Problems Flashcards
Problem 21
You can only pass on title if you have it. The plaintiff would sue sealed lips for the breach of warranty. The onus is on the seller to ensure that the product has good title.
Problem 64: PROBLEM 64
Travis Galleries developed a market in copies of famous statues. It ordered monthly shipments of the statues from Ersatz Imports, agreeing to take 12 shipments of 20 statues each over the coming year. The first month all of the statues arrived upside down in their cartons. The manager of Travis Galleries was amazed that most had survived the trip in this condition. Only one was broken, and a phone call to Ersatz Imports resulted in a promise to ship a replacement at once. The next month the statues were again packaged upside down, and half of them were broken. Does §2-612 permit rejection for this reason? Assume that Ersatz replaced the broken statues within a week, but that the next month the shipment contained no statues at all. Instead, Ersatz had mistakenly shipped Travis poor copies of 20 French Impressionist paintings. Travis Galleries called you, its attorney. May it reject this shipment? Under what theory? May it now cancel the remainder of the Ersatz contract? In any rejection situation, is it wise for attorneys to ask their clients what really underlies their own actions?
- Right to reject under 2-612:
*section allows a buyer to reject any installment ifnonconformity substantially impairs the balue of that installment and it cannot be cured
The first shipment had a minor nonconformity but only one had been broken and promptly replaced. The second shipment was severely defective. E replaced the broken statues within a week potentially curing the defect. The final shipment was completely non conforming as it contained paintings. As the third containted an entirely different product, T had the right to reject.
* - The right to cancel the contract
612(3) lets buyer cancel the whole contract if one or more non conforming installments substantially impairs the entire contract value. The first two issues are minor breaches but third is major which justifies the cancellation
Problem 61: Pineapples loaded onto box cars and after loaded, agreement to sell one boxcar full of pineapples. FOB seller’s processing plant.
Before they divert, hurricane destroys the pineapples.
They were destroyed before they were identified by the contract and therefore there was no valid contract for the pineapples.
PROBLEM 65
Stella Speculator, a wealthy investor, signed a contract with Swank Motors to buy five new cars. All five were to be delivered on October 1. When the cars arrived, she test drove each of them and then returned two of them, saying she would keep the other three. She rejected the two cars because the audio system did not work in one of them (she was a great music lover) and the carpeting in the trunk of the other was ripping. Swank Motors offered to repair both defects. When Speculator refused to permit repair, Swank sued. Answer these questions:
(a)Does the common law doctrine de minimis non curat lex (“the law does not notice small defects”) survive §2-601? If so, in spite of the tiny defects, the cars would be conforming. See Official Comment 2 to §2-106; see D.P. Technology Corp. v. Sherwood Tool, Inc., 751 F. Supp. 1038 (D. Conn. 1990) (where goods specially manufactured, buyer not in good faith in rejecting because of insubstantial delay in delivery).
(b)A seller has a right to cure in some circumstances; see §2-508. Is this section of use to Swank Motors? See Wilson v. Scampoli, 228 A.2d 848 (D.C. 1967), reprinted below.
(c)Suppose Swank can demonstrate that it is common for car sellers to correct small defects. Will Swank succeed if it argues that such correction is a usage of trade (§1-303(c)) and thus either that the goods are conforming or that because of this usage of trade, the parties have impliedly agreed that a §2-601 perfect tender is not required? See §§1-302, 1-201(b)(3).
a. No. The section states that a buyer may reject goods if they fail in any respect to confrom to the contract. Even minor defects allow a buyer to reject the goods. Courts may soften strictness of this rule using good faith considerations under 1-304 and commercial reasonableness under 2-106. While the law does not formally recognise DMNCL in the face of 601, some courts may apply a similar reasoning by considering whether rejection is in good faith or merely a pretext. If SM can show defects are trivial/easy to fix, speculator's rejection may not be upheld if she acted unreasonably.
b. Yes, UCC 2-508 provide seller may cure nonconforming goods under certain circumstances... - if time for performance has not yet expired, seller can cure by making a proper delivery within the contract deadline. - if the buyer rejects NC goods and seller had reasonable grounds to believe they would be accepted, seller may gain additional time to cure. In Wilson v Scampoli, court ruled that a seller could cure a minor defect in a TV set rather than letting the buyer to reject outright. Applying this reasoning, SM offer to repair would likely be seen as valid cure so the rejection by buyer likely unreasonable.
c. Yes- if they can show it is industry practice for dealers to correct small defects before finalising a sale, then under 1-303 the parties may have implicitly agreed thar minor defects don't constitute nonconformity. Under 1-302, parties may modify the strict perfect tender rule through course of dealing/trade usage. If it is standard practice for buyer to accept vehicles with a minor defect subject to repair, S can argue B rejection was not in line with reasonable commerical expectations. So... - 2-601 allows rejection for any defect but courts can consider good faith and reasonableness. - 2-507 provides seller right to cure minor defects. - 1-303(c) could support thar minor repairs are a trade usage.
PROBLEM 66
On August 8, Francis and Sophie Ferdinand ordered a new car from Princip Motors for $22,000. The car was scheduled for delivery “no later than September 1” (it had special accessories that had to be installed at the factory). On August 15, Princip Motors told the Ferdinands that the car was ready, so they picked it up. Halfway home (three miles from the car dealer), the engine blew up without warning. The Ferdinands were not hurt, but the engine was destroyed. On being informed that the Ferdinands wanted their money back, Princip made the following responses:
(a)Princip offered to take an engine out of a car of the same model and install it in the original automobile (which was otherwise undamaged).
(b)Princip refused to refund the money; instead, it claimed a right to give the Ferdinands a new car to be delivered fresh from the factory on August 20.
(c) Does §2-508 require the Ferdinands to accept either of these cure offers?
In resolving this Problem it may help you to know about the Shaken Faith Doctrine, developed in a similar situation by the court in a leading case (worth reading):
For a majority of people the purchase of a new car is a major investment, rationalized by the peace of mind that flows from its dependability and safety. Once their faith is shaken, the vehicle loses not only its real value in their eyes, but becomes an instrument whose integrity is substantially impaired and whose operation is fraught with apprehension. The attempted cure in the present case was ineffective.
Zabriskie Chevrolet, Inc. v. Smith, 99 N.J. Super. 441, 458, 240 A.2d 195, 205 (1968).
And, in the words of one pedant, “The court should be willing to take judicial notice of what all modern day consumers ‘know’: things that do not p. 322work well at the start are not likely to work well in the future unless the original defect is minor in nature.” Douglas Whaley, Tender, Acceptance, Rejection and Revocation—The UCC’s “TARR-Baby,” 24 Drake L. Rev. 52, 58 (1974).
a. The Ferdinands are not required to accept the engine replacement. Under the Shaken Faith Doctrine, a catastrophic failure like an engine blowing up undermines confidence in the vehicle, making it unreasonable to expect them to accept a major repair. b. The Ferdinands are not required to accept a new car arriving on August 20. Since their contract specified delivery "no later than September 1," Princip’s offer could be seen as an attempt to cure. However, given the severity of the defect, their shaken faith in the dealer and vehicle likely justifies outright rejection. c. No, §2-508 does not require the Ferdinands to accept either cure offer. The defect was substantial, and per the Shaken Faith Doctrine, they have the right to revoke acceptance and demand a refund
Problem 67
PROBLEM 67
Midwestern Seafoods, headquartered in Iowa, ordered 50 live lobsters from Maine Exports, “F.O.B. Portland.” On September 1, Maine Exports loaded the lobsters on board an airplane in Portland, from where they were flown to Boston and then to Des Moines. Maine Exports failed to notify Midwestern Seafoods of the date of the flight until two days later, when Midwestern’s purchasing agent called to inquire. He then made a few calls and located the lobsters in Des Moines, where they had been sitting for a day. Midwestern signed a receipt and picked the lobsters up. Twenty of them were clearly dying (15 due to bad handling by Maine Exports before they were handed over to the airline and 5 due to damage in transit); the other 30 were fine. Midwestern decided, for reasons that are unclear, that it wanted none of the lobsters.
(a)Is the seller’s failure to notify Midwestern of the shipment a ground for rejection? See §2-504.
(b)May Midwestern reject because of the 20 defective lobsters? See §§2-601, 2-503, 2-509(1), 2-510(1).
(c)How quickly must Midwestern act if it wishes to reject? What technical steps is it required to take? See §§2-602, 1-205.
(d)Must Midwestern reship the goods to Maine Exports if the latter offers to pay the freight? See §2-602(2) with its Official Comment 2; §§2-603, 2-604.
(e)If Midwestern decides to keep 30 of the lobsters for resale, is this allowed? See §§2-602(2)(a), 2-606; cf. §§2-601, 2-105(6); Annot., 67 A.L.R.3d 363.
(f)If Midwestern rejects the goods, must it give its reasons in the notice of rejection? What penalty is there for not doing so? See §2-605 and its Official Comment 2.
(g)If Midwestern gives a valid notice of rejection within a reasonable period of time after the lobsters are delivered, what should it then do with the lobsters? See §2-602(2).
(a) No, the seller’s failure to notify Midwestern of shipment is not a ground for rejection. The contract was “F.O.B. Portland,” so risk and title passed to Midwestern when the lobsters were delivered to the carrier. §2-504 requires notification but does not affect the right to reject.
(b) Yes, Midwestern may reject the 20 defective lobsters due to bad handling and damage in transit, as they do not conform to the contract. §§2-601, 2-503, 2-509(1), 2-510(1) allow rejection of non-conforming goods.
(c) Prompt action is required; rejection must occur within a reasonable time after delivery, and Midwestern must notify the seller in writing. §§2-602, 1-205 require timely and proper rejection notice.
(d) No, Midwestern does not have to reship the goods to Maine Exports even if the latter offers to pay the freight. §2-602(2) allows the buyer to keep the goods or dispose of them, as stated in Official Comment 2.
(e) Yes, Midwestern can keep 30 lobsters for resale if they are acceptable under §2-606, as the goods conform to the contract and do not require rejection.
(f) Yes, Midwestern must provide the reasons for rejection in the notice of rejection. Failure to do so may result in losing the right to claim defects not identified. §2-605 and Official Comment 2 outline this requirement.
(g) Midwestern should return or dispose of the lobsters after a valid rejection. The goods must be held for the seller’s instructions and may be reshipped at the seller’s cost if requested. §2-602(2) governs this process.
Problem 68: Ulysses Sinon ran a dude ranch in Troy, Colorado. He decided to erect a statue of a giant horse near the entrance to the ranch as a tourist attraction. The horse was specially manufactured by Epeius of Paris and arrived in six boxes to be assembled by Sinon. When the horse was put together, Sinon was displeased with the appearance of the tail. The horse had been designed by Epeius, and the scale model Sinon had seen when he decided to buy the horse had had a different tail. Sinon removed the tail and substituted one of his own design. He returned the original to Epeius along with a letter of rejection. In the meantime, Sinon painted the rest of the horse black (in the delivered state it was white) and used it extensively in advertising for the ranch. The horse failed to attract new business to the ranch. After three months of display, Sinon took it down and shipped it back to Epeius with a letter of rejection that stated that the problem with the tail made the horse unattractive and unusable. Epeius sues. Did Sinon make a rejection or an acceptance? See Technology and Supply Management, LLC v. Johnson Controls Building Automation Systems, LLC, 2017 WL 3219281 (E.D. Va. 2017). If the tail did not conform to the model, is that a ground for rejection? See §2-601. If Sinon had made a technical acceptance, does that fact preclude a suit for breach of warranty? See §2-607(2). What steps should Sinon take to preserve his legal rights? See §2-607(3)(a). What reasons lie behind the notice requirement? See §§2-508, 2-515.
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Rejection or Acceptance?
- Sinon accepted the horse by modifying it (changing the tail), painting it, using it in advertising, and keeping it for three months before attempting rejection.
- Under Technology and Supply Management, LLC v. Johnson Controls, continued use and alteration indicate acceptance.
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Grounds for Rejection (§2-601)?
- If the tail did not match the scale model, this could be nonconformity, but rejection should have been immediate.
- Late rejection (after use and modifications) weakens the claim.
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Breach of Warranty Claim (§2-607(2))?
- Acceptance does not preclude a breach of warranty claim.
- Sinon can still sue for damages due to nonconformity.
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Steps to Preserve Legal Rights (§2-607(3)(a))?
- Notify Epeius of the defect promptly after discovery.
- Provide specifics on how the tail deviated from the agreed design.
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Reasons for Notice Requirement (§§2-508, 2-515)?
- Allows the seller to cure defects.
- Encourages prompt resolution and prevents unfair surprise to the seller.
Problem 69:
The day after Alice Bluegown bought her new car, the right rear fender fell off. May she use §2-608 or must she give the car dealer a right to cure? Pretend she is sitting in your office expecting an immediate answer; glance at §2-608 and decide. The next day she took the car back to have the fender repaired; this made her late for work. The dealer fixed it, and the fender gave her no more trouble. However, the first time it rained all the paint washed off the car. May she revoke now? She took the car back to the dealer when the rain stopped and rode the bus to work (late again). The car dealer did a nice job repainting the car. Two weeks later the engine quit on her when she was in the middle lane of a superhighway at rush hour. The car had to p. 356be towed to the car dealer, and Alice missed an important sales meeting. The car dealer fixed the engine. Now Alice is back in your office. The car’s trunk will not open. Must she permit them to fix it, or can she revoke? See Foss, The Seller’s Right to Cure When the Buyer Revokes Acceptance: Erase the Line in the Sand, 16 S. Ill. U. L.J. 1 (1991). She has missed enough work to worry about hurting her career. She’s also concerned that the car is going to keep breaking down right through and past the warranty period. What do you advise? Is §2-609 of use to her? If she decides to revoke acceptance and if the court agrees that this is allowed, would it also permit her to recover for the cost of a rental car used as substitute transportation while she was attempting to purchase a new car? See McGinnis v. Wentworth Chevrolet Co., 295 Or. 494, 668 P.2d 365 (1983). If she goes out and buys a new car, can she make the first car dealer pay for it? See §2-712.
Alice can revoke acceptance under §2-608 due to the car’s multiple defects, especially since they substantially impair its value. The dealer’s right to cure under §2-719 doesn’t prevent revocation if defects persist. §2-609 isn’t directly relevant. If Alice revokes, she can recover rental car costs (McGinnis v. Wentworth) and, under §2-712, can recover the price difference if she buys a new car.
PROBLEM 70
Suppose in the last Problem the contract between the dealer and Bluegown explicitly limits the remedy for breach to repair or replacement of defective parts. The dealer argues that all defects have been promptly and successfully repaired and that the remedy of revocation of acceptance is therefore unavailable to Bluegown. See §2-719(2); Durfee v. Rod Baxter Imports, Inc., 262 N.W.2d 349 (Minn. 1977); see also Andover Air Ltd. Partnership v. Piper Aircraft Corp., 1989 WL 110453 (D. Mass. 1989).
Under §2-719(2), if the contract limits remedies to repair or replacement, Bluegown may not revoke acceptance if those remedies have been effectively performed. Since the dealer argues that defects were repaired successfully, the revocation of acceptance is likely unavailable. Cases like Durfee v. Rod Baxter Imports and Andover Air Ltd. Partnership support this, as they uphold limited remedies when defects are promptly addressed.
Problem 71:
Arthur Author ordered an expensive computer (the ION #740) from ION Business Machines. ION sent him model #745, a newer and better version of the machine he had ordered, at the same price. When he saw the computer, he liked it and wrote them a letter of acceptance, enclosing a check in payment. However, when he began to use it, he was horrified to learn that the computer was turned on by a hidden switch under the front panel. Arthur Author’s father had lost a finger when he reached under a machine to activate it. Arthur had witnessed the accident as a child. Arthur sent a notice of revocation of acceptance to ION, stating that the #740 had a visible switch and explaining that the hidden switch on the #745 brought back childhood memories that kept him from wanting the computer. Does §2-608 permit him to revoke for this reason? See Official Comment 2. Is §2-508(2) relevant? How would you advise ION to respond to Arthur Author’s letter? See Annot., 98 A.L.R.3d 1183.
Arthur can likely revoke acceptance under §2-608 due to the hidden switch, which substantially impaired the computer’s value to him. §2-508(2) isn’t relevant here. ION should offer a replacement or refund, considering the personal impact of the hidden switch on Arthur.
PROBLEM 73
eans of the World, a retail clothing outlet in Helsinki, Finland, ordered 20 boxes of jeans from Grey Goods of Manhattan in New York, to be delivered September 1. Use the CISG to answer these questions:
(a)If the goods arrive on July 20, must Jeans of the World take them? See Article 52(1).
(b)If the goods arrive on the appointed date, but there are only 18 boxes, must Jeans of the World accept them? See Articles 25, 35, 49, and 51. Can the buyer get the other two boxes? See Article 46. If the buyer avoids the contract, can the seller reinstate it by delivering the missing two boxes? See Articles 48 and 49.
(c)If a flood causes water damage to the boxes before Jeans of the World tries to avoid the contract, does this affect its ability to do so? See Article 82.
(a) No, under Article 52(1) of the CISG, if the goods arrive before the agreed date, the buyer is not obligated to take them unless they accept delivery early.
(b) Jeans of the World must accept the 18 boxes, as the seller delivered less than the agreed amount, but this constitutes a breach of contract (Article 25). They can demand the remaining two boxes under Article 46. If they avoid the contract, the seller cannot reinstate it by delivering the missing boxes (Article 49).
(c) The water damage does not affect Jeans of the World’s ability to avoid the contract unless the goods were already accepted (Article 82). If the goods were not yet accepted, they can still avoid the contract.
PROBLEM 53
Edwin Drake wrote to the Watsons Flat Motor Oil Company and said that he wanted to buy 100 cases of its motor oil, some cases to be Type A (the expensive oil) and some to be Type B (a cheaper kind). He said he would let the company know later how much he wanted of each type. The company told him that Type B was selling for $30 a case, but that since the price of Type A was fluctuating, the sale price would have to be set by the company at the time of delivery. Drake agreed. The parties signed a written contract for the delivery of 100 cases, types to be specified by Drake one week prior to the delivery date, which was set for April 8. On April 1, the agent of the oil company called Drake to ask how much he would take of each type. Drake said, “April Fool! I’m not taking any,” and hung up the phone. The company p. 266calls you, its attorney, for advice. In the past dealings that it has had with Drake, he always has ordered 100 cases and has taken 50 to 65 percent in Type A and the rest in Type B. The usual price for Type A has been $50 a case, but due to a Middle East oil situation, the price has now jumped to $125 a case. What should the company do? See §§2-305, 2-311, 1-205; Citgo Petroleum Corporation v. US Lubes, LLC, 2014 WL 3887773 (E.D. Pa. 2014). If this were an international sale of goods under the CISG, what result? See Article 65. What if Drake had simply said, “April Fool!” and hung up? Is this a definite repudiation? See §§2-610, 2-611. What action can the oil company take to clear up Drake’s ambiguous statement? Read §2-609 and its Official Comment; see Pittsburgh-Des Moines Steel Co. v. Brookhaven Manor Water Co., 532 F.2d 572 (7th Cir. 1976). Would a seller have the right to adequate assurance of performance, if shortly before making the goods seller learned that buyer had a poor history of paying sellers? Starchem Laboratories, LLC v. Kabco Pharmaceuticals, Inc., 988 N.Y.S.2d 525 (2014).
Section 1-304 provides that every contract or duty within the Uniform Commercial Code “imposes an obligation of good faith in its performance and enforcement.” Many of the UCC provisions specifically require good faith. Good faith is defined in §1-201(b)(20) to include a subjective component (“honesty in fact”) and an objective component (“observance of reasonable commercial standards of fair dealing”). Courts often struggle to determine whether good faith limits a party’s ability to enforce the literal terms of the contract and the relevant provisions of the UCC.
PROBLEM 54
Bass Pro, a restaurant operator, signed a four-year food services agreement to purchase tenderized alligator meat from Big Pop’s Fresh Louisiana Seafood. The contract provided that “Bass Pro has the obligation to order and purchase from Big Pop’s Fresh Louisiana Seafood a minimum of 150,000 pounds of Product per year during the Terms of the Agreement.” Bass Pro used the alligator meat to make appetizers and entrees for its restaurants. The arrangement went as agreed, until the Covid-19 pandemic led to Bass Pro closing most of its restaurants and stopping its orders of tenderized alligator meat. Sued for breach of contract, Bass Pro contended that the contract was a requirements contract and so Bass Pro was entitled to make the good faith decision that it no longer required tenderized alligator meat. Is Bass Pro in breach? See §2-306; Big Pop’s Fresh Louisiana Seafood, LLC v. Bass Pro, LLC, 2022 WL 1018838 (W.D. Mo., 2022).
PROBLEM 55
A sales representative of Bailiff Equipment visited Bjarjur Jonnson’s farm to demonstrate a planter for the crops. The sales representative extolled the high-tech capabilities of the planter. The sales representative knew the planter had a defective hydraulic system and would fail after a few weeks of use. The sales representative allowed Jonnson’s mechanic to thoroughly examine the p. 280planter, knowing the latent defect would not be found even by an expert. Jonnson signed a contract to buy the planter on credit, with a conspicuous exclusion of all warranties, stating the planter was sold “AS-IS”. A few weeks later, the defect caused the hydraulic system to explode, destroying the planter. Jonnson refused to pay the price, and Bailiff Equipment pointed to the exclusion of warranty. Is the contract enforceable?
PROBLEM 56
Decide if identification per §2-501 has occurred in the following situations.
(a)Seller, a fisherman, contracts to sell his entire catch for the coming season. Does identification occur on the making of the contract, on the catching of the fish, or on their packaging with a label indicating they belong to this particular buyer? See Official Comment 6.
(b)Three Ring Circus contracted to sell the unborn calf of the circus’s elephant Nancy as soon as the calf was born; the contract was made when Nancy was two months pregnant. Does the identification occur on the date of contracting, on the calf’s birth, or when the calf is marked for shipment?
(c)Farmer Carl agreed to sell to Breakfast Cereals, Inc. one-half of the grain he had stored in Rural Silo, where Farmer Carl’s grain was mixed with that of other farmers. Does identification occur on contracting or on segregation of the grain? Read Official Comment 5. See §§2-105(3), 2-105(4).
(d)Wonder Widgets contracted to sell 5,000 widgets to a buyer. Its warehouse contained 2 million widgets, all alike. Does identification occur on contracting or when the goods are picked out and marked as pertaining to this contract?
(e)Laputa agreed to sell its wrecked helicopter to Sheeta, and agreed to repair it extensively before delivery. After Sheeta paid the contract price but before Laputa did any repairs, Laputa filed bankruptcy. When would the helicopter be identified to the contract: at the time of contracting (meaning title would pass to Sheeta) or not until the helicopter was repaired (meaning that it would stay in the bankruptcy estate)? See In re Phoenix Heliparts Inc., 2018 WL 2107796 (B.A.P. 9th Cir. 2018).
PROBLEM 57
William College bought a car from Honest John, the friendly car dealer. He paid the price in full, and Honest John promised delivery on the next Monday. On Monday the car was ready, and Honest John phoned College and said, “Take it away.” College said he was busy and that he would pick it up the next day, to which Honest John agreed. That night the car was stolen from the lot due to no fault of Honest John, who had taken reasonable precautions against such a thing. Who had the risk of loss? See §2-509(3) and Official Comment 3. Ramos v. Wheel Sports Center, 96 Misc. 2d 646, 409 N.Y.S.2d 505 (Civ. Ct. 1978). Might Honest John claim he was a bailee so that §2-509(2) applies? See White & Summers §5-3; Galbraith v. American Motor Home Corp., 14 Wash. App. 754, 545 P.2d 561 (1976).
PROBLEM 58
Janice Junk decided to hold a garage sale to clean up her home and get some extra cash. In the course of the sale, which was a huge success, her neighbor, Barbara Bargain, offered Junk $200 for her piano, and the two women shook hands. Junk said to Bargain, “Take it away. It’s yours.” Bargain replied that she would come to get it the next day with four strong friends and a truck. That night Junk’s home burned to the ground, and the piano was destroyed. Did the risk of loss pass from Junk to Bargain? See §2-503. If p. 282Bargain never picked up the piano and if it was destroyed in a fire six months after the sale, what result? See §2-709(1)(a).
Section 2-509(3) applies only when §2-509(1) or §2-509(2) does not.
In many contracts where the goods are in an independent warehouse, the seller must arrange for the warehouse company (bailee) to change its records to show the buyer as the new owner. Subsection (2) of §2-509 sets out the rules as to when the risk of loss passes to the buyer in such a situation. In essence, the risk of loss rests on whoever has control over the bailee. Read §2-509(2).
Since understanding Subsection (2) of §2-509 depends in large part on understanding the nature of warehouse receipts and delivery orders, both negotiable and nonnegotiable, risk of loss under §2-509(2) will be covered in greater depth later in the book, in the Article 7 chapter.
In some contracts, the seller is required to ship the goods by independent carrier to the buyer. Such transportation contracts are governed by §2-509(1). Read that section. Note that in transportation contracts the test as to when the risk passes depends on whether the contract requires the seller to “deliver [the goods] at a particular destination.” How do you know whether the contract requires the seller to deliver the goods to the buyer or merely to see that they are delivered to the carrier? The next section deals with that issue.
PROBLEM 59
Seller in New York City contracted to sell 80 boxes of clothing to buyer in Savannah, Georgia. The delivery term was “$1,800 F.A.S. S.S. Seaworthy, N.Y.C.” Seller delivered the 80 boxes to the dock alongside the S.S. Seaworthy and received a bill of lading from the ship as a receipt. Before the boxes could be loaded, the dock collapsed, and everything thereon disappeared into the water. Under §2-319(2) must buyer pay the $1,800 anyway? What if the delivery term had been “Ex-ship S.S. Seaworthy, Savannah,” and the boxes had been properly unloaded just before the dock collapsed? Would §2-322 make the buyer pay?
PROBLEM 60
Seller in Detroit, Michigan, contracted to sell and ship 50 automobiles to buyer in Birmingham, Alabama. Assume lightning strikes, destroying the p. 284vehicles after the carrier has received them but before they are loaded on board the railroad car that was to take them to Birmingham. Who had the risk of loss if (a) the contract said, “F.O.B. Detroit”? (see §2-319(1)(a)); (b) the contract said, “F.O.B. railroad cars Detroit”? (see §2-319(1)(c) and Pagano v. Occidental Chem. Corp., 629 N.E.2d 569 (Ill. App. 1994)); or (c) the contract said, “C.I.F. Birmingham”? (see §2-320). If the buyer had inspected the automobiles and accepted them at the factory, would the risk shift to buyer or remain on seller until the automobiles reached the railroad cars? See Southern Recycling, LLC v. Gibbs International, Inc., 2016 WL 1258402 (D.S.C. 2016).
PROBLEM 61
The dispatcher for Perfect Pineapples, Inc., had just finished loading five boxcars of the company’s product on board the cars of an independent railroad carrier when he received a notice from PPI’s sales department that the company had agreed to sell one boxcar load to Grocery King Food Stores “F.O.B. seller’s processing plant.” The dispatcher agreed to divert one of the boxcars to Grocery King, but before he could do so, a hurricane destroyed all five boxcars and their contents. Who bears the risk of loss? See Official Comment 2 to §2-509 and §2-501.
PROBLEM 62
The University of Beijing in China ordered video equipment to be shipped from Applied Technology, Inc., in San Jose, California. If nothing is said about the subject, as a matter of international law, will this create a shipment or a destination contract? See CISG Articles 67 and 69. If the parties had been negotiating for the purchase of this equipment but had not gotten around to signing the contract until the goods were already on board an airplane crossing the Pacific Ocean, does the buyer have the risk of loss only from the moment of the signing of the contract or from the delivery of the equipment to the air carrier? See Article 68.
Problem 75: PROBLEM 75
The Lamia Museum’s director, Mandrake Griffin, ordered three new pieces for the museum: an Egyptian sphinx, an Old World gargoyle, and an Etruscan statue of a centaur. These objets d’art were purchased under separate contracts from Empusa Exports of London, England. All were to be shipped “F.A.S. S.S. Titanic” on or about April 9, on their way to the museum, which was located in New Jersey. The parties agreed that New Jersey law would apply. Prior to April 9, Empusa Exports received a call from Griffin cancelling the purchase of the centaur statue. Empusa protested the cancellation, but agreed to ship the other two pieces. Empusa’s manager discovered that the sphinx was a phony, but kept her mouth shut and shipped it anyway. She also discovered that the gargoyle’s condition was such that it could not survive the exposure to sea air, so she decided to send it by air in spite of the contract’s F.A.S. Titanic term. This decision proved wise since the Titanic encountered an obstacle on its sea voyage and foundered, taking the sphinx with it. The gargoyle arrived in good condition, and Griffin wrote a letter to Empusa accepting the gargoyle and enclosing the museum’s check. A week later Griffin learned that the gargoyle was not from the “Old World,” but instead had been cast in Hoboken many years ago, had somehow found its way to Europe, and now was home again. He sent Empusa a letter demanding that the museum’s money be returned and stating that he canceled the sale. Before Empusa could respond, two things happened: the museum burned to the ground, and the centaur statue was stolen from Empusa’s warehouse (through no fault of Empusa, which was not negligent in guarding it). Both the museum and Empusa were fully insured. Answer these questions:
(a)By shipping the other two objects after the museum refused to take the centaur statue, did Empusa waive its right to sue for the repudiation? See §§2-209(1), 2-106(3), 2-106(4). Would §1-308 have helped Empusa? What should it have done to use this section?
(b)Which party took the risk of loss on
(1)the centaur?
(2)the sphinx?
(3)the gargoyle?
p. 362
(c)When Empusa shipped the gargoyle by air instead of by sea, could Lamia have treated this as an imperfect tender and rejected the gargoyle for that reason? See §§2-503(1), 2-503(2), 2-504, 2-614.
(d)The Lamia Museum’s insurance policy with the Pegasus Insurance Company contains two clauses relevant to §2-510. One provided that on payment of a claim the insurance company was subrogated to any claim its insured had against any other person. The other stated that the policy should not be deemed to provide protection for any claim where the risk of loss rested with another person. What is the effect of these provisions? See Official Comment 3 to §2-510; White & Summers §5-7.
PROBLEM 76
Virgil Escapement had always wanted a sundial for his garden, and he ordered one for $250 from Horology Timepieces, Inc. The latter had 12 sundials of the type Escapement ordered in its storage room when an earthquake shook the building. All 12 fell over, and all but 3 were smashed. The remaining three were slightly damaged. Escapement, on being informed of the problem, insisted on the right to look over the three remaining sundials and to select one for his purchase, possibly at a reduced price due to the damage. Horology comes to you. Is §2-613 or §2-615 relevant? Must it let Escapement pick out a sundial, and must it offer to let him purchase at a reduced price, or can it simply cancel without fear of legal liability? For the test for impossibility of performance in international sales, see CISG Article 79; cf. Articles 71 and 72.
If the agreed-upon delivery or payment means become unavailable, §2-614 may require use of a substitute. See Macromex v. Globex International, 330 Fed. Appx. 241 (2d Cir. 2009) (under §2-614 Romanian importation ban triggered obligation to change delivery location where original facilities unavailable).
PROBLEM 77
Suppose the following, using the basic facts of the last Problem. When Horology received Virgil’s order, one of their salespersons immediately put a red tag on one of the sundials. It said, “Hold for Virgil Escapement.” Then the earthquake occurred, and miraculously only Virgil’s sundial was destroyed. The other 11 sundials, all exactly like Virgil’s, were undamaged. When Virgil demanded his sundial, Horology pleaded §2-613. Will that section excuse them? See Valley Forge Flag Co. v. New York Dowel & Molding Import Co., 90 Misc. 2d 414, 395 N.Y.S.2d 138 (Civ. Ct. 1977).
PROBLEM 78
In the mid-1960s, in an effort to boost sales of its nuclear reactors, Westinghouse Corporation agreed to sell 27 utility companies 80 million pounds of uranium over the next 20 years. The average sale price per pound was $10. When Westinghouse made the sale, it actually owned only 15 million pounds of uranium. By the mid-1970s, the price of uranium had risen to $40 a pound. In late 1975, Westinghouse announced that it would not honor its contract. The utilities sued. Westinghouse argued that the best evidence in the late 1960s and early 1970s indicated uranium prices would be stable over the long term. The Corporation claimed that the price rise was unforeseeable and that the contracts were excused under §2-615 as “commercially impracticable.” In particular, Westinghouse blamed the 1973 oil embargo and worldwide price fixing for the “unpredictable” price rises. See Official Comments 4 and 5 to §2-615. How should the dispute be resolved? See Publicker Indus. v. Union Carbide Corp., 1975 WL 22890 (E.D. Pa. 1975); Ecology Services, Inc. v. Granturk Equipment, Inc., 443 F. Supp. 2d 756 (D. Md. 2006); Eagan, The Westinghouse Uranium Contracts: Commercial Impracticability and Related Matters, 18 Am. Bus. L.J. 281 (1980); Rochester Gas and Electric Corporation v. Delta Star, Inc., 2009 WL 368508 (W.D.N.Y. 2009) (seller of goods at a fixed price was not relieved of obligation where p. 367price of component increased due to Hurricane Katrina). If you could advise Westinghouse on how to avoid this problem in the future, what would you suggest? See §2-305.
