Contracts
Class Notes
What
are the quality tender obligations upon the seller when we’re dealing with Article
2? We used the example of “Grade A” and “Grade
B” tomatoes.
Prescott & Co. v. J.B. Powles &
Co.
Here’s
a contract between an
What
does the UCC tell you? It didn’t apply
then, but it does now. § 2-615 says that,
among other things, non-delivery in part isn’t a breach of the seller’s contract
if it is caused by good faith compliance with government regulation. The seller is definitely excused under this
section if the above facts happened today.
There’s no way that the buyer could get into the seller’s pocket if the
buyer had been damaged by the seller’s breach because the seller has an
excuse. The seller has to follow
subsections (b) and (c), though. The
seller must do its best and also give the buyer notice that there will be delay
or delivery.
But
will the buyer be in breach if the buyer rejects the “less than everything”
delivery? § 2-616 says no! The buyer has a choice to accept the 240
crates or reject them all without being in breach. There is an excuse here because it was
essentially impossible for the seller to perform. But the case stands for the idea that “you
can’t tender an excuse”…or rather, you can,
but it won’t trigger the other party’s duty to perform.
Are
we giving the buyer too much of a break?
Consider this hypothetical of an employment contract: an employee has
promised to work for two years and the employer has promised to pay a named
salary for two years. Performance
proceeds, but after six months the employee is killed, which excuses the employee
from working. The estate of the employee
is not subject to liability due to breach of contract to perform for two
years. Can the employee tender the
excuse and receive 18 months’ salary during which the employee is dead? No way!
The employer’s promise was to pay for work. The employer doesn’t
have to pay for non-work during the 18 months that the employee is dead. If you have an excuse, you won’t be in breach,
but your excuse also won’t trigger the other party’s duties. It will be similar if the employee gets
sick. The employee won’t be in breach
for being sick in bed. But neither will
the employer be in breach for not paying the employee while sick.
§
2-616 (2) says that when the buyer doesn’t respond to the justified notice from
the seller that the seller’s performance will be delayed or partial within a
reasonable time not exceeded 30 days, we’ll act like the buyer is saying “I don’t
want it.”
Beck & Pauli Lithographing
In
goods contracts, where the goods aren’t up to the quality that the buyer
bargained for, we’ll let the buyer thrust them back on the seller. This disadvantages the seller, but the goods
can be resold. But with services, if the
buyer isn’t going to pay, there will typically be nothing that the servicor can take away and resell.
But
there are some cases where this doesn’t work.
In this case, it’s a sale of goods contract, but the goods are
custom-made and would be useless to any other buyer because they say “Colorado
Milling & Elevator Co.” right on the stationery. If the buyer can reject, then the seller
would have a huge loss because it would only have value as wastepaper. In a case like this, the court will try hard
to “wiggle off the perfect tender hook” and help out the seller. The court might try to turn the contract into
an installment contract, for example.
The court might also try to argue that it’s not a sale of goods contract
but rather a services contract. Or the court
might find that the buyer’s rejection is bad faith under the circumstances
under § 1-203. Or the court could find
in the circumstances that it doesn’t make sense to have a perfect tender rule,
and instead the court would substitute a substantial performance rule.
But
this isn’t always the case! It may be important to the buyer to get the
goods precisely on time (consider the wedding dress example, or Christmas cards
on December 26th).
Bartus v. Riccardi – “cure”
This
comes under § 2-508. § 2-508 (1) is
simple enough, but § 2-508 (2) allows an extension of contract time to the
seller under certain circumstances.
This
is a simple case with which to apply this section. If the seller had good reason to think that his
tender would be acceptable, but he is surprised by the buyer’s rejection, we’ll
give him a little more time to substitute a conforming tender. This is a strong case for this. The contract calls for a Model A-660 hearing
aid, but the seller tenders a Model A-665.
The seller had reason to believe that this would be not only acceptable
to the buyer, but actually better for
the buyer. But to the seller’s surprise,
the buyer wanted the old, unimproved one.
But we’ll give the seller a little more time to cope with the surprise
rejection and come up with an unimproved hearing aid.
This
is a municipal court opinion, and they screw up the remedy. The remedy for the seller shouldn’t be full
price. The unwanted hearing aid shouldn’t
be forced upon the buyer. The seller
should get money damages, measured by the seller’s lost profit. The seller shouldn’t get the price of the
unwanted hearing aid. The buyer doesn’t
want it and couldn’t get any money from reselling it. However, the application of § 2-508 (2) is
fine.
But
this won’t fit too many circumstances.
It is not often that a seller, having contracted
to sell X, tenders Y and reasonably expects that Y will make the buyer happy
but then gets a surprise rejection. This
isn’t the most frequent case, though.
Most often, the seller will believe that he is tendering X, but the
wrong stuff, Y, is in the box. Do we
give the seller a further reasonable time in those circumstances? Under § 2-508 (2), we could find that the
seller reasonably believed he was tendered precisely what was called for by the
contract. But a counterargument is that
this would knock too big a hole in the perfect tender rule and we would give
the seller more time too often. But case
law seemed to have answered this question in favor of the seller.
Compare
this to the proposed new § 2-508…§
2-508 (1) is similar to the current § 2-508 (1). But the new § 2-508 (2) removes the “reasonably
believes” requirement and talks about good faith instead. But it also gives protection to the
buyer. The cure must be “appropriate and
timely under the circumstances”. If the
buyer’s need for the goods wasn’t that immediate, cure is appropriate, and the
seller will have some reasonable time to cure.
But if the buyer needs the thing right
now, the seller won’t have the chance to cure.
Consider
a contract for the purchase and sale of a car from a new car dealer. They haggle and form a contract, and after
the contract has formed, the dealer tenders delivery of the car and the buyer
tenders payment. The buyer gets in the
car and drives away. After 20 miles, the
buyer steps on the brakes, and there are no brakes! The buyer doesn’t get hurt, but the buyer was
terrified because there were no brakes!
Can the buyer thrust that car back on the seller and get his money back
or get out of his promise to pay in the future?
Consider
§ 2-607: acceptance is significant! It
would be easier to reject the goods. Has
the buyer accepted the goods in the § 2-606 sense? Did the buyer, in accordance to § 2-606 (1)(a), signify to the dealer that the car conformed to the contract? Has the buyer had a “reasonable opportunity
to inspect” as in § 2-606 (1)(b)? A significant number of cases will say that
the buyer hasn’t had a reasonable opportunity to inspect, and thus the goods
haven’t been inspected. With new cars,
you don’t get a reasonable opportunity to inspect until you really get the car
out on the road for a while. The buyer
can reject the goods because there is a non-conforming tender because the
brakes don’t work.
Can
you reject if you haven’t yet accepted?
Note that the perfect tender rule is expressly subject to the sections
on contractual limitations on remedy.
The case law will vary based on whether the defect is windshield wipers
or brakes. If the windshield wipers don’t
work, the dealer should have the chance to cure. But if the brakes are broke, you should be
able to thrust the car back on the seller.
Oddo v. General Motors Corp.
Once
the buyer’s confidence is shaken, a repair is not proper tender of the goods
purchase. This is the so-called “shaken
faith” doctrine. When something
seriously shakes the buyer’s faith in the goods, the buyer will be able to
reject. But if you have a dome light
that doesn’t work, you won’t get as much sympathy and you can’t reject the car.
Worldwide RV
Sales & Service v. Brooks
Here’s
where we find out what a cure is. To
cure, the seller must make the goods into conforming goods. In this case, that wasn’t done. It was a half-baked effort to cure, and that’s
not going to cut it.
Fortin v. Ox-Bow Marina, Inc.
This
is about revocation of acceptance. Once you have accepted, it’s too late to
reject. Under § 2-608, you can revoke
acceptance, but it’s harder to do than reject.
You can’t revoke unless the good’s value is substantially impaired in
its value to you. Moreover, you must
have accepted the good either assuming that the non-conformity would be cured
but it wasn’t, or that it would have been time-consuming and expensive to
discover the non-conformity.