Sales & Leases: A Problem-Based Approach
Document information
| Author | Scott J. Burnham |
| School | Gonzaga University School of Law, The University of Montana School of Law |
| Major | Law |
| Document type | Casebook |
| Language | English |
| Format | |
| Size | 2.75 MB |
Summary
I.Unconscionability and Contracts of Adhesion
This section examines unconscionability in contract law, focusing on contracts of adhesion where one party lacks bargaining power. While often associated with consumers, courts recognize that even sophisticated businesspeople can be unfairly surprised by unconscionable terms, as illustrated in A & M Produce Co. v. FMC Corp. (1982) and Bridge Fund Capital Corp. v. Fastbucks Franchise Corp. (9th Cir.). The example of the "Junior Institute" highlights how high-pressure sales tactics targeting vulnerable populations (limited education and economic means) coupled with high prices ($600, three to four times higher than comparable products) and complex payment plans (36 monthly installments at the highest legal interest rate) can contribute to procedural unconscionability.
1. Defining Unconscionability and Contracts of Adhesion
The section begins by establishing the core concept of unconscionability within contract law, particularly focusing on its prevalence in contracts of adhesion. It highlights that unconscionability arises when a contract's terms are so unfair or one-sided as to be unenforceable. The text emphasizes that contracts of adhesion, characterized by a significant power imbalance between the parties (one party typically having significantly more bargaining power than the other), are particularly susceptible to allegations of unconscionability. This is because the weaker party lacks the ability to negotiate favorable terms, leaving them vulnerable to accepting unfair conditions. The implication is that if a party had equal bargaining power, they wouldn't later complain about unfair terms; the inability to negotiate is key to establishing unconscionability. The section sets the stage for exploring various scenarios where such imbalances occur and lead to legally questionable outcomes. This foundational understanding of unconscionability and contracts of adhesion is crucial to analyzing the subsequent case studies and examples.
2. Business Owners and Procedural Unconscionability
While unconscionability is often associated with consumer contracts, this subsection acknowledges that businesses, too, can be victims of unconscionable terms. However, establishing procedural unconscionability is more challenging for business owners. Courts often presume businesses possess greater commercial understanding and economic strength than average consumers. The text cautions against generalizations, noting exceptions exist and emphasizing the importance of individual analysis. This point is supported by case law, citing A & M Produce Co. v. FMC Corp. (135 Cal. App. 3d 473, 489 (1982)) and Bridge Fund Capital Corp. v. Fastbucks Franchise Corp. (622 F.3d 996, 1004 (9th Cir.)), which both illustrate that even experienced but legally unsophisticated businesspeople can fall prey to unfair contract terms. The subsection subtly suggests a need for nuanced consideration rather than broad categorization when assessing claims of procedural unconscionability.
3. Case Study The Junior Institute and Unconscionable Practices
This subsection presents a detailed case study of the "Junior Institute," a company selling educational products for toddlers. The analysis focuses on how the company's practices exemplify unconscionability. The company targets areas with residents of limited education and economic means, employing door-to-door sales techniques. The high price ($600, three to four times the cost of comparable products) and aggressive payment plan (36 monthly installments at the maximum legal interest rate) are highlighted as key elements contributing to unconscionability. While the contract includes a three-day cancellation period, complying with federal consumer protection laws, the text emphasizes that the contract's fine print (three pages) and the lack of salesman authority to modify terms add to the unfairness. The example serves to illustrate how a combination of predatory sales tactics, exploitative pricing, and complex contract language create unconscionable situations, even when minimal compliance with consumer protection legislation is evident. This detailed example adds weight to the preceding points about power imbalances and unfair contract terms.
II.Contract Formation Offer Acceptance and the Mirror Image Rule
This section discusses contract formation, including the traditional mirror image rule (acceptance must exactly mirror the offer) and its modern relaxation. The Uniform Commercial Code (UCC) § 2-204(1) allows contracts to be formed in various ways, including conduct showing agreement. The case of Hammersberg v. Nelson (1937) exemplifies the courts' earlier flexibility, while Restatement (Second) of Contracts § 30 (1981) reflects the current common law approach, emphasizing reasonable acceptance methods.
1. The Mirror Image Rule and its Evolution
This subsection details the traditional 'mirror image rule' of contract formation. This rule stipulated that for a valid contract to exist, the terms of the acceptance had to precisely match the terms of the offer. Any deviation, however slight, rendered the acceptance a counteroffer, thus invalidating the original offer. This rigid approach extended to the manner and medium of acceptance; if an offer arrived via telegram, acceptance was only valid if also delivered by telegram, not by letter or performance. The text, however, points out that even before the Uniform Commercial Code (UCC) was widely adopted, courts and legislatures began relaxing this strict rule, acknowledging that excessively rigid contract formation rules could hinder commerce. This sets the stage for the discussion of more modern, flexible approaches to contract formation.
2. Modern Approaches to Contract Formation
Building on the limitations of the strict mirror image rule, this subsection introduces modern interpretations of contract formation. It cites Hammersberg v. Nelson (224 Wis. 403 (1937)) as a precedent demonstrating judicial flexibility, where an oral acceptance of a written offer was deemed sufficient to create a binding contract. This relaxed approach contrasts sharply with the rigid formality of the earlier mirror image rule. The Restatement (Second) of Contracts § 30 (1981) is then introduced, representing current common law. This section states that an offer invites acceptance by any reasonable manner and medium unless explicitly specified otherwise in the offer itself or by contextual circumstances. This flexible approach prioritizes the parties' actual agreement over strict adherence to a pre-defined format for acceptance.
3. UCC 2 204 1 and Contract Formation by Conduct
This subsection further elaborates on the modern, flexible approach to contract formation by focusing on the Uniform Commercial Code (UCC). Specifically, UCC § 2-204(1) is presented: "A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." This provision explicitly allows contracts to be formed through the parties' actions, rather than relying solely on written correspondence mirroring the exact terms of an offer. The section underscores the vendor's ability, as the offeror, to dictate the mode of acceptance, defining specific actions (conduct) as constituting acceptance. Consequently, a buyer's actions in performing those specified acts implicitly signify acceptance. The discussion shifts the focus from a purely textual interpretation of offer and acceptance towards a broader consideration of the parties' overall conduct and intent.
III.Shrinkwrap Licenses and the Enforceability of Terms
This section explores the enforceability of shrinkwrap licenses for computer software, focusing on ProCD, Inc. v. Zeidenberg (7th Cir. 1996). The court held that shrinkwrap licenses are enforceable unless their terms are objectionable (e.g., violating positive law or being unconscionable). The key issue was whether the terms, presented inside the software packaging, became part of the contract. The court argued that a buyer's use of the software after having the opportunity to review the license constitutes acceptance. Matthew Zeidenberg, who resold SelectPhone database information, lost his case against ProCD. The case highlights the importance of clear notice of terms and the right to return the product if the terms are unacceptable.
1. The Core Question Enforceability of Shrinkwrap Licenses
This section directly addresses the central issue of whether buyers of computer software are obligated to adhere to the terms and conditions outlined in shrinkwrap licenses. These licenses, contained within the software packaging, often present terms after the purchase transaction is completed. A district court in Wisconsin ruled against the enforceability of such licenses, primarily due to two reasons: firstly, because the licenses were inside the box and not visible prior to purchase, the court reasoned they could not be considered part of the initial contract. Secondly, the court suggested federal law prevented enforcement even if the licenses were legally considered contracts (908 F. Supp. 640 (W.D. Wis. 1996)). This initial ruling sets the stage for the ensuing legal discussion and the court's eventual reversal of this decision, challenging the assumptions about the formation of contracts in this context.
2. The Case of ProCD Inc. v. Zeidenberg
The analysis then pivots to the landmark case ProCD, Inc. v. Zeidenberg (86 F.3d 1447 (7th Cir. 1996)). This case involved Matthew Zeidenberg, who purchased SelectPhone software and then disregarded its licensing agreement to resell the database information online at a lower price than ProCD offered to commercial customers. The court directly addresses the question of shrinkwrap license enforceability. The district court deemed the licenses ineffective because their terms were not on the outside of the packaging. The appellate court disagreed with this assessment, providing a framework for understanding when such licenses become legally binding. Zeidenberg's actions, in essence, using the software after having the opportunity to review the license, were interpreted as acceptance of the contract’s terms, forming a binding agreement between ProCD and the user.
3. Contract Formation and the Terms Later Model
This section explores the nature of shrinkwrap licenses, referring to them as "terms later," "rolling," or "layered" contracts. The court differentiates this contract type from the traditional model where terms are clearly visible and agreed upon at the point of sale. The court acknowledges that contracts often include only the terms explicitly agreed upon. However, they emphasize that Zeidenberg's purchase did implicitly include the term indicating that the transaction was subject to a license contained within the software package. A key point made is that requiring all contract terms to be visible on the outside of packaging would be impractical due to space constraints, suggesting that the inclusion of inside terms coupled with a clear notice of additional terms and the right to return the product for a refund if unacceptable provides a fair and efficient business practice for both buyers and sellers.
4. UCC Implications and the Role of Acceptance
This subsection connects the legal discussion of shrinkwrap licenses to the Uniform Commercial Code (UCC). Specifically, the court cites UCC § 2-204(1), which states that a contract can be formed in various ways, including through the conduct of both parties, even if it involves terms learned after the initial purchase. The court supports the idea that a vendor can structure an offer to be accepted through conduct; ProCD, in this case, proposed a contract accepted through the user's continued use of the software following an opportunity to review the license. The judge acknowledges that while a contract might traditionally be formed by simply purchasing goods, the UCC allows for other ways to establish contract formation, implicitly upholding the enforceability of the shrinkwrap license in cases where the buyer has the opportunity to inspect and return the good.
5. Analogies to Consumer Goods and Package Inserts
The argument for the enforceability of shrinkwrap licenses is strengthened by comparing them to other common consumer products. The court draws a parallel to consumer goods like radios, which often contain warranties and terms inside the packaging. It is commonplace for consumers to read warranty information after the purchase. The court argues that just as consumers are bound by terms contained within the packaging of other consumer goods, they should be equally bound by terms within software packaging, provided notice is given that such terms exist. The analogy to drug packaging inserts further illustrates the practicality of this contract formation method, highlighting the importance of crucial information often presented in this format. The court uses these examples to refute the idea that terms contained inside a package are automatically irrelevant to the contract, providing a consistent standard for contract formation across consumer goods.
IV.Battle of the Forms and UCC 2 207
This section delves into the "battle of the forms"—conflicts between standardized forms used by buyers and sellers. UCC § 2-207 addresses situations with contradictory or additional terms. The analysis often hinges on whether a contract was formed before or after the vendor communicated its terms. Cases like Hill v. Gateway 2000, Inc. (1997) and M.A. Mortenson Co., Inc. v. Timberline Software Corp. (Wash. 2000) emphasize the significance of the timing of contract formation and acceptance of terms.
1. Standardized Forms and the Problem of Conflicting Terms
This section introduces the context of modern business transactions, where buyers and sellers commonly utilize standardized forms for offers and acceptances. These forms typically contain 'material' or 'dickered' terms (like quantity, price, and delivery date) which are typically negotiated and filled in. However, they also include extensive 'fine print' or 'boilerplate' terms covering warranties, disclaimers, payment terms, remedies, choice of law, and arbitration clauses. The core problem highlighted is the potential for conflict when these forms contain terms that contradict each other ('different' terms) or when one form includes terms the other doesn't address ('additional' terms). This sets the stage for the explanation of UCC § 2-207's role in resolving these conflicts arising from the 'battle of the forms.'
2. UCC 2 207 Resolving the Battle of the Forms
The section then introduces UCC § 2-207 as the legal framework designed to manage these conflicts. The text emphasizes that the effectiveness of this section often depends on the precise timing of contract formation. Specifically, whether the contract is formed before or after the vendor communicates its full terms to the purchaser. Several cases are cited to illustrate this point: Step-Saver highlights a situation where the parties' conduct (shipping, receiving, paying) demonstrated contract existence before additional terms on a box-top license became relevant, thus treating those terms as mere proposals for additional terms under § 2-207 requiring explicit buyer agreement. In contrast, Arizona Retail demonstrates a situation where the contract was already formed (by shipping the goods), making subsequent license agreements attempts to modify pre-existing agreements under UCC § 2-209, requiring the buyer's express assent. This shows the pivotal role of determining precisely when a contract comes into being. This ambiguity underscores the importance of careful analysis to establish the timing of contract formation.
3. Different Approaches to Conditional Acceptance
This subsection explores the varying judicial interpretations of 'conditional acceptance' under UCC § 2-207. Three approaches are identified. One approach considers any deviation from the offeror's terms as a conditional acceptance, effectively a counteroffer. Another approach requires the offeree to explicitly express the conditional nature of their acceptance, clearly indicating their unwillingness to proceed without specific additional or differing terms. A middle ground mandates that the acceptance must explicitly state its dependence on clarification, modification, or the inclusion of further terms. The text notes that the First Circuit has overruled a key precedent (Roto-Lith) and assesses that neither Kansas nor Missouri would apply the strictest standard. This highlights the continuing evolution and lack of uniform interpretation of UCC § 2-207 across different jurisdictions. The discussion underscores the need for clear and unambiguous communication to avoid ambiguity in contract formation.
4. Case Studies and Application of UCC 2 207
This subsection offers examples of how courts apply UCC § 2-207 in different scenarios, noting that many cases focus on the timing of contract formation. Hill v. Gateway 2000, Inc., ProCD, Inc. v. Zeidenberg, and M.A. Mortenson Co., Inc. v. Timberline Software Corp. are cited. The cases illustrate different scenarios and outcomes in applying this UCC section to determine the terms governing a contract when parties use conflicting standardized forms. The differences in rulings highlight the challenges of consistent application and the context-dependent nature of contractual interpretation under § 2-207. The discussion emphasizes the need for a precise understanding of contract formation and how it interacts with the additional terms presented in standardized forms.
V.Implied Warranties and Privity
This section discusses implied warranties, particularly the implied warranty of merchantability under UCC § 2-314. It addresses the issue of privity, examining whether a warranty extends beyond the immediate buyer-seller relationship. UCC § 2-318 offers different approaches (Alternatives A, B, and C) to determine who can sue for breach of warranty. The section uses the example of a wife injured by a product bought by her husband to illustrate the complexities of vertical privity and the limitations and possibilities presented by the different alternatives in §2-318. Williams v. Fulmer (Ky. 1985) is cited as a case where a claim was disallowed due to privity issues. The section also touches upon the impact of disclaimers and the need for the disclaimer to reach the ultimate consumer.
1. Implied Warranty of Merchantability
This subsection introduces the concept of the implied warranty of merchantability under the Uniform Commercial Code (UCC) § 2-314. This warranty implies that goods sold are fit for their ordinary purpose and meet certain standards of quality. The text doesn't explicitly define these standards but implies that they are generally understood within the context of the specific goods being sold. The discussion then touches upon the extent to which this implied warranty applies. The example provided hints at the potential liability extension to those who ultimately use the goods, not just the immediate buyer. This raises the issue of privity, the relationship between the parties involved in a contract concerning the warranty.
2. Privity and UCC 2 318 Horizontal and Vertical Privity
This subsection addresses the complex issue of privity in warranty claims. It introduces UCC § 2-318, designed to broaden warranty claims beyond direct parties to the sales contract. The original draft only included Alternative A which was intentionally neutral and designed not to alter existing case law. The text explains that vertical privity (the relationship between parties in a distribution chain, from manufacturer to ultimate consumer) traditionally was determined via common law, while UCC § 2-318 primarily addressed horizontal privity (relationships between parties at the same level in a distribution chain). The section mentions that Comment 2 of § 2-313 acknowledges the case law growth around warranties extending beyond direct sales contracts. This sets up the discussion of the different approaches to privity under the various alternatives of §2-318, ultimately highlighting that the determination of who can sue whom depends on the jurisdiction’s chosen alternative within that section.
3. Alternatives A B and C of UCC 2 318 and their Implications
This subsection compares the three alternatives presented in UCC § 2-318 to address privity. Under Alternative A, the warranty extends to the immediate buyer, requiring reliance on common law concepts of vertical privity to expand liability up the supply chain to manufacturers. Alternatives B and C broaden the scope, potentially eliminating the privity requirement. Alternative B covers any natural person, and Alternative C includes any person, making claims against manufacturers directly possible. However, the section notes a key difference. Alternative B restricts recoverable damages to personal injury, whereas Alternative C allows for compensation for any type of damage. The example of a wife injured by a product purchased by her husband serves to highlight how the choice between these alternatives will significantly impact the potential success of her legal claim and the damages she might be awarded.
4. Case Law and the Application of Privity
This subsection emphasizes the differing approaches to privity across various jurisdictions. It cites Williams v. Fulmer (695 S.W.2d 411 (Ky. 1985)) as a case that disallowed a claim by a wife injured while using a helmet purchased by her husband. This highlights that the issue of privity remains a significant hurdle for those seeking redress for injuries caused by defective products. The discussion underscores the critical impact of jurisdictional differences in the interpretation and application of UCC § 2-318, implying that the success of a privity-related claim is far from guaranteed and depends significantly on the specific legal precedents and statutes applicable in a given area.
VI.Parol Evidence Rule and Integration Clauses
This section discusses the parol evidence rule and the admissibility of evidence outside the written contract. Integration clauses (merger clauses) often aim to prevent such evidence. However, courts may consider evidence of course of dealing, usage of trade, and course of performance to explain or supplement the written agreement (Royster Co. v. Wrench), and may also consider evidence of intent, as seen in O'Neil v. International Harvester Co. (1978), even if an integration clause is present. Intershoe, Inc. v. Bankers Trust Co. (1991) is presented as a contrasting case where additional evidence was excluded.
1. The Parol Evidence Rule and its Limitations
This subsection introduces the parol evidence rule, which generally prevents the admission of extrinsic evidence (oral or written statements made prior to or contemporaneously with a written contract) to contradict or vary the terms of a fully integrated written contract. The rule aims to ensure certainty and prevent disputes arising from conflicting interpretations of a contract's terms. However, the text immediately suggests that this rule isn't absolute and that exceptions exist. The following subsections explore these exceptions, focusing on the interplay between complete integration, the intention of the parties, and the admissibility of evidence regarding prior dealings and trade usage. This sets the stage for a discussion of situations where extrinsic evidence is permissible, even when seemingly contradicting a formal written agreement.
2. UCC 2 202 and Admissibility of Extrinsic Evidence
This subsection discusses the admissibility of extrinsic evidence in the context of the Uniform Commercial Code (UCC). UCC § 2-202 explicitly allows for the use of evidence of course of dealing or usage of trade to explain or supplement the terms of a written contract. This exception to the parol evidence rule applies if the evidence is consistent with the written contract's express terms. This allowance acknowledges that business practices and prior dealings between parties can add crucial context that a fully written contract might not explicitly cover. The test for admissibility is not whether the contract appears complete on its face, but whether the extrinsic evidence is reasonably consistent with the written agreement. Virginia Code Annotated, UCC § 1-303(e), supports this interpretation, emphasizing that a contract’s completeness on its face does not automatically exclude additional evidence provided that evidence is consistent with the contract.
3. Integration Clauses and the Parties Intent
The discussion then turns to the role of integration clauses (also known as merger clauses) in contracts. These clauses explicitly state that the written agreement represents the complete and final understanding between the parties, intending to prevent the admission of contradictory extrinsic evidence. The text notes that such clauses are strong evidence of integration, but are not necessarily conclusive. The case O'Neil v. International Harvester Co. (40 Colo. App. 369, 575 P.2d 862 (1978)) is highlighted. The court reversed a lower court decision that disallowed evidence of oral warranties due to a merger clause, illustrating that evidence relating to the parties’ intent regarding the finality of the written agreement is admissible, even if an integration clause exists. The court reasoned that evidence of oral warranties made before the written contract, along with post-sale conduct, could demonstrate that these warranties were indeed part of the parties’ agreement.
4. Case Study Intershoe Inc. v. Bankers Trust Co.
This subsection presents a contrasting case, Intershoe, Inc. v. Bankers Trust Co. (571 N.E.2d 641 (N.Y. 1991)), where the court held that a written confirmation was a ‘complete and exclusive’ agreement, rejecting evidence of additional terms. This decision contrasts sharply with the O'Neil case. The difference emphasizes the fact-specific nature of the parol evidence rule’s application and the judicial discretion involved in determining a contract's full extent and integration. In this case, the court prioritised the explicit written record and didn’t allow extrinsic evidence that would contradict the written terms. The comparison between Intershoe and O'Neil illuminates that even with integration clauses, courts will consider the specific evidence and the parties’ intent to determine the admissibility of any contradictory extrinsic evidence.
VII.Identification of Goods and Risk of Loss
This section addresses the identification of goods under UCC § 2-501, focusing on when identification occurs with future goods. The example of a custom-designed ring from a jeweler illustrates this concept. It also briefly discusses risk of loss and its connection to identification. The case of Inmi-Etti v. Aluisi (Md. App. 1985) is used to exemplify issues around title and possession of goods, particularly when a voluntary transfer by the owner is involved and how this connects to concepts of voidable title under UCC 2-403(1).
1. Identification of Goods The General Rule and UCC 2 501
This subsection introduces the concept of 'identification' of goods within a contract for the sale of goods. The text focuses on the importance of identification, particularly in relation to the allocation of risk and the point at which the buyer's interest in the specific goods becomes legally recognized. UCC § 2-501(1)(b) is highlighted, specifying that for future goods (goods not yet in existence at the time of contract), identification occurs when the seller designates specific goods to fulfill the contract—this could involve shipping, marking, or otherwise designating the goods. This leaves open the question of precisely when this identification occurs in different scenarios, leading to further discussion of the timing aspect of identification and the point at which the buyer's interest in the goods is established.
2. Identification of Future Goods A Case Study
This subsection uses the example of a custom-designed ring ordered from a jeweler to illustrate the practical application of identification for future goods. The question is, at what point are the goods 'identified' under UCC § 2-501(1)(b)? Several possibilities are presented: when the jeweler sets aside materials, when she begins work on the ring, when the ring is put in a box with the buyer's name, or upon final delivery. The lack of a specific answer emphasizes the need for clear contractual language to avoid ambiguity. The ambiguity also emphasizes that the precise moment of identification might depend on the particular circumstances of the contract and the agreement between the involved parties. This shows that while the law provides a general framework, precise application might vary depending on the specifics of the transaction.
3. Case Study Inmi Etti v. Aluisi and Risk of Loss
The case Inmi-Etti v. Aluisi (492 A.2d 917 (Md. App. 1985)) is presented as a case study concerning identification and risk of loss. Inmi-Etti ordered a car in the US to be shipped to Nigeria. After a down payment, she returned home. The car was delivered to her sister's home pending shipment, when Butler (an acquaintance) took it, claiming a debt. He later sold it. This case brings in the concepts of title, voidable title, and the implications for risk of loss. Although not directly discussed in this section, the context clearly sets the stage for the issues regarding the transfer of ownership, the buyer’s rights, and who bears the risk of loss in this situation. The subsequent discussion of Hawkland's view that only voluntary transfers vest voidable title hints at how this would impact the case. This example practically demonstrates issues around ownership, possession, and the potential conflicts arising before goods are fully delivered to the buyer.
VIII.Impossibility Impracticability and Force Majeure
This section examines doctrines of impossibility, impracticability, and force majeure that excuse contractual performance. UCC § 2-615 addresses impracticability. The section emphasizes that increased cost alone doesn't excuse performance; unforeseen contingencies significantly altering performance are needed. The case of Transatlantic Financing Corp. v. United States (D.C. App. 1966) illustrates the application of impracticability and the importance of allocating risks. It explores if events must be unforeseeable for force majeure clauses to apply. Eastern Airlines, Inc. v. McDonnell Douglas Corporation (5th Cir. 1976) is discussed regarding the role of foreseeability in excusing performance. The section also discusses how legal changes can render performance impossible or impracticable, and other cases are cited to illustrate this.
1. Impossibility Impracticability and Force Majeure Defining the Concepts
This section introduces three related but distinct legal concepts that can excuse contractual performance: impossibility, impracticability, and force majeure. The text doesn't provide formal definitions but uses examples to illustrate their application. Impossibility generally refers to situations where performance becomes objectively impossible due to unforeseen circumstances. Impracticability suggests that performance remains possible but has become excessively difficult or costly due to unforeseen events. Force majeure typically involves extraordinary events beyond the control of either party, often specified in contractual clauses. The section lays the groundwork for examining how these concepts interact in different situations, especially focusing on the role of foreseeability and the need for unforeseen contingencies to justify the excuse of performance.
2. UCC 2 615 and Commercial Impracticability
The section then highlights the Uniform Commercial Code (UCC) § 2-615, which addresses commercial impracticability. This section focuses on situations where performance becomes excessively burdensome due to unforeseen events. The text explicitly states that increased cost alone isn't sufficient to excuse performance; the increased cost must be caused by an unforeseen contingency that fundamentally alters the nature of the performance. The section also emphasizes that mere market fluctuations (price increases or decreases) do not usually constitute an excuse, as parties are expected to account for normal market risks when entering fixed-price contracts. However, severe shortages due to unforeseen events like war, embargoes, or natural disasters that significantly impact costs or prevent the seller from obtaining necessary supplies can justify invoking this section. Comment 4 to UCC §2-615 further clarifies that unforeseen contingencies are key to justifying impracticability, reinforcing the importance of the element of unforeseeability in applying the section.
3. Case Study Transatlantic Financing Corp. v. United States
The case Transatlantic Financing Corp. v. United States (363 F.2d 312 (D.C. App. 1966)) is used to illustrate the application of commercial impracticability. Transatlantic contracted to ship wheat from Texas to Iran via the Suez Canal. The Suez Canal was unexpectedly closed due to war. Transatlantic argued that the closure rendered performance impracticable and sought higher compensation. The court, however, ruled against them. While acknowledging that increased costs and difficulties in performance can sometimes support an impracticability claim, the court found that the added expense of the alternate route (around the Cape of Good Hope) was not sufficient, particularly given the shipping company's ability to procure insurance for such risks. The added costs were deemed foreseeable and insurable, indicating that only significantly unforeseen circumstances would excuse performance under UCC § 2-615, thus highlighting the stringent standard for invoking commercial impracticability.
4. Impracticability Due to Legal Changes and Force Majeure Clauses
This subsection expands the discussion to encompass situations where changes in law or government actions impact the ability to perform. It mentions International Minerals & Chemical Corp. v. Llano, Inc. (770 F.2d 879 (10th Cir. 1985))—where a change in environmental regulations excused a buyer from fulfilling a natural gas purchase contract—and Eastern Air Lines, Inc. v. McDonnell Douglas Corporation (532 F.2d 957 (5th Cir. 1976)), which excused an aircraft manufacturer from delivery deadlines due to government prioritization of military aircraft production. The section also notes that even without explicitly defined force majeure clauses (contractual provisions specifying events that excuse performance), courts interpret contracts to require unforeseeability as a criterion to excuse performance based on force majeure events. However, it acknowledges that other courts hold that foreseeability of the event is not necessarily a bar. The section highlights that the interpretation of force majeure clauses, and the overall application of impossibility and impracticability doctrines, can significantly vary depending on the specific circumstances, jurisdiction, and interpretation of the relevant legal precedent.
IX.Casualty to Identified Goods and UCC 2 613
This section explores UCC § 2-613, which addresses casualty to identified goods before the risk of loss passes to the buyer. The case of Valley Forge Flag Co. v. New York Dowel & Moulding Import Co. (N.Y. City Civ. Ct. 1977) illustrates how this section applies to fungible goods (interchangeable items) and the requirement of identification of specific goods for the section to be applicable.
1. UCC 2 613 and Casualty to Identified Goods
This subsection introduces UCC § 2-613, which addresses situations where goods identified in a contract suffer casualty (damage or destruction) without fault of either party before the risk of loss passes to the buyer. The section states that if the loss is total, the contract is avoided. This aligns with the general contract law principle that if performance hinges on the existence of a specific thing and that thing is destroyed without fault before performance, the seller's duty to perform is excused. The text notes that this provision applies specifically to situations where the contract involves goods identified at the time of contracting, distinguishing between unique items and fungible goods (where any conforming goods can be delivered). This difference is key to understanding the limited situations where UCC § 2-613 applies to excuse non-performance.
2. The Distinction Between Unique and Fungible Goods
This subsection further clarifies the application of UCC § 2-613 by emphasizing the distinction between unique and fungible goods. The section notes that the continued existence of the specific identified goods is a prerequisite for applying this section. The sale of a unique item (like a one-of-a-kind piece of art) is explicitly covered, but not the sale of ordinary items where any equivalent item could suffice. The sale of fungible goods requires more than mere identification by type and quantity; it requires a specific agreement on the particular goods being bought and sold. Cases like Bunge Corp. v. Recker (519 F.2d 449) are cited to support this idea; a mere specification of quantity and type is not sufficient for the application of UCC 2-613, further emphasizing the need for a meeting of the minds as to which particular goods were to be involved in the contract.
3. Case Study Valley Forge Flag Co. v. New York Dowel Moulding Import Co.
The case Valley Forge Flag Co. v. New York Dowel & Moulding Import Co. (395 N.Y.S.2d 138 (N.Y. City Civ. Ct. 1977)) serves as a case study. The buyer sued the seller for non-delivery. The seller claimed the goods were destroyed at sea. The court ruled that UCC § 2-613 did not apply because the goods (dowels) were fungible; the court established that because dowels are readily replaceable commodities, the non-delivery was not excused by the destruction of goods identified at the time of contract. The court emphasizes that the goods were not identified at the time of the sale, meaning they hadn't been shipped, marked, segregated, or otherwise specifically designated as the goods covered by the contract. This case clearly illustrates the narrow scope of UCC § 2-613, which mainly applies to contracts involving unique goods and not those dealing with fungible goods, even if those fungible goods were damaged or destroyed before the transfer of risk to the buyer.
X.Acceptance of Goods and Reasonable Time for Rejection
The final section deals with the acceptance of goods and the reasonable time for rejection under the UCC. It emphasizes the importance of customary inspection practices in determining a reasonable time. The case of Finkelstein v. Berg (not fully detailed, but mentioned) illustrates the concept of a reasonable time for rejection after the delivery of a horse (live animal) and how the buyer's actions impacted the determination of acceptance.
1. UCC 2 613 Casualty to Identified Goods
This subsection introduces UCC § 2-613, which deals with situations where goods that were identified at the time a contract was made are damaged or destroyed without fault of either the buyer or the seller before the risk of loss transfers to the buyer. The section specifies that if the loss is total, the contract is voided. This is presented as an exception to the general rule where a seller is typically responsible for delivering the goods. The section sets the stage for understanding the specific circumstances under which this legal principle applies, highlighting the crucial role of 'identification' of the goods at the time of contract creation.
2. The Importance of Identification in UCC 2 613
This subsection expands on the concept of 'identification' as a condition for applying UCC § 2-613. It emphasizes that this section only applies when the goods in question were specifically identified at the time the contract was formed. This distinction is drawn to highlight the difference between situations involving unique goods and situations involving fungible goods. The section notes that while the destruction of a unique good might void a contract due to impossibility, the destruction of fungible goods (goods that are interchangeable) does not automatically void the contract since the seller could easily procure replacement goods. Several cases, such as Dexter v. Norton (47 N.Y. 62) and Bunge Corp. v. Recker (519 F.2d 449), are cited to clarify these subtle yet important differences in applying the section. These legal precedents underscore that simply identifying the type and amount of goods is not enough—there must be an explicit agreement as to the specific goods involved for UCC §2-613 to apply.
3. Case Study Valley Forge Flag Co. v. New York Dowel Moulding Import Co.
This subsection details Valley Forge Flag Co. v. New York Dowel & Moulding Import Co. (395 N.Y.S.2d 138 (N.Y. City Civ. Ct. 1977)) to illustrate the application of UCC § 2-613. The seller argued that a storm at sea destroyed the goods (dowels), relieving them of their obligation to deliver. The court found that UCC § 2-613 didn’t apply because the dowels were fungible goods. The seller could have easily replaced them. More importantly, the goods were not specifically identified in the contract at the time it was made—the goods were not yet shipped, marked, or segregated as the goods to be delivered. Therefore, the court ruled against the seller, emphasizing that the goods were not 'identified' under the meaning of UCC § 2-613. This practical case example demonstrates that even in cases of casualty, the seller’s responsibility to deliver goods continues if the goods in question weren’t appropriately identified when the sales contract was made.
