract (unless specifically excluded by contract’s terms.)

§ 2-204(3) à THIS ESTABLISHES THE FORMATION OF A CONTRACT…therefore, when doing gap filler do the contract formation analysis first.

· Even though one or more items 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.

GAP FILLERS – Article 2, Part 3

· § 2-302 – Unconscionability

o If a court finds a contract or clause to be unconscionable AT THE TIME IT WAS ENTERED INTO, it may:

§ Refuse to enforce the contract,

§ Enforce the contract w/out the unconscionable clause, or

§ Limit the application of the unconscionable clause.

o Test: are the clauses involved so one-sided as to be unconscionable under the circumstances existing AT THE TIME OF THE MAKING of the contract?

· § 2-305 – Open Price – This provision provides a price if the parties forget to agree on one.

o If price term left open, it is a reasonable price at the time of delivery IF:

§ Price is not included in the contract

§ Price is left to be agreed by the parties and they fail to agree OR

§ Parties agree to let the market or other standard set the price but it is not set.

o If price is to be set by one party, it must be set IN GOOD FAITH.

· 2-306 – Output or Requirement Contract (“indefinite” quantity)

o Contract for output/requirement is not “too indefinite” because it “is held to mean the actual good faith output or requirements of the particular party.”

o See Comment 2: a shutdown or an expansion of a party in such a contract is acceptable if it is in good faith.

o If contract includes an estimated need or output, then no amount “unreasonably disproportionate” to it may be tendered or demanded.

· § 2-310 – Time for Payment/Shipping under Reservation

o Payment due at time & place where buyer receives goods (or documents of title)

o Shipping under reservation, see (b)

· § 2-311 – Options and Cooperation respecting performance

o Buyer has the right to specify the assortment of goods, unless otherwise agreed.

o Specifications or arrangements for shipping are left to sellers, unless otherwise agreed.

· Other provisions of Part 3 supplement an express agreement by requiring the parties to comply with ordinary, reasonable commercial practices. SEE à § 2-307 through § 2-310.

o § 2-307 – Delivery via Single Lot or Several Lots

§ Unless otherwise agreed, assume SINGLE LOT delivery…

§ …UNLESS circumstances indicate the parties clearly intended otherwise.

§ Partial delivery may not be subject to rejection for defect in quantity only, if no repudiation or default is indicated regarding the remaining goods to be delivered.

o § 2-308 – Absence of Specified Place for Delivery

§ Unless otherwise agreed, SELLER’S PLACE OF BUSINESS/RESIDENCE is place of delivery

§ NOTE: Delivery doesn’t mean bringing it somewhere. Just a transfer of possession.

o § 2-309 – Absence of Specific Time Provisions, Notice of Termination

§ All actions taken under a contract must be taken within a “reasonable” time if no time has been agreed upon.

§ Time for payment is related to time for delivery unless otherwise agreed.

§ Surprise is to be avoided; good faith judgment is to be protected.

NOTE: It is important to recall that in examining Article 2, Part 3, the parties’ express agreement may always be explained or supplemented by trade usage or by their course of dealing or course of performance.

· § 1-201(3) – Defines AGREEMENT as à “the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course performance…”

IMPORTANT: because most Article 2, Part 3 “gap filler” provisions apply only “unless otherwise agreed,” one reasonably may conclude that where TRADE USAGE or COURSE OF DEALING or PERFORMANCE applies, a contrary “gap filler” term does not. à IN OTHER WORDS, when one party asserts a claim based on a ”gap filler,” the other party may fairly respond w/ evidence of an appropriate trade usage, course of dealing, or course of performance. (SEE §1-205 AND § 2-208 AND Hamilton Tailoring Co. v. Delta Air Lines, Inc.)

· § 1-205 à makes explicit that it depends on the nature, purpose, and circumstances of the action.

· When it comes to “trade usage” its all about what people do in the applicable industry. Looks at how people behave in analogous situations.

WARRANTIES

· Generally:

o The Code Warranty Sections (§ 2-312 through § 2-318) set forth much of the law governing those disputes.

o To prevail in an action for breach of warranty, a BUYER first must establish that

§ The seller warranted the goods under § 2-313, 2-314, or 2-315.

§ Must prove that the goods delivered did not conform to the warranty and that as a result, it suffered damage.

o A SELLER will typically will respond by invoking some combination of § 2-316 authorizing certain warranty disclaimers; § 2-719 permitting certain remedy limitations; § 2-318 requiring a measure of “horizontal” privity; the common-law requirement of “vertical privity; § 2-607(3) requiring that the buyer give reasonable notice of breach; and § 2-725, the article 2 statute of limitations.

EXPRESS WARRANTY – § 2-313

· Three typical ways in which a seller creates an express warranty:

· NOTE: Can be given by anyone; does not necessarily have to be a merchant.

o 1) By affirmation or promise

§ Affirmations of fact or promise (as opposed to puffery [for puffery info, see below] and opinions) made by seller to buyer, which relates to the goods and becomes part of the basis of the bargain.

· Relates to the goods

o If affirmation not related to goods, it may just be a diff. term in the contract. (affirmation of fact about aluminum sliding, seller says “I’ll throw in a garden hose”: The hose is a different term in the contract b/c it doesn’t related to the goods.

· Basis of the Bargain

o Courts presume that an affirmation of fact is part of the basis for the bargain.

§ No reliance required BUT to rebut, the seller must show that the buyer didn’t rely on the affirmation of the fact/promise.

§ Affirmations can arise from description of product written on label, does not have to be said.

§ The time of the affirmation of fact or description is NOT MATERIAL. Comment 7 – “the sole question is whether the language or samples or models are fairly to be regarded as part of the contract.” if the words, sample or model forms part of the basis of the bargain, it is part of the express warranty, even if it appears at the tail-end of the bargain.

o 2) By description

§ Description of goods that become part of the basis of the bargain is an express warranty.

o 3) By providing a sample or model

§ Samples or models that become part of the basis of the bargain are an express warranty.

§ Model – “Offered for inspection when the subject matter is not at hand and which has not been drawn form the bulk of the goods.” Mere exhibition of a model is INSUFFICIENT to create a warranty.

§ Sample – is “actually drawn from the bulk of goods which is the subject matter of the sale”

· Express warranties ARE NOT created if seller is engaged in mere “puffing” or simply states opinions about the goods.

o Puffery – §2-313(2) à a seller’s affirmation merely of the value of goods, or the seller’s opinion or commendation of the goods does not create a warranty à sellers claim that their advertisements are “mere puffs”.

§ “finest,” “prettiest,” “you’ll feel your best,” “this will make you more attractive,” “it looks wonderful”

§ “I think” or “I Believe” the goods are à that’s opinion/puffing.

§ Must look to the reasonableness of the seller’s statement. Would the buyer really believe the statement?

o Washington Supreme Court 8 Factor Inquiry to Distinguish between Warranties and Puffing:

§ 1) whether the representations compared the goods to other goods

§ 2) the specificity of the representations

§ 3) whether they related to the goods’ quality

§ 4) whether they were “hedged”

§ 5) whether the goods were experimental

§ 6) the buyer’s actual or imputed knowledge of the goods condition

§ 7) the nature of the claimed effect

§ 8) whether the statement was written or oral .

· Warranty by Advertising

o Can you have a warranty in advertising? à YES

o Case law says that you can recover. Don’t need privity of contract.

o You can recover from the advertiser, they are the ones who made the warranty and the affirmation with. (Despite the fact that hey aren’t the ones you contracted with.)

o Example: Advertising brochures can create express warranties.

· Reliance vs. Part of the Basis of the Bargain

o Although buyer reliance is no longer strictly necessary to create an express warranty, buyer’s attorneys do and should continue to introduce evidence of it whenever possible.

o NOTE: Reliance NECESSARY for implied warranties – fitness for a particular purpose.

· Causation

o Buyer may have difficulty proving not only that a warranty existed, and that the seller breached it, but also that the breach caused the buyer’s damages.

· NOTE: clause generally disclaiming, “all warranties, express or implied” does not waive EXPRESS warranties! However, parties are free to make whatever bargain they wish, so long as it is done in good faith.

· NOTE: warranties in the box satisfy the basis of the bargain. Courts allow this. Some expectations to the modification of the contract (but this is rare.) NOTE à no new consideration required for modification.

Keith v. Buchanan

· Sailboat case where boat was described as “seaworthy vessel.”

· HOLDING: 1) affirmations of fact and descriptions related to the quality or condition of the boat that could not be reasonably construed as anything other than affirmations of fact. 2) the affirmations of fact and description were part of the basis of the bargain, therefore, burden is on the seller to rebut the presumption that the affirmations are part of the basis of the bargain.

IMPLIED WARRANTIES – § 2-314, and § 2-315

· Two Types of Implied Warranties:

o 1) Implied Warranties of Merchantability — § 2-314

o 2) Fitness for a Particular Purpose — § 2-315

· IMPLIED WARRANTIES OF MERCHANTABILITY (§ 2-314)

o Rational for imposing implied warranties – the likelihood that if the parties themselves had considered such a term they would have included them in the agreement.

o Merchantability warranty, if not effectively disclaimed, is implied into every sale of goods by a “merchant with respect to goods of that kind.” — § 2-314(1)

§ Means that a professional seller must either sell goods that are fit for “ordinary purposes for which such goods are used” or explicitly disclaims its obligation to do so. — §2-