Acceptance & Revocation (cont)

Tai Wah case (271) – lawyers and litigants sometimes are TOO creative. Buyer held 2nd shipment of allegedly defective goods as security (leverage) to convince Seller to cure allegedly defective first shipment. Buyer lost under UCC? Why?

Basselen case (272)

Buyer drove car 19K miles after revoking acceptance. Dents as well. Why is this a problem in revoking acceptance?

See 2-608(2); see also 2-606

Prob 57 (271)

B discovered defect in car after driving on highway for the 1st time (won’t exceed 40)

B has the right to ________ before acceptance becomes effective. 2-606(1)a

How do you do this with a car?

On the other hand . . .

Prob 57 cont (271)

B arguably accepted by driving because he acted inconsistent with ___________. See 2-606(1)(c).

So, if B has accepted, what can B do after discovering, upon driving on highway for 1st time, car will not exceed 40 mph?

. . .

Prob 57 cont (271)

B can revoke acceptance. 2-608.

But in this example B drove car after supposedly revoking acceptance. Why is this a problem for B? See 2-608(3) (“rights and duties” of B after revocation of acceptance)

. . .

Prob 57 cont (271)

Rights and duties of B after revocation of acceptance same as rights and duties after rejection.

So see 2-602(2); 2-604

How can B use to his advantage the fact that he ran car to keep battery going?

Prob 57 cont (271)

B wants his $$ back but warranty limits his remedy to repair or replacement.

In order to get his $$ back, B must prove the limited remedy failed _______________.

What doctrine, often used by purchasers of nonconforming cars, might help B?

Prob 57 cont (271)

B paid part of the purchase price, so 2-711(3) gives him a security interest in the goods, even if he is rejecting or revoking acceptance.

What can B then do to get his $$ back. See 2-706

Seekings case (278)

Why did court hold that B NOT entitled to revocation (2-608) against mobile home manufacturer?

What does privity mean? If can’t revoke acceptance as to manufacturer, how does B litigate breach of warranty? Diff b/w litigating breach of warranty and revocation?

Why DID the court permit revocation against dealer even though dealer disclaimed implied warranties? (283)

Courts disagreeing with Seekings; why (286-87)

Kingston v. Champlain (288)

B had little choice but to accept non-conforming goods. But is B required to pay full price? SEE 2-607(2):

Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity.

Kingston (cont)

How do 2-714 and 2-717 help B?

How does this compare with what you learned in first year contracts (common law)?

What notice must B give? 2-607(3)

Problem 58 (291)

a) If the SOL is 4 years and B brings suit within 1 year, how can 2-607(3)(a) bar the suit nevertheless?

b) Is filing and serving a lawsuit the same as “notice” under 2-607(3)? What is the purpose of the “notice” requirement?

c) 2-607 Comm 4: notice must inform S that the transaction involves a “breach”

d) Notice of breach starts settlement talks

In Re Rafter (293)

Acceptance analysis in lease transactions closely analogous to acceptance analysis in sales transactions.

2A-515 – after reas opp to inspect, did lessee act as if accepting?

What did lessee do in Rafter?

Note on 296-97

Finance Lease v. Sale involving manfacturer

Finance Lease / Manu. Sale

Lessee Buyer

Finance Lessor Seller

Supplier Manufacturer

Lessee seeks warranty protection from Supplier, similar to Buyer seeking warranty protection from Manufacturer

Hell or High Water (2A-407)

Not for consumer leases; otherwise imposed by operation of law on finance leases

Kicks in upon acceptance. See word “independent” in 2-407(1)

Lessee (customer) must pay under lease come “hell or high water;” even if problems with goods.

Why? Who is lessee paying? Who is responsible for remedying goods?

Prob 60 p297

60(a) – can lessee reject? Did goods conform?

60(b) – This is a finance lease (2A-212(1). Did lease bw lessor and lessee contain any warranties? What about implied warranties bw lessor and lessee. See 2A-103(1)(g)(i)

See 2A-209 – How does 3d party beneficiary theory help lessee (customer)?

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.

Comment 1 to 2-609

Parties contract for ACTUAL performance, not merely for a promise or a plus the right to win a lawsuit. Also, elements dependent on one another/build on one another:

Elements: 1) reas grounds to suspect other party will not perform; 2) suspend performance; 3) demand adequate assurance in writing; 4) treat K as repudiated if no assurance w/i reas time not to exceed 30 days

2-610 Anticipatory Repudiation

Repudiation is effective if value of K to other party is substantially impaired (ie a material breach; see materiality factors a-e p317 in Neptune case)

If other party repudiates, non-repudiating party may nevertheless await performance OR resort to remedy in 2-711;

AND in either case suspend performance

(2-609 not the only way to show a repudiation)

Reasoning behind Anticipatory Repudiation Law

Point is not to make non-breaching party perform anyway; should seller have to order goods from factory if buyer not going to pay? (opposite of my friend in condo in Michigan) If seller knows buyer is not going to pay, should law hold seller in “breach” for not first delivering goods and waiting for payment that is not coming?

2-611 Retraction of Antic Repud

• (1) Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final.

• (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (Section 2-609).

• (3) Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

2-611 (in English)

If you repudiate you may nevertheless perform if you do so by the original deadline;

AND other party has not cancelled, materially changed position or deemed your repudiation FINAL;

AND you indicated to other party you now intend to perform;

AND you provide written 2-609 assurance

Notes on 2-702: Seller’s Remedies upon Discov. Buyer Insolvent

Typically, a seller will try to avail itself of 2-609 if it finds out buyer cannot pay.

Policy behind 2-702 (in part) is to put seller ahead of other creditors, at least with respect to seller’s goods.

Neptune case (312)

Seller did not meet the INITIAL June delivery date. Why did this not give buyer the right to reject in June/July? 2-601

Did Neptune court hold that buyer had to materially change its position; or could buyer just “cancel?” 2-611(1)

What if Seller said, “not sure” he could deliver by 9/5, instead of “no way?”

Problem 68 p321

Does Comment 1 to 2-610 help with a & b:

Comment 1 to 2-610: 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.”

Does word “overt” help with prob 68 c & d?

Prob 68: e, f

If not clear in e) that seller will not perform, what should you advise elevator co (buyer) to do? (2-609)

Does Comment 2 to 2-610 help with 68(f)?:Demand by one or both parties for more than the contract

calls for in the way of counter performance is not in itself a repudiation nor does it invalidate a plain expression of desire for future performance. HOWEVER, when under a fair reading it amounts to a statement of intention not to perform except on conditions which go beyond the contract, it becomes a repudiation.

Prob 68 (f)

Was this a repudiation under 2-610? Material?

What would you advise Crofter to do if you were Crofter’s attorney? 2-609

Questions following 68 (322)

Prob 69 (323)

Without reading Gibbs case, do you think Crofter SHOULD be able to pursue Elevator for breach?

Gibbs says . . .

Prob 69 cont (323)

Gibbs says non-breaching party cannot go after repudiating party for breach UNLESS non-breaching party shows “it was capable of performance notwithstanding the anticipatory breach.”

Prob 70 (student counsel)

What language in 2-609 is the beginning of the analysis?

What should you tell Crofter to do?

Koch case (323)

Did Plaintiff have “reasonable grounds” to believe K would not be performed? Why?

Was atty’s letter to def a sufficient request for adequate assurance? Why/Why not?

What about def’s response? Was that an adequate assurance?

Prob 71 (329)

71a) Is this an installment K? 2-612. Can B revoke/reject 1st delivery 2-612(b)? What about later deliveries 2-612(c)?

Assuming B can’t get out of future deliveries yet, what should B do? 2-609.What would be an adequate assurance from seller in return?

71b) Does this rise to level of repud in 2-610? Does B have better 2-609 case

71c) How does this factor into “reasonable grounds” under 2-609?

Prob 71 cont (d, e & f)

d) Would the failure to provide adequate assurance re: payment under these circs be a “substantial impairment” under 2-610?

e) Comment 3 to 2-609: can failure to perform on OTHER K be reasonable grounds for insecurity?

f) Does non-repudiating party’s problem make insecurity more or less reasonable?

Notes and Qs after Prob 71 (330)

Buyer’s deadline not determinative if seller’s response nevertheless reasonably timely.

Nor is specific type of assurance requested the only type of assurance that will suffice. See 2-609

Probs 72 & 73 (331)

Are rumors enough for reasonable grounds for insecurity? See comment 4 2-609

Is it commercially reasonable for Greasy to stop production? 2-609(1)

Is standard for proving insolvency (2-702) same as reas grounds for insecurity in 2-609?