Statute of Frauds, Interpretation, Performance

Question 1

What is the general rule concerning a writing requirement?

Answer 1

Generally, a contract need not be in writing and oral and written agreements are equally enforceable.

Question 2

How does Statute of Frauds apply to the general rule?

Answer 2

The Statute of Frauds is an exception to the general rule.

Question 3

What is the general rule of the Statute of Frauds?

Answer 3

A contract within the Statute of Frauds is not enforceable absent a writing signed by the party against whom the enforcement is sought.

Question 4

What is the approach to a Statute of Frauds issue?

Answer 4

1. Does the agreement fall within the Statute of Frauds?
2. If it does, is the Statute of Frauds satisfied?
3. If it does not satisfy the Statute of Frauds, is alternative enforcement available?

Question 5

To what six categories does the common law Statute of Frauds apply?

Answer 5

MYLEGS:
Marriage contracts;
Contracts not to be performed within one Year of their making;
Contracts for the sale of Land;
Contracts of an Executor or administrator to answer for a duty of a decedent;
Contracts of Guarantee or suretyship; and
Contracts for the Sale of goods of $500 or more.

Question 6

What rules govern the determination of a One Year Contract?

Answer 6

The year at issue begins at the date of the formation of the contract.

To determine if the contract can be performed within one year, ask whether, at the formation, if it is at all possible to complete the required performance within a year’s time.

A majority of jurisdictions say that an employment contract is not governed by the one-year provision.

Question 7

What rules govern the writing requirement of Land-Sale contracts?

Answer 7

A land-sale contract provision applies to a contract for sale at a future time. Present conveyances do not fall within the land-sale provision of the Statute of Frauds.

Question 8

What rules govern the writing requirement of Guaranty/Suretyship Contracts?

Answer 8

There are two exceptions to the writing requirement:

1. When the creditor discharges the original debtor from his obligation o the faith of a guarantee by a third party to pay the debt, the guarantee agreement is not governed by the Statute of Frauds.
2. Under the main purpose doctrine, if the main purpose of the guarantor’s promise is to protect or promote his own economic interests, rather than the interests of the debtor, then the agreement is not within the Statute of Frauds.

Question 9

What if a contract falls within the Statute of Frauds categories?

Answer 9

Generally, the contract will be unenforceable unless evidenced by a writing signed by the party against whom enforcement is sought.

Question 10

What is the writing requirement of the Statute of Frauds?

Answer 10

There is no requirement that the parties put the entire agreement into writing; rather all that is necessary is that the writing be a memorandum of the agreement which can be prepared before, during, or after contract formation.

For example: a letter describing the agreement; the written offer, or a letter repudiating the agreement, so admitting it.

Question 11

What terms are required in the memorandum for the common law Statute of Frauds?

Answer 11

1. Identity of the parties;
2. The nature and subject matter of the contract; and
3. The essential terms of the agreement.

Question 12

What is the signature requirement of the Statute of Frauds?

Answer 12

The actual signature is not required or necessary.

Any symbol, mark, or letterhead, if used with the intention to authenticate the writing, will suffice.

Question 13

Are multiple writings allowed under the Statute of Frauds?

Answer 13

A single document is not required. A party may satisfy the Statute of Frauds by tacking several documents which, once combined, satisfy all the necessary requirements for the Statute of Frauds.

If all documents are signed, or if a signed document incorporates an unsigned document by reference, then the Statute of Frauds is satisfied.

If unsigned documents are not incorporated by reference by a signed document, tacking together the signed and unsigned documents to satisfy the Statute of Frauds is permissible if:

1. There must be at least one signed writing unambiguously establishing a contractual relationship between the parties.
2. The signed and unsigned documents clearly refer to the same subject matter.
3. There is clear and convincing evidence of acquiescence to the unsigned documents by the party whom enforcement is sought.

Question 14

When can the Statute of Frauds be satisfied by part performance?

Answer 14

In Land Contracts, Part performance will make an oral contract for the sale of land enforcement only in two situations:

1. Buyer against Seller; and
2. Specific performance.

Part performance can be shown by two or more of the following:

1. Payment all or part of the purchase price;
2. taking possession; or
3. making substantial improvements to the property.

In One Year Contracts, Full performance of an oral contract for services by the party performing the services will make the contract enforceable against the paying party. Part performance is not compensable, but under quantum meruit, a performing party may recover for the reasonable value of the services rendered.

Question 15

What are the alternative bases for enforcement if the Statute of Frauds is not satisfied?

Answer 15

1. Recovery for Benefits Conferred - Where one party bestows benefits upon another in connection with an oral contract, even if the enforcement is barred by the Statute of Frauds, the aggrieved party may recover something. This can be done through restitution, or under quantum meruit.
2. Promissory estoppel - Where a party suffers losses in reliance on an oral contract, but the enforcement of that contract is barred under the Statute of Frauds, the party may be able to recover damages via promissory estoppel. Majority say that there must be strong evidence of reliance. Minority of jurisdictions say that promissory estoppel is preempted by the Statute of Frauds.

Question 16

How does the UCC Section 2-201 change the common law Statute of Frauds? What is UCC Section 2-201?

Answer 16

Section 2-201 governs the Sale of Goods for $500 or more. The UCC provides five ways to satisfy the UCC Statute of Frauds.

Section 2-201: “(1) Except as otherwise provided in this section, a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.

(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.
(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable:
(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’sbusiness and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or
(b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goodsadmitted; or
(c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606).

Question 17

In short, what does UCC Section 2-201 require to satisfy the Statute of Frauds?

Answer 17

1. Signed Writing:
   a. A writing - Any intentional reduction of the agreement to tangible form.
   b. Signed by the party against whom enforcement is sought - Signature is any symbol executed or adopted by a party with present intention to authenticate a writing.
   c. Sufficient to indicate a contract for sale has been made between the parties - All that is required is a basis for believing that the offered oral evidence rests on a real transaction.
   d. Quantity term - A quantity term is required. EXCEPTIONS: 1. Where other language in the writing provides an unambiguous basis for measuring quantity. 2. Output or requirements contracts.
   e. Written offers - A written offer does not satisfy the writing requirement. However, a firm offer is enforceable.
2. Merchant’s Confirmation:
   a. Between two merchants
   b. Confirmation has to be sufficient against the sender - Signed and contains a quantity term.
   c. The writing is in confirmation of the contract.
   d. Timeframe for sending - It must have been sent within a reasonable time.
   e. Recipient’s has reason to know - It must be based on a real agreement. EXCEPTION: Recipient must send a written notice of objection within 10 days of receipt.
3. In-Court Admission - A party admits in his pleading, testimony, or in court that a contract for sale was made.
4. Partial Performance - A valid contract is enforcement with respect to:
   a. goods for which payment has been made and accepted, or
   b. goods which have been received and accepted. If divisible goods, enforcement up to the quantity actually delivered or paid for. If indivisible goods, partial payment renders the contract enforceable.
5. Specially Manufactured Good - Five elements: goods are to be specially manufactured for the buyer; goods are not suitable for sale to others in ordinary course of seller’s business; seller has substantially begun to manufacture, or procure, the goods; the actions undertaken reasonably indicate that the goods are for the buyer; and the actions undertaken occurred before seller received notice of buyer’s revocation.

Question 18

Are there any alternative bases for enforcement under the UCC Statute of Frauds?

Answer 18

Yes. A majority of courts hold that promissory estoppel is available as a workaround if a strong case is shown. A minority hold that the express language of the UCC Statute of Frauds precludes promissory estoppel.

Question 19

What are the limitations of the Statute of Frauds?

Answer 19

1. The oral contract may provide evidence in establishing an element of another legal claim apart from breach of contract.
2. The oral contract may provide evidence establishing a defense to a legal claim apart from breach of contract.
3. The oral contract may provide evidence of the value of the services already rendered.

Question 20

What is the UCC’s Warranty of Title?

Answer 20

Section 2-312: “(1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that:

(a) the title conveyed shall be good, and its transfer rightful; and
(b) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge. (2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have. (3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications.

Question 21

What is the UCC’s Warranty of Merchantability?

Answer 21

Section 2-314: “(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.

(2) Goods to be merchantable must be at least such as:
(a) pass without objection in the trade under the contract description; and
(b) in the case of fungible goods, are of fair average quality within the description; and
(c) are fit for the ordinary purposes for which such goodsare used; and
(d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
(e) are adequately contained, packaged, and labeled as the agreementmay require; and
(f) conform to the promise or affirmations of fact made on the container or label if any.
(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade.

Question 22

What is the UCC’s Warranty of Fitness for a Particular Purpose?

Answer 22

Section 3-315: “Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.”

Question 23

How can a seller exclude or modify implied warranties under the UCC?

Answer 23

Section 2-316: “(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable.

(2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.”
(3) Notwithstanding subsection (2):
(a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is”, “with all faults” or other language which in common understanding calls the buyer’sattention to the exclusion of warranties and makes plain that there is no implied warranty; and
(b) when the buyer before entering into the contract has examined the goodsor the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and
(c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.
(4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy (Sections 2-718 and 2-719).

Question 24

How can a seller create an express warranty under the UCC?

Answer 24

Section 2-313: “(1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty."

Question 25

What are the UCC default rules for missing terms?

Answer 25

Missing Price Term:

Section 2-305: “(1) The parties if they so intend can conclude a contract for saleeven though the price is not settled. In such a case the price is a reasonable price at the time for delivery if:

(a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith. (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price. (4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the sellermust return any portion of the price paid on account."

Missing Time Term:

Section 2-309: “(1) The time for shipment or delivery or any other action under a contractif not provided in this Article or agreed upon shall be a reasonable time.

(2) Where the contractprovides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.
(3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreementdispensing with notification is invalid if its operation would be unconscionable.”

Place of Delivery Term:

Section 2-308: “Unless otherwise agreed:

(a) the place for delivery of goods is the seller's place of business or if he has none his residence; but
(b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and
(c) documents of title may be delivered through customary banking channels."

Question 26

What are the common law default terms?

Answer 26

Missing Price Term:

The default rule for a missing price term is the reasonable value of the services rendered.

Missing Duration Term:

In employment contracts, the default rule is the employment-at-will.

Question 27

What is the obligation of good faith and fair dealing?

Answer 27

Both the UCC and the common law (Restatement) impose an obligation of good faith in the performance and enforcement of contracts.

“Good Faith” means, generally, “honesty in fact. For merchants, “good faith” means “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.

Question 28

How is the obligation of good faith and fair dealing applied?

Answer 28

For an open price term, the party specified to fix the price must do so in good faith. See UCC Section 2-305.

For a satisfaction term, the good faith obligation operates to require the party making the determination to do so in good faith.

For an open quantity term, in the UCC, the party responsible for determining the particular quantity of goods must make that determination in good faith. In addition, the UCC prohibits any unreasonably disproportionate demand or tender if there was either: 1. a stated estimate made between the parties; or 2. any comparable prior outputs or requirements.

Question 29

What is an output and requirement contract under the UCC?

Answer 29

Section 2-306: “(1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.”

Question 30

In interpreting a contract, what meaning is given effect?

Answer 30

The objective meaning of the language trumps the subjective meaning.

EXCEPTIONS:
1. Where one party harbors a subjective understanding of a term that differs from the objective understanding and the other party knows or has reason to know of the subjective understanding, the subjective understanding will control

2. Where the evidence demonstrates that both parties shared the subjective understanding of the term at the time of contracting, the mutual subjective understanding will control.

Question 31

What is the Rule of Contra Proferentem?

Answer 31

If an ambiguous term is included in the contract, then it is construed against the drafter.

Question 32

What is the Doctrine of Reasonable Expectations?

Answer 32

Even unambiguous terms are construed against the drafter if they conflict with the reasonable expectations of the other party.

This doctrine only applies to boilerplate terms.

Question 33

What are three extrinsic evidence types?

Answer 33

1. Course of Performance - When a particular contract involves repeated occasions for performance by a party and the other party, with knowledge of its nature and opportunity to object, accepts the performance.

Course of Dealing - Conduct concerning the previous transactions between the parties that is fairly to be regarded as establishing a common basis of understanding for interpreting their subsequent expressions and other conduct.

Usage of Trade - Any practice or method of dealing having such regularity of observance in a place or trade as to justify an expectation that it will be observed with respect to the transaction.

Question 34

When are these extrinsic evidence types admissible and inadmissible?

Answer 34

They are admissible to fill in gaps and resolve ambiguities.

They are not admissible to contradict the express terms of the contract.

Course of performance can be used to establish a waiver or modification of express terms.

Question 35

What is parol evidence? And, what is the parol evidence rule?

Answer 35

Both oral and documentary evidence of negotiations and other communications between the parties that took place prior to, or contemporaneously with, the execution of the contract.

The parol evidence rule governs when this evidence is admissible.

Question 36

What is the parol evidence rule approach?

Answer 36

1. What is the purpose for which the evidence is being introduced?
2. Does the evidence relate to a term or contract which is integrated?

Question 37

What is integration?

Answer 37

Full/partial integration means that the terms contained within the contract are intended to be the final discussion of the parties as to those specific terms.

Complete integration means that the parties intend the contract to represent the complete and exclusive statement of all the terms.

Question 38

How do you determine partial or complete integration?

Answer 38

A merger clause is the most important evidence that the writing contains the complete and entire agreement (complete integration).

The detail of the contract provisions and the length of the agreement are important factors.

Question 39

What are the purposes for which parol evidence is introduced?

Answer 39

1. To explain or interpret the terms;
2. To supplement the terms; or
3. To contradict the terms.

Question 40

When is parol evidence admissible?

Answer 40

Parol evidence is always admissible to explain or interpret a written contract.

Parol evidence is admissible to supplment terms unless the contract is completely integrated. NOTE: Under the UCC, course of performance, etc., can supplement a completely integrated agreement.

Parol evidence is not admissible to contradict terms if the terms are partially integrated.

Question 41

When will the parol evidence rule not apply?

Answer 41

1. Subsequent Agreements
2. Collateral Agreements
3. Attacks on the Validity of the Written Agreement -
   a. failure of an oral condition precedent;
   b. absence of consideration;
   c. mistake or duress;
   d. fraud; or
   e. reformation.

Question 42

What are the obligations of buyers and sellers under the UCC Section 2-301?

Answer 42

The seller’s obligation is to transfer and deliver the goods.

The buyer’s obligation is to accept and pay for the goods.

Section 2-301: “The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.”

Question 43

How are carrier cases and non-carrier cases different?

Answer 43

A carrier case is where the parties agree to use a common carrier. A non-carrier case is where the parties do not agree to use such a common carrier.

In non-carrier cases:

1. If the seller is not a merchant, the risk of loss passes to the buyer upon tender of delivery.
2. If the seller is a merchant, the risk of loss is passes to the buyer when the goods are in physically in the buyer’s possession.

In carrier cases, there are shipment contracts (a contract where the seller promises to turn the goods over to a carrier) and destination contracts (a contract where the seller promises to tender delivery at a particular destination point).

If the contract is silent, the default rule is that the contract is a shipment contract.

Under a shipment contract, the risk of loss passes to the buyer when the goods are delivered to the carrier. Under a destination contract, the risk of loss passes to the buyer when the goods are tendered at the destination point specified in the contract.

Question 44

What is UCC Section 2-503?

Answer 44

“(1) Tender of delivery requires that the seller put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this Article, and in particular:

(a) tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but
(b) unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods. (2) Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions. (3) Where the selleris required to deliver at a particular destination tender requires that he comply with subsection (1) and also in any appropriate case tender documents as described in subsections (4) and (5) of this section. (4) Where goods are in the possession of a bailee and are to be delivered without being moved:
(a) tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer's right to possession of the goods; but
(b) tender to the buyer of a non-negotiable document of title or of a written direction to the bailee to deliver is sufficient tender unless the buyer seasonably objects, and receipt by the bailee of notification of the buyer's rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the non-negotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender. (5) Where the contract requires the seller to deliver documents:
(a) he must tender all such documents in correct form, except as provided in this Article with respect to bills of lading in a set (subsection (2) of Section 2-323); and
(b) tender through customary banking channels is sufficient and dishonor of a draft accompanying the documents constitutes non-acceptance or rejection.

Question 45

What is UCC Section 2-504?

Answer 45

“Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must:
(a) put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and
(b) obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and
(c) promptly notify the buyer of the shipment.
Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material delay or loss ensues.”

Question 46

What is UCC Section 2-319?

Answer 46

“(1) Unless otherwise agreed the term F.O.B. (which means “free on board”) at a named place, even though used only in connection with the stated price, is a delivery term under which:

(a) when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this Article (Section 2-504) and bear the expense and risk of putting them into the possession of the carrier; or
(b) when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this Article (Section 2-503);
(c) when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this Article on the form of bill of lading (Section 2-323). (2) Unless otherwise agreed the term F.A.S. vessel (which means "free alongside") at a named port, even though used only in connection with the stated price, is a delivery term under which the seller must:
(a) at his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer; and
(b) obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading. (3) Unless otherwise agreed in any case falling within subsection (1)(a) or (c) or subsection (2) the buyer must seasonably give any needed instructions for making delivery, including when the term is F.A.S. or F.O.B. the loading berth of the vessel and in an appropriate case its name and sailing date. The seller may treat the failure of needed instructions as a failure of cooperation under this Article (Section 2-311). He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment. (4) Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents."

Question 47

What is UCC Section 2-511?

Answer 47

“(1) Unless otherwise agreed tender of payment is a condition to the seller’s duty to tender and complete any delivery.

(2) Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.
(3) Subject to the provisions of this Act on the effect of an instrument on an obligation (Section 3-802), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.”

Question 48

What is UCC Section 2-512?

Answer 48

“(1) Where the contract requires payment before inspection non-conformity of the goods does not excuse the buyer from so making payment unless:

(a) the non-conformity appears without inspection; or
(b) despite tender of the required documents the circumstances would justify injunction against honor under the provisions of this Act (Section 5-114). (2) Payment pursuant to subsection (1) does not constitute an acceptance of goods or impair the buyer's right to inspect or any of his remedies."

Question 49

What is UCC Section 2-513?

Answer 49

“(1) Unless otherwise agreed and subject to subsection (3), where goods are tendered or delivered or identified to the contract for sale, the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner. When the seller is required or authorized to send the goods to the buyer, the inspection may be after their arrival.

(2) Expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected.
(3) Unless otherwise agreed and subject to the provisions of this Article on C.I.F. contracts (subsection (3) of Section 2-321), the buyer is not entitled to inspect the goods before payment of the price when the contract provides:
(a) for delivery “C.O.D.” or on other like terms; or
(b) for payment against documents of title, except where such payment is due only after the goods are to become available for inspection.
(4) A place or method of inspection fixed by the parties is presumed to be exclusive but unless otherwise expressly agreed it does not postpone identification or shift the place for delivery or for passing the risk of loss. If compliance becomes impossible, inspection shall be as provided in this section unless the place or method fixed was clearly intended as an indispensable condition failure of which avoids the contract.”

Question 50

What is UCC Section 2-509?

Answer 50

“(1) Where the contract requires or authorizes the seller to ship the goods by carrier:

(a) if it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation (Section 2-505); but
(b) if it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery. (2) Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer:
(a) on his receipt of a negotiable document of title covering the goods; or
(b) on acknowledgment by the bailee of the buyer's right to possession of the goods; or
(c) after his receipt of a non-negotiable document of title or other written direction to deliver, as provided in subsection (4)(b) of Section 2-503. (3) In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery. (4) The provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on approval (Section 2-327) and on effect of breach on risk of loss (Section 2-510)."

Question 51

What is UCC Section 2-510?

Answer 51

“(1) Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the selleruntil cure or acceptance.

(2) Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the sellerfrom the beginning.
(3) Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the sellermay to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time.”

Question 52

What is the preexisting duty rule?

Answer 52

A promise to increase compensation under an existing contract is an unenforceable modification to an existing contract because there is no consideration.

Question 53

What are the exceptions to the preexisting duty rule?

Answer 53

A promise to increase compensation under an existing contract is enforceable as a mutual modification if:

1. both parties agree to a performance that is different from the one required by the original contract, and
2. the difference in the performance is not a mere pretense of a newly formed bargain.

The preexisting duty rule will not apply if a promise is increased compensation is given in exchange for a promised performance that has been rendered substantially more burdensome than reasonably anticipated by the parties when they entered into the contract.

Question 54

How does the UCC change the common law modification rules?

Answer 54

The preexisting duty rule is abolished and there is no need for new consideration. However, the modification must meet the good faith test.

Even with consideration, a bargained-for modification is unenforceable if the mutual bargain was merely a pretext to hide bad faith.

Question 55

What is UCC Section 2-209?

Answer 55

“(1) An agreement modifying a contract within this Article needs no consideration to be binding.

(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions.
(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

Question 56

When is performance excused under a contract?

Answer 56

1. Mistake
2. Impossibility
3. impracticability
4. frustration of purpose

Question 57

When is there mistake?

Answer 57

The mistaken facts must significantly impact the value of the transaction to one or both parties.

Unilateral Mistake:

A single party operating under a faulty assumption about one or more material facts as they exist that the time of contracting.
A unilateral mistake about present material facts is not excused from the contract unless:
1. the other party knew or had reason to know of the party’s mistake, or
2. there has been a serious clerical error (this does not apply if a. the error was caused by extreme negligence on the part of the party, or the other party relied on the clerical error).

Mutual Mistake:

Both parties have labored under a common faulty assumption regarding the present facts, there is a mutual mistake.
The contract will be voidable by the disadvantaged party where:
1. the mistaken assumption must relate to material facts;
2. the mistake must be made by both parties; and
3. the disadvantaged party did not bear the risk of mistake under the parties’ agreement.

Question 58

When is there impossibility?

Answer 58

1. The impossibility is objective; that is, when performance literally becomes impossible by anyone because of circumstances beyond the control of the parties. Including when the subject matter is destroyed; a personal services contract and the performing party has died or has become incapacitated; or supervening law or have rendered performance legally impermissible.
2. The contingency that creates the impossibility was not known to the parties at the time of making the contract.

EXCEPTIONS:

a. the doctrine will not apply where the parties have allocated the risk and provided remedial measures.
b. Performance is only temporarily impossible, then this will typically only suspend performance.

Question 59

When is there common law impracticability?

Answer 59

A promisor may be excused from performance where the following two elements are proven:

1. the contingency causing the impracticability was unforeseen; and
2. the increase in the cost or burden of performance would be far beyond what either party anticipated.

Question 60

How does the UCC change the common law impracticability?

Answer 60

The UCC provides that some contingencies do not excuse performance as impracticable. For example, increase cost alone unless the rise in cost is due to an unforeseeable contingency and alters the essential nature of performance. A rise or collapse in the market. Shortages caused by war or embargo. Local crop failure. Shutdowns of major sources of supply.

Question 61

When is there frustration of purpose?

Answer 61

Where a contingency occurs that dramatically reduces the value of performance.

The Modern Test:

1. The party’s principal purpose in entering the contract was frustrated;
2. The frustration was substantial in nature;
3. The nonoccurrence of the event precipitating frustration must have been a basic assumption.

Question 62

What is rescission?

Answer 62

The parties may agree to discharge each other’s remaining duties of performance under a contract that is at least executory on each side. Generally, consideration is provided for the discharge.

Question 63

What is accord and satisfaction?

Answer 63

Accord is a contract under which the obligee promises to accept substituted performance in satisfaction of the obligor’s existing duty.

Satisfaction is performance of the accord.and it will discharge the original duty.

Consideration is required for an accord. There may be sufficient consideration if:

1. where the accord involves an agreement for partial or substituted performance, the substituted performance differs significantly from the original performance.
2. where the accord involves agreement for partial payment, there is a good faith or bona fide doubt about the amount owed.

Question 64

What is anticipatory repudiation?

Answer 64

It is, prior to the time that performance is due under the contract, a party announces his intention not to perform, or circumstances make such an intention reasonably clear to the aggrieved party.

Question 65

What is an adequate assurance of performance?

Answer 65

If anticipatory repudiation cannot be established but there are reasonable grounds for insecurity, the insecure party may make a demand for adequate assurance of performance.

Under the UCC Section 2-609, the insecure must make the demand in writing.

Under common law, the demand can be made by oral communication or writing.

Upon making a demand, the insecure party may suspend its own contractual obligations so long as:

1. suspension is commercially reasonable, and
2. the insecure party has not yet received the agreed upon return for the performance in question.

The insecure party may suspend his own performance where the performing party:

1. does not respond to a demand for assurances within a reasonable time (30 days), or
2. does not respond in a manner that provides reasonable assurance to the party.

A failure to respond with reasonable assurances constitutes a repudiation of the contract by the non-responding party.

Question 66

What are the rights upon anticipatory repudiation?

Answer 66

The aggrieved party may:

1. cancel the contract and terminate all rights and obligations under it;
2. bring an action for damages or specific performances; or
3. ignore the repudiation and continue under the contract.

Question 67

Can a non-responding party retract the repudiation?

Answer 67

A party may retract the repudiation unless and until the other party:

1. acts in reliance on the repudiation;
2. positively accepts the repudiation by signifying this to the breaching party; or
3. commences a suit for damages or specific performance.

Question 68

What is UCC Section 2-609?

Answer 68

“(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.”

Question 69

What is UCC Section 2-610?

Answer 69

“When either party repudiates the contractwith respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may:

(a) for a commercially reasonable time await performance by the repudiating party; or
(b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and
(c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704)."

Question 70

What is UCC Section 2-611?

Answer 70

“(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.”

Question 71

What is a promissory condition?

Answer 71

It is where the contract performance is conditioned on the occurence of the promised performance by the other party.

Question 72

What is a pure condition?

Answer 72

It is where contract performance is conditioned on the occurrence of events beyond the control of either party.

Question 73

What are express conditions?

Answer 73

They are those which the parties expressly include in the provisions of the contract.

Question 74

What are implied conditions?

Answer 74

They are those created under common law or the UCC to address order of performance and rights upon breach when the parties haven’t done so expressly.

Question 75

What are the common law order of performance rules?

Answer 75

If the contract contains express conditions, then those specifications will control the order of performance.

If the contract is silent:

1. where one party’s performance requires a period of time to be completed and the other party’s performance does not, then the performance over time is treated as an implied condition of the latter.
2. Where the parties can exchange performance more or less simultaneously, then the performances are treated as concurrent conditions on each other.

Question 76

What are the UCC order of performance rules?

Answer 76

The parties are free to specify the order of performance, and where the contract does, the performance obligations under the contract will be performed according to the contractual terms.

Because sales contracts most commonly involve delivery and payment of goods, performance is treated as concurrent and so each performance is conditioned on the performance of the other.

Question 77

What happens in the event of a failure of an express condition?

Answer 77

The failure of an express condition will discharge the party’s obligation to perform.

Question 78

When are failed express conditions excused?

Answer 78

1. Waiver - The party who has been discharged from performing may waive the right to discharge and perform anyway.
2. Bad faith conduct - When a party acts in bad faith so as to prevent the condition, that party’s performance obligation will not be discharged.
3. Gross Forfeiture - Courts will excuse a performance obligation so as to avoid a grossly disproportionate loss to a party for a relatively minor infraction.

Question 79

What happens in the event of a failure of an implied condition?

Answer 79

When the possibility of breach is not addressed by an express condition, it is still a breach; however, courts can treat the breach either as a:

1. material breach, or
2. substantial performance.

Question 80

When is a breach a material breach?

Answer 80

If the breach is serious enough, the court will treat the breach in same way as a failure of an express condition. It is a material breach, and the aggrieved party is generally discharged from his own performance obligations.

Question 81

When is a breach treated as substantial performance?

Answer 81

If the breach is less serious, the court will treat the party’s performance as close enough. It is substantial performance, and the aggrieved party will not be discharged.

Question 82

How is a material breach and substantial performance distinguished?

Answer 82

1. the extent to which the aggrieved party will be deprived of the benefit that she reasonably expected to receive under the contract;
2. the extent to which the aggrieved party can adequately be compensated via damages for the defective performance;
3. the extent to which the breaching party will suffer forfeiture if a material breach is found;
4. the likelihood that the breaching party will cure his failure; and
5. the extent to which the breach was willful or in bad faith rather than merely negligent or innocent.

Question 83

What happens if a failed condition cannot be excused?

Answer 83

Where a condition has failed and cannot be excused, there are other methods of enforcement available to mitigate the consequences for the breaching party.

Question 84

What happens if a contract is divisible?

Answer 84

If a contract requires both parties to render a series of performances over a period of time, the contract may be divisible in the event of a failed condition.

The failed condition must not be material to the contract itself, but must relate to a small portion of the contract performance in order for the contract to be severable into separate transactions, allowing the breaching party to recover for portions properly performed.

Question 85

When is a contract divisible?

Answer 85

The legal test for determining whether a contract is divisible is:

1. Can the performance in question be apportioned into corresponding pairs of parties’ performances?
2. Can each pair be properly regarded as agreed equivalents?

Question 86

Under the UCC, what is the perfect tender rule?

Answer 86

Under the perfect tender rule, the terms of a contract for the sale of goods are enforced exactly. Every contract term is thus treated as an express condition, and a breach of the performance obligation by the seller will relieve the payment obligation of the buyer.

The seller is in breach if the goods fail in any respect to conform to the contract.

Question 87

What can a buyer do under the UCC if the seller fails to make a perfect tender?

Answer 87

Reject the Goods:

To reject the buyer must exercise the the right of rejection within a reasonable time after delivery and notify the seller.

Once there is a rejection, the buyer may bring an action for damages against the seller on account of the imperfect tender, unless cure applies.

If there is no rejection, the failed rejection will be deemed an acceptance.

Accept the Goods:

To accept the goods, the buyer signifies by:

1. stating to the seller that the goods conform;
2. taking the goods despite non-conformance;
3. failing to make an effective rejection; or
4. taking any action inconsistent with the seller’s ownership of the goods.

Here, the Buyer must pay the contract price. Also, the buyer may seek damages for the non-conformity so long as the seller has been seasonably notified.

Buyer can revoke acceptance if there is a non-conformity that substantially impairs the value of the goods and if:

1. the reason for the acceptance was that the buyer was unaware of the non-conformity, or
2. the seller assured the buyer that a known non-conformity would be cured but the seller failed.

Accept Part and Reject Part

When accepting part and rejecting part, the buyer can only do so in terms of commercial units of that good.

Question 88

What is UCC Section 2-601?

Answer 88

“Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may:

(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest."

Question 89

What is UCC Section 2-602?

Answer 89

“(1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller.

(2) Subject to the provisions of the two following sections on rejected goods (Sections 2-603 and 2-604),
(a) after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and
(b) if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this Article (subsection (3) of Section 2-711), he is under a duty after rejection to hold them with reasonable care at the seller’s disposition for a time sufficient to permit the seller to remove them; but
(c) the buyer has no further obligations with regard to goods rightfully rejected.
(3) The seller’s rights with respect to goods wrongfully rejected are governed by the provisions of this Article on seller’s remedies in general (Section 2-703).

Question 90

What is UCC Section 2-604?

Answer 90

“Subject to the provisions of the immediately preceding section on perishables if the seller gives no instructions within a reasonable time after notification of rejection the buyer may store the rejected goods for the seller’s account or reship them to him or resell them for the seller’s account with reimbursement as provided in the preceding section. Such action is not acceptance or conversion.”

Question 91

What is UCC Section 2-603?

Answer 91

“(1) Subject to any security interest in the buyer (subsection (3) of Section 2-711), when the seller has no agent or place of business at the market of rejection a merchant buyer is under a duty after rejection of goods in his possession or control to follow any reasonable instructions received from the seller with respect to the goods and in the absence of such instructions to make reasonable efforts to sell them for the seller’s account if they are perishable or threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming.

(2) When the buyer sells goods under subsection (1), he is entitled to reimbursement from the seller or out of the proceeds for reasonable expenses of caring for and selling them, and if the expenses include no selling commission then to such commission as is usual in the trade or if there is none to a reasonable sum not exceeding ten per cent on the gross proceeds.
(3) In complying with this section the buyer is held only to good faith and good faith conduct here under is neither acceptance nor conversion nor the basis of an action for damages.”

Question 92

What is UCC Section 2-605?

Answer 92

“(1) The buyer’sfailure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach:

(a) where the sellercould have cured it if stated seasonably; or
(b) between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely. (2) Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent on the face of the documents."

Question 93

What is UCC Section 2-606?

Answer 93

“(1) Acceptance of goods occurs when the buyer:

(a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conformingor that he will take or retain them in spite of their non-conformity; or
(b) fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyerhas had a reasonable opportunity to inspect them; or
(c) does any act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him. (2) Acceptance of a part of any commercial unitis acceptance of that entire unit."

Question 94

What is UCC Section 2-607?

Answer 94

“(1) The buyer must pay at the contract rate for any goodsaccepted.

(2) Acceptance of goods by the buyerprecludes 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.
(3) Where a tender has been accepted:
(a) the buyer must within a reasonable time after he discovers or should have discovered any breach notify the sellerof breach or be barred from any remedy; and
(b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation.
(4) The burden is on the buyer to establish any breach with respect to the goodsaccepted.
(5) Where the buyer is sued for breach of a warranty or other obligation for which his selleris answerable over:
(a) he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receiptof the notice does come in and defend he is so bound.
(b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred.
(6) The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (subsection (3) of Section 2-312).”

Question 95

What is UCC Section 2-608?

Answer 95

“(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it:

(a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or
(b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances. (2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. (3) A buyer who so revokes has the same rights and duties with regard to the goodsinvolved as if he had rejected them."

Question 96

Under the UCC what is the seller’s right to cure?

Answer 96

If a seller makes a nonconforming tender but the time of performance has not yet expired under the contract, then the seller may substitute conforming goods so long as:

1. the seller gives buyer seasonable notice of his intention to substitute, and
2. the seller makes conforming delivery within the time specified in the contract.

If a seller makes a nonconforming delivery and had reasonable grounds to believe that delivery would be acceptable to the buyer, then he may substitute a conforming delivery if:

1. the seller gives buyer reasonable notice of his intention to substitute; and
2. the seller makes conforming delivery within a reasonable time.

Reasonable grounds can be proven if the seller has evidence of:

1. express assurances to that effect from the buyer; or
2. trade usage, course of dealing, or course of performance evidence to that effect.

Question 97

What is UCC Section 2-508?

Answer 97

“(1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.
(2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

Question 98

What are installment contract under the UCC?

Answer 98

They are contracts that contemplate the delivery of goods in separate lots to be separately accepted by the buyer.

In the case of non-conforming tender,

1. If the non-conforming tender substantially impairs the value of the whole contract: there is a breach of the whole contract.
2. If the non-conforming tender substantially impairs the value only of this particular installment: buyer can reject the installment but cannot cancel the entire contract.
3. If the non-conforming tender does not even substantially impair the value of this particular installment: buyer must allow seller opportunity to cure the non-conformity within a reasonable time.

Question 99

What is UCC Section 2-612?

Answer 99

“(1) An “installment contract” is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause “each delivery is a separate contract” or its equivalent.

(2) The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment.
(3) Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments.”