UCC Flashcards
What are UCC nonconformity goods?
Some offers are ambiguous about if they invite acceptance through a return promise or through performance (thus forming a unilateral contract). This commonly occurs when the offer is a request that the goods be shipped. In this situation, the Uniform Commercial Code (UCC) states that an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt shipment of conforming OR non-conforming goods, OR a prompt promise to ship. See UCC § 2-206(1)(b).
Under the UCC, when a seller sends a prompt shipment of non-conforming goods, he is accepting the offer and breaching the contract simultaneously. The buyer may respond in multiple ways, including accepting the non-conforming goods or rejecting them. If the buyer decided to reject the non-conforming goods, he can then sue for breach.
However, if a seller seasonably notifies the buyer that the shipment of non-conforming goods is being offered only as an accommodation to the buyer, the seller’s shipment of those non-conforming goods will NOT result in a breach. UCC § 2-206(1)(b). The buyer can choose to accept the accommodation shipment, which is NOT considered an official acceptance, but rather a counter-offer of the goods that have shipped as they are. If the buyer does accept the accommodation shipment, a contract for the goods as they are will be formed. If the buyer chooses to reject the accommodation shipment, no contract will be found to have formed at all, and the buyer may not sue the seller for breach.
D is correct. The seller promptly shipped non-conforming goods, which means he was both accepting the buyer’s offer and breaching the contract simultaneously. There is no indication that the seller seasonably notified the buyer that the goods were non-conforming or that he offered them as an accommodation shipment. Thus, the buyer has two choices: accept or reject the non-conforming 500 bushels of Royal Fuzz peaches that were No. 2 (rather than No. 1).
A is incorrect. This is an incorrect application of the law to the facts. The seller’s shipment of non-conforming goods is a breach of the contract. However, in the event that there has been a prompt shipment of non-conforming goods, AND the seller seasonably notifies the buyer and offers them as an accommodation, IF the buyer chooses to accept the accommodation, THAT action is considered a counter-offer to purchase the goods as they are. Thus, the seller’s shipment of the non-conforming peaches alone is not a counter-offer but is instead a breach, and the buyer can reject them, as stated above.
B is incorrect. As explained above, the prompt shipment of non-conforming goods is not a counter-offer, but a simultaneous acceptance and breach. Moreover, the UCC states that if the non-conforming goods are perishable, the buyer is only obligated to follow any directions the seller gave for protecting the goods and selling them to mitigate losses for the seller, not ship them back.
C is incorrect. Although a contract was formed when the seller shipped the non-conforming goods (which constituted an acceptance of the buyer’s offer to purchase), the buyer still has the right to reject non-conforming goods.
What is the perfect tender rule and cover?
The buyer is entitled to reject the non-conforming goods, and receive the cost to “cover,” and any incidental or consequential damages (minus any expenses saved due to the breach).
Under UCC §2-601, a seller must provide “perfect tender” – that is, the goods must match the contract’s requirement for quality, quantity, or manner of delivery or the buyer may accept, reject, or in the case of partially conforming goods, accept the conforming portion and reject the non-conforming portion of the goods and seek remedies for any damages allowed under the UCC.
Under UCC §2-512 the buyer can recover 1) the price paid for the goods, 2) the difference between the price paid and the cost to “cover”, or get replacement goods, and 3) any incidental or consequential damages (such as the price to ship the goods back to the seller). Also, any expenses saved as a result of the seller’s breach must be deducted from the damages owed.
C is correct. Here, the buyer correctly and timely rejected non-conforming goods, and so was eligible for any appropriate remedies under the UCC. A buyer is entitled to reject nonconforming goods and to obtain damages pursuant to UCC 2-712(2), which is calculated as the difference between the cost of cover for substitute goods and the contract price, plus any incidental and consequential damage, minus any expenses saved as a result of the seller’s breach. Although C does not mention incidental or consequential damages (such as the cost of shipping the goods back), it is still the best answer.
A is incorrect. To get specific performance, the perfect tender rule would require that the goods be unique, or that there was not a buyer to cover. The facts show that Blue Wool No. 1 is not unique, and the buyer covered.
B is incorrect. The difference between the value of the goods delivered and the value of conforming goods is the appropriate remedy under UCC 2-714 for accepted, non-conforming goods. If the remedy was merely the difference in cost between the goods delivered and conforming goods, then the buyer will have lost the price paid for the Wool No. 2, which he already shipped back.
D is incorrect. Payment prior to inspection does not constitute an acceptance or a waiver of any contract remedies under UCC 2-512(2), which states that “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.”
