Sale of Goods

A contract for the sale of goods may raise special issues. With one exception discussed below, sales of goods are governed by a body of law called the Uniform Commercial Code (the "UCC"), which prescribes special rules. Nearly every state has adopted some version of the Uniform Commercial Code, with the differences between the various states' versions relatively minor. But as shown below, the UCC's rules pertaining to the sale of goods may be quite different from general contract law.

Time to Bring Suit

For example, ordinarily, parties to a contract have six years to commence a law suit. But for a contract over the sale of goods, the UCC requires that an action be brought within four years.

Seller's Right to Payment

Under UCC 2-607, once the buyer has accepted the goods, he must pay for them. Under UCC 2-606, acceptance occurs once the buyer does anything inconsistent with the seller's title to the goods. Thus, for example, if the buyer offers the goods for sale to the buyer's customers, that would constitute an act of acceptance that would obligate the buyer to make payment.

But that's not the end of the inquiry. The UCC provides that, even if the buyer has accepted the goods, he may still be able to revoke his acceptance. But under UCC 2-608(2), revocation much occur within a reasonable time after the buyer discovers, or should have discovered the grounds for revocation. Furthermore, the revocation must occur before an substantial change in the condition of the goods.

And most importantly, under UCC 2-608, a seller who revokes acceptance has the same duties a seller that rejects the goods. Under UCC 2-602, a person who rejects the goods must hold them so that the seller may remove the goods, meaning that a buyer who revokes acceptance must also hold the goods for pickup by the seller.

Thus, assume that a buyer has put the seller's goods in the buyer's store for sale. Assume that after some goods were sold, the buyer discovers a defect in the goods and destroys them. Under such circumstances, the buyer has accepted goods by offering them for sale to others, and he may not revoke the acceptance.

Since the goods were either sold or destroyed, the buyer can't satisfy the timeliness requirement. Since the goods were sold or destroyed, a substantial change has occurred in the condition of the goods, barring revocation. And since the goods were sold or destroyed, the buyer can't hold the goods available for pickup by the seller. Under such circumstances, the buyer must pay for the goods.

The Notice Provision of UCC 2-607

But even if the buyer must pay for the goods, he may neverthe be able to sue the seller for breach of warranty. But there's an important cavet: UCC 2-607 conditions the right to sue for breach on the buyer having given the seller timely notice of the breach.

Whether the notice is timely depends on the purpose of the notice requirement. One commentator identifies three different purposes for the notice:

"(1) it allows the seller to investigate the claim and mitigate damages if possible or prepare for negotiation and litigation; (2) it provides the seller with an opportunity to cure; and (3) it protects the seller against stale claims." L. Lawrence, 4 Uniform Commercial Code § 2-607:5 (3rd ed. Thomson West 2006).

Thus, if the buyer doesn't give the notice early enough to permit those actions, it is arguably not timely.

By the same token, UCC 2-607 provides a trap for the unwary buyer. If he doesn't give the notice, he can't sue for breach of warranty. And by the time that he discovers that he hasn't give notice, it may be too late to give it. For example, if the seller can show that, given timely notice, he could have corrected the problem, the buyer may be barred from ever giving timely notice.

Disclaimers of Liability A frequent problem faced by the purchaser is the seller's disclaimers liability. For example, the contract of sale will often try to limit the purchaser to a paltry remedy. For example, the manufacturer of a defective part my seek to limit the purchaser to the price of the part, even if the purchaser's business was destroyed by the part malfunctioning. But there are ways around the disclaimer. For example, a seller of construction materials may attempt to limit the purchaser to a refund so long as the materials have not been used in the construction. But if the defect is a latent one, and can't be detected until after the building has fallen, the limited remedy is illusory-- not to mention totally inadequate. But law has developed that if the limited remedy fails of its essential purpose, the purchaser is not limited to that remedy. Thus, in a famous case, tulip bulbs contained a defect that wasn't discoverable until the bulbs failed to germinate the following spring. Under those circumstances, an attempt to limit the purchaser to replacement of the bulbs prior to planting was deemed to fail of its essential purpose. A common problem with the sale of goods occurs if the goods arrive late. For example, swim suits are time-sensitive. A delay in the delivery of the suits may entitle an importer's customer-- such as a department store-- to cancel his order. That makes the suits of no value to the importer, as well as damaging the importers goodwill with his customer. An action by the importer against the manufacturer will run into the latter's consequential damages clause. Such clauses bar the importer from recovering such items as lost profits, as opposed to the purchase price of the goods. But there sometimes ways around such clauses. For example, in New York, if the seller means to protect himself from his own negligence, some courts have held that the word "negligence" must appear in the clause. Thus, a manufacturer with an flawed consequential damage clause may be liable for the importer's lost profits.
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