Compiler’s Notes.

The official comments in chapters 1 to 12 of this title are copyrighted by the National Conference of Commissioners of Uniform State Laws and the American Law Institute and are reproduced by permission.

Although subsection (a) of this section states that this title may be cited as the uniform commercial code, in fact, only chapters 1 through 10 and 12 are derived from the model uniform commercial code.

In some instances the subsection, subdivision and other designations in the Idaho version of a section of the Uniform Commercial Code are different than those of the official version. For instance,§ 28-3-103 contains subsections (1), (2), (3) and (4) with subsection (1) containing subdivisions (a) to (k). In the uniform version of this section, section 3-102, contains subsections (a), (b), (c) and (d) with subsection (a) containing subdivisions (1) to (11). Therefore, a reference in the official comments to subsection (a) (7) would be a reference to subsection (1) (g) in the Idaho version. Also, the reference in the official comments to “Article” should be translated as “Chapter” for the Idaho Code.

Am. Jur. 2d.

Liability on implied warranties in sale of used motor vehicle. 22 A.L.R.3d 1387.

Consignment transactions under the Uniform Commercial Code. 40 A.L.R.3d 1078.

Measure of recovery where buyer repudiates contract for goods to be manufactured to special order, before completion of manufacture. 42 A.L.R.3d 182.

Priorities as between vendor’s lien and subsequent title or security interest obtained in another state to which vehicle was removed. 42 A.L.R.3d 1168.

Duty of pledgee of commercial paper as to its enforcement or collection. 45 A.L.R.3d 248.

Application of warranty provisions of Uniform Commercial Code to bailments. 48 A.L.R.3d 668.

Official Comment

Source:

Changes from former law:

Changes from former law: Subsection (b) is new. It is added in order to make the structure of Article 1 parallel with that of the other articles of the Uniform Commercial Code.

1. Each other article of the Uniform Commercial Code (except Articles 10 and 11) may also be cited by its own short title. See Sections 2-101, 2A-101 [12-101], 3-101, 4-101, 4A-101, 5-101, 6-101, 7-101, 8-101, and 9-101.

Compiler’s Notes.

Former section 28-1-102, which comprised S.L. 1967, ch. 161,§ 1-102, was amended and redesignated as§ 28-1-103 in 2004.

Official Comment

Source:

1. This section is intended to resolve confusion that has occasionally arisen as to the applicability of the substantive rules in this article. This section makes clear what has always been the case — the rules in Article 1 apply to transactions to the extent that those transactions are governed by one of the other articles of the Uniform Commercial Code. See also Comment 1 to Section 1-301.

Prior Laws.

Former§ 28-1-103, which comprised 1967, ch. 161,§ 1-103, p. 351, was repealed by S.L. 2004, ch. 43, § 4. The contents of former§ 28-1-103 can now be found in subsection (b) of this section.

Compiler’s Notes.

This section was formerly codified as§ 28-1-102.

Application.

Since the implied warranty provisions of the Uniform Commercial Code are considered statements of public policy, extending these provisions to apply by analogy to lease transactions is proper under appropriate circumstances and in conformity with the liberal spirit of the code. All-States Leasing Co. v. Bass, 96 Idaho 873, 538 P.2d 1177 (1975).

Common law mistake doctrine was not inconsistent with§ 28-12-202 and could be applied to transactions governed by the statute. Posey v. Ford Motor Credit Co., 141 Idaho 477, 111 P.3d 162 (Ct. App. 2005).

Fraud.

Lessee has no claim of fraud in the inducement under the Uniform Commercial Code, where any misrepresentation by the dealer regarding the warranty did not substantially impair the value of the leased truck. Mickelsen v. Broadway Ford, Inc., 153 Idaho 149, 280 P.3d 176 (2012).

Photocopied Documents.

This section requires recognition of the use of photocopied documents as part of modern commercial transactions. J.K. Merrill & Son v. Carter, 108 Idaho 749, 702 P.2d 787 (1985).

Purpose.

Severing contracts into various parts, attempting to label each as goods or nongoods, and applying different law to each separate part clearly contravenes the UCC’s declared purpose to simplify, clarify and modernize the law governing commercial transactions. Pittsley v. Houser, 125 Idaho 820, 875 P.2d 232 (Ct. App. 1994).

Am. Jur. 2d.

15A Am. Jur. 2d, Commercial Code, § 15 et seq.

67 Am. Jur. 2d, Sales, §§ 1 to 4.

68A Am. Jur. 2d, Secured Transactions, § 1 et seq.

Official Comment

Source:

Source: Former Section 1-102 (1)-(2); Former Section 1-103.

Changes from former law:

Changes from former law: This section is derived from subsections (1) and (2) of former Section 1-102 and from former Section 1-103. Subsection (a) of this section combines subsections (1) and (2) of former Section 1-102. Except for changing the form of reference to the Uniform Commercial Code and minor stylistic changes, its language is the same as subsections (1) and (2) of former Section 1-102. Except for changing the form of reference to the Uniform Commercial Code and minor stylistic changes, subsection (b) of this section is identical to former Section 1-103. The provisions have been combined in this section to reflect the interrelationship between them.

1. The Uniform Commercial Code is drawn to provide flexibility so that, since it is intended to be a semi-permanent and infrequently-amended piece of legislation, it will provide its own machinery for expansion of commercial practices. It is intended to make it possible for the law embodied in the Uniform Commercial Code to be applied by the courts in the light of unforeseen and new circumstances and practices. The proper construction of the Uniform Commercial Code requires, of course, that its interpretation and application be limited to its reason. Even prior to the enactment of the Uniform Commercial Code, courts were careful to keep broad acts from being hampered in their effects by later acts of limited scope. See Pacific Wool Growers v. Draper & Co., 158 Or. 1, 73 P.2d 1391 (1937), and compare Section 1-104. The courts have often recognized that the policies embodied in an act are applicable in reason to subject-matter that was not expressly included in the language of the act, Commercial Nat. Bank of New Orleans v. Canal-Louisiana Bank & Trust Co., 239 U.S. 520, 36 S. Ct. 194, 60 L. Ed. 417 (1916) (bona fide purchase policy of Uniform Warehouse Receipts Act extended to case not covered but of equivalent nature), and did the same where reason and policy so required, even where the subject-matter had been intentionally excluded from the act in general. Agar v. Orda, 264 N.Y. 248, 190 N.E. 479 (1934) (Uniform Sales Act change in seller’s remedies applied to contract for sale of choses in action even though the general coverage of that Act was intentionally limited to goods “other than things in action.”) They implemented a statutory policy with liberal and useful remedies not provided in the statutory text. They disregarded a statutory limitation of remedy where the reason of the limitation did not apply. Fiterman v. J. N. Johnson & Co., 156 Minn. 201, 194 N.W. 399 (1923) (requirement of return of the goods as a condition to rescission for breach of warranty; also, partial rescission allowed). Nothing in the Uniform Commercial Code stands in the way of the continuance of such action by the courts.

The Uniform Commercial Code should be construed in accordance with its underlying purposes and policies. The text of each section should be read in the light of the purpose and policy of the rule or principle in question, as also of the Uniform Commercial Code as a whole, and the application of the language should be construed narrowly or broadly, as the case may be, in conformity with the purposes and policies involved.

2. Applicability of supplemental principles of law.

2. Applicability of supplemental principles of law. Subsection (b) states the basic relationship of the Uniform Commercial Code to supplemental bodies of law. The Uniform Commercial Code was drafted against the backdrop of existing bodies of law, including the common law and equity, and relies on those bodies of law to supplement its provisions in many important ways. At the same time, the Uniform Commercial Code is the primary source of commercial law rules in areas that it governs, and its rules represent choices made by its drafters and the enacting legislatures about the appropriate policies to be furthered in the transactions it covers. Therefore, while principles of common law and equity may supplement provisions of the Uniform Commercial Code, they may not be used to supplant its provisions, or the purposes and policies those provisions reflect, unless a specific provision of the Uniform Commercial Code provides otherwise. In the absence of such a provision, the Uniform Commercial Code preempts principles of common law and equity that are inconsistent with either its provisions or its purposes and policies.

The language of subsection (b) is intended to reflect both the concept of supplementation and the concept of preemption. Some courts, however, had difficulty in applying the identical language of former Section 1-103 to determine when other law appropriately may be applied to supplement the Uniform Commercial Code, and when that law has been displaced by the Code. Some decisions applied other law in situations in which that application, while not inconsistent with the text of any particular provision of the Uniform Commercial Code, clearly was inconsistent with the underlying purposes and policies reflected in the relevant provisions of the Code. See, e.g., Sheerbonnet, Ltd. v. American Express Bank, Ltd., 951 F. Supp. 403 (S.D.N.Y. 1995). In part, this difficulty arose from Comment 1 to former Section 1-103, which stated that “this section indicates the continued applicability to commercial contracts of all supplemental bodies of law except insofar as they are explicitly displaced by this Act.” The “explicitly displaced” language of that Comment did not accurately reflect the proper scope of Uniform Commercial Code preemption, which extends to displacement of other law that is inconsistent with the purposes and policies of the Uniform Commercial Code, as well as with its text.

3. Application of subsection (b) to statutes.

3. Application of subsection (b) to statutes. The primary focus of Section 1-103 is on the relationship between the Uniform Commercial Code and principles of common law and equity as developed by the courts. State law, however, increasingly is statutory. Not only are there a growing number of state statutes addressing specific issues that come within the scope of the Uniform Commercial Code, but in some States many general principles of common law and equity have been codified. When the other law relating to a matter within the scope of the Uniform Commercial Code is a statute, the principles of subsection (b) remain relevant to the court’s analysis of the relationship between that statute and the Uniform Commercial Code, but other principles of statutory interpretation that specifically address the interrelationship between statutes will be relevant as well. In some situations, the principles of subsection (b) still will be determinative. For example, the mere fact that an equitable principle is stated in statutory form rather than in judicial decisions should not change the court’s analysis of whether the principle can be used to supplement the Uniform Commercial Code — under subsection (b), equitable principles may supplement provisions of the Uniform Commercial Code only if they are consistent with the purposes and policies of the Uniform Commercial Code as well as its text. In other situations, however, other interpretive principles addressing the interrelationship between statutes may lead the court to conclude that the other statute is controlling, even though it conflicts with the Uniform Commercial Code. This, for example, would be the result in a situation where the other statute was specifically intended to provide additional protection to a class of individuals engaging in transactions covered by the Uniform Commercial Code.

4. Listing not exclusive.

4. Listing not exclusive. The list of sources of supplemental law in subsection (b) is intended to be merely illustrative of the other law that may supplement the Uniform Commercial Code, and is not exclusive. No listing could be exhaustive. Further, the fact that a particular section of the Uniform Commercial Code makes express reference to other law is not intended to suggest the negation of the general application of the principles of subsection (b). Note also that the word “bankruptcy” in subsection (b), continuing the use of that word from former Section 1-103, should be understood not as a specific reference to federal bankruptcy law but, rather as a reference to general principles of insolvency, whether under federal or state law.

Am. Jur. 2d.

Official Comment

Source:

Changes from former law:

1. This section embodies the policy that an act that bears evidence of carefully considered permanent regulative intention should not lightly be regarded as impliedly repealed by subsequent legislation. The Uniform Commercial Code, carefully integrated and intended as a uniform codification of permanent character covering an entire “field” of law, is to be regarded as particularly resistant to implied repeal.

Compiler’s Notes.

This section was formerly codified as§ 28-1-108.

Former§ 28-1-105 has been recodified as§ 28-1-301(b).

Official Comment

Source:

Changes from former law:

1. This is the model severability section recommended by the National Conference of Commissioners on Uniform State Laws for inclusion in all acts of extensive scope.

Compiler’s Notes.

Former§ 28-1-106 has been recodified as§ 28-1-305.

Official Comment

Source:

Source: Former Section 1-102(5). See also 1 U.S.C. Section 1.

Changes from former law:

Changes from former law: Other than minor stylistic changes, this section is identical to former Section 1-102(5).

1. This section makes it clear that the use of singular or plural in the text of the Uniform Commercial Code is generally only a matter of drafting style — singular words may be applied in the plural, and plural words may be applied in the singular. Only when it is clear from the statutory context that the use of the singular or plural does not include the other is this rule inapplicable. See, e.g., Section 9-322.

Compiler’s Notes.

Former§ 28-1-107 has been recodified as§ 28-1-306.

Official Comment

Source:

Changes from former law:

1. Section captions are a part of the text of the Uniform Commercial Code, and not mere surplusage. This is not the case, however, with respect to subsection headings appearing in Article 9. See Comment 3 to Section 9-101 (“subsection headings are not a part of the official text itself and have not been approved by the sponsors.”).

Compiler’s Notes.

Former§ 28-1-108 has been recodified as§ 28-1-105.

Official Comment

Source:

1. The federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq. , became effective in 2000. Section 102(a) of that Act provides that a State statute may modify, limit, or supersede the provisions of Section 101 of that Act with respect to state law if such statute, inter alia, specifies the alternative procedures or requirements for the use or acceptance (or both) of electronic records or electronic signatures to establish the legal effect, validity, or enforceability of contracts or other records, and (i) such alternative procedures or requirements are consistent with Titles I and II of that Act, (ii) such alternative procedures or requirements do not require, or accord greater legal status or effect to, the implementation or application of a specific technology or technical specification for performing the functions of creating, storing, generating, receiving, communicating, or authenticating electronic records or electronic signatures; and (iii) if enacted or adopted after the date of the enactment of that Act, makes specific reference to that Act. Article 1 fulfills the first two of those three criteria; this Section fulfills the third criterion listed above.
2. As stated in this section, however, Article 1 does not modify, limit, or supersede Section 101(c) of the Electronic Signatures in Global and National Commerce Act (requiring affirmative consent from a consumer to electronic delivery of transactional disclosures that are required by state law to be in writing); nor does it authorize electronic delivery of any of the notices described in Section 103(b) of that Act.

Prior Laws.

Former§ 28-1-201, which comprised 1967, ch. 161,§ 1-201, p. 351; am. 1979, ch. 299, § 1, p. 781; am. 1984, ch. 88, § 1, p. 183; am. 1993, ch. 287, § 3, p. 977; am. 1993, ch. 288, § 48, p. 1019; am. 2001, ch. 208, § 4, p. 704; am. 2004, ch. 42, § 3; am. 2004, ch. 43, § 11, was repealed by S.L. 2004, ch. 309 § 1.

Agreement.

Where at the onset of the parties’ transaction, contractor informed supplier that third party presented a risk of nonpayment, and supplier agreed to provide “priced-out” invoices at delivery in order to allow contractor to immediately obtain payment from third party, but supplier failed to properly tender the goods by delivering them without the requisite priced-out invoices, and supplier told contractor to go ahead and unload the materials without the pricing information, based upon this conduct, and from the surrounding circumstances, the magistrate reasonably could construe contractor’s unequivocal refusal to be responsible without the pricing information, followed by supplier’s authorization to unload the materials, as supplier’s assent, or acquiescence, to contractor’s proposed new terms, i.e., that contractor would not be liable if he could not collect from third party. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991).

In the situation where farmer bought certified potato seed from dealer and seed was later found to be infected by bacterial ring rot, because factual questions remained as to whether there were any terms in the parties’ agreement excluding warranties or limiting remedies and as to whether there was an applicable course of dealing or trade usage limiting remedies, the lower court’s order denying summary judgment on this issue was affirmed. Duffin v. Idaho Crop Imp. Ass’n, 126 Idaho 1002, 895 P.2d 1195 (1995).

Cancellation of Pre-Existing Debt.

Where the consideration given by the buyer of a farm disc from a consignment exchange was cancellation of a pre-existing debt owed to him by the exchange, the buyer was not a “buyer in ordinary course of business.” Seitz v. Stecklein, 111 Idaho 364, 723 P.2d 908 (Ct. App. 1986).

Conspicuous.

In a products liability action for personal injury and property damage resulting from a single vehicle accident, where the trial court instructed the jury to decide whether disclaimer of implied and express warranties contained in the conditional sales contract was conspicuous, no prejudice resulted by the trial court’s erroneous submission of that question to the jury in view of determination on appeal that the disclaimer was not conspicuous. Farmer v. International Harvester Co., 97 Idaho 742, 553 P.2d 1306 (1976).

A disclaimer clause would not be ruled ineffective to exclude implied warranties of merchantability and fitness for a particular purpose where the disclaimer was conspicuous, was not part of the small print on the signature page, and there was insufficient evidence that the buyer was directed to ignore it. Myers v. A.O. Smith Harvestore Prods., Inc., 114 Idaho 432, 757 P.2d 695 (Ct. App. 1988). This section says that disclaimers in “contrasting” type are conspicuous; the statute does not say the type must be both contrasting and larger. Therefore, the fact that the disclaimer was under the letterhead, but above the body of the contract, did not detract from its conspicuousness; on the contrary, it amplified its visibility and increased the likelihood of discovery. Clements Farms, Inc. v. Ben Fish & Son, 120 Idaho 185, 814 P.2d 917 (1991).

Construction with Other Statutes.

Lease-purchase agreements qualifying under§ 28-36-102(5) are not subject to the “true lease” versus “disguised credit sale” debate which flows under subsection (37) [now (35)] of this section. In re Stellman, 237 Bankr. 759 (Bankr. D. Idaho 1999).

Section 28-36-103(1)(c) states that the laws relating to security interests, as defined in§ 28-1-201, do not apply to lease-purchase agreements, but since it does not purport to repeal that section, but only to make the Lease-Purchase Agreement Act (see§ 28-36-101) inapplicable to certain contracts, the provisions are not irreconcilably in conflict. In re Stellman, 237 Bankr. 759 (Bankr. D. Idaho 1999).

Course of Dealing.

In determining how a maturity clause in a loan agreement should be interpreted, the trial court was correct in refusing to consider course of dealing, where the lender’s conduct asserted by the borrower was “subsequent conduct” rather than “previous conduct.” Idaho First Nat’l Bank v. David Steed & Assocs., 121 Idaho 356, 825 P.2d 79 (1992).

Good Faith.

Nothing in the definitions of good faith, subsection (19) [now (20)] of this section and§ 28-2-103(1)(b), imposes an implicit requirement for a seller to match the lowest price available. Harvey v. Fearless Farris Whsle., Inc., 589 F.2d 451 (9th Cir. 1979).

Installment Sales Contracts.

An agreement purporting to lease cattle could not be brought within the scope of§ 25-2001 by entitling it a “lease” when it was commercially identical to an installment sales contract. Whitworth v. Krueger, 98 Idaho 65, 558 P.2d 1026 (1976).

Where receivers of cattle had the option at the expiration of the “lease” term to purchase for the sum of $10.00 cattle which the parties had anticipated at the beginning of the term would be worth over $10,000 at the end of the term, the agreement between the parties was one intended for security. Whitworth v. Krueger, 98 Idaho 65, 558 P.2d 1026 (1976).

Subdivision (37) [now (35)] brings under its terms all agreements, regardless of their title, which are commercially indistinguishable from installment sales contracts. Whitworth v. Krueger, 98 Idaho 65, 558 P.2d 1026 (1976).

Knowledge.

In a suit brought by seller of fruit packing equipment alleging a priority interest in machinery affixed to real property which was the subject of a mortgage foreclosure, where the subsequent purchaser at the foreclosure sale had agreed to pay rent for use of the machinery before default on the mortgage, and where the record title holder of the property had contracted for and consented to the machinery being affixed to the real estate, the subsequent purchaser did not have priority either as subsequent purchaser for value without knowledge or as successor in interest to record owner who had withheld consent to preservation of a security interest. Northwest Equip. Sales Co. v. Western Packers, Inc., 543 F.2d 65 (9th Cir. 1976).

Lease or Sale Agreement.

Seven factors are to be considered in determining whether an agreement is a lease or sale agreement: (1) whether the option price is nominal; (2) whether the lessee obtains equity in the property leased; (3) whether the lessee bears the risk of loss; (4) whether the lessee pays the tax, licensing, and the registration fee; (5) whether the lessor may accelerate payment; (6) whether the property is purchased specifically for lease to the lessee; and (7) whether the lease contains a disclaimer of warranties. In re Maritt, 155 Bankr. 12 (Bankr. D. Idaho 1993).

Where vehicle was purchased from dealer with the specific purpose of leasing it to debtors, where there was evidence projecting a residual value of $4,000 at the end of the leasing period, which would indicate that the $1,800 purchase price was nominal, where the debtors held an equity interest in the vehicle and where under the agreement the debtors bore the risk of loss to the vehicle and paid the tax, licensing and registration fees, such transaction was a sale and not a lease and thus debtors could not be compelled to assume or reject lease under the provisions of the federal bankruptcy law. In re Maritt, 155 Bankr. 12 (Bankr. D. Idaho 1993).

Notice.

Even though an attorney failed to report information to his client corporation until a certain date, the corporation was charged with notice of the information as of the earlier dates on which the attorney received it. Flying Diamond Corp. v. Pennaluna & Co., 586 F.2d 707 (9th Cir. 1978).

In action for conversion of inventory of debtor against supplier by bank that held perfected security interest where bank officer who visited debtor’s business approximately every month stated that he observed no noticeable reduction of inventory and was never notified that the merchandise and inventory were being returned for credit to satisfy an existing debt and that when he visited the business in October, 1980 he found that the business had closed its doors and all its merchandise and inventory had been removed and that it came without warning as debtor was not delinquent on his note, it was incumbent on debtor in response to bank officer’s denial of knowledge of return of the inventory, to make a showing in detail as specific as the bank, that bank had such knowledge. First Sec. Bank v. Absco Whse., Inc., 104 Idaho 853, 664 P.2d 281 (Ct. App. 1983).

A party is deemed to have given notice once the notice is mailed; whether it was received or noticed when received is immaterial. Airstream, Inc. v. CIT Fin. Servs., Inc., 111 Idaho 307, 723 P.2d 851 (1986).

Where a health care service company required enrollment of newborns within 30 days of birth, but stated no mandatory method for notification of a child’s birth, notice by the insured to his employer’s group administrator was a permissible means of giving notice to the service corporation whether or not the group administrator’s function constituted an agency relationship; therefore, when claimant informed employer’s bookkeeper about the newborn child and asked what needed to be done to insure coverage he gave notice by a method that was not unreasonable or excluded by the contract and child was included in coverage. Howard v. Blue Cross of Idaho Health Serv., Inc., 114 Idaho 485, 757 P.2d 1204 (Ct. App. 1987). Organization.

Bankruptcy court held that debtors’ operation of a dairy as a sole proprietorship did not fall within the definition of “organization” under this section. In re Wiersma, 283 B.R. 294 (Bankr. D. Idaho 2002), aff’d in part, 324 Bankr. 92 (B.A.P. 9th Cir. 2005).

Party.

A co-maker of a note cannot assert the impairment of collateral defense. Great S.W. Life Ins. Co. v. Frazier, 860 F.2d 896 (9th Cir. 1988).

Present Intention to Authenticate.

The signing of the security agreement by the debtor indicates a present intention to authenticate the document; the fact that the document is later photocopied does not detract from the “present intention to authenticate” at the time of the signing. J.K. Merrill & Son v. Carter, 108 Idaho 749, 702 P.2d 787 (1985).

Purchase Order.

A purchase order, which directed and required the buyer’s signature on the reverse side, under disclaimer language written and labelled as a disclaimer in large, bold, capital letters, was conspicuous and the language effectively excluded implied warranties of merchantability and fitness for a particular purpose. Myers v. A.O. Smith Harvestore Prods., Inc., 114 Idaho 432, 757 P.2d 695 (Ct. App. 1988).

Security Interest.

— In General.

Although a security interest cannot attach until there is an agreement, the existence of an agreement creating a security interest does not require the use of the words “security interest” but may be based on the actions and conduct of the parties. Barney v. Rigby Loan & Inv. Co., 344 F. Supp. 694 (D. Idaho 1972).

A person gives value for rights, including a security interest for a pre-existing claim. Barney v. Rigby Loan & Inv. Co., 344 F. Supp. 694 (D. Idaho 1972).

An option to purchase does not by itself make a lease a security agreement, but an agreement which provides that, upon compliance with the terms of the lease, the lessee has the option to become the owner of the property for nominal consideration makes the lease an agreement intended for security regardless of the intent of the parties. Eimco Corp. v. Sims, 100 Idaho 390, 598 P.2d 538 (1979). Where lessee might have exercised an option to purchase a particular piece of equipment at either of 2 times, once for $16,167.50, a significant sum, and once for $170, a nominal sum, and where his actions prior to default did not indicate an apparent belief his rental payments were accumulating equity or took steps to rectify his default, there was ample evidence for the conclusion that a lease, not a security interest, was intended. Eimco Corp. v. Sims, 100 Idaho 390, 598 P.2d 538 (1979).

An examination of the priority and foreclosure scheme of article 9 demonstrates that absence of knowledge of subordinate security interests could not be a prerequisite for a purchaser to buy property free of encumbrances at a foreclosure sale; for, if absence of knowledge were required, the party whose interest would be undermined would be the secured party who was conducting the sale. Northwest Equip. Sales Co. v. Western Packers, Inc., 623 F.2d 92 (9th Cir. 1980).

Although the seller of various items of fruit packing machinery had retained a security interest to secure the purchase price, a subsequent foreclosure sale of the real property to which the machinery was affixed discharged the security interest held by the seller of the machinery, where the purchase at the foreclosure sale of the real estate and fruit packing machinery was in good faith. Northwest Equip. Sales Co. v. Western Packers, Inc., 623 F.2d 92 (9th Cir. 1980).

Where the small business administration held a security interest in fruit packing machinery under its real estate deed of trust which covered the real property to which the machinery was affixed, and where the SBA had purchased the entire interest of the original mortgagees of the property without knowledge of a purchase money security interest retained by the seller of the machinery, the SBA’s interest was prior to the purchase money security interest. Northwest Equip. Sales Co. v. Western Packers, Inc., 623 F.2d 92 (9th Cir. 1980).

Where the evidence was clear that, although a lease agreement did contain some attributes of an installment sales contract, there was no oral or written option to purchase the equipment, and title did not pass to the lessee at the end of the term; and since no other relevant evidence was presented demonstrating that the parties intended the transaction to be anything other than a lease, the trial court properly held that the lease agreement was not a security interest subject to Article 9 of the UCC. W.L. Scott, Inc. v. Madras Aerotech, Inc., 103 Idaho 736, 653 P.2d 791 (1982).

In action for conversion of inventory of debtor against supplier by holder of perfected security interest in inventory, the return of the inventory to the supplier, because it was a major part in value of debtor’s business inventory and was transferred to satisfy an existing debt due to supplier, was not in the ordinary course of debtor’s business and, therefore was not authorized by the express terms of the security agreement that permitted sale or disposal of collateral only in ordinary course of business. First Sec. Bank v. Absco Whse., Inc., 104 Idaho 853, 664 P.2d 281 (Ct. App. 1983).

— Application of 1993 Amendment.

— Lease.

Because the amendment to subsection (37) [now (35)] of this section was intended to clarify, not change the law, the amendment should be applied to all actions determined after its passage regardless of whether the agreement was entered into before the amendment. In re Bumgardner, 183 Bankr. 224 (Bankr. D. Idaho 1995). — Lease.

— Lease.

Agreements between the owner of a truck and a trailer and a lessee constituted true leases rather than security agreements in a sales transaction where the agreements expressly stated that the lessee was given no option to purchase and that lessee had no claim of ownership or any right or interest in the property other than as a lessee. Although other language in the agreement gave lessee an opportunity to purchase the property, this opportunity was restricted, and there was no evidence that lessee would have acquired any equity or interest in the property during the term of the lease as a result of that language. Excel Leasing Co. v. Christensen, 115 Idaho 708, 769 P.2d 585 (Ct. App. 1989).

Where a transaction is denominated a lease, the burden is upon the debtor to demonstrate that the transaction is in fact a disguised security interest, rather than a true lease. In re Zaleha, 159 Bankr. 581 (Bankr. D. Idaho 1993).

Where a transaction must be evaluated on its facts to determine whether it is a true lease or a disguised security interest, the proper standard of evaluation is whether the transaction left the lessor with a meaningful residual interest in the leased property. This incorporates consideration of whether the lessee develops equity in the leased goods, without distracting from other elements of the transaction that may also bear on the central issue of whether the transaction is a true lease. In re Zaleha, 159 Bankr. 581 (Bankr. D. Idaho 1993).

Where truck lease was a true lease rather than a disguised security interest, lessor could require debtor to assume or reject the unexpired lease. In re Zaleha, 159 Bankr. 581 (Bankr. D. Idaho 1993).

Under the newly revised subsection (37) [now (35)] of this section, the vehicle transaction was a true lease, and not a disguised security interest, because the repurchase price was not nominal and the debtors had no equity in the vehicle at the end of the lease term; these being the most important factors in the inquiry under this section. In re Bumgardner, 183 Bankr. 224 (Bankr. D. Idaho 1995).

— Purchase Option.

The inclusion or exclusion of a purchase option does not itself solely determine the existence or absence of a security agreement. Excel Leasing Co. v. Christensen, 115 Idaho 708, 769 P.2d 585 (Ct. App. 1989).

In determining whether an option price is nominal, the proper figure to compare it with is not the actual fair market value of the leased goods at the time the option arises, but their fair market value at that time as anticipated by the parties when the lease is signed. In re Zaleha, 159 Bankr. 581 (Bankr. D. Idaho 1993).

“Signed.”

Either defendant company’s business name printed in the heading of its form or the handprinted signature of its agent could satisfy as a signature under this section. Paloukos v. Intermountain Chevrolet Co., 99 Idaho 740, 588 P.2d 939 (1978).

Cited Carpenter v. Payette Valley Coop., 99 Idaho 143, 578 P.2d 1074 (1978); Ogilvie v. Idaho Bank & Trust Co., 99 Idaho 361, 582 P.2d 215 (1978); Andrus v. Zion’s First Nat’l Bank, 99 Idaho 724, 588 P.2d 452 (1978); American Triticale, Inc. v. Nytco Servs., Inc., 664 F.2d 1136 (9th Cir. 1981); Treasure Valley Bank v. L.T.S., Inc., 32 Bankr. 910 (Bankr. D. Idaho 1983); Idaho Bank & Trust Co. v. Cargill, Inc., 105 Idaho 83, 665 P.2d 1093 (Ct. App. 1983); Snake River Equip. Co. v. Christensen, 107 Idaho 541, 691 P.2d 787 (Ct. App. 1984); In re Hawkins Co., 104 Bankr. 317 (Bankr. D. Idaho 1989); Newgen v. OK Livestock Exch., 117 Idaho 445, 788 P.2d 846 (Ct. App. 1990); Valley Bank v. Monarch Inv. Co., 118 Idaho 747, 800 P.2d 634 (1990); Idaho First Nat’l Bank v. David Steed & Assocs., 121 Idaho 356, 825 P.2d 79 (1992); Hopkins v. Gutknecht (In re Lewis), 2004 Bankr. LEXIS 2727 (Bankr. D. Idaho Sept. 2, 2004). RESEARCH REFERENCES

Am. Jur. 2d.

15A Am. Jur. 2d, Commercial Code, § 5 et seq.

17A Am. Jur. 2d, Contracts, § 1 et seq.

67 Am. Jur. 2d, Sales, § 20 et seq.

68A Am. Jur. 2d, Secured Transactions, § 30 et seq.

Official Comment

Source:

Changes from former law:

Changes from former law: In order to make it clear that all definitions in the Uniform Commercial Code (not just those appearing in Article 1, as stated in former Section 1-201, but also those appearing in other Articles) do not apply if the context otherwise requires, a new subsection (a) to that effect has been added, and the definitions now appear in subsection (b). The reference in subsection (a) to the “context” is intended to refer to the context in which the defined term is used in the Uniform Commercial Code. In other words, the definition applies whenever the defined term is used unless the context in which the defined term is used in the statute indicates that the term was not used in its defined sense. Consider, for example, Sections 3-103(a)(9) (defining “promise,” in relevant part, as “a written undertaking to pay money signed by the person undertaking to pay”) and 3-303(a)(1) indicating that an instrument is issued or transferred for value if “the instrument is issued or transferred for a promise of performance, to the extent that the promise has been performed.” It is clear from the statutory context of the use of the word “promise” in Section 3-303(a)(1) that the term was not used in the sense of its definition in Section 3-103(a)(9). Thus, the Section 3-103(a)(9) definition should not be used to give meaning to the word “promise” in Section 3-303(a).

Some definitions in former Section 1-201 have been reformulated as substantive provisions and have been moved to other sections. See Sections 1-202 (explicating concepts of notice and knowledge formerly addressed in Sections 1-201(25)-(27)), 1-204 (determining when a person gives value for rights, replacing the definition of “value” in former Section 1-201(44)), and 1-206 (addressing the meaning of presumptions, replacing the definitions of “presumption” and “presumed” in former Section 1-201(31)). Similarly, the portion of the definition of “security interest” in former Section 1-201(37) which explained the difference between a security interest and a lease has been relocated to Section 1-203.

Two definitions in former Section 1-201 have been deleted. The definition of “honor” in former Section 1-201(21) has been moved to Section 2-103(1)(b), inasmuch as the definition only applies to the use of the word in Article 2. The definition of “telegram” in former Section 1-201(41) has been deleted because that word no longer appears in the definition of “conspicuous.” Other than minor stylistic changes and renumbering, the remaining definitions in this section are as in former Article 1 except as noted below.

1. “Action.” Unchanged from former Section 1-201, which was derived from similar definitions in Section 191, Uniform Negotiable Instruments Law; Section 76, Uniform Sales Act; Section 58, Uniform Warehouse Receipts Act; Section 53, Uniform Bills of Lading Act.
2. “Aggrieved party.” Unchanged from former Section 1-201.
3. “Agreement.” Derived from former Section 1-201. As used in the Uniform Commercial Code the word is intended to include full recognition of usage of trade, course of dealing, course of performance and the surrounding circumstances as effective parts thereof, and of any agreement permitted under the provisions of the Uniform Commercial Code to displace a stated rule of law. Whether an agreement has legal consequences is determined by applicable provisions of the Uniform Commercial Code and, to the extent provided in Section 1-103, by the law of contracts.
4. “Bank.” Derived from Section 4A-104.
5. “Bearer.” Unchanged, except in one respect, from former Section 1-201, which was derived from Section 191, Uniform Negotiable Instruments Law. The term bearer applies to negotiable documents of title and has been broadened to include a person in control of an electronic negotiable document of title. Control of an electronic document of title is defined in Article 7 (Section 7-106).
6. “Bill of Lading.” Derived from former Section 1-201. The reference to, and definition of, an “airbill” has been deleted as no longer necessary. A bill of lading is one type of document of title as defined in subsection (16). This definition should be read in conjunction with the definition of carrier in Article 7 (Section 7-102).
7. “Branch.” Unchanged from former Section 1-201.
8. “Burden of establishing a fact.” Unchanged from former Section 1-201.
9. “Buyer in ordinary course of business.” Except for minor stylistic changes, identical to former Section 1-201 (as amended in conjunction with the 1999 revisions to Article 9). The major significance of the phrase lies in Section 2-403 and in the Article on Secured Transactions (Article 9).
10. “Conspicuous.” Derived from former Section 1-201(10). This definition states the general standard that to be conspicuous a term ought to be noticed by a reasonable person. Whether a term is conspicuous is an issue for the court. Subparagraphs (A) and (B) set out several methods for making a term conspicuous. Requiring that a term be conspicuous blends a notice function (the term ought to be noticed) and a planning function (giving guidance to the party relying on the term regarding how that result can be achieved). Although these paragraphs indicate some of the methods for making a term attention-calling, the test is whether attention can reasonably be expected to be called to it. The statutory language should not be construed to permit a result that is inconsistent with that test. 11. “Consumer.” Derived from Section 9-102(a)(25).
11. “Consumer.” Derived from Section 9-102(a)(25).
12. “Contract.” Except for minor stylistic changes, identical to former Section 1-201.
13. “Creditor.” Unchanged from former Section 1-201.
14. “Defendant.” Except for minor stylistic changes, identical to former Section 1-201, which was derived from Section 76, Uniform Sales Act.
15. “Delivery.” Derived from former Section 1-201. The reference to certificated securities has been deleted in light of the more specific treatment of the matter in Section 8-301. The definition has been revised to accommodate electronic documents of title. Control of an electronic document of title is defined in Article 7 (Section 7-106).
16. “Document of title.” Derived from former Section 1-201, which was derived from Section 76, Uniform Sales Act. This definition makes explicit that the obligation or designation of a third party as “bailee” is essential to a document of title clearly rejects any such result as obtained in Hixson v. Ward, 254 Ill. App. 505 (1929), which treated a conditional sales contract as a document of title. Also the definition is left open so that new types of documents may be included, including documents which gain commercial recognition in the international arena. See UNCITRAL Draft Instrument on the Carriage of Goods By Sea. It is unforeseeable what documents may one day serve the essential purpose now filled by warehouse receipts and bills of lading. The definition is stated in terms of the function of the documents with the intention that any document which gains commercial recognition as accomplishing the desired result shall be included within its scope. Fungible goods are adequately identified within the language of the definition by identification of the mass of which they are a part.

The first sentence of paragraph (9) makes clear that a buyer from a pawnbroker cannot be a buyer in ordinary course of business. The second sentence explains what it means to buy “in the ordinary course.” The penultimate sentence prevents a buyer that does not have the right to possession as against the seller from being a buyer in ordinary course of business. Concerning when a buyer obtains possessory rights, see Sections 2-502 and 2-716. However, the penultimate sentence is not intended to affect a buyer’s status as a buyer in ordinary course of business in cases (such as a “drop shipment”) involving delivery by the seller to a person buying from the buyer or a donee from the buyer. The requirement relates to whether as against the seller the buyer or one taking through the buyer has possessory rights.

Dock warrants were within the Sales Act definition of document of title apparently for the purpose of recognizing a valid tender by means of such paper. In current commercial practice a dock warrant or receipt is a kind of interim certificate issued by shipping companies upon delivery of the goods at the dock, entitling a designated person to be issued a bill of lading. The receipt itself is invariably nonnegotiable in form although it may indicate that a negotiable bill is to be forthcoming. Such a document is not within the general compass of the definition, although trade usage may in some cases entitle such paper to be treated as a document of title. If the dock receipt actually represents a storage obligation undertaken by the shipping company, then it is a warehouse receipt within this section regardless of the name given to the instrument.

The goods must be “described,” but the description may be by marks or labels and may be qualified in such a way as to disclaim personal knowledge of the issuer regarding contents or condition. However, baggage and parcel checks and similar “tokens” of storage which identify stored goods only as those received in exchange for the token are not covered by this Article. The definition is broad enough to include an airway bill.

A document of title may be either tangible or electronic. Tangible documents of title should be construed to mean traditional paper documents. Electronic documents of title are documents that are stored in an electronic medium instead of in tangible form. The concept of an electronic medium should be construed liberally to include electronic, digital, magnetic, optical, electromagnetic, or any other current or similar emerging technologies. As to reissuing a document of title in an alternative medium, see Article 7, Section 7-105. Control for electronic documents of title is defined in Article 7 (Section 7-106). 17. “Fault.” Derived from former Section 1-201. “Default” has been added to the list of events constituting fault.

18. “Fungible goods.” Derived from former Section 1-201. References to securities have been deleted because Article 8 no longer uses the term “fungible” to describe securities. Accordingly, this provision now defines the concept only in the context of goods.

19. “Genuine.” Unchanged from former Section 1-201.

20. “Good faith.” Former Section 1-201(19) defined “good faith” simply as honesty in fact; the definition contained no element of commercial reasonableness. Initially, that definition applied throughout the Code with only one exception. Former Section 2-103(1)(b) provided that “ in this Article . . . good faith in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” This alternative definition was limited in applicability in three ways. First, it applied only to transactions within the scope of Article 2. Second, it applied only to merchants. Third, strictly construed it applied only to uses of the phrase “good faith” in Article 2 ; thus, so construed it would not define “good faith” for its most important use — the obligation of good faith imposed by former Section 1-203.

Over time, however, amendments to the Uniform Commercial Code brought the Article 2 merchant concept of good faith (subjective honesty and objective commercial reasonableness) into other Articles. First, Article 2A explicitly incorporated the Article 2 standard. See Section 2A-103(7). Then, other Articles broadened the applicability of that standard by adopting it for all parties rather than just for merchants. See, e.g., Sections 3-103(a)(4), 4A-105(a)(6), 8-102(a)(10), and 9-102(a)(43). All of these definitions are comprised of two elements — honesty in fact and the observance of reasonable commercial standards of fair dealing. Only revised Article 5 defines “good faith” solely in terms of subjective honesty, and only Article 6 and Article 7 are without definitions of good faith. (It should be noted that, while revised Article 6 did not define good faith, Comment 2 to revised Section 6-102 states that “this Article adopts the definition of ‘good faith’ in Article 1 in all cases, even when the buyer is a merchant.”) Given these developments, it is appropriate to move the broader definition of “good faith” to Article 1. Of course, this definition is subject to the applicability of the narrower definition in revised Article 5.

21. “Holder.” Derived from former Section 1-201. The definition has been reorganized for clarity and amended to provide for electronic negotiable documents of title.

22. “Insolvency proceedings.” Unchanged from former Section 1-201.

23. “Insolvent.” Derived from former Section 1-201. The three tests of insolvency — “generally ceased to pay debts in the ordinary course of business other than as a result of a bona fide dispute as to them,” “unable to pay debts as they become due,” and “insolvent within the meaning of the federal bankruptcy law” — are expressly set up as alternative tests and must be approached from a commercial standpoint.

24. “Money.” Substantively identical to former Section 1-201. The test is that of sanction of government, whether by authorization before issue or adoption afterward, which recognizes the circulating medium as a part of the official currency of that government. The narrow view that money is limited to legal tender is rejected.

25. “Organization.” The former definition of this word has been replaced with the standard definition used in acts prepared by the National Conference of Commissioners on Uniform State Laws.

26. “Party.” Substantively identical to former Section 1-201. Mention of a party includes, of course, a person acting through an agent. However, where an agent comes into opposition or contrast to the principal, particular account is taken of that situation. 27. “Person.” The former definition of this word has been replaced with the standard definition used in acts prepared by the National Conference of Commissioners on Uniform State Laws.

28. “Present value.” This definition was formerly contained within the definition of “security interest” in former Section 1-201(37).

29. “Purchase.” Derived from former Section 1-201. The form of definition has been changed from “includes” to “means.”

30. “Purchaser.” Unchanged from former Section 1-201.

31. “Record.” Derived from Section 9-102(a)(69).

32. “Remedy.” Unchanged from former Section 1-201. The purpose is to make it clear that both remedy and right (as defined) include those remedial rights of “self help” which are among the most important bodies of rights under the Uniform Commercial Code, remedial rights being those to which an aggrieved party may resort on its own.

33. “Representative.” Derived from former Section 1-201. Reorganized, and form changed from “includes” to “means.”

34. “Right.” Except for minor stylistic changes, identical to former Section 1-201.

35. “Security Interest.” The definition is the first paragraph of the definition of “security interest” in former Section 1-201, with minor stylistic changes. The remaining portion of that definition has been moved to Section 1-203. Note that, because of the scope of Article 9, the term includes the interest of certain outright buyers of certain kinds of property.

36. “Send.” Derived from former Section 1-201. Compare “notifies”.

37. “Signed.” Derived from former Section 1-201. Former Section 1-201 referred to “intention to authenticate”; because other articles now use the term “authenticate,” the language has been changed to “intention to adopt or accept.” The latter formulation is derived from the definition of “authenticate” in Section 9-102(a)(7). This provision refers only to writings, because the term “signed,” as used in some articles, refers only to writings. This provision also makes it clear that, as the term “signed” is used in the Uniform Commercial Code, a complete signature is not necessary. The symbol may be printed, stamped or written; it may be by initials or by thumbprint. It may be on any part of the document and in appropriate cases may be found in a billhead or letterhead. No catalog of possible situations can be complete and the court must use common sense and commercial experience in passing upon these matters. The question always is whether the symbol was executed or adopted by the party with present intention to adopt or accept the writing.

38. “State.” This is the standard definition of the term used in acts prepared by the National Conference of Commissioners on Uniform State Laws.

39. “Surety.” This definition makes it clear that “surety” includes all secondary obligors, not just those whose obligation refers to the person obligated as a surety. As to the nature of secondary obligations generally, see Restatement (Third), Suretyship and Guaranty Section 1 (1996).

40. “Term.” Unchanged from former Section 1-201.

41. “Unauthorized signature.” Unchanged from former Section 1-201.

42. “Warehouse receipt.” Derived from former Section 1-201, which was derived from Section 76(1), Uniform Sales Act; Section 1, Uniform Warehouse Receipts Act. Receipts issued by a field warehouse are included, provided the warehouseman and the depositor of the goods are different persons. The definition makes clear that the receipt must qualify as a document of title under subsection (16). 43. “Written” or “writing.” Unchanged from former Section 1-201.

Compiler’s Notes.

Former§ 28-1-202 has been recodified as§ 28-1-307.

Official Comment

Source:

Source: Derived from former Section 1-201(25)-(27).

Changes from former law:

1. Under subsection (a), a person has notice of a fact when, inter alia , the person has received a notification of the fact in question. 2. As provided in subsection (d), the word “notifies” is used when the essential fact is the proper dispatch of the notice, not its receipt. Compare “Send.” When the essential fact is the other party’s receipt of the notice, that is stated. Subsection (e) states when a notification is received.

3. Subsection (f) makes clear that notice, knowledge, or a notification, although “received,” for instance, by a clerk in Department A of an organization, is effective for a transaction conducted in Department B only from the time when it was or should have been communicated to the individual conducting that transaction.

Illustrative Cases.

Trustee was entitled to an order under 11 U.S.C.S. § 542 which required Chapter 7 debtors to turn over items they acquired when they purchased a plumbing business because the debtors had an ownership interest in the items at the time they declared bankruptcy; although the debtors claimed that the items belonged to a friend who loaned them money so they could buy the plumbing business, and that they were leasing the items from their friend, the evidence supported a finding that the arrangement they had with their friend was a disguised security interest because the debtors would own the items without paying additional compensation once all payments were made. In re Hunt, 540 B.R. 438 (Bankr. D. Idaho 2015).

Sale.

Where a bankruptcy debtor purported to lease restaurant equipment under a lease which provided that the debtor had an option to purchase the equipment for a nominal price after paying the monthly payments for the full lease term, and the putative lessor filed a financing statement to protect its security interest in the equipment, the transaction was a sale rather than a lease. Bankr. Estate of Wing Foods, Inc. v. CCF Leasing Co. (In re Wing Foods), 2010 Bankr. LEXIS 114 (Bankr. D. Idaho Jan. 14, 2010).

Official Comment

Source:

Source: Former Section 1-201(37).

Changes from former law:

Changes from former law: This section is substantively identical to those portions of former Section 1-201(37) that distinguished “true” leases from security interests, except that the definition of “present value” formerly embedded in Section 1-201(37) has been placed in Section 1-201(28).

1. An interest in personal property or fixtures which secures payment or performance of an obligation is a “security interest.” See Section 1-201(37). Security interests are sometimes created by transactions in the form of leases. Because it can be difficult to distinguish leases that create security interests from those that do not, this section provides rules that govern the determination of whether a transaction in the form of a lease creates a security interest.
2. One of the reasons it was decided to codify the law with respect to leases was to resolve an issue that created considerable confusion in the courts: what is a lease? The confusion existed, in part, due to the last two sentences of the definition of security interest in the 1978 Official Text of the Act, Section 1-201(37). The confusion was compounded by the rather considerable change in the federal, state and local tax laws and accounting rules as they relate to leases of goods. The answer is important because the definition of lease determines not only the rights and remedies of the parties to the lease but also those of third parties. If a transaction creates a lease and not a security interest, the lessee’s interest in the goods is limited to its leasehold estate; the residual interest in the goods belongs to the lessor. This has significant implications to the lessee’s creditors. “On common law theory, the lessor, since he has not parted with title, is entitled to full protection against the lessee’s creditors and trustee in bankruptcy . . . .” 1 G. Gilmore, Security Interests in Personal Property Section 3.6, at 76 (1965).

Under pre-UCC chattel security law there was generally no requirement that the lessor file the lease, a financing statement, or the like, to enforce the lease agreement against the lessee or any third party; the Article on Secured Transactions (Article 9) did not change the common law in that respect. Coogan, Leasing and the Uniform Commercial Code, in Equipment Leasing — Leveraged Leasing 681, 700 n.25, 729 n.80 (2d ed. 1980). The Article on Leases (Article 2A) did not change the law in that respect, except for leases of fixtures. Section 2A-309. An examination of the common law will not provide an adequate answer to the question of what is a lease. The definition of security interest in Section 1-201(37) of the 1978 Official Text of the Act provided that the Article on Secured Transactions (Article 9) governs security interests disguised as leases, i.e. , leases intended as security; however, the definition became vague and outmoded.

Lease is defined in Article 2A as a transfer of the right to possession and use of goods for a term, in return for consideration. Section 2A-103(1)(j). The definition continues by stating that the retention or creation of a security interest is not a lease. Thus, the task of sharpening the line between true leases and security interests disguised as leases continues to be a function of this Article.

This section begins where Section 1-201(35) leaves off. It draws a sharper line between leases and security interests disguised as leases to create greater certainty in commercial transactions.

Prior to enactment of the rules now codified in this section, the 1978 Official Text of Section 1-201(37) provided that whether a lease was intended as security ( i.e. , a security interest disguised as a lease) was to be determined from the facts of each case; however, (a) the inclusion of an option to purchase did not itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee would become, or had the option to become, the owner of the property for no additional consideration, or for a nominal consideration, did make the lease one intended for security.

Reference to the intent of the parties to create a lease or security interest led to unfortunate results. In discovering intent, courts relied upon factors that were thought to be more consistent with sales or loans than leases. Most of these criteria, however, were as applicable to true leases as to security interests. Examples include the typical net lease provisions, a purported lessor’s lack of storage facilities or its character as a financing party rather than a dealer in goods. Accordingly, this section contains no reference to the parties’ intent.

Subsections (a) and (b) were originally taken from Section 1(2) of the Uniform Conditional Sales Act (act withdrawn 1943), modified to reflect current leasing practice. Thus, reference to the case law prior to the incorporation of those concepts in this article will provide a useful source of precedent. Gilmore, Security Law, Formalism and Article 9, 47 Neb. L. Rev. 659, 671 (1968). Whether a transaction creates a lease or a security interest continues to be determined by the facts of each case. Subsection (b) further provides that a transaction creates a security interest if the lessee has an obligation to continue paying consideration for the term of the lease, if the obligation is not terminable by the lessee (thus correcting early statutory gloss, e.g., In re Royer’s Bakery, Inc. , 1 U.C.C. Rep. Serv. (Callaghan) 342 (Bankr. E.D. Pa. 1963)) and if one of four additional tests is met. The first of these four tests, subparagraph (1), is that the original lease term is equal to or greater than the remaining economic life of the goods. The second of these tests, subparagraph (2), is that the lessee is either bound to renew the lease for the remaining economic life of the goods or to become the owner of the goods. In re Gehrke Enters. , 1 Bankr. 647, 651-52 (Bankr. W.D. Wis. 1979). The third of these tests, subparagraph (3), is whether the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration, which is defined later in this section. In re Celeryvale Transp. , 44 Bankr. 1007, 1014-15 (Bankr. E.D. Tenn. 1984). The fourth of these tests, subparagraph (4), is whether the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration. All of these tests focus on economics, not the intent of the parties. In re Berge , 32 Bankr. 370, 371-73 (Bankr. W.D. Wis. 1983).

The focus on economics is reinforced by subsection (c). It states that a transaction does not create a security interest merely because the transaction has certain characteristics listed therein. Subparagraph (1) has no statutory derivative; it states that a full payout lease does not per se create a security interest. Rushton v. Shea , 419 F. Supp. 1349, 1365 (D. Del. 1976). Subparagraphs (2) and (3) provide the same regarding the provisions of the typical net lease. Compare All-States Leasing Co. v. Ochs , 42 Or. App. 319, 600 P.2d 899 (Ct. App. 1979), with In re Tillery , 571 F.2d 1361 (5th Cir. 1978). Subparagraph (4) restates and expands the provisions of the 1978 Official Text of Section 1-201(37) to make clear that the option can be to buy or renew. Subparagraphs (5) and (6) treat fixed price options and provide that fair market value must be determined at the time the transaction is entered into. Compare Arnold Mach. Co. v. Balls , 624 P.2d 678 (Utah 1981), with Aoki v. Shepherd Mach. Co. , 665 F.2d 941 (9th Cir. 1982).

The relationship of subsection (b) to subsection (c) deserves to be explored. The fixed price purchase option provides a useful example. A fixed price purchase option in a lease does not of itself create a security interest. This is particularly true if the fixed price is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be performed. A security interest is created only if the option price is nominal and the conditions stated in the introduction to the second paragraph of this subsection are met. There is a set of purchase options whose fixed price is less than fair market value but greater than nominal that must be determined on the facts of each case to ascertain whether the transaction in which the option is included creates a lease or a security interest.

It was possible to provide for various other permutations and combinations with respect to options to purchase and renew. For example, this section could have stated a rule to govern the facts of In re Marhoefer Packing Co. , 674 F.2d 1139 (7th Cir. 1982). This was not done because it would unnecessarily complicate the definition. Further development of this rule is left to the courts.

Subsections (d) and (e) provide definitions and rules of construction.

Compiler’s Notes.

Former§ 28-1-204 has been recodified as§ 28-1-205.

Chapter 6 of title 28, Idaho Code, referred to in the introductory paragraph, was repealed by S.L. 1993, ch. 288, § 46, effective July 1, 1993.

Official Comment

Source:

Source: Former Section 1-201(44).

Changes from former law:

Changes from former law: Unchanged from former Section 1-201, which was derived from Sections 25, 26, 27, 191, Uniform Negotiable Instruments Law; Section 76, Uniform Sales Act; Section 53, Uniform Bills of Lading Act; Section 58, Uniform Warehouse Receipts Act; Section 22(1), Uniform Stock Transfer Act; Section 1, Uniform Trust Receipts Act. These provisions are substantive rather than purely definitional. Accordingly, they have been relocated from former Section 1-201 to this section.

1. All the Uniform Acts in the commercial law field (except the Uniform Conditional Sales Act) have carried definitions of “value.” All those definitions provided that value was any consideration sufficient to support a simple contract, including the taking of property in satisfaction of or as security for a pre-existing claim. Subsections (1), (2), and (4) in substance continue the definitions of “value” in the earlier acts. Subsection (3) makes explicit that “value” is also given in a third situation: where a buyer by taking delivery under a pre-existing contract converts a contingent into a fixed obligation.

This definition is not applicable to Articles 3 and 4, but the express inclusion of immediately available credit as value follows the separate definitions in those Articles. See Sections 4-208, 4-209, 3-303. A bank or other financing agency which in good faith makes advances against property held as collateral becomes a bona fide purchaser of that property even though provision may be made for charge-back in case of trouble. Checking credit is “immediately available” within the meaning of this section if the bank would be subject to an action for slander of credit in case checks drawn against the credit were dishonored, and when a charge-back is not discretionary with the bank, but may only be made when difficulties in collection arise in connection with the specific transaction involved.

Compiler’s Notes.

This section was formerly codified as§ 28-1-204.

Former§ 28-1-205 has been recodified as§ 28-1-303.

Rejection in Reasonable Time.

Where inspection of potatoes was completed on Friday and buyer’s president orally rejected the crop absolutely and unequivocally on the following Monday, the rejection of the nonconforming goods was accomplished in a reasonable time under this section. G & H Land & Cattle Co. v. Heitzman & Nelson, Inc., 102 Idaho 204, 628 P.2d 1038 (1981).

Athletic club owners’ rejection of a dehumidifier occurred within a reasonable time after delivery, because they needed to operate the dehumidifier in the athletic club to determine whether it conformed to the express warranty that it was fit for that particular purpose. Their continued use of the dehumidifier was necessary to mitigate damages and was not an act inconsistent with the corporation’s ownership. Keller v. Inland Metals All Weather Conditioning, Inc., 139 Idaho 233, 76 P.3d 977 (2003).

Test of Reasonability.

In determining the issue of reasonability, factors such as the nature of the goods to be delivered, the extent of the seller’s knowledge of the buyer’s intentions, transportation conditions and the nature of the market should be considered. Anderson & Nafziger v. G.T. Newcomb, Inc., 100 Idaho 175, 595 P.2d 709 (1979).

Cited

After a buyer and seller entered into a contract for the sale of logs for the construction of a log cabin, and the contract failed to set forth a delivery date, the buyer waited for delivery of a complete log cabin package for over a year after paying the seller 70 percent of the contract price. The buyer then arranged to purchase the balance of logs needed to complete her cabin from another supplier, and the seller was found to have breached the contract by failing to deliver the logs within a reasonable time. Borah v. McCandless, 147 Idaho 73, 205 P.3d 1209 (2009). Cited Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978); Jen-Rath Co. v. KIT Mfg. Co., 137 Idaho 330, 48 P.3d 659 (2002).

Am. Jur. 2d.

15A Am. Jur. 2d, Commercial Code, § 25.

17A Am. Jur. 2d, Contracts, § 466 et seq.

67 Am. Jur. 2d, Sales, § 230 et seq.

ALR.

Official Comment

Source:

Source: Former Section 1-204(2)-(3).

Changes from former law:

Changes from former law: This section is derived from subsections (2) and (3) of former Section 1-204. Subsection (1) of that section is now incorporated in Section 1-302(b).

1. Subsection (a) makes it clear that requirements that actions be taken within a “reasonable” time are to be applied in the transactional context of the particular action.
2. Under subsection (b), the agreement that fixes the time need not be part of the main agreement, but may occur separately. Notice also that under the definition of “agreement” (Section 1-201) the circumstances of the transaction, including course of dealing or usages of trade or course of performance may be material. On the question what is a reasonable time these matters will often be important.

Prior Laws.

Former§ 28-1-206, which comprised 1967, ch. 161,§ 1-206, p. 351; am. 1995, ch. 272, § 17, p. 873, was repealed by S.L. 2004, ch. 43, § 16.

Official Comment

Source:

Source: Former Section 1-201(31).

Changes from former law.

1. Several sections of the Uniform Commercial Code state that there is a “presumption” as to a certain fact, or that the fact is “presumed.” This section, derived from the definition appearing in former Section 1-201(31), indicates the effect of those provisions on the proof process.

Compiler’s Notes.

This section was formerly codified as§ 28-1-105.

Section 54 of S.L. 1993, ch. 288 read: “Rights and obligations that arose under Chapter 6, Title 28, Idaho Code, and Section 28-9-111, Idaho Code, before their repeal remain valid and may be enforced as though those statutes had not been repealed.”

Effective Dates.

Section 31 of S.L. 2001, ch. 208 provided that the act should take effect on and after July 1, 2001. CASE NOTES

Applicable law.

In a dispute over whether a vehicle transaction was a true lease or disguised security interest, Idaho law applied because if the agreement is a security agreement, certificate of title of the vehicle was issued in Idaho and under§ 28-9-103, Idaho law would apply, and if the agreement is a true lease, because the debtors resided in Idaho at the time that the agreement became enforceable. In re Bumgardner, 183 Bankr. 224 (Bankr. D. Idaho 1995).

Provision Upheld.

Where parties’ agreement provided that their contract should be interpreted, construed and governed by the laws of Florida, where defendants were corporations organized under the laws of Florida, and both maintained their principal place of business in Florida, and where the performance of defendant’s obligations under the contract took place, in part, in Florida, district court erred in not applying the choice of law provision in the parties’ contract since Florida bore a reasonable relation to the transaction. Cerami-Kote, Inc. v. Energywave Corp., 116 Idaho 56, 773 P.2d 1143 (1989).

Idaho Law Review.

Idaho Law Review. — Choice of Law in Idaho: A Survey and Critique of Idaho Cases, Andrew S. Jorgensen. 49 Idaho L. Rev. 547 (2013).

Am. Jur. 2d.

67A Am. Jur. 2d, Sales, § 878 et seq.

68A Am. Jur. 2d, Secured Transactions, §§ 8, 9.

Official Comment

Source:

Changes from former law:

1. Subsection (a) states affirmatively the right of the parties to a multi-state transaction or a transaction involving foreign trade to choose their own law. That right is subject to the firm rules stated in the sections listed in subsection (c), and is limited to jurisdictions to which the transaction bears a “reasonable relation.” In general, the test of “reasonable relation” is similar to that laid down by the Supreme Court in Seeman v. Philadelphia Warehouse Co. , 274 U.S. 403, 47 S.Ct. 626, 71 L.Ed. 1123 (1927). Ordinarily the law chosen must be that of a jurisdiction where a significant enough portion of the making or performance of the contract is to occur or occurs. But an agreement as to choice of law may sometimes take effect as a shorthand expression of the intent of the parties as to matters governed by their agreement, even though the transaction has no significant contact with the jurisdiction chosen.
2. Where there is no agreement as to the governing law, the Act is applicable to any transaction having an “appropriate” relation to any state which enacts it. Of course, the Act applies to any transaction which takes place in its entirety in a state which has enacted the Act. But the mere fact that suit is brought in a state does not make it appropriate to apply the substantive law of that state. Cases where a relation to the enacting state is not “appropriate” include, for example, those where the parties have clearly contracted on the basis of some other law, as where the law of the place of contracting and the law of the place of contemplated performance are the same and are contrary to the law under the Code.
3. Where a transaction has significant contacts with a state which has enacted the Act and also with other jurisdictions, the question what relation is “appropriate” is left to judicial decision. In deciding that question, the court is not strictly bound by precedents established in other contexts. Thus a conflict-of-laws decision refusing to apply a purely local statute or rule of law to a particular multi-state transaction may not be valid precedent for refusal to apply the Code in an analogous situation. Application of the Code in such circumstances may be justified by its comprehensiveness, by the policy of uniformity, and by the fact that it is in large part a reformulation and restatement of the law merchant and of the understanding of a business community which transcends state and even national boundaries. Compare Global Commerce Corp. v. Clark-Babbitt Industries, Inc. , 239 F.2d 716, 719 (2d Cir. 1956). In particular, where a transaction is governed in large part by the Code, application of another law to some detail of performance because of an accident of geography may violate the commercial understanding of the parties.
4. Subsection (c) spells out essential limitations on the parties’ right to choose the applicable law. Especially in Article 9 parties taking a security interest or asked to extend credit which may be subject to a security interest must have sure ways to find out whether and where to file and where to look for possible existing filings.
5. Sections 9-301 through 9-307 should be consulted as to the rules for perfection of security interests and agricultural liens and the effect of perfection and nonperfection and priority.
6. This section is subject to Section 1-102, which states the scope of Article 1. As that section indicates, the rules of Article 1, including this section, apply to a transaction to the extent that transaction is governed by one of the other Articles of the Uniform Commercial Code.

Compiler’s Notes.

This section was formerly codified as§ 28-1-205.

CASE NOTES

Agreement Limiting Remedies.

In the situation where farmer bought certified potato seed from dealer and seed was later found to be infected by bacterial ring rot, because factual questions remained as to whether there were any terms in the parties’ agreement excluding warranties or limiting remedies and as to whether there was an applicable course of dealing or trade usage limiting remedies, the lower court’s order denying summary judgment on this issue was affirmed. Duffin v. Idaho Crop Imp. Ass’n, 126 Idaho 1002, 895 P.2d 1195 (1995).

Course of Dealing.

In determining how a maturity clause in a loan agreement should be interpreted, the trial court was correct in refusing to consider course of dealing, where the lender’s conduct, asserted by the borrower, was “subsequent conduct” rather than “previous conduct.” Idaho First Nat’l Bank v. David Steed & Assocs., 121 Idaho 356, 825 P.2d 79 (1992).

Seller effectively disclaimed all implied warranties where a course of dealing was established by over 160 mail invoices over four years each containing a disclaimer, and where tanks containing the purchased pesticide always carried a valid warranty disclaimer on the side. Tolmie Farms, Inc. v. J.R. Simplot Co., 124 Idaho 607, 862 P.2d 299 (1993).

Usage of Trade.

Grant of summary judgment in favor of lessor in his action seeking to recover unpaid rent for the rental of a Bobcat was appropriate because the term “working day” in the lease agreement was unambiguous. Swanson v. BECO Constr. Co., 145 Idaho 59, 175 P.3d 748 (2007).

Where, based upon the clear language of the contract and usage of trade, a buyer had the right to designate the fields from which an order of onions came, and the seller attempted to deliver onions that were not from the designated fields, the buyer rightfully rejected the non-conforming goods under§ 28-2-601(a). Panike & Sons Farms, Inc. v. Smith, 147 Idaho 562, 212 P.3d 992 (2009).

Am. Jur. 2d.

17A Am. Jur. 2d, Contracts, § 361 67 Am. Jur. 2d, Sales, § 20 et seq.

Official Comment

Source:

Changes from former law:

Changes from former law: This section integrates the “course of performance” concept from Articles 2 and 2A into the principles of former Section 1-205, which deals with course of dealing and usage of trade. In so doing, the section slightly modifies the articulation of the course of performance rules to fit more comfortably with the approach and structure of former Section 1-205. There are also slight modifications to be more consistent with the definition of “agreement” in former Section 1-201(3). It should be noted that a course of performance that might otherwise establish a defense to the obligation of a party to a negotiable instrument is not available as a defense against a holder in due course who took the instrument without notice of that course of performance.

1. The Uniform Commercial Code rejects both the “lay-dictionary” and the “conveyancer’s” reading of a commercial agreement. Instead the meaning of the agreement of the parties is to be determined by the language used by them and by their action, read and interpreted in the light of commercial practices and other surrounding circumstances. The measure and background for interpretation are set by the commercial context, which may explain and supplement even the language of a formal or final writing.
2. “Course of dealing,” as defined in subsection (b), is restricted, literally, to a sequence of conduct between the parties previous to the agreement. A sequence of conduct after or under the agreement, however, is a “course of performance.” “Course of dealing” may enter the agreement either by explicit provisions of the agreement or by tacit recognition.
3. The Uniform Commercial Code deals with “usage of trade” as a factor in reaching the commercial meaning of the agreement that the parties have made. The language used is to be interpreted as meaning what it may fairly be expected to mean to parties involved in the particular commercial transaction in a given locality or in a given vocation or trade. By adopting in this context the term “usage of trade,” the Uniform Commercial Code expresses its intent to reject those cases which see evidence of “custom” as representing an effort to displace or negate “established rules of law.” A distinction is to be drawn between mandatory rules of law such as the Statute of Frauds provisions of Article 2 on Sales whose very office is to control and restrict the actions of the parties, and which cannot be abrogated by agreement, or by a usage of trade, and those rules of law (such as those in Part 3 of Article 2 on Sales) which fill in points which the parties have not considered and in fact agreed upon. The latter rules hold “unless otherwise agreed” but yield to the contrary agreement of the parties. Part of the agreement of the parties to which such rules yield is to be sought for in the usages of trade which furnish the background and give particular meaning to the language used, and are the framework of common understanding controlling any general rules of law which hold only when there is no such understanding.
4. A usage of trade under subsection (c) must have the “regularity of observance” specified. The ancient English tests for “custom” are abandoned in this connection. Therefore, it is not required that a usage of trade be “ancient or immemorial,” “universal,” or the like. Under the requirement of subsection (c) full recognition is thus available for new usages and for usages currently observed by the great majority of decent dealers, even though dissidents ready to cut corners do not agree. There is room also for proper recognition of usage agreed upon by merchants in trade codes. 5. The policies of the Uniform Commercial Code controlling explicit unconscionable contracts and clauses (Sections 1-304, 2-302) apply to implicit clauses that rest on usage of trade and carry forward the policy underlying the ancient requirement that a custom or usage must be “reasonable.” However, the emphasis is shifted. The very fact of commercial acceptance makes out a prima facie case that the usage is reasonable, and the burden is no longer on the usage to establish itself as being reasonable. But the anciently established policing of usage by the courts is continued to the extent necessary to cope with the situation arising if an unconscionable or dishonest practice should become standard.

6. Subsection (d), giving the prescribed effect to usages of which the parties “are or should be aware,” reinforces the provision of subsection (c) requiring not universality but only the described “regularity of observance” of the practice or method. This subsection also reinforces the point of subsection (c) that such usages may be either general to trade or particular to a special branch of trade.

7. Although the definition of “agreement” in Section 1-201 includes the elements of course of performance, course of dealing, and usage of trade, the fact that express reference is made in some sections to those elements is not to be construed as carrying a contrary intent or implication elsewhere. Compare Section 1-302(c).

8. In cases of a well established line of usage varying from the general rules of the Uniform Commercial Code where the precise amount of the variation has not been worked out into a single standard, the party relying on the usage is entitled, in any event, to the minimum variation demonstrated. The whole is not to be disregarded because no particular line of detail has been established. In case a dominant pattern has been fairly evidenced, the party relying on the usage is entitled under this section to go to the trier of fact on the question of whether such dominant pattern has been incorporated into the agreement.

9. Subsection (g) is intended to insure that this Act’s liberal recognition of the needs of commerce in regard to usage of trade shall not be made into an instrument of abuse.

Compiler’s Notes.

This section was formerly codified as§ 28-1-203.

Absence of Knowledge.

An examination of the priority and foreclosure scheme of Article 9 demonstrates that absence of knowledge of subordinate security interests could not be a prerequisite for a purchaser to buy property free of encumbrances at a foreclosure sale; for, if absence of knowledge were required, the party whose interest would be undermined would be the secured party who was conducting the sale. Northwest Equip. Sales Co. v. Western Packers, Inc., 623 F.2d 92 (9th Cir. 1980).

Allegations of Bad Faith.

A party’s allegations of bad faith must relate exclusively to the failure to perform the obligations of the contract, not to misrepresentations occurring during the negotiations preceding the contract. Potlatch Corp. v. Beloit Corp., 132 Idaho 712, 979 P.2d 114 (1999).

Duty of Good Faith.

The plaintiff purchasers had a duty to act in good faith to provide the defendant sellers with a reasonable opportunity to repair or replace any defective parts. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978).

The duty of this section does not demand that defendant exhaust all possible means of collection, or that he pursue the most effective means of enforcing payment; but, rather, it requires him to make reasonable efforts to secure payment. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991). Purchase at Foreclosure Sale.

Although the seller of various items of fruit packing machinery had retained a security interest to secure the purchase price, a subsequent foreclosure sale of the real property to which the machinery was affixed discharged the security interest held by the seller of the machinery, where the purchase at the foreclosure sale of the real estate and fruit packing machinery was in good faith. Northwest Equip. Sales Co. v. Western Packers, Inc., 623 F.2d 92 (9th Cir. 1980).

Am. Jur. 2d.

15A Am. Jur. 2d, Commercial Code, § 19.

17A Am. Jur. 2d, Contracts, § 370.

67 Am. Jur. 2d, Sales, § 334.

ALR.

Official Comment

Source:

Changes from former law:

1. This section sets forth a basic principle running throughout the Uniform Commercial Code. The principle is that in commercial transactions good faith is required in the performance and enforcement of all agreements or duties. While this duty is explicitly stated in some provisions of the Uniform Commercial Code, the applicability of the duty is broader than merely these situations and applies generally, as stated in this section, to the performance or enforcement of every contract or duty within this Act. It is further implemented by Section 1-303 on course of dealing, course of performance, and usage of trade. This section does not support an independent cause of action for failure to perform or enforce in good faith. Rather, this section means that a failure to perform or enforce, in good faith, a specific duty or obligation under the contract, constitutes a breach of that contract or makes unavailable, under the particular circumstances, a remedial right or power. This distinction makes it clear that the doctrine of good faith merely directs a court towards interpreting contracts within the commercial context in which they are created, performed, and enforced, and does not create a separate duty of fairness and reasonableness which can be independently breached.
2. “Performance and enforcement” of contracts and duties within the Uniform Commercial Code include the exercise of rights created by the Uniform Commercial Code.

Compiler’s Notes.

This section was formerly codified as§ 28-1-106.

Am. Jur. 2d.

67A Am. Jur. 2d, Sales, § 795 et seq.

68A Am. Jur. 2d, Secured Transactions, § 514 et seq.

Official Comment

Source:

Changes from former law:

1. Subsection (a) is intended to effect three propositions. The first is to negate the possibility of unduly narrow or technical interpretation of remedial provisions by providing that the remedies in the Uniform Commercial Code are to be liberally administered to the end stated in this section. The second is to make it clear that compensatory damages are limited to compensation. They do not include consequential or special damages, or penal damages; and the Uniform Commercial Code elsewhere makes it clear that damages must be minimized. Cf. Sections 1-304, 2-706(1), and 2-712(2). The third purpose of subsection (a) is to reject any doctrine that damages must be calculable with mathematical accuracy. Compensatory damages are often at best approximate: they have to be proved with whatever definiteness and accuracy the facts permit, but no more. Cf. Section 2-204(3). 2. Under subsection (b), any right or obligation described in the Uniform Commercial Code is enforceable by action, even though no remedy may be expressly provided, unless a particular provision specifies a different and limited effect. Whether specific performance or other equitable relief is available is determined not by this section but by specific provisions and by supplementary principles. Cf. Sections 1-103, 2-716.

3. “Consequential” or “special” damages and “penal” damages are not defined in the Uniform Commercial Code; rather, these terms are used in the sense in which they are used outside the Uniform Commercial Code.

Compiler’s Notes.

This section was formerly codified as§ 28-1-107.

Am. Jur. 2d.

67A Am. Jur. 2d, Sales, § 878 et seq.

68A Am. Jur. 2d, Secured Transactions, § 683 et seq.

Official Comment

Source:

Changes from former law:

Changes from former law: This section changes former law in two respects. First, former Section 1-107, requiring the “delivery” of a “written waiver or renunciation” merges the separate concepts of the aggrieved party’s agreement to forgo rights and the manifestation of that agreement. This section separates those concepts, and explicitly requires agreement of the aggrieved party. Second, the revised section reflects developments in electronic commerce by providing for memorialization in an authenticated record. In this context, a party may “authenticate” a record by (i) signing a record that is a writing or (ii) attaching to, or logically associating with a record that is not a writing, an electronic sound, symbol or process with the present intent to adopt or accept the record. See Sections 1-201(b)(37) and 9-102(a)(7).

1. This section makes consideration unnecessary to the effective renunciation or waiver of rights or claims arising out of an alleged breach of a commercial contract where the agreement effecting such renunciation is memorialized in a record authenticated by the aggrieved party. Its provisions, however, must be read in conjunction with the section imposing an obligation of good faith. (Section 1-304).

Compiler’s Notes.

This section was formerly codified as§ 28-1-202.

Am. Jur. 2d.

Official Comment

Source:

Changes from former law:

1. This section supplies judicial recognition for documents that are relied upon as trustworthy by commercial parties.
2. This section is concerned only with documents that have been given a preferred status by the parties themselves who have required their procurement in the agreement, and for this reason the applicability of the section is limited to actions arising out of the contract that authorized or required the document. The list of documents is intended to be illustrative and not exclusive.
3. The provisions of this section go no further than establishing the documents in question as prima facie evidence and leave to the court the ultimate determination of the facts where the accuracy or authenticity of the documents is questioned. In this connection the section calls for a commercially reasonable interpretation.
4. Documents governed by this section need not be writings if records in another medium are generally relied upon in the context.

Compiler’s Notes.

This section was formerly compiled as§ 28-1-207.

Am. Jur. 2d.

17A Am. Jur. 2d, Contracts, §§ 635, 636.

Official Comment

Source:

Changes from former law:

1. This section provides machinery for the continuation of performance along the lines contemplated by the contract despite a pending dispute, by adopting the mercantile device of going ahead with delivery, acceptance, or payment “without prejudice,” “under protest,” “under reserve,” “with reservation of all our rights,” and the like. All of these phrases completely reserve all rights within the meaning of this section. The section therefore contemplates that limited as well as general reservations and acceptance by a party may be made “subject to satisfaction of our purchaser,” “subject to acceptance by our customers,” or the like.
2. This section does not add any new requirement of language of reservation where not already required by law, but merely provides a specific measure on which a party can rely as that party makes or concurs in any interim adjustment in the course of performance. It does not affect or impair the provisions of this Act such as those under which the buyer’s remedies for defect survive acceptance without being expressly claimed if notice of the defects is given within a reasonable time. Nor does it disturb the policy of those cases which restrict the effect of a waiver of a defect to reasonable limits under the circumstances, even though no such reservation is expressed. The section is not addressed to the creation or loss of remedies in the ordinary course of performance but rather to a method of procedure where one party is claiming as of right something which the other believes to be unwarranted.
3. Subsection (b) states that this section does not apply to an accord and satisfaction. Section 3-311 governs if an accord and satisfaction is attempted by tender of a negotiable instrument as stated in that section. If Section 3-311 does not apply, the issue of whether an accord and satisfaction has been effected is determined by the law of contract. Whether or not Section 3-311 applies, this section has no application to an accord and satisfaction.

Compiler’s Notes.

This section was formerly codified as§ 28-1-208.

Am. Jur. 2d.

15A Am. Jur. 2d, Commercial Code, § 33.

Official Comment

Source:

Changes from former law:

1. The common use of acceleration clauses in many transactions governed by the Uniform Commercial Code, including sales of goods on credit, notes payable at a definite time, and secured transactions, raises an issue as to the effect to be given to a clause that seemingly grants the power to accelerate at the whim and caprice of one party. This section is intended to make clear that despite language that might be so construed and which further might be held to make the agreement void as against public policy or to make the contract illusory or too indefinite for enforcement, the option is to be exercised only in the good faith belief that the prospect of payment or performance is impaired.

Obviously this section has no application to demand instruments or obligations whose very nature permits call at any time with or without reason. This section applies only to an obligation of payment or performance which in the first instance is due at a future date.

Compiler’s Notes.

The official comments in chapters 1 to 12 of this title are copyrighted by the National Conference of Commissioners of Uniform State Laws and the American Law Institute and are reproduced by permission.

ALR.

“Out of pocket” or “benefit of bargain” as proper rule of damages for fraudulent representations inducing contract for the transfer of property. 13 A.L.R.3d 875.

Authorization, prohibition, or regulation by municipality of the sale of merchandise on streets or highways, or their use for such purpose. 14 A.L.R.3d 896.

Enforceability of transaction entered into pursuant to referral sales arrangement. 14 A.L.R.3d 1420. Construction and effect of UCC Art. 2, dealing with sales. 17 A.L.R.3d 1010.

“Unconscionability” as ground for refusing enforcement of contract for sale of goods or agreement collateral thereto. 18 A.L.R.3d 1305.

Electricity, gas, or water furnished by public utility as “goods” within provisions of Uniform Commercial Code, Article 2 on Sales. 48 A.L.R.3d 1060.

Consumer class actions based on fraud or misrepresentation. 53 A.L.R.3d 534.

Risk of loss of goods in “sale or return” transaction under UCC§ 2-327. 66 A.L.R.3d 190.

What amounts to “sale” of property for purposes of provision giving tenant right of first refusal if landlord desires to sell. 70 A.L.R.3d 203.

Construction and effect of UCC§ 2-316(2) providing that implied warranty disclaimer must be “conspicuous.” 73 A.L.R.3d 248.

Construction and application of UCC§ 2-201(3)(b) rendering contract of sale enforceable notwithstanding statute of frauds, to extent it is admitted in pleading, testimony, or otherwise in court. 88 A.L.R.3d 416.

Seller’s recovery of price of goods from buyer under UCC§ 2-709. 90 A.L.R.3d 1141.

Construction and application of UCC§ 2-305 dealing with open price term contracts. 91 A.L.R.3d 1237.

Impracticability of performance of sales contract as defense under UCC§ 2-615. 93 A.L.R.3d 584.

Farmers as “merchants” within provisions of UCC Article 2, dealing with sales. 95 A.L.R.3d 484.

Conflict of laws as to validity and effect of arbitration provision in contract for purchase or sale of goods, products, or services. 95 A.L.R.3d 1145.

Buyer’s incidental and consequential damages from seller’s breach under UCC§ 2-715. 96 A.L.R.3d 299.

Requirements contracts under§ 2-306(1) of Uniform Commercial Code. 96 A.L.R.3d 1275.

Construction and application of UCC§ 2-201(3)(c) rendering contract of sale enforceable notwithstanding statute of frauds with respect to goods for which payment has been made and accepted or which have been received and accepted. 97 A.L.R.3d 98.

Contractual liquidated damages provisions under UCC article 2. 98 A.L.R.3d 586.

What constitutes “substantial impairment” entitling buyer to revoke his acceptance of goods under UCC§ 2-608(1). 38 A.L.R.5th 191.

What constitutes a transaction, a contract for sale, or a sale within the scope of UCC article 2. 4 A.L.R.4th 85.

What constitutes “goods” within the scope of UCC Article 2. 4 A.L.R.4th 912.

Specific performance of sale of goods under UCC§ 2-716. 26 A.L.R.4th 294.

Output contracts under§ 2-306(1) of Uniform Commercial Code. 30 A.L.R.4th 396.

Seller’s cure of improper tender or delivery under UCC§ 2-508. 36 A.L.R.4th 110.

Sales: “special manufactured goods” statute of frauds exception in UCC§ 2-201(3)(a). 45 A.L.R.4th 1126.

Official Comment

This Article [Chapter] is a complete revision and modernization of the Uniform Sales Act which was promulgated by the National Conference of Commissioners on Uniform State Laws in 1906 and has been adopted in 34 states and Alaska, the District of Columbia and Hawaii.

The coverage of the present Article [Chapter] is much more extensive than that of the old Sales Act and extends to the various bodies of case law which have been developed both outside of and under the latter.

The arrangement of the present Article [Chapter] is in terms of contract for sale and the various steps of its performance. The legal consequences are stated as following directly from the contract and action taken under it without resorting to the idea of when property or title passed or was to pass as being the determining factor. The purpose is to avoid making practical issues between practical men turn upon the location of an intangible something, the passing of which no man can prove by evidence and to substitute for such abstractions proof of words and actions of a tangible character.

RESEARCH REFERENCES

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes and New Matter:

The Article [Chapter] leaves substantially unaffected the law relating to purchase money security such as conditional sale or chattel mortgage though it regulates the general sales aspects of such transactions. “Security transaction” is used in the same sense as in the Article [Chapter] on Secured Transactions (Article [Chapter] 9).

Cross Reference:

Cross Reference: Article [Chapter] 9.

Definitional Cross References:

“Contract for sale.” Section 2-106.

“Present sale.” Section 2-106.

“Sale.” Section 2-106.

Compiler’s Notes.

The bracketed insertions throughout subsections (2) and (3) were added by the compiler to conform to the statutory citation style.

Effective Dates.

Section 31 of S.L. 2001, ch. 208 provided that the act should take effect on and after July 1, 2001.

Good Faith.

Nothing in the Idaho Code’s definitions of good faith,§ 28-1-201 and subsection (1)(b) of this section, imposes an implicit requirement for a seller to match the lowest price available, nor do plaintiffs contend that defendant expressly undertook to offer such prices. Harvey v. Fearless Farris Whsle., Inc., 589 F.2d 451 (9th Cir. 1979).

Receipt.

Receipt and acceptance of goods is deemed to constitute an unambiguous overt admission by both parties that a contract actually exists and makes admissible oral evidence of other terms of the contract. Under the “receipt and acceptance” exception to the statute, a modified contract may be enforced to the extent of the goods that have been accepted. Thus, whether an implied agreement between building contractor and building supplies company regarding conditions of payment is viewed as modifying the terms of the parties’ initial contract, or as an agreement to terminate the initial contract and create a new, “original” contract, its enforcement is not barred by the statute of frauds. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991).

Sellers.

Cited

Whether suppliers of wheat were “merchants” under§ 28-2-104(1) was only relevant to the breach of implied warranties of merchantability under§ 28-2-314. Where the jury specifically found that suppliers not only breached an implied warranty of merchantability, but also found that an express warranty had been given that the wheat was spring wheat and that such express warranty had been breached, the suppliers were “sellers” within the purview of subdivision (1)(d) of this section. Hence, the breach of the express warranty provided a sufficient basis for the award of consequential damages. Nezperce Storage Co. v. Zenner, 105 Idaho 464, 670 P.2d 871 (1983); Cottonwood Elevator Co. v. Zenner, 105 Idaho 469, 670 P.2d 876 (1983). Cited Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983); Potlatch Corp. v. Beloit Corp., 132 Idaho 712, 979 P.2d 114 (1999).

Decisions Under Prior Law

Good Faith and Value.

Mortgagee of personal property under mortgage securing antecedent debt was held as encumbrancer both in good faith and for value holding a lien superior to claim of purchaser of such property who had not removed it from seller’s premises. Millick v. Stevens, 44 Idaho 347, 257 P. 30 (1927).

Goods.

Agreement to pay full face value of note upon demand was not contract for sale of “goods” under Uniform Sales Law. Wallace Bank & Trust Co. v. First Nat’l Bank, 40 Idaho 712, 237 P. 284 (1925).

Am. Jur. 2d.

67 Am. Jur. 2d, Sales, § 5 et seq.

68A Am. Jur. 2d, Secured Transactions, § 30 et seq.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Subsection (1): Section 76, Uniform Sales Act.

Changes:

Purposes of Changes and New Matter:

Purposes of Changes and New Matter: 1. The phrase “any legal successor in interest of such person” has been eliminated since Section 2-210 of this Article [Chapter], which limits some types of delegation of performance on assignment of a sales contract, makes it clear that not every such successor can be safely included in the definition. In every ordinary case, however, such successors are as of course included.

Cross References:

2. “Receipt” must be distinguished from delivery particularly in regard to the problems arising out of shipment of goods, whether or not the contract calls for making delivery by way of documents of title, since the seller may frequently fulfill his obligations to “deliver” even though the buyer may never “receive” the goods. Delivery with respect to documents of title is defined in Article [Chapter] 1 and requires transfer of physical delivery of a tangible document of title and transfer of control of an electronic document of title. Otherwise the many divergent incidents of delivery are handled incident by incident. Cross References: Point 1: See Section 2-210 and Comment thereon.

Point 2: Section 1-201.

Definitional Cross Reference:

§ 28-2-104. Definitions — “Merchant” — “Between merchants” — “Financing agency.”

1. “Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
2. “Financing agency” means a bank, finance company or other person who in the ordinary course of business makes advances against goods or documents of title or who by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment due or claimed under the contract for sale, as by purchasing or paying the seller’s draft or making advances against it or by merely taking it for collection whether or not documents of title accompany or are associated with the draft. “Financing agency” includes also a bank or other person who similarly intervenes between persons who are in the position of seller and buyer in respect to the goods (section 28-2-707[, Idaho Code]).
3. “Between merchants” means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.

History.

1967, ch. 161,§ 2-104, p. 351; am. 2004, ch. 42, § 5, p. 77.

Compiler’s Notes.

The bracketed insertion at the end of subsection (2) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: None. But see Sections 15 (2), (5), 16(c), 45(2) and 71, Uniform Sales Act, and Sections 35 and 37, Uniform Bills of Lading Act for examples of the policy expressly provided for in this Article [Chapter].

Purposes:

Purposes: 1. This Article [Chapter] assumes that transactions between professionals in a given field require special and clear rules which may not apply to a casual or inexperienced seller or buyer. It thus adopts a policy of expressly stating rules applicable “between merchants” and “as against a merchant” wherever they are needed instead of making them depend upon the circumstances of each case as in the statutes cited above. This section lays the foundation of this policy by defining those who are to be regarded as professionals or “merchants” and by stating when a transaction is deemed to be “between merchants.”

2. The term “merchant” as defined here roots in the “law merchant” concept of a professional in business. The professional status under the definition may be based upon specialized knowledge as to the goods, specialized knowledge as to business practices, or specialized knowledge as to both and which kind of specialized knowledge may be sufficient to establish the merchant status is indicated by the nature of the provisions.

The special provisions as to merchants appear only in this Article [Chapter] and they are of three kinds. Sections 2-201(2), 2-205, 2-207 and 2-209 dealing with the statute of frauds, firm offers, confirmatory memoranda and modification rest on normal business practices which are or ought to be typical of and familiar to any person in business. For purposes of these sections almost every person in business would, therefore, be deemed to be a “merchant” under the language “who . . . by his occupation holds himself out as having knowledge or skill peculiar to the practices. . . involved in the transaction . . .” since the practices involved in the transaction are non-specialized business practices such as answering mail. In this type of provision, banks or even universities, for example, well may be “merchants.” But even these sections only apply to a merchant in his mercantile capacity; a lawyer or bank president buying fishing tackle for his own use is not a merchant. On the other hand, in Section 2-314 on the warranty of merchantability, such warranty is implied only “if the seller is a merchant with respect to goods of that kind.” Obviously this qualification restricts the implied warranty to a much smaller group than everyone who is engaged in business and requires a professional status as to particular kinds of goods. The exception in Section 2-402(2) for retention of possession by a merchant-seller falls in the same class; as does Section 2-403(2) on entrusting of possession to a merchant “who deals in goods of that kind.”

A third group of sections includes 2-103(1)(b), which provides that in the case of a merchant “good faith” includes observance of reasonable commercial standards of fair dealing in the trade; 2-327(1)(c), 2-603 and 2-605, dealing with responsibilities of merchant buyers to follow seller’s instructions, etc.; 2-509 on risk of loss, and 2-609 on adequate assurance of performance. This group of sections applies to persons who are merchants under either the “practices” or the “goods” aspect of the definition of merchant.

3. The “or to whom such knowledge or skill may be attributed by his employment of an agent or broker . . .” clause of the definition of merchant means that even persons such as universities, for example, can come within the definition of merchant if they have regular purchasing departments or business personnel who are familiar with business practices and who are equipped to take any action required.

Cross References:

Point 2: See Sections 2-314, 2-315 and 2-320 to 2-325, of this Article [Chapter], and Article [Chapter] 9.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract for sale.” Section 2-106.

“Document of title.” Section 1-201.

“Draft.” Section 3-104.

“Goods.” Section 2-105.

“Person.” Section 1-201.

“Purchase.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in subsection (1) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Goods.

Steel pipe constituted “goods” as defined by this section. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978). Potatoes which were clearly movable at the time they were identified in a sales contract were “goods” within the purview of the Idaho Uniform Commercial Code. Borges v. Magic Valley Foods, Inc., 101 Idaho 494, 616 P.2d 273 (1980); G & H Land & Cattle Co. v. Heitzman & Nelson, Inc., 102 Idaho 204, 628 P.2d 1038 (1981).

The sale of a log skidder was a sale of “goods” within the meaning of this section. Breeden v. Edmenson, 107 Idaho 319, 689 P.2d 211 (Ct. App. 1984).

Where the predominant factor, thrust, and purpose of the city’s contract for supplying and installing of the secondary treatment equipment of the city’s sewage treatment plant was for the sale of goods, with a necessary, non-divisible, but incidental, services component, the contract was governed by the UCC. United States v. City of Twin Falls, 806 F.2d 862 (9th Cir. 1986), cert. denied, 482 U.S. 914, 107 S. Ct. 3185, 96 L. Ed. 2d 674 (1987).

Scope.

In a case concerning a hybrid transaction involving both a sale of goods implicating the UCC and a sale of services not implicating the UCC, with the predominant purpose being for the provision of services, since the issue presented could have been resolved by an explicit provision in the agreement, the parties’ choice of California law was given effect. Ward v. Puregro Co., 128 Idaho 366, 913 P.2d 582 (1996).

Decisions Under Prior Law

Goods.

Agreement to pay full face value of note upon demand was not contract for sale of “goods” under Uniform Sales Law. Wallace Bank & Trust Co. v. First Nat’l Bank, 40 Idaho 712, 237 P. 284 (1925).

Goods in Deliverable State.

Where purchaser contracted for “strictly number one merchantable hay,” it could not be compelled to take delivery of hay other than that grade and until hay of that grade was segregated it was not in a deliverable state. Idaho Prods. Co. v. Bales, 36 Idaho 800, 214 P. 206 (1923).

Am. Jur. 2d.

68A Am. Jur. 2d, Secured Transactions, § 53 et seq.

ALR.

Electricity, Gas, or Water Furnished by Public Utility or Alternative Supplier as “Goods” Within Provisions of Uniform Commercial Code, Article 2 on Sales. 97 A.L.R.6th 1.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Subsections (1), (2), (3) and (4) — Sections 5, 6 and 76, Uniform Sales Act; Subsections (5) and (6) — none.

Changes:

Purposes of Changes and New Matter:

Purposes of Changes and New Matter: 1. Subsection (1) on “goods”: The phraseology of the prior uniform statutory provision has been changed so that:

The definition of goods is based on the concept of movability and the term “chattels personal” is not used. It is not intended to deal with things which are not fairly identifiable as movables before the contract is performed.

Growing crops are included within the definition of goods since they are frequently intended for sale. The concept of “industrial” growing crops has been abandoned, for under modern practices fruit, perennial hay, nursery stock and the like must be brought within the scope of this Article [Chapter]. The young of animals are also included expressly in this definition since they, too, are frequently intended for sale and may be contracted for before birth. The period of gestation of domestic animals is such that the provisions of the section on identification can apply as in the case of crops to be planted. The reason of this definition also leads to the inclusion of a wool crop or the like as “goods” subject to identification under this Article [Chapter].

The exclusion of “money in which the price is to be paid” from the definition of goods does not mean that foreign currency which is included in the definition of money may not be the subject matter of a sales transaction. Goods is intended to cover the sale of money when money is being treated as a commodity but not to include it when money is the medium of payment.

As to contracts to sell timber, minerals, or structures to be removed from the land Section 2-107(1) (Goods to be severed from Realty: recording) controls.

The use of the word “fixtures” is avoided in view of the diversity of definitions of that term. This Article [Chapter] in including within its scope “things attached to realty” adds the further test that they must be capable of severance without material harm thereto. As between the parties any identified things which fall within that definition become “goods” upon the making of the contract for sale.

“Investment securities” are expressly excluded from the coverage of this Article [Chapter]. It is not intended by this exclusion, however, to prevent the application of a particular section of this Article [Chapter] by analogy to securities (as was done with the Original Sales Act in Agar v. Orda , 264 N.Y. 248, 190 N.E. 479, 99 A.L.R. 269 (1934)) when the reason of that section makes such application sensible and the situation involved is not covered by the Article [Chapter] of this Act dealing specifically with such securities (Article [Chapter] 8).

2. References to the fact that a contract for sale can extend to future or contingent goods and that ownership in common follows the sale of a part interest have been omitted here as obvious without need for expression; hence no inference to negate these principles should be drawn from their omission. 3. Subsection (4) does not touch the question of how far an appropriation of a bulk of fungible goods may or may not satisfy the contract for sale.

4. Subsections (5) and (6) on “lot” and “commercial unit” are introduced to aid in the phrasing of later sections.

5. The question of when an identification of goods takes place is determined by the provisions of Section 2-501 and all that this section says is what kinds of goods may be the subject of a sale.

Cross References:

Cross References: Point 1: Sections 2-107, 2-201, 2-501 and Article [Chapter] 8.

Point 5: Section 2-501.

See also Section 1-201.

Definitional Cross References:

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Fungible.” Section 1-201.

“Money.” Section 1-201.

“Present sale.” Section 2-106.

“Sale.” Section 2-106.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion in subsection (1) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Contract of Sale.

Where agreement identified both parties, named the consideration, specified the model, make and serial number and was signed by both parties, this was sufficient for it to constitute a contract of sale even though it also allowed the seller, until buyer took possession, to sell to anyone else if he could get a higher price. Ace Supply, Inc. v. Rocky-Mountain Mach. Co., 96 Idaho 183, 525 P.2d 965 (1974). Enforceability of Contract.

The Uniform Commercial Code provides that a contract not satisfying the statute of frauds is nonetheless enforceable if the party against who enforcement is sought admits in his testimony that a contract was made. Faw v. Greenwood, 101 Idaho 387, 613 P.2d 1338 (1980).

Sale.

The repurchase of parts, as provided by§ 28-23-102, is a sale within the definition of subsection (1). MH & H Implement, Inc. v. Massey-Ferguson, Inc., 108 Idaho 879, 702 P.2d 917 (Ct. App. 1985).

Decisions Under Prior Law

Agreement to Purchase Note.

Agreement to purchase certain note upon written demand, and to pay for such note its full face value and accruing interest, was not a sales contract, but a promise to pay on demand the sum named. Wallace Bank & Trust Co. v. First Nat’l Bank, 40 Idaho 712, 237 P. 284 (1925).

Cash Sale.

A “cash sale” was one where payment and delivery were to be concurrent. Western Seed Marketing Co. v. Pfost, 45 Idaho 340, 262 P. 514 (1927).

Executed or Executory Contracts.

If the risk of loss from injury to, or destruction of, the property is on the buyer, the contract is executed, and, if on the seller, it is executory. Western Seed Marketing Co. v. Pfost, 45 Idaho 340, 262 P. 514 (1927); Peterson v. Universal Auto. Ins. Co., 53 Idaho 11, 20 P.2d 1016 (1933).

Offer and Acceptance.

Word “accepted” signed by buyer on offer in writing to sell definite quantity of certain article constituted valid contract of sale. O.A. Olin Co. v. Lambach, 35 Idaho 767, 209 P. 277 (1922).

Am. Jur. 2d.

67 Am. Jur. 2d, Sales, § 15 et seq.

68A Am. Jur. 2d, Secured Transactions, § 30 et seq.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Subsection (1) — Section 1(1) and (2), Uniform Sales Act; Subsection (2) — none, but subsection generally continues policy of Sections 11, 44 and 69, Uniform Sales Act; Subsections (3) and (4) — none.

Changes:

Purposes of Changes and New Matter:

Purposes of Changes and New Matter: 1. Subsection (1): “Contract for sale” is used as a general concept throughout this Article [Chapter], but the rights of the parties do not vary according to whether the transaction is a present sale or a contract to sell unless the Article [Chapter] expressly so provides.

2. Subsection (2): It is in general intended to continue the policy of requiring exact performance by the seller of his obligations as a condition to his right to require acceptance. However, the seller is in part safeguarded against surprise as a result of sudden technicality on the buyer’s part by the provisions of Section 2-508 on seller’s cure of improper tender or delivery. Moreover usage of trade frequently permits commercial leeways in performance and the language of the agreement itself must be read in the light of such custom or usage and also, prior course of dealing, and in a long term contract, the course of performance.

3. Subsections (3) and (4): These subsections are intended to make clear the distinction carried forward throughout this Article [Chapter] between termination and cancellation.

Cross References:

Cross References: Point 2: Sections 1-203, 1-205 [1-303], 2-208 and 2-508.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract.” Section 1-201.

“Goods.” Section 2-105.

“Party.” Section 1-201.

“Remedy.” Section 1-201.

“Rights.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d.

68A Am. Jur. 2d, Secured Transactions, § 53 et seq.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. Subsection (1). Notice that this subsection applies only if the minerals or structures “are to be severed by the seller.” If the buyer is to sever, such transactions are considered contracts affecting land and all problems of the Statute of Frauds and of the recording of land rights apply to them. Therefore, the Statute of Frauds section of this Article [Chapter] does not apply to such contracts though they must conform to the Statute of Frauds affecting the transfer of interests in land. 2. Subsection (2). “Things attached” to the realty which can be severed without material harm are goods within this Article [Chapter] regardless of who is to effect the severance. The word “fixtures” has been avoided because of the diverse definitions of this term, the test of “severance without material harm” being substituted.

The provision in subsection (3) for recording such contracts is within the purview of this Article [Chapter] since it is a means of preserving the buyer’s rights under the contract of sale.

3. The security phases of things attached to or to become attached to realty are dealt with in the Article [Chapter] on Secured Transactions (Article [Chapter] 9) and it is to be noted that the definition of goods in that Article [Chapter] differs from the definition of goods in this Article [Chapter].

However, both Articles [Chapters] treat as goods growing crops and also timber to be cut under a contract of severance.

Cross References:

Point 2: Section 2-105.

Point 3: Articles [Chapters] 9 and 9-105.

Definitional Cross References:

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Goods.” Section 2-105.

“Party.” Section 1-201.

“Present sale.” Section 2-106.

“Rights.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion at the end of paragraph (3)(c) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted. CASE NOTES

Part performance.

Sufficiency of terms.

Agreement to Contract.

A party cannot state an agreement to purchase goods on his own terms and, thereby, unilaterally form a contract. The seller must agree to sell the goods. D.R. Curtis Co. v. Mason, 103 Idaho 476, 649 P.2d 1232 (Ct. App. 1982).

Application.

The statute of frauds applies only to executory contracts, not those which have been performed. Beal v. Griffin, 123 Idaho 445, 849 P.2d 118 (Ct. App. 1993).

Where the defendant delivered and installed equipment, and the plaintiff paid for it, the issue before the court was one of warranties and guarantees, not whether the sale was enforceable under the statute of frauds. J.R. Simplot Co. v. Enviro-Clear Co., 132 Idaho 251, 970 P.2d 980 (1998).

If an agreement contains terms for the sale of goods and services, the contract is a hybrid contract. The test for whether a hybrid contract is subject to the UCC, and the statute of frauds, is whether the predominant factor, the thrust, the purpose of the agreement is a transaction of sale, with labor incidentally involved. Silicon Int’l Ore, LLC v. Monsato Co., 155 Idaho 538, 314 P.3d 593 (2013).

Contract Admitted in Testimony.

The Uniform Commercial Code provides that a contract not satisfying the statute of frauds is nonetheless enforceable if the party against who enforcement is sought admits in his testimony that a contract was made. Faw v. Greenwood, 101 Idaho 387, 613 P.2d 1338 (1980).

Defendant admitted, while testifying as an adverse party in plaintiff’s case-in-chief, that defendant and plaintiff had entered into an agreement wherein defendant agreed to use plaintiff’s potatoes to help fulfill a potato contract with a third party; therefore, there was substantial evidence that defendant and plaintiff had entered into an enforceable requirements contract. Mitchell v. Barendregt, 120 Idaho 837, 820 P.2d 707 (Ct. App. 1991).

Exceptions.

Where a man agreed to sell a truck to a corporation, but there was no written agreement, payment, transfer of title, use by the corporation or the like, the agreement did not fall within any of the exceptions to the statute of frauds and neither party could have enforced the contract of sale unless the other admitted that a contract had been made or unless the truck had been received and accepted. Keller Lorenz Co. v. Insurance Assocs. Corp., 98 Idaho 678, 570 P.2d 1366 (1977).

Existence of Contract.

Where buyer alleged the existence of a contract to purchase equipment and attached a copy of the bill of sale to his complaint, buyer could not rely upon the defense of the statute of frauds to avoid the enforcement of the contract. Christensen v. Ransom, 123 Idaho 99, 844 P.2d 1349 (Ct. App. 1992).

Where buyer recorded a bill of sale at the county recorder’s office, gave the seller a check for $20,000, and buyer, three days later, asked the sellers to sign a receipt for the $20,000 partial payment, there was substantial evidence to support the district court’s findings of the existence of a contract. Christensen v. Ransom, 123 Idaho 99, 844 P.2d 1349 (Ct. App. 1992).

Surety’s arguments concerning the statute of frauds misapprehended the issue, because the statute of frauds would only be relevant as a defense to show that the sub-subcontractor did not have a direct contractual relationship with the subcontractor and any applicable exception to the statute of frauds would depend upon the conduct of the sub-subcontractor and subcontractor; there was no requirement under§ 54-1927 that the sub-subcontractor have any contractual relationship with the surety. Evco Sound & Elecs., Inc. v. Seaboard Sur. Co., 148 Idaho 357, 223 P.3d 740 (2009).

Part Performance.

Buyer’s payment of $120, which was accepted by seller though later returned, constitutes sufficient part performance to excuse compliance with the statute of frauds. Paloukos v. Intermountain Chevrolet Co., 99 Idaho 740, 588 P.2d 939 (1978).

Part payment for a nondivisible unit, such as an automobile, permits the party under subsection (3)(c) of this section to prove and recover in full on the oral contract. Paloukos v. Intermountain Chevrolet Co., 99 Idaho 740, 588 P.2d 939 (1978).

Receipt and Acceptance.

Receipt and acceptance of goods is deemed to constitute an unambiguous overt admission by both parties that a contract actually exists and makes admissible oral evidence of other terms of the contract under the “receipt and acceptance” exception to the statute, a modified contract may be enforced to the extent of the goods that have been accepted; thus, whether the implied agreement between building contractor and building supplies company regarding conditions of payment is viewed as modifying the terms of the parties’ initial contract, or as an agreement to terminate the initial contract and create a new, “original” contract, its enforcement is not barred by the statute of frauds. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991).

Where the plaintiff accepted and paid for equipment, the requirement of a writing contained in subsection (1) of this provision was unnecessary. J.R. Simplot Co. v. Enviro-Clear Co., 132 Idaho 251, 970 P.2d 980 (1998). Sufficiency of Terms.

Where agreement identified both parties, named the consideration, specified the model, make and serial number and was signed by both parties, this was sufficient for it to constitute a contract of sale even though it also allowed the seller, until buyer took possession, to sell to anyone else if he could get a higher price. Ace Supply, Inc. v. Rocky-Mountain Mach. Co., 96 Idaho 183, 525 P.2d 965 (1974).

Although the contract, between defendant and a potato purchaser, relied upon by the trial court, satisfied the statutory requirement of “a writing sufficient to indicate that a contract for sale” had been made between defendant and plaintiff, because plaintiff was named in the contract text, such writing was nevertheless insufficient to meet the “quantity of goods” requirement because it did not in any way specify quantity of potatoes as between plaintiff and defendant. Mitchell v. Barendregt, 120 Idaho 837, 820 P.2d 707 (Ct. App. 1991).

Buyer admitted the existence of a contract with a purchase price of $20,000. Buyer did not admit to a purchase price of $40,000. Though the admission prevented buyer from successfully asserting the statute of fraud as to the existence of a contract, it did not establish the terms of the contract. Christensen v. Ransom, 123 Idaho 99, 844 P.2d 1349 (Ct. App. 1992).

Written Confirmation.

Sending a memorandum of confirmation of purchase does not create an enforceable contract unless there existed a previous oral agreement to be confirmed and this is true notwithstanding an unconditional statement upon the written confirmation form noting that failure to return the form would be deemed an acceptance of the contract. No language in a “confirming memorandum” can create an agreement that did not previously exist. D.R. Curtis Co. v. Mason, 103 Idaho 476, 649 P.2d 1232 (Ct. App. 1982).

Where a grain farmer telephoned a grain brokerage company merely to explore the possibility of a sale, and the evidence showed that he did not agree during the telephone conversation to sell his wheat at that time, the trial court properly found that no oral agreement was ever reached between the parties. The farmer’s failure to return a “confirmation memorandum” sent to him by an agent for the brokerage company did not create an agreement that did not previously exist between the parties, even where the memorandum stated that its retention was an acknowledgment and acceptance of the contract. D.R. Curtis Co. v. Mason, 103 Idaho 476, 649 P.2d 1232 (Ct. App. 1982).

Decisions Under Prior Law

Admissibility of Oral Evidence.

Evidence that owner had negotiated for sale of sheep for delivery on day bond was given was admissible, although not in writing, to establish market value of property at time bond was given, in an action for damages on a bond given to assure performance of injunction restraining disposal of such sheep. Beech v. American Sur. Co., 56 Idaho 159, 51 P.2d 213 (1935).

Application.

Statute did not apply to oral contract to purchase lumber ordered specifically and accepted in full by the buyers. Hoff Bldg. Supply v. Wright, 76 Idaho 298, 282 P.2d 478 (1955).

Contracts Voidable.

A contract falling within the statute of frauds is not void but voidable. Bevercombe v. Denney & Co., 40 Idaho 34, 231 P. 427 (1924).

Delivery of Goods.

Where statute was not complied with at the time sale was made, the contract could only be enforced against the purchaser if he afterwards received and accepted goods; but in case he did afterwards so receive and accept them, the contract became executed and the statute had no application. Coffin v. Bradbury, 3 Idaho 770, 35 P. 715 (1894).

Act of buyer of goods under a contract in offering to sell goods which he has contracted to purchase was such an act as constituted an acceptance of the goods so as to take contract out of the operation of the statute. Bicknell v. Owyhee Sheep & Land Co., 31 Idaho 696, 176 P. 782 (1918).

Letters as Contracts.

Where the contract was evidenced by a series of letters and telegrams interchanged by the parties, the duty of interpreting their meaning was properly referred to a jury. Idaho Hide & Fur Co. v. Portland Hide & Wool Co., 47 Idaho 615, 277 P. 572 (1929).

No Part Payment on Delivery.

Where essential part of a contract for sale of mining stock for more than $200 rested in parole, and there had been no delivery of any part of the property and no payment of any part of the purchase price, such contract was void. Snow Storm Mining Co. v. Johnson, 186 F. 745 (9th Cir. 1911).

Pleading.

Statute of frauds is a defense that may or may not be used, but is not available as a defense unless pleaded. Bevercombe v. Denney & Co., 40 Idaho 34, 231 P. 427 (1924).

Am. Jur. 2d.

67 Am. Jur. 2d, Sales, §§ 73 et seq.

C.J.S.

ALR.

Construction and effect of affirmative provision in contract of sale by which purchaser agrees to take article “as is,” in the condition in which it is, or equivalent term. 24 A.L.R.3d 465.

Applicability of statute of frauds to agreement to rescind contract for sale of land. 42 A.L.R.3d 242.

Action by employee in reliance on employment contract which violates statute of frauds as rendering contract enforceable. 54 A.L.R.3d 715.

Exceptions to rule that oral gifts of land are unenforceable under statute of frauds. 83 A.L.R.3d 1294.

Construction and application of UCC§ 2-201(3)(b) rendering contract of sale enforceable notwithstanding statute of frauds to extent it is admitted in pleading, testimony, or otherwise in court. 88 A.L.R.3d 416.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Goods and Services: Distributorship, Franchise, and Similar Business Contracts. 8 A.L.R.7th 4.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th 7.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 4, Uniform Sales Act (which was based on Section 17 of the Statute of 29 Charles II).

Changes:

Purposes of Changes:

1. The required writing need not contain all the material terms of the contract and such material terms as are stated need not be precisely stated. All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction. It may be written in lead pencil on a scratch pad. It need not indicate which party is the buyer and which the seller. The only term which must appear is the quantity term which need not be accurately stated but recovery is limited to the amount stated. The price, time and place of payment or delivery, the general quality of the goods, or any particular warranties may all be omitted.
2. “Partial performance” as a substitute for the required memorandum can validate the contract only for the goods which have been accepted or for which payment has been made and accepted.
3. Between merchants, failure to answer a written confirmation of a contract within ten days of receipt is tantamount to a writing under subsection (2) and is sufficient against both parties under subsection (1). The only effect, however, is to take away from the party who fails to answer the defense of the Statute of Frauds; the burden of persuading the trier of fact that a contract was in fact made orally prior to the written confirmation is unaffected. Compare the effect of a failure to reply under Section 2-207.
4. Failure to satisfy the requirements of this section does not render the contract void for all purposes, but merely prevents it from being judicially enforced in favor of a party to the contract. For example, a buyer who takes possession of goods as provided in an oral contract which the seller has not meanwhile repudiated, is not a trespasser. Nor would the Statute of Frauds provisions of this section be a defense to a third person who wrongfully induces a party to refuse to perform an oral contract, even though the injured party cannot maintain an action for damages against the party so refusing to perform.
5. The requirement of “signing” is discussed in the comment to Section 1-201.
6. It is not necessary that the writing be delivered to anybody. It need not be signed or authenticated by both parties but it is, of course, not sufficient against one who has not signed it. Prior to a dispute no one can determine which party’s signing of the memorandum may be necessary but from the time of contracting each party should be aware that to him it is signing by the other which is important. 7. If the making of a contract is admitted in court, either in a written pleading, by stipulation or by oral statement before the court, no additional writing is necessary for protection against fraud. Under this section it is no longer possible to admit the contract in court and still treat the Statute as a defense. However, the contract is not thus conclusively established. The admission so made by a party is itself evidential against him of the truth of the facts so admitted and of nothing more; as against the other party, it is not evidential at all.

Special emphasis must be placed on the permissibility of omitting the price term in view of the insistence of some courts on the express inclusion of this term even where the parties have contracted on the basis of a published price list. In many valid contracts for sale the parties do not mention the price in express terms, the buyer being bound to pay and the seller to accept a reasonable price which the trier of the fact may well be trusted to determine. Again, frequently the price is not mentioned since the parties have based their agreement on a price list or catalogue known to both of them and this list serves as an efficient safeguard against perjury. Finally, “market” prices and valuations that are current in the vicinity constitute a similar check. Thus if the price is not stated in the memorandum it can normally be supplied without danger of fraud. Of course if the “price” consists of goods rather than money the quantity of goods must be stated. Only three definite and invariable requirements as to the memorandum are made by this subsection. First, it must evidence a contract for the sale of goods; second, it must be “signed,” a word which includes any authentication which identifies the party to be charged; and third, it must specify a quantity.

Receipt and acceptance either of goods or of the price constitutes an unambiguous overt admission by both parties that a contract actually exists. If the court can make a just apportionment, therefore, the agreed price of any goods actually delivered can be recovered without a writing or, if the price has been paid, the seller can be forced to deliver an apportionable part of the goods. The overt actions of the parties make admissible evidence of the other terms of the contract necessary to a just apportionment. This is true even though the actions of the parties are not in themselves inconsistent with a different transaction such as a consignment for resale or a mere loan of money.

Part performance by the buyer requires the delivery of something by him that is accepted by the seller as such performance. Thus, part payment may be made by money or check, accepted by the seller. If the agreed price consists of goods or services, then they must also have been delivered and accepted.

Cross References:

Definitional Cross References:

“Between merchants.” Section 2-104.

“Buyer.” Section 2-103.

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Goods.” Section 2-105.

“Notice.” Section 1-201.

“Party.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Sale.” Section 2-106.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion near the end of paragraph (a) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Applicability.

This section only applies where the confirmatory memoranda agree; when the confirmatory memoranda conflict,§ 28-2-207 is applicable. Airstream, Inc. v. CIT Fin. Servs., Inc., 111 Idaho 307, 723 P.2d 851 (1986).

The parol evidence rule is inapplicable to conflicting statements made after the parties entered a sale agreement; this rule excludes only extrinsic evidence of agreements or understandings that precede or are contemporaneous with the written contract and does not preclude evidence of agreements or statements made after the writing. Herrick v. Leuzinger, 127 Idaho 293, 900 P.2d 201 (Ct. App. 1995).

Consistent Terms.

Where creditor testified that he and general manager of debtor orally agreed that if debtor could not sell the tractor to a third party for more than the agreed contract price, then creditor would take the tractor, and this parol evidence did not contradict the sale agreement between creditor and debtor, it was properly admissible. Ace Supply, Inc. v. Rocky-Mountain Mach. Co., 96 Idaho 183, 525 P.2d 965 (1974).

Where a promised delivery date was not contradictory to, nor did it negate, the written agreement the parties entered into, it would be a “consistent additional term” that would be admissible subject to the proviso that the purchase agreement was not intended as a complete and exclusive statement of the terms of the agreement. Anderson & Nafziger v. G.T. Newcomb, Inc., 100 Idaho 175, 595 P.2d 709 (1979).

Where a sales agreement provided that a bankruptcy trustee sold all assets of a bankruptcy debtor located at a restaurant to the debtor’s landlord, but the trustee subsequently asserted that prior emails between the trustee and the landlord indicated that the trustee did not intend to sell certain equipment, the sales agreement with a merger clause was binding; parol evidence was not available to add terms to the agreement since the emails did not resolve whether the equipment was included in the sale and, in any event, additional terms to exclude the equipment were not consistent with the agreement. Bankr. Estate of Wing Foods, Inc. v. CCF Leasing Co. (In re Wing Foods), 2010 Bankr. LEXIS 114 (Bankr. D. Idaho Jan. 14, 2010).

In General.

This section is not necessarily a statement of a parol evidence rule distinct from the common law, but rather it intended to incorporate the common law relevant to the parol evidence rule unless the common law was specifically excluded. Glenn Dick Equip. Co. v. Galey Constr., Inc., 97 Idaho 216, 541 P.2d 1184 (1975).

Intent of Parties.

The intent of the parties to a contract must be derived from all the documents employed, the circumstances surrounding their execution, and the subsequent conduct of the parties. Interform Co. v. Mitchell, 575 F.2d 1270 (9th Cir. 1978).

Legislative Intent.

In analyzing whether the parties intended a purchase order as a “complete and exclusive statement of the terms of the agreement” the trial court should bear in mind that this section was intended to liberalize the parol evidence rule and to abolish the presumption that a writing is a total integration. This section requires that the court make a definite finding that the parties intended a total integration, before consistent additional terms are to be excluded. Anderson & Nafziger v. G.T. Newcomb, Inc., 100 Idaho 175, 595 P.2d 709 (1979).

Proper Admission of Extrinsic Evidence.

The determination of whether a writing is a complete and exclusive statement of the terms of the agreement should not be confined to a simple scanning of what terms the writing embodies. Instead the trial court should consider not only the language of the agreement but all extrinsic evidence relevant to the issue of whether the parties intended the written agreement to be a complete integration. Anderson & Nafziger v. G.T. Newcomb, Inc., 100 Idaho 175, 595 P.2d 709 (1979). This section permits the introduction of parol evidence to explain or supplement through evidence of consistent additional terms, unless the court finds the writing was intended as a complete and exclusive statement of the terms of the agreement. Anderson & Nafziger v. G.T. Newcomb, Inc., 100 Idaho 175, 595 P.2d 709 (1979).

Only if the writing is determined to be the final written expression of the parties’ agreement does the parol evidence rule apply to exclude evidence of conflicting or additional terms. Therefore, in view of the magistrate’s finding that the parties in fact agreed to make building contractor’s obligation subject to a condition — a term inconsistent with the written term contained in the invoice requiring payment on the tenth day of the month following delivery — the writing was not intended by the parties as the final expression of the agreed upon terms and accordingly, the magistrate’s decision to consider extrinsic evidence to determine the terms of the parties’ agreement was not erroneous. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991).

A bill of sale for cattle from plaintiffs’ predecessors to the defendants provided no basis for exclusion of parol evidence where evidence showed bill was not a conveyance but was a device used to clear title to the cattle. Herrick v. Leuzinger, 127 Idaho 293, 900 P.2d 201 (Ct. App. 1995).

Trial court did not err in admitting into evidence preliminary negotiations between the parties regarding the number and dates of proposed deliveries because the contract did not contain a merger clause to indicate that it was meant as the complete and exclusive statement of the terms. The negotiations were admissible because they were made prior to or contemporaneous with the contract and were consistent with its terms. Borah v. McCandless, 147 Idaho 73, 205 P.3d 1209 (2009).

Subsequent Oral Agreement.

Inasmuch as the parol evidence rule bars only a prior or contemporaneous oral agreement relating to the same subject matter, seller’s evidence as to difference between commissions charged on lumber as stated in the written contract and as subsequently billed was admissible as evidence as either (a) an oral modification of a written agreement, or (b) a new oral contract, or (c) an offer by seller to provide additional services for additional compensation. Brewer v. Pitkin, 99 Idaho 114, 577 P.2d 1162 (1978).

Am. Jur. 2d.

67 Am. Jur. 2d, Sales, § 73 et seq.

ALR.

Application of parol evidence rule of UCC§ 2-202 where fraud or misrepresentation is claimed in sale of goods. 71 A.L.R.3d 1059.

Modern status of rules governing legal effect of failure to object to admission of extrinsic evidence violative of parol evidence rule. 81 A.L.R.3d 249.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Goods and Services: Distributorship, Franchise, and Similar Business Contracts. 8 A.L.R.7th 4.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th 7.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

1. Any assumption that because a writing has been worked out which is final on some matters, it is to be taken as including all the matters agreed upon;
2. The premise that the language used has the meaning attributable to such language by rules of construction existing in the law rather than the meaning which arises out of the commercial context in which it was used; and
3. The requirement that a condition precedent to the admissibility of the type of evidence specified in paragraph (a) is an original determination by the court that the language used is ambiguous.

2. Paragraph (a) makes admissible evidence of course of dealing, usage of trade and course of performance to explain or supplement the terms of any writing stating the agreement of the parties in order that the true understanding of the parties as to the agreement may be reached. Such writings are to be read on the assumption that the course of prior dealings between the parties and the usages of trade were taken for granted when the document was phrased. Unless carefully negated they have become an element of the meaning of the words used. Similarly, the course of actual performance by the parties is considered the best indication of what they intended the writing to mean.

3. Under paragraph (b) consistent additional terms, not reduced to writing, may be proved unless the court finds that the writing was intended by both parties as a complete and exclusive statement of all the terms. If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact.

Cross References:

Definitional Cross References:

“Course of dealing.” Section 1-303.

“Course of performance.” Section 1-303.

“Party.” Section 1-201.

“Term.” Section 1-201.

“Usage of trade.” Section 1-303.

“Written” and “writing.” Section 1-201.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

Purposes of Changes: 1. This section makes it clear that every effect of the seal which relates to “sealed instruments” as such is wiped out insofar as contracts for sale are concerned. However, the substantial effects of a seal, except extension of the period of limitations, may be had by appropriate drafting as in the case of firm offers (see Section 2-205).

2. This section leaves untouched any aspects of a seal which relate merely to signatures or to authentication of execution and the like. Thus, a statute providing that a purported signature gives prima facie evidence of its own authenticity or that a signature gives prima facie evidence of consideration is still applicable to sales transactions even though a seal may be held to be a signature within the meaning of such a statute. Similarly, the authorized affixing of a corporate seal bearing the corporate name to a contractual writing purporting to be made by the corporation may have effect as a signature without any reference to the law of sealed instruments.

Cross Reference:

Definitional Cross References:

“Goods.” Section 2-105.

“Writing.” Section 1-201.

Action to Determine Reasonable Figure.

Where parties contracted for sale of wheat and left a factor in the price open to be agreed upon at a later date, the fact that this term was left open to be established by the parties at a later date and the parties failed to reach agreement on the figure did not make the contract ambiguous or void for indefiniteness but simply meant that a reasonable figure remained to be determined, therefore when the defendant sold the wheat to third party he breached the contract. D.R. Curtis Co. v. Mathews, 103 Idaho 776, 653 P.2d 1188 (Ct. App. 1982).

Acquiescence to New Terms.

Where at the onset of the parties’ transaction, contractor informed supplier that third party presented a risk of nonpayment, and supplier agreed to provide “priced-out” invoices at delivery in order to allow contractor to immediately obtain payment from third party, but supplier failed to properly tender the goods by delivering them without the requisite priced-out invoices, and supplier told contractor to go ahead and unload the materials without the pricing information, based upon this conduct, and from the surrounding circumstances, the magistrate reasonably could construe contractor’s unequivocal refusal to be responsible without the pricing information, followed by supplier’s authorization to unload the materials, as supplier’s assent, or acquiescence, to contractor’s proposed new terms, i.e., that contractor would not be liable if he could not collect from third party. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991). Agreement to Contract.

A party cannot state an agreement to purchase goods on his own terms, and thereby unilaterally form a contract. The seller must agree to sell the goods. D.R. Curtis Co. v. Mason, 103 Idaho 476, 649 P.2d 1232 (Ct. App. 1982).

Facts Held Insufficient to Show Contract.

Where neither party signed the purchase order for truck in the designated spaces, buyer understood that he could “bow out” of the transaction at any time he so desired, seller stated its intention to retain the truck as inventory in the event buyer did not want it, and seller continued to make changes in factory specifications at buyer’s request, there was no conduct sufficient to show an agreement under subsection (1) of this section. Even if an agreement did exist, it would fail for indefiniteness, since as a matter of law there could be no reasonably certain basis for giving an appropriate remedy under subsection (3) of this section. Smith v. Boise Kenworth Sales, Inc., 102 Idaho 63, 625 P.2d 417 (1981).

Where a grain farmer telephoned a grain brokerage company merely to explore the possibility of a sale, and the evidence showed that he did not agree during the telephone conversation to sell his wheat at that time, the trial court properly found that no oral agreement was ever reached between the parties. The farmer’s failure to return a “confirmation memorandum” sent to him by an agent for the brokerage company did not create an agreement that did not previously exist between the parties, even where the memorandum stated that its retention was an acknowledgment and acceptance of the contract. D.R. Curtis Co. v. Mason, 103 Idaho 476, 649 P.2d 1232 (Ct. App. 1982).

Verbal agreement for the purchase of sand failed for indefiniteness, because the agreement’s essential terms were vague and indefinite, or altogether absent; the price was set at “agreed-upon amounts” and the quantity was set at “agreed-upon quantities.” Silicon Int’l Ore, LLC v. Monsato Co., 155 Idaho 538, 314 P.3d 593 (2013).

Facts Held Sufficient to Show Contract.

Buyer has alleged facts which indicate that he and seller agreed to the sale of the pickup, that salesman completed a form which — though not entirely complete — described the truck buyer desired and stated a price, that buyer signed the completed form, that the sale was approved by a sales manager, that buyer was told the truck would be ordered for him, and that seller accepted and retained for several months a deposit on the truck; these facts could support a conclusion by a trier of fact that under this section the parties intended to enter into a binding contract and could form a “reasonably certain basis for giving an appropriate remedy.” Paloukos v. Intermountain Chevrolet Co., 99 Idaho 740, 588 P.2d 939 (1978).

District court did not err in concluding that a valid contract had been formed between a trout hatchery and a trout grower and that any disagreement between the parties regarding “market size” was not so fundamental as to have gone to the heart of the very essence of the contract. Griffith v. Clear Lakes Trout Co., 143 Idaho 733, 152 P.3d 604 (2007).

District court did not err in finding that the language in an agreement between a trout hatchery and a trout grower regarding the “typical” number of harvests and the need for “continuous and uniform delivery” were sufficient to indicate an implied obligation to take deliveries within a reasonable time and with limited frequency. Griffith v. Clear Lakes Trout Co., 143 Idaho 733, 152 P.3d 604 (2007). In General.

In order to have an enforceable contract, the UCC does not require a document itemizing all the specific terms of the agreement; rather, the UCC requires a determination whether the circumstances of the case, including the parties’ conduct, are “sufficient to show agreement.” Paloukos v. Intermountain Chevrolet Co., 99 Idaho 740, 588 P.2d 939 (1978).

When Contract Made.

A contract can be found to exist even where it is impossible to determine when the contract was made. Essex Crane Rental Corp. v. Weyher/Livsey Constructors, Inc., 713 F. Supp. 1350 (D. Idaho 1989), rev’d on other grounds, 940 F.2d 1253 (9th Cir. 1991).

Written Confirmation.

Sending a memorandum of confirmation of purchase does not create an enforceable contract unless there existed a previous oral agreement to be confirmed and this is true notwithstanding an unconditional statement upon the written confirmation form noting that failure to return the form would be deemed an acceptance of the contract. No language in a “confirming memorandum” can create an agreement that did not previously exist. D.R. Curtis Co. v. Mason, 103 Idaho 476, 649 P.2d 1232 (Ct. App. 1982).

Decisions Under Prior Law

Agreement to Purchase Note.

Agreement to purchase certain note upon written demand, and to pay for such note its full face value and accruing interest, was not a sales contract, but a promise to pay on demand the sum named. Wallace Bank & Trust Co. v. First Nat’l Bank, 40 Idaho 712, 237 P. 284 (1925).

Cash Sale.

A “cash sale” is one where payment and delivery are to be concurrent. Western Seed Marketing Co. v. Pfost, 45 Idaho 340, 262 P. 514 (1927).

Executed and Executory Contracts.

If the risk of loss from injury to, or destruction of, the property was on the buyer, the contract was executed, and, if on the seller, it was executory. Western Seed Marketing Co. v. Pfost, 45 Idaho 340, 262 P. 514 (1927); Peterson v. Universal Auto. Ins. Co., 53 Idaho 11, 20 P.2d 1016 (1933).

Offer and Acceptance.

Word “accepted” signed by buyer on offer in writing to sell definite quantity of certain article constituted valid contract of sale. O.A. Olin Co. v. Lambach, 35 Idaho 767, 209 P. 277 (1922).

Stipulation to Reduce to Writing.

If the parties to an oral agreement stipulated that the contract should be reduced to writing, the question of whether there was a valid contract between the parties before it was reduced to writing depended upon the intention of the parties. Elliott v. Pope, 42 Idaho 505, 247 P. 796 (1926).

Am. Jur. 2d.

67 Am. Jur. 2d, Sales, § 98 et seq.

ALR.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th 7.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Changes: Completely rewritten by this and other sections of this Article [Chapter].

Purposes of Changes:

Purposes of Changes: Subsection (1) continues without change the basic policy of recognizing any manner of expression of agreement, oral, written or otherwise. The legal effect of such an agreement is, of course, qualified by other provisions of this Article [Chapter].

Under subsection (1) appropriate conduct by the parties may be sufficient to establish an agreement. Subsection (2) is directed primarily to the situation where the interchanged correspondence does not disclose the exact point at which the deal was closed, but the actions of the parties indicate that a binding obligation has been undertaken.

Subsection (3) states the principle as to “open terms” underlying later sections of the Article [Chapter]. If the parties intend to enter into a binding agreement, this subsection recognizes that agreement as valid in law, despite missing terms, if there is any reasonably certain basis for granting a remedy. The test is not certainty as to what the parties were to do nor as to the exact amount of damages due the plaintiff. Nor is the fact that one or more terms are left to be agreed upon enough of itself to defeat an otherwise adequate agreement. Rather, commercial standards on the point of “indefiniteness” are intended to be applied, this Act making provision elsewhere for missing terms needed for performance, open price, remedies and the like. The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreement, but their actions may be frequently conclusive on the matter despite the omissions.

Cross References:

Cross References: Subsection (1): Sections 1-103, 2-201 and 2-302.

Subsection (2): Sections 2-205 through 2-209.

Subsection (3): See Part 3.

Definitional Cross References:

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Goods.” Section 2-105.

“Party.” Section 1-201.

“Remedy.” Section 1-201.

“Term.” Section 1-201.

Compiler’s Notes.

The bracketed insertion near the end of the section was added by the compiler to supply the obviously intended term.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Changes: Completely rewritten by this and other sections of this Article [Chapter].

Purposes of Changes:

2. The primary purpose of this section is to give effect to the deliberate intention of a merchant to make a current firm offer binding. The deliberation is shown in the case of an individualized document by the merchant’s signature to the offer, and in the case of an offer included on a form supplied by the other party to the transaction by the separate signing of the particular clause which contains the offer. “Signed” here also includes authentication but the reasonableness of the authentication herein allowed must be determined in the light of the purpose of the section. The circumstances surrounding the signing may justify something less than a formal signature or initialing but typically the kind of authentication involved here would consist of a minimum of initialing of the clause involved. A handwritten memorandum on the writer’s letterhead purporting in its terms to “confirm” a firm offer already made would be enough to satisfy this section, although not subscribed, since under the circumstances it could not be considered a memorandum of mere negotiation and it would adequately show its own authenticity. Similarly, an authorized telegram will suffice, and this is true even though the original draft contained only a typewritten signature. However, despite settled courses of dealing or usages of the trade whereby firm offers are made by oral communication and relied upon without more evidence, such offers remain revocable under this Article [Chapter] since authentication by a writing is the essence of this section. 3. This section is intended to apply to current “firm” offers and not to long term options, and an outside time limit of three months during which such offers remain irrevocable has been set. The three month period during which firm offers remain irrevocable under this section need not be stated by days or by date. If the offer states that it is “guaranteed” or “firm” until the happening of a contingency which will occur within the three month period, it will remain irrevocable until that event. A promise made for a longer period will operate under this section to bind the offeror only for the first three months of the period but may of course be renewed. If supported by consideration it may continue for as long as the parties specify. This section deals only with the offer which is not supported by consideration.

4. Protection is afforded against the inadvertent signing of a firm offer when contained in a form prepared by the offeree by requiring that such a clause be separately authenticated. If the offer clause is called to the offeror’s attention and he separately authenticates it, he will be bound; Section 2-302 may operate, however, to prevent an unconscionable result which otherwise would flow from other terms appearing in the form.

5. Safeguards are provided to offer relief in the case of material mistake by virtue of the requirement of good faith and the general law of mistake.

Cross References:

Point 2: Section 1-102.

Point 3: Section 2-201.

Point 5: Section 2-302.

Definitional Cross References:

“Merchant.” Section 2-104.

“Signed.” Section 1-201.

“Writing.” Section 1-201.

Additional Terms.

Where the facts disclosed that when the buyer required fish food it would send a purchase order to the seller, the seller would reply by shipping the feed and including an invoice which was signed by one of the buyer’s employees acknowledging receipt of the fish food, and the invoices accompanying the shipments from the seller provided for late finance charges, which was a term beyond that contained in the purchase order, the additional provision relating to late charge was not a material alteration of the contract, and the buyer’s actions in continuing to order and pay for the feed constituted a waiver of its right to object to the additional late charge term. Rangen, Inc. v. Valley Trout Farms, Inc., 104 Idaho 284, 658 P.2d 955 (1983).

Offer and Acceptance.

Where truck purchase order specified that it would become binding only when signed by person authorized by distributor, there was no acceptance of an offer, and thus no contract, where neither party signed the customer’s purchase order in the space designated for acceptance, even though defendant truck distributor responded to plaintiff’s solicitations by ordering the truck from the assembly plant. Smith v. Boise Kenworth Sales, Inc., 102 Idaho 63, 625 P.2d 417 (1981).

The fact that the lessee of a crane used the crane can, standing alone, establish acceptance of a lease offer by lessor. Essex Crane Rental Corp. v. Weyher/Livsey Constructors, Inc., 713 F. Supp. 1350 (D. Idaho 1989), rev’d on other grounds, 940 F.2d 1253 (9th Cir. 1991).

Word “accepted” signed by buyer on offer in writing to sell definite quantity of certain article constituted valid contract of sale. O.A. Olin Co. v. Lambach, 35 Idaho 767, 209 P. 277 (1922).

Am. Jur. 2d.

ALR.

Farmers as “merchants” within provisions of UCC Article 2, dealing with sales. 95 A.L.R.3d 484.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Changes: Completely rewritten in this and other sections of this Article [Chapter].

Purposes of Changes:

1. Any reasonable manner of acceptance is intended to be regarded as available unless the offeror has made quite clear that it will not be acceptable. Former technical rules as to acceptance, such as requiring that telegraphic offers be accepted by telegraphed acceptance, etc., are rejected and a criterion that the acceptance be “in any manner and by any medium reasonable under the circumstances,” is substituted. This section is intended to remain flexible and its applicability to be enlarged as new media of communication develop or as the more time-saving present day media come into general use.
2. Either shipment or a prompt promise to ship is made a proper means of acceptance of an offer looking to current shipment. In accordance with ordinary commercial understanding the section interprets an order looking to current shipment as allowing acceptance either by actual shipment or by a prompt promise to ship and rejects the artificial theory that only a single mode of acceptance is normally envisaged by an offer. This is true even though the language of the offer happens to be “ship at once” or the like. “Shipment” is here used in the same sense as in Section 2-504; it does not include the beginning of delivery by the seller’s own truck or by messenger. But loading on the seller’s own truck might be a beginning of performance under subsection (2).
3. The beginning of performance by an offeree can be effective as acceptance so as to bind the offeror only if followed within a reasonable time by notice to the offeror. Such a beginning of performance must unambiguously express the offeree’s intention to engage himself. For the protection of both parties it is essential that notice follow in due course to constitute acceptance. Nothing in this section however bars the possibility that under the common law performance begun may have an intermediate effect of temporarily barring revocation of the offer, or at the offeror’s option, final effect in constituting acceptance.

Definitional Cross References:

4. Subsection (1)(b) deals with the situation where a shipment made following an order is shown by a notification of shipment to be referable to that order but has a defect. Such a non-conforming shipment is normally to be understood as intended to close the bargain, even though it proves to have been at the same time a breach. However, the seller by stating that the shipment is non-conforming and is offered only as an accommodation to the buyer keeps the shipment or notification from operating as an acceptance. Definitional Cross References: “Buyer.” Section 2-103.

“Conforming.” Section 2-106.

“Contract.” Section 1-201.

“Goods.” Section 2-105.

“Notifies.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

Compiler’s Notes.

The words “this act” at the end of subsection (3) refer to S. L. 1967, ch. 161, which is generally compiled as chapters 1 to 10 of this title. The reference probably should be to the Uniform Commercial Code.

Acceptance as Counter-Offer.

A purported acceptance with terms which differ from the offer can sometimes be construed as a counter-offer, and sometimes the terms of the counter-offer will be considered terms of the contract; however, an acceptance to operate in this manner must be sent to the offeror. Essex Crane Rental Corp. v. Weyher/Livsey Constructors, Inc., 713 F. Supp. 1350 (D. Idaho 1989), rev’d on other grounds, 940 F.2d 1253 (9th Cir. 1991).

Applicability.

Section 28-2-202 only applies where the confirmatory memoranda agree; when the confirmatory memoranda conflict, this section is applicable. Airstream, Inc. v. CIT Fin. Servs., Inc., 111 Idaho 307, 723 P.2d 851 (1986).

Conflicting Terms.

Where a contract is formed by conflicting documents, the conflicting terms cancel out and the contract then consists of the terms upon which both parties expressly agree, with the contested terms being supplied by other sections of the Uniform Commercial Code. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978).

If an acceptance includes terms which are in conflict with the terms of the offer, the conflicting terms cancel out, and the court may supply terms based upon other sources under the UCC, such as course of dealing and trade usage. Essex Crane Rental Corp. v. Weyher/Livsey Constructors, Inc., 713 F. Supp. 1350 (D. Idaho 1989), rev’d on other grounds, 940 F.2d 1253 (9th Cir. 1991).

Date.

Where an acceptance stated a different delivery date than that proposed in the offer, but the alteration did not constitute a radical change and the evidence indicated that the offeror had acquiesced to the change, the acceptance created a binding contract. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978).

Where the acceptance of an offer changed the delivery date, the conflicting terms on delivery canceled out and the term must be supplied by reference to§ 28-2-309 which provided that delivery would be within a “reasonable” time. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978).

Finance Charges.

Additional terms contained in invoices assessing finance charges were not material alterations of contract between contractor and the lessor and lessee of farm; because this was a contract between merchants and none of the exceptions of subsections (2)(a), (b) or (c) of this section applied, the additional terms regarding finance charges became part of the contract. Tri-Circle, Inc. v. Brugger Corp., 121 Idaho 950, 829 P.2d 540 (Ct. App. 1992). In General.

An acceptance which contains terms contradictory to those of the offer is not generally invalid although, in an exceptional case, an acceptance might differ so radically from the terms of an offer as not to manifest sufficient agreement to the offer to create a contract. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978).

This section rejects the common-law mirror image rule and converts the common-law counteroffer into an acceptance. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978).

Material Alteration.

Additional or different terms will not become part of an agreement if they materially alter the original bargain. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Where additional terms in a written contract which purported to confirm the parties’ prior oral agreement materially altered the terms of that agreement since they affected the price, schedule or payment, who to pay, and the risk of loss during delivery, the contradicting terms would not become part of the formal agreement. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Purpose.

This section was designed primarily to render equity in cases where an acceptance contained additional or different terms and performance had not yet begun. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978).

Seasonable Expression of Acceptance.

Where a purchase order referred to and accepted the price quoted in the offer, requested shipment within the time limits specified by the seller, and no other correspondence ensued and the regulator was shipped and installed accordingly, in commercial transactions such an order, especially when followed by performance, would normally be understood to have closed the deal between the parties; consequently, it was a “seasonable expression of acceptance,” even though it contained the additional terms. Idaho Power Co. v. Westinghouse Elec. Corp., 596 F.2d 924 (9th Cir. 1979).

Acceptance with additional terms must be sent to the offeror within a reasonable time; two months after the lessee takes possession of the property is not reasonable. Essex Crane Rental Corp. v. Weyher/Livsey Constructors, Inc., 713 F. Supp. 1350 (D. Idaho 1989), rev’d on other grounds, 940 F.2d 1253 (9th Cir. 1991).

Terms Unaltered.

A purchase order form which stated: “Acceptance of this order shall be deemed to constitute an agreement to the conditions named hereon and supersedes all previous agreements,” did not alter the terms of the offer. Idaho Power Co. v. Westinghouse Elec. Corp., 596 F.2d 924 (9th Cir. 1979).

Waiver of Right to Object.

Where the facts disclosed that when the buyer required fish food it would send a purchase order to the seller, the seller would reply by shipping the feed and including an invoice which was signed by one of the buyer’s employees acknowledging receipt of the fish food, and the invoices accompanying the shipments from the seller provided for late finance charges, which was a term beyond that contained in the purchase order, the additional provision relating to late charges was not a material alteration of the contract, and the buyer’s actions in continuing to order and pay for the feed constituted a waiver of its right to object to the additional late charge term. Rangen, Inc. v. Valley Trout Farms, Inc., 104 Idaho 284, 658 P.2d 955 (1983).

Am. Jur. 2d.

ALR.

ALR. — What are additional terms materially altering contracts within meaning of UCC§ 2-207(2)(b). 72 A.L.R.3d 479.

Conditional acceptance, conversion to rejection and counteroffer under UCC§ 2-207(1). 22 A.L.R.4th 939.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Changes: Completely rewritten by this and other sections of this Article [Chapter].

Purposes of Changes:

Purposes of Changes: 1. This section is intended to deal with two typical situations. The one is the written confirmation, where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is offer and acceptance, in which a wire or letter expressed and intended as an acceptance or the closing of an agreement adds further minor suggestions or proposals such as “ship by Tuesday,” “rush,” “ship draft against bill of lading inspection allowed,” or the like. A frequent example of the second situation is the exchange of printed purchase order and acceptance (sometimes called “acknowledgment”) forms. Because the forms are oriented to the thinking of the respective drafting parties, the terms contained in them often do not correspond. Often the seller’s form contains terms different from or additional to those set forth in the buyer’s form. Nevertheless, the parties proceed with the transaction.

2. Under this Article a proposed deal which in commercial understanding has in fact been closed is recognized as a contract. Therefore, any additional matter contained in the confirmation or in the acceptance falls within subsection (2) and must be regarded as a proposal for an added term unless the acceptance is made conditional on the acceptance of the additional or different terms. 3. Whether or not additional or different terms will become part of the agreement depends upon the provisions of subsection (2). If they are such as materially to alter the original bargain, they will not be included unless expressly agreed to by the other party. If, however, they are terms which would not so change the bargain they will be incorporated unless notice of objection to them has already been given or is given within a reasonable time.

4. Examples of typical clauses which would normally “materially alter” the contract and so result in surprise or hardship if incorporated without express awareness by the other party are: a clause negating such standard warranties as that of merchantability or fitness for a particular purpose in circumstances in which either warranty normally attaches; a clause requiring a guaranty of 90% or 100% deliveries in a case such as a contract by cannery, where the usage of the trade allows greater quantity leeways; a clause reserving to the seller the power to cancel upon the buyer’s failure to meet any invoice when due; a clause requiring that complaints be made in a time materially shorter than customary or reasonable.

5. Examples of clauses which involve no element of unreasonable surprise and which therefore are to be incorporated in the contract unless notice of objection is seasonably given are: a clause setting forth and perhaps enlarging slightly upon the seller’s exemption due to supervening causes beyond his control, similar to those covered by the provision of this Article [Chapter] on merchant’s excuse by failure of presupposed conditions or a clause fixing in advance any reasonable formula of proration under such circumstances; a clause fixing a reasonable time for complaints within customary limits, or in the case of a purchase for sub-sale, providing for inspection by the sub-purchaser; a clause providing for interest on overdue invoices or fixing the seller’s standard credit terms where they are within the range of trade practice and do not limit any credit bargained for; a clause limiting the right of rejection for defects which fall within the customary trade tolerances for acceptance “with adjustment” or otherwise limiting remedy in a reasonable manner (see Sections 2-718 and 2-719).

6. If no answer is received within a reasonable time after additional terms are proposed, it is both fair and commercially sound to assume that their inclusion has been assented to. Where clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in subsection (2) is satisfied and the conflicting terms do not become a part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act, including subsection (2). The written confirmation is also subject to Section 2-201. Under that section a failure to respond permits enforcement of a prior oral agreement; under this section a failure to respond permits additional terms to become part of the agreement.

7. In many cases, as where goods are shipped, accepted and paid for before any dispute arises, there is no question whether a contract has been made. In such cases, where the writings of the parties do not establish a contract, it is not necessary to determine which act or document constituted the offer and which the acceptance. See Section 2-204. The only question is what terms are included in the contract, and subsection (3) furnishes the governing rule.

Cross References:

Point 5: Sections 2-513, 2-602, 2-607, 2-609, 2-612, 2-614, 2-615, 2-616, 2-718 and 2-719. Point 6: Sections 1-102 and 2-104.

Definitional Cross References:

“Contract.” Section 1-201.

“Notification.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Seasonably.” Section 1-204 [1-205].

“Send.” Section 1-201.

“Term.” Section 1-201.

“Written.” Section 1-201.

Compiler’s Notes.

This section, which comprised 1967, ch. 161,§ 2-208, p. 351, was repealed by S.L. 2004, ch. 43, § 30.

Compiler’s Notes.

The bracketed insertion in subsection (3) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Applicability.

Where sellers delivered equipment and vehicles to buyer, buyer accepted the goods, buyer paid the sum due, sellers accepted the payment, and sellers released their liens on the equipment, an oral modification of the original agreement was enforceable, even though the price was more than $500 (see§ 28-2-201) because the agreement was fully executed. Apple’s Mobile Catering, LLC v. O’Dell, 149 Idaho 211, 233 P.3d 142 (2010).

Receipt and Acceptance.

Receipt and acceptance of goods is deemed to constitute an unambiguous overt admission by both parties that a contract actually exists, and makes admissible oral evidence of other terms of the contract. Under the “receipt and acceptance” exception to the statute, a modified contract may be enforced to the extent of the goods that have been accepted; thus, whether the implied agreement between building contractor and building supplies company regarding conditions of payment is viewed as modifying the terms of the parties’ initial contract, or as an agreement to terminate the initial contract and create a new, “original” contract, its enforcement is not barred by the statute of frauds. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991). Unilateral Modification Ineffective.

Although a modification of a contract under Article 2 of the Uniform Commercial Code needs no consideration to be binding, this section governing modifications contemplates an “agreement” modifying a contract. Thus, a seller’s unilateral attempts at modification are ineffective because, in such cases, the buyer had “agreed” to nothing. Duffin v. Idaho Crop Imp. Ass’n, 126 Idaho 1002, 895 P.2d 1195 (1995).

Am. Jur. 2d.

67 Am. Jur. 2d, Sales, § 328 et seq.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Subsection (1) — Compare Section 1, Uniform Written Obligations Act; Subsections (2) to (5) — none.

Purposes of Changes and New Matter:

2. Subsection (1) provides that an agreement modifying a sales contract needs no consideration to be binding.

However, modifications made thereunder must meet the test of good faith imposed by this Act. The effective use of bad faith to escape performance on the original contract terms is barred, and the extortion of a “modification” without legitimate commercial reason is ineffective as a violation of the duty of good faith. Nor can a mere technical consideration support a modification made in bad faith.

The test of “good faith” between merchants or as against merchants includes “observance of reasonable commercial standards of fair dealing in the trade” (Section 2-103), and may in some situations require an objectively demonstrable reason for seeking a modification. But such matters as a market shift which makes performance come to involve a loss may provide such a reason even though there is no such unforeseen difficulty as would make out a legal excuse from performance under Sections 2-615 and 2-616.

3. Subsections (2) and (3) are intended to protect against false allegations of oral modifications. “Modification or rescission” includes abandonment or other change by mutual consent, contrary to the decision in Green v. Doniger , 300 N.Y. 238, 90 N.E.2d 56 (1949); it does not include unilateral “termination” or “cancellation” as defined in Section 2-106.

The Statute of Frauds provisions of this Article [Chapter] are expressly applied to modifications by subsection (3). Under those provisions the “delivery and acceptance” test is limited to the goods which have been accepted, that is, to the past. “Modification” for the future cannot therefore be conjured up by oral testimony if the price involved is $500.00 or more since such modification must be shown at least by an authenticated memo. And since a memo is limited in its effect to the quantity of goods set forth in it there is safeguard against oral evidence.

Subsection (2) permits the parties in effect to make their own Statute of Frauds as regards any future modification of the contract by giving effect to a clause in a signed agreement which expressly requires any modification to be by signed writing. But note that if a consumer is to be held to such a clause on a form supplied by a merchant it must be separately signed.

4. Subsection (4) is intended, despite the provisions of subsections (2) and (3), to prevent contractual provisions excluding modification except by a signed writing from limiting in other respects the legal effect of the parties’ actual later conduct. The effect of such conduct as a waiver is further regulated in subsection (5).

Cross References:

Point 2: Sections 1-201, 1-203, 2-615 and 2-616.

Point 3: Sections 2-106, 2-201 and 2-202.

Point 4: Sections 2-202 and 2-208.

Definitional Cross References:

“Between merchants.” Section 2-104.

“Contract.” Section 1-201.

“Notification.” Section 1-201.

“Signed.” Section 1-201.

“Term.” Section 1-201.

“Writing.” Section 1-201.

Compiler’s Notes.

The bracketed insertions in subsections (2) and (6) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Effective Dates.

Section 31 of S.L. 2001, ch. 208 provided that the act should take effect on and after July 1, 2001.

ALR.

Modern status and application of rule that only voluntary transfer or assignment of claim against United States is within Assignment of Claims Act (31 USCS § 203, 41 USCS § 15). 44 A.L.R. Fed. 775.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

2. Delegation of performance, either in conjunction with an assignment or otherwise, is provided for by subsection (1) where no substantial reason can be shown as to why the delegated performance will not be as satisfactory as personal performance.

3. Under subsection (2) rights which are no longer executory such as a right to damages for breach or a right to payment of an “account” as defined in the Article [Chapter] on Secured Transactions (Article [Chapter] 9) may be assigned although the agreement prohibits assignment. In such cases no question of delegation of any performance is involved. The assignment of a “contract right” as defined in the Article [Chapter] on Secured Transactions (Article [Chapter] 9) is not covered by this subsection.

4. The nature of the contract or the circumstances of the case, however, may bar assignment of the contract even where delegation of performance is not involved. This Article [Chapter] and this section are intended to clarify this problem, particularly in cases dealing with output requirement and exclusive dealing contracts. In the first place the section on requirements and exclusive dealing removes from the construction of the original contract most of the “personal discretion” element by substituting the reasonably objective standard of good faith operation of the plant or business to be supplied. Secondly, the section on insecurity and assurances, which is specifically referred to in subsection (5) of this section, frees the other party from the doubts and uncertainty which may afflict him under an assignment of the character in question by permitting him to demand adequate assurance of due performance without which he may suspend his own performance. Subsection (5) is not in any way intended to limit the effect of the section on insecurity and assurances and the word “performance” includes the giving of orders under a requirements contract. Of course, in any case where a material personal discretion is sought to be transferred, effective assignment is barred by subsection (2). 5. Subsection (4) lays down a general rule of construction distinguishing between a normal commercial assignment, which substitutes the assignee for the assignor both as to rights and duties, and a financing assignment in which only the assignor’s rights are transferred.

This Article [Chapter] takes no position on the possibility of extending some recognition or power to the original parties to work out normal commercial readjustments of the contract in the case of financing assignments even after the original obligor has been notified of the assignment. This question is dealt with in the Article [Chapter] on Secured Transactions (Article [Chapter] 9).

6. Subsection (5) recognizes that the non-assigning original party has a stake in the reliability of the person with whom he has closed the original contract, and is, therefore, entitled to due assurance that any delegated performance will be properly forthcoming.

7. This section is not intended as a complete statement of the law of delegation and assignment but is limited to clarifying a few points doubtful under the case law. Particularly, neither this section nor this Article [Chapter] touches directly on such questions as the need or effect of notice of the assignment, the rights of successive assignees, or any question of the form of an assignment, either as between the parties or as against any third parties. Some of these questions are dealt with in Article [Chapter] 9.

Cross References:

Cross References: Point 3: Articles [Chapters] 5 and 9.

Point 4: Sections 2-306 and 2-609.

Point 5: Article [Chapter] 9, Sections 9-317 and 9-318.

Point 7: Article [Chapter] 9.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract.” Section 1-201.

“Party.” Section 1-201.

“Rights.” Section 1-201.

“Seller.” Section 2-103.

“Term.” Section 1-201.

Decisions Under Prior Law

Forfeiture of Lease.

In determining whether a sale of personalty by an Idaho mining lessee to the lessor failed to vest title on the ground that no delivery was made, upon forfeiture of the lease, it was the duty of the lessee to deliver the property, and the duty of the lessor to accept it. Walker v. Lightfoot, 124 F.2d 3 (9th Cir. 1941).

Inspection.

Conceding that the buyer should examine goods and notify of rejection and rescission, because of breach of warranty, as soon as possible, the question of what was reasonable as to time and place was a jury question. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Inspection was to be made at the destination, and a reasonable time therefor was allowed. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Requisite Quality.

If the contract for sale of peaches was for U.S. No. 1’s, buyer was required to accept only peaches of such grade. Peck v. Nixon, 47 Idaho 675, 277 P. 1112 (1929); Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943). What Constitutes Acceptance.

Where buyer sold part of goods delivered in its usual course of business, there was acceptance of entire consignment, notwithstanding attempt to return balance. Gross Mfg. Co. v. Redfield, 48 Idaho 399, 282 P. 487 (1929); Tweedie Footwear Corp. v. Roberts-Schofield Co., 48 Idaho 777, 285 P. 476 (1930).

Am. Jur. 2d.

C.J.S.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

Purposes of Changes: This section uses the term “obligation” in contrast to the term “duty” in order to provide for the “condition” aspects of delivery and payment insofar as they are not modified by other sections of this Article [Chapter] such as those on cure of tender. It thus replaces not only the general provisions of the Uniform Sales Act on the parties’ duties, but also the general provisions of that Act on the effect of conditions. In order to determine what is “in accordance with the contract” under this Article [Chapter] usage of trade, course of dealing and performance, and the general background of circumstances must be given due consideration in conjunction with the lay meaning of the words used to define the scope of the conditions and duties.

Cross References:

Cross References: Section 1-106. See also Sections 1-205 [1-303], 2-208, 2-209, 2-508 and 2-612.

Definitional Cross References:

“Contract.” Section 1-201.

“Party.” Section 1-201.

“Seller.” Section 2-103.

Applicability.

This section does not apply to the public utilities commission, because the commission is not a court. McNeal v. Idaho PUC, 142 Idaho 685, 132 P.3d 442 (2006), overruled on other grounds, Verska v. St. Alphonsus Med. Ctr., 151 Idaho 889, 265 P.3d 502 (2011).

Failure to Respond.

In a suit to recover a deficiency after repossession and sale of certain equipment, the failure of a guarantor to respond to a request for an admission that the equipment had been disposed of and that proper credits had been applied to the debtor’s account disposed of any claim by the guarantor that the losses had not properly mitigated, but not the claim that the lease was unconscionable. M & H Rentals, Inc. v. Sales, 108 Idaho 567, 700 P.2d 970 (Ct. App. 1985).

Fraud.

Jury’s rejection of fraud claims did not preclude a finding that manufacturer had superior knowledge. The determination on unconscionability is made by the trial court, not the jury, and that determination is made by the trial court’s assessments of the facts prior to the jury’s consideration of the case. Therefore, jury’s fraud verdict did not affect trial court’s unconscionability ruling. Walker v. American Cyanamid Co., 130 Idaho 824, 948 P.2d 1123 (1997). Procedural Unconscionability.

Where manufacturer had superior knowledge concerning herbicide and made representations concerning its safety, liability limitation label was ambiguous, and farm lacked bargaining power to negotiate concerning the limitation, the limitation of liability provision was procedurally unconscionable. Walker v. American Cyanamid Co., 130 Idaho 824, 948 P.2d 1123 (1997).

Substantive Unconscionability.

Substantive unconscionability asks whether, at the time the contract was executed, and in light of the general background and commercial needs of a particular case, the clause is so one-sided as to oppress or unfairly surprise one of the parties. In the instant case, unfair surprise existed because of the ambiguity of the limitation of liability provision and supported finding of substantive unconscionability. Walker v. American Cyanamid Co., 130 Idaho 824, 948 P.2d 1123 (1997).

Am. Jur. 2d.

ALR.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. This section is intended to make it possible for the courts to police explicitly against the contracts or clauses which they find to be unconscionable. In the past such policing has been accomplished by adverse construction of language, by manipulation of the rules of offer and acceptance or by determinations that the clause is contrary to public policy or to the dominant purpose of the contract. This section is intended to allow the court to pass directly on the unconscionability of the contract or particular clause therein and to make a conclusion of law as to its unconscionability. The basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. Subsection (2) makes it clear that it is proper for the court to hear evidence upon these questions. The principle is one of the prevention of oppression and unfair surprise (Cf. Campbell Soup Co. v. Wentz, 172 F.2d 80, 3d Cir. 1948) and not of disturbance of allocation of risks because of superior bargaining power. The underlying basis of this section is illustrated by the results in cases such as the following:

Kansas City Wholesale Grocery Co. v. Weber Packing Corporation , 93 Utah 414, 73 P.2d 1272 (1937), where a clause limiting time for complaints was held inapplicable to latent defects in a shipment of catsup which could be discovered only by microscopic analysis; Hardy v. General Motors Acceptance Corporation , 38 Ga. App. 463, 144 S.E. 327 (1928), holding that a disclaimer of warranty clause applied only to express warranties, thus letting in a fair implied warranty; Andrews Bros. v. Singer & Co. (1934 CA) 1 K.B. 17, holding that where a car with substantial mileage was delivered instead of a “new” car, a disclaimer of warranties, including those “implied,” left unaffected an “express obligation” on the description, even though the Sale of Goods Act called such an implied warranty; New Prague Flouring Mill Co. v. G. A. Spears , 194 Iowa 417, 189 N.W. 815 (1922), holding that a clause permitting the seller, upon the buyer’s failure to supply shipping instructions, to cancel, ship, or allow delivery date to be indefinitely postponed 30 days at a time by the inaction, does not indefinitely postpone the date of measuring damages for the buyer’s breach, to the seller’s advantage; and Kansas Flour Mills Co. v. Dirks , 100 Kan. 376, 164 P. 273 (1917), where under a similar clause in a rising market the court permitted the buyer to measure his damages for non-delivery at the end of only one 30 day postponement; Green v. Arcos, Ltd. (1931 CA) 47 T.L.R. 336, where a blanket clause prohibiting rejection of shipments by the buyer was restricted to apply to shipments where discrepancies represented merely mercantile variations; Meyer v. Packard Cleveland Motor Co. , 106 Ohio St. 328, 140 N.E. 118 (1922), in which the court held that a “waiver” of all agreements not specified did not preclude implied warranty of fitness of a rebuilt dump truck for ordinary use as a dump truck; Austin Co. v. J. H. Tillman Co. , 104 Or. 541, 209 P. 131 (1922), where a clause limiting the buyer’s remedy to return was held to be applicable only if the seller had delivered a machine needed for a construction job which reasonably met the contract description; Bekkevold v. Potts , 173 Minn. 87, 216 N.W. 790, 59 A.L.R. 1164 (1927), refusing to allow warranty of fitness for purpose imposed by law to be negated by clause excluding all warranties “made” by the seller; Robert A. Munroe & Co. v. Meyer (1930) 2 K.B. 312, holding that the warranty of description overrides a clause reading “with all faults and defects” where adulterated meat not up to the contract description was delivered.

2. Under this section the court, in its discretion, may refuse to enforce the contract as a whole if it is permeated by the unconscionability, or it may strike any single clause or group of clauses which are so tainted or which are contrary to the essential purpose of the agreement, or it may simply limit unconscionable clauses so as to avoid unconscionable results.

3. The present section is addressed to the court, and the decision is to be made by it. The commercial evidence referred to in subsection (2) is for the court’s consideration, not the jury’s. Only the agreement which results from the court’s action on these matters is to be submitted to the general triers of the facts.

Definitional Cross Reference:

§ 28-2-303. Allocation or division of risks.

Where this chapter allocates a risk or a burden as between the parties “unless otherwise agreed,” the agreement may not only shift the allocation but may also divide the risk or burden.

History.

1967, ch. 161,§ 2-303, p. 351.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. This section is intended to make it clear that the parties may modify or allocate “unless otherwise agreed” risks or burdens imposed by this Article [Chapter] as they desire, always subject, of course, to the provisions on unconscionability.

Compare Section 1-102 (4).

2. The risk or burden may be divided by the express terms of the agreement or by the attending circumstances, since under the definition of “agreement” in this Act the circumstances surrounding the transaction as well as the express language used by the parties enter into the meaning and substance of the agreement.

Cross References:

Point 2: Section 1-201.

Definitional Cross References:

“Agreement.” Section 1-201.

Am. Jur. 2d.

67 Am. Jur. 2d, Sales, § 193 et seq.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Subsections (2) and (3) of Section 9, Uniform Sales Act.

Changes:

Purposes of Changes:

2. Under subsection (1) the provisions of this Article [Chapter] are applicable to transactions where the “price” of goods is payable in something other than money. This does not mean, however, that this whole Article [Chapter] applies automatically and in its entirety simply because an agreed transfer of title to goods is not a gift. The basic purposes and reasons of the Article [Chapter] must always be considered in determining the applicability of any of its provisions.

3. Subsection (2) lays down the general principle that when goods are to be exchanged for realty, the provisions of this Article [Chapter] apply only to those aspects of the transaction which concern the transfer of title to goods but do not affect the transfer of the realty since the detailed regulation of various particular contracts which fall outside the scope of this Article [Chapter] is left to the courts and other legislation. However, the complexities of these situations may be such that each must be analyzed in the light of the underlying reasons in order to determine the applicable principles. Local statutes dealing with realty are not to be lightly disregarded or altered by language of this Article [Chapter]. In contrast, this Article [Chapter] declares definite policies in regard to certain matters legitimately within its scope though concerned with real property situations, and in those instances the provisions of this Article [Chapter] control.

Cross References:

Point 3: Sections 1-102, 1-103, 1-104 and 2-107.

Definitional Cross References:

“Party.” Section 1-201.

“Seller.” Section 2-103.

Application.

The “reasonable price” standard of this section is applicable only where the price is not settled by the parties. Palmer v. Idaho Peterbilt, Inc., 102 Idaho 800, 641 P.2d 346 (Ct. App. 1982).

Failure to Agree On Reasonable Price.

Where parties contracted for sale of wheat and left a factor in the price open to be agreed upon at a later date, the fact that this term was left open to be established by the parties at a later date and that the parties failed to reach agreement on the figure did not make the contract ambiguous or void for indefiniteness but simply meant that a reasonable figure remained to be determined; therefore, when the defendant sold the wheat to third party, he breached the contract. D.R. Curtis Co. v. Mathews, 103 Idaho 776, 653 P.2d 1188 (Ct. App. 1982).

Where the parties agreed to enter a contract the agreement did not fail for indefiniteness simply because they failed to agree upon a price. Licklyey v. Max Herbold, Inc., 133 Idaho 209, 984 P.2d 697 (1999).

Where a potato farmer delivered potatoes to a processor and also sold potatoes from the same field on the open market for a certain price, the trial court did not err in finding that that price was a reasonable one under a contract which had not set a figure. Licklyey v. Max Herbold, Inc., 133 Idaho 209, 984 P.2d 697 (1999). Good Faith.

It appears that the provisions for “good faith” in this section do not make it “applicable” to the terms of a purported agreement whereby buyer was free to buy from others if seller would not match their prices, while seller was bound to fill buyer’s requirements whenever buyer so demanded. Harvey v. Fearless Farris Whsle., Inc., 589 F.2d 451 (9th Cir. 1979).

Am. Jur. 2d.

ALR.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

Purposes of Changes: 1. This section applies when the price term is left open on the making of an agreement which is nevertheless intended by the parties to be a binding agreement. This Article [Chapter] rejects in these instances the formula that “an agreement to agree is unenforceable” if the case falls within subsection (1) of this section, and rejects also defeating such agreements on the ground of “indefiniteness.” Instead this Article [Chapter] recognizes the dominant intention of the parties to have the deal continue to be binding upon both. As to future performance, since this Article [Chapter] recognizes remedies such as cover (Section 2-712), resale (Section 2-706) and specific performance (Section 2-716) which go beyond any mere arithmetic as between contract price and market price, there is usually a “reasonably certain basis for granting an appropriate remedy for breach” so that the contract need not fail for indefiniteness.

2. Under some circumstances the postponement of agreement on price will mean that no deal has really been concluded, and this is made express in the preamble of subsection (1) (“The parties if they so intend”) and in subsection (4). Whether or not this is so is, in most cases, a question to be determined by the trier of fact.

3. Subsection (2), dealing with the situation where the price is to be fixed by one party rejects the uncommercial idea that an agreement that the seller may fix the price means that he may fix any price he may wish by the express qualification that the price so fixed must be fixed in good faith. Good faith includes observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant. (Section 2-103). But in the normal case a “posted price” or a future seller’s or buyer’s “given price,” “price in effect,” “market price,” or the like satisfies the good faith requirement.

4. The section recognizes that there may be cases in which a particular person’s judgment is not chosen merely as a barometer or index of a fair price but is an essential condition to the parties’ intent to make any contract at all. For example, the case where a known and trusted expert is to “value” a particular painting for which there is no market standard differs sharply from the situation where a named expert is to determine the grade of cotton, and the difference would support a finding that in the one the parties did not intend to make a binding agreement if that expert were unavailable whereas in the other they did so intend. Other circumstances would of course affect the validity of such a finding. 5. Under subsection (3), wrongful interference by one party with any agreed machinery for price fixing in the contract may be treated by the other party as a repudiation justifying cancellation, or merely as a failure to take cooperative action thus shifting to the aggrieved party the reasonable leeway in fixing the price.

6. Throughout the entire section, the purpose is to give effect to the agreement which has been made. That effect, however, is always conditioned by the requirement of good faith action which is made an inherent part of all contracts within this Act. (Section 1-203).

Cross References:

Cross References: Point 1: Sections 2-204(3), 2-706, 2-712 and 2-716.

Point 3: Section 2-103.

Point 5: Sections 2-311 and 2-610.

Point 6: Section 1-203.

Definitional Cross References:

“Burden of establishing.” Section 1-201.

“Buyer.” Section 2-103.

“Cancellation.” Section 2-106.

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Fault.” Section 1-201.

“Goods.” Section 2-105.

“Party.” Section 1-201.

“Receipt of goods.” Section 2-103.

“Seller.” Section 2-103.

“Term.” Section 1-201.

Damages.

While damages might have been difficult to determine it was clear that the breach of an output contract by a trout hatchery had deprived a trout grower of the opportunity to complete performance of the contract for the remaining two years and that losses for those years had occurred; thus, the trial court erred in not awarding damages for years 6 and 7 and the issue was remanded. Griffith v. Clear Lakes Trout Co., 143 Idaho 733, 152 P.3d 604 (2007).

Requirements Contract.

A purported agreement which allows buyer to purchase an indefinite proportion of its supplies from sellers other than defendant when it is to its advantage to do so, but allegedly binds defendant to supply buyer with all buyer’s needs at buyer’s request, is not a requirement’s contract within this section. Harvey v. Fearless Farris Whsle., Inc., 589 F.2d 451 (9th Cir. 1979).

Defendant admitted while testifying as an adverse party in plaintiff’s case-in-chief, that defendant and plaintiff had entered into an agreement wherein defendant agreed to use plaintiff’s potatoes to help fulfill a potato contract with a third party; therefore, there was substantial evidence that defendant and plaintiff had entered into an enforceable requirements contract. Mitchell v. Barendregt, 120 Idaho 837, 820 P.2d 707 (Ct. App. 1991).

In a breach of a contract action, as the quantity of fish under the agreement was not only subject to the trout farmers’ good faith output of market size trout, but also subject to the fish hatchery’s good faith requirements for trout in its resale market, the parties entered into an output/requirements contract under this section. Griffith v. Clear Lakes Trout Co., 146 Idaho 613, 200 P.3d 1162 (2009).

RESEARCH REFERENCES

Am. Jur. 2d.

ALR.

ALR. — Establishment and construction of requirements contracts under§ 2-306(1) of Uniform Commercial Code. 94 A.L.R.5th 247.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. Subsection (1) of this section, in regard to output and requirements, applies to this specific problem the general approach of this Act which requires the reading of commercial background and intent into the language of any agreement and demands good faith in the performance of that agreement. It applies to such contracts of nonproducing establishments such as dealers or distributors as well as to manufacturing concerns.

2. Under this Article [Chapter], a contract for output or requirements is not too indefinite since it is held to mean the actual good faith output or requirements of the particular party. Nor does such a contract lack mutuality of obligation since, under this section, the party who will determine quantity is required to operate his plant or conduct his business in good faith and according to commercial standards of fair dealing in the trade so that his output or requirements will approximate a reasonably foreseeable figure. Reasonable elasticity in the requirements is expressly envisaged by this section and good faith variations from prior requirements are permitted even when the variation may be such as to result in discontinuance. A shutdown by a requirements buyer for lack of orders might be permissible when a shutdown merely to curtail losses would not. The essential test is whether the party is acting in good faith. Similarly, a sudden expansion of the plant by which requirements are to be measured would not be included within the scope of the contract as made but normal expansion undertaken in good faith would be within the scope of this section. One of the factors in an expansion situation would be whether the market price had risen greatly in a case in which the requirements contract contained a fixed price. Reasonable variation of an extreme sort is exemplified in Southwest Natural Gas Co. v. Oklahoma Portland Cement Co. , 102 F.2d 630 (C.C.A. 10, 1939). This Article [Chapter] takes no position as to whether a requirements contract is a provable claim in bankruptcy.

3. If an estimate of output or requirements is included in the agreement, no quantity unreasonably disproportionate to it may be tendered or demanded. Any minimum or maximum set by the agreement shows a clear limit on the intended elasticity. In similar fashion, the agreed estimate is to be regarded as a center around which the parties intend the variation to occur.

4. When an enterprise is sold, the question may arise whether the buyer is bound by an existing output or requirements contract. That question is outside the scope of this Article [Chapter], and is to be determined on other principles of law. Assuming that the contract continues, the output or requirements in the hands of the new owner continue to be measured by the actual good faith output or requirements under the normal operation of the enterprise prior to sale. The sale itself is not grounds for sudden expansion or decrease.

Cross References:

5. Subsection (2), on exclusive dealing, makes explicit the commercial rule embodied in this Act under which the parties to such contracts are held to have impliedly, even when not expressly, bound themselves to use reasonable diligence as well as good faith in their performance of the contract. Under such contracts the exclusive agent is required, although no express commitment has been made, to use reasonable effort and due diligence in the expansion of the market or the promotion of the product, as the case may be. The principal is expected under such a contract to refrain from supplying any other dealer or agent within the exclusive territory. An exclusive dealing agreement brings into play all of the good faith aspects of the output and requirement problems of subsection (1). It also raises questions of insecurity and right to adequate assurance under this Article [Chapter]. Cross References: Point 4: Section 2-210.

Point 5: Sections 1-203 and 2-609.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract for sale.” Section 2-106.

“Good faith.” Section 1-201.

“Goods.” Section 2-105.

“Party.” Section 1-201.

“Term.” Section 1-201.

“Seller.” Section 2-103.

Decisions Under Prior Law

Condonation.

Receipt of the shipment of goods by the respondent, opening the package and retaining a portion thereof constituted a binding acceptance of the whole and condoned the lateness of the shipment. Tweedie Footwear Corp. v. Roberts-Schofield Co., 48 Idaho 777, 285 P. 476 (1930).

Extension of Time for Delivery.

The parties may, by agreement, express or implied, extend the time for delivery, and where the seller agreed to manufacture articles according to specifications and deliver them within a certain time, and at the request of buyer agreed to changes in the specifications, this request implied a reasonable extension of time made necessary by the changes. Tweedie Footwear Corp. v. Roberts-Schofield Co., 48 Idaho 777, 285 P. 476 (1930).

Waiver of Time for Delivery.

The acceptance of the goods by the buyer after the time for delivery was a waiver of the seller’s failure to deliver in the required time, insofar as the seller’s right to recover the purchase price is concerned. Tweedie Footwear Corp. v. Roberts-Schofield Co., 48 Idaho 777, 285 P. 476 (1930).

RESEARCH REFERENCES

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Paragraphs (a) and (b)—Section 43(1), Uniform Sales Act; Paragraph (c)—none.

Changes:

Purposes of Changes and New Matter:

Purposes of Changes and New Matter: 1. Paragraphs (a) and (b) provide for those noncommercial sales and for those occasional commercial sales where no place or means of delivery has been agreed upon by the parties. Where delivery by carrier is “required or authorized by the agreement,” the seller’s duties as to delivery of the goods are governed not by this section but by Section 2-504.

2. Under paragraph (b) when the identified goods contracted for are known to both parties to be in some location other than the seller’s place of business or residence, the parties are presumed to have intended that place to be the place of delivery. This paragraph also applies (unless, as would be normal, the circumstances show that delivery by way of documents is intended) to a bulk of goods in the possession of a bailee. In such a case, however, the seller has the additional obligation to procure the acknowledgment by the bailee of the buyer’s right to possession.

3. Where “customary banking channels” call only for due notification by the banker that the documents are available, leaving the buyer himself to see to the physical receipt of the goods, tender at the buyer’s address is not required under paragraph (c). But that paragraph merely eliminates the possibility of a default by the seller if “customary banking channels” have been properly used in giving notice to the buyer. Where the bank has purchased a draft accompanied by or associated with documents or has undertaken its collection on behalf of the seller, Part 5 of Article [Chapter] 4 spells out its duties and relations to its customer. Where the documents move forward under a letter of credit the Article [Chapter] on Letters of Credit spells out the duties and relations between the bank, the seller and the buyer. Delivery in relationship to either tangible or electronic documents of title is defined in Article 1, Section 1-201.

4. The rules of this section apply only “unless otherwise agreed.” The surrounding circumstances, usage of trade, course of dealing and course of performance, as well as the express language of the parties, may constitute an “otherwise agreement.”

Cross References:

Point 2: Section 2-503.

Point 3: Section 2-512, Article [Chapter] 4, Part 4 and Article [Chapter] 5.

Definitional Cross References:

“Delivery.” Section 1-201.

“Document of title.” Section 1-201.

“Goods.” Section 2-105.

“Party.” Section 1-201.

“Seller.” Section 2-103.

In General.

Since the “New Equipment Warranty” did not state the time for performance of the repair or replacement obligation, the defendants were obligated to repair or replace defective parts within a reasonable time pursuant to subsection (1) of this section. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978).

Reasonableness.

Where an acceptance of an offer for the sale of steel pipe stated a delivery date two months later than that proposed by the offer, such date was reasonable in light of the distance which the pipe had to be transported and the seller breached the contract when it declined to complete deliveries before that date. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978).

It could not be said that defendant, a manufacturer of recreational homes, provided reasonable notification of an impending termination of a contract with plaintiff, a dealer of manufactured homes, as a matter of law. Jen-Rath Co. v. KIT Mfg. Co., 137 Idaho 330, 48 P.3d 659 (2002).

After a buyer and seller entered into a contract for the sale of logs for the construction of a log cabin, and the contract failed to set forth a delivery date, the buyer waited for delivery of a complete log cabin package for over a year after paying the seller 70 percent of the contract price. The buyer then arranged to purchase the balance of logs needed to complete her cabin from another supplier, and the seller was found to have breached the contract by failing to deliver the logs within a reasonable time. Borah v. McCandless, 147 Idaho 73, 205 P.3d 1209 (2009). Test of Reasonability.

In determining the issue of reasonability, factors such as the nature of the goods to be delivered, the extent of the seller’s knowledge of the buyer’s intentions, transportation conditions and the nature of the market should be considered. Anderson & Nafziger v. G.T. Newcomb, Inc., 100 Idaho 175, 595 P.2d 709 (1979).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Subsection (1) — see Sections 43(2), 45(2), 47(1) and 48, Uniform Sales Act, for policy continued under this Article [Chapter]; Subsection (2) — none; Subsection (3) — none.

Changes:

Purposes of Changes and New Matter:

Purposes of Changes and New Matter: 1. Subsection (1) requires that all actions taken under a sales contract must be taken within a reasonable time where no time has been agreed upon. The reasonable time under this provision turns on the criteria as to “reasonable time” and on good faith and commercial standards set forth in Sections 1-203, 1-204 [1-205] and 2-103. It thus depends upon what constitutes acceptable commercial conduct in view of the nature, purpose and circumstances of the action to be taken. Agreement as to a definite time, however, may be found in a term implied from the contractual circumstances, usage of trade or course of dealing or performance as well as in an express term. Such cases fall outside of this subsection since in them the time for action is “agreed” by usage.

2. The time for payment, where not agreed upon, is related to the time for delivery; the particular problems which arise in connection with determining the appropriate time of payment and the time for any inspection before payment which is both allowed by law and demanded by the buyer are covered in Section 2-513.

3. The facts in regard to shipment and delivery differ so widely as to make detailed provision for them in the text of this Article [Chapter] impracticable. The applicable principles, however, make it clear that surprise is to be avoided, good faith judgment is to be protected, and notice or negotiation to reduce the uncertainty to certainty is to be favored.

4. When the time for delivery is left open, unreasonably early offers of or demands for delivery are intended to be read under this Article [Chapter] as expressions of desire or intention, requesting the assent or acquiescence of the other party, not as final positions which may amount without more to breach or to create breach by the other side. See Sections 2-207 and 2-609.

5. The obligation of good faith under this Act requires reasonable notification before a contract may be treated as breached because a reasonable time for delivery or demand has expired. This operates both in the case of a contract originally indefinite as to time and of one subsequently made indefinite by waiver.

When both parties let an originally reasonable time go by in silence, the course of conduct under the contract may be viewed as enlarging the reasonable time for tender or demand of performance. The contract may be terminated by abandonment. 6. Parties to a contract are not required in giving reasonable notification to fix, at peril of breach, a time which is in fact reasonable in the unforeseeable judgment of a later trier of fact. Effective communication of a proposed time limit calls for a response, so that failure to reply will make out acquiescence. Where objection is made, however, or if the demand is merely for information as to when goods will be delivered or will be ordered out, demand for assurances on the ground of insecurity may be made under this Article [Chapter] pending further negotiations. Only when a party insists on undue delay or on rejection of the other party’s reasonable proposal is there a question of flat breach under the present section.

7. Subsection (2) applies a commercially reasonable view to resolve the conflict which has arisen in the cases as to contracts of indefinite duration. The “reasonable time” of duration appropriate to a given arrangement is limited by the circumstances. When the arrangement has been carried on by the parties over the years, the “reasonable time” can continue indefinitely and the contract will not terminate until notice.

8. Subsection (3) recognizes that the application of principles of good faith and sound commercial practice normally call for such notification of the termination of a going contract relationship as will give the other party reasonable time to seek a substitute arrangement. An agreement dispensing with notification or limiting the time for the seeking of a substitute arrangement is, of course, valid under this subsection unless the results of putting it into operation would be the creation of an unconscionable state of affairs.

9. Justifiable cancellation for breach is a remedy for breach and is not the kind of termination covered by the present subsection.

10. The requirement of notification is dispensed with where the contract provides for termination on the happening of an “agreed event.” “Event” is a term chosen here to contrast with “option” or the like.

Cross References:

Cross References: Point 1: Sections 1-203, 1-204 [1-205] and 2-103.

Point 2: Sections 2-320, 2-321, 2-504, and 2-511 through 2-514.

Point 5: Section 1-203.

Point 6: Section 2-609.

Point 7: Section 2-204.

Point 9: Sections 2-106, 2-318, 2-610 and 2-703.

Definitional Cross References:

“Contract.” Section 1-201.

“Notification.” Section 1-201.

“Party.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Termination.” Section 2-106.

Compiler’s Notes.

The bracketed insertion at the end of subsection (b) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Decisions Under Prior Law

Cash Sale.

Where the buyer under a contract of sale was not entitled to possession until payment, the law presumed a cash sale, which is one where payment and delivery are concurrent. Western Seed Marketing Co. v. Pfost, 45 Idaho 340, 262 P. 514 (1927).

Inspection of Goods.

Where buyer of peaches diverted shipment being made to Laramie, Wyo., to Chicago, Ill., without examining the peaches, the question as to what was a reasonable time and place for buyer to examine peaches and notify seller of rejection of them for breach of warranty was for the jury. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Inspection of goods by buyer was to be made at destination before sale was completed, and a reasonable time therefor was allowed. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Am. Jur. 2d.

67 Am. Jur. 2d, Sales, § 272 et seq.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Sections 42 and 47(2), Uniform Sales Act.

Changes:

Purposes of Changes:

1. Paragraph (a) provides that payment is due at the time and place “the buyer is to receive the goods” rather than at the point of delivery except in documentary shipment cases (paragraph (c)). This grants an opportunity for the exercise by the buyer of his preliminary right to inspection before paying even though under the delivery term the risk of loss may have previously passed to him or the running of the credit period has already started.
2. Paragraph (b) while providing for inspection by the buyer before he pays, protects the seller. He is not required to give up possession of the goods until he has received payment, where no credit has been contemplated by the parties. The seller may collect through a bank by a sight draft against an order bill of lading “hold until arrival; inspection allowed.” The obligations of the bank under such a provision are set forth in Part 5 of Article [Chapter] 4. Under subsection (c), in the absence of a credit term, the seller is permitted to ship under reservation and if he does payment is then due where and when the buyer is to receive delivery of the tangible documents of title. In the case of an electronic document of title, payment is due when the buyer is to receive delivery of the electronic document and at the seller’s place of business, or if none, the seller’s residence. Delivery as to documents of title is stated in Article 1, Section 1-201.
3. Unless otherwise agreed, the place for the delivery of the documents and payment is the buyer’s city but the time for payment is only after arrival of the goods, since under paragraph (b), and Sections 2-512 and 2-513 the buyer is under no duty to pay prior to inspection. Tender of a document of title requires that the seller be ready, willing and able to transfer possession of a tangible document of title or control of an electronic document of title to the buyer.
4. Where the mode of shipment is such that goods must be unloaded immediately upon arrival, too rapidly to permit adequate inspection before receipt, the seller must be guided by the provisions of this Article [Chapter] on inspection which provide that if the seller wishes to demand payment before inspection, he must put an appropriate term into the contract. Even requiring payment against documents will not of itself have this desired result if the documents are to be held until the arrival of the goods. But under (b) and (c) if the terms are C.I.F., C.O.D., or cash against documents payment may be due before inspection. 5. Paragraph (d) states the common commercial understanding that an agreed credit period runs from the time of shipment or from that dating of the invoice which is commonly recognized as a representation of the time of shipment. The provision concerning any delay in sending forth the invoice is included because such conduct results in depriving the buyer of his full notice and warning as to when he must be prepared to pay.

Cross References:

Point 1: Section 2-509.

Point 2: Sections 2-505, 2-511, 2-512, 2-513 and Article [Chapter] 4.

Point 3: Sections 2-308(b), 2-512 and 2-513.

Point 4: Section 2-513(3)(b).

Definitional Cross References:

“Delivery.” Section 1-201.

“Document of title.” Section 1-201.

“Goods.” Section 2-105.

“Receipt of goods.” Section 2-103.

“Seller.” Section 2-103.

“Send.” Section 1-201.

“Term.” Section 1-201.

Compiler’s Notes.

The bracketed insertions in subsections (1) and (2) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. Subsection (1) permits the parties to leave certain detailed particulars of performance to be filled in by either of them without running the risk of having the contract invalidated for indefiniteness. The party to whom the agreement gives power to specify the missing details is required to exercise good faith and to act in accordance with commercial standards so that there is no surprise and the range of permissible variation is limited by what is commercially reasonable. The “agreement” which permits one party so to specify may be found as well in a course of dealing, usage of trade, or implication from circumstances as in explicit language used by the parties.

2. Options as to assortment of goods or shipping arrangements are specifically reserved to the buyer and seller respectively under subsection (2) where no other arrangement has been made. This section rejects the test which mechanically and without regard to usage or the purpose of the option gave the option to the party “first under a duty to move” and applies instead a standard commercial interpretation to these circumstances. The “unless otherwise agreed” provision of this subsection covers not only express terms but the background and circumstances which enter into the agreement.

3. Subsection (3) applies when the exercise of an option or cooperation by one party is necessary to or materially affects the other party’s performance, but it is not seasonably forthcoming; the subsection relieves the other party from the necessity for performance or excuses his delay in performance as the case may be. The contract-keeping party may at his option under this subsection proceed to perform in any commercially reasonable manner rather than wait. In addition to the special remedies provided, this subsection also reserves “all other remedies.” The remedy of particular importance in this connection is that provided for insecurity. Request may also be made pursuant to the obligation of good faith for a reasonable indication of the time and manner of performance for which a party is to hold himself ready.

4. The remedy provided in subsection (3) is one which does not operate in the situation which falls within the scope of Section 2-614 on substituted performance. Where the failure to cooperate results from circumstances set forth in that Section, the other party is under a duty to proffer or demand (as the case may be) substitute performance as a condition to claiming rights against the noncooperating party.

Cross References:

Point 3: Sections 1-203 and 2-609.

Point 4: Section 2-614.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract for sale.” Section 2-106.

“Goods.” Section 2-105.

“Party.” Section 1-201.

“Remedy.” Section 1-201.

“Seasonably.” Section 1-204 [1-205].

“Seller.” Section 2-103.

Decisions Under Prior Law

A provision in the conditional sales contract that it might be assigned to a named bank without notice to purchaser, and, when assigned, should be free from any defense, counterclaim, or cross-complaint by the purchaser, was valid and would bar the defense of the breach of implied warranty. United States ex rel. Adm’r of Fed. Hous. Admin. v. Troy-Parisian, Inc., 115 F.2d 224 (9th Cir. 1940), cert. denied, 312 U.S. 699, 61 S. Ct. 739, 85 L. Ed. 1133 (1941).

Am. Jur. 2d.

C.J.S.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

Purposes of Changes: 1. Subsection (1) makes provision for a buyer’s basic needs in respect to a title which he in good faith expects to acquire by his purchase, namely, that he receive a good, clean title transferred to him also in a rightful manner so that he will not be exposed to a lawsuit in order to protect it. The warranty extends to a buyer whether or not the seller was in possession of the goods at the time the sale or contract to sell was made.

The warranty of quiet possession is abolished. Disturbance of quiet possession, although not mentioned specifically, is one way, among many, in which the breach of the warranty of title may be established.

The “knowledge” referred to in subsection 1(b) is actual knowledge as distinct from notice.

2. The provisions of this Article [Chapter] requiring notification to the seller within a reasonable time after the buyer’s discovery of a breach apply to notice of a breach of the warranty of title, where the seller’s breach was innocent. However, if the seller’s breach was in bad faith he cannot be permitted to claim that he has been misled or prejudiced by the delay in giving notice. In such case the “reasonable” time for notice should receive a very liberal interpretation. Whether the breach by the seller is in good or bad faith Section 2-725 provides that the cause of action accrues when the breach occurs. Under the provisions of that section the breach of the warranty of good title occurs when tender of delivery is made since the warranty is not one which extends to “future performance of the goods.”

3. When the goods are part of the seller’s normal stock and are sold in his normal course of business, it is his duty to see that no claim of infringement of a patent or trademark by a third party will mar the buyer’s title. A sale by a person other than a dealer, however, raises no implication in its circumstances of such a warranty. Nor is there such an implication when the buyer orders goods to be assembled, prepared or manufactured on his own specifications. If, in such a case, the resulting product infringes a patent or trademark, the liability will run from buyer to seller. There is, under such circumstances, a tacit representation on the part of the buyer that the seller will be safe in manufacturing according to the specifications, and the buyer is under an obligation in good faith to indemnify him for any loss suffered.

4. This section rejects the cases which recognize the principle that infringements violate the warranty of title but deny the buyer a remedy unless he has been expressly prevented from using the goods. Under this Article [Chapter] “eviction” is not a necessary condition to the buyer’s remedy since the buyer’s remedy arises immediately upon receipt of notice of infringement; it is merely one way of establishing the fact of breach.

5. Subsection (2) recognizes that sales by sheriffs, executors, foreclosing lienors and persons similarly situated are so out of the ordinary commercial course that their peculiar character is immediately apparent to the buyer and therefore no personal obligation is imposed upon the seller who is purporting to sell only an unknown or limited right. This subsection does not touch upon and leaves open all questions of restitution arising in such cases, when a unique article so sold is reclaimed by a third party as the rightful owner.

6. The warranty of subsection (1) is not designated as an “implied” warranty, and hence is not subject to Section 2-316 (3). Disclaimer of the warranty of title is governed instead by subsection (2), which requires either specific language or the described circumstances.

Cross References:

Point 2: Sections 2-607 and 2-725.

Point 3: Section 1-203.

Point 4: Sections 2-609 and 2-725.

Point 6: Section 2-316.

Definitional Cross References:

“Buyer.” Section 2-103. “Contract for sale.” Section 2-106.

“Goods.” Section 2-105.

“Person.” Section 1-201.

“Right.” Section 1-201.

“Seller.” Section 2-103.

Advertising Materials.

Advertising material and pamphlets given by manufacturers for distribution by retailers can form the basis of an express warranty. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Application.

Buyer’s affidavits sufficiently established that oral representations were made by seller regarding potato worm pesticide and raised a genuine issue of material fact as to the existence of an express warranty. Tolmie Farms, Inc. v. J.R. Simplot Co., 124 Idaho 607, 862 P.2d 299 (1993).

Driver and her passenger who collided with buyer’s truck were not either “persons who were in the family or household” of the buyer or “a guest” in the buyer’s home and, therefore, were not third party beneficiaries who could recover under a breach of an express warranty claim between used car dealer and buyer of truck which was involved in accident. Mugavero v. A-1 Auto Sales, Inc., 130 Idaho 554, 944 P.2d 151 (Ct. App. 1997). Breach of Express Warranty.

Where the jury specifically found that suppliers not only breached an implied warranty of merchantability, but also found that an express warranty had been given that the wheat was spring wheat and that such express warranty had been breached, the suppliers were “sellers” within the purview of§ 28-2-103(1)(d) and, hence, the breach of the express warranty provided a sufficient basis for the award of consequential damages. Nezperce Storage Co. v. Zenner, 105 Idaho 464, 670 P.2d 871 (1983); Cottonwood Elevator Co. v. Zenner, 105 Idaho 469, 670 P.2d 876 (1983).

By way of letter, a weather conditioning corporation made an express warranty that a dehumidifier was fit for the particular purpose of eliminating the odor and humidity problems at an athletic club, and there was substantial, competent evidence that the corporation breached the warranty because the dehumidifier was inadequate to maintain relative humidity in the pool area, according to the industry standard. Keller v. Inland Metals All Weather Conditioning, Inc., 139 Idaho 233, 76 P.3d 977 (2003).

It was not error to deny sellers a directed verdict or judgment notwithstanding the verdict as to a buyer’s breach of warranty claims because, (1) as to one asset, there was sufficient evidence to conclude a seller warranted more than a mere affirmation of the asset’s value, (2) as to another asset, there also was sufficient evidence for a jury reasonably to conclude the seller warranted the buyer would own unique software, and (3) both warranties were breached. April Beguesse, Inc. v. Rammell, 156 Idaho 500, 328 P.3d 480 (2014).

Creation of Warranties.

Express warranties will not be created when there is clear proof of some fact which took the affirmation or description out of the agreement, or when the affirmation is merely of the value of the goods or constitutes puffery; a fact which will also negate some warranties is an examination by the buyer prior to his decision to purchase, and such examination would disclose clearly proven patent defects which are discoverable or latent defects which are discovered. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Where mobile home buyer discovered certain patent defects and agreed to accept the mobile home with those defects which seller expressly warranted would be repaired and seller gave buyer certain materials, i.e., the written contract, the manufacturer’s warranty, the Mobile Home Owner’s Manual, and various advertising pamphlets describing the mobile home, which contained a host of affirmations and descriptions, those affirmations became part of the basis of the bargain and, hence, constituted express warranties as to all aspects of the mobile home, except those defects which were discovered prior to the sale and which seller agreed to repair. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Although an express affirmation of fact regarding the quality of the potato seed sold by farm corporation may not have been made by the mere use of the term “certified,” a warranty may have arisen through a “description” of the goods based on prior dealings; whether such a description was in fact made and whether it became part of the basis of the bargain are questions of fact sufficient to preclude summary judgment. Duffin v. Idaho Crop Imp. Ass’n, 126 Idaho 1002, 895 P.2d 1195 (1995). Disclaimer.

Where, in a lease agreement, the disclaimer of express or implied warranties was conspicuously printed on the back side of the lease agreement in bold type of larger size and was incorporated into the modified contract, such a disclaimer effectively disclaimed the implied warranties of merchantability and fitness for a particular purpose. Glenn Dick Equip. Co. v. Galey Constr., Inc., 97 Idaho 216, 541 P.2d 1184 (1975).

Existence of Sales Agreement.

This section does not require the existence of a sales agreement. Thus, a bargain is struck when the potential buyer agrees to test drive a vehicle, and representations made under these circumstances constitute express warranties. Green v. A.B. Hagglund & Soner, 634 F. Supp. 790 (D. Idaho 1986).

Persons Entitled to Protection of Warranties.

Where the employee of a potential buyer was injured while test driving a vehicle, the employee was entitled to the protection of any warranties extended to the buyer by the manufacturers or seller; the employee was the third-party beneficiary of any warranties extended to the buyer under§ 28-2-318, and as an agent of the corporation, the employee was the “person” to whom the warranties were extended. Green v. A.B. Hagglund & Soner, 634 F. Supp. 790 (D. Idaho 1986).

Reliance.

The buyer of goods need not rely on an “affirmation of fact or promise” or “description” for the same to become “part of the basis of the bargain” and, hence, an express warranty. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Revocation of Acceptance.

Because a buyer may revoke acceptance only against the seller and because a finding that the purchasers had the right to revoke acceptance against automobile dealer is consistent with a finding that the dealer had not breached any warranties, jury verdict for purchasers was not inconsistent and was permissible on revocation claim against dealer and on the lemon law claim against automobile manufacturer. Griffith v. Latham Motors, Inc., 128 Idaho 356, 913 P.2d 572 (1996).

Warranty by Sample.

Cited

Where there was testimony in the record that the “samples” shown were intended to be illustrative of the four-color process and of the kind of quality obtainable, rather than a sample of the particular features of the printing work which the printer was going to produce, it is clear that whether or not a sample by warranty was created was a question of fact for the trier of fact. Meredith Corp. v. Design & Lithography Ctr., Inc., 101 Idaho 391, 614 P.2d 414 (1980). Cited Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978); Duff v. Bonner Bldg. Supply, Inc., 103 Idaho 432, 649 P.2d 391 (Ct. App. 1982).

Decisions Under Prior Law

Breach of Warranty.

Where defects found in truck purchased were more than minor defects, evidence was sufficient to establish the elements necessary to constitute a breach of warranty. Morton v. Whitson, 45 Idaho 28, 260 P. 426 (1927).

Implied Warranty in Sale.

Where transaction was a sale by description raising an implied warranty that the article would correspond to the description, and such statement was fraudulent, the buyer’s remedies were not confined to an action for breach of warranty, but he might rescind the contract for fraud. J.I. Case Co. v. Bird, 51 Idaho 725, 11 P.2d 966 (1932).

Merchantability.

The rule as to warranty when the contract was silent is subject to the limitation in Idaho that the seller of personal property impliedly warrants that the goods are merchantable and the bulk of them conformable to sample or description. First Nat’l Bank v. Peterson, 47 Idaho 794, 279 P. 302 (1929).

Under the rule as modified by the statutes, a party may plead and prove that, as a matter of fact, the goods were neither merchantable nor the bulk of them up to a sample, but beyond that he may not venture. First Nat’l Bank v. Peterson, 47 Idaho 794, 279 P. 302 (1929).

Notice Given of Substandard Goods.

If goods furnished are not up to standard of sample, purchaser must use reasonable diligence in apprising vendor, make his objection, and refuse to accept further goods of the kind. Brown v. Scheurman, 22 Idaho 724, 128 P. 83 (1912).

Oral Warranty.

The seller’s oral statement that a combine would be suitable for sidehill combining, save grain, and be trouble free was a warranty and a part of the sales agreement notwithstanding a printed statement in the written contract that the written order “together with the warranty provision on the back hereof is understood to be the entire contract between us.” J.I. Case Credit Corp. v. Andreason, 90 Idaho 12, 408 P.2d 165 (1965).

Recovery for Breach of Warranty.

If buyer knows that goods are not as represented and was not misled by the representation, he is not entitled to recover for breach of warranty. Tomita v. Johnson, 49 Idaho 643, 290 P. 395 (1930).

Waiver Agreement.

A provision in the conditional sales contract that it might be assigned to a named bank without notice to purchaser, and, when assigned, should be free from any defense, counter-claim, or cross-complaint by the purchaser, was valid and would bar the defense of the breach of implied warranty. United States ex rel. Adm’r of Fed. Hous. Admin. v. Troy-Parisian, Inc., 115 F.2d 224 (9th Cir. 1940), cert. denied, 312 U.S. 699, 61 S. Ct. 739, 85 L. Ed. 1133 (1941).

Am. Jur. 2d.

ALR.

Liability of product indorser or certifier for product-caused injury. 30 A.L.R.3d 181.

Liability for representations and express warranties in connection with sale of used motor vehicle. 36 A.L.R.3d 125.

Liability for warranty or representation that article, other than motor vehicle, is new. 36 A.L.R.3d 237.

Liability of manufacturer or seller of power lawnmower for injuries to user. 41 A.L.R.3d 986.

Promises or attempts by seller to repair goods as tolling statute of limitations for breach of warranty. 68 A.L.R.3d 1277.

Measure of damages in action for breach of warranty of title to personal property under UCC§ 2-714. 94 A.L.R.3d 583.

What constitutes “affirmation of fact” giving rise to express warranty under UCC§ 2-313 (1)(a). 94 A.L.R.3d 729.

Statement in advertisements, product brochures or other promotional materials as constituting “affirmation of fact” giving rise to express warranty under UCC§ 2-313(1)(a). 83 A.L.R.6th 1.

Oral statement as constituting “affirmation of fact” giving rise to express warranty under UCC§ 2-313(1)(a). 88 A.L.R.6th 1.

Statement in Contract Proposals, Contract Correspondence, or Contract Itself as Constituting “Affirmation of Fact” Giving Rise to Express Warranty Under U.C.C. § 2-313(1)(a). 94 A.L.R.6th 1. Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

1. “Express” warranties rest on “dickered” aspects of the individual bargain, and go so clearly to the essence of that bargain that words of disclaimer in a form are repugnant to the basic dickered terms. “Implied” warranties rest so clearly on a common factual situation or set of conditions that no particular language or action is necessary to evidence them and they will arise in such a situation unless unmistakably negated.
2. Although this section is limited in its scope and direct purpose to warranties made by the seller to the buyer as part of a contract for sale, the warranty sections of this Article [Chapter] are not designed in any way to disturb those lines of case law growth which have recognized that warranties need not be confined either to sales contracts or to the direct parties to such a contract. They may arise in other appropriate circumstances such as in the case of bailments for hire, whether such bailment is itself the main contract or is merely a supplying of containers under a contract for the sale of their contents. The provisions of Section 2-318 on third party beneficiaries expressly recognize this case law development within one particular area. Beyond that, the matter is left to the case law with the intention that the policies of this Act may offer useful guidance in dealing with further cases as they arise.
3. The present section deals with affirmations of fact by the seller, descriptions of the goods or exhibitions of samples, exactly as any other part of a negotiation which ends in a contract is dealt with. No specific intention to make a warranty is necessary if any of these factors is made part of the basis of the bargain. In actual practice affirmations of fact made by the seller about the goods during a bargain are regarded as part of the description of those goods; hence no particular reliance on such statements need be shown in order to weave them into the fabric of the agreement. Rather, any fact which is to take such affirmations, once made, out of the agreement requires clear affirmative proof. The issue normally is one of fact.
4. In view of the principle that the whole purpose of the law of warranty is to determine what it is that the seller has in essence agreed to sell, the policy is adopted of those cases which refuse except in unusual circumstances to recognize a material deletion of the seller’s obligation. Thus, a contract is normally a contract for a sale of something describable and described. A clause generally disclaiming “all warranties, express or implied” cannot reduce the seller’s obligation with respect to such description and therefore cannot be given literal effect under Section 2-316.
5. Paragraph (1) (b) makes specific some of the principles set forth above when a description of the goods is given by the seller.

This section reverts to the older case law insofar as the warranties of description and sample are designated “express” rather than “implied.”

This is not intended to mean that the parties, if they consciously desire, cannot make their own bargain as they wish. But in determining what they have agreed upon good faith is a factor and consideration should be given to the fact that the probability is small that a real price is intended to be exchanged for a pseudo-obligation.

A description need not be by words. Technical specifications, blueprints and the like can afford more exact description than mere language and if made part of the basis of the bargain goods must conform with them. Past deliveries may set the description of quality, either expressly or impliedly by course of dealing. Of course, all descriptions by merchants must be read against the applicable trade usages with the general rules as to merchantability resolving any doubts. 6. The basic situation as to statements affecting the true essence of the bargain is no different when a sample or model is involved in the transaction. This section includes both a “sample” actually drawn from the bulk of goods which is the subject matter of the sale, and a “model” which is offered for inspection when the subject matter is not at hand and which has not been drawn from the bulk of the goods.

Although the underlying principles are unchanged, the facts are often ambiguous when something is shown as illustrative, rather than as a straight sample. In general, the presumption is that any sample or model just as any affirmation of fact is intended to become a basis of the bargain. But there is no escape from the question of fact. When the seller exhibits a sample purporting to be drawn from an existing bulk, good faith of course requires that the sample be fairly drawn. But in mercantile experience the mere exhibition of a “sample” does not of itself show whether it is merely intended to “suggest” or to “be” the character of the subject-matter of the contract. The question is whether the seller has so acted with reference to the sample as to make him responsible that the whole shall have at least the values shown by it. The circumstances aid in answering this question. If the sample has been drawn from an existing bulk, it must be regarded as describing values of the goods contracted for unless it is accompanied by an unmistakable denial of such responsibility. If, on the other hand, a model of merchandise not on hand is offered, the mercantile presumption that it has become a literal description of the subject matter is not so strong, and particularly so if modification on the buyer’s initiative impairs any feature of the model.

7. The precise time when words of description or affirmation are made or samples are shown is not material. The sole question is whether the language or samples or models are fairly to be regarded as part of the contract. If language is used after the closing of the deal (as when the buyer when taking delivery asks and receives an additional assurance), the warranty becomes a modification, and need not be supported by consideration if it is otherwise reasonable and in order (Section 2-209).

8. Concerning affirmations of value or a seller’s opinion or commendation under subsection (2), the basic question remains the same: What statements of the seller have in the circumstances and in objective judgment become part of the basis of the bargain? As indicated above, all of the statements of the seller do so unless good reason is shown to the contrary. The provisions of subsection (2) are included, however, since common experience discloses that some statements or predictions cannot fairly be viewed as entering into the bargain. Even as to false statements of value, however, the possibility is left open that a remedy may be provided by the law relating to fraud or misrepresentation.

Cross References:

Point 2: Sections 1-102(3) and 2-318.

Point 3: Section 2-316(2) (b).

Point 4: Section 2-316.

Point 5: Sections 1-205(4) [1-303(4)] and 2-314.

Point 6: Section 2-316.

Point 7: Section 2-209. Point 8: Section 1-103.

Definitional Cross References:

“Conforming.” Section 2-106.

“Goods.” Section 2-105.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in subsections (1) and (3) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Application.

Where lessor of motor scraper units was a merchant specializing in the sale and leasing of heavy construction equipment and the lessee relied on lessor’s expertise when motor scraper units were leased, the implied warranty under this section was extended to the transaction. Glenn Dick Equip. Co. v. Galey Constr., Inc., 97 Idaho 216, 541 P.2d 1184 (1975).

Burden of Proof.

In a buyer’s action for breach of implied warranties of merchantability and fitness for a particular purpose arising from the sale of diseased cattle, the buyer had the burden of establishing by a preponderance of the evidence that the calves were warranted as healthy and fit for a particular use, that the calves were in fact diseased before they left the seller’s control, and that the disease caused the resulting deaths. Martineau v. Walker, 97 Idaho 246, 542 P.2d 1165 (1975).

The burden is upon a plaintiff in a warranty cause of action to show not only the existence of a particular warranty, but also a breach arising from unsuitability of the goods at the time of delivery and a loss proximately caused by such breach. Duff v. Bonner Bldg. Supply, Inc., 103 Idaho 432, 649 P.2d 391 (Ct. App. 1982), aff’d, 105 Idaho 123, 666 P.2d 650 (1983).

Circumstantial Evidence.

In arriving at its determination of a product’s merchantability, the district court may properly infer the unmerchantability of a product from circumstantial evidence. Meldco, Inc. v. Hollytex Carpet Mills, Inc., 118 Idaho 265, 796 P.2d 142 (Ct. App. 1990).

Comparative Negligence Defense.

Comparative negligence is not a defense to a breach of warranty action where a plaintiff seeks recovery for the costs of repair and replacement of defective goods. Duff v. Bonner Bldg. Supply, Inc., 103 Idaho 432, 649 P.2d 391 (Ct. App. 1982), aff’d, 105 Idaho 123, 666 P.2d 650 (1983).

Disclaimer.

Where, in a lease agreement, the disclaimer of express or implied warranties was conspicuously printed on the back side of the lease agreement in bold type of larger size and was incorporated into the modified contract, such a disclaimer effectively disclaimed the implied warranties of merchantability and fitness for a particular purpose. Glenn Dick Equip. Co. v. Galey Constr., Inc., 97 Idaho 216, 541 P.2d 1184 (1975).

Latent Defects.

Implied warranties can apply to goods with latent defects. Hansen-Rice, Inc. v. Celotex Corp., 414 F. Supp. 2d 970 (D. Idaho 2006).

Merchant.

Where lessor of car washing equipment did not manufacture or sell any equipment but only financed the purchase of equipment specifically selected by the lessee, the finance lessor was not a merchant and, thus, no implied warranty of merchantability existed in the lease transaction. All-States Leasing Co. v. Bass, 96 Idaho 873, 538 P.2d 1177 (1975).

A crane rental corporation which, in the course of its business, performed substantial maintenance work on the cranes was a merchant under this section. Essex Crane Rental Corp. v. Weyher/Livsey Constructors, Inc., 713 F. Supp. 1350 (D. Idaho 1989), rev’d on other grounds, 940 F.2d 1253 (9th Cir. 1991).

Merchantability.

Where floor drain grating for swimming pool complex was specially manufactured and substantially conformed to architect’s specifications, the grating was of merchantable quality and could not be rejected for not conforming with contractor’s order. Consolidated Supply Co. v. Babbitt, 96 Idaho 636, 534 P.2d 466 (1975).

The implied warranty of merchantability recognized in this section applies to transactions of both new and used goods. Dickerson v. Mountain View Equip. Co., 109 Idaho 711, 710 P.2d 621 (Ct. App. 1985).

The warranty of merchantability extends to used goods. Lee v. Peterson, 110 Idaho 601, 716 P.2d 1373 (Ct. App. 1986).

The warranty of merchantability operates independently from any express warranty, unless it is effectively disclaimed. Lee v. Peterson, 110 Idaho 601, 716 P.2d 1373 (Ct. App. 1986).

Where, within 60 to 90 days of installation motel carpet showed evidence of “cornrowing” (a condition whereby carpet fibers separate along the installed mat, giving the appearance of a “corn row”) and had “uglied out” (a term used within the carpet industry, indicating that, although the carpet fiber has not actually disintegrated, the carpet is in such a state of appearance as to require replacement), the district court properly found that the carpet was unfit for the ordinary purposes for which it was to be used, and that manufacturer had breached an implied warranty of merchantability. Meldco, Inc. v. Hollytex Carpet Mills, Inc., 118 Idaho 265, 796 P.2d 142 (Ct. App. 1990).

Although proof of a defect generally supports a finding of unmerchantability, such proof is not required. Meldco, Inc. v. Hollytex Carpet Mills, Inc., 118 Idaho 265, 796 P.2d 142 (Ct. App. 1990).

Even if applicable to the car manufacturer, the implied warranty could not be read to require the distribution of a mouse proof vehicle; there was no showing of how the mice entered the vehicle, such that the theoretical defect could not be identified and there was insufficient evidence to submit the issue to the jury. Powers v. Am. Honda Motor Co., 139 Idaho 333, 79 P.3d 154 (2003).

District court properly entered a judgment in favor of a company in the grower’s contract dispute arising from the development of bacterial ring rot in two of the potato varieties grown by the company for the grower because, inter alia, statutory recertification was not required by the contract, the grower’s actions — selling some of the uninfected potatoes and making a payment to the company — were inconsistent with the company’s ownership of the seed, as the grower’s acceptance of the uninfected potatoes reinstated the contract Silver Creek Seed, LLC v. Sunrain Varieties, LLC, 161 Idaho 270, 385 P.3d 448 (2016). Questions of Fact.

In a buyer’s action against the seller for breach of implied warranties of merchantability and fitness for a particular purpose arising from the sale of diseased cattle, whether the animals were diseased prior to the risk of loss passing to the buyer was a question for the trier of fact. Martineau v. Walker, 97 Idaho 246, 542 P.2d 1165 (1975).

Even assuming that potato seed sold by farm corporation that was infected with bacterial ring rot was unmerchantable, there remained a factual question relating to whether the seed was infected at the time of delivery which was sufficient to preclude summary judgment on the issue of breach of warranty of merchantability. Duffin v. Idaho Crop Imp. Ass’n, 126 Idaho 1002, 895 P.2d 1195 (1995).

Revocation of Acceptance.

Because a buyer may revoke acceptance only against the seller and because a finding that the purchasers had the right to revoke acceptance against automobile dealer is consistent with a finding that the dealer had not breached any warranties. Jury verdict for purchasers was not inconsistent and was permissible on revocation claim against dealer and on the lemon law claim against automobile manufacturer. Griffith v. Latham Motors, Inc., 128 Idaho 356, 913 P.2d 572 (1996).

Substantial Evidence.

Where the plaintiff homeowner’s evidence showed that the lumber he bought from the defendant building supply company, for use as wall paneling in his house, was defective from the date of its purchase in that it exceeded the lumber moisture content acceptable in the industry, and that he suffered loss caused by shrinkage resulting from the excessive moisture content, the finding of a breach of an implied warranty of merchantability was supported by substantial and competent evidence and would not be disturbed on appeal. Duff v. Bonner Bldg. Supply, Inc., 103 Idaho 432, 649 P.2d 391 (Ct. App. 1982), aff’d, 105 Idaho 123, 666 P.2d 650 (1983).

Where buyer bought a used tractor and used it for only 200 hours and there was evidence that the tractor was unmerchantable at the time of delivery, the record supported the district court’s finding of breach of an implied warranty of merchantability. Collier Carbon & Chem. Corp. v. Castle Butte, Inc., 109 Idaho 708, 710 P.2d 618 (Ct. App. 1985).

Test.

The appropriate test for determining whether an implied warranty of merchantability has been breached is to examine whether the goods were unmerchantable at the time of delivery. Dickerson v. Mountain View Equip. Co., 109 Idaho 711, 710 P.2d 621 (Ct. App. 1985).

Cited Hoffman v. Simplot Aviation, Inc., 97 Idaho 32, 539 P.2d 584 (1975); Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978); Nezperce Storage Co. v. Zenner, 105 Idaho 464, 670 P.2d 871 (1983); Cottonwood Elevator Co. v. Zenner, 105 Idaho 469, 670 P.2d 876 (1983); Steiner Corp. v. American Dist. Tel., 106 Idaho 787, 683 P.2d 435 (1984); Fernandez v. Western R.R. Bldrs., 112 Idaho 907, 736 P.2d 1361 (Ct. App. 1987); Tusch Enters. v. Coffin, 113 Idaho 37, 740 P.2d 1022 (1987); Myers v. A.O. Smith Harvestore Prods., Inc., 114 Idaho 432, 757 P.2d 695 (Ct. App. 1988). Decisions Under Prior Law

Express and Implied Warranty.

Express warranty governed over inconsistent implied warranty. Investors Mtg. Sec. Co. v. Strauss & Co., 50 Idaho 562, 298 P. 678 (1931) (express warranty that what seed was of certain variety held not inconsistent with implied warranty).

Where there was an express warranty inconsistent with the warranty implied by law, the express warranty proved would govern. Investors Mtg. Sec. Co. v. Strauss & Co., 50 Idaho 562, 298 P. 678 (1931).

Fitness.

Creation of implied warranty of fitness for a particular purpose does not require affirmations of fact by the seller, but requires only that the seller be made aware of the buyer’s need, that the seller recommend a product, and that the buyer purchase the product as recommended. Robinson v. Williamsen Idaho Equip. Co., 94 Idaho 819, 498 P.2d 1292 (1972).

Instructions.

An affirmation of fact by the seller was not an indispensable fact in the creation of an implied warranty, and the court properly corrected an instruction as follows, “You are instructed that in order that a sale shall be upon an express warranty, there must be two factors present, first, an affirmation of a fact by the seller, with reference to the thing to be sold, and second, an intention on the part of the seller that his affirmation shall be a warranty to the buyer.” Branom v. Smith Frozen Foods of Idaho, Inc., 83 Idaho 502, 365 P.2d 958 (1961).

Where the second sentence of an instruction was merely a restatement of the first sentence of an instruction that there was an implied warranty that the swine would be reasonably fit for the buyer’s purpose, where the buyer expressly or by implication made known to the seller the purpose for which he was buying the swine, the instruction was not erroneous as not stating the law in the case where the issue was whether the hogs were free and immune from hog cholera. Anderson v. Blackfoot Livestock Comm’n Co., 85 Idaho 64, 375 P.2d 704 (1962).

Merchantability.

Under former law, the seller of personal property impliedly warranted that the goods were merchantable. In other words, the statute interjected a warranty strictly limited in its nature into a contract which was silent as to warranties. First Nat’l Bank v. Peterson, 47 Idaho 794, 279 P. 302 (1929).

Recommendation by, and reliance on seller need not be shown to establish an implied warranty of merchantability. Robinson v. Williamsen Idaho Equip. Co., 94 Idaho 819, 498 P.2d 1292 (1972).

Pleading.

It was proper for buyer to plead and prove that goods were neither merchantable nor bulk of them up to the sample, but he could not prove false and fraudulent representations as to quality without pleading this. First Nat’l Bank v. Peterson, 47 Idaho 794, 279 P. 302 (1929).

Complaint did not state a cause of action for damages based on breach of implied warranty in sale of explosives where the complaint alleged that the plaintiff had continued to use explosives over a period of time despite a large number of failures. Coleman v. Carter, 77 Idaho 210, 289 P.2d 932 (1955).

In a complaint for breach of warranty in sale of explosives for use in excavation for sewer an allegation “that plaintiff had to remove rock by mechanical means at a great expense to his damage” was not sufficient pleading of measure of damages. Coleman v. Carter, 77 Idaho 210, 289 P.2d 932 (1955).

Waiver Agreement.

A provision in the conditional sales contract that it might be assigned to a named bank without notice to purchaser, and, when assigned, should be free from any defense, counter-claim, or cross-complaint by the purchaser, was valid and would bar the defense of the breach of implied warranty. United States ex rel. Adm’r of Fed. Hous. Admin. v. Troy-Parisian, Inc., 115 F.2d 224 (9th Cir. 1940), cert. denied, 312 U.S. 699, 61 S. Ct. 739, 85 L. Ed. 1133 (1941).

Am. Jur. 2d.

67A Am. Jur. 2d, Sales, § 676 et seq.

ALR.

Liability on implied warranties in sale of used motor vehicle. 22 A.L.R.3d 1387.

What are “merchantable” goods within meaning of UCC§ 2-314 dealing with implied warranty of merchantability. 83 A.L.R.3d 694.

Who is “merchant” under UCC§ 2-314(1) dealing with implied warranties of merchantability. 83 A.L.R.3d 694.

Who is “merchant” under UCC§ 2-314(1) dealing with implied warranties or merchantability. 91 A.L.R.3d 876.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 15(2), Uniform Sales Act.

Changes:

Purposes of Changes:

1. The seller’s obligation applies to present sales as well as to contracts to sell subject to the effects of any examination of specific goods. (Subsection (2) of Section 2-316). Also, the warranty of merchantability applies to sales for use as well as to sales for resale.
2. The question when the warranty is imposed turns basically on the meaning of the terms of the agreement as recognized in the trade. Goods delivered under an agreement made by a merchant in a given line of trade must be of a quality comparable to that generally acceptable in that line of trade under the description or other designation of the goods used in the agreement. The responsibility imposed rests on any merchant-seller, and the absence of the words “grower or manufacturer or not” which appeared in Section 15 (2) of the Uniform Sales Act does not restrict the applicability of this section.
3. A specific designation of goods by the buyer does not exclude the seller’s obligation that they be fit for the general purposes appropriate to such goods. A contract for the sale of second-hand goods, however, involves only such obligation as is appropriate to such goods for that is their contract description. A person making an isolated sale of goods is not a “merchant” within the meaning of the full scope of this section and, thus, no warranty of merchantability would apply. His knowledge of any defects not apparent on inspection would, however, without need for express agreement and in keeping with the underlying reason of the present section and the provisions on good faith, impose an obligation that known material but hidden defects be fully disclosed.
4. Although a seller may not be a “merchant” as to the goods in question, if he states generally that they are “guaranteed” the provisions of this section may furnish a guide to the content of the resulting express warranty. This has particular significance in the case of second-hand sales, and has further significance in limiting the effect of fine-print disclaimer clauses where their effect would be inconsistent with large-print assertions of “guarantee.”
5. The second sentence of subsection (1) covers the warranty with respect to food and drink. Serving food or drink for value is a sale, whether to be consumed on the premises or elsewhere. Cases to the contrary are rejected. The principal warranty is that stated in subsections (1) and (2) (c) of this section.
6. Subsection (2) does not purport to exhaust the meaning of “merchantable” nor to negate any of its attributes not specifically mentioned in the text of the statute, but arising by usage of trade or through case law. The language used is “must be at least such as . . . ,” and the intention is to leave open other possible attributes of merchantability.
7. Paragraphs (a) and (b) of subsection (2) are to be read together. Both refer, as indicated above, to the standards of that line of the trade which fits the transaction and the seller’s business. “Fair average” is a term directly appropriate to agricultural bulk products and means goods centering around the middle belt of quality, not the least or the worst that can be understood in the particular trade by the designation, but such as can pass “without objection.” Of course a fair percentage of the least is permissible but the goods are not “fair average” if they are all of the least or worst quality possible under the description. In cases of doubt as to what quality is intended, the price at which a merchant closes a contract is an excellent index of the nature and scope of his obligation under the present section. 8. Fitness for the ordinary purposes for which goods of the type are used is a fundamental concept of the present section and is covered in paragraph (c). As stated above, merchantability is also a part of the obligation owing to the purchaser for use. Correspondingly, protection, under this aspect of the warranty, of the person buying for resale to the ultimate consumer is equally necessary, and merchantable goods must therefore be “honestly” resalable in the normal course of business because they are what they purport to be.

9. Paragraph (d) on evenness of kind, quality and quantity follows case law. But precautionary language has been added as a reminder of the frequent usages of trade which permit substantial variations both with and without an allowance or an obligation to replace the varying units.

10. Paragraph (e) applies only where the nature of the goods and of the transaction require a certain type of container, package or label. Paragraph (f) applies, on the other hand, wherever there is a label or container on which representations are made, even though the original contract, either by express terms or usage of trade, may not have required either the labelling or the representation. This follows from the general obligation of good faith which requires that a buyer should not be placed in the position of reselling or using goods delivered under false representations appearing on the package or container. No problem of extra consideration arises in this connection since, under this Article [Chapter] an obligation is imposed by the original contract not to deliver mislabeled articles, and the obligation is imposed where mercantile good faith so requires and without reference to the doctrine of consideration.

11. Exclusion or modification of the warranty of merchantability, or of any part of it, is dealt with in the section to which the text of the present section makes explicit precautionary references. That section must be read with particular reference to its subsection (4) on limitation of remedies. The warranty of merchantability, wherever it is normal, is so commonly taken for granted that its exclusion from the contract is a matter threatening surprise and therefore requiring special precaution.

12. Subsection (3) is to make explicit that usage of trade and course of dealing can create warranties and that they are implied rather than express warranties and thus subject to exclusion or modification under Section 2-316. A typical instance would be the obligation to provide pedigree papers to evidence conformity of the animal to the contract in the case of a pedigreed dog or blooded bull.

13. In an action based on breach of warranty, it is of course necessary to show not only the existence of the warranty but the fact that the warranty was broken and that the breach of the warranty was the proximate cause of the loss sustained. In such an action an affirmative showing by the seller that the loss resulted from some action or event following his own delivery of the goods can operate as a defense. Equally, evidence indicating that the seller exercised care in the manufacture, processing or selection of the goods is relevant to the issue of whether the warranty was in fact broken. Action by the buyer following an examination of the goods which ought to have indicated the defect complained of can be shown as matter bearing on whether the breach itself was the cause of the injury.

Cross References:

Point 3: Sections 1-203 and 2-104.

Point 5: Section 2-315.

Point 11: Section 2-316.

Definitional Cross References:

Point 12: Sections 1-201, 1-205 [1-303] and 2-316. Definitional Cross References: “Agreement.” Section 1-201.

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Goods.” Section 2-105.

“Merchant.” Section 2-104.

“Seller.” Section 2-103.

Application.

Where lessor of motor scraper units was a merchant specializing in the sale and leasing of heavy construction equipment and the lessee relied on lessor’s experience when motor scraper units were leased, the implied warranty under this section was extended to the transaction. Glenn Dick Equip. Co. v. Galey Constr., Inc., 97 Idaho 216, 541 P.2d 1184 (1975).

Since buyer of potato seed specifically requested certified seed and there was no evidence that buyer relied upon seller’s advice, skill or judgment, no warranty of fitness for a particular purpose arose and lower court’s denial of summary judgment on this issue was reversed. Duffin v. Idaho Crop Imp. Ass’n, 126 Idaho 1002, 895 P.2d 1195 (1995).

This section does not create liability for failing to comply with labeling regulations. Millenkamp v. Davisco Foods Int’l, Inc., 562 F.3d 971 (9th Cir. 2009).

Burden of Proof.

In a buyer’s action for breach of implied warranties of merchantability and fitness for a particular purpose, arising from the sale of diseased cattle, the buyer had the burden of establishing by a preponderance of the evidence that the calves were warranted as healthy and fit for a particular use, that the calves were diseased before they left the seller’s control, and that the disease caused the resulting deaths. Martineau v. Walker, 97 Idaho 246, 542 P.2d 1165 (1975).

Disclaimer.

Where, in a lease agreement, the disclaimer of express or implied warranties was conspicuously printed on the back side of the lease agreement in bold type of larger size and was incorporated into the modified contract, such a disclaimer effectively disclaimed the implied warranties of merchantability and fitness for a particular purpose. Glenn Dick Equip. Co. v. Galey Constr., Inc., 97 Idaho 216, 541 P.2d 1184 (1975).

Economic Damages.

Claim of purchaser of irrigation system for negligent misrepresentation alleging that the defendants negligently failed to disclose that the irrigation system was not designed for its specific needs and that, as a result, purchaser suffered economic loss in the form of reduced crop yield was properly dismissed since the remedy for a claim for purely economic damages falls within the implied warranty of fitness for a particular purpose under this section. This section and the court’s decision in Clark v. International Harvester , 99 Idaho 326, 581 P.2d 784 (1978), preclude a products liability action sounding in tort under circumstances where there is no personal injury or damage to property alleged. G & M Farms v. Funk Irrigation Co., 119 Idaho 514, 808 P.2d 851 (1991).

Implied Warranty of Fitness.

Where floor drain grating for swimming pool complex was specially manufactured and substantially conformed to architect’s specifications, there was no implied warranty of fitness for a particular purpose. Consolidated Supply Co. v. Babbitt, 96 Idaho 636, 534 P.2d 466 (1975).

Where the lessor of car washing equipment made no suggestion or recommendation as to a choice of an automatic system to meet lessee’s need and where the lessee made his selection on the basis of his own inspection of the manufacturer’s literature and his impressions of the equipment based upon statements made by the manufacturer’s salesmen, no implied warranty of fitness for a particular purpose existed. All-States Leasing Co. v. Bass, 96 Idaho 873, 538 P.2d 1177 (1975).

Pleading.

In an action for damages for breach of warranty brought by purchasers of a mare, where the mare was purchased for breeding purposes but was later found to be unable to conceive, the complaint, which did not cite this section nor use the term “implied warranty,” was adequate to state a cause of action for breach of implied warranty of fitness for a particular purpose, since the underlying facts and allegations supported the claim. Whitehouse v. Lange, 128 Idaho 129, 910 P.2d 801 (Ct. App. 1996).

Questions of Fact.

In a buyer’s action against the seller for breach of implied warranties of merchantability and fitness for a particular purpose arising from the sale of diseased cattle, whether the animals were diseased prior to the risk of loss passing to the buyer was a question for the trier of fact. Martineau v. Walker, 97 Idaho 246, 542 P.2d 1165 (1975).

Cited Hoffman v. Simplot Aviation, Inc., 97 Idaho 32, 539 P.2d 584 (1975); Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978); Duff v. Bonner Bldg. Supply, Inc., 103 Idaho 432, 649 P.2d 391 (Ct. App. 1982); Steiner Corp. v. American Dist. Tel., 106 Idaho 787, 683 P.2d 435 (1984); Tusch Enters. v. Coffin, 113 Idaho 37, 740 P.2d 1022 (1987); Myers v. A.O. Smith Harvestore Prods., Inc., 114 Idaho 432, 757 P.2d 695 (Ct. App. 1988). Decisions Under Prior Law

Where one desiring seed makes known to a dealer his needs for planting, and a selection was made upon recommendation by the seller, there arose an implied warranty that the seed was suitable for the purpose intended. Tomita v. Johnson, 49 Idaho 643, 290 P. 395 (1930).

Where buyer, expressly or by implication, made known to the seller the particular purpose for which the goods were required, and buyer relied on the seller’s judgment, there was an implied warranty that the goods should be reasonably fit for such purpose. Investors Mtg. Sec. Co. v. Strauss & Co., 50 Idaho 562, 298 P. 678 (1931).

Implied warranties for quality or fitness were coextensive. National Motor Serv. Co. v. Walters, 85 Idaho 349, 379 P.2d 643 (1963).

Where the buyer informed the seller that he desired a combine for sidehill combining, there was an implied warranty that the combine sold was fit for such purpose. J.I. Case Credit Corp. v. Andreason, 90 Idaho 12, 408 P.2d 165 (1965).

The sale of hogs for breeding purposes carried with it an implied warranty that they were fit for such purpose and the fact that they were infected with a disease that rendered them useless for such purpose was a breach of such warranty. Paullus v. Liedkie, 92 Idaho 323, 442 P.2d 733 (1968).

Am. Jur. 2d.

ALR.

Liability on implied warranties in sale of used motor vehicle. 22 A.L.R.3d 1387.

Modern status of rules as to existence of implied warranty of habitability or fitness for use of leased premises. 40 A.L.R.3d 646.

What constitutes “particular purpose” within meaning of UCC§ 2-315 dealing with implied warranty of fitness. 83 A.L.R.3d 669.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 15 (1), (4), (5), Uniform Sales Act.

Changes:

Purposes of Changes:

A contract may of course include both a warranty of merchantability and one of fitness for a particular purpose.

The provisions of this Article [Chapter] on the cumulation and conflict of express and implied warranties must be considered on the question of inconsistency between or among warranties. In such a case any question of fact as to which warranty was intended by the parties to apply must be resolved in favor of the warranty of fitness for particular purpose as against all other warranties except where the buyer has taken upon himself the responsibility of furnishing the technical specifications.

3. In connection with the warranty of fitness for a particular purpose the provisions of this Article [Chapter] on the allocation or division of risks are particularly applicable in any transaction in which the purpose for which the goods are to be used combines requirements both as to the quality of the goods themselves and compliance with certain laws or regulations. How the risks are divided is a question of fact to be determined, where not expressly contained in the agreement, from the circumstances of contracting, usage of trade, course of performance and the like, matters which may constitute the “otherwise agreement” of the parties by which they may divide the risk or burden.

4. The absence from this section of the language used in the Uniform Sales Act in referring to the seller, “whether he be the grower or manufacturer or not,” is not intended to impose any requirement that the seller be a grower or manufacturer. Although normally the warranty will arise only where the seller is a merchant with the appropriate “skill or judgment,” it can arise as to nonmerchants where this is justified by the particular circumstances.

5. The elimination of the “patent or other trade name” exception constitutes the major extension of the warranty of fitness which has been made by the cases and continued in this Article [Chapter]. Under the present section the existence of a patent or other trade name and the designation of the article by that name, or indeed in any other definite manner, is only one of the facts to be considered on the question of whether the buyer actually relied on the seller, but it is not of itself decisive of the issue. If the buyer himself is insisting on a particular brand he is not relying on the seller’s skill and judgment and so no warranty results. But the mere fact that the article purchased has a particular patent or trade name is not sufficient to indicate nonreliance if the article has been recommended by the seller as adequate for the buyer’s purposes.

6. The specific reference forward in the present section to the following section on exclusion or modification of warranties is to call attention to the possibility of eliminating the warranty in any given case. However it must be noted that under the following section the warranty of fitness for a particular purpose must be excluded or modified by a conspicuous writing.

Cross References:

Point 3: Section 2-303.

Point 6: Section 2-316.

Definitional Cross References:

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in subsections (1) and (4) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Disclaimer.

Where, in a lease agreement, the disclaimer of express or implied warranties was conspicuously printed on the back side of the lease agreement in bold type of larger size and was incorporated into the modified contract, such a disclaimer effectively disclaimed the implied warranties of merchantability and fitness for a particular purpose. Glenn Dick Equip. Co. v. Galey Constr., Inc., 97 Idaho 216, 541 P.2d 1184 (1975).

Where contract contained language that purported to disclaim, among other things, “all warranties, express or implied,” but contract and other information supplied to buyer contained affirmations which became express warranties, seller did not effectively disclaim the express warranties. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Where the only alleged disclaimer was the statement in the acceptance form that the 30-day warranty was “in lieu of all other warranties and/or representations,” the acceptance form failed to make it “plain” that no implied warranty existed; therefore, the disclaimer of the warranty of merchantability was not valid. Lee v. Peterson, 110 Idaho 601, 716 P.2d 1373 (Ct. App. 1986).

Although the UCC does not explicitly require the term “as is” to be conspicuous, an inconspicuously inserted term may fail to make plain that there is no implied warranty. Fernandez v. Western R.R. Bldrs., 112 Idaho 907, 736 P.2d 1361 (Ct. App. 1987).

Sales ticket containing the almost illegible words “as is” alone would not suffice to disclaim an implied warranty or to exclude reliance upon a contract description. Fernandez v. Western R.R. Bldrs., 112 Idaho 907, 736 P.2d 1361 (Ct. App. 1987).

A purchase order, which directed and required the buyer’s signature on the reverse side, under disclaimer language written and labelled as a disclaimer in large, bold, capital letters, was conspicuous and the language effectively excluded implied warranties of merchantability and fitness for a particular purpose. Myers v. A.O. Smith Harvestore Prods., Inc., 114 Idaho 432, 757 P.2d 695 (Ct. App. 1988).

Seller effectively disclaimed all implied warranties where a course of dealing was established by over 160 mail invoices over four years each containing a disclaimer, and where tanks containing the purchased pesticide always carried a valid warranty disclaimer on the side. Tolmie Farms, Inc. v. J.R. Simplot Co., 124 Idaho 607, 862 P.2d 299 (1993).

Used car dealership excluded the warranty of merchantability from the sale contract for a used Jeep it sold to a consumer; the sale contract stated: “This unit sold as is. No warranty or guarantee stated or implied.” The buyer was not permitted to revoke his acceptance upon later discovering that the Jeep previously sustained collision damage that was insufficiently repaired. Haight v. Dale’s Used Cars, Inc., 139 Idaho 853, 87 P.3d 962 (Ct. App. 2003).

Examination of Goods.

In an action for damages for breach of warranty brought by purchasers of a mare, where the veterinarian’s examination of the mare took place after the sale contract had been formed and the mare had been delivered to the purchasers, the examination could not be effective to exclude an implied warranty. Whitehouse v. Lange, 128 Idaho 129, 910 P.2d 801 (Ct. App. 1996). Express Limited Warranty.

There was sufficient evidence to uphold the jury’s finding that defendant’s express limited warranty on an aircraft for 365 days or 1,000 flight hours, with its disclaimer of all other warranties, express or implied, effectively disposed of plaintiffs’ other express and implied warranty claims. Management Catalysts v. Turbo W. Corpac, Inc., 119 Idaho 626, 809 P.2d 487 (1991).

Driver and her passenger who collided with buyer’s truck were not either “persons who were in the family or household” of the buyer or “a guest” in the buyer’s home and, therefore, were not third party beneficiaries who could recover under a breach of an express warranty claim between used car dealer and buyer of truck which was involved in accident. Mugavero v. A-1 Auto Sales, Inc., 130 Idaho 554, 944 P.2d 151 (Ct. App. 1997).

Latent Defects.

Warranties against latent defects that are not discoverable by the pre-contract examination are not excluded by terms of this section. Whitehouse v. Lange, 128 Idaho 129, 910 P.2d 801 (Ct. App. 1996).

Limitation of Remedies.

Where jury, under correct instructions, could have found that express warranties on mobile home were breached in various particulars, remedy of buyers was not limited by contract language disavowing any liability and stating that the manufacturer’s written warranty would apply nor was repair intended to be the exclusive remedy of the buyer. If the contract limitation language was argued as excluding all remedies against the seller, it was unconscionable and, if the language was argued as creating a limited remedy of repair, it failed because such was not clearly expressed in the contract. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

In the situation where farmer bought certified potato seed from dealer and seed was later found to be infected by bacterial ring rot, because factual questions remained as to whether there were any terms in the parties’ agreement excluding warranties or limiting remedies and as to whether there was an applicable course of dealing or trade usage limiting remedies, the lower court’s order denying summary judgment on this issue was affirmed. Duffin v. Idaho Crop Imp. Ass’n, 126 Idaho 1002, 895 P.2d 1195 (1995).

Decisions Under Prior Law

Unforeseen Defects.

The seller of a heifer for breeding purposes was not held under the doctrine of implied warranty for defects which he could not foresee. McMaster v. Warner, 44 Idaho 544, 258 P. 547 (1927). RESEARCH REFERENCES

Am. Jur. 2d.

ALR.

Validity of disclaimer of warranty clauses in sale of new automobile. 54 A.L.R.3d 1217.

Construction and effect of UCC§ 2-316(2) providing that implied warranty disclaimer must be “conspicuous.” 73 A.L.R.3d 248.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

2. The seller is protected under this Article [Chapter] against false allegations of oral warranties by its provisions on parol and extrinsic evidence and against unauthorized representations by the customary “lack of authority” clauses. This Article [Chapter] treats the limitation or avoidance of consequential damages as a matter of limiting remedies for breach, separate from the matter of creation of liability under a warranty. If no warranty exists, there is of course no problem of limiting remedies for breach of warranty. Under subsection (4) the question of limitation of remedy is governed by the sections referred to rather than by this section.

3. Disclaimer of the implied warranty of merchantability is permitted under subsection (2), but with the safeguard that such disclaimers must mention merchantability and in case of a writing must be conspicuous.

4. Unlike the implied warranty of merchantability, implied warranties of fitness for a particular purpose may be excluded by general language, but only if it is in writing and conspicuous.

5. Subsection (2) presupposes that the implied warranty in question exists unless excluded or modified. Whether or not language of disclaimer satisfies the requirements of this section, such language may be relevant under other sections to the question whether the warranty was ever in fact created. Thus, unless the provisions of this Article [Chapter] on parol and extrinsic evidence prevent, oral language of disclaimer may raise issues of fact as to whether reliance by the buyer occurred and whether the seller had “reason to know” under the section on implied warranty of fitness for a particular purpose.

6. The exceptions to the general rule set forth in paragraphs (a), (b) and (c) of subsection (3) are common factual situations in which the circumstances surrounding the transaction are in themselves sufficient to call the buyer’s attention to the fact that no implied warranties are made or that a certain implied warranty is being excluded. 7. Paragraph (a) of subsection (3) deals with general terms such as “as is,” “as they stand,” “with all faults,” and the like. Such terms in ordinary commercial usage are understood to mean that the buyer takes the entire risk as to the quality of the goods involved. The terms covered by paragraph (a) are in fact merely a particularization of paragraph (c) which provides for exclusion or modification of implied warranties by usage of trade.

8. Under paragraph (b) of subsection (3) warranties may be excluded or modified by the circumstances where the buyer examines the goods or a sample or model of them before entering into the contract. “Examination” as used in this paragraph is not synonymous with inspection before acceptance or at any other time after the contract has been made. It goes rather to the nature of the responsibility assumed by the seller at the time of the making of the contract. Of course if the buyer discovers the defect and uses the goods anyway, or if he unreasonably fails to examine the goods before he uses them, resulting injuries may be found to result from his own action rather than proximately from a breach of warranty. See Sections 2-314 and 2-715 and comments thereto.

In order to bring the transaction within the scope of “refused to examine” in paragraph (b), it is not sufficient that the goods are available for inspection. There must in addition be a demand by the seller that the buyer examine the goods fully. The seller by the demand puts the buyer on notice that he is assuming the risk of defects which the examination ought to reveal. The language “refused to examine” in this paragraph is intended to make clear the necessity for such demand.

Application of the doctrine of “caveat emptor” in all cases where the buyer examines the goods regardless of statements made by the seller is, however, rejected by this Article [Chapter]. Thus, if the offer of examination is accompanied by words as to their merchantability or specific attributes and the buyer indicates clearly that he is relying on those words rather than on his examination, they give rise to an “express” warranty. In such cases the question is one of fact as to whether a warranty of merchantability has been expressly incorporated in the agreement. Disclaimer of such an express warranty is governed by subsection (1) of the present section.

The particular buyer’s skill and the normal method of examining goods in the circumstances determine what defects are excluded by the examination. A failure to notice defects which are obvious cannot excuse the buyer. However, an examination under circumstances which do not permit chemical or other testing of the goods would not exclude defects which could be ascertained only by such testing. Nor can latent defects be excluded by a simple examination. A professional buyer examining a product in his field will be held to have assumed the risk as to all defects which a professional in the field ought to observe, while a nonprofessional buyer will be held to have assumed the risk only for such defects as a layman might be expected to observe.

Cross References:

9. The situation in which the buyer gives precise and complete specifications to the seller is not explicitly covered in this section, but this is a frequent circumstance by which the implied warranties may be excluded. The warranty of fitness for a particular purpose would not normally arise since in such a situation there is usually no reliance on the seller by the buyer. The warranty of merchantability in such a transaction, however, must be considered in connection with the next section on the cumulation and conflict of warranties. Under paragraph (c) of that section in case of such an inconsistency the implied warranty of merchantability is displaced by the express warranty that the goods will comply with the specifications. Thus, where the buyer gives detailed specifications as to the goods, neither of the implied warranties as to quality will normally apply to the transaction unless consistent with the specifications. Cross References: Point 2: Sections 2-202, 2-718 and 2-719.

Point 7: Sections 1-205 [1-303] and 2-208.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract.” Section 1-201.

“Course of dealing.” Section 1-205 [1-303].

“Goods.” Section 2-105.

“Remedy.” Section 1-201.

“Seller.” Section 2-103.

“Usage of trade.” Section 1-205 [1-303].

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

Purposes of Changes: 1. The present section rests on the basic policy of this Article [Chapter] that no warranty is created except by some conduct (either affirmative action or failure to disclose) on the part of the seller. Therefore, all warranties are made cumulative unless this construction of the contract is impossible or unreasonable.

This Article [Chapter] thus follows the general policy of the Uniform Sales Act except that in case of the sale of an article by its patent or trade name the elimination of the warranty of fitness depends solely on whether the buyer has relied on the seller’s skill and judgment; the use of the patent or trade name is but one factor in making this determination.

2. The rules of this section are designed to aid in determining the intention of the parties as to which of inconsistent warranties which have arisen from the circumstances of their transaction shall prevail. These rules of intention are to be applied only where factors making for an equitable estoppel of the seller do not exist and where he has in perfect good faith made warranties which later turn out to be inconsistent. To the extent that the seller has led the buyer to believe that all of the warranties can be performed, he is estopped from setting up any essential inconsistency as a defense. 3. The rules in subsections (a), (b) and (c) are designed to ascertain the intention of the parties by reference to the factor which probably claimed the attention of the parties in the first instance. These rules are not absolute but may be changed by evidence showing that the conditions which existed at the time of contracting make the construction called for by the section inconsistent or unreasonable.

Cross Reference:

Definitional Cross Reference:

Corporate Employee.

Where the employee of a potential buyer was injured while test driving a vehicle, the employee was entitled to the protection of any warranties extended to the buyer by the manufacturers or seller; the employee was the third-party beneficiary of any warranties extended to the buyer under this section, and as an agent of the corporation, the employee was the “person” to whom the warranties were extended. Green v. A.B. Hagglund & Soner, 634 F. Supp. 790 (D. Idaho 1986).

An employee of a corporate purchaser, who could have reasonably been expected to have benefited from warranties given to that corporate purchaser, can maintain an action against the party making the warranties for claims of personal injuries allegedly resulting from a breach of those warranties. Green v. A.B. Hagglund & Soner, 634 F. Supp. 790 (D. Idaho 1986).

Corporate Household.

The language used in this section to describe beneficiaries of express warranties does not encompass a “corporate household.” Green v. A.B. Hagglund & Soner, 634 F. Supp. 790 (D. Idaho 1986).

Legislative Intent of Section.

The legislative intent of this section is to extend warranties to those who the buyer would have intended to benefit from the warranty. In the context of an individual buyer, that would be those persons in his family or a guest in his home; in the corporate context, that would include employees who would reasonably be expected to use the product. Green v. A.B. Hagglund & Soner, 634 F. Supp. 790 (D. Idaho 1986). Driver and her passenger who collided with buyer’s truck were not either “persons who were in the family or household” of the buyer or “a guest” in the buyer’s home and, therefore, were not third party beneficiaries who could recover under a breach of an express warranty claim between used car dealer and buyer of truck which was involved in accident. Mugavero v. A-1 Auto Sales, Inc., 130 Idaho 554, 944 P.2d 151 (Ct. App. 1997).

Personal Injury Damages.

The UCC does provide for recovery of damages for personal injuries under its breach of warranty provisions. However, UCC breach of warranty actions for personal injuries are available to a limited group of potential plaintiffs who are either in privity of contract with the manufacturer or seller, or who qualify as third party beneficiaries of the underlying sales contract, as defined in this section. Oats v. Nissan Motor Corp., 126 Idaho 162, 879 P.2d 1095 (1994).

Privity of Contract.

Privity of contract is required in a contract action to recover economic loss for breach of implied warranty; breach of implied warranty actions for purely economic losses must be viewed in a contract setting with relevant contract principles. Adkison Corp. v. American Bldg. Co., 107 Idaho 406, 690 P.2d 341 (1984).

Statute of Limitations.

Where any warranties of merchantability were made between the defendant manufacturer and the purchaser, the plaintiff, as a seasonal employee of the purchaser, was a person to whom the warranties were extended, and the trial court properly granted defendants’ motion for summary judgment as to plaintiff’s warranty claim, filed 17 years after delivery. Puckett v. Oakfabco, Inc., 132 Idaho 816, 979 P.2d 1174 (1999).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. The last sentence of this section does not mean that a seller is precluded from excluding or disclaiming a warranty which might otherwise arise in connection with the sale provided such exclusion or modification is permitted by Section 2-316. Nor does that sentence preclude the seller from limiting the remedies of his own buyer and of any beneficiaries, in any manner provided in Section 2-718 or 2-719. To the extent that the contract of sale contains provisions under which warranties are excluded or modified, or remedies for breach are limited, such provisions are equally operative against beneficiaries of warranties under this section. What this last sentence forbids is exclusion of liability by the seller to the persons to whom the warranties which he has made to his buyer would extend under this section. 2. The purpose of this section is to give certain beneficiaries the benefit of the same warranty which the buyer received in the contract of sale, thereby freeing any such beneficiaries from any technical rules as to “privity.” It seeks to accomplish this purpose without any derogation of any right or remedy resting on negligence. It rests primarily upon the merchant-seller’s warranty under this Article [Chapter] that the goods sold are merchantable and fit for the ordinary purposes for which such goods are used rather than the warranty of fitness for a particular purpose. Implicit in the section is that any beneficiary of a warranty may bring a direct action for breach of warranty against the seller whose warranty extends to him.

3. This section expressly includes as beneficiaries within its provisions the family, household, and guests of the purchaser. Beyond this, the section in this form is neutral and is not intended to enlarge or restrict the developing case law on whether the seller’s warranties, given to his buyer who resells, extend to other persons in the distributive chain.

Cross References:

Point 2: Section 2-314.

Definitional Cross References:

“Goods.” Section 2-105.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in paragraphs (1)(a), (1)(b), and (1)(c) and subsection (3) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appears in the law as enacted.

Cited In re Nevins Ammunition, Inc., 79 Bankr. 11 (Bankr. D. Idaho 1987). RESEARCH REFERENCES

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. This section is intended to negate the uncommercial line of decision which treats an “F.O.B.” term as “merely a price term.” The distinctions taken in subsection (1) handle most of the issues which have on occasion led to the unfortunate judicial language just referred to. Other matters which have led to sound results being based on unhappy language in regard to F.O.B. clauses are dealt with in this Act by Section 2-311 (2) (seller’s option arrangements relating to shipment) and Sections 2-614 and 615 (substituted performance and seller’s excuse).

2. Subsection (1) (c) not only specifies the duties of a seller who engages to deliver “F.O.B. vessel,” or the like, but ought to make clear that no agreement is soundly drawn when it looks to reshipment from San Francisco or New York, but speaks merely of “F.O.B.” the place.

3. The buyer’s obligations stated in subsection (1) (c) and subsection (3) are, as shown in the text, obligations of cooperation. The last sentence of subsection (3) expressly, though perhaps unnecessarily, authorizes the seller, pending instructions, to go ahead with such preparatory moves as shipment from the interior to the named point of delivery. The sentence presupposes the usual case in which instructions “fail”; a prior repudiation by the buyer, giving notice that breach was intended, would remove the reason for the sentence, and would normally bring into play, instead, the second sentence of Section 2-704, which duly calls for lessening damages.

4. The treatment of “F.O.B. vessel” in conjunction with F.A.S. fits, in regard to the need for payment against documents, with standard practice and caselaw; but “F.O.B. vessel” is a term which by its very language makes express the need for an “on board” document. In this respect, that term is stricter than the ordinary overseas “shipment” contract (C.I.F., etc., Section 2-320).

Cross References:

Cross References: Sections 2-311(3), 2-323, 2-503 and 2-504.

Definitional Cross References:

“Bill of lading.” Section 1-201.

“Buyer.” Section 2-103.

“Goods.” Section 2-105.

“Seasonably.” Section 1-204 [1-205].

“Seller.” Section 2-103.

“Term.” Section 1-201.

Compiler’s Notes.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

1. The C.I.F. contract is not a destination but a shipment contract with risk of subsequent loss or damage to the goods passing to the buyer upon shipment if the seller has properly performed all his obligations with respect to the goods. Delivery to the carrier is delivery to the buyer for purposes of risk and “title.” Delivery of possession of the goods is accomplished by delivery of the bill of lading, and upon tender of the required documents the buyer must pay the agreed price without awaiting the arrival of the goods and if they have been lost or damaged after proper shipment he must seek his remedy against the carrier or insurer. The buyer has no right of inspection prior to payment or acceptance of the documents.
2. The seller’s obligations remain the same even though the C.I.F. term is “used only in connection with the stated price and destination.”
3. The insurance stipulated by the C.I.F. term is for the buyer’s benefit, to protect him against the risk of loss or damage to the goods in transit. A clause in a C.I.F. contract “insurance — for the account of sellers” should be viewed in its ordinary mercantile meaning that the sellers must pay for the insurance and not that it is intended to run to the seller’s benefit.
4. A bill of lading covering the entire transportation from the port of shipment is explicitly required but the provision on this point must be read in the light of its reason to assure the buyer of as full protection as the conditions of shipment reasonably permit, remembering always that this type of contract is designed to move the goods in the channels commercially available. To enable the buyer to deal with the goods while they are afloat the bill of lading must be one that covers only the quantity of goods called for by the contract. The buyer is not required to accept his part of the goods without a bill of lading because the latter covers a larger quantity, nor is he required to accept a bill of lading for the whole quantity under a stipulation to hold the excess for the owner. Although the buyer is not compelled to accept either goods or documents under such circumstances he may of course claim his rights in any goods which have been identified to his contract.
5. The seller is given the option of paying or providing for the payment of freight. He has no option to ship “freight collect” unless the agreement so provides. The rule of the common law that the buyer need not pay the freight if the goods do not arrive is preserved.
6. The requirement that unless otherwise agreed the seller must procure insurance “of a kind and on terms then current at the port for shipment in the usual amount, in the currency of the contract, sufficiently shown to cover the same goods covered by the bill of lading”, applies to both marine and war risk insurance. As applied to marine insurance, it means such insurance as is usual or customary at the port for shipment with reference to the particular kind of goods involved, the character and equipment of the vessel, the route of the voyage, the port of destination and any other considerations that affect the risk. It is the substantial equivalent of the ordinary insurance in the particular trade and on the particular voyage and is subject to agreed specifications of type or extent of coverage. The language does not mean that the insurance must be adequate to cover all risks to which the goods may be subject in transit. There are some types of loss or damage that are not covered by the usual marine insurance and are excepted in bills of lading or in applicable statutes from the causes of loss or damage for which the carrier or the vessel is liable. Such risks must be borne by the buyer under this Article [Chapter]. Insurance secured in compliance with a C.I.F. term must cover the entire transportation of the goods to the named destination.
7. An additional obligation is imposed upon the seller in requiring him to procure customary war risk insurance at the buyer’s expense. This changes the common law on the point. The seller is not required to assume the risk of including in the C.I.F. price the cost of such insurance, since it often fluctuates rapidly, but is required to treat it simply as a necessary for the buyer’s account. What war risk insurance is “current” or usual turns on the standard forms of policy or rider in common use.
8. The C.I.F. contract calls for insurance covering the value of the goods at the time and place of shipment and does not include any increase in market value during transit or any anticipated profit to the buyer on a sale by him.
9. Insurance “for the account of whom it may concern” is usual and sufficient. However, for a valid tender the policy of insurance must be one which can be disposed of together with the bill of lading and so must be “sufficiently shown to cover the same goods covered by the bill of lading.” It must cover separately the quantity of goods called for by the buyer’s contract and not merely insure his goods as part of a larger quantity in which others are interested, a case provided for in American mercantile practice by the use of negotiable certificates of insurance which are expressly authorized by this section. By usage these certificates are treated as the equivalent of separate policies and are good tender under C.I.F. contracts. The term “certificate of insurance,” however, does not of itself include certificates or “cover notes” issued by the insurance broker and stating that the goods are covered by a policy. Their sufficiency as substitutes for policies will depend upon proof of an established usage or course of dealing. The present section rejects the English rule that not only brokers’ certificates and “cover notes” but also certain forms of American insurance certificates are not the equivalent of policies and are not good tender under a C.I.F. contract. The seller’s failure to tender a proper insurance document is waived if the buyer refuses to make payment on other and untenable grounds at a time when proper insurance could have been obtained and tendered by the seller if timely objection had been made. Even a failure to insure on shipment may be cured by seasonable tender of a policy retroactive in effect; e.g., one insuring the goods “lost or not lost.” The provisions of this Article [Chapter] on cure of improper tender and on waiver of buyer’s objections by silence are applicable to insurance tenders under a C.I.F. term. Where there is no waiver by the buyer as described above, however, the fact that the goods arrive safely does not cure the seller’s breach of his obligations to insure them and tender to the buyer a proper insurance document.
10. The seller’s invoice of the goods shipped under a C.I.F. contract is regarded as a usual and necessary document upon which reliance may properly be placed. It is the document which evidences points of description, quality and the like which do not readily appear in other documents. This Article [Chapter] rejects those statements to the effect that the invoice is a usual but not a necessary document under a C.I.F. term.
11. The buyer needs all of the documents required under a C.I.F. contract, in due form and, if a tangible document of title, with necessary endorsements, so that before the goods arrive he may deal with them by negotiating the documents or may obtain prompt possession of the goods after their arrival. If the goods are lost or damaged in transit the documents are necessary to enable him promptly to assert his remedy against the carrier or insurer. The seller is therefore obligated to do what is mercantilely reasonable in the circumstances and should make every reasonable exertion to send forward the documents as soon as possible after the shipment. The requirement that the documents be forwarded with “commercial promptness” expresses a more urgent need for action than that suggested by the phrase “reasonable time.”
12. Under a C.I.F. contract the buyer, as under the common law, must pay the price upon tender of the required documents without first inspecting the goods, but his payment in these circumstances does not constitute an acceptance of the goods nor does it impair his right of subsequent inspection or his options and remedies in the case of improper delivery. All remedies and rights for the seller’s breach are reserved to him. The buyer must pay before inspection and assert his remedy against the seller afterward unless the nonconformity of the goods amounts to a real failure of consideration, since the purpose of choosing this form of contract is to give the seller protection against the buyer’s unjustifiable rejection of the goods at a distant port of destination which would necessitate taking possession of the goods and suing the buyer there.
13. A valid C.I.F. contract may be made which requires part of the transportation to be made on land and part on the sea, as where the goods are to be brought by rail from an inland point to a seaport and thence transported by vessel to the named destination under a “through” or combination bill of lading issued by the railroad company. In such a case shipment by rail from the inland point within the contract period is a timely shipment notwithstanding that the loading of the goods on the vessel is delayed by causes beyond the seller’s control.
14. Although subsection (2) stating the legal effects of the C.I.F. term is an “unless otherwise agreed” provision, the express language used in an agreement is frequently a precautionary, fuller statement of the normal C.I.F. terms and hence not intended as a departure or variation from them. Moreover, the dominant outlines of the C.I.F. term are so well understood commercially that any variation should, whenever reasonably possible, be read as falling within those dominant outlines rather than as destroying the whole meaning of a term which essentially indicates a contract for proper shipment rather than one for delivery at destination. Particularly careful consideration is necessary before a printed form or clause is construed to mean agreement otherwise and where a C.I.F. contract is prepared on a printed form designed for some other type of contract, the C.I.F. terms must prevail over printed clauses repugnant to them. 15. Under subsection (4) the fact that the seller knows at the time of the tender of the documents that the goods have been lost in transit does not affect his rights if he has performed his contractual obligations. Similarly, the seller cannot perform under a C.I.F. term by purchasing and tendering landed goods.

Unless the shipment has been sent “freight collect” the buyer is entitled to receive documentary evidence that he is not obligated to pay the freight; the seller is therefore required to obtain a receipt “showing that the freight has been paid or provided for.” The usual notation on the bill of lading that the freight has been prepaid is a sufficient receipt, as at common law. The phrase “provided for” is intended to cover the frequent situation in which the carrier extends credit to a shipper for the freight on successive shipments and receives periodical payments of the accrued freight charges from him.

The contract contemplates that before the goods arrive at their destination they may be sold again and again on C.I.F. terms and that the original policy of insurance and bill of lading will run with the interest in the goods by being transferred to each successive buyer. A buyer who becomes the seller in such an intermediate contract for sale does not thereby, if his sub-buyer knows the circumstances, undertake to insure the goods again at an increased price fixed in the new contract or to cover the increase in price by additional insurance, and his buyer may not reject the documents on the ground that the original policy does not cover such higher price. If such a sub-buyer desires additional insurance he must procure it for himself.

Where the seller exercises an option to ship “freight collect” and to credit the buyer with the freight against the C.I.F. price, the insurance need not cover the freight since the freight is not at the buyer’s risk. On the other hand, where the seller prepays the freight upon shipping under a bill of lading requiring prepayment and providing that the freight shall be deemed earned and shall be retained by the carrier “ship and/or cargo lost or not lost,” or using words of similar import, he must procure insurance that will cover the freight, because notwithstanding that the goods are lost in transit the buyer is bound to pay the freight as part of the C.I.F. price and will be unable to recover it back from the carrier.

16. Under the C. & F. term, as under the C.I.F. term, title and risk of loss are intended to pass to the buyer on shipment. A stipulation in a C. & F. contract that the seller shall effect insurance on the goods and charge the buyer with the premium (in effect that he shall act as the buyer’s agent for that purpose) is entirely in keeping with the pattern. On the other hand, it often happens that the buyer is in a more advantageous position than the seller to effect insurance on the goods or that he has in force an “open” or “floating” policy covering all shipments made by him or to him, in either of which events the C. & F. term is adequate without mention of insurance.

17. It is to be remembered that in a French contract the term “C.A.F.” does not mean “Cost and Freight” but has exactly the same meaning as the term “C.I.F.” since it is merely the French equivalent of that term. The “A” does not stand for “and” but for “assurance” which means insurance.

Cross References:

Point 6: Section 2-509 (1) (a).

Point 9: Sections 2-508 and 2-605 (1) (a).

Point 12: Sections 2-321 (3), 2-512 and 2-513 (3) and Article [Chapter] 5.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract.” Section 1-201.

“Goods.” Section 2-105.

“Rights.” Section 1-201.

“Seller.” Section 2-103.

“Term.” Section 1-201.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: This section deals with two variations of the C.I.F. contract which have evolved in mercantile practice but are entirely consistent with the basic C.I.F. pattern. Subsections (1) and (2), which provide for a shift to the seller of the risk of quality and weight deterioration during shipment, are designed to conform the law to the best mercantile practice and usage without changing the legal consequences of the C.I.F. or C. & F. term as to the passing of marine risks to the buyer at the point of shipment. Subsection (3) provides that where under the contract documents are to be presented for payment after arrival of the goods, this amounts merely to a postponement of the payment under the C.I.F. contract and is not to be confused with the “no arrival, no sale” contract. If the goods are lost, delivery of the documents and payment against them are due when the goods should have arrived. The clause for payment on or after arrival is not to be construed as such a condition precedent to payment that if the goods are lost in transit the buyer need never pay and the seller must bear the loss.

Cross Reference:

Definitional Cross References:

“Contract.” Section 1-201.

“Delivery.” Section 1-201.

“Goods.” Section 2-105. “Seller.” Section 2-103.

“Term.” Section 1-201.

Compiler’s Notes.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

2. Delivery need not be made from any particular vessel under a clause calling for delivery “ex-ship,” even though a vessel on which shipment is to be made originally is named in the contract, unless the agreement by appropriate language, restricts the clause to delivery from a named vessel.

3. The appropriate place and manner of unloading at the port of destination depend upon the nature of the goods and the facilities and usages of the port.

4. A contract fixing a price “ex-ship” with payment “cash against documents” calls only for such documents as are appropriate to the contract. Tender of a delivery order and of a receipt for the freight after the arrival of the carrying vessel is adequate. The seller is not required to tender a bill of lading as a document of title nor is he required to insure the goods for the buyer’s benefit, as the goods are not at the buyer’s risk during the voyage.

Cross Reference:

Cross Reference: Point 1: Section 2-319 (2).

Definitional Cross References:

“Goods.” Section 2-105. “Seller.” Section 2-103.

“Term.” Section 1-201.

Compiler’s Notes.

The bracketed insertion in paragraph (2)(a) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. Subsection (1) follows the “American” rule that a regular bill of lading indicating delivery of the goods at the dock for shipment is sufficient, except under a term “F.O.B. vessel.” See Section 2-319 and comment thereto.

2. Subsection (2) deals with the problem of bills of lading covering deep water shipments, issued not as a single bill of lading but in a set of parts, each part referring to the other parts and the entire set constituting in commercial practice and at law a single bill of lading. Commercial practice in international commerce is to accept and pay against presentation of the first part of a set if the part is sent from overseas even though the contract of the buyer requires presentation of a full set of bills of lading provided adequate indemnity for the missing parts is forthcoming. In accord with the amendment to Section 7-304, bills of lading in a set are limited to tangible bills. This subsection codifies that practice as between buyer and seller. Article [Chapter] 5 (Section 5-113) authorizes banks presenting drafts under letters of credit to give indemnities against the missing parts, and this subsection means that the buyer must accept and act on such indemnities if he in good faith deems them adequate. But neither this subsection nor Article [Chapter] 5 decides whether a bank which has issued a letter of credit is similarly bound. The issuing bank’s obligation under a letter of credit is independent and depends on its own terms. See Article [Chapter] 5.

Cross References:

Cross References: Sections 2-508 (2), 5-113.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract.” Section 1-201.

“Delivery.” Section 1-201.

“Financing agency.” Section 2-104.

“Person.” Section 1-201.

“Seller.” Section 2-103.

“Send.” Section 1-201.

“Term.” Section 1-201.

Compiler’s Notes.

The bracketed insertion at the end of subsection (b) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

The reason of this section is that where the seller is reselling goods bought by him as shipped by another and this fact is known to the buyer, so that the seller is not under any obligation to make the shipment himself, the seller is entitled under the “no arrival, no sale” clause to exemption from payment of damages for nondelivery if the goods do not arrive or if the goods which actually arrive are nonconforming. This does not extend to sellers who arrange shipment by their own agents, in which case the clause is limited to casualty due to marine hazards. But sellers who make known that they are contracting only with respect to what will be delivered to them by parties over whom they assume no control are entitled to the full quantum of the exemption. 2. The provisions of this Article [Chapter] on identification must be read together with the present section in order to bring the exemption into application. Until there is some designation of the goods in a particular shipment or on a particular ship as being those to which the contract refers there can be no application of an exemption for their nonarrival.

3. The seller’s duty to tender the agreed or declared goods if they do arrive is not impaired because of their delay in arrival or by their arrival after transshipment.

4. The phrase “to arrive” is often employed in the same sense as “no arrival, no sale” and may then be given the same effect. But a “to arrive” term, added to a C.I.F. or C. & F. contract, does not have the full meaning given by this section to “no arrival, no sale.” Such a “to arrive” term is usually intended to operate only to the extent that the risks are not covered by the agreed insurance and the loss or casualty is due to such uncovered hazards. In some instances the “to arrive” term may be regarded as a time of payment term, or, in the case of the reselling seller discussed in point 1 above, as negating responsibility for conformity of the goods, if they arrive, to any description which was based on his good faith belief of the quality. Whether this is the intention of the parties is a question of fact based on all the circumstances surrounding the resale and in case of ambiguity the rules of Sections 2-316 and 2-317 apply to preclude dishonor.

5. Paragraph (b) applies where goods arrive impaired by damage or partial loss during transportation and makes the policy of this Article [Chapter] on casualty to identified goods applicable to such a situation. For the term cannot be regarded as intending to give the seller an unforeseen profit through casualty; it is intended only to protect him from loss due to causes beyond his control.

Cross References:

Point 2: Section 2-501 (a) and (c).

Point 5: Section 2-613.

Definitional Cross References:

“Conforming.” Section 2-106.

“Contract.” Section 1-201.

“Fault.” Section 1-201.

“Goods.” Section 2-105.

“Sale.” Section 2-106.

“Seller.” Section 2-103.

“Term.” Section 1-201.

Compiler’s Notes.

The bracketed insertions in subsection (3) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted

Effective Dates.

Section 31 of S.L. 2001, ch. 208 provided that the act should take effect on and after July 1, 2001.

Am. Jur. 2d.

68A Am. Jur. 2d, Secured Transactions, § 1 et seq.

ALR.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 19 (3), Uniform Sales Act.

Changes:

Purposes of Changes:

1. A “sale on approval” or “sale or return” is distinct from other types of transactions with which they have frequently been confused. The type of “sale on approval,” “on trial” or “on satisfaction” dealt with involves a contract under which the seller undertakes a particular business risk to satisfy his prospective buyer with the appearance or performance of the goods in question. The goods are delivered to the proposed purchaser but they remain the property of the seller until the buyer accepts them. The price has already been agreed. The buyer’s willingness to receive and test the goods is the consideration for the seller’s engagement to deliver and sell. The type of “sale or return” involved herein is a sale to a merchant whose unwillingness to buy is overcome only by the seller’s engagement to take back the goods (or any commercial unit of goods) in lieu of payment if they fail to be resold. These two transactions are so strongly delineated in practice and in general understanding that every presumption runs against a delivery to a consumer being a “sale or return” and against a delivery to a merchant for resale being a “sale on approval.” The right to return the goods for failure to conform to the contract does not make the transaction a “sale on approval” or “sale or return” and has nothing to do with this and the following section. The present section is not concerned with remedies for breach of contract. It deals instead with a power given by the contract to turn back the goods even though they are wholly as warranted.
2. Pursuant to the general policies of this Act which require good faith not only between the parties to the sales contract, but as against interested third parties, subsection (3) resolves all reasonable doubts as to the nature of the transaction in favor of the general creditors of the buyer. As against such creditors words such as “on consignment” or “on memorandum,” with or without words of reservation of title in the seller, are disregarded when the buyer has a place of business at which he deals in goods of the kind involved. A necessary exception is made where the buyer is known to be engaged primarily in selling the goods of others or is selling under a relevant sign law, or the seller complies with the filing provisions of Article [Chapter] 9 as if his interest were a security interest. However, there is no intent in this Section to narrow the protection afforded to third parties in any jurisdiction which has a selling Factors Act. The purpose of the exception is merely to limit the effect of the present subsection itself, in the absence of any such Factors Act, to cases in which creditors of the buyer may reasonably be deemed to have been misled by the secret reservation.
3. Subsection (4) resolves a conflict in the pre-existing case law by recognition that an “or return” provision is so definitely at odds with any ordinary contract for sale of goods that where written agreements are involved it must be contained in a written memorandum. The “or return” aspect of a sales contract must be treated as a separate contract under the Statute of Frauds section and as contradicting the sale insofar as questions of parol or extrinsic evidence are concerned.

This section nevertheless presupposes that a contract for sale is contemplated by the parties although that contract may be of the peculiar character here described.

Where the buyer’s obligation as a buyer is conditioned not on his personal approval but on the article’s passing a described objective test, the risk of loss by casualty pending the test is properly the seller’s and proper return is at his expense. On the point of “satisfaction” as meaning “reasonable satisfaction” where an industrial machine is involved, this Article [Chapter] takes no position.

Cross References:

Cross References: Point 2: Article [Chapter] 9.

Point 3: Sections 2-201 and 2-202.

Definitional Cross References:

“Buyer.” Section 2-103.

“Conform.” Section 2-106.

“Contract for sale.” Section 2-106. “Creditor.” Section 1-201.

“Goods.” Section 2-105.

“Sale.” Section 2-106.

“Seller.” Section 2-103.

Am. Jur. 2d.

ALR.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 19 (3), Uniform Sales Act.

Changes:

Purposes of Changes:

1. In the case of a sale on approval:
2. In the case of a sale or return, the return of any unsold unit merely because it is unsold is the normal intent of the “sale or return” provision, and therefore the right to return for this reason alone is independent of any other action under the contract which would turn on wholly different considerations. On the other hand, where the return of goods is for breach, including return of items resold by the buyer and returned by the ultimate purchasers because of defects, the return procedure is governed not by the present section but by the provisions on the effects and revocation of acceptance.
3. In the case of a sale on approval the risk rests on the seller until acceptance of the goods by the buyer, while in a sale or return the risk remains throughout on the buyer.

If all of the goods involved conform to the contract, the buyer’s acceptance of part of the goods constitutes acceptance of the whole. Acceptance of part falls outside the normal intent of the parties in the “on approval” situation and the policy of this Article [Chapter] allowing partial acceptance of a defective delivery has no application here. A case where a buyer takes home two dresses to select one commonly involves two distinct contracts; if not, it is covered by the words “unless otherwise agreed.”

Cross References:

4. Notice of election to return given by the buyer in a sale on approval is sufficient to relieve him of any further liability. Actual return by the buyer to the seller is required in the case of a sale or return contract. What constitutes due “giving” of notice, as required in “on approval” sales, is governed by the provisions on good faith and notice. “Seasonable” is used here as defined in Section 1-204 [1-205]. Nevertheless, the provisions of both this Article [Chapter] and of the contract on this point must be read with commercial reason and with full attention to good faith. Cross References: Point 1: Sections 2-501, 2-601 and 2-603.

Point 2: Sections 2-607 and 2-608.

Point 4: Sections 1-201 and 1-204 [1-205].

Definitional Cross References:

“Buyer.” Section 2-103.

“Commercial unit.” Section 2-105.

“Conform.” Section 2-106.

“Contract.” Section 1-201.

“Goods.” Section 2-105.

“Merchant.” Section 2-104.

“Notifies.” Section 1-201.

“Notification.” Section 1-201.

“Sale on approval.” Section 2-326.

“Sale or return.” Section 2-326.

“Seasonably.” Section 1-204 [1-205].

“Seller.” Section 2-103.

Decisions Under Prior Law

Right of Seller to Bid.

Seller must reserve right to purchase in notice of sale in order to become bona fide purchaser. Cranston v. Western Idaho Lumber & Bldg. Co., 41 Idaho 141, 238 P. 528 (1925).

Right to Purchase.

Holder of title retaining notes, who repossessed property, because of default in payment of purchase price, could not be purchaser of property at public sale unless notice of sale set out a reservation of right to purchase. Cranston v. Western Idaho Lumber & Bldg. Co., 41 Idaho 141, 238 P. 528 (1925). Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

1. The auctioneer may in his discretion either reopen the bidding or close the sale on the bid on which the hammer was falling when a bid is made at that moment. The recognition of a bid of this kind by the auctioneer in his discretion does not mean a closing in favor of such a bidder, but only that the bid has been accepted as a continuation of the bidding. If recognized, such a bid discharges the bid on which the hammer was falling when it was made.
2. An auction “with reserve” is the normal procedure. The crucial point, however, for determining the nature of an auction is the “putting up” of the goods. This Article [Chapter] accepts the view that the goods may be withdrawn before they are actually “put up,” regardless of whether the auction is advertised as one without reserve, without liability on the part of the auction announcer to persons who are present. This is subject to any peculiar facts which might bring the case within the “firm offer” principle of this Article [Chapter], but an offer to persons generally would require unmistakable language in order to fall within that section. The prior announcement of the nature of the auction either as with reserve or without reserve will, however, enter as an “explicit term” in the “putting up” of the goods and conduct thereafter must be governed accordingly. The present section continues the prior rule permitting withdrawal of bids in auctions both with and without reserve; and the rule is made explicit that the retraction of a bid does not revive a prior bid.

Cross Reference:

Definitional Cross References:

“Good faith.” Section 1-201.

“Goods.” Section 2-105.

“Lot.” Section 2-105.

“Notice.” Section 1-201.

“Sale.” Section 2-106.

“Seller.” Section 2-103.

Compiler’s Notes.

This section is not a part of the Uniform Commercial Code.

Compiler’s Notes.

The bracketed insertions in two places in subsection (1) were added by the compiler to conform to the statutory citation style.

The term “this act” at the end of the first sentence in subsection (1) refers to S.L. 1967, ch. 161, which is compiled generally in chapters 1 to 10, title 28, Idaho Code. The reference probably should be to the entire Uniform Commercial Code.

The words enclosed in parentheses so appeared in the law as enacted.

Application.

The official comment to paragraph (2)(a) of this section makes it clear that the Uniform Commercial Code’s determination of the situs of sale, or transfer of title, is not controlling in determining whether a public regulation applies to a given transaction. State v. Maybee, 148 Idaho 520, 224 P.3d 1109, cert. denied, 562 U.S. 835, 131 S. Ct. 150, 178 L. Ed. 2d 37 (2010).

Because the unambiguous terms of a contract made clear that a debtor purchased a vehicle from creditor, obligated debtor to pay creditor the amount financed, and granted creditor a security interest in the vehicle, creditor’s interest in the vehicle was limited to a security interest under the Idaho UCC. Hillen v. Dennis Dillon Auto Park & Truck Center, Inc. (In re Byrd), 546 B.R. 434 (Bankr. D. Idaho 2016).

Limitation on Role of Title.

The UCC has firmly rejected the concept of title as the dispositive factor in determining the rights and obligations of parties to personal property. State v. Burris, 101 Idaho 683, 619 P.2d 1136 (1980).

Ownership.

If an individual takes merchandise without any intent to pay for it, he or she has unlawfully obtained the merchandise and has no lawful ownership interest in it. State v. Dix, — Idaho —, — P.3d —, 2019 Ida. App. LEXIS 7 (Ct. App. Feb. 27, 2019).

Perfection of Security Interest.

Where debtor’s sight draft was dishonored three days after debtor took possession of automobile and seller made demand for return within ten days after transfer of possession and dishonor, seller was entitled to return of automobile since seller’s security interest under this section was perfected. Swayne v. Idaho Auto Auction (In re Shoemaker), 4 Bankr. 505 (Bankr. D. Idaho 1980).

Time of Transfer of Title.

Since there was no evidence of any agreement between multiple listing service and real estate broker regarding transfer of title, title to the multiple listing booklets was transferred to the real estate broker upon delivery. The transfer was “for a consideration”; thus, there was a sale of the multiple listing booklets by the multiple listing service to the real estate broker. This sale was a “sale at retail” since real estate broker had no intention of reselling those books and, in fact, was prohibited from doing so by the bylaws of the multiple listing service. Old W. Realty, Inc. v. Idaho State Tax Comm’n, 110 Idaho 546, 716 P.2d 1318 (1986).

Paragraph (2)(a) states when title to sold goods passes for shipment contracts and paragraph (2)(b) states when title passes under destination contracts. Under a shipment contract, a seller delivers the goods to a third party to transport the goods to the place required under the contract, and title passes when the goods are delivered to the person who will transport them. The effect of the Uniform Commercial Code is that, in a “shipment” contract, the most commonly used method, delivery to the carrier is delivery to the buyer. A delivery by direction of the buyer to a third person as an intermediary to ship the goods is a good delivery to the buyer. Deiter v. Coons, 162 Idaho 44, 394 P.3d 87 (2017).

If parties to a contract for the sale of goods intend that delivery be made to a carrier, a request in the buyer’s letter to the seller that the goods be shipped to the buyer’s residence is a mere shipping instruction that does not convert the contract to a destination contract, and the risk of loss passes to the buyer at the time the goods are delivered to a carrier, such as the postal service. Thus, a “ship to” term has no significance in determining whether a contract is a shipment or destination contract for risk of loss purposes. Deiter v. Coons, 162 Idaho 44, 394 P.3d 87 (2017).

Title of Commodity.

The sale of a commodity to a warehouse involves a passage of title to the commodity. In re Hawkins Co., 104 Bankr. 317 (Bankr. D. Idaho 1989).

Decisions Under Prior Law

Intention. Passing of property.

Ascertainment of Goods.

Plaintiff did not have such title or right to immediate possession of a quantity of a specified grade of potatoes as would support an action for conversion against a third party who obtained potatoes from seller who was under contract to sell to plaintiff as the contract of sale was not for specific goods and things remained to be done, such as inspecting the potatoes to obtain from the general mass potatoes of the quality and size specified, segregating them, and appropriating to the contract; therefore, the contract was executory and the right to immediate possession was vested in the buyer at the time of the alleged conversion. National Produce Distrib., Inc. v. Miles & Myers, Inc., 75 Idaho 460, 274 P.2d 831 (1954).

Delivery of Bill of Sale.

Property in goods sold passed to buyer when bill of sale was made regardless of fact that time of delivery of property was postponed. Walker v. Lightfoot, 124 F.2d 3 (9th Cir. 1941).

In order to transfer title to a chattel, it was not necessary that actual possession also be transferred, where the rights of no creditor, subsequent purchaser or incumbrancer are involved; therefore, the delivery of the bill of sale to plaintiff was a constructive delivery of the chattels covered thereby, sufficient as against defendant. Molloy v. Beard, 42 Idaho 115, 243 P. 823 (1926).

Evidence Supporting Allegation of Fixed Price.

In an action on contract for the contract price, it was usually immaterial what the reasonable value of the subject of the sale may have been, but in support of the claim that a fixed price was agreed upon, it was often permissible to support such allegation by proof that the price claimed to have been agreed upon was a reasonable price, and especially was such testimony permissible where it was claimed that the price charged was excessive and not agreed upon. McMaster v. Dunn, 49 Idaho 241, 287 P. 201 (1930). See also Lewis, Cooper & Hancock v. Utah Constr. Co., 10 Idaho 214, 77 P. 336 (1904).

Intention.

Intention of parties determines passing of title. Shipman v. Kloppenburg, 72 Idaho 321, 240 P.2d 1151 (1952).

Passing of Property.

The property in goods sold passed to the buyer when a bill of sale was made, regardless of the fact that the time of the delivery was postponed. Walker v. Lightfoot, 124 F.2d 3 (9th Cir. 1941). Unless a different intention appears, if a seller was bound to do something to put goods into a deliverable shape, the property did not pass until such thing was done, or, if the contract required the seller to deliver goods to the buyer, it did not pass until the goods had been delivered. Bowman v. Adams, 45 Idaho 217, 261 P. 679 (1927).

Question of Sale for Jury.

Where it was claimed that cattle were bought by the purchaser without inspecting them and that he accepted them upon delivery and appropriated and used them, all of which was denied by the purchaser, the question as to whether there had been a sale was for the jury. McMaster v. Dunn, 49 Idaho 241, 287 P. 201 (1930).

Sale with Agreement to Repurchase.

Under contract for sale and repurchase of sheep to be fattened, it being provided that buyers were to make delivery on resale, title did not pass back to seller when seller refused to accept sheep back from buyers on inspection before delivery. Bowman v. Adams, 45 Idaho 217, 261 P. 679 (1927).

Under contract whereby sheep were sold to be fattened and only fat sheep repurchased by seller, vendee obtains complete title unburdened of trust in vendor’s favor. In such case mortgage of property, even with knowledge of contractual rights, was valid. Bowman v. Adams, 45 Idaho 217, 261 P. 679 (1927).

Verbal Arrangement for Reduction to Writing.

Whether sale was complete or contract merely executory, under evidence, was matter for jury. Such question was usually one of intent of parties as gathered from their contract and circumstances surrounding sale. Elliott v. Pope, 42 Idaho 505, 247 P. 796 (1926).

Whether verbal arrangement, with agreement to reduce contract to writing, creates binding contract until completed by written terms was question for jury. Elliott v. Pope, 42 Idaho 505, 247 P. 796 (1926).

What Constitutes Acceptance.

Where acts and conduct of buyer after delivery of goods were inconsistent with idea of ownership in seller, there was acceptance within meaning of statute. Gross Mfg. Co. v. Redfield, 48 Idaho 399, 282 P. 487 (1929); Tweedie Footwear Corp. v. Roberts-Schofield Co., 48 Idaho 777, 285 P. 476 (1930).

Where buyer sold part of goods delivered in usual course of his business, there was acceptance of entire consignment, notwithstanding attempted return of balance. Gross Mfg. Co. v. Redfield, 48 Idaho 399, 282 P. 487 (1929); Tweedie Footwear Corp. v. Roberts-Schofield Co., 48 Idaho 777, 285 P. 476 (1930).

Where Goods Deliverable.

Where purchaser contracted for “strictly number one merchantable hay,” it could not be compelled to take delivery of hay other than that grade, and until hay of that grade was segregated, it was not in a deliverable state. Idaho Prods. Co. v. Bales, 36 Idaho 800, 214 P. 206 (1923).

Am. Jur. 2d.

68A Am. Jur. 2d, Secured Transactions, § 204 et seq.

C.J.S.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

1. This Article [Chapter] deals with the issues between seller and buyer in terms of step by step performance or nonperformance under the contract for sale and not in terms of whether or not “title” to the goods has passed. That the rules of this section in no way alter the rights of either the buyer, seller or third parties declared elsewhere in the Article [Chapter] is made clear by the preamble of this section. This section, however, in no way intends to indicate which line of interpretation should be followed in cases where the applicability of “public” regulation depends upon a “sale” or upon location of “title” without further definition. The basic policy of this Article [Chapter] that known purpose and reason should govern interpretation cannot extend beyond the scope of its own provisions. It is therefore necessary to state what a “sale” is and when title passes under this Article [Chapter] in case the courts deem any public regulation to incorporate the defined term of the “private” law.
2. “Future” goods cannot be the subject of a present sale. Before title can pass the goods must be identified in the manner set forth in Section 2-501. The parties, however, have full liberty to arrange by specific terms for the passing of title to goods which are existing.
3. The “special property” of the buyer in goods identified to the contract is excluded from the definition of “security interest”; its incidents are defined in provisions of this Article [Chapter] such as those on the rights of the seller’s creditors, on good faith purchase, on the buyer’s right to goods on the seller’s insolvency, and on the buyer’s right to specific performance or replevin.

Cross References:

4. The factual situations in subsections (2) and (3) upon which passage of title turn actually base the test upon the time when the seller has finally committed himself in regard to specific goods. Thus in a “shipment” contract he commits himself by the act of making the shipment. If shipment is not contemplated subsection (3) turns on the seller’s final commitment, i.e. the delivery of documents or the making of the contract. As to delivery of an electronic document of title, see definition of delivery in Article 1, Section 1-201. This Article does not state a rule as to the place of title passage as to goods covered by an electronic document of title. Cross References: Point 2: Sections 2-102, 2-501 and 2-502.

Point 3: Sections 1-201, 2-402, 2-403, 2-502 and 2-716.

Definitional Cross References:

“Bill of lading.” Section 1-201.

“Buyer.” Section 2-103.

“Contract.” Section 1-201.

“Delivery.” Section 1-201.

“Document of title.” Section 1-201.

“Good faith.” Section 2-103.

“Goods.” Section 2-105.

“Party.” Section 1-201.

“Purchaser.” Section 1-201.

“Receipt” of goods. Section 2-103.

“Remedy.” Section 1-201.

“Rights.” Section 1-201.

“Sale.” Section 2-106.

“Security interest.” Section 1-201.

“Seller.” Section 2-103.

“Send.” Section 1-201.

Compiler’s Notes.

The bracketed insertions in subsection (1) and paragraph (3)(a) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Decisions Under Prior Law

Time Title Passes.

The property in goods passed to the buyer when a bill of sale was made, regardless of the fact that the time of delivery was postponed. Walker v. Lightfoot, 124 F.2d 3 (9th Cir. 1941). RESEARCH REFERENCES

Idaho Law Review.

Idaho Law Review. — Choice of Law in Idaho: A Survey and Critique of Idaho Cases, Andrew S. Jorgensen. 49 Idaho L. Rev. 547 (2013).

Am. Jur. 2d.

67A Am. Jur. 2d, Sales, § 795 et seq.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Subsection (2) — Section 26, Uniform Sales Act; Subsections (1) and (3) — none.

Changes:

Purposes of Changes and New Matter:

1. Local law on questions of hindrance of creditors by the seller’s retention of possession of the goods are outside the scope of this Article [Chapter], but retention of possession in the current course of trade is legitimate. Transactions which fall within the law’s policy against improper preferences are reserved from the protection of this Article [Chapter].
2. The retention of possession of the goods by a merchant seller for a commercially reasonable time after a sale or identification in current course is exempted from attack as fraudulent. Similarly, the provisions of subsection (3) have no application to identification or delivery made in the current course of trade, as measured against general commercial understanding of what a “current” transaction is.

Definitional Cross References:

“Creditor.” Section 1-201.

“Good faith.” Section 2-103.

“Goods.” Section 2-105.

“Merchant.” Section 2-104.

“Money.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Rights.” Section 1-201.

“Sale.” Section 2-106.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in subsection (4) were added by the compiler to conform to the statutory citation style.

Section 54 of S.L. 1993, ch. 288 read: “Rights and obligations that arose under Chapter 6, Title 28, Idaho Code, and Section 28-9-111, Idaho Code, before their repeal remain valid and may be enforced as though those statutes had not been repealed.”

The words enclosed in parentheses so appeared in the law as enacted.

Cancellation of Preexisting Debt.

Where the consideration given by the buyer of a farm disc from a consignment exchange was cancellation of a preexisting debt owed to him by the exchange, the buyer was not a “buyer in ordinary course of business.” Seitz v. Stecklein, 111 Idaho 364, 723 P.2d 908 (Ct. App. 1986).

Delivery.

Delivery can, in some circumstances, be effectuated without a change of possession, but actual delivery must be required where fungible goods are left in the possession of a warehouseman by the purchaser in order for the entrustment provisions to be effective. In re Hawkins Co., 104 Bankr. 317 (Bankr. D. Idaho 1989).

Entrustment Provisions.

To require delivery to the purchaser of the goods under the entrustment provisions, particularly in the instance of fungible goods in warehouses, illustrates the basic purpose of the entrustment theory, which is to afford protection to a bona fide purchaser in the ordinary course of business. In re Hawkins Co., 104 Bankr. 317 (Bankr. D. Idaho 1989).

Good Faith Purchaser for Value.

Although a seller of goods may have certain rights to recover goods from an insolvent buyer and may treat a sale as void if retention of the goods is fraudulent, nevertheless those rights are altered when the goods enter the hands of a good faith purchaser for value. Western Idaho Prod. Credit Ass’n v. Simplot Feed Lots, Inc., 106 Idaho 260, 678 P.2d 52 (1984).

Possession by Warehouse.

Subsections (2) and (3) of this section were not applicable to warehouse deposits of beans since the purchasers of these beans did not take possession of them, but, instead, left them in the custody and possession of the warehouse. In re Hawkins Co., 104 Bankr. 317 (Bankr. D. Idaho 1989).

Purchase from Warehouse.

Delivery to the purchaser is required by§ 28-7-205 before a purchaser takes free of any claim under a warehouse receipt. In re Hawkins Co., 104 Bankr. 317 (Bankr. D. Idaho 1989).

Purpose.

The purpose and intent of sections (2) and (3) of this section is to afford title protection to a commodity purchaser as against the unpaid depositor of the commodity in situations other than a warehouse in a shortage position. In re Hawkins Co., 104 Bankr. 317 (Bankr. D. Idaho 1989). Decisions Under Prior Law

Good Faith and Value.

Mortgagee of personal property under mortgage securing antecedent debt was held an encumbrancer both in good faith and for value holding a lien superior to claim of purchaser of such property who had not removed it from seller’s premises. Millick v. Stevens, 44 Idaho 347, 257 P. 30 (1927).

Innocent Third Party.

The principal is well settled that a seller of personal property can convey no greater title than he had, it makes no difference that the purchaser had no notice and was ignorant of other parties in interest. Federal Land Bank v. McCloud, 52 Idaho 694, 20 P.2d 201 (1933).

Property in Possession of Third Person.

The owner of personal property, placing an agent or employee in possession and control thereof, did not thereby clothe such agent or employee with authority to sell such property, nor was possession alone sufficient to estop the owner from asserting his title against one who purchased from such agent or employee in reliance upon the latter’s apparent authority to sell. Brunette v. Idaho Veneer Co., 86 Idaho 193, 384 P.2d 233 (1963).

Where defendant did not rely upon acts and representations of the owner but instead relied upon the fact that an agent had possession of the logs and defendant was satisfied with agent’s statements as to his authority, since the court held that agent advised the defendant that plaintiff had an interest in the logs, it became the duty of the defendant to make inquiry as to what interest plaintiff had, and he was bound to know the facts that inquiry would have disclosed. Brunette v. Idaho Veneer Co., 86 Idaho 193, 384 P.2d 233 (1963).

Remedies.

Holder of a trust receipt on car sold by trustee to another dealer was entitled to recognize the sale and pursue its remedy against proceeds of sale deposited in the trustee’s bank. Commercial Credit Corp. v. Bosse, 76 Idaho 409, 283 P.2d 937 (1955).

Am. Jur. 2d.

67 Am. Jur. 2d, Sales, § 434 et seq. Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Sections 20(4), 23, 24, 25, Uniform Sales Act; Section 9, especially 9(2), Uniform Trust Receipts Act; Section 9, Uniform Conditional Sales Act.

Changes:

Purposes of Changes:

1. The basic policy of our law allowing transfer of such title as the transferor has is generally continued and expanded under subsection (1). In this respect the provisions of the section are applicable to a person taking by any form of “purchase” as defined by this Act. Moreover the policy of this Act expressly providing for the application of supplementary general principles of law to sales transactions wherever appropriate joins with the present section to continue unimpaired all rights acquired under the law of agency or of apparent agency or ownership or other estoppel, whether based on statutory provisions or on case law principles. The section also leaves unimpaired the powers given to selling factors under the earlier Factors Acts. In addition subsection (1) provides specifically for the protection of the good faith purchaser for value in a number of specific situations which have been troublesome under prior law.
2. The many particular situations in which a buyer in ordinary course of business from a dealer has been protected against reservation of property or other hidden interest are gathered by subsections (2)-(4) into a single principle protecting persons who buy in ordinary course out of inventory. Consignors have no reason to complain, nor have lenders who hold a security interest in the inventory, since the very purpose of goods in inventory is to be turned into cash by sale.
3. The definition of “buyer in ordinary course of business” (Section 1-201) is effective here and preserves the essence of the healthy limitations engrafted by the case-law on the older statutes. The older loose concept of good faith and wide definition of value combined to create apparent good faith purchasers in many situations in which the result outraged common sense; the court’s solution was to protect the original title especially by use of “cash sale” or of over-technical construction of the enabling clauses of the statutes. But such rulings then turned into limitations on the proper protection of buyers in the ordinary market. Section 1-201 (9) cuts down the category of buyer in ordinary course in such fashion as to take care of the results of the cases, but with no price either in confusion or in injustice to proper dealings in the normal market. 4. Except as provided in subsection (1), the rights of purchasers other than buyers in ordinary course are left to the Articles [Chapters] on Secured Transactions, Documents of Title, and Bulk Sales.

On the other hand, the contract of purchase is of course limited by its own terms as in a case of pledge for a limited amount or of sale of a fractional interest in goods.

The principle is extended in subsection (3) to fit with the abolition of the old law of “cash sale” by subsection (1) (c). It is also freed from any technicalities depending on the extended law of larceny; such extension of the concept of theft to include trick, particular types of fraud, and the like is for the purpose of helping conviction of the offender; it has no proper application to the long-standing policy of civil protection of buyers from persons guilty of such trick or fraud. Finally, the policy is extended, in the interest of simplicity and sense, to any entrusting by a bailor; this is in consonance with the explicit provisions of Section 7-205 on the powers of a warehouseman who is also in the business of buying and selling fungible goods of the kind he warehouses. As to entrusting by a secured party, subsection (2) is limited by the more specific provisions of Section 9-307 (1), which deny protection to a person buying farm products from a person engaged in farming operations.

Cross References:

Point 2: Sections 1-201, 2-402, 7-205 and 9-307 (1).

Points 3 and 4: Sections 1-102, 1-201, 2-104, 2-707 and Articles [Chapters] 6, 7 and 9.

Definitional Cross References:

“Good faith.” Sections 1-201 and 2-103.

“Goods.” Section 2-105.

“Person.” Section 1-201.

“Purchaser.” Section 1-201.

“Signed.” Section 1-201.

“Term.” Section 1-201.

“Value.” Section 1-201 [now 1-204].

Decisions Under Prior Law

Party liable for damage.

Party Liable for Damage.

Where one sold potatoes stored in the cellar of a third person and agreed to run the potatoes over an eliminator, haul the commercial potatoes to the purchaser’s warehouse, and buy back the seed potatoes in the cellar, whereupon the purchaser notified the third party that it was now the owner of the potatoes, and, in loading potatoes on trucks several months later, they were discovered to have been damaged in the meanwhile by frost, the frost damage fell upon the purchaser. Martin v. Whiteley, 89 Idaho 429, 405 P.2d 963 (1965).

Passing of Property.

Unless a different intention appears, if a seller was bound to do something to put goods into a deliverable shape, the property did not pass until such thing was done, or, if the contract requires the seller to deliver goods to the buyer, it did not pass until the goods had been delivered. Bowman v. Adams, 45 Idaho 217, 261 P. 679 (1927).

Question of Sale for Jury.

Where it was claimed that cattle were bought by the purchaser without inspecting them and that he accepted them upon delivery and appropriated and used them, all of which was denied by purchaser, the question of whether there had been a sale was for the jury. McMaster v. Dunn, 49 Idaho 241, 287 P. 201 (1930).

When Goods Deliverable.

Where purchaser contracted for strictly “number one merchantable hay,” it could not be compelled to take delivery of hay other than that grade, and until hay of that grade was segregated, it was not in a deliverable state. Idaho Prods. Co. v. Bales, 36 Idaho 800, 214 P. 206 (1923).

Am. Jur. 2d.

C.J.S.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. The present section deals with the manner of identifying goods to the contract so that an insurable interest in the buyer and the rights set forth in the next section will accrue. Generally speaking, identification may be made in any manner “explicitly agreed to” by the parties. The rules of paragraphs (a), (b) and (c) apply only in the absence of such “explicit agreement.”

2. In the ordinary case identification of particular existing goods as goods to which the contract refers is unambiguous and may occur in one of many ways. It is possible, however, for the identification to be tentative or contingent. In view of the limited effect given to identification by this Article [Chapter], the general policy is to resolve all doubts in favor of identification. 3. The provision of this section as to “explicit agreement” clarifies the present confusion in the law of sales which has arisen from the fact that under prior uniform legislation all rules of presumption with reference to the passing of title or to appropriation (which in turn depended upon identification) were regarded as subject to the contrary intention of the parties or of the party appropriating. Such uncertainty is reduced to a minimum under this section by requiring “explicit agreement” of the parties before the rules of paragraphs (a), (b) and (c) are displaced — as they would be by a term giving the buyer power to select the goods. An “explicit” agreement, however, need not necessarily be found in the terms used in the particular transaction. Thus, where a usage of the trade has previously been made explicit by reduction to a standard set of “rules and regulations” currently incorporated by reference into the contracts of the parties, a relevant provision of those “rules and regulations” is “explicit” within the meaning of this section.

4. In view of the limited function of identification there is no requirement in this section that the goods be in deliverable state or that all of the seller’s duties with respect to the processing of the goods be completed in order that identification occur. For example, despite identification the risk of loss remains on the seller under the risk of loss provisions until completion of his duties as to the goods and all of his remedies remain dependent upon his not defaulting under the contract.

5. Undivided shares in an identified fungible bulk, such as grain in an elevator or oil in a storage tank, can be sold. The mere making of the contract with reference to an undivided share in an identified fungible bulk is enough under subsection (a) to effect an identification if there is no explicit agreement otherwise. The seller’s duty, however, to segregate and deliver according to the contract is not affected by such an identification but is controlled by other provisions of this Article [Chapter].

6. Identification of crops under paragraph (c) is made upon planting only if they are to be harvested within the year or within the next normal harvest season. The phrase “next normal harvest season” fairly includes nursery stock raised for normally quick “harvest,” but plainly excludes a “timber” crop to which the concept of a harvest “season” is inapplicable.

Paragraph (c) is also applicable to a crop of wool or the young of animals to be born within twelve months after contracting. The product of a lumbering, mining or fishing operation, though seasonal, is not within the concept of “growing.” Identification under a contract for all or part of the output of such an operation can be effected early in the operation.

Cross References:

Point 4: Sections 2-509, 2-510 and 2-703.

Point 5: Sections 2-105, 2-308, 2-503 and 2-509.

Point 6: Sections 2-105 (1), 2-107 (1) and 2-402.

Definitional Cross References:

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Future goods.” Section 2-105.

“Goods.” Section 2-105.

“Notification.” Section 1-201.

“Party.” Section 1-201.

“Sale.” Section 2-106.

“Security interest.” Section 1-201. “Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion in the introductory paragraph in subsection (1) was added by the compiler to conform to the statutory citation style.

Effective Dates.

Section 31 of S.L. 2001, ch. 208 provided that the act should take effect on and after July 1, 2001.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

2. The question of whether the buyer also acquires a security interest in identified goods and has rights to the goods when insolvency takes place after the ten-day period provided in this section depends upon compliance with the provisions of the Article [Chapter] on Secured Transactions (Article [Chapter] 9). 3. Subsection (2) is included to preclude the possibility of unjust enrichment which exists if the buyer were permitted to recover goods even though they were greatly superior in quality or quantity to that called for by the contract for sale.

Cross References:

Point 2: Article [Chapter] 9.

Definitional Cross References:

“Conform.” Section 2-106.

“Contract for sale.” Section 2-106.

“Goods.” Section 2-105.

“Insolvent.” Section 1-201.

“Rights.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion at the end of paragraph (5)(a) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted. CASE NOTES

Delivery.

This section deals with the manner of the seller’s tender of delivery. Subsection (2) refers to delivery under a shipment contract, while subsection (3) deals with delivery under a destination contract. Deiter v. Coons, 162 Idaho 44, 394 P.3d 87 (2017).

If parties to a contract for the sale of goods intend that delivery be made to a carrier, a request in the buyer’s letter to the seller that the goods be shipped to the buyer’s residence is a mere shipping instruction that does not convert the contract to a destination contract, and the risk of loss passes to the buyer at the time the goods are delivered to a carrier, such as the postal service. Thus, a “ship to” term has no significance in determining whether a contract is a shipment or destination contract for risk of loss purposes. Deiter v. Coons, 162 Idaho 44, 394 P.3d 87 (2017).

Tender of Specified Documents.

The fact that a transaction was simple, or that the dispute concerned the failure to tender specified documents rather than a failure to deliver conforming goods, does not exempt a case from the UCC’s provisions; rather, the code specifically provides that where parties agree that tender requires the seller to deliver documents, the seller must tender all such documents in correct form and, further, tender of delivery is a condition to the buyer’s duty to accept goods and to his duty to pay for them. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991).

Am. Jur. 2d.

ALR.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th 7.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: See Sections 11, 19, 20, 43 (3) and (4), 46 and 51, Uniform Sales Act.

Changes:

Changes: The general policy of the above sections is continued and supplemented but subsection (3) changes the rule of prior section 19 (5) as to what constitutes a “destination” contract and subsection (4) incorporates a minor correction as to tender of delivery of goods in the possession of a bailee. Purposes of Changes: 1. The major general rules governing the manner of proper or due tender of delivery are gathered in this section. The term “tender” is used in this Article [Chapter] in two different senses. In one sense it refers to “due tender” which contemplates an offer coupled with a present ability to fulfill all the conditions resting on the tendering party and must be followed by actual performance if the other party shows himself ready to proceed. Unless the context unmistakably indicates otherwise this is the meaning of “tender” in this Article [Chapter] and the occasional addition of the word “due” is only for clarity and emphasis. At other times it is used to refer to an offer of goods or documents under a contract as if in fulfillment of its conditions even though there is a defect when measured against the contract obligation. Used in either sense, however, “tender” connotes such performance by the tendering party as puts the other party in default if he fails to proceed in some manner. These concepts of tender would apply to tender of either tangible or electronic documents of title.

2. The seller’s general duty to tender and deliver is laid down in Section 2-301 and more particularly in Section 2-507. The seller’s right to a receipt if he demands one and receipts are customary is governed by Section 1-205 [1-303]. Subsection (1) of the present section proceeds to set forth two primary requirements of tender: first, that the seller “put and hold conforming goods at the buyer’s disposition” and, second, that he “give the buyer any notice reasonably necessary to enable him to take delivery.”

In cases in which payment is due and demanded upon delivery the “buyer’s disposition” is qualified by the seller’s right to retain control of the goods until payment by the provision of this Article [Chapter] on delivery on condition. However, where the seller is demanding payment on delivery he must first allow the buyer to inspect the goods in order to avoid impairing his tender unless the contract for sale is on C.I.F., C.O.D., cash against documents or similar terms negating the privilege of inspection before payment.

In the case of contracts involving documents the seller can “put and hold conforming goods at the buyer’s disposition” under subsection (1) by tendering documents which give the buyer complete control of the goods under the provisions of Article [Chapter] 7 on due negotiation.

3. Under paragraph (a) of subsection (1) usage of the trade and the circumstances of the particular case determine what is a reasonable hour for tender and what constitutes a reasonable period of holding the goods available.

4. The buyer must furnish reasonable facilities for the receipt of the goods tendered by the seller under subsection (1), paragraph (b). This obligation of the buyer is no part of the seller’s tender.

5. For the purposes of subsections (2) and (3) there is omitted from this Article [Chapter] the rule under prior uniform legislation that a term requiring the seller to pay the freight or cost of transportation to the buyer is equivalent to an agreement by the seller to deliver to the buyer or at an agreed destination. This omission is with the specific intention of negating the rule, for under this Article [Chapter] the “shipment” contract is regarded as the normal one and the “destination” contract as the variant type. The seller is not obligated to deliver at a named destination and bear the concurrent risk of loss until arrival, unless he has specifically agreed so to deliver or the commercial understanding of the terms used by the parties contemplates such delivery.

6. Paragraph (a) of subsection (4) continues the rule of the prior uniform legislation as to acknowledgment by the bailee. Paragraph (b) of subsection (4) adopts the rule that between the buyer and the seller the risk of loss remains on the seller during a period reasonable for securing acknowledgment of the transfer from the bailee, while as against all other parties the buyer’s rights are fixed as of the time the bailee receives notice of the transfer. 7. Under subsection (5) documents are never “required” except where there is an express contract term or it is plainly implicit in the peculiar circumstances of the case or in a usage of trade. Documents may, of course, be “authorized” although not required, but such cases are not within the scope of this subsection. When documents are required, there are three main requirements of this subsection: (1) “All”: each required document is essential to a proper tender; (2) “Such”: the documents must be the ones actually required by the contract in terms of source and substance; (3) “Correct form”: all documents must be in correct form. These requirements apply to both tangible and electronic documents of title. When tender is made through customary banking channels, a draft may accompany or be associated with a document of title. The language has been broadened to allow for drafts to be associated with an electronic document of title. Compare Section 2-104(2) definition of financing agency.

When a prescribed document cannot be procured, a question of fact arises under the provision of this Article [Chapter] on substituted performance as to whether the agreed manner of delivery is actually commercially impracticable and whether the substitute is commercially reasonable.

Cross References:

Cross References: Point 2: Sections 1-205 [1-303], 2-301, 2-310, 2-507 and 2-513 and Article [Chapter] 7.

Point 5: Sections 2-308, 2-310 and 2-509.

Point 7: Section 2-614(1).

Specific matters involving tender are covered in many additional sections of this Article [Chapter]. See Sections 1-205 [1-303], 2-301, 2-306 to 2-319, 2-321(3), 2-504, 2-507(2), 2-511(1), 2-513, 2-612 and 2-614.

Definitional Cross References:

“Bill of lading.” Section 1-201.

“Buyer.” Section 2-103.

“Conforming.” Section 2-106.

“Contract.” Section 1-201.

“Delivery.” Section 1-201.

“Dishonor.” Section 3-508.

“Document of title.” Section 1-201.

“Draft.” Section 3-104.

“Goods.” Section 2-105.

“Notification.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Receipt” of goods. Section 2-103.

“Rights.” Section 1-201.

“Seasonably.” Section 1-204 [1-205].

“Seller.” Section 2-103.

“Written.” Section 1-201.

Decisions Under Prior Law

Conditional Delivery of Contract.

Where contract was delivered conditionally, until conditions had been met buyer was under no obligation to pay nor was delivery to carrier in pursuance of the contract a completion of the contract. Continental Jewelry Co. v. Ingelstrom, 43 Idaho 337, 252 P. 186 (1926).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

1. The section is limited to “shipment” contracts as contrasted with “destination” contracts or contracts for delivery at the place where the goods are located. The general principles embodied in this section cover the special cases of F.O.B. point of shipment contracts and C.I.F. and C. & F. contracts. Under the preceding section on manner of tender of delivery, due tender by the seller requires that he comply with the requirements of this section in appropriate cases. 2. The contract to be made with the carrier under paragraph (a) must conform to all express terms of the agreement, subject to any substitution necessary because of failure of agreed facilities as provided in the later provision on substituted performance. However, under the policies of this Article [Chapter] on good faith and commercial standards and on buyer’s rights on improper delivery, the requirements of explicit provisions must be read in terms of their commercial and not their literal meaning. This policy is made express with respect to bills of lading in a set in the provision of this Article [Chapter] on form of bills of lading required in overseas shipment.

3. In the absence of agreement, the provision of this Article [Chapter] on options and cooperation respecting performance gives the seller the choice of any reasonable carrier, routing and other arrangements. Whether or not the shipment is at the buyer’s expense the seller must see to any arrangements, reasonable in the circumstances, such as refrigeration, watering of live stock, protection against cold, the sending along of any necessary help, selection of specialized cars and the like for paragraph (a) is intended to cover all necessary arrangements whether made by contract with the carrier or otherwise. There is, however, a proper relaxation of such requirements if the buyer is himself in a position to make the appropriate arrangements and the seller gives him reasonable notice of the need to do so. It is an improper contract under paragraph (a) for the seller to agree with the carrier to a limited valuation below the true value and thus cut off the buyer’s opportunity to recover from the carrier in the event of loss, when the risk of shipment is placed on the buyer by his contract with the seller.

4. Both the language of paragraph (b) and the nature of the situation it concerns indicate that the requirement that the seller must obtain and deliver promptly to the buyer in due form any document necessary to enable him to obtain possession of the goods is intended to cumulate with the other duties of the seller such as those covered in paragraph (a).

In this connection, in the case of pool car shipments a delivery order furnished by the seller on the pool car consignee, or on the carrier for delivery out of a larger quantity, satisfies the requirements of paragraph (b) unless the contract requires some other form of document.

5. This Article [Chapter], unlike the prior uniform statutory provision, makes it the seller’s duty to notify the buyer of shipment in all cases. The consequences of his failure to do so, however, are limited in that the buyer may reject on this ground only where material delay or loss ensues.

A standard and acceptable manner of notification in open credit shipments is the sending of an invoice and in the case of documentary contracts is the prompt forwarding of the documents as under paragraph (b) of this section. It is also usual to send on a straight bill of lading but this is not necessary to the required notification. However, should such a document prove necessary or convenient to the buyer, as in the case of loss and claim against the carrier, good faith would require the seller to send it on request.

Frequently the agreement expressly requires prompt notification as by wire or cable. Such a term may be of the essence and the final clause of paragraph (c) does not prevent the parties from making this a particular ground for rejection. To have this vital and irreparable effect upon the seller’s duties, such a term should be part of the “dickered” terms written in any “form,” or should otherwise be called seasonably and sharply to the seller’s attention.

Cross References:

6. Generally, under the final sentence of the section, rejection by the buyer is justified only when the seller’s dereliction as to any of the requirements of this section in fact is followed by material delay or damage. It rests on the seller, so far as concerns matters not within the peculiar knowledge of the buyer, to establish that his error has not been followed by events which justify rejection. Cross References: Point 1: Sections 2-319, 2-320 and 2-503(2).

Point 2: Sections 1-203, 2-323(2), 2-601 and 2-614(1).

Point 3: Section 2-311(2).

Point 5: Section 1-203.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract.” Section 1-201.

“Delivery.” Section 1-201.

“Goods.” Section 2-105.

“Notifies.” Section 1-201.

“Seller.” Section 2-103.

“Send.” Section 1-201.

“Usage of trade.” Section 1-205 [1-303].

Compiler’s Notes.

The bracketed insertion in paragraph (1)(b) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 20(2), (3), (4), Uniform Sales Act.

Changes:

Purposes of Changes:

1. The security interest reserved to the seller under subsection (1) is restricted to securing payment or performance by the buyer and the seller is strictly limited in his disposition and control of the goods as against the buyer and third parties. Under this Article [Chapter], the provision as to the passing of interest expressly applies “despite any reservation of security title” and also provides that the “rights, obligations and remedies” of the parties are not altered by the incidence of title generally. The security interest, therefore, must be regarded as a means given to the seller to enforce his rights against the buyer which is unaffected by and in turn does not affect the location of title generally. The rules set forth in subsection (1) are not to be altered by any apparent “contrary intent” of the parties as to passing of title, since the rights and remedies of the parties to the contract of sale, as defined in this Article [Chapter], rest on the contract and its performance or breach and not on stereotyped presumptions as to the location of title. This Article [Chapter] does not attempt to regulate local procedure in regard to the effective maintenance of the seller’s security interest when the action is in replevin by the buyer against the carrier.
2. Every shipment of identified goods under a negotiable bill of lading reserves a security interest in the seller under subsection (1) paragraph (a).
3. A non-negotiable bill of lading taken to a party other than the buyer under subsection (1) paragraph (b) reserves possession of the goods as security in the seller but if he seeks to withhold the goods improperly the buyer can tender payment and recover them.
4. In the case of a shipment by non-negotiable bill of lading taken to a buyer, the seller, under subsection (1) retains no security interest or possession as against the buyer and by the shipment he de facto loses control as against the carrier except where he rightfully and effectively stops delivery in transit. In cases in which the contract gives the seller the right to payment against delivery, the seller, by making an immediate demand for payment, can show that his delivery is conditional, but this does not prevent the buyer’s power to transfer full title to a sub-buyer in ordinary course or other purchaser under Section 2-403.
5. Under subsection (2) an improper reservation by the seller which would constitute a breach in no way impairs such of the buyer’s rights as result from identification of the goods. The security title reserved by the seller under subsection (1) does not protect his retaining possession or control of the document or the goods for the purpose of exacting more than is due him under the contract.

It is frequently convenient for the seller to make the bill of lading to the order of a nominee such as his agent at destination, the financing agency to which he expects to negotiate the document or the bank issuing a credit to him. In many instances, also, the buyer is made the order party. This Article [Chapter] does not deal directly with the question as to whether a bill of lading made out by the seller to the order of a nominee gives the carrier notice of any rights which the nominee may have so as to limit its freedom or obligation to honor the bill of lading in the hands of the seller as the original shipper if the expected negotiation fails. This is dealt with in the Article [Chapter] on Documents of Title (Article [Chapter] 7).

Cross References:

Point 2: Article [Chapter] 7.

Point 3: Sections 2-501(2) and 2-504.

Point 4: Sections 2-403, 2-507(2) and 2-705.

Point 5: Sections 2-310, 2-319(4), 2-320(4), 2-501 and 2-502 and Article [Chapter] 7.

Definitional Cross References:

“Buyer.” Section 2-103.

“Consignee.” Section 7-102.

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Delivery.” Section 1-201.

“Financing agency.” Section 2-104.

“Goods.” Section 2-105.

“Holder.” Section 1-201. “Person.” Section 1-201.

“Security interest.” Section 1-201.

“Seller.” Section 2-103.

Subsequent Bona Fide Purchaser.

Subsection (2) of this section conferred no rights on seller as against subsequent bona fide purchaser. Western Idaho Prod. Credit Ass’n v. Simplot Feed Lots, Inc., 106 Idaho 260, 678 P.2d 52 (1984).

Tender of Specified Documents.

The fact that a transaction was simple, or that the dispute concerned the failure to tender specified documents rather than a failure to deliver conforming goods, does not exempt a case from the UCC’s provisions but, rather, the Code specifically provides that, where parties agree that tender requires the seller to deliver documents, the seller must tender all such documents in correct form, and tender of delivery is a condition to the buyer’s duty to accept goods and to his duty to pay for them. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991).

Decisions Under Prior Law

Cash Sale.

Where the buyer under a contract of sale was not entitled to possession until payment, the law presumes a cash sale, which is one where payment and delivery are concurrent. Western Seed Marketing Co. v. Pfost, 45 Idaho 340, 262 P. 514 (1927).

Conditional Delivery.

Where contract was delivered conditionally, until conditions had been met buyer was under no obligation to pay nor was delivery to carrier in pursuance of the contract a completion of the contract. Continental Jewelry Co. v. Ingelstrom, 43 Idaho 337, 252 P. 186 (1926).

Forfeiture of Lease.

In determining whether a sale of personalty by an Idaho mining lessee to the lessor failed to vest title on the ground that no delivery was made, upon forfeiture of the lease, it was the duty of the lessee to deliver the property, and the duty of the lessor to accept it. Walker v. Lightfoot, 124 F.2d 3 (9th Cir. 1941).

Inspection.

Inspection was to be made at the destination, and a reasonable time therefor was allowed. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Conceding that the buyer should examine goods and notify of rejection and rescission because of breach of warranty as soon as possible, the question of what was reasonable as to time and place was a jury question. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Requisite Quality.

If the contract for sale of peaches was for U.S. No. 1’s, buyer was required to accept only peaches of such grade. Peck v. Nixon, 47 Idaho 675, 277 P. 1112 (1929); Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

What Constitutes Acceptance.

Where acts and conduct of buyer after delivery of goods were inconsistent with ownership in seller, it would be deemed acceptance. Gross Mfg. Co. v. Redfield, 48 Idaho 399, 282 P. 487 (1929); Tweedie Footwear Corp. v. Roberts-Schofield Co., 48 Idaho 777, 285 P. 476 (1930).

Where buyer sold part of goods delivered in usual course of his business, there was acceptance of entire consignment, notwithstanding attempted return of balance. Gross Mfg. Co. v. Redfield, 48 Idaho 399, 282 P. 487 (1929); Tweedie Footwear Corp. v. Roberts-Schofield Co., 48 Idaho 777, 285 P. 476 (1930).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. Subsection (1) continues the policies of the prior uniform statutory provisions with respect to tender and delivery by the seller. Under this Article [Chapter] the same rules in these matters are applied to present sales and to contracts for sale. But the provisions of this subsection must be read within the framework of the other sections of this Article [Chapter] which bear upon the question of delivery and payment.

2. The “unless otherwise agreed” provision of subsection (1) is directed primarily to cases in which payment in advance has been promised or a letter of credit term has been included. Payment “according to the contract” contemplates immediate payment, payment at the end of an agreed credit term, payment by a time acceptance or the like. Under this Act, “contract” means the total obligation in law which results from the parties’ agreement including the effect of this Article [Chapter]. In this context, therefore, there must be considered the effect in law of such provisions as those on means and manner of payment and on failure of agreed means and manner of payment.

3. Subsection (2) deals with the effect of a conditional delivery by the seller and in such a situation makes the buyer’s “right as against the seller” conditional upon payment. These words are used as words of limitation to conform with the policy set forth in the bona fide purchase sections of this Article. Should the seller after making such a conditional delivery fail to follow up his rights, the condition is waived. This subsection (2) codifies the cash seller’s right of reclamation which is in the nature of a lien. There is no specific time limit for a cash seller to exercise the right of reclamation. However, the right will be defeated by delay causing prejudice to the buyer, waiver, estoppel, or ratification of the buyer’s right to retain possession. Common law rules and precedents governing such principles are applicable (Section 1-103). If third parties are involved, Section 2-403(1) protects good faith purchasers. See PEB Commentary No. 1, dated March 10, 1990.

Cross References:

Point 2: Sections 1-201, 2-511 and 2-614.

Point 3: Sections 2-401, 2-403, and 2-702(1) (b).

Definitional Cross References:

“Contract.” Section 1-201.

“Delivery.” Section 1-201.

“Document of title.” Section 1-201.

“Goods.” Section 2-105.

“Rights.” Section 1-201.

“Seller.” Section 2-103.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. Subsection (1) permits a seller who has made a non-conforming tender in any case to make a conforming delivery within the contract time upon seasonable notification to the buyer. It applies even where the seller has taken back the non-conforming goods and refunded the purchase price. He may still make a good tender within the contract period. The closer, however, it is to the contract date, the greater is the necessity for extreme promptness on the seller’s part in notifying of his intention to cure, if such notification is to be “seasonable” under this subsection.

The rule of this subsection, moreover, is qualified by its underlying reasons. Thus if, after contracting for June delivery, a buyer later makes known to the seller his need for shipment early in the month and the seller ships accordingly, the “contract time” has been cut down by the supervening modification and the time for cure of tender must be referred to this modified time term.

2. Subsection (2) seeks to avoid injustice to the seller by reason of a surprise rejection by the buyer. However, the seller is not protected unless he had “reasonable grounds to believe” that the tender would be acceptable. Such reasonable grounds can lie in prior course of dealing, course of performance or usage of trade as well as in the particular circumstances surrounding the making of the contract. The seller is charged with commercial knowledge of any factors in a particular sales situation which require him to comply strictly with his obligations under the contract as, for example, strict conformity of documents in an overseas shipment or the sale of precision parts or chemicals for use in manufacture. Further, if the buyer gives notice either implicitly, as by a prior course of dealing involving rigorous inspections, or expressly, as by the deliberate inclusion of a “no replacement” clause in the contract, the seller is to be held to rigid compliance. If the clause appears in a “form” contract evidence that it is out of line with trade usage or the prior course of dealing and was not called to the seller’s attention may be sufficient to show that the seller had reasonable grounds to believe that the tender would be acceptable. 3. The words “a further reasonable time to substitute a conforming tender” are intended as words of limitation to protect the buyer. What is a “reasonable time” depends upon the attending circumstances. Compare Section 2-511 on the comparable case of a seller’s surprise demand for legal tender.

4. Existing trade usages permitting variations without rejection but with price allowance enter into the agreement itself as contractual limitations of remedy and are not covered by this section.

Cross References:

Point 3: Section 2-511.

Point 4: Sections 1-205 [1-303] and 2-721.

Definitional Cross References:

“Conforming.” Section 2-106.

“Contract.” Section 1-201.

“Money.” Section 1-201.

“Notifies.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Seasonably.” Section 1-204 [1-205].

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in paragraphs (1)(a) and (2)(c) and subsection (4) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d.

ALR.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Changes: Rewritten, subsection (3) of this section modifying prior law.

Purposes of Changes:

1. The underlying theory of these sections on risk of loss is the adoption of the contractual approach rather than an arbitrary shifting of the risk with the “property” in the goods. The scope of the present section, therefore, is limited strictly to those cases where there has been no breach by the seller. Where for any reason his delivery or tender fails to conform to the contract, the present section does not apply and the situation is governed by the provisions on effect of breach on risk of loss.
2. The provisions of subsection (1) apply where the contract “requires or authorizes” shipment of the goods. This language is intended to be construed parallel to comparable language in the section on shipment by seller. In order that the goods be “duly delivered to the carrier” under paragraph (a) a contract must be entered into with the carrier which will satisfy the requirements of the section on shipment by the seller and the delivery must be made under circumstances which will enable the seller to take any further steps necessary to a due tender. The underlying reason of this subsection does not require that the shipment be made after contracting, but where, for example, the seller buys the goods afloat and later diverts the shipment to the buyer, he must identify the goods to the contract before the risk of loss can pass. To transfer the risk it is enough that a proper shipment and a proper identification come to apply to the same goods although, aside from special agreement the risk will not pass retroactively to the time of shipment in such a case.
3. Whether the contract involves delivery at the seller’s place of business or at the situs of the goods, a merchant seller cannot transfer risk of loss and it remains upon him until actual receipt by the buyer, even though full payment has been made and the buyer has been notified that the goods are at his disposal. Protection is afforded him, in the event of breach by the buyer, under the next section.
4. Where the agreement provides for delivery of the goods as between the buyer and seller without removal from the physical possession of a bailee, the provisions on manner of tender of delivery apply on the point of transfer of risk. Due delivery of a negotiable document of title covering the goods or acknowledgment by the bailee that he holds for the buyer completes the “delivery” and passes the risk. See definition of delivery in Article 1, Section 1-201 and the definition of control in Article 7, Section 7-106.
5. The provisions of this section are made subject by subsection (4) to the “contrary agreement” of the parties. This language is intended as the equivalent of the phrase “unless otherwise agreed” used more frequently throughout this Act. “Contrary” is in no way used as a word of limitation and the buyer and seller are left free to readjust their rights and risks as declared by this section in any manner agreeable to them. Contrary agreement can also be found in the circumstances of the case, a trade usage or practice, or a course of dealing or performance.

The underlying theory of this rule is that a merchant who is to make physical delivery at his own place continues meanwhile to control the goods and can be expected to insure his interest in them. The buyer, on the other hand, has no control of the goods and it is extremely unlikely that he will carry insurance on goods not yet in his possession.

Cross References:

Cross References: Point 1: Section 2-510(1).

Point 2: Sections 2-503 and 2-504.

Point 3: Sections 2-104, 2-503 and 2-510. Point 4: Section 2-503(4).

Point 5: Section 1-201.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract.” Section 1-201.

“Delivery.” Section 1-201.

“Document of title.” Section 1-201.

“Goods.” Section 2-105.

“Merchant.” Section 2-104.

“Party.” Section 1-201.

“Receipt” of goods. Section 2-103.

“Sale on approval.” Section 2-326.

“Seller.” Section 2-103.

Am. Jur. 2d.

ALR.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

1. Under subsection (1) the seller by his individual action cannot shift the risk of loss to the buyer unless his action conforms with all the conditions resting on him under the contract.
2. The “cure” of defective tenders contemplated by subsection (1) applies only to those situations in which the seller makes changes in goods already tendered, such as repair, partial substitution, sorting out from an improper mixture and the like since “cure” by repossession and new tender has no effect on the risk of loss of the goods originally tendered. The seller’s privilege of cure does not shift the risk, however, until the cure is completed.
3. In cases where there has been a breach of the contract, if the one in control of the goods is the aggrieved party, whatever loss or damage may prove to be uncovered by his insurance falls upon the contract breaker under subsections (2) and (3) rather than upon him. The word “effective” as applied to insurance coverage in those subsections is used to meet the case of supervening insolvency of the insurer. The “deficiency” referred to in the text means such deficiency in the insurance coverage as exists without subrogation. This section merely distributes the risk of loss as stated and is not intended to be disturbed by any subrogation of an insurer.

Where defective documents are involved a cure of the defect by the seller or a waiver of the defects by the buyer will operate to shift the risk under this section. However, if the goods have been destroyed prior to the cure or the buyer is unaware of their destruction at the time he waives the defect in the documents, the risk of the loss must still be borne by the seller, for the risk shifts only at the time of cure, waiver of documentary defects or acceptance of the goods.

Cross Reference:

“Conform.” Section 2-106.

“Contract for sale.” Section 2-106.

“Goods.” Section 2-105.

“Seller.” Section 2-103.

Compiler’s Notes.

The term “this act” in subsection (3) refers to S.L. 1967, ch. 161, which is compiled generally in chapters 1 to 10, title 28, Idaho Code. The reference probably should be to the entire Uniform Commercial Code.

The bracketed insertion near the middle of subsection (3) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Section 54 of S.L. 1993, ch. 288 read: “Rights and obligations that arose under Chapter 6, Title 28, Idaho Code, and Section 28-9-111, Idaho Code, before their repeal remain valid and may be enforced as though those statutes had not been repealed.”

Decisions Under Prior Law

Cash Sales.

Where the buyer under a contract of sale was not entitled to possession until payment, the law presumes a cash sale, which is one where payment and delivery are concurrent. Western Seed Marketing Co. v. Pfost, 45 Idaho 340, 262 P. 514 (1927).

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

Purposes of Changes: 1. The requirement of payment against delivery in subsection (1) is applicable to non-commercial sales generally and to ordinary sales at retail although it has no application to the great body of commercial contracts which carry credit terms. Subsection (1) applies also to documentary contracts in general and to contracts which look to shipment by the seller but contain no term on time and manner of payment, in which situations the payment may, in proper case, be demanded against delivery of appropriate documents.

In the case of specific transactions such as C.O.D. sales or agreements providing for payment against documents, the provisions of this subsection must be considered in conjunction with the special sections of the Article [Chapter] dealing with such terms. The provision that tender of payment is a condition to the seller’s duty to tender and complete “any delivery” integrates this section with the language and policy of the section on delivery in several lots which call for separate payment. Finally, attention should be directed to the provision on right to adequate assurance of performance which recognizes, even before the time for tender, an obligation on the buyer not to impair the seller’s expectation of receiving payment in due course.

2. Unless there is agreement otherwise the concurrence of the conditions as to tender of payment and tender of delivery requires their performance at a single place or time. This Article [Chapter] determines that place and time by determining in various other sections the place and time for tender of delivery under various circumstances and in particular types of transactions. The sections dealing with time and place of delivery together with the section on right to inspection of goods answer the subsidiary question as to when payment may be demanded before inspection by the buyer.

3. The essence of the principle involved in subsection (2) is avoidance of commercial surprise at the time of performance. The section on substituted performance covers the peculiar case in which legal tender is not available to the commercial community.

4. Subsection (3) is concerned with the rights and obligations as between the parties to a sales transaction when payment is made by check. This Article [Chapter] recognizes that the taking of a seemingly solvent party’s check is commercially normal and proper and, if due diligence is exercised in collection, is not to be penalized in any way. The conditional character of the payment under this section refers only to the effect of the transaction “as between the parties” thereto and does not purport to cut into the law of “absolute” and “conditional” payment as applied to such other problems as the discharge of sureties or the responsibilities of a drawee bank which is at the same time an agent for collection.

The phrase “by check” includes not only the buyer’s own but any check which does not effect a discharge under Article [Chapter] 3 (section 3-802). Similarly the reason of this subsection should apply and the same result should be reached where the buyer “pays” by sight draft on a commercial firm which is financing him.

5. Under subsection (3) payment by check is defeated if it is not honored upon due presentment. This corresponds to the provisions of article [chapter] on Commercial Paper. (Section 3-802.) But if the seller procures certification of the check instead of cashing it, the buyer is discharged. (Section 3-411). 6. Where the instrument offered by the buyer is not a payment but a credit instrument such as a note or a check postdated by even one day, the seller’s acceptance of the instrument insofar as third parties are concerned, amounts to a delivery on credit and his remedies are set forth in the section on buyer’s insolvency. As between the buyer and the seller, however, the matter turns on the present subsection and the section on conditional delivery and subsequent dishonor of the instrument gives the seller rights on it as well as for breach of the contract for sale.

Cross References:

Point 2: Sections 2-307, 2-310, 2-319, 2-322, 2-503, 2-504 and 2-513.

Point 3: Section 2-614.

Point 5: Article [Chapter] 3, esp. Sections 3-802 and 3-411.

Point 6: Sections 2-507, 2-702, and Article [Chapter] 3.

Definitional Cross References:

“Check.” Section 3-104.

“Dishonor.” Section 3-508.

“Party.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Seller.” Section 2-103.

Compiler’s Notes.

The term “this act” near the end of paragraph (1)(b) refers to S.L. 1967, ch. 161, which is compiled generally in chapters 1 to 10, title 28, Idaho Code. The reference probably should be to the entire Uniform Commercial Code.

The bracketed insertion at the end of paragraph (1)(b) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Decisions Under Prior Law

Question for Jury.

Where buyer of peaches diverted shipment being made to Laramie, Wyo., to Chicago, Ill., without examining the peaches, the question as to what was reasonable as to time and place for buyer to examine peaches and notify seller of rejection of them for breach of warranty was for the jury. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Right to Examine Goods.

Inspection of goods by buyer was to be made at destination before sale was completed, and a reasonable time therefor was allowed. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. Subsection (1) of the present section recognizes that the essence of a contract providing for payment before inspection is the intention of the parties to shift to the buyer the risks which would usually rest upon the seller. The basic nature of the transaction is thus preserved and the buyer is in most cases required to pay first and litigate as to any defects later.

2. “Inspection” under this section is an inspection in a manner reasonable for detecting defects in goods whose surface appearance is satisfactory.

3. Clause (a) of this subsection states an exception to the general rule based on common sense and normal commercial practice. The apparent nonconformity referred to is one which is evident in the mere process of taking delivery.

4. Clause (b) is concerned with contracts for payment against documents and incorporates the general clarification and modification of the case law contained in the section on excuse of a financing agency. Section 5-114.

5. Subsection (2) makes explicit the general policy of the Uniform Sales Act that the payment required before inspection in no way impairs the buyer’s remedies or rights in the event of a default by the seller. The remedies preserved to the buyer are all of his remedies, which include as a matter of reason the remedy for total non-delivery after payment in advance.

The provision on performance or acceptance under reservation of rights does not apply to the situations contemplated here in which payment is made in due course under the contract and the buyer need not pay “under protest” or the like in order to preserve his rights as to defects discovered upon inspection.

6. This section applies to cases in which the contract requires payment before inspection either by the express agreement of the parties or by reason of the effect in law of that contract. The present section must therefore be considered in conjunction with the provision on right to inspection of goods which sets forth the instances in which the buyer is not entitled to inspection before payment.

Cross References:

Cross References: Point 4: Article [Chapter] 5.

Point 5: Section 1-207.

Point 6: Section 2-513(3).

Definitional Cross References:

“Conform.” Section 2-106.

“Contract.” Section 1-201.

“Financing agency.” Section 2-104.

“Goods.” Section 2-105.

“Remedy.” Section 1-201.

“Rights.” Section 1-201.

Compiler’s Notes.

The bracketed insertion in the introductory paragraph in subsection (3) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Inspection After Storage.

Where provisions of contract established that delivery of potatoes was to occur when the potatoes came out of storage, the method and manner of inspection could be established by the contract under subsection (4) of this section, so that inspection by government inspector as contemplated by parties during nine days following potatoes coming out of storage was prompt inspection under § 28-2-606, despite fact that buyer had opportunity to inspect potatoes before they went into storage; moreover, buyer’s rejection of entire crop on the first working day following the last date of inspection was within reasonable time under § 28-2-602. G & H Land & Cattle Co. v. Heitzman & Nelson, Inc., 102 Idaho 204, 628 P.2d 1038 (1981). Notification of Rejection.

Buyer’s notification of seller that the clay did not appear to be of the required quality did not operate as a rejection of the material but rather as an expression that the goods were nonconforming; notice of rejection of the clay was not made until buyer later sufficiently notified seller of his intent and of the need for seller to cure or remove the goods. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

The trial court erred when it found that the rejection was not made within a reasonable time after delivery where, although buyer might have waited until it could find replacement clay from an alternative supplier before rejecting, testing of the clay supplied had continued until it was shown that the supplied clay was nonconforming. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Decisions Under Prior Law

Question for Jury.

Where buyer of peaches diverted shipment being made to Laramie, Wyo., to Chicago, Ill., without examining the peaches, the question as to what was reasonable as to time and place for buyer to examine peaches and notify seller of rejection of them for breach of warranty was for the jury. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Right to Examine Goods.

Inspection of goods by buyer was to be made at destination before sale was completed, and a reasonable time therefor was allowed. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 47(2), (3), Uniform Sales Act.

Changes:

Changes: Rewritten, Subsections (2) and (3) being new.

Purposes of Changes and New Matter:

1. The buyer is entitled to inspect goods as provided in subsection (1) unless it has been otherwise agreed by the parties. The phrase “unless otherwise agreed” is intended principally to cover such situations as those outlined in subsections (3) and (4) and those in which the agreement of the parties negates inspection before tender of delivery. However, no agreement by the parties can displace the entire right of inspection except where the contract is simply for the sale of “this thing.” Even in a sale of boxed goods “as is” inspection is a right of the buyer, since if the boxes prove to contain some other merchandise altogether the price can be recovered back; nor do the limitations of the provision on effect of acceptance apply in such a case. 2. The buyer’s right of inspection is available to him upon tender, delivery or appropriation of the goods with notice to him. Since inspection is available to him on tender, where payment is due against delivery he may, unless otherwise agreed, make his inspection before payment of the price. It is also available to him after receipt of the goods and so may be postponed after receipt for a reasonable time. Failure to inspect before payment does not impair the right to inspect after receipt of the goods unless the case falls within subsection (4) on agreed and exclusive inspection provisions. The right to inspect goods which have been appropriated with notice to the buyer holds whether or not the sale was by sample.

3. The buyer may exercise his right of inspection at any reasonable time or place and in any reasonable manner. It is not necessary that he select the most appropriate time, place or manner to inspect or that his selection be the customary one in the trade or locality. Any reasonable time, place or manner is available to him and the reasonableness will be determined by trade usages, past practices between the parties and the other circumstances of the case.

The last sentence of subsection (1) makes it clear that the place of arrival of shipped goods is a reasonable place for their inspection.

4. Expenses of an inspection made to satisfy the buyer of the seller’s performance must be assumed by the buyer in the first instance. Since the rule provides merely for an allocation of expense there is no policy to prevent the parties from providing otherwise in the agreement. Where the buyer would normally bear the expenses of the inspection but the goods are rightly rejected because of what the inspection reveals, demonstrable and reasonable costs of the inspection are part of his incidental damage caused by the seller’s breach.

5. In the case of payment against documents, subsection (3) requires payment before inspection, since shipping documents against which payment is to be made will commonly be tendered while the goods are still in transit. This Article [Chapter] recognizes no exception in any peculiar case in which the goods happen to arrive before the documents are tendered. However, where by the agreement payment is to await the arrival of the goods, inspection before payment becomes proper since the goods are then “available for inspection.”

Where by the agreement the documents are to be tendered after arrival of the goods, the buyer is entitled to inspect before payment since the goods are then “available for inspection.” Proof of usage is not necessary to establish this right, but if inspection before payment is disputed the contrary must be established by usage or by an explicit contract term to that effect.

For the same reason, that the goods are available for inspection, a term calling for payment against storage documents or a delivery order does not normally bar the buyer’s right to inspection before payment under subsection (3) (b). This result is reinforced by the buyer’s right under subsection (1) to inspect goods which have been appropriated with notice to him.

6. Under subsection (4) an agreed place or method of inspection is generally held to be intended as exclusive. However, where compliance with such an agreed inspection term becomes impossible, the question is basically one of intention. If the parties clearly intend that the method of inspection named is to be a necessary condition without which the entire deal is to fail, the contract is at an end if that method becomes impossible. On the other hand, if the parties merely seek to indicate a convenient and reliable method but do not intend to give up the deal in the event of its failure, any reasonable method of inspection may be substituted under this Article [Chapter]. Since the purpose of an agreed place of inspection is only to make sure at that point whether or not the goods will be thrown back, the “exclusive” feature of the named place is satisfied under this Article [Chapter] if the buyer’s failure to inspect there is held to be an acceptance with the knowledge of such defects as inspection would have revealed within the section on waiver of buyer’s objections by failure to particularize. Revocation of the acceptance is limited to the situations stated in the section pertaining to that subject. The reasonable time within which to give notice of defects within the section on notice of breach begins to run from the point of the “acceptance.”

7. Clauses on time of inspection are commonly clauses which limit the time in which the buyer must inspect and give notice of defects. Such clauses are therefore governed by the section of this Article [Chapter] which requires that such a time limitation must be reasonable.

8. Inspection under this Article [Chapter] is not to be regarded as a “condition precedent to the passing of title” so that risk until inspection remains on the seller. Under subsection (4) such an approach cannot be sustained. Issues between the buyer and seller are settled in this Article [Chapter] almost wholly by special provisions and not by the technical determination of the locus of the title. Thus “inspection as a condition to the passing of title” becomes a concept almost without meaning. However, in peculiar circumstances inspection may still have some of the consequences hitherto sought and obtained under that concept.

9. “Inspection” under this section has to do with the buyer’s check-up on whether the seller’s performance is in accordance with a contract previously made and is not to be confused with the “examination” of the goods or of a sample or model of them at the time of contracting which may affect the warranties involved in the contract.

Cross References:

Cross References: Generally: Sections 2-310(b), 2-321(3) and 2-606(1)(b).

Point 1: Section 2-607.

Point 2: Sections 2-501 and 2-502.

Point 4: Section 2-715.

Point 5: Section 2-321(3).

Point 6: Sections 2-606 to 2-608.

Point 7: Section 1-204 [1-205].

Point 8: Comment to Section 2-401.

Point 9: Section 2-316(3)(b).

Definitional Cross References:

“Conform.” Section 2-106.

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Document of title.” Section 1-201.

“Goods.” Section 2-105.

“Party.” Section 1-201.

“Presumed.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Rights.” Section 1-201.

“Seller.” Section 2-103. “Send.” Section 1-201.

“Term.” Section 1-201.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

1. It covers any document against which a draft may be drawn, whatever may be the form of the document, and applies to interpret the action of a seller or consignor insofar as it may affect the rights and duties of any buyer, consignee or financing agency concerned with the paper. Supplementary or corresponding provisions are found in Sections 4-503 and 5-112.
2. An “arrival” draft is a sight draft within the purpose of this section.

Cross References:

Cross References: Point 1: See sections 2-502, 2-505(2), 2-507(2), 2-512, 2-513, 2-607 concerning protection of rights of buyer and seller, and 4-503 and 5-112 on delivery of documents.

Definitional Cross References:

“Draft.” Section 3-104.

Compiler’s Notes.

The bracketed insertions were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Acceptance of Any Commercial Unit.

Where all potatoes failed to conform to contract but buyer paid for 14 loads of potatoes which had been inspected in accordance with common practice of paying for inspected potatoes in order to keep the goodwill of the growers, this partial acceptance did not constitute the total acceptance of all of the crop since a buyer can accept any commercial units and reject the rest as long as he pays the contract price for the units accepted under § 28-2-607, even though acceptance of some units is an act inconsistent with the seller’s ownership under § 28-2-606. G & H Land & Cattle Co. v. Heitzman & Nelson, Inc., 102 Idaho 204, 628 P.2d 1038 (1981). Buyer’s Duty to Accept Goods.

The fact that a transaction was simple, or that the dispute concerned the failure to tender specified documents rather than a failure to deliver conforming goods, does not exempt a case from the UCC’s provisions. Rather, the Code specifically provides that where parties agree that tender requires the seller to deliver documents, the seller must tender all such documents in correct form, and tender of delivery is a condition to the buyer’s duty to accept goods and to his duty to pay for them. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991).

Mitigation.

A buyer may use goods without accepting them, if the use is a reasonable attempt to mitigate damages. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Partial Acceptance.

Where buyer used 34 tons of the clay, approximately three and one-half per cent of the whole order, for testing and in noncritical areas, this use did not amount to acceptance of the whole. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Where there was no evidence that buyer’s use of 34 tons of delivered clay produced an adverse effect on the remainder of the clay, on the quality of the product or its resale value, buyer accepted only the 34 tons it used and the use did not constitute acceptance. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Rejection of Goods.

Buyer’s notification of seller that the clay did not appear to be of the required quality did not operate as a rejection of the material but rather as an expression that the goods were nonconforming; notice of rejection of the clay was not made until buyer later sufficiently notified seller of his intent and of the need for seller to cure or remove the goods. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Athletic club owners’ rejection of a dehumidifier occurred within a reasonable time after delivery, because they needed to operate the dehumidifier in the athletic club to determine whether it conformed to the express warranty and it was fit for that particular purpose. Their continued use of the dehumidifier was necessary to mitigate damages and was not an act inconsistent with the corporation’s ownership. Keller v. Inland Metals All Weather Conditioning, Inc., 139 Idaho 233, 76 P.3d 977 (2003).

Right of Rejection.

Under contract for sale of potatoes which provided that contract would become void if potatoes were unfit for fresh pack shipping, those potatoes which did not make the fresh pack grade due to a “hollow hear” defect did not conform to the contract and gave buyer the right of rejection. Borges v. Magic Valley Foods, Inc., 101 Idaho 494, 616 P.2d 273 (1980). Where, based upon the clear language of the contract and usage of trade, a buyer had the right to designate the fields from which an order of onions came and the seller attempted to deliver onions that were not from the designated fields, the buyer rightfully rejected the non-conforming goods under subsection (a). Panike & Sons Farms, Inc. v. Smith, 147 Idaho 562, 212 P.3d 992 (2009).

Am. Jur. 2d.

C.J.S.

ALR.

ALR. — Acceptance of some commercial unit of goods purchased under UCC§ 2-601(C). 41 A.L.R.4th 396.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: No one general equivalent provision but numerous provisions, dealing with situations of nonconformity where buyer may accept or reject, including Sections 11, 44 and 69(1), Uniform Sales Act.

Changes:

Purposes of Changes:

1. A buyer accepting a non-conforming tender is not penalized by the loss of any remedy otherwise open to him. This policy extends to cover and regulate the acceptance of a part of any lot improperly tendered in any case where the price can reasonably be apportioned. Partial acceptance is permitted whether the part of the goods accepted conforms or not. The only limitation on partial acceptance is that good faith and commercial reasonableness must be used to avoid undue impairment of the value of the remaining portion of the goods. This is the reason for the insistence on the “commercial unit” in paragraph (c). In this respect, the test is not only what unit has been the basis of contract, but whether the partial acceptance produces so materially adverse an effect on the remainder as to constitute bad faith.

Cross References:

2. Acceptance made with the knowledge of the other party is final. An original refusal to accept may be withdrawn by a later acceptance if the seller has indicated that he is holding the tender open. However, if the buyer attempts to accept, either in whole or in part, after his original rejection has caused the seller to arrange for other disposition of the goods, the buyer must answer for any ensuing damage since the next section provides that any exercise of ownership after rejection is wrongful as against the seller. Further, he is liable even though the seller may choose to treat his action as acceptance rather than conversion, since the damage flows from the misleading notice. Such arrangements for resale or other disposition of the goods by the seller must be viewed as within the normal contemplation of a buyer who has given notice of rejection. However, the buyer’s attempts in good faith to dispose of defective goods where the seller has failed to give instructions within a reasonable time are not to be regarded as an acceptance. Cross References: Sections 2-602(2)(a), 2-612, 2-718 and 2-719.

Definitional Cross References:

“Commercial unit.” Section 2-105.

“Conform.” Section 2-106.

“Contract.” Section 1-201.

“Goods.” Section 2-105.

“Installment contract.” Section 2-612.

“Rights.” Section 1-201.

Compiler’s Notes.

The bracketed insertions in the introductory paragraph in subsection (2), in paragraph (2)(b), and in subsection (3) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Notification of Rejection.

Buyer’s notification of seller that the clay did not appear to be of the required quality did not operate as a rejection of the material but rather as an expression that the goods were nonconforming; notice of rejection of the clay was not made until buyer later sufficiently notified seller of his intent and of the need for seller to cure or remove the goods. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Rejection Within Reasonable Time.

Where provisions of contract established that delivery of potatoes was to occur when the potatoes came out of storage, the method and manner of inspection could be established by the contract under subsection (4) of§ 28-2-513, so that inspection by government inspector as contemplated by parties during nine days following potatoes coming out of storage was prompt inspection under§ 28-2-606, despite fact that buyer had opportunity to inspect potatoes before they went into storage. Buyer’s rejection of entire crop on the first working day following the last date of inspection was within reasonable time under this section. G & H Land & Cattle Co. v. Heitzman & Nelson, Inc., 102 Idaho 204, 628 P.2d 1038 (1981). Athletic club owners’ rejection of a dehumidifier occurred within a reasonable time after delivery, because they needed to operate the dehumidifier in the athletic club to determine whether it conformed to the express warranty and that it was fit for that particular purpose. Their continued use of the dehumidifier was necessary to mitigate damages and was not an act inconsistent with the corporation’s ownership. Keller v. Inland Metals All Weather Conditioning, Inc., 139 Idaho 233, 76 P.3d 977 (2003).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

1. A tender or delivery of goods made pursuant to a contract of sale, even though wholly non-conforming, requires affirmative action by the buyer to avoid acceptance. Under subsection (1), therefore, the buyer is given a reasonable time to notify the seller of his rejection, but without such seasonable notification his rejection is ineffective. The sections of this Article [Chapter] dealing with inspection of goods must be read in connection with the buyer’s reasonable time for action under this subsection. Contract provisions limiting the time for rejection fall within the rule of the section on “Time” and are effective if the time set gives the buyer a reasonable time for discovery of defects. What constitutes a due “notifying” of rejection by the buyer to the seller is defined in Section 1-201.
2. Subsection (2) lays down the normal duties of the buyer upon rejection, which flow from the relationship of the parties. Beyond his duty to hold the goods with reasonable care for the buyer’s [seller’s] disposition, this section continues the policy of prior uniform legislation in generally relieving the buyer from any duties with respect to them, except when the circumstances impose the limited obligation of salvage upon him under the next section.
3. The present section applies only to rightful rejection by the buyer. If the seller has made a tender which in all respects conforms to the contract, the buyer has a positive duty to accept and his failure to do so constitutes a “wrongful rejection” which gives the seller immediate remedies for breach. Subsection (3) is included here to emphasize the sharp distinction between the rejection of an improper tender and the non-acceptance which is a breach by the buyer.

Cross References:

4. The provisions of this section are to be appropriately limited or modified when a negotiation is in process. Cross References: Point 1: Sections 1-201, 1-204 [1-205](1) and (3), 2-512(2), 2-513(1) and 2-606(1)(b).

Point 2: Section 2-603(1).

Point 3: Section 2-703.

Definitional Cross References:

“Commercial unit.” Section 2-105.

“Goods.” Section 2-105.

“Merchant.” Section 2-104.

“Notifies.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Remedy.” Section 1-201.

“Rights.” Section 1-201.

“Seasonably.” Section 1-204 [1-205].

“Security interest.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion near the beginning of subsection (1) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Duty to Resell.

The duty to resell under this section is triggered by an absence of instructions from a seller. Borges v. Magic Valley Foods, Inc., 101 Idaho 494, 616 P.2d 273 (1980).

Reasonable Instructions.

Where potatoes did not conform to sales contract and buyer and seller agreed to blend defective potatoes with higher-grade potatoes to reach acceptable grade but such attempt was unsuccessful, the jury could have reasonably found that seller’s instructions were only to blend the potatoes in hope of accomplishing fresh pack grade and that buyer’s processing of the potatoes into flakes and subsequent resale thereof was a precipitate action taken before the lapse of a reasonable time within which respondents could give further instructions or, even if a reasonable time had elapsed, thus permitting buyer to resell the potatoes, the jury could have concluded that processing of the potatoes by buyer was an acceptance rather than a resale; accordingly, verdict holding buyer responsible for full contract price was affirmed. Borges v. Magic Valley Foods, Inc., 101 Idaho 494, 616 P.2d 273 (1980). RESEARCH REFERENCES

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. This section recognizes the duty imposed upon the merchant buyer by good faith and commercial practice to follow any reasonable instructions of the seller as to reshipping, storing, delivery to a third party, reselling or the like. Subsection (1) goes further and extends the duty to include the making of reasonable efforts to effect a salvage sale where the value of the goods is threatened and the seller’s instructions do not arrive in time to prevent serious loss.

2. The limitations on the buyer’s duty to resell under subsection (1) are to be liberally construed. The buyer’s duty to resell under this section arises from commercial necessity and thus is present only when the seller has “no agent or place of business at the market of rejection.” A financing agency which is acting in behalf of the seller in handling the documents rejected by the buyer is sufficiently the seller’s agent to lift the burden of salvage resale from the buyer. (See provisions of Sections 4-503 and 5-112 on bank’s duties with respect to rejected documents.) The buyer’s duty to resell is extended only to goods in his “possession or control,” but these are intended as words of wide, rather than narrow, import. In effect, the measure of the buyer’s “control” is whether he can practicably effect control without undue commercial burden.

3. The explicit provisions for reimbursement and compensation to the buyer in subsection (2) are applicable and necessary only where he is not acting under instructions from the seller. As provided in subsection (1) the seller’s instructions to be “reasonable” must on demand of the buyer include indemnity for expenses.

4. Since this section makes the resale of perishable goods an affirmative duty in contrast to a mere right to sell as under the case law, subsection (3) makes it clear that the buyer is liable only for the exercise of good faith in determining whether the value of the goods is sufficiently threatened to justify a quick resale or whether he has waited a sufficient length of time for instructions, or what a reasonable means and place of resale is.

5. A buyer who fails to make a salvage sale when his duty to do so under this section has arisen is subject to damages pursuant to the section on liberal administration of remedies.

Cross References:

Point 5: Section 1-106. Compare generally section 2-706.

Definitional Cross References:

“Good faith.” Section 1-201.

“Goods.” Section 2-105.

“Merchant.” Section 2-104.

“Security interest.” Section 1-201. “Seller.” Section 2-103.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: The basic purpose of this section is twofold: on the one hand it aims at reducing the stake in dispute and on the other at avoiding the pinning of a technical “acceptance” on a buyer who has taken steps towards realization on or preservation of the goods in good faith. This section is essentially a salvage section and the buyer’s right to act under it is conditioned upon (1) non-conformity of the goods, (2) due notification of rejection to the seller under the section on manner of rejection, and (3) the absence of any instructions from the seller which the merchant-buyer has a duty to follow under the preceding section.

Cross References:

This section is designed to accord all reasonable leeway to a rightfully rejecting buyer acting in good faith. The listing of what the buyer may do in the absence of instructions from the seller is intended to be not exhaustive but merely illustrative. This is not a “merchant’s” section and the options are pure options given to merchant and non-merchant buyers alike. The merchant-buyer, however, may in some instances be under a duty rather than an option to resell under the provisions of the preceding section. Cross References: Sections 2-602(1), and 2-603(1) and 2-706.

Definitional Cross References:

“Notification.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Seller.” Section 2-103.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

2. Where the defect in a tender is one which could have been cured by the seller, a buyer who merely rejects the delivery without stating his objections to it is probably acting in commercial bad faith and seeking to get out of a deal which has become unprofitable. Subsection (1) (a), following the general policy of this Article [Chapter] which looks to preserving the deal wherever possible, therefore insists that the seller’s right to correct his tender in such circumstances be protected.

3. When the time for cure is past, subsection (1) (b) makes it plain that a seller is entitled upon request to a final statement of objections upon which he can rely. What is needed is that he make clear to the buyer exactly what is being sought. A formal demand under paragraph (b) will be sufficient in the case of a merchant-buyer.

Cross References:

4. Subsection (2) applies to the particular case of documents the same principle which the section on effects of acceptance applies to the case of goods. The matter is dealt with in this section in terms of “waiver” of objections rather than of right to revoke acceptance, partly to avoid any confusion with the problems of acceptance of goods and partly because defects in documents which are not taken as grounds for rejection are generally minor ones. The only defects concerned in the present subsection are defects in the documents which are apparent. This rule applies to both tangible and electronic documents of title. Where payment is required against the documents they must be inspected before payment, and the payment then constitutes acceptance of the documents. Under the section dealing with this problem, such acceptance of the documents does not constitute an acceptance of the goods or impair any options or remedies of the buyer for their improper delivery. Where the documents are delivered without requiring such contemporary action as payment from the buyer, the reason of the next section on what constitutes acceptance of goods, applies. Their acceptance by non-objection is therefore postponed until after a reasonable time for their inspection. In either situation, however, the buyer “waives” only the defects apparent in the documents. Cross References: Point 2: Section 2-508.

Point 4: Sections 2-512(2), 2-606(1) (b), 2-607(2).

Definitional Cross References:

“Buyer.” Section 2-103.

“Seasonably.” Section 1-204 [1-205].

“Seller.” Section 2-103.

“Writing” and “written.” Section 1-201.

Compiler’s Notes.

The bracketed insertion in paragraph (1)(b) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Act Inconsistent with Ownership.

Where all potatoes failed to conform to contract but buyer paid for 14 loads of potatoes which had been inspected in accordance with common practice of paying for inspected potatoes in order to keep the goodwill of the growers, this partial acceptance did not constitute the total acceptance of all of the crop, since a buyer can accept any commercial units and reject the rest as long as he pays the contract price for the units accepted under§ 28-2-607, even though acceptance of some units is an act inconsistent with the seller’s ownership under this section. G & H Land & Cattle Co. v. Heitzman & Nelson, Inc., 102 Idaho 204, 628 P.2d 1038 (1981).

District court properly entered a judgment in favor of a company in the grower’s contract dispute arising from the development of bacterial ring rot in two of the potato varieties grown by the company for the grower because, inter alia, statutory recertification was not required by the contract, the grower’s actions — selling some of the uninfected potatoes and making a payment to the company — were inconsistent with the company’s ownership of the seed, as the grower’s acceptance of the uninfected potatoes reinstated the contract Silver Creek Seed, LLC v. Sunrain Varieties, LLC, 161 Idaho 270, 385 P.3d 448 (2016). Failure to Reject.

By commingling and failing to reject any deliveries, the defendant accepted all 23 loads of potatoes and was obligated to pay the contract price. Licklyey v. Max Herbold, Inc., 133 Idaho 209, 984 P.2d 697 (1999).

Partial Acceptance.

Where there was no evidence that buyer’s use of 34 tons of delivered clay produced an adverse effect on the remainder of the clay, on the quality of the product, or its resale value, buyer accepted only the 34 tons it used and the use did not constitute acceptance. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Processing of Potatoes.

Where potatoes did not conform to sales contract and buyer and seller agreed to blend defective potatoes with higher-grade potatoes to reach acceptable grade but such attempt was unsuccessful, the jury could have reasonably found that seller’s instructions were only to blend the potatoes in hope of accomplishing fresh pack grade and that buyer’s processing of the potatoes into flakes and subsequent resale thereof was a precipitate action taken before the lapse of a reasonable time within which respondents could give further instructions or, even if a reasonable time had elapsed thus permitting buyer to resell the potatoes, the jury could have concluded that processing of the potatoes by buyer was an acceptance rather than a resale; accordingly, verdict holding buyer responsible for full contract price was affirmed. Borges v. Magic Valley Foods, Inc., 101 Idaho 494, 616 P.2d 273 (1980).

Where there was no evidence presented of an attempt to resell defective potatoes in the bins to an independent third party, the potato buyer’s processing and sale of the potatoes in the ordinary course of its own business (presumably for profit) was an act inconsistent with the seller’s ownership and constituted an acceptance of the goods. Borges v. Magic Valley Foods, Inc., 101 Idaho 494, 616 P.2d 273 (1980).

Reasonable Opportunity to Inspect.

Where provisions of contract established that delivery of potatoes was to occur when the potatoes came out of storage, the method and manner of inspection could be established by the contract under subsection (4) of§ 28-2-513, so that inspection by government inspector as contemplated by parties during nine days following potatoes coming out of storage was prompt inspection under this section, despite fact that buyer had opportunity to inspect potatoes before they went into storage. Buyer’s rejection of entire crop on the first working day following the last date of inspection was within reasonable time under§ 28-2-602. G & H Land & Cattle Co. v. Heitzman & Nelson, Inc., 102 Idaho 204, 628 P.2d 1038 (1981). The trial court erred when it found that the rejection was not made within a reasonable time after delivery where, although buyer might have waited until it could find replacement clay from an alternative supplier before rejecting, testing of the clay supplied had continued until it was shown that the supplied clay was nonconforming. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Where buyer used 34 tons of the clay, approximately three and one-half per cent of the whole order, for testing and in noncritical areas, this use did not amount to acceptance of the whole. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Receipt and Acceptance.

Receipt and acceptance of goods is deemed to constitute an unambiguous overt admission by both parties that a contract actually exists, and makes admissible oral evidence of other terms of the contract, and under the “receipt and acceptance” exception to the statute, a modified contract may be enforced to the extent of the goods that have been accepted. Thus, whether the implied agreement between building contractor and building supplies company regarding conditions of payment is viewed as modifying the terms of the parties’ initial contract, or as an agreement to terminate the initial contract and create a new, “original” contract, its enforcement is not barred by the statute of frauds. Hoff Companies, Inc. v. Danner, 121 Idaho 39, 822 P.2d 558 (Ct. App. 1991).

Use in Mitigation.

A buyer may use goods without accepting them, if the use is a reasonable attempt to mitigate damages. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Decisions Under Prior Law

Acceptance as Question of Law or Fact.

Where buyer of peaches diverted shipment being made to Laramie, Wyo., to Chicago, Ill., without examining peaches, evidence presented question for jury as to whether buyer’s failure to examine peaches at Laramie and reject them because of alleged breach of warranty constituted an “acceptance,” so as to render buyer liable for contract price. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Where buyer of peaches promptly notified seller, after examining peaches, that it refused to accept peaches because they did not conform to contract and offered to return them or hold them for seller’s disposition, evidence presented question for jury as to whether buyer’s subsequent sale of peaches to another amounted to an “acceptance,” so as to render buyer liable for contract price. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Acceptance of Portion of Consignment.

Where buyer sold part of goods delivered in usual course of his business, there was acceptance of entire consignment, notwithstanding attempted return of balance. Gross Mfg. Co. v. Redfield, 48 Idaho 399, 282 P. 487 (1929); Tweedie Footwear Corp. v. Roberts-Schofield Co., 48 Idaho 777, 285 P. 476 (1930).

Letter written by buyer telling appellant that “he would return the rest as soon as he had time” at the same time remitting an additional $100 with statement “meanwhile find a check inclosed to be applied as agreed on equipment first purchased from you” showed that the return of the equipment would be at the buyer’s convenience and that he regarded part of the equipment as having been purchased subject to payment of purchase price, all of which was inconsistent with ownership of seller. Mohr v. Schultz, 86 Idaho 531, 388 P.2d 1002 (1964).

Seller’s Compliance with Contract.

In an action for the balance allegedly due for logs sold and delivered, it was not necessary to determine whether the seller complied fully with the terms of the contract with respect to the delivery where the buyer received the logs and appropriated them to his own use. Reynolds v. Blackwell Lumber Co., 61 Idaho 529, 104 P.2d 19 (1940).

Seller did not release his right to payment for the goods sold and delivered when he subsequently offered to accept their return and cancel the agreement with reference to remaking the agreement with reference to the condition of the equipment upon its return and the amount of rent “for its use during these many long months” inasmuch as parties did not arrive at an agreement, buyer being deemed to have used the equipment and an obligation therefore existed to pay a reasonable value. Mohr v. Schultz, 86 Idaho 531, 388 P.2d 1002 (1964).

Where there was no language in correspondence between the parties to indicate that appellant regarded the mere promise to return the goods as sufficient to cancel the agreement between the parties, the converse being true, nor did appellant attempt to place respondent in status quo, since there was no showing of return of partial payments, there was no showing of good consideration supporting the agreement to receive in order for it to become an enforceable contract. Mohr v. Schultz, 86 Idaho 531, 388 P.2d 1002 (1964).

Am. Jur. 2d.

ALR.

Use of goods by buyer as constituting acceptance under UCC§ 2-606(1)(c). 67 A.L.R.3d 363.

Farmers as “merchants” within provisions of UCC Article 2, dealing with sales. 95 A.L.R.3d 484.

State lotteries: actions by ticketholders against state or contractor for state. 40 A.L.R.4th 662.

Private contests and lotteries: entrant’s rights and remedies. 64 A.L.R.4th 1021.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Changes: Rewritten, the qualification in paragraph (c) and subsection (2) being new; otherwise the general policy of the prior legislation is continued.

Purposes of Changes and New Matter:

1. Under this Article [Chapter] “acceptance” as applied to goods means that the buyer, pursuant to the contract, takes particular goods which have been appropriated to the contract as his own, whether or not he is obligated to do so, and whether he does so by words, action, or silence when it is time to speak. If the goods conform to the contract, acceptance amounts only to the performance by the buyer of one part of his legal obligation.
2. Under this Article [Chapter] acceptance of goods is always acceptance of identified goods which have been appropriated to the contract or are appropriated by the contract. There is no provision for “acceptance of title” apart from acceptance in general, since acceptance of title is not material under this Article [Chapter] to the detailed rights and duties of the parties. (See Section 2-401). The refinements of the older law between acceptance of goods and of title become unnecessary in view of the provisions of the sections on effect and revocation of acceptance, on effects of identification and on risk of loss, and those sections which free the seller’s and buyer’s remedies from the complications and confusions caused by the question of whether title has or has not passed to the buyer before breach.
3. Under paragraph (a), payment made after tender is always one circumstance tending to signify acceptance of the goods but in itself it can never be more than one circumstance and is not conclusive. Also, a conditional communication of acceptance always remains subject to its expressed conditions.
4. Under paragraph (c), any action taken by the buyer, which is inconsistent with his claim that he has rejected the goods, constitutes an acceptance. However, the provisions of paragraph (c) are subject to the sections dealing with rejection by the buyer which permit the buyer to take certain actions with respect to the goods pursuant to his options and duties imposed by those sections, without effecting an acceptance of the goods. The second clause of paragraph (c) modifies some of the prior case law and makes it clear that “acceptance” in law based on the wrongful act of the acceptor is acceptance only as against the wrongdoer and then only at the option of the party wronged.
5. Subsection (2) supplements the policy of the section on buyer’s rights on improper delivery, recognizing the validity of a partial acceptance but insisting that the buyer exercise this right only as to whole commercial units.

In the same manner in which a buyer can bind himself, despite his insistence that he is rejecting or has rejected the goods, by an act inconsistent with the seller’s ownership under paragraph (c), he can obligate himself by a communication of acceptance despite a prior rejection under paragraph (a). However, the sections on buyer’s rights on improper delivery and on the effect of rightful rejection, make it clear that after he once rejects a tender, paragraph (a) does not operate in favor of the buyer unless the seller has re-tendered the goods or has taken affirmative action indicating that he is holding the tender open. See also Comment 2 to Section 2-601.

Cross References:

Point 4: Sections 2-601 through 2-604.

Point 5: Section 2-601.

Definitional Cross References:

“Goods.” Section 2-105.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in paragraphs (3)(b) and (5)(b) and subsection (6) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Jury to State Theory for Award.

In an action on a counterclaim, where the jury was instructed on the elements necessary for recovery both for breach of contract and for fraud, but the verdict form failed to designate the theory upon which the defendant was entitled to relief, the trial court erred in failing to require the jury to state the theory upon which its award was based, since an award for breach of contract may have exceeded the limitations period imposed by paragraph (3)(a) of this section. Full Circle, Inc. v. Schelling, 108 Idaho 634, 701 P.2d 254 (Ct. App. 1985).

Liability for Full Contract Price.

Where potatoes did not conform to sales contract and buyer and seller agreed to blend defective potatoes with higher-grade potatoes to reach acceptable grade but such attempt was unsuccessful, the jury could have reasonably found that seller’s instructions were only to blend the potatoes in hope of accomplishing fresh pack grade and that buyer’s processing of the potatoes into flakes and subsequent resale thereof was a precipitate action taken before the lapse of a reasonable time within which respondents could give further instructions or, even if a reasonable time had elapsed, thus permitting buyer to resell the potatoes, the jury could have concluded that processing of the potatoes by buyer was an acceptance rather than a resale; accordingly, verdict holding buyer responsible for full contract price was affirmed. Borges v. Magic Valley Foods, Inc., 101 Idaho 494, 616 P.2d 273 (1980).

By commingling and failing to reject any deliveries, the defendant accepted all 23 loads of potatoes and was obligated to pay the contract price. Licklyey v. Max Herbold, Inc., 133 Idaho 209, 984 P.2d 697 (1999).

Nonconforming Goods.

In an action for breach of warranty in a sale of sheep, where the jury found for the seller, the trial judge did not abuse his discretion in granting the buyer’s motion for a new trial on the ground that the verdict was inconsistent with the evidence, where the evidence showed the seller delivered less sheep than the contract amount, nine of the sheep were castrated males, some of the sheep were older than represented, some were infected with a disease causing abortions, and others did not bear lambs in the numbers anticipated. Murphy v. Etchegaray, 108 Idaho 814, 702 P.2d 852 (Ct. App. 1985).

Buyer could rightfully revoke acceptance given the nonconformity of the machine and seller’s failure to remedy the damage. Beal v. Griffin, 123 Idaho 445, 849 P.2d 118 (Ct. App. 1993).

Notice of Breach.

The question of whether a buyer gave a seller notice within a reasonable time after the buyer knew or should have known of the breach of a sale agreement was a question for the jury, where reasonable minds might draw different inferences from the probative facts. Full Circle, Inc. v. Schelling, 108 Idaho 634, 701 P.2d 254 (Ct. App. 1985).

In an action for breach of warranty in a sale of sheep, the question of whether the buyer notified the seller of the breach within a reasonable time, as required by subdivision (3)(a) of this section, where the buyer gave such notice six months after discovery of a disease causing abortion in a number of the sheep due to the four-month period of gestation of the sheep and the time required for veterinarians to establish reliable data, was a question for the jury. Murphy v. Etchegaray, 108 Idaho 814, 702 P.2d 852 (Ct. App. 1985).

Subdivision (3)(a) of this section does not require any particular form of communication, and, therefore, it was not fatal to plaintiff motel operator’s claim where one year elapsed before written communication of a breach occurred, since when motel operator noticed problems with carpet that it purchased within two to three months of opening its motel, it then called the individual who arranged for the purchase of the carpet, who immediately inspected same and observed its unacceptable condition, and who then placed several inspection requests with the carpet manufacturer before receiving any response; under the circumstances of this case, the evidence supported a finding that notice was given within a reasonable time. Meldco, Inc. v. Hollytex Carpet Mills, Inc., 118 Idaho 265, 796 P.2d 142 (Ct. App. 1990).

Notice of Rejection.

Buyer’s notification of seller that the clay did not appear to be of the required quality did not operate as a rejection of the material but rather as an expression that the goods were nonconforming; notice of rejection of the clay was not made until buyer later sufficiently notified seller of this intent and of the need for seller to cure or remove the goods. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Partial Acceptance.

Where all potatoes failed to conform to contract but buyer paid for 14 loads of potatoes which had been inspected in accordance with common practice of paying for inspected potatoes in order to keep the goodwill of the growers, this partial acceptance did not constitute the total acceptance of all of the crop, since a buyer can accept any commercial units and reject the rest as long as he pays the contract price for the units accepted under this section, even though acceptance of some units is an act inconsistent with the seller’s ownership under§ 28-2-606. G & H Land & Cattle Co. v. Heitzman & Nelson, Inc., 102 Idaho 204, 628 P.2d 1038 (1981).

Decisions Under Prior Law

Implied warranties. Notice of breach of warranty.

Amount of Damages.

In actions for fraud and actions for breach of warranty, the measure of damages was the difference between the price paid and the reasonable market value of the article at the time of sale, the purpose being to limit recovery to the loss actually sustained by the buyer, thus preventing recovery of speculative profits. Jesse M. Chase, Inc. v. Leonard, 69 Idaho 109, 203 P.2d 600 (1955).

In a complaint for breach of warranty in sale of explosives for use in excavation for sewer, an allegation “that plaintiff had to remove rock by mechanical means at a great expense to his damage” was not sufficient pleading of measure of damages. Coleman v. Carter, 77 Idaho 210, 289 P.2d 932 (1955).

Difference in Values.

If buyer elected to retain machine contracted for and bring an action for breach of warranty of quality, he was entitled to recover the difference between the value of the machine at the time of delivery to the buyer and the value the machine would have had if seller had answered to the warranty, plus any special damages alleged and proved. Sanchotena v. Tower Co., 74 Idaho 541, 264 P.2d 1021 (1953).

In suit by buyer to recover damages for breach of warranty that pump purchased would produce specific amount of water for use of crops, the buyer was not entitled to a new trial on ground that jury failed to award him damages for difference in value of pump contracted for and value of pump delivered, where there was no evidence on value of pump. Sanchotena v. Tower Co., 74 Idaho 541, 264 P.2d 1021 (1953).

Implied Warranties.

Implied warranties for quality or fitness are coextensive. National Motor Serv. Co. v. Walters, 85 Idaho 349, 379 P.2d 643 (1963).

Notice of Breach of Warranty.

The failure of the purchaser to give notice of defects became unnecessary where it was admitted that the seller’s agent who installed the machinery had notice of the defects and attempted to remedy them. W.H. Bintz Co. v. Mueggler, 65 Idaho 760, 154 P.2d 513 (1944).

Adequate notice of a breach of warranty under the Uniform Sales Act requires that the buyer do each of the following: refer to a particular sale in the notice; advise the seller of the alleged defect; refute any inference of waiver; and infer or directly assert that there is a violation of his legal rights, a claim which need not be an express claim of damages. Salmon Rivers Sportsman Camps, Inc. v. Cessna Aircraft Co., 97 Idaho 348, 544 P.2d 306 (1975).

Rescission.

Former statute, relating to remedies where buyer accepted goods, included in the phrase “other legal remedy” the buyer’s right of rescission. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Am. Jur. 2d.

67 Am. Jur. 2d, Sales, § 570 et seq.

ALR.

Sufficiency and timeliness of buyer’s notice under UCC § 607(3)(a) of seller’s breach of warranty. 89 A.L.R.5th 319.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Subsection (1)—Section 41, Uniform Sales Act; Subsections (2) and (3)—Sections 49 and 69, Uniform Sales Act.

Changes:

Purposes of Changes:

1. Under subsection (1), once the buyer accepts a tender the seller acquires a right to its price on the contract terms. In cases of partial acceptance, the price of any part accepted is, if possible, to be reasonably apportioned, using the type of apportionment familiar to the courts in quantum valebat cases, to be determined in terms of “the contract rate,” which is the rate determined from the bargain in fact (the agreement) after the rules and policies of this Article [Chapter] have been brought to bear.
2. Under subsection (2) acceptance of goods precludes their subsequent rejection. Any return of the goods thereafter must be by way of revocation of acceptance under the next section. Revocation is unavailable for a non-conformity known to the buyer at the time of acceptance, except where the buyer has accepted on the reasonable assumption that the non-conformity would be seasonably cured.
3. All other remedies of the buyer remain unimpaired under subsection (2). This is intended to include the buyer’s full rights with respect to future installments despite his acceptance of any earlier non-conforming installment.
4. The time of notification is to be determined by applying commercial standards to a merchant buyer. “A reasonable time” for notification from a retail consumer is to be judged by different standards so that in his case it will be extended, for the rule of requiring notification is designed to defeat commercial bad faith, not to deprive a good faith consumer of his remedy.

The content of the notification need merely be sufficient to let the seller know that the transaction is still troublesome and must be watched. There is no reason to require that the notification which saves the buyer’s rights under this section must include a clear statement of all the objections that will be relied on by the buyer, as under the section covering statements of defects upon rejection (Section 2-605). Nor is there reason for requiring the notification to be a claim for damages or of any threatened litigation or other resort to a remedy. The notification which saves the buyer’s rights under this Article [Chapter] need only be such as informs the seller that the transaction is claimed to involve a breach, and thus opens the way for normal settlement through negotiation. 5. Under this Article [Chapter] various beneficiaries are given rights for injuries sustained by them because of the seller’s breach of warranty. Such a beneficiary does not fall within the reason of the present section in regard to discovery of defects and the giving of notice within a reasonable time after acceptance, since he has nothing to do with acceptance. However, the reason of this section does extend to requiring the beneficiary to notify the seller that an injury has occurred. What is said above, with regard to the extended time for reasonable notification from the lay consumer after the injury is also applicable here; but even a beneficiary can be properly held to the use of good faith in notifying, once he has had time to become aware of the legal situation.

6. Subsection (4) unambiguously places the burden of proof to establish breach on the buyer after acceptance. However, this rule becomes one purely of procedure when the tender accepted was non-conforming and the buyer has given the seller notice of breach under subsection (3). For subsection (2) makes it clear that acceptance leaves unimpaired the buyer’s right to be made whole, and that right can be exercised by the buyer not only by way of crossclaim for damages, but also by way of recoupment in diminution or extinction of the price.

7. Subsections (3)(b) and (5)(b) give a warrantor against infringement an opportunity to defend or compromise third-party claims or be relieved of his liability. Subsection (5) (a) codifies for all warranties the practice of voucher to defend. Compare Section 3-803. Subsection (6) makes these provisions applicable to the buyer’s liability for infringement under Section 2-312.

8. All of the provisions of the present section are subject to any explicit reservation of rights.

Cross References:

Point 2: Section 2-608.

Point 4: Sections 1-204 [1-205] and 2-605.

Point 5: Section 2-318.

Point 6: Section 2-717.

Point 7: Sections 2-312 and 3-803.

Point 8: Section 1-207.

Definitional Cross References:

“Buyer.” Section 2-103.

“Conform.” Section 2-106.

“Contract.” Section 1-201.

“Goods.” Section 2-105.

“Notifies.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Remedy.” Section 1-201.

“Seasonably.” Section 1-204 [1-205].

Change in Condition.

Under subsection (2) of this section, evidence would support a jury finding that the changes which occurred in a mobile home after delivery to the buyers were caused by its own defects or by the attempts of seller to remedy the defects. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Cure.

A right to cure is relevant only when a buyer has rejected the goods prior to a formal acceptance and the UCC does not allow a seller the right to cure defects following a buyer’s acceptance of the goods. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Although mobile home buyers notified seller of defects and attempted to obtain cures therefor, they thereby gave seller a right to cure only until they found his efforts to be unsatisfactory and such defects as were actually cured could not be utilized in the determination of whether value was substantially impaired by the defects; such holding rewarded seller for repairs which were promptly made, but also excluded from consideration attempted but unsuccessful repairs, improper repairs, planned but uncompleted repairs, etc., since such considerations are irrelevant under the UCC. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983). In General.

Rescission and revocation of acceptance amount to the same thing under the Uniform Commercial Code, particularly since cancellation is a remedy available to a buyer who has established justifiable grounds for revocation of acceptance. Peckham v. Larsen Chevrolet-Buick-Oldsmobile, Inc., 99 Idaho 675, 587 P.2d 816 (1978).

Because a buyer may revoke acceptance only against the seller and because a finding that the purchasers had the right to revoke acceptance against automobile dealer is consistent with a finding that the dealer had not breached any warranties, jury verdict for purchasers was not inconsistent and was permissible on revocation claim against dealer and on the lemon law claim against automobile manufacturer. Griffith v. Latham Motors, Inc., 128 Idaho 356, 913 P.2d 572 (1996).

Latent Defects.

Section 28-2-725(2) provides that, where a warranty explicitly extends to future performance of goods, any breach of warranty occurs at the time of such performance. Thus, while a buyer has a duty to inspect goods at the time of delivery to find patent defects, he must be allowed a reasonable time after inspecting and accepting the goods to discover latent defects under this section. Where farmers alleged a breach of warranty due to a latent defect in feed supplement supplier’s product — its propensity to turn acidic and, thus, be harmful to calves if not refrigerated — the defect could not have been found on inspection at delivery. Millenkamp v. Davisco Foods Int’l, Inc., 562 F.3d 971 (9th Cir. 2009).

Nonconforming Goods.

Buyer could rightfully revoke acceptance given the nonconformity of the machine and seller’s failure to remedy the damage. Beal v. Griffin, 123 Idaho 445, 849 P.2d 118 (Ct. App. 1993).

Notice.

Where buyers of mobile home did not give a notice of “revocation” as such, but did give notice of rescission, such notice was not inadequate since a notice of rescission operates as notice of revocation of acceptance for the purpose of this section. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Remedy Unavailable.

Buyer of a used Jeep was not permitted to revoke his acceptance upon discovering that the Jeep previously sustained collision damage that was insufficiently repaired. Sale contract stated the dealership was to deliver the Jeep “as is,” with all the faults it contained at the time of the sale. Haight v. Dale’s Used Cars, Inc., 139 Idaho 853, 87 P.3d 962 (Ct. App. 2003).

Substantial Impairment.

The test of substantial impairment is subjective in that the test is whether the nonconformities substantially impaired the value of the home to the actual buyer and not whether the nonconformities substantially impaired the value of the home to a reasonable person. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Where buyers of mobile home sought to revoke acceptance, a two-step determination was required to resolve the question of the existence of substantial impairment, i.e., the court must first determine the purpose for which the buyers purchased the home and, secondly, determine whether the nonconformities substantially impaired their ability to use the home for the purpose intended. Where buyers purchased the home for use as a retirement residence, the jury must determine whether the defects in the home substantially impaired their ability to use the home for that purpose. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Buyers revoked their acceptance of used engine installed by mechanic where the record clearly showed that a defect in the engine substantially impaired its value and that the buyers retained possession of it while reasonably assuming that mechanic would repair the engine. Berning v. Drumwright, 122 Idaho 203, 832 P.2d 1138 (Ct. App. 1992).

Sufficiency of Revocation.

No particular form or content of notice of revocation of acceptance is required if the notice is sufficient to inform the seller that the buyer has revoked and to identify the particular goods as to which he has revoked. Peckham v. Larsen Chevrolet-Buick-Oldsmobile, Inc., 99 Idaho 675, 587 P.2d 816 (1978).

The jury could have found that the buyers of mobile home did revoke acceptance within a reasonable time after they discovered or should have discovered the grounds for revocation, regardless of their occupancy of the mobile home. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Acceptance of a used copy machine was revoked by the buyer where the defect in the copier substantially impaired its value and the buyer retained possession of it while reasonably assuming that the defect would be cured. Lee v. Peterson, 110 Idaho 601, 716 P.2d 1373 (Ct. App. 1986).

Am. Jur. 2d.

ALR.

ALR. — Time for revocation of acceptance of goods under UCC§ 2-608(2). 65 A.L.R.3d 354. Measure and elements of buyer’s recovery upon revocation of acceptance of goods under UCC§ 2-608(1). 65 A.L.R.3d 388.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 69(1) (d), (3), (4) and (5), Uniform Sales Act.

Changes:

Purposes of Changes:

1. Although the prior basic policy is continued, the buyer is no longer required to elect between revocation of acceptance and recovery of damages for breach. Both are now available to him. The non-alternative character of the two remedies is stressed by the terms used in the present section. The section no longer speaks of “rescission,” a term capable of ambiguous application either to transfer of title to the goods or to the contract of sale and susceptible also of confusion with cancellation for cause of an executed or executory portion of the contract. The remedy under this section is instead referred to simply as “revocation of acceptance” of goods tendered under a contract for sale and involves no suggestion of “election” of any sort.
2. Revocation of acceptance is possible only where the non-conformity substantially impairs the value of the goods to the buyer. For this purpose the test is not what the seller had reason to know at the time of contracting; the question is whether the non-conformity is such as will in fact cause a substantial impairment of value to the buyer though the seller had no advance knowledge as to the buyer’s particular circumstances.
3. “Assurances” by the seller under paragraph (b) of subsection (1) can rest as well in the circumstances or in the contract as in explicit language used at the time of delivery. The reason for recognizing such assurances is that they induce the buyer to delay discovery. These are the only assurances involved in paragraph (b). Explicit assurances may be made either in good faith or bad faith. In either case any remedy accorded by this Article [Chapter] is available to the buyer under the section on remedies for fraud.
4. Subsection (2) requires notification of revocation of acceptance within a reasonable time after discovery of the grounds for such revocation. Since this remedy will be generally resorted to only after attempts at adjustment have failed, the reasonable time period should extend in most cases beyond the time in which notification of breach must be given, beyond the time for discovery of non-conformity after acceptance and beyond the time for rejection after tender. The parties may by their agreement limit the time for notification under this section, but the same sanctions and considerations apply to such agreements as are discussed in the comment on manner and effect of rightful rejection.
5. The content of the notice under subsection (2) is to be determined in this case as in others by considerations of good faith, prevention of surprise, and reasonable adjustment. More will generally be necessary than the mere notification of breach required under the preceding section. On the other hand the requirements of the section on waiver of buyer’s objections do not apply here. The fact that quick notification of trouble is desirable affords good ground for being slow to bind a buyer by his first statement. Following the general policy of this Article [Chapter], the requirements of the content of notification are less stringent in the case of a non-merchant buyer.
6. Under subsection (2) the prior policy is continued of seeking substantial justice in regard to the condition of goods restored to the seller. Thus the buyer may not revoke his acceptance if the goods have materially deteriorated except by reason of their own defects. Worthless goods, however, need not be offered back and minor defects in the articles reoffered are to be disregarded. 7. The policy of the section allowing partial acceptance is carried over into the present section and the buyer may revoke his acceptance, in appropriate cases, as to the entire lot or any commercial unit thereof.

Cross References:

Point 4: Sections 1-204 [1-205], 2-602 and 2-607.

Point 5: Sections 2-605 and 2-607.

Point 7: Section 2-601.

Definitional Cross References:

“Commercial unit.” Section 2-105.

“Conform.” Section 2-106.

“Goods.” Section 2-105.

“Lot.” Section 2-105.

“Notifies.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Rights.” Section 1-201.

“Seasonably.” Section 1-204 [1-205].

“Seller.” Section 2-103.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: See Sections 53, 54(1) (b), 55 and 63(2), Uniform Sales Act.

Purposes:

Purposes: 1. The section rests on the recognition of the fact that the essential purpose of a contract between commercial men is actual performance and they do not bargain merely for a promise, or for a promise plus the right to win a lawsuit and that a continuing sense of reliance and security that the promised performance will be forthcoming when due, is an important feature of the bargain. If either the willingness or the ability of a party to perform declines materially between the time of contracting and the time for performance, the other party is threatened with the loss of a substantial part of what he has bargained for. A seller needs protection not merely against having to deliver on credit to a shaky buyer, but also against having to procure and manufacture the goods, perhaps turning down other customers. Once he has been given reason to believe that the buyer’s performance has become uncertain, it is an undue hardship to force him to continue his own performance. Similarly, a buyer who believes that the seller’s deliveries have become uncertain cannot safely wait for the due date of performance when he has been buying to assure himself of materials for his current manufacturing or to replenish his stock of merchandise. 2. Three measures have been adopted to meet the needs of commercial men in such situations. First, the aggrieved party is permitted to suspend his own performance and any preparation therefor, with excuse for any resulting necessary delay, until the situation has been clarified. “Suspend performance” under this section means to hold up performance pending the outcome of the demand, and includes also the holding up of any preparatory action. This is the same principle which governs the ancient law of stoppage and seller’s lien, and also of excuse of a buyer from prepayment if the seller’s actions manifest that he cannot or will not perform. (Original Act, Section 63(2).)

Secondly, the aggrieved party is given the right to require adequate assurance that the other party’s performance will be duly forthcoming. This principle is reflected in the familiar clauses permitting the seller to curtail deliveries if the buyer’s credit becomes impaired, which when held within the limits of reasonableness and good faith actually express no more than the fair business meaning of any commercial contract.

Third, and finally, this section provides the means by which the aggrieved party may treat the contract as broken if his reasonable grounds for insecurity are not cleared up within a reasonable time. This is the principle underlying the law of anticipatory breach, whether by way of defective part performance or by repudiation. The present section merges these three principles of law and commercial practice into a single theory of general application to all sales agreements looking to future performance.

3. Subsection (2) of the present section requires that “reasonable” grounds and “adequate” assurance as used in subsection (1) be defined by commercial rather than legal standards. The express reference to commercial standards carries no connotation that the obligation of good faith is not equally applicable here.

Under commercial standards and in accord with commercial practice, a ground for insecurity need not arise from or be directly related to the contract in question. The law as to “dependence” or “independence” of promises within a single contract does not control the application of the present section.

Thus a buyer who falls behind in “his account” with the seller, even though the items involved have to do with separate and legally distinct contracts, impairs the seller’s expectation of due performance. Again, under the same test, a buyer who requires precision parts which he intends to use immediately upon delivery, may have reasonable grounds for insecurity if he discovers that his seller is making defective deliveries of such parts to other buyers with similar needs. Thus, too, in a situation such as arose in Jay Dreher Corporation v. Delco Appliance Corporation , 93 F.2d 275 (C.C.A.2, 1937), where a manufacturer gave a dealer an exclusive franchise for the sale of his product but on two or three occasions breached the exclusive dealing clause, although there was no default in orders, deliveries or payments under the separate sales contract between the parties, the aggrieved dealer would be entitled to suspend his performance of the contract for sale under the present section and to demand assurance that the exclusive dealing contract would be lived up to. There is no need for an explicit clause tying the exclusive franchise into the contract for the sale of goods since the situation itself ties the agreements together. The nature of the sales contract enters also into the question of reasonableness. For example, a report from an apparently trustworthy source that the seller had shipped defective goods or was planning to ship them would normally give the buyer reasonable grounds for insecurity. But when the buyer has assumed the risk of payment before inspection of the goods, as in a sales contract on C.I.F. or similar cash against documents terms, that risk is not to be evaded by a demand for assurance. Therefore no ground for insecurity would exist under this section unless the report went to a ground which would excuse payment by the buyer.

4. What constitutes “adequate” assurance of due performance is subject to the same test of factual conditions. For example, where the buyer can make use of a defective delivery, a mere promise by a seller of good repute that he is giving the matter his attention and that the defect will not be repeated, is normally sufficient. Under the same circumstances, however, a similar statement by a known corner-cutter might well be considered insufficient without the posting of a guaranty or, if so demanded by the buyer, a speedy replacement of the delivery involved. By the same token where a delivery has defects, even though easily curable, which interfere with easy use by the buyer, no verbal assurance can be deemed adequate which is not accompanied by replacement, repair, money-allowance, or other commercially reasonable cure.

A fact situation such as arose in Corn Products Refining Co. v. Fasola , 94 N.J.L. 181, 109 A. 505 (1920) offers illustration both of reasonable grounds for insecurity and “adequate” assurance. In that case a contract for the sale of oils on 30 days’ credit, 2% off for payment within 10 days, provided that credit was to be extended to the buyer only if his financial responsibility was satisfactory to the seller. The buyer had been in the habit of taking advantage of the discount but at the same time that he failed to make his customary 10-day payment, the seller heard rumors, in fact false, that the buyer’s financial condition was shaky. Thereupon, the seller demanded cash before shipment or security satisfactory to him. The buyer sent a good credit report from his banker, expressed willingness to make payments when due on the 30-day terms and insisted on further deliveries under the contract. Under this Article [Chapter] the rumors, although false, were enough to make the buyer’s financial condition “unsatisfactory” to the seller under the contract clause. Moreover, the buyer’s practice of taking the cash discounts is enough, apart from the contract clause, to lay a commercial foundation for suspicion when the practice is suddenly stopped. These matters, however, go only to the justification of the seller’s demand for security, or his “reasonable grounds for insecurity.”

The adequacy of the assurance given is not measured as in the type of “satisfaction” situation affected with intangibles, such as in personal service cases, cases involving a third party’s judgment as final, or cases in which the whole contract is dependent on one party’s satisfaction, as in a sale on approval. Here, the seller must exercise good faith and observe commercial standards. This Article [Chapter] thus approves the statement of the court in James B. Berry’s Sons Co. of Illinois v. Monark Gasoline & Oil Co., Inc. , 32 F.2d 74, (C.C.A.8, 1929), that the seller’s satisfaction under such a clause must be based upon reason and must not be arbitrary or capricious; and rejects the purely personal “good faith” test of the Corn Products Refining Co. case, which held that in the seller’s sole judgment, if for any reason he was dissatisfied, he was entitled to revoke the credit. In the absence of the buyer’s failure to take the 2% discount as was his custom, the banker’s report given in that case would have been “adequate” assurance under this Act, regardless of the language of the “satisfaction” clause. However, the seller is reasonably entitled to feel insecure at a sudden expansion of the buyer’s use of a credit term, and should be entitled either to security or to a satisfactory explanation. The entire foregoing discussion as to adequacy of assurance by way of explanation is subject to qualification when repeated occasions for the application of this section arise. This Act recognizes that repeated delinquencies must be viewed as cumulative. On the other hand, commercial sense also requires that if repeated claims for assurance are made under this section, the basis for these claims must be increasingly obvious.

5. A failure to provide adequate assurance of performance and thereby to re-establish the security of expectation, results in a breach only “by repudiation” under subsection (4). Therefore, the possibility is continued of retraction of the repudiation under the section dealing with that problem, unless the aggrieved party has acted on the breach in some manner.

The thirty-day limit on the time to provide assurance is laid down to free the question of reasonable time from uncertainty in later litigation.

6. Clauses seeking to give the protected party exceedingly wide powers to cancel or readjust the contract when ground for insecurity arises must be read against the fact that good faith is a part of the obligation of the contract and not subject to modification by agreement and includes, in the case of a merchant, the reasonable observance of commercial standards of fair dealing in the trade. Such clauses can thus be effective to enlarge the protection given by the present section to a certain extent, to fix the reasonable time within which requested assurance must be given, or to define adequacy of the assurance in any commercially reasonable fashion. But any clause seeking to set up arbitrary standards for action is ineffective under this Article [Chapter]. Acceleration clauses are treated similarly in the Articles [Chapters] on Commercial Paper and Secured Transactions.

Cross References:

Point 5: Section 2-611.

Point 6: Sections 1-203 and 1-208 and Articles [Chapters] 3 and 9.

Definitional Cross References:

“Between merchants.” Section 2-104.

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Party.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Rights.” Section 1-201.

“Writing.” Section 1-201.

Compiler’s Notes.

The bracketed insertions in subsections (b) and (c) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Application.

Where plaintiff’s representatives testified that they would not make payments to defendant unless defendant agreed to trade checks for money it owed to a third party, and plaintiff did not pay because of defendant’s refusal to submit to conditions outside the contract, it amounted to a repudiation by plaintiff. Magic Valley Foods, Inc. v. Sun Valley Potatoes, Inc., 134 Idaho 785, 10 P.3d 734 (2000).

Rescission or Waiver.

Where a buyer accepted a refund of the deposit he had given the seller, the buyer simply received so much of the price as he had paid and he was still entitled to his additional remedies upon the seller’s breach of their purchase agreement; the buyer’s acceptance of the refund did not amount to a rescission or a waiver of his rights. Palmer v. Idaho Peterbilt, Inc., 102 Idaho 800, 641 P.2d 346 (Ct. App. 1982). Time of Repudiation.

Where the seller of a truck sent a letter to the buyer enclosing a refund of the buyer’s cash deposit and stating in a clear and unequivocal manner that no performance would be forthcoming from the seller, the buyer no longer had a reasonable expectation of performance by the seller, and the time of the repudiation of the contract by the seller was the time of the breach to be used in determining the market price of the truck for the purposes of measuring damages. Palmer v. Idaho Peterbilt, Inc., 102 Idaho 800, 641 P.2d 346 (Ct. App. 1982).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: See Sections 63(2) and 65, Uniform Sales Act.

Purposes:

1. With the problem of insecurity taken care of by the preceding section and with provision being made in this Article [Chapter] as to the effect of a defective delivery under an installment contract, anticipatory repudiation centers upon an overt communication of intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance.
2. It is not necessary for repudiation that performance be made literally and utterly impossible. Repudiation can result from action which reasonably indicates a rejection of the continuing obligation. And, a repudiation automatically results under the preceding section on insecurity when a party fails to provide adequate assurance of due future performance within thirty days after a justifiable demand therefor has been made. Under the language of this section, a demand by one or both parties for more than the contract calls for in the way of counter-performance is not in itself a repudiation nor does it invalidate a plain expression of desire for future performance. However, when under a fair reading it amounts to a statement of intention not to perform except on conditions which go beyond the contract, it becomes a repudiation.
3. The test chosen to justify an aggrieved party’s action under this section is the same as that in the section on breach in installment contracts — namely the substantial value of the contract. The most useful test of substantial value is to determine whether material inconvenience or injustice will result if the aggrieved party is forced to wait and receive an ultimate tender minus the part or aspect repudiated.

Under the present section when such a repudiation substantially impairs the value of the contract, the aggrieved party may at any time resort to his remedies for breach, or he may suspend his own performance while he negotiates with, or awaits performance by, the other party. But if he awaits performance beyond a commercially reasonable time he cannot recover resulting damages which he should have avoided.

Cross References:

4. After repudiation, the aggrieved party may immediately resort to any remedy he chooses provided he moves in good faith (see Section 1-203). Inaction and silence by the aggrieved party may leave the matter open but it cannot be regarded as misleading the repudiating party. Therefore the aggrieved party is left free to proceed at any time with his options under this section, unless he has taken some positive action which in good faith requires notification to the other party before the remedy is pursued. Cross References: Point 1: Sections 2-609 and 2-612.

Point 2: Section 2-609.

Point 3: Section 2-612.

Point 4: Section 1-203.

Definitional Cross References:

“Contract.” Section 1-201.

“Party.” Section 1-201.

“Remedy.” Section 1-201.

Compiler’s Notes.

The bracketed insertion at the end of subsection (2) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

1. The repudiating party’s right to reinstate the contract is entirely dependent upon the action taken by the aggrieved party. If the latter has cancelled the contract or materially changed his position at any time after the repudiation, there can be no retraction under this section.
2. Under subsection (2) an effective retraction must be accompanied by any assurances demanded under the section dealing with right to adequate assurance. A repudiation is of course sufficient to give reasonable ground for insecurity and to warrant a request for assurance as an essential condition of the retraction. However, after a timely and unambiguous expression of retraction, a reasonable time for the assurance to be worked out should be allowed by the aggrieved party before cancellation.

Cross Reference:

Definitional Cross References:

“Cancellation.” Section 2-106.

“Contract.” Section 1-201. “Party.” Section 1-201.

“Rights.” Section 1-201.

Buyer’s Breach.

Where defendant company timely notified plaintiff company of its intent to cancel by informing plaintiff’s representative that it would not make any more deliveries absent payment, the district court correctly concluded that defendant was justified in withholding deliveries under the contract because of plaintiff’s lack of significant payment. Magic Valley Foods, Inc. v. Sun Valley Potatoes, Inc., 134 Idaho 785, 10 P.3d 734 (2000).

Reinstatement of Contract.

District court properly entered a judgment in favor of a company in the grower’s contract dispute arising from the development of bacterial ring rot in two of the potato varieties grown by the company for the grower because, inter alia, statutory recertification was not required by the contract, the grower’s actions — selling some of the uninfected potatoes and making a payment to the company — were inconsistent with the company’s ownership of the seed, as the grower’s acceptance of the uninfected potatoes reinstated the contract Silver Creek Seed, LLC v. Sunrain Varieties, LLC, 161 Idaho 270, 385 P.3d 448 (2016).

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 45(2), Uniform Sales Act.

Changes:

1. The definition of an installment contract is phrased more broadly in this Article [Chapter] so as to cover installment deliveries tacitly authorized by the circumstances or by the option of either party.
2. In regard to the apportionment of the price for separate payment this Article [Chapter] applies the more liberal test of what can be apportioned rather than the test of what is clearly apportioned by the agreement. This Article [Chapter] also recognizes approximate calculation or apportionment of price subject to subsequent adjustment. A provision for separate payment for each lot delivered ordinarily means that the price is at least roughly calculable by units of quantity, but such a provision is not essential to an “installment contract.” If separate acceptance of separate deliveries is contemplated, no generalized contrast between wholly “entire” and wholly “divisible” contracts has any standing under this Article [Chapter].
3. This Article [Chapter] rejects any approach which gives clauses such as “each delivery is a separate contract” their legalistically literal effect. Such contracts nonetheless call for installment deliveries. Even where a clause speaks of “a separate contract for all purposes,” a commercial reading of the language under the section on good faith and commercial standards requires that the singleness of the document and the negotiation, together with the sense of the situation, prevail over any uncommercial and legalistic interpretation.
4. One of the requirements for rejection under subsection (2) is non-conformity substantially impairing the value of the installment in question. However, an installment agreement may require accurate conformity in quality as a condition to the right to acceptance if the need for such conformity is made clear either by express provision or by the circumstances. In such a case the effect of the agreement is to define explicitly what amounts to substantial impairment of value impossible to cure. A clause requiring accurate compliance as a condition to the right to acceptance must, however, have some basis in reason, must avoid imposing hardship by surprise and is subject to waiver or to displacement by practical construction.
5. Under subsection (2) an installment delivery must be accepted if the non-conformity is curable and the seller gives adequate assurance of cure. Cure of non-conformity of an installment in the first instance can usually be afforded by an allowance against the price, or in the case of reasonable discrepancies in quantity either by a further delivery or a partial rejection. This Article [Chapter] requires reasonable action by a buyer in regard to discrepant delivery and good faith requires that the buyer make any reasonable minor outlay of time or money necessary to cure an overshipment by severing out an acceptable percentage thereof. The seller must take over a cure which involves any material burden; the buyer’s obligation reaches only to cooperation. Adequate assurance for purposes of subsection (2) is measured by the same standards as under the section on right to adequate assurance of performance.
6. Subsection (3) is designed to further the continuance of the contract in the absence of an overt cancellation. The question arising when an action is brought as to a single installment only is resolved by making such action waive the right of cancellation. This involves merely a defect in one or more installments, as contrasted with the situation where there is a true repudiation within the section on anticipatory repudiation. Whether the non-conformity in any given installment justifies cancellation as to the future depends, not on whether such nonconformity indicates an intent or likelihood that the future deliveries will also be defective, but whether the non-conformity substantially impairs the value of the whole contract. If only the seller’s security in regard to future installments is impaired, he has the right to demand adequate assurances of proper future performance but has not an immediate right to cancel the entire contract. It is clear under this Article [Chapter], however, that defects in prior installments are cumulative in effect, so that acceptance does not wash out the defect “waived.” Prior policy is continued, putting the rule as to buyer’s default on the same footing as that in regard to seller’s default. 7. Under the requirement of seasonable notification of cancellation under subsection (3), a buyer who accepts a non-conforming installment which substantially impairs the value of the entire contract should properly be permitted to withhold his decision as to whether or not to cancel pending a response from the seller as to his claim for cure or adjustment. Similarly, a seller may withhold a delivery pending payment for prior ones, at the same time delaying his decision as to cancellation. A reasonable time for notifying of cancellation, judged by commercial standards under the section on good faith, extends of course to include the time covered by any reasonable negotiation in good faith. However, during this period the defaulting party is entitled, on request, to know whether the contract is still in effect, before he can be required to perform further.

Substantial impairment of the value of an installment can turn not only on the quality of the goods but also on such factors as time, quantity, assortment, and the like. It must be judged in terms of the normal or specifically known purposes of the contract. The defect in required documents refers to such matters as the absence of insurance documents under a C.I.F. contract, falsity of a bill of lading, or one failing to show shipment within the contract period or to the contract destination. Even in such cases, however, the provisions on cure of tender apply if appropriate documents are readily procurable.

Cross References:

Point 3: Section 1-203.

Point 5: Sections 2-208 and 2-609.

Point 6: Section 2-610.

Definitional Cross References:

“Aggrieved party.” Section 1-201.

“Buyer.” Section 2-103.

“Cancellation.” Section 2-106.

“Conform.” Section 2-106.

“Contract.” Section 1-201.

“Lot.” Section 2-105.

“Notifies.” Section 1-201.

“Seasonably.” Section 1-204 [1-205].

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion in the introductory paragraph was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Application.

This section applies only when the goods are damaged through no fault of either party before the risk of loss passes to the buyer. Beal v. Griffin, 123 Idaho 445, 849 P.2d 118 (Ct. App. 1993).

Fault.

Fault includes negligence and not merely willful wrong. Beal v. Griffin, 123 Idaho 445, 849 P.2d 118 (Ct. App. 1993).

Nonconforming Goods.

Where the goods are nonconforming, it is the buyer’s choice to treat the contract as voided or accept the goods with allowance from the contract price; the seller cannot force the buyer to make the election. Beal v. Griffin, 123 Idaho 445, 849 P.2d 118 (Ct. App. 1993). Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

2. The section applies whether the goods were already destroyed at the time of contracting without the knowledge of either party or whether they are destroyed subsequently but before the risk of loss passes to the buyer. Where under the agreement, including of course usage of trade, the risk has passed to the buyer before the casualty, the section has no application. Beyond this, the essential question in determining whether the rules of this section are to be applied is whether the seller has or has not undertaken the responsibility for the continued existence of the goods in proper condition through the time of agreed or expected delivery.

3. The section on the term “no arrival, no sale” makes clear that delay in arrival, quite as much as physical change in the goods, gives the buyer the options set forth in this section.

Cross Reference:

Definitional Cross References:

“Conform.” Section 2-106.

“Contract.” Section 1-201.

“Fault.” Section 1-201.

“Goods.” Section 2-105.

“Party.” Section 1-201.

“Rights.” Section 1-201.

“Seller.” Section 2-103.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. Subsection (1) requires the tender of a commercially reasonable substituted performance where agreed to facilities have failed or become commercially impracticable. Under this Article [Chapter], in the absence of specific agreement, the normal or usual facilities enter into the agreement either through the circumstances, usage of trade or prior course of dealing.

This section appears between Section 2-613 on casualty to identified goods and the next section on excuse by failure of presupposed conditions, both of which deal with excuse and complete avoidance of the contract where the occurrence or non-occurrence of a contingency which was a basic assumption of the contract makes the expected performance impossible. The distinction between the present section and those sections lies in whether the failure or impossibility of performance arises in connection with an incidental matter or goes to the very heart of the agreement. The differing lines of solution are contrasted in a comparison of International Paper Co. v. Rockefeller , 161 App. Div. 180, 146 N.Y.S. 371 (1914) and Meyer v. Sullivan , 40 Cal. App. 723, 181 P. 847 (1919). In the former case a contract for the sale of spruce to be cut from a particular tract of land was involved. When a fire destroyed the trees growing on that tract the seller was held excused since performance was impossible. In the latter case the contract called for delivery of wheat “f.o.b. Kosmos Steamer at Seattle.” The war led to cancellation of that line’s sailing schedule after space had been duly engaged and the buyer was held entitled to demand substituted delivery at the warehouse on the line’s loading dock. Under this Article [Chapter], of course, the seller would also be entitled, had the market gone the other way, to make a substituted tender in that manner.

There must, however, be a true commercial impracticability to excuse the agreed to performance and justify a substituted performance. When this is the case a reasonable substituted performance tendered by either party should excuse him from strict compliance with contract terms which do not go to the essence of the agreement. 2. The substitution provided in this section as between buyer and seller does not carry over into the obligation of a financing agency under a letter of credit, since such an agency is entitled to performance which is plainly adequate on its face and without need to look into commercial evidence outside of the documents. See Article [Chapter] 5, especially Sections 5-102, 5-103, 5-109, 5-110, 5-114.

3. Under subsection (2) where the contract is still executory on both sides, the seller is permitted to withdraw unless the buyer can provide him with a commercially equivalent return despite the governmental regulation. Where, however, only the debt for the price remains, a larger leeway is permitted. The buyer may pay in the manner provided by the regulation even though this may not be commercially equivalent provided that the regulation is not “discriminatory, oppressive or predatory.”

Cross Reference:

Cross Reference: Point 2: Article [Chapter] 5.

Definitional Cross References:

“Fault.” Section 1-201.

“Party.” Section 1-201.

“Seller.” Section 2-103.

Application.

The provisions of this section are applicable to buyers as long as there is compliance with the statutory requirements; thus, to prevail under this section, a buyer must prove that his performance was made impracticable by: (1) The occurrence of a contingency; (2) the nonoccurrence of which was a basic assumption on which the contract was made; and (3) by which occurrence further performance has become commercially impracticable. Lawrance v. Elmore Bean Whse., Inc., 108 Idaho 892, 702 P.2d 930 (Ct. App. 1985).

Insufficient Excuses.

Mere market shifts or financial inability usually do not discharge one’s performance. Lawrance v. Elmore Bean Whse., Inc., 108 Idaho 892, 702 P.2d 930 (Ct. App. 1985).

ALR.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. This section excuses a seller from timely delivery of goods contracted for, where his performance has become commercially impracticable because of unforeseen supervening circumstances not within the contemplation of the parties at the time of contracting. The destruction of specific goods and the problem of the use of substituted performance on points other than delay or quantity, treated elsewhere in this Article [Chapter], must be distinguished from the matter covered by this section.

2. The present section deliberately refrains from any effort at an exhaustive expression of contingencies and is to be interpreted in all cases sought to be brought within its scope in terms of its underlying reason and purpose.

3. The first test for excuse under this Article [Chapter] in terms of basic assumption is a familiar one. The additional test of commercial impracticability (as contrasted with “impossibility,” “frustration of performance” or “frustration of the venture”) has been adopted in order to call attention to the commercial character of the criterion chosen by this Article [Chapter].

4. Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section. (See Ford & Sons, Ltd. v. Henry Leetham & Sons, Ltd. , 21 Com. Cas. 55 (1915, K.B.D.).)

5. Where a particular source of supply is exclusive under the agreement and fails through casualty, the present section applies rather than the provision on destruction or deterioration of specific goods. The same holds true where a particular source of supply is shown by the circumstances to have been contemplated or assumed by the parties at the time of contracting. (See Davis Co. v. Hoffmann-LaRoche Chemical Works , 178 App. Div. 855, 166 N.Y.S. 179 (1917) and International Paper Co. v. Rockefeller , 161 App. Div. 180, 146 N.Y.S. 371 (1914).) There is no excuse under this section, however, unless the seller has employed all due measures to assure himself that his source will not fail. (See Canadian Industrial Alcohol Co., Ltd., v. Dunbar Molasses Co. , 258 N.Y. 194, 179 N.E. 383, 80 A.L.R. 1173 (1932) and Washington Mfg. Co. v. Midland Lumber Co. , 113 Wash. 593, 194 P. 777 (1921).)

In the case of failure of production by an agreed source for causes beyond the seller’s control, the seller should, if possible, be excused since production by an agreed source is without more a basic assumption of the contract. Such excuse should not result in relieving the defaulting supplier from liability nor in dropping into the seller’s lap an unearned bonus of damages over. The flexible adjustment machinery of this Article [Chapter] provides the solution under the provision on the obligation of good faith. A condition to his making good the claim of excuse is the turning over to the buyer of his rights against the defaulting source of supply to the extent of the buyer’s contract in relation to which excuse is being claimed. 6. In situations in which neither sense nor justice is served by either answer when the issue is posed in flat terms of “excuse” or “no excuse,” adjustment under the various provisions of this Article [Chapter] is necessary, especially the sections on good faith, on insecurity and assurance and on the reading of all provisions in the light of their purposes, and the general policy of this Act to use equitable principles in furtherance of commercial standards and good faith.

7. The failure of conditions which go to convenience or collateral values rather than to the commercial practicability of the main performance does not amount to a complete excuse. However, good faith and the reason of the present section and of the preceding one may properly be held to justify and even to require any needed delay involved in a good faith inquiry seeking a readjustment of the contract terms to meet the new conditions.

8. The provisions of this section are made subject to assumption of greater liability by agreement and such agreement is to be found not only in the expressed terms of the contract but in the circumstances surrounding the contracting, in trade usage and the like. Thus the exemptions of this section do not apply when the contingency in question is sufficiently foreshadowed at the time of contracting to be included among the business risks which are fairly to be regarded as part of the dickered terms, either consciously or as a matter of reasonable, commercial interpretation from the circumstances. (See Madeirense Do Brasil, S.A. v. Stulman-Emrick Lumber Co. , 147 F.2d 399 (C.C.A., 2 Cir., 1945).) The exemption otherwise present through usage of trade under the present section may also be expressly negated by the language of the agreement. Generally, express agreements as to exemptions designed to enlarge upon or supplant the provisions of this section are to be read in the light of mercantile sense and reason, for this section itself sets up the commercial standard for normal and reasonable interpretation and provides a minimum beyond which agreement may not go.

Agreement can also be made in regard to the consequences of exemption as laid down in paragraphs (b) and (c) and the next section on procedure on notice claiming excuse.

9. The case of a farmer who has contracted to sell crops to be grown on designated land may be regarded as falling either within the section on casualty to identified goods or this section, and he may be excused, when there is a failure of the specific crop, either on the basis of the destruction of identified goods or because of the failure of a basic assumption of the contract.

Exemption of the buyer in the case of a “requirements” contract is covered by the “Output and Requirements” section both as to assumption and allocation of the relevant risks. But when a contract by a manufacturer to buy fuel or raw material makes no specific reference to a particular venture and no such reference may be drawn from the circumstances, commercial understanding views it as a general deal in the general market and not conditioned on any assumption of the continuing operation of the buyer’s plant. Even when notice is given by the buyer that the supplies are needed to fill a specific contract of a normal commercial kind, commercial understanding does not see such a supply contract as conditioned on the continuance of the buyer’s further contract for outlet. On the other hand, where the buyer’s contract is in reasonable commercial understanding conditioned on a definite and specific venture or assumption as, for instance, a war procurement subcontract known to be based on a prime contract which is subject to termination, or a supply contract for a particular construction venture, the reason of the present section may well apply and entitle the buyer to the exemption.

10. Following its basic policy of using commercial practicability as a test for excuse, this section recognizes as of equal significance either a foreign or domestic regulation and disregards any technical distinctions between “law,” “regulation,” “order” and the like. Nor does it make the present action of the seller depend upon the eventual judicial determination of the legality of the particular governmental action. The seller’s good faith belief in the validity of the regulation is the test under this Article [Chapter] and the best evidence of his good faith is the general commercial acceptance of the regulation. However, governmental interference cannot excuse unless it truly “supervenes” in such a manner as to be beyond the seller’s assumption of risk. And any action by the party claiming excuse which causes or colludes in inducing the governmental action preventing his performance would be in breach of good faith and would destroy his exemption. 11. An excused seller must fulfill his contract to the extent which the supervening contingency permits, and if the situation is such that his customers are generally affected he must take account of all in supplying one. Subsections (a) and (b), therefore, explicitly permit in any proration a fair and reasonable attention to the needs of regular customers who are probably relying on spot orders for supplies. Customers at different stages of the manufacturing process may be fairly treated by including the seller’s manufacturing requirements. A fortiori, the seller may also take account of contracts later in date than the one in question. The fact that such spot orders may be closed at an advanced price causes no difficulty, since any allocation which exceeds normal past requirements will not be reasonable. However, good faith requires, when prices have advanced, that the seller exercise real care in making his allocations, and in case of doubt his contract customers should be favored and supplies prorated evenly among them regardless of price. Save for the extra care thus required by changes in the market, this section seeks to leave every reasonable business leeway to the seller.

Cross References:

Point 2: Section 1-102.

Point 5: Sections 1-203 and 2-613.

Point 6: Sections 1-102, 1-203 and 2-609.

Point 7: Section 2-614.

Point 8: Sections 1-201, 2-302 and 2-616.

Point 9: Sections 1-102, 2-306 and 2-613.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Good faith.” Section 1-201.

“Merchant.” Section 2-104.

“Notifies.” Section 1-201.

“Seasonably.” Section 1-204 [1-205].

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion near the end of the introductory paragraph was added by the compiler to conform to the statutory citation style.

The words in parentheses so appeared in the law as enacted.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: This section seeks to establish simple and workable machinery for providing certainty as to when a supervening and excusing contingency “excuses” the delay, “discharges” the contract, or may result in a waiver of the delay by the buyer. When the seller notifies, in accordance with the preceding section, claiming excuse, the buyer may acquiesce, in which case the contract is so modified. No consideration is necessary in a case of this kind to support such a modification. If the buyer does not elect so to modify the contract, he may terminate it and under subsection (2) his silence after receiving the seller’s claim of excuse operates as such a termination. Subsection (3) denies effect to any contract clause made in advance of trouble which would require the buyer to stand ready to take delivery whenever the seller is excused from delivery by unforeseen circumstances.

Cross References:

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract.” Section 1-201. “Installment contract.” Section 2-612.

“Notification.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Seller.” Section 2-103.

“Termination.” Section 2-106.

“Written.” Section 1-201.

Am. Jur. 2d.

C.J.S.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: Whether a claim for breach of an obligation collateral to the contract for sale requires separate trial to avoid confusion of issues is beyond the scope of this Article [Chapter]; but contractual arrangements which as a business matter enter vitally into the contract should be considered a part thereof in so far as cross-claims or defenses are concerned.

Definitional Cross References:

“Remedy.” Section 1-201.

Compiler’s Notes.

The bracketed insertions in subsections (1) and (3) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Bankruptcy.

Section 546(c) of Title 11 of the United States Code is the sole means for a seller to successfully assert a right to reclaim goods sold to an insolvent buyer when that buyer has filed for relief under the bankruptcy code. Additionally, a written demand for reclamation under the section is mandatory. Roberts v. L.T.S., Inc., 32 Bankr. 907 (Bankr. D. Idaho 1983).

Under the clear language of a provision of the bankruptcy code (11 U.S.C. § 546(c)) and the weight of authority, compliance with the requirement of a timely written demand is essential for a seller to claim property of the bankruptcy estate through the vehicle of statutory reclamation. Roberts v. L.T.S., Inc., 32 Bankr. 907 (Bankr. D. Idaho 1983).

Demand upon Dishonor.

Where debtor’s sight draft was dishonored three days after debtor took possession of automobile and seller made demand for return within ten days after transfer of possession and dishonor, as required by this section, seller was entitled to return of automobile even though debtor retained possession for almost three months before he filed bankruptcy, since a sight draft is equivalent to a check and the sale is a cash sale instead of a credit sale so that the provisions of§ 28-2-511 applied. Swayne v. Idaho Auto Auction (In re Shoemaker), 4 Bankr. 505 (Bankr. D. Idaho 1980).

Good Faith Purchaser.

Although a seller of goods may have certain rights to recover goods from an insolvent buyer and may treat a sale as void if retention of the goods is fraudulent, nevertheless those rights are altered when the goods enter the hands of a good faith purchaser for value. Western Idaho Prod. Credit Ass’n v. Simplot Feed Lots, Inc., 106 Idaho 260, 678 P.2d 52 (1984).

Decisions Under Prior Law

Defense of “Unpaid Seller.”

If purchase price remained unpaid, even if title to cattle passed with a bill of sale, the seller would prevail as an “unpaid seller” and would not be liable in damages for refusal to deliver. Bischoff v. Steele, 75 Idaho 485, 274 P.2d 986 (1954).

Remedy after Resale.

Where buyer under contract of sale of automobile gave his check in part payment and on same day stopped payment on the check, and seller put automobile back in stock and later sold it again in the regular course of business, seller could not treat the first sale as completed and recover purchase price from first buyer. Boise Overland Co. v. Fearn, 38 Idaho 590, 223 P. 534 (1924).

Stoppage in Transitu.

Where buyer did not take potatoes from bailee’s cellar and refused to accept the potatoes and the potatoes remained in the cellar, the right of stoppage in transitu remained in the seller and, since the goods were of a perishable nature and, in fact, were spoiling prior to the date of resale by seller, the seller was within his rights in reselling the potatoes. Ore-Ida Potato Prods., Inc. v. Larsen, 83 Idaho 290, 362 P.2d 384 (1961).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Subsection (1) — Sections 53(1) (b), 54(1) (c) and 57, Uniform Sales Act; Subsection (2) — none; Subsection (3) — Section 76(3), Uniform Sales Act.

Changes:

Purposes of Changes and New Matter:

1. The seller’s right to withhold the goods or to stop delivery except for cash when he discovers the buyer’s insolvency is made explicit in subsection (1) regardless of the passage of title, and the concept of stoppage has been extended to include goods in the possession of any bailee who has not yet attorned to the buyer.
2. Subsection (2) takes as its base line the proposition that any receipt of goods on credit by an insolvent buyer amounts to a tacit business misrepresentation of solvency and therefore is fraudulent as against the particular seller. This Article [Chapter] makes discovery of the buyer’s insolvency and demand within a ten day period a condition of the right to reclaim goods on this ground. The ten day limitation period operates from the time of receipt of the goods.
3. Subsection (3) subjects the right of reclamation to certain rights of third parties “under this Article [Chapter] (Section 2-403).” The rights so given priority of course include the rights given to purchasers from the buyer by Section 2-403(1) and (2). They also include other rights arising under Article [Chapter] 2, such as the rights of lien creditors of the buyer under Section 2-326(3) on consignment sales. Moreover, since Section 2-403(4) incorporates by reference rights given to other purchasers and to lien creditors by Articles [Chapters] 6, 7 and 9, such rights have the same priority. “Lien creditor” here has the same meaning as in Section 9-301(3). Thus if a seller retains an unperfected security interest, subordinate under Section 9-301(1) (b) to the rights of a levying creditor of the buyer, his right of reclamation under this section is also subject to the creditor’s rights. Purchasers or lien creditors may also have rights not arising under this Article [Chapter]; under Section 1-103 such rights may have priority by virtue of supplementary principles not displaced by this Section. See In re Kravitz , 278 F.2d 820 (3d Cir. 1960).

An exception to this time limitation is made when a written misrepresentation of solvency has been made to the particular seller within three months prior to the delivery. To fall within the exception the statement of solvency must be in writing, addressed to the particular seller and dated within three months of the delivery.

Because the right of the seller to reclaim goods under this section constitutes preferential treatment as against the buyer’s other creditors, subsection (3) provides that such reclamation bars all his other remedies as to the goods involved.

Cross References:

Compare Section 2-502.

Definitional Cross References:

“Buyer in ordinary course of business.” Section 1-201.

“Contract.” Section 1-201.

“Good faith.” Section 1-201.

“Goods.” Section 2-105. “Insolvent.” Section 1-201.

“Person.” Section 1-201.

“Purchaser.” Section 1-201.

“Receipt” of goods. Section 2-103.

“Remedy.” Section 1-201.

“Rights.” Section 1-201.

“Seller.” Section 2-103.

“Writing.” Section 1-201.

Compiler’s Notes.

The bracketed insertions throughout this section were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Decisions Under Prior Law

Liability.

If purchase price remained unpaid even, if title to cattle passed with bill of sale, the seller would prevail as an “unpaid seller” and would not be liable in damages for refusal to deliver. Bischoff v. Steele, 75 Idaho 485, 274 P.2d 986 (1954).

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. This section is an index section which gathers together in one convenient place all of the various remedies open to a seller for any breach by the buyer. This Article [Chapter] rejects any doctrine of election of remedy as a fundamental policy and thus the remedies are essentially cumulative in nature and include all of the available remedies for breach. Whether the pursuit of one remedy bars another depends entirely on the facts of the individual case. 2. The buyer’s breach which occasions the use of the remedies under this section may involve only one lot or delivery of goods, or may involve all of the goods which are the subject matter of the particular contract. The right of the seller to pursue a remedy as to all the goods when the breach is as to only one or more lots is covered by the section on breach in installment contracts. The present section deals only with the remedies available after the goods involved in the breach have been determined by that section.

3. In addition to the typical case of refusal to pay or default in payment, the language in the preamble, “fails to make a payment due,” is intended to cover the dishonor of a check on due presentment, or the nonacceptance of a draft, and the failure to furnish an agreed letter of credit.

4. It should also be noted that this Act requires its remedies to be liberally administered and provides that any right or obligation which it declares is enforceable by action unless a different effect is specifically prescribed (Section 1-106).

Cross References:

Point 3: Section 2-325.

Point 4: Section 1-106.

Definitional Cross References:

“Buyer.” Section 2-103.

“Cancellation.” Section 2-106.

“Contract.” Section 1-201.

“Goods.” Section 2-105.

“Remedy.” Section 1-201.

“Seller.” Section 2-103.

Decisions Under Prior Law

Measure of Damages.

Where a buyer refused to accept perishable property under a contract, it was the right of a seller to sell forthwith and in this manner reduce his damages. The measure of damages was the estimated loss directly and naturally resulting, in the ordinary course of events, from buyer’s breach of contract. Ore-Ida Potato Prods., Inc. v. Larsen, 83 Idaho 290, 362 P.2d 384 (1961).

Resale of Property.

Upon delivery and refusal to accept delivery of potatoes, seller had the right to resell the property, regardless of the fact that title had not passed to the buyer, and to recover damages for any loss sustained because of breach of the contract, such potatoes being sold at the market price at the time of resale, in this manner reducing his damages. Ore-Ida Potato Prods., Inc. v. Larsen, 83 Idaho 290, 362 P.2d 384 (1961).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Sections 63(3) and 64(4), Uniform Sales Act. Changes: Rewritten, the seller’s rights being broadened.

Purposes of Changes:

2. Under this Article [Chapter] the seller is given express power to complete manufacture or procurement of goods for the contract unless the exercise of reasonable commercial judgment as to the facts as they appear at the time he learns of the breach makes it clear that such action will result in a material increase in damages. The burden is on the buyer to show the commercially unreasonable nature of the seller’s action in completing manufacture.

Cross References:

Definitional Cross References:

“Conforming.” Section 2-106.

“Contract.” Section 1-201.

“Goods.” Section 2-105.

“Rights.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion in subsection (1) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Contract Executory Until Delivery.

Where the parties were involved in a shipment contract, wherein the seller’s performance was completed upon tender of the goods to the carrier, and no stoppage in transit occurred, the completed status of the contract was never undone and, at the time the debtors filed their petition, no executory contract existed to be assumed by the debtor in possession; therefore, the debt was not entitled to priority administrative expense treatment. In re Nevins Ammunition, Inc., 79 Bankr. 11 (Bankr. D. Idaho 1987). Contracts where the shipment terms require the seller to deliver to the buyer’s place of business remain executory until the goods are actually received by the buyer, regardless of whether the seller stops the goods in transit or allows them to continue on their way. In re Nevins Ammunition, Inc., 79 Bankr. 11 (Bankr. D. Idaho 1987).

Delivery Defined.

Delivery, for purposes of this section, means receipt of the goods by the buyer; one can have delivery without receipt. In re Nevins Ammunition, Inc., 79 Bankr. 11 (Bankr. D. Idaho 1987).

Stoppage Necessary Before Actual Delivery.

In the case of a shipment contract, where the seller’s performance is completed upon tender of the goods at the seller’s place of business, an actual stoppage in transit is required in order to undo performance and again make the contract executory. In re Nevins Ammunition, Inc., 79 Bankr. 11 (Bankr. D. Idaho 1987).

The critical factor for stoppage of goods in transit is that the stoppage must occur prior to actual physical possession of the goods by the buyer; once the buyer has possession they are no longer in transit. In re Nevins Ammunition, Inc., 79 Bankr. 11 (Bankr. D. Idaho 1987).

Stoppage Necessary Before Actual Receipt.

Stoppage in transit is a potential remedy for the seller in the instance where goods are in transit to an insolvent buyer, but the seller must act before the buyer actually receives the goods in order to take advantage of this remedy. In re Nevins Ammunition, Inc., 79 Bankr. 11 (Bankr. D. Idaho 1987).

Decisions Under Prior Law

Where buyer refused to take potatoes from bailee’s cellar and refused to accept the potatoes, and the potatoes remained in the cellar, the right of stoppage in transitu remained in the seller and, since the goods were of a perishable nature and in fact were spoiling prior to the date of resale by the seller, the seller was within his rights in reselling the potatoes. Ore-Ida Potato Prods., Inc. v. Larsen, 83 Idaho 290, 362 P.2d 384 (1961).

Official Comment

Prior Uniform Statutory Provision:

Purposes:

1. Subsection (1) applies the stoppage principle to other bailees as well as carriers.
2. “Receipt by the buyer” includes receipt by the buyer’s designated representative, the subpurchaser, when shipment is made direct to him and the buyer himself never receives the goods. It is entirely proper under this Article [Chapter] that the seller, by making such direct shipment to the sub-purchaser, be regarded as acquiescing in the latter’s purchase and as thus barred from stoppage of the goods as against him.
3. A diversion of a shipment is not a “reshipment” under subsection (2)(c) when it is merely an incident to the original contract of transportation. Nor is the procurement of “exchange bills” of lading which change only the name of the consignee to that of the buyer’s local agent but do not alter the destination of a reshipment.
4. Subsection (3)(c) makes the bailee’s obedience of a notification to stop conditional upon the surrender of possession or control of any outstanding negotiable document.
5. Any charges or losses incurred by the carrier in following the seller’s orders, whether or not he was obligated to do so, fall to the seller’s charge.
6. After an effective stoppage under this section the seller’s rights in the goods are the same as if he had never made a delivery.

It also expands the remedy to cover the situations, in addition to buyer’s insolvency, specified in the subsection. But since stoppage is a burden in any case to carriers, and might be a very heavy burden to them if it covered all small shipments in all these situations, the right to stop for reasons other than insolvency is limited to carload, truckload, planeload or larger shipments. The seller shipping to a buyer of doubtful credit can protect himself by shipping C.O.D.

Where stoppage occurs for insecurity it is merely a suspension of performance, and if assurances are duly forthcoming from the buyer the seller is not entitled to resell or divert.

Improper stoppage is a breach by the seller if it effectively interferes with the buyer’s right to due tender under the section on manner of tender of delivery. However, if the bailee obeys an unjustified order to stop he may also be liable to the buyer. The measure of his obligation is dependent on the provisions of the Documents of Title Article [Chapter] (Section 7-303). Subsection 3(b) therefore gives him a right of indemnity as against the seller in such a case.

As between the buyer and the seller, the latter’s right to stop the goods at any time until they reach the place of final delivery is recognized by this section.

Under subsection (3)(c) and (d), the carrier is under no duty to recognize the stop order of a person who is a stranger to the carrier’s contract. But the seller’s right as against the buyer to stop delivery remains, whether or not the carrier is obligated to recognize the stop order. If the carrier does obey it, the buyer cannot complain merely because of that circumstance; and the seller becomes obligated under subsection (3)(b) to pay the carrier any ensuing damages or charges.

Acknowledgment by the carrier as a “warehouse” within the meaning of this Article [Chapter] requires a contract of a truly different character from the original shipment, a contract not in extension of transit but as a warehouse.

Cross References:

Cross References: Sections 2-702 and 2-703. Point 1: Sections 2-503 and 2-609, and Article [Chapter] 7.

Point 2: Section 2-103 and Article [Chapter] 7.

Definitional Cross References:

“Contract for sale.” Section 2-106.

“Document of title.” Section 1-201.

“Goods.” Section 2-105.

“Insolvent.” Section 1-201.

“Notification.” Section 1-201.

“Receipt” of goods. Section 2-103.

“Rights.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in subsections (1) and (6) were added by the compiler to conform to the statutory citation style. The words in parentheses so appeared in the law as enacted.

Decisions Under Prior Law

Resale of perishable goods.

Amount of Damages.

Where buyer refused to accept perishable property under a contract, it was the right of the seller to sell forthwith and in this manner reduce his damages. The measure of damages was the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract. Ore-Ida Potato Prods., Inc. v. Larsen, 83 Idaho 290, 362 P.2d 384 (1961).

Care by Seller.

It was recognized that the seller was bound to exercise reasonable care and judgment when he retook possession of property and sold it for the account of the buyer. C.I.T. Corps. v. Hess, 88 Idaho 1, 395 P.2d 471 (1964).

Remedy Against First Buyer.

Where buyer under contract of purchase of automobile gave his check in part payment and on same day stopped payment on check, seller put automobile back in stock and later sold it again, in the regular course of business, seller could not treat the first sale as completed and recover purchase price from the first buyer. Boise Overland Co. v. Fearn, 38 Idaho 590, 223 P. 534 (1924).

Upon delivery and refusal to accept delivery of potatoes, seller has a right to resell the property, regardless of the fact that title had not passed to buyer, and to recover damages for any loss sustained because of breach of contract, such potatoes being sold at the market price at the time of resale, in this manner reducing his damages. Ore-Ida Potato Prods., Inc. v. Larsen, 83 Idaho 290, 362 P.2d 384 (1961). Resale of Perishable Goods.

Where buyer did not take potatoes from bailee’s cellar and refused to accept the potatoes and the potatoes remained in the cellar, the right of stoppage in transitu remained in the seller and, since the goods were of a perishable nature and in fact were spoiling prior to the date of resale by the seller, the seller was within his rights in reselling the potatoes. Ore-Ida Potato Prods., Inc. v. Larsen, 83 Idaho 290, 362 P.2d 384 (1961).

Am. Jur. 2d.

ALR.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

1. The only condition precedent to the seller’s right of resale under subsection (1) is a breach by the buyer within the section on the seller’s remedies in general or insolvency. Other meticulous conditions and restrictions of the prior uniform statutory provision are disapproved by this Article [Chapter] and are replaced by standards of commercial reasonableness. Under this section the seller may resell the goods after any breach by the buyer. Thus, an anticipatory repudiation by the buyer gives rise to any of the seller’s remedies for breach, and to the right of resale. This principle is supplemented by subsection (2) which authorizes a resale of goods which are not in existence or were not identified to the contract before the breach.
2. In order to recover the damages prescribed in subsection (1) the seller must act “in good faith and in a commercially reasonable manner” in making the resale. This standard is intended to be more comprehensive than that of “reasonable care and judgment” established by the prior uniform statutory provision. Failure to act properly under this section deprives the seller of the measure of damages here provided and relegates him to that provided in Section 2-708.
3. If the seller complies with the prescribed standard of duty in making the resale, he may recover from the buyer the damages provided for in subsection (1). Evidence of market or current prices at any particular time or place is relevant only on the question of whether the seller acted in a commercially reasonable manner in making the resale.
4. Subsection (2) frees the remedy of resale from legalistic restrictions and enables the seller to resell in accordance with reasonable commercial practices so as to realize as high a price as possible in the circumstances. By “public” sale is meant a sale by auction. A “private” sale may be effected by solicitation and negotiation conducted either directly or through a broker. In choosing between a public and private sale the character of the goods must be considered and relevant trade practices and usages must be observed. 5. Subsection (2) merely clarifies the common-law rule that the time for resale is a reasonable time after the buyer’s breach, by using the language “commercially reasonable.” What is such a reasonable time depends upon the nature of the goods, the condition of the market and the other circumstances of the case; its length cannot be measured by any legal yardstick or divided into degrees. Where a seller contemplating resale receives a demand from the buyer for inspection under the section of preserving evidence of goods in dispute, the time for resale may be appropriately lengthened.

Under this Article [Chapter] the seller resells by authority of law, in his own behalf, for his own benefit and for the purpose of fixing his damages. The theory of a seller’s agency is thus rejected.

The distinction drawn by some courts between cases where the title had not passed to the buyer and the seller had resold as owner, and cases where the title had passed and the seller had resold by virtue of his lien on the goods, is rejected.

On the question of the place for resale, subsection (2) goes to the ultimate test, the commercial reasonableness of the seller’s choice as to the place for an advantageous resale. This Article [Chapter] rejects the theory that the seller is required to resell at the agreed place for delivery and that a resale elsewhere can be permitted only in exceptional cases.

6. The purpose of subsection (2) being to enable the seller to dispose of the goods to the best advantage, he is permitted in making the resale to depart from the terms and conditions of the original contract for sale to any extent “commercially reasonable” in the circumstances.

7. The provision of subsection (2) that the goods need not be in existence to be resold applies when the buyer is guilty of anticipatory repudiation of a contract for future goods, before the goods or some of them have come into existence. In such a case the seller may exercise the right of resale and fix his damages by “one or more contracts to sell” the quantity of conforming future goods affected by the repudiation. The companion provision of subsection (2) that resale may be made although the goods were not identified to the contract prior to the buyer’s breach, likewise contemplates an anticipatory repudiation by the buyer but occurring after the goods are in existence. If the goods so identified conform to the contract, their resale will fix the seller’s damages quite as satisfactorily as if they had been identified before the breach.

8. Where the resale is to be by private sale, subsection (3) requires that reasonable notification of the seller’s intention to resell must be given to the buyer. The length of notification of a private sale depends upon the urgency of the matter. Notification of the time and place of this type of sale is not required.

Subsection (4)(b) requires that the seller give the buyer reasonable notice of the time and place of a public resale so that he may have an opportunity to bid or to secure the attendance of other bidders. An exception is made in the case of goods “which are perishable or threaten to decline speedily in value.”

9. Since there would be no reasonable prospect of competitive bidding elsewhere, subsection (4) requires that a public resale “must be made at a usual place or market for public sale if one is reasonably available;” i.e., a place or market which prospective bidders may reasonably be expected to attend. Such a market may still be “reasonably available” under this subsection, though at a considerable distance from the place where the goods are located. In such a case the expense of transporting the goods for resale is recoverable from the buyer as part of the seller’s incidental damages under subsection (1). However, the question of availability is one of commercial reasonableness in the circumstances and if such “usual” place or market is not reasonably available, a duly advertised public resale may be held at another place if it is one which prospective bidders may reasonably be expected to attend, as distinguished from a place where there is no demand whatsoever for goods of the kind.

Paragraph (a) of subsection (4) qualifies the last sentence of subsection (2) with respect to resales of unidentified and future goods at public sale. If conforming goods are in existence the seller may identify them to the contract after the buyer’s breach and then resell them at public sale. If the goods have not been identified, however, he may resell them at public sale only as “future” goods and only where there is a recognized market for public sale of futures in goods of the kind. The provisions of paragraph (c) of subsection (4) are intended to permit intelligent bidding.

The provision of paragraph (d) of subsection (4) permitting the seller to bid and, of course, to become the purchaser, benefits the original buyer by tending to increase the resale price and thus decreasing the damages he will have to pay.

10. This Article [Chapter] departs in subsection (5) from the prior uniform statutory provision in permitting a good faith purchaser at resale to take a good title as against the buyer even though the seller fails to comply with the requirements of this section.

11. Under subsection (6), the seller retains profit, if any, without distinction based on whether or not he had a lien since this Article [Chapter] divorces the question of passage of title to the buyer from the seller’s right of resale or the consequences of its exercise. On the other hand, where “a person in the position of a seller” or a buyer acting under the section on buyer’s remedies, exercises his right of resale under the present section he does so only for the limited purpose of obtaining cash for his “security interest” in the goods. Once that purpose has been accomplished any excess in the resale price belongs to the seller to whom an accounting must be made as provided in the last sentence of subsection (6).

Cross References:

Point 2: Section 1-201.

Point 3: Sections 2-708 and 2-710.

Point 4: Section 2-328.

Point 8: Section 2-104.

Point 9: Section 2-710.

Point 11: Sections 2-401, 2-707 and 2-711(3).

Definitional Cross References:

“Contract.” Section 1-201.

“Contract for sale.” Section 2-106.

“Good faith.” Section 2-103.

“Goods.” Section 2-105.

“Merchant.” Section 2-104.

“Notification.” Section 1-201.

“Person in position of seller.” Section 2-707.

“Purchase.” Section 1-201.

“Rights.” Section 1-201.

“Sale.” Section 2-106.

“Security interest.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in subsection (2) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 52(2), Uniform Sales Act.

Changes:

Purposes of Changes:

In addition to following in general the prior uniform statutory provision, the case of a financing agency which has acquired documents by honoring a letter of credit for the buyer or by discounting a draft for the seller has been included in the term “a person in the position of a seller.”

Cross Reference:

Cross Reference: Article [Chapter] 5, Section 2-506.

Definitional Cross References:

“Consignor.” Section 7-102.

“Goods.” Section 2-105.

“Security interest.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in subsections (1) and (2) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Decisions Under Prior Law

Measure of Damages.

Where a buyer refuses to accept perishable property under a contract, it was the right of the seller to sell forthwith and reduce his damages. The measure of damages was the estimated loss directly and naturally resulting, in the ordinary course of events, from buyer’s breach of contract. Ore-Ida Potato Prods., Inc. v. Larsen, 83 Idaho 290, 362 P.2d 384 (1961).

Resale of Property.

Upon delivery and refusal to accept delivery of potatoes, seller had the right to resell the property, regardless of the fact that title had not passed to the buyer, and to recover damages for any loss sustained because of breach of contract, such potatoes being sold at the market price at the time of the resale, in this manner reducing his damages. Ore-Ida Potato Prods., Inc. v. Larsen, 83 Idaho 290, 362 P.2d 384 (1961). Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

1. The prior uniform statutory provision is followed generally in setting the current market price at the time and place for tender as the standard by which damages for non-acceptance are to be determined. The time and place of tender is determined by reference to the section on manner of tender of delivery, and to the sections on the effect of such terms as FOB, FAS, CIF, C & F, Ex Ship and No Arrival, No Sale.
2. The provision of this section permitting recovery of expected profit including reasonable overhead where the standard measure of damages is inadequate, together with the new requirement that price actions may be sustained only where resale is impractical, are designed to eliminate the unfair and economically wasteful results arising under the older law when fixed price articles were involved. This section permits the recovery of lost profits in all appropriate cases, which would include all standard priced goods. The normal measure there would be list price less cost to the dealer or list price less manufacturing cost to the manufacturer. It is not necessary to a recovery of “profit” to show a history of earnings, especially if a new venture is involved.
3. In all cases the seller may recover incidental damages.

In the event that there is no evidence available of the current market price at the time and place of tender, proof of a substitute market may be made under the section on determination and proof of market price. Furthermore, the section on the admissibility of market quotations is intended to ease materially the problem of providing competent evidence.

Cross References:

Point 2: Section 2-709.

Point 3: Section 2-710.

Definitional Cross References:

“Contract.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion in subsection (3) was added by the compiler to conform to the statutory citation style.

The words enclosed parentheses so appeared in the law as enacted.

Decisions Under Prior Law

Implied Contract for Price.

Seller’s failure to supply part to a bean huller does not release buyer from payment, and does not create implied contract for sale at reasonable value, if the lack of the part was discovered before it was furnished and no rescission was claimed. West v. Prater, 57 Idaho 583, 67 P.2d 273 (1937).

Instructions.

Various instructions in action to recover contract price of pedigreed bulls were considered and held proper. McMaster v. Dunn, 49 Idaho 241, 287 P. 201 (1930).

Measure of Damages.

Measure of damages for refusal to purchase and pay on demand a note defendant agreed to purchase was the amount named as purchase price and not the difference between the market price and the contract price. Wallace Bank & Trust Co. v. First Nat’l Bank, 40 Idaho 712, 237 P. 284 (1925).

Where plaintiff alleged that he had sold and delivered to defendant, at his instance and request and upon his promise to pay, groceries and merchandise of the value of $871.43, of which amount $640 had been paid, and defendant failed to appear and answer, plaintiff was entitled to default judgment for $231.43 without proof of value of merchandise and groceries, since allegations were sufficient to show contract for payment of money. Starry v. Hamilton, 72 Idaho 313, 240 P.2d 824 (1952).

Processing Taxes.

The amount of processing tax paid by government under unconstitutional act as part of price of goods purchased by it under contract providing that, if taxes applicable to material on bid were imposed by congress after date set for opening of bid and paid by contractor, price would be increased or decreased accordingly, was recoverable by government from seller. United States v. Hagan, Cushing Co., 29 F. Supp. 564 (D. Idaho 1939), aff’d, 115 F.2d 849 (9th Cir. 1940).

Remedies for Nonconformity.

The purchaser who concluded that the article purchased was not what it was represented to be, or what he had a right to believe it was, or should be, cannot, after such discovery, go on using the article and, thereafter, refuse to pay the purchase price. He could, after such discovery, repudiate the contract, return the article, and demand return of any consideration paid, or retain the article and claim such damages as he may have sustained through breach of the contract by the vendor. Wilson v. Sunnyside Orchard Co., 33 Idaho 501, 196 P. 302 (1921); West v. Prater, 57 Idaho 583, 67 P.2d 273 (1937).

Right of Action.

Former law gave a right of action for the price, where the buyer had wrongfully refused to comply with the contract; if the buyer had not wrongfully refused, there would be no cause of action. Continental Jewelry Co. v. Ingelstrom, 43 Idaho 337, 252 P. 186 (1926). Where the contract for sale of a vehicle contract did not create an enforceable security interest and creditor permitted debtor to take possession of the vehicle, a sale occurred and creditor’s only right, as an unpaid seller without a legal security interest, was to sue debtor for the amount due under paragraph (1)(a) of this section. Hillen v. Dennis Dillon Auto Park & Truck Center, Inc. (In re Byrd), 546 B.R. 434 (Bankr. D. Idaho 2016).

When Action Lies.

Where contract was delivered conditionally, until conditions had been met, buyer was under no obligation to pay nor was delivery to carrier in pursuance of contract a delivery to the buyer. Continental Jewelry Co. v. Ingelstrom, 43 Idaho 337, 252 P. 186 (1926).

Where buyer accepts goods to extent of using part of them in his business, seller may maintain action for entire shipment. Gross Mfg. Co. v. Redfield, 48 Idaho 399, 282 P. 487 (1929); Tweedie Footwear Corp. v. Roberts-Schofield Co., 48 Idaho 777, 285 P. 476 (1930).

ALR.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Goods and Services: Distributorship, Franchise, and Similar Business Contracts. 8 A.L.R.7th 4.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th 7.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

1. Neither the passing of title to the goods nor the appointment of a day certain for payment is now material to a price action.
2. The action for the price is now generally limited to those cases where resale of the goods is impracticable except where the buyer has accepted the goods or where they have been destroyed after risk of loss has passed to the buyer.
3. This section substitutes an objective test by action for the former “not readily resalable” standard. An action for the price under subsection (1) (b) can be sustained only after a “reasonable effort to resell” the goods “at reasonable price” has actually been made or where the circumstances “reasonably indicate” that such an effort will be unavailing.
4. If a buyer is in default not with respect to the price, but on an obligation to make an advance, the seller should recover not under this section for the price as such, but for the default in the collateral (though coincident) obligation to finance the seller. If the agreement between the parties contemplates that the buyer will acquire, on making the advance, a security interest in the goods, the buyer on making the advance has such an interest as soon as the seller has rights in the agreed collateral. See Section 9-204.
5. “Goods accepted” by the buyer under subsection (1) (a) include only goods as to which there has been no justified revocation of acceptance, for such a revocation means that there has been a default by the seller which bars his rights under this section. “Goods lost or damaged” are covered by the section on risk of loss. “Goods identified to the contract” under subsection (1) (b) are covered by the section on identification and the section on identification notwithstanding breach. 6. This section is intended to be exhaustive in its enumeration of cases where an action for the price lies.

7. If the action for the price fails, the seller may nonetheless have proved a case entitling him to damages for nonacceptance. In such a situation, subsection (3) permits recovery of those damages in the same action.

Cross References:

Point 5: Sections 2-501, 2-509, 2-510 and 2-704.

Point 7: Section 2-708.

Definitional Cross References:

“Buyer.” Section 2-103.

“Conforming.” Section 2-106.

“Contract.” Section 1-201.

“Goods.” Section 2-105.

“Seller.” Section 2-103.

Decisions Under Prior Law

Special Damages.

In suit which alleged that heating equipment and accessories as supplied and warranted were wholly insufficient for heating respondent’s home and sought the cancelation of two contracts and the return to them of the amount paid as purchase price under the contracts, together with costs of the suit and general relief, an offered amendment by respondent’s referring to special damages allegedly resulting directly from breach of warranty involved would have been proper for the court to have considered to show special damages resulting from the necessity to purchase excessive amounts of fuel. Mowers v. Holland Furnace Co., 81 Idaho 208, 339 P.2d 663 (1959).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

“Buyer.” Section 2-103.

“Goods.” Section 2-105.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions throughout this section were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Cancellation.

Rescission and revocation of acceptance amount to the same thing under the Uniform Commercial Code, particularly since cancellation is a remedy available to a buyer who has established justifiable grounds for revocation of acceptance. Peckham v. Larsen Chevrolet-Buick-Oldsmobile, Inc., 99 Idaho 675, 587 P.2d 816 (1978).

Damages.

There was no error in magistrate’s decision to offset the deposit for used engine against damages awarded to buyers for breach of implied warranty of merchantability and implied warranty of fitness for a particular purpose; buyer did not have to return the engine and seller was in no worse position than if buyers had resold the engine and deducted the resale price from their damages. Berning v. Drumwright, 122 Idaho 203, 832 P.2d 1138 (Ct. App. 1992).

Where a buyer and seller entered into a contract for the sale of logs to be used by the buyer in the construction of a log cabin, and the seller breached the contract by failing to deliver the logs within a reasonable time, so that the buyer had to purchase the logs from another supplier in order to complete her cabin, the trial court properly awarded damages for the buyer’s cost of cover. Borah v. McCandless, 147 Idaho 73, 205 P.3d 1209 (2009).

When a buyer rightfully rejects goods, the buyer can either cover, and recover as damages the difference between the cost of cover and the contract price, or recover as damages the difference between the market price and the contract price. Panike & Sons Farms, Inc. v. Smith, 147 Idaho 562, 212 P.3d 992 (2009).

Manufacturer.

Subsection (1) does not allow purchasers of an allegedly defective motor home with a limited warranty to pursue a refund claim against the manufacturer. That remedy is only available against the seller. Miller v. Four Winds Int’l Corp., 827 F. Supp. 2d 1175 (D. Idaho 2011).

Remedy for Breach of Warranty of Merchantability.

The court-imposed remedy for the breach of the warranty of merchantability in the sale of a copy machine, which included return of the machine, recovery of the purchase price, and cost of chemicals, was appropriate. Lee v. Peterson, 110 Idaho 601, 716 P.2d 1373 (Ct. App. 1986).

Rescission or Waiver.

Where a buyer accepted a refund of the deposit he had given the seller, the buyer simply received so much of the price as he had paid and he was still entitled to his additional remedies upon the seller’s breach of their purchase agreement; the buyer’s acceptance of the refund did not amount to a rescission or a waiver of his rights. Palmer v. Idaho Peterbilt, Inc., 102 Idaho 800, 641 P.2d 346 (Ct. App. 1982).

Revocation of Acceptance.

Buyers revoked their acceptance of second-hand engine installed by mechanic, where the record clearly showed that a defect in the engine substantially impaired its value and that the buyers retained possession of it while reasonably assuming that mechanic would repair the engine. Berning v. Drumwright, 122 Idaho 203, 832 P.2d 1138 (Ct. App. 1992).

Buyer could rightfully revoke acceptance given the nonconformity of the machine and seller’s failure to remedy the damage. Beal v. Griffin, 123 Idaho 445, 849 P.2d 118 (Ct. App. 1993).

Because a buyer may revoke acceptance only against the seller and because a finding that the purchasers had the right to revoke acceptance against automobile dealer is consistent with a finding that the dealer had not breached any warranties, jury verdict for purchasers was not inconsistent and was permissible on revocation claim against dealer and on the lemon law claim against automobile manufacturer. Griffith v. Latham Motors, Inc., 128 Idaho 356, 913 P.2d 572 (1996).

Specific Performance.

Lower court had authority to order interim payments be made by tenant/alleged purchaser to landlord/alleged vendor during pendency of the action because landlord/alleged vendor’s willingness to accept payments until conclusion of action satisfied requirement of specific performance that all conditions precedent to the other party’s duty to perform had been satisfied. Hinkle v. Winey, 126 Idaho 993, 895 P.2d 594 (Ct. App. 1995).

Decisions Under Prior Law

Amount of Damages.

The buyer who sought to recover damages for breach of warranty must have established the amount of the damages sustained by competent evidence. Nelson v. Intermountain Farmers Equity, 36 Idaho 518, 211 P. 550 (1922). In actions of fraud and actions for breach of warranty the measure of damages was the difference between the price paid and the reasonable market value of the article at the time of sale, the purpose being to limit recovery to loss actually sustained by the buyer, thus preventing recovery of speculative profits. Jesse M. Chase, Inc. v. Leonard, 69 Idaho 109, 203 P.2d 600 (1949).

In a complaint for breach of warranty in sale of explosives for use in excavation for sewer, an allegation “that plaintiff had to remove rock by mechanical means at a great expense to his damage” was not sufficient pleading of the measure of damages. Coleman v. Carter, 77 Idaho 210, 289 P.2d 932 (1955).

Defense of Breach of Warranty.

In action to recover possession of certain bread-wrapping machine, defendant could set up defense of, and cross-complaint for, breach of warranty. W.H. Bintz Co. v. Mueggler, 65 Idaho 760, 154 P.2d 513 (1944).

Delay Caused or Induced by Seller.

Delay in giving notice of rescission did not destroy the right of the buyer where the delay was due to the representations of the seller. Morton v. Whitson, 45 Idaho 28, 260 P. 426 (1927).

Difference in Values.

Breach of warranty in conditional sales contract, as to number of loaves of bread which bread-wrapping machine, covered by contract, would wrap per hour, was equivalent to partial failure of consideration. W.H. Bintz Co. v. Mueggler, 65 Idaho 760, 154 P.2d 513 (1944).

If buyer elects to retain machine contracted for and bring an action for breach of warranty of quality, he was entitled to recover the difference between the value of machine at the time of delivery to the buyer and the value the machine would have had if seller had answered to the warranty, plus any special damages alleged and proved. Sanchotena v. Tower Co., 74 Idaho 541, 264 P.2d 1021 (1953).

In suit by buyer to recover damages for breach of warranty that pump purchased would produce specific amount of water for use on crops, the buyer was not entitled to a new trial on ground that jury failed to award him damages for difference in value of pump contracted for and value of pump delivered, when there was no evidence on value of pump. Sanchotena v. Tower Co., 74 Idaho 541, 264 P.2d 1021 (1953).

Enhancement of Damages.

The damages suffered by the buyer in consequence of the breach of an implied warranty of fitness could not have been enhanced by any act of his subsequent to learning of the breach of warranty. Tomita v. Johnson, 49 Idaho 643, 290 P. 395 (1930).

Failure of Consideration.

To entitle buyer to recover damages for breach of contract by seller, buyer need not allege or prove a complete failure of consideration, but a partial failure of consideration was sufficient. C.I.T. Corp. v. Elliott, 66 Idaho 384, 159 P.2d 891 (1945).

Implied Warranty of Suitability.

Where one desiring seed made known to a dealer his needs for planting, and a selection was made upon recommendation by the seller, there arose an implied warranty that the seed was suitable for the purposes intended. Tomita v. Johnson, 49 Idaho 643, 290 P. 395 (1930).

Implied warranties for quality or fitness were coextensive. National Motor Serv. Co. v. Walters, 85 Idaho 349, 379 P.2d 643 (1963).

Instructions to Jury.

Instruction which embodied provision of former statute prescribing remedies of buyer in case of breach of warranty, taken in connection with other instructions given, was held proper in action on contract for sale of onions to defendant. Walker v. Idaho Lettuce Co., 44 Idaho 478, 258 P. 931 (1927).

Loss Directly and Naturally Resulting.

A purchaser of bread-wrapping machine was entitled to recover from seller damages sustained because of seller’s breach of warranty, as to number of loaves of bread which machine would wrap per hour, from time of installation thereof until purchaser’s installation of new bread pans, which seller’s agent advised purchaser would rectify defects in machine, but not for damage sustained during period for which purchaser continued to operate machine after installation of such pans, which failed to remedy defects. W.H. Bintz Co. v. Mueggler, 65 Idaho 760, 154 P.2d 513 (1944).

Making Use or Disposing of Goods.

There could be no rescission by a buyer who continued to use machinery purchased for eighty days after discovery of its defects, without returning or offering to return it; and the fact that he had not completed the work he had contracted to do with such machinery is no excuse for not promptly acting on his election to rescind. Troendly v. J.I. Case Co., 50 Idaho 506, 297 P. 1103 (1931).

Questions of Law and Fact.

Whether fact that seller refused to replace stallion which proved unsatisfactory with another imported or pure-bred stallion of equal quality, as required by guaranty, unless buyer would pay substantial sum for making the exchange, rendered unnecessary buyer’s compliance with terms of contract regarding return of stallion in case it should prove unsatisfactory, was for jury. Thiessen Land Co. v. Metz Livestock Co., 61 Idaho 161, 99 P.2d 50 (1940).

Reliance on Oral Representations.

The exaction of a warranty covering the alleged fraudulent representations made prior to the execution of the contract, where the evidence failed to show that the seller was guilty of any artifice to prevent the purchaser from examining and judging for himself, indicated an intention to rely on the warranty, and no action could be predicated upon the oral representations. Troendly v. J.I. Case Co., 50 Idaho 506, 297 P. 1103 (1931).

Rescission or Recovery of Damages.

The purchaser who concluded that the article purchased is not what it was represented to be, or what he had a right to believe it was or should be, could not, after such discovery, go on using the article and, thereafter, refuse to pay the purchase price; but he could, after such discovery, repudiate the contract, return the article, and demand return of any consideration paid, which was a rescission, or he could retain the article and claim such damages as he has sustained through breach of the contract by the vendor. Wilson v. Sunnyside Orchard Co., 33 Idaho 501, 196 P. 302 (1921); West v. Prater, 57 Idaho 583, 67 P.2d 273 (1937).

The phrase “other legal remedy” as used in former statute, providing that the acceptance of goods by the buyer shall not discharge the seller from liability in damages or other legal remedy for breach of any promise or warranty in the contract to sell or the sale, in the absence of an express or implied agreement of the parties, included the buyer’s right of rescission. Baker v. J.C. Watson Co., 64 Idaho 573, 134 P.2d 613 (1943).

Return of Goods.

Buyer of an article could retain the article and claim such damages as he has sustained through breach of contract by the seller, and it was not necessary to recovery of damages that buyer return article. C.I.T. Corp. v. Elliott, 66 Idaho 384, 159 P.2d 891 (1945).

Under former statute, a buyer may return the article purchased and recover back all money paid on the purchase price without reimbursing the seller for the use of the article between the time of its purchase and such return. J.I. Case Credit Corp. v. Andreason, 90 Idaho 12, 408 P.2d 165 (1965).

Time of Accrual of Cause of Action.

A right of action in damages for breach of warranty accrued at the time it was ascertained by the purchaser that the article was not as represented. Tomita v. Johnson, 49 Idaho 643, 290 P. 395 (1930).

Waiver of Breach of Warranty.

Where one purchased a mortgaged chattel, with the consent of the mortgagee, under agreement to pay purchase price to mortgagee’s agent, and took over mortgaged chattels and consumed them, any claim of breach of seller’s warranty of quality was waived. First Nat’l Bank v. Peterson, 47 Idaho 794, 279 P. 302 (1929).

RESEARCH REFERENCES

Am. Jur. 2d.

68A Am. Jur. 2d, Secured Transactions, § 546 et seq.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: No comparable index section; Subsection (3) — Section 69(5), Uniform Sales Act.

Changes:

Changes: The prior uniform statutory provision is generally continued and expanded in Subsection (3).

Purposes of Changes and New Matter:

Purposes of Changes and New Matter: 1. To index in this section the buyer’s remedies, subsection (1) covering those remedies permitting the recovery of money damages, and subsection (2) covering those which permit reaching the goods themselves. The remedies listed here are those available to a buyer who has not accepted the goods or who has justifiably revoked his acceptance. The remedies available to a buyer with regard to goods finally accepted appear in the section dealing with breach in regard to accepted goods. The buyer’s right to proceed as to all goods when the breach is as to only some of the goods is determined by the section on breach in installment contracts and by the section on partial acceptance.

Despite the seller’s breach, proper retender of delivery under the section on cure of improper tender or replacement can effectively preclude the buyer’s remedies under this section, except for any delay involved.

2. To make it clear in subsection (3) that the buyer may hold and resell rejected goods if he has paid a part of the price or incurred expenses of the type specified. “Paid” as used here includes acceptance of a draft or other time negotiable instrument or the signing of a negotiable note. His freedom of resale is coextensive with that of a seller under this Article [Chapter] except that the buyer may not keep any profit resulting from the resale and is limited to retaining only the amount of the price paid and the costs involved in the inspection and handling of the goods. The buyer’s security interest in the goods is intended to be limited to the items listed in subsection (3), and the buyer is not permitted to retain such funds as he might believe adequate for his damages. The buyer’s right to cover, or to have damages for non-delivery, is not impaired by his exercise of his right of resale.

3. It should also be noted that this Act requires its remedies to be liberally administered and provides that any right or obligation which it declares is enforceable by action unless a different effect is specifically prescribed (Section 1-106).

Cross References:

Cross References: Point 1: Sections 2-508, 2-601(c), 2-608, 2-612 and 2-714.

Point 2: Section 2-706.

Point 3: Section 1-106.

Definitional Cross References:

“Buyer.” Section 2-103.

“Cancellation.” Section 2-106.

“Contract.” Section 1-201.

“Cover.” Section 2-712.

“Goods.” Section 2-105.

“Notifies.” Section 1-201.

“Receipt” of goods. Section 2-103. “Remedy.” Section 1-201.

“Security interest.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion near the end of subsection (2) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

ALR.

ALR. — What constitutes “cover” upon breach by seller under UCC§ 2-712(1). 79 A.L.R.4th 844.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

2. The definition of “cover” under subsection (1) envisages a series of contracts or sales, as well as a single contract or sale; goods not identical with those involved but commercially usable as reasonable substitutes under the circumstances of the particular case; and contracts on credit or delivery terms differing from the contract in breach, but again reasonable under the circumstances. The test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective. The requirement that the buyer must cover “without unreasonable delay” is not intended to limit the time necessary for him to look around and decide as to how he may best effect cover. The test here is similar to that generally used in this Article [Chapter] as to reasonable time and seasonable action.

3. Subsection (3) expresses the policy that cover is not a mandatory remedy for the buyer. The buyer is always free to choose between cover and damages for non-delivery under the next section.

However, this subsection must be read in conjunction with the section which limits the recovery of consequential damages to such as could not have been obviated by cover. Moreover, the operation of the section on specific performance of contracts for “unique” goods must be considered in this connection for availability of the goods to the particular buyer for his particular needs is the test for that remedy and inability to cover is made an express condition to the right of the buyer to replevy the goods.

4. This section does not limit cover to merchants, in the first instance. It is the vital and important remedy for the consumer buyer as well. Both are free to use cover: the domestic or nonmerchant consumer is required only to act in normal good faith while the merchant buyer must also observe all reasonable commercial standards of fair dealing in the trade, since this falls within the definition of good faith on his part.

Cross References:

Point 2: Section 1-204 [1-205].

Point 3: Sections 2-713, 2-715 and 2-716.

Point 4: Section 1-203.

Definitional Cross References:

“Contract.” Section 1-201.

“Good faith.” Section 2-103.

“Goods.” Section 2-105.

“Purchase.” Section 1-201.

“Remedy.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertions in subsection (1) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Applicability.

Buyer could not have recovered damages from a debtor’s partners under this section because the partners were not the sellers under the original contract; that role was played by the debtor, and the buyer had acknowledged the fact. In re Morton, 2009 Bankr. LEXIS 1518 (Bankr. D. Idaho June 9, 2009).

Measure of Damages.

Where parties contracted for sale of wheat and left the basis figure open to be agreed upon at a later date, where on September 6, defendant notified plaintiff that he was not going to deliver the wheat subject to a 14% basis figure but continued to communicate with plaintiff and was apparently still willing to sell to plaintiff and on November 6, notified plaintiff that he had sold the wheat to a third party, the finding of the trial court that the breach occurred on November 6, was supported by substantial and competent evidence; therefore the proper standard for damages for nondelivery of the grain was the difference between the market price on November 6, and the contract price. D.R. Curtis Co. v. Mathews, 103 Idaho 776, 653 P.2d 1188 (Ct. App. 1982). In a breach of express warranty case, there was no contention that the market price for a seven ton dehumidifier of the type described in the parties’ contract was higher than the contract price for that dehumidifier; therefore, the only damages the owners of an athletic club were entitled to recover were incidental and consequential damages, and the district court’s damage award had to be reduced by $10,659. Keller v. Inland Metals All Weather Conditioning, Inc., 139 Idaho 233, 76 P.3d 977 (2003).

When a buyer rightfully rejects goods, the buyer can either cover and recover as damages the difference between the cost of cover and the contract price or recover, as damages, the difference between the market price and the contract price. Panike & Sons Farms, Inc. v. Smith, 147 Idaho 562, 212 P.3d 992 (2009).

Time of Repudiation.

Where the seller of a truck sent a letter to the buyer enclosing a refund of the buyer’s cash deposit and stating in a clear and unequivocal manner that no performance would be forthcoming from the seller, the buyer no longer had a reasonable expectation of performance by the seller, and the time of the repudiation of the contract by the seller was the time of the breach to be used in determining the market price of the truck. Palmer v. Idaho Peterbilt, Inc., 102 Idaho 800, 641 P.2d 346 (Ct. App. 1982).

Decisions Under Prior Law

Consequential Damages.

Consequential damages, consisting of lost or prospective profits, must grow out of circumstances made known to seller at time of entering into the contract. Bowman v. Adams, 45 Idaho 217, 261 P. 679 (1927).

Damages for Unique Chattel.

Even when a chattel was special and unique, if its pecuniary value could have been readily ascertained, so that the remedy of damages was adequate, specific performance would not be granted. Bowman v. Adams, 45 Idaho 217, 261 P. 679 (1927).

Measure of Damages.

Where one party contracted to sell seed of a given kind to another, but the seller did not furnish the seed and the buyer could not buy the seed elsewhere, the measure of damages was the difference between the net value of the crop which would have been raised, had the seed contracted for been furnished, and the net value of the crop actually produced. Tingwall v. Wilson, 50 Idaho 452, 296 P. 1017 (1931). Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 67(3), Uniform Sales Act.

Changes:

Purposes of Changes:

1. The general baseline adopted in this section uses as a yardstick the market in which the buyer would have obtained cover had he sought that relief. So the place for measuring damages is the place of tender (or the place of arrival if the goods are rejected or their acceptance is revoked after reaching their destination) and the crucial time is the time at which the buyer learns of the breach.
2. The market or current price to be used in comparison with the contract price under this section is the price for goods of the same kind and in the same branch of trade.
3. When the current market price under this section is difficult to prove the section on determination and proof of market price is available to permit a showing of a comparable market price or, where no market price is available, evidence of spot sale prices is proper. Where the unavailability of a market price is caused by a scarcity of goods of the type involved, a good case is normally made for specific performance under this Article [Chapter]. Such scarcity conditions, moreover, indicate that the price has risen and under the section providing for liberal administration of remedies, opinion evidence as to the value of the goods would be admissible in the absence of a market price and a liberal construction of allowable consequential damages should also result.
4. This section carries forward the standard rule that the buyer must deduct from his damages any expenses saved as a result of the breach.
5. The present section provides a remedy which is completely alternative to cover under the preceding section and applies only when and to the extent that the buyer has not covered.

Cross References:

Point 5: Section 2-712.

Definitional Cross References:

“Contract.” Section 1-201.

“Seller.” Section 2-103.

Compiler’s Notes.

The bracketed insertion in subsection (1) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Breach of Express Warranty.

The trial court’s denial of the breach of express warranty as a basis for recovery was error, where seller had expressly warranted that its clay would be equal to or better than an alternative supplier’s clay. Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Ct. App. 1992).

Damages Recoverable.

Where the defendant building supply company was found to have breached an implied warranty of merchantability in the sale of paneling to the plaintiff homeowner, the cost of replacement paneling was recoverable under subsection (2) of this section. The additional costs of removing the existing paneling and installing the new paneling were recoverable as incidental damages under§ 28-2-715(1) and subsection (3) of this section. Duff v. Bonner Bldg. Supply, Inc., 103 Idaho 432, 649 P.2d 391 (Ct. App. 1982), aff’d, 105 Idaho 123, 666 P.2d 650 (1983).

Measure of Damages.

The cost of repair is a proper measure of the difference in value between the goods as warranted and as accepted and, therefore, is recoverable under subsection (2) of this section in breach of warranty cases. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978).

Where buyer bought a car from seller, drove it for 18 months, and then it was discovered the car had been stolen, buyer was not entitled to a refund of the whole purchase price of the car, but only the amount of its trade-in value which he actually lost. De Weber v. Bob Rice Ford, Inc., 99 Idaho 847, 590 P.2d 103 (1979).

Prejudgment Interest.

In a breach of warranty case where damages are a measure of cost of replacement, prejudgment interest should accrue from the date that the product’s failure required that the product be replaced. Meldco, Inc. v. Hollytex Carpet Mills, Inc., 118 Idaho 265, 796 P.2d 142 (Ct. App. 1990).

Purpose.

The purpose of this section is to provide for the recovery of the buyer’s loss resulting from the seller’s breach. De Weber v. Bob Rice Ford, Inc., 99 Idaho 847, 590 P.2d 103 (1979).

Remedy Not Limited.

Although§ 28-2-711(1) does not allow purchasers of an allegedly defective motor home with a limited warranty to pursue a refund claim against the manufacturer, a showing of special circumstances under§ 28-2-719(2) and this section might allow the purchasers to avoid the general measure of damages. Miller v. Four Winds Int’l Corp., 827 F. Supp. 2d 1175 (D. Idaho 2011).

Revocation of Acceptance.

Because a buyer may revoke acceptance only against the seller and because a finding that the purchasers had the right to revoke acceptance against automobile dealer is consistent with a finding that the dealer had not breached any warranties, jury verdict for purchasers was not inconsistent and was permissible on revocation claim against dealer and on the lemon law claim against automobile manufacturer. Griffith v. Latham Motors, Inc., 128 Idaho 356, 913 P.2d 572 (1996). Special Circumstances.

If mobile home buyers were unable to prove the amount of loss in value caused by the breaches of warranty, such would constitute a “special circumstance” which might enable them to recover on an alternate measure of damages. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Decisions Under Prior Law

The damages suffered by a buyer in consequence of breach of an implied warranty of fitness could not be enhanced by any act of his subsequent to learning of the breach of warranty. Tomita v. Johnson, 49 Idaho 643, 290 P. 395 (1930).

Am. Jur. 2d.

ALR.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: Section 69(6) and (7), Uniform Sales Act.

Changes:

Purposes of Changes:

The section on deduction of damages from price provides an additional remedy for a buyer who still owes part of the purchase price, and frequently the two remedies will be available concurrently. The buyer’s failure to notify of his claim under the section on effects of acceptance, however, operates to bar his remedies under either that section or the present section.

2. The “non-conformity” referred to in subsection (1) includes not only breaches of warranties but also any failure of the seller to perform according to his obligations under the contract. In the case of such non-conformity, the buyer is permitted to recover for his loss “in any manner which is reasonable.”

3. Subsection (2) describes the usual, standard and reasonable method of ascertaining damages in the case of breach of warranty but it is not intended as an exclusive measure. It departs from the measure of damages for non-delivery in utilizing the place of acceptance rather than the place of tender. In some cases the two may coincide, as where the buyer signifies his acceptance upon the tender. If, however, the non-conformity is such as would justify revocation of acceptance, the time and place of acceptance under this section is determined as of the buyer’s decision not to revoke. 4. The incidental and consequential damages referred to in subsection (3), which will usually accompany an action brought under this section, are discussed in detail in the comment on the next section.

Cross References:

Point 2: Section 2-106.

Point 3: Sections 2-608 and 2-713.

Point 4: Section 2-715.

Definitional Cross References:

“Conform.” Section 2-106.

“Goods.” Section 1-201.

“Notification.” Section 1-201.

“Seller.” Section 2-103.

Amount of Damages.

Where the seller breached a contract to sell a truck to the buyer, and the seller knew that the buyer intended to use the truck in his business, with specially adapted trailers, the buyer could recover any proven actual losses resulting from the buyer’s inability to use the trailers. Palmer v. Idaho Peterbilt, Inc., 102 Idaho 800, 641 P.2d 346 (Ct. App. 1982).

If subcontractor’s successor had reason to know that contractor faced exposure for liquidated damages in the event of a breach by subcontractor’s successor, then payment of liquidated damages could properly be considered as proof of contractor’s consequential damages, stemming from subcontractor’s successor’s breach of contract. As such, it was for the jury to determine whether subcontractor’s successor did foresee, or should have foreseen, the liquidated damages as an injury to contractor in the event of a breach by subcontractor’s successor. Cannon Bldrs., Inc. v. Rice, 126 Idaho 616, 888 P.2d 790 (Ct. App. 1995).

In a breach of express warranty case, there was no contention that the market price for a seven ton dehumidifier of the type described in the parties’ contract was higher than the contract price for that dehumidifier; therefore, the only damages the owners of an athletic club were entitled to recover were incidental and consequential damages, and the district court’s damage award had to be reduced by $10,659. Keller v. Inland Metals All Weather Conditioning, Inc., 139 Idaho 233, 76 P.3d 977 (2003). Burden of Proof.

The damages recoverable under subsection (2)(a) of this section, like other damages recoverable for breach of contract, must be established with reasonable certainty. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978).

Under this section the plaintiffs were only required to take reasonable efforts to mitigate their damages, and the burden of proving that the damages could have been minimized was on the defendants. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978).

Damages Recoverable.

Where the defendant building supply company was found to have breached an implied warranty of merchantability in the sale of paneling to the plaintiff homeowner, the cost of replacement paneling was recoverable under§ 28-2-714(2). The additional costs of removing the existing paneling and installing the new paneling were recoverable as incidental damages under§ 28-2-714(3) and this section. Duff v. Bonner Bldg. Supply, Inc., 103 Idaho 432, 649 P.2d 391 (Ct. App. 1982), aff’d, 105 Idaho 123, 666 P.2d 650 (1983).

Where storage company bought wheat from seller to process into seed for resale, and where jury found that seller had reason to know that wheat was to be sold as spring wheat seed and that buyer did as much as was reasonably necessary to mitigate its damages, buyer was entitled to recover consequential damages for its loss in reimbursing customers for damages that they suffered by planting the seed, which turned out not to be spring wheat seed but a mixture of spring and winter wheat. Nezperce Storage Co. v. Zenner, 105 Idaho 464, 670 P.2d 871 (1983).

Foreseeability.

Where the special interrogatories returned by the jury indicated that seller of wheat was aware of the shortage of spring wheat seed in the area and had reason to realize that buyer’s purpose in purchasing wheat was to meet such shortage and that seller had reason to know that buyer was purchasing the wheat to process it into spring wheat seed for resale, the foreseeability requirement of subdivision (2)(a) of this section was satisfied. Nezperce Storage Co. v. Zenner, 105 Idaho 464, 670 P.2d 871 (1983).

Loss.

Grain storage company clearly sustained a “loss,” within the meaning of subdivision (2)(a) of this section, in reimbursing its customers for the damages they suffered by purchasing and planting seed which was believed to be, but was not, spring wheat. In a breach of warranty action, indemnification for this kind of loss is proper, when a seller receives a warranty from a supplier and passes that warranty on to customers. Nezperce Storage Co. v. Zenner, 105 Idaho 464, 670 P.2d 871 (1983). Mitigation of Damages.

The question of whether buyer of wheat acted properly to mitigate its damages was a factual matter to be determined by the trier of the fact and where the jury specifically found it was reasonable for buyer to sell the seed it manufactured from the wheat to its customers without doing any more than it did to determine whether or not such seed was actually of a spring wheat variety, such finding was supported by substantial, albeit conflicting, testimony and would not be disturbed on appeal. Nezperce Storage Co. v. Zenner, 105 Idaho 464, 670 P.2d 871 (1983).

Personal Injury Damages.

The UCC does provide for recovery of damages for personal injuries under its breach of warranty provisions. However, UCC breach of warranty actions for personal injuries are available only to a limited group of potential plaintiffs who are either in privity of contract with the manufacturer or seller, or who qualify as third party beneficiaries of the underlying sales contract, as defined in§ 28-2-318. Oats v. Nissan Motor Corp., 126 Idaho 162, 879 P.2d 1095 (1994).

Recovery for Loss of Profits.

This section only limits the buyer’s right to loss of profits when cover is possible, and, if substitute goods cannot be purchased, the buyer is entitled to loss of profits. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978).

Where the buyer under a contract for the sale of steel pipe was unable to cover its losses following the seller’s default because of a shortage of steel pipe at that time, the buyer could recover for its loss of profits. Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98 Idaho 495, 567 P.2d 1246 (1977), cert. denied and appeal dismissed, 434 U.S. 1056, 98 S. Ct. 1225, 55 L. Ed. 2d 757 (1978).

Although prospective profits hoped to be derived from a business which is not yet established but merely in contemplation are ordinarily too speculative to be recoverable, a plaintiff is not categorically denied the right to recover lost profits simply because he is engaged in a relatively new business: the pivotal question is not whether the plaintiff has proven an established earning record but whether he has proven the damages for lost profits with reasonable certainty, although the former is often relevant to the latter. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978).

Sufficiency of Proof.

Where at the time buyer purchased a tractor he also purchased a plow and a disc and the seller informed buyer at the time of sale that the tractor had sufficient horsepower to pull the plow, the disc, and also a 24-foot preplant applicator, and where seller knew that the tractor and the equipment were purchased for use in custom farming business, the plaintiffs adequately established that the seller had reason to know at the time of contracting that if the tractor were defective the plaintiffs would suffer consequential losses. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978). Wrongful Rejection of Goods.

Contractor was not entitled to reimbursement for expenses in returning floor drain grating for a swimming pool complex to the wholesaler where the grating substantially conformed to contractor’s specifications, making the repudiation of the grating for alleged breach of implied warranty of merchantability invalid. Consolidated Supply Co. v. Babbitt, 96 Idaho 636, 534 P.2d 466 (1975).

Decisions Under Prior Law

The buyer who seeks to recover damages for breach of warranty must establish the amount of the damages sustained by competent evidence. Nelson v. Intermountain Farmers Equity, 36 Idaho 518, 211 P. 550 (1922).

Official Comment

Prior Uniform Statutory Provisions:

Prior Uniform Statutory Provisions: Subsection (2) (b) — Sections 69(7) and 70, Uniform Sales Act.

Changes:

Purposes of Changes and New Matter:

Purposes of Changes and New Matter: 1. Subsection (1) is intended to provide reimbursement for the buyer who incurs reasonable expenses in connection with the handling of rightfully rejected goods or goods whose acceptance may be justifiably revoked, or in connection with effecting cover where the breach of the contract lies in non-conformity or non-delivery of the goods. The incidental damages listed are not intended to be exhaustive but are merely illustrative of the typical kinds of incidental damage.

2. Subsection (2) operates to allow the buyer, in an appropriate case, any consequential damages which are the result of the seller’s breach. The “tacit agreement” test for the recovery of consequential damages is rejected. Although the older rule at common law which made the seller liable for all consequential damages of which he had “reason to know” in advance is followed, the liberality of that rule is modified by refusing to permit recovery unless the buyer could not reasonably have prevented the loss by cover or otherwise. Subparagraph (2) carries forward the provisions of the prior uniform statutory provision as to consequential damages resulting from breach of warranty, but modifies the rule by requiring first that the buyer attempt to minimize his damages in good faith, either by cover or otherwise.

3. In the absence of excuse under the section on merchant’s excuse by failure of presupposed conditions, the seller is liable for consequential damages in all cases where he had reason to know of the buyer’s general or particular requirements at the time of contracting. It is not necessary that there be a conscious acceptance of an insurer’s liability on the seller’s part, nor is his obligation for consequential damages limited to cases in which he fails to use due effort in good faith.

Particular needs of the buyer must generally be made known to the seller while general needs must rarely be made known to charge the seller with knowledge. Any seller who does not wish to take the risk of consequential damages has available the section on contractual limitation of remedy.

4. The burden of proving the extent of loss incurred by way of consequential damage is on the buyer, but the section on liberal administration of remedies rejects any doctrine of certainty which requires almost mathematical precision in the proof of loss. Loss may be determined in any manner which is reasonable under the circumstances.

5. Subsection (2) (b) states the usual rule as to breach of warranty, allowing recovery for injuries “proximately” resulting from the breach. Where the injury involved follows the use of goods without discovery of the defect causing the damage, the question of “proximate” cause turns on whether it was reasonable for the buyer to use the goods without such inspection as would have revealed the defects. If it was not reasonable for him to do so, or if he did in fact discover the defect prior to his use, the injury would not proximately result from the breach of warranty.

6. In the case of sale of wares to one in the business of reselling them, resale is one of the requirements of which the seller has reason to know within the meaning of subsection (2) (a).

Cross References:

Point 3: Sections 1-203, 2-615 and 2-719.

Point 4: Section 1-106.

Definitional Cross References:

“Goods.” Section 1-201.

“Person.” Section 1-201.

“Receipt” of goods. Section 2-103.

“Seller.” Section 2-103.

Compiler’s Notes.

The words “right to maintain a claim and delivery action” near the beginning of subsection (3) were substituted for “right of replevin” in variance from the model Uniform Commercial Code. See also paragraph 3 of the Official Comment.

Effective Dates.

Section 31 of S.L. 2001, ch. 208 provided that the act should take effect on and after July 1, 2001.

Conditions Precedent Requirement.

Lower court had authority to order interim payments be made by tenant/alleged purchaser to landlord/alleged vendor during pendency of the action because landlord/alleged vendor’s willingness to accept payments until conclusion of action satisfied requirement of specific performance that all conditions precedent to the other party’s duty to perform had been satisfied. Hinkle v. Winey, 126 Idaho 993, 895 P.2d 594 (Ct. App. 1995).

Specific Performance Unwarranted.

Where the prospective buyer of a pickup truck had alleged nothing making it unique, nor was it possible for the dealer to sell such a truck since he himself had no such truck, the trial court was correct in denying specific performance. Paloukos v. Intermountain Chevrolet Co., 99 Idaho 740, 588 P.2d 939 (1978). RESEARCH REFERENCES

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Changes:

Purposes of Changes:

1. The present section continues in general prior policy as to specific performance and injunction against breach. However, without intending to impair in any way the exercise of the court’s sound discretion in the matter, this Article [Chapter] seeks to further a more liberal attitude than some courts have shown in connection with the specific performance of contracts of sale.
2. In view of this Article’s [Chapter’s] emphasis on the commercial feasibility of replacement, a new concept of what are “unique” goods is introduced under this section. Specific performance is no longer limited to goods which are already specific or ascertained at the time of contracting. The test of uniqueness under this section must be made in terms of the total situation which characterizes the contract. Output and requirements contracts involving a particular or peculiarly available source or market present today the typical commercial specific performance situation, as contrasted with contracts for the sale of heirlooms or priceless works of art which were usually involved in the older cases. However, uniqueness is not the sole basis of the remedy under this section for the relief may also be granted “in other proper circumstances” and inability to cover is strong evidence of “other proper circumstances.”
3. The legal remedy of replevin is given to the buyer in cases in which cover is reasonably unavailable and goods have been identified to the contract. This is in addition to the buyer’s right to recover identified goods under Section 2-502. For consumer goods, the buyer’s right to replevin vests upon the buyer’s acquisition of a special property, which occurs upon identification of the goods to the contract. See Section 2-501. Inasmuch as a secured party normally acquires no greater rights in its collateral that its debtor had or had power to convey, see Section 2-403(1) (first sentence), a buyer who acquires a right of replevin under subsection (3) will take free of a security interest created by the seller if it attaches to the goods after the goods have been identified to the contract. The buyer will take free, even if the buyer does not buy in ordinary course and even if the security interest is perfected. Of course, to the extent that the buyer pays the price after the security interest attaches, the payments will constitute proceeds of the security interest.
4. This section is intended to give the buyer rights to the goods comparable to the seller’s rights to the price.
5. If a negotiable document of title is outstanding, the buyer’s right of replevin relates of course to the document not directly to the goods. See Article [Chapter] 7, especially Section 7-602.

Cross References:

Point 5: Article [Chapter] 7.

Definitional Cross References:

“Goods.” Section 1-201.

“Rights.” Section 1-201.

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Prior Uniform Statutory Provision: See Section 69(1) (a), Uniform Sales Act.

Purposes:

2. The buyer, however, must give notice of his intention to withhold all or part of the price if he wishes to avoid a default within the meaning of the section on insecurity and right to assurances. In conformity with the general policies of this Article [Chapter], no formality of notice is required and any language which reasonably indicates the buyer’s reason for holding up his payment is sufficient.

Cross Reference:

Definitional Cross References:

“Notifies.” Section 1-201.

Compiler’s Notes.

The bracketed insertion in subsection (4) was added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted.

Am. Jur. 2d. — 67A Am. Jur. 2d, Sales § 823 et seq. Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: 1. Under subsection (1) liquidated damage clauses are allowed where the amount involved is reasonable in the light of the circumstances of the case. The subsection sets forth explicitly the elements to be considered in determining the reasonableness of a liquidated damage clause. A term fixing unreasonably large liquidated damages is expressly made void as a penalty. An unreasonably small amount would be subject to similar criticism and might be stricken under the section on unconscionable contracts or clauses.

2. Subsection (2) refuses to recognize a forfeiture unless the amount of the payment so forfeited represents a reasonable liquidation of damages as determined under subsection (1). A special exception is made in the case of small amounts (20% of the price or $500, whichever is smaller) deposited as security. No distinction is made between cases in which the payment is to be applied on the price and those in which it is intended as security for performance. Subsection (2) is applicable to any deposit or down or part payment. In the case of a deposit or turn in of goods resold before the breach, the amount actually received on the resale is to be viewed as the deposit rather than the amount allowed the buyer for the trade in. However, if the seller knows of the breach prior to the resale of the goods turned in, he must make reasonable efforts to realize their true value, and this is assured by requiring him to comply with the conditions laid down in the section on resale by an aggrieved seller.

Cross References:

Point 2: Section 2-706.

Definitional Cross References:

“Agreement.” Section 1-201.

“Buyer.” Section 2-103.

“Goods.” Section 2-105.

“Notice.” Section 1-201.

“Party.” Section 1-201.

“Remedy.” Section 1-201.

“Seller.” Section 2-103.

“Term.” Section 1-201.

Compiler’s Notes.

The words “this act” at the end of subsection (2) refer to S. L. 1967, ch. 161, which is generally compiled as chs. 1 to 10 of this title. The reference probably should be to the Uniform Commercial Code.

Application.

This section does not specifically require the plaintiff to prove negligent or willful dilatory conduct; rather, the section is to apply whenever an exclusive remedy, which may have appeared fair and reasonable at the inception of the contract, as a result of later circumstances operates to deprive a party of a substantial benefit of the bargain. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978). Where the defendants had expressly warranted that the tractor the plaintiff bought was free from defects in material and workmanship under normal use and service, but limited liability to repair or replacement of parts, the intent of the warranty was clear and plaintiff purchaser’s remedy was limited to repair or replacement of defective parts. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978).

Disclaimer Effective.

Where the parties were two large corporations of relatively equal bargaining strength, and the disclaimer provisions were discussed by the parties and clearly limited the seller’s tort liability, the disclaimer of tort liability in the offer was an effective defense to the buyer’s strict liability action. Idaho Power Co. v. Westinghouse Elec. Corp., 596 F.2d 924 (9th Cir. 1979).

Factual Questions Precluding Summary Judgment.

In the situation where farmer bought certified potato seed from dealer and seed was later found to be infected by bacterial ring rot, because factual questions remained as to whether there were any terms in the parties’ agreement excluding warranties or limiting remedies and as to whether there was an applicable course of dealing or trade usage limiting remedies, the lower court’s order denying summary judgment on this issue was affirmed. Duffin v. Idaho Crop Imp. Ass’n, 126 Idaho 1002, 895 P.2d 1195 (1995).

Failure of Limited Remedy.

The purpose of an exclusive repair or replacement remedy is to ensure that the purchaser receives a product which conforms to the express warranty, i.e., that the product is free from defects, and if the product proves defective within the warranty period the seller is obligated to cure the defect within a reasonable time, but if the seller is subsequently unable or unwilling to repair or replace a defective part within a reasonable time, the buyer is left with a defective product — not conforming to the warranty — and the limited remedy has not achieved its purpose and in such circumstances subsection (2) of this section permits the buyer to pursue the other remedies provided by the Uniform Commercial Code, if the defect substantially affects the value of the buyer’s bargain. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978).

The Uniform Commercial Code is ambiguous with respect to the effect that a failure of a limited remedy under subsection (2) of this section has on other contractual provisions. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978).

Where various elements of a “New Equipment Warranty” — the express warranty, the limited repair or replacement remedy, the disclaimer of other warranties, and the exclusion of liability for consequential damages — were all integral parts of the provision, reciprocal to one another, and together represented the agreed allocation of risk between the parties, a seller who failed to comply with its obligations under the warranty, such as its repair or replacement duties, could not receive the benefit of the other provisions, which in part at least were premised on the assumption that the seller would fulfill its obligations; the failure of the limited remedy would materially alter the balance of risk set by the parties in the agreement, and, accordingly, other limitations and exclusions on the seller’s warranties and liability must be disregarded and the general provisions of the Uniform Commercial Code should govern the rights of the parties. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978). No Exclusivity Language.

Where the contract for the supplying and installing of the secondary treatment equipment of the city’s sewage treatment plant stated that if performance was not satisfactory, the equipment manufacturer would remove his equipment and refund the cost of the equipment and its installation at the option of the owner, the contract contained no language of exclusivity, and the city was not limited to an exclusive contract remedy. United States v. City of Twin Falls, 806 F.2d 862 (9th Cir. 1986), cert. denied, 482 U.S. 914, 107 S. Ct. 3185, 96 L. Ed. 2d 674 (1987).

Remedy Not Limited.

Where jury under correct instructions could have found that express warranties on mobile home were breached in various particulars, remedy of buyers was not limited by contract language disavowing any liability and stating that the manufacturer’s written warranty would apply nor was repair intended to be the exclusive remedy of the buyer; if the contract limitation language was argued as excluding all remedies against the seller, it was unconscionable and if the language was argued as creating a limited remedy of repair, it failed because such was not clearly expressed in the contract. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Although§ 28-2-711(1) did not allow purchasers of an allegedly defective motor home with a limited warranty to pursue a refund claim against the manufacturer, a showing of special circumstances under§ 28-2-714(2) and this section might allow the purchasers to avoid the general measure of damages. Miller v. Four Winds Int’l Corp., 827 F. Supp. 2d 1175 (D. Idaho 2011).

Unconscionability.

It is generally unconscionable for a seller to seek to exclude himself from all liabilities. Jensen v. Seigel Mobile Homes Group, 105 Idaho 189, 668 P.2d 65 (1983).

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

However, it is of the very essence of a sales contract that at least minimum adequate remedies be available. If the parties intend to conclude a contract for sale within this Article [Chapter] they must accept the legal consequence that there be at least a fair quantum of remedy for breach of the obligations or duties outlined in the contract. Thus any clause purporting to modify or limit the remedial provisions of this Article [Chapter] in an unconscionable manner is subject to deletion and in that event the remedies made available by this Article [Chapter] are applicable as if the stricken clause had never existed. Similarly, under subsection (2), where an apparently fair and reasonable clause because of circumstances fails in its purpose or operates to deprive either party of the substantial value of the bargain, it must give way to the general remedy provisions of this Article [Chapter]. 2. Subsection (1) (b) creates a presumption that clauses prescribing remedies are cumulative rather than exclusive. If the parties intend the term to describe the sole remedy under the contract, this must be clearly expressed.

3. Subsection (3) recognizes the validity of clauses limiting or excluding consequential damages but makes it clear that they may not operate in an unconscionable manner. Actually such terms are merely an allocation of unknown or undeterminable risks. The seller in all cases is free to disclaim warranties in the manner provided in Section 2-316.

Cross References:

Point 3: Section 2-316.

Definitional Cross References:

“Buyer.” Section 2-103.

“Conforming.” Section 2-106.

“Contract.” Section 1-201.

“Goods.” Section 2-105.

“Remedy.” Section 1-201.

“Seller.” Section 2-103.

Official Comment

Prior Uniform Statutory Provision:

Purpose:

Cross Reference:

Definitional Cross References:

“Contract.” Section 1-201.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Definitional Cross References:

“Goods.” Section 1-201.

“Remedy.” Section 1-201.

Am. Jur. 2d.

68A Am. Jur. 2d, Secured Transactions, §§ 100, 101.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: To adopt and extend somewhat the principle of the statutes which provide for suit by the real party in interest. The provisions of this section apply only after identification of the goods. Prior to that time only the seller has a right of action. During the period between identification and final acceptance (except in the case of revocation of acceptance) it is possible for both parties to have the right of action. Even after final acceptance both parties may have the right of action if the seller retains possession or otherwise retains an interest.

Definitional Cross References:

“Buyer.” Section 2-103.

“Contract for sale.” Section 2-106. “Goods.” Section 2-105.

“Party.” Section 1-201.

“Rights.” Section 1-201.

“Security interest.” Section 1-201.

Compiler’s Notes.

The bracketed insertions in subsection (1) were added by the compiler to conform to the statutory citation style.

The words enclosed in parentheses so appeared in the law as enacted

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: To eliminate the most obvious difficulties arising in connection with the determination of market price, when that is stipulated as a measure of damages by some provision of this Article [Chapter]. Where the appropriate market price is not readily available the court is here granted reasonable leeway in receiving evidence of prices current in other comparable markets or at other times comparable to the one in question. In accordance with the general principle of this Article [Chapter] against surprise, however, a party intending to offer evidence of such a substitute price must give suitable notice to the other party.

Definitional Cross References:

“Aggrieved party.” Section 1-201.

“Goods.” Section 2-105.

“Notifies.” Section 1-201.

“Party.” Section 1-201.

“Reasonable time.” Section 1-204 [1-205].

“Usage of trade.” Section 1-205 [1-303].

Am. Jur. 2d.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

No explicit provision as to the weight to be given to market quotations is contained in this section, but such quotations, in the absence of compelling challenge, offer an adequate basis for a verdict.

Market quotations are made admissible when the price or value of goods traded “in any established market” is in issue. The reason of the section does not require that the market be closely organized in the manner of a produce exchange. It is sufficient if transactions in the commodity are frequent and open enough to make a market established by usage in which one price can be expected to affect another and in which an informed report of the range and trend of prices can be assumed to be reasonably accurate.

This section does not in any way intend to limit or negate the application of similar rules of admissibility to other material, whether by action of the courts or by statute. The purpose of the present section is to assure a minimum of mercantile administration in this important situation and not to limit any liberalizing trend in modern law.

Definitional Cross Reference:

§ 28-2-725. Statute of limitations in contracts for sale.

1. An action for breach of any contract for sale must be commenced within four (4) years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one (1) year but may not extend it.
2. A cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.
3. Where an action commenced within the time limited by subsection (1) is so terminated as to leave available a remedy by another action for the same breach such other action may be commenced after the expiration of the time limited and within six (6) months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute.
4. This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action which have accrued before this act becomes effective.

History.

1967, ch. 161,§ 2-725, p. 351.

Compiler’s Notes.

The words “this act” in subsection (4) refer to S. L. 1967, ch. 161, which was effective December 31, 1967.

Accrual of Cause of Action.

In a breach of warranty case where damages are a measure of cost of replacement, prejudgment interest should accrue from the date that the product’s failure required that the product be replaced. Meldco, Inc. v. Hollytex Carpet Mills, Inc., 118 Idaho 265, 796 P.2d 142 (Ct. App. 1990).

Although an action for breach of warranty accrues at the time of delivery, that date does not necessarily govern the accrual date for an award of prejudgment interest; rather, an award of prejudgment interest, in order to fulfill its compensatory purpose, should run from the date the damages amount first becomes “fixed” or “ascertainable.” Meldco, Inc. v. Hollytex Carpet Mills, Inc., 118 Idaho 265, 796 P.2d 142 (Ct. App. 1990). Seller of insulation was not entitled to summary judgment against a buyer who alleged that the seller’s manufacturing process caused the insulation to shrink after installation. Because it was unclear when the shrinkage, which was hidden after installation, should have been discovered, the court could not rule as a matter of law that the buyer’s warranty claims were time-barred. Hansen-Rice, Inc. v. Celotex Corp., 414 F. Supp. 2d 970 (D. Idaho 2006).

Contract for Sale of Goods.

The language of this section indicates a legislative intent that all actions for breach of contract for the sale of goods are controlled by this section. Farmers Nat’l Bank v. Wickham Pipeline Constr., 114 Idaho 565, 759 P.2d 71 (1988).

The limitations provisions of this section applied to action for the sale of pipe which was movable and clearly constituted goods; where the last pipe was delivered on October 25, 1979, but the action was not filed until September 17, 1984, the action was barred at the time of filing. Farmers Nat’l Bank v. Wickham Pipeline Constr., 114 Idaho 565, 759 P.2d 71 (1988).

The absolute language of this section indicates a legislative intent that all actions based on breach of contract for the sale of goods be brought, if at all, within four years of the delivery of the goods; this interpretation is further supported by the statutory provision prohibiting the parties from extending the limitation period by agreement. Farmers Nat’l Bank v. Wickham Pipeline Constr., 114 Idaho 565, 759 P.2d 71 (1988).

This section and not§ 5-216 controls all actions for breach of contract for the sale of goods, for§ 28-2-102 provides that, unless the context otherwise requires, Chapter 2 applies to transactions in goods. Farmers Nat’l Bank v. Wickham Pipeline Constr., 114 Idaho 565, 759 P.2d 71 (1988).

Where contractor and surety had a contract with supplier of pipe and if supplier did not deliver pipe meeting the specifications of the contract, a breach of contract action accrued and, upon delivery of the deficient pipe, contractor and surety had a direct legal cause of action against supplier; however, such parties could not maintain an equitable action for indemnification against the supplier after their legal claim for breach had been barred by limitations. Farmers Nat’l Bank v. Wickham Pipeline Constr., 114 Idaho 565, 759 P.2d 71 (1988).

In General.

Where a truck was leased in 1969 and damaged in a collision on March 16, 1971, insured lessee’s breach of warranty action against the seller and the manufacturer was extinguished in 1973, and the insurer’s claim by subrogation was likewise barred since the subrogee had no greater rights and was subject to the same statute of limitations. May Trucking Co. v. International Harvester Co., 97 Idaho 319, 543 P.2d 1159 (1975).

Latent Defects.

Subsection (2) provides that, where a warranty explicitly extends to future performance of goods, any breach of warranty occurs at the time of such performance. Thus, while a buyer has a duty to inspect goods at the time of delivery to find patent defects, he must be allowed a reasonable time after inspecting and accepting the goods to discover latent defects under this section. Where farmers alleged a breach of warranty due to a latent defect in feed supplement supplier’s product — its propensity to turn acidic and, thus, be harmful to calves if not refrigerated — the defect could not have been found on inspection at delivery. Millenkamp v. Davisco Foods Int’l, Inc., 562 F.3d 971 (9th Cir. 2009).

Warranties.

Where any warranties of merchantability were made between the defendant manufacturer and the purchaser, the plaintiff, as a seasonal employee of the purchaser, was a person to whom the warranties were extended, and the trial court properly granted defendants’ motion for summary judgment as to plaintiff’s warranty claim, filed 17 years after delivery. Puckett v. Oakfabco, Inc., 132 Idaho 816, 979 P.2d 1174 (1999).

Am. Jur. 2d.

ALR.

Validity of contractual time period, shorter than statute of limitations, for bringing action. 6 A.L.R.3d 1197.

Applicability, as affected by change in parties, of statute permitting commencement of new action within specified time after failure of prior action not on merits. 13 A.L.R.3d 848.

Effect of statute permitting new action to be brought within specified period after failure of original action other than on the merits to limit period of limitations. 13 A.L.R.3d 979.

Power of court to make or permit amendment of indictment with respect to allegations as to time. 14 A.L.R.3d 1297.

Application to period of limitations fixed by contract, of statute permitting new action to be brought within specified time after failure of prior action for cause other than on the merits. 16 A.L.R.3d 452.

Agreement of parties as estopping reliance on statute of limitations. 43 A.L.R.3d 756.

Promises to settle or perform as estopping reliance on statute of limitations. 44 A.L.R.3d 482.

Plaintiff’s diligence as affecting his right to have defendant estopped from pleading the statute of limitations. 44 A.L.R.3d 760.

Fiduciary or confidential relationship of affecting estoppel to plead statute of limitations. 45 A.L.R.3d 630.

Delay caused by other litigation as estopping reliance on statute of limitations. 45 A.L.R.3d 703.

Tolling of statute of limitations during absence from state as affected by fact that party claimed benefit of limitations remained subject to service during absence or nonresidence. 55 A.L.R.3d 1158. Imprisonment of party to civil action as tolling statute of limitations. 77 A.L.R.3d 735.

Choice of law as to applicable statute of limitations in contract actions. 78 A.L.R.3d 639.

Validity of contractual provision establishing period of limitations longer than that provided by state statute of limitations. 84 A.L.R.3d 1172.

Relation back of amended pleading substituting true name of defendant for fictitious name used in earlier pleading so as to avoid bar of limitations. 85 A.L.R.3d 130.

What constitutes warranty explicitly extending to “future performance” for purposes of UCC§ 2-725(2). 93 A.L.R.3d 690.

Statute of limitations as bar to arbitration under agreement. 94 A.L.R.3d 533.

Application to actions for personal injuries based on breach of implied warranty under provisions governing sales. 20 A.L.R.4th 915.

What constitutes warranty explicitly extending to “future performance” for purposes of UCC§ 2-725(2). 81 A.L.R.5th 483.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Goods and Services: Distributorship, Franchise, and Similar Business Contracts. 8 A.L.R.7th 4.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th 7.

Official Comment

Prior Uniform Statutory Provision:

Purposes:

Purposes: To introduce a uniform statute of limitations for sales contracts, thus eliminating the jurisdictional variations and providing needed relief for concerns doing business on a nationwide scale whose contracts have heretofore been governed by several different periods of limitation depending upon the state in which the transaction occurred. This Article [Chapter] takes sales contracts out of the general laws limiting the time for commencing contractual actions and selects a four-year period as the most appropriate to modern business practice. This is within the normal commercial record keeping period.

Subsection (1) permits the parties to reduce the period of limitation. The minimum period is set at one year. The parties may not, however, extend the statutory period.

Subsection (2), providing that the cause of action accrues when the breach occurs, states an exception where the warranty extends to future performance.

Subsection (3) states the saving provision included in many state statutes and permits an additional short period for bringing new actions, where suits begun within the four-year period have been terminated so as to leave a remedy still available for the same breach.

Subsection (4) makes it clear that this Article [Chapter] does not purport to alter or modify in any respect the law on tolling of the Statute of Limitations as it now prevails in the various jurisdictions.

Definitional Cross References:

“Aggrieved party.” Section 1-201.

“Agreement.” Section 1-201.

“Contract for sale.” Section 2-106.

“Goods.” Section 2-105.

“Party.” Section 1-201. “Remedy.” Section 1-201.

“Term.” Section 1-201.

“Termination.” Section 2-106.

Prior Laws.

The following former sections were repealed by S.L. 1993, ch. 288, § 1, effective July 1, 1993:

§ 28-3-101, which comprised 1967, ch. 161,§ 3-101, p. 351.

§ 28-3-102, which comprised 1967, ch. 161,§ 3-102, p. 351.

§ 28-3-103, which comprised 1967, ch. 161,§ 3-103, p. 351.

§ 28-3-104, which comprised 1967, ch. 161,§ 3-104, p. 351.

§ 28-3-105, which comprised 1967, ch. 161,§ 3-105, p. 351.

§ 28-3-106, which comprised 1967, ch. 161,§ 3-106, p. 351.

§ 28-3-107, which comprised 1967, ch. 161,§ 3-107, p. 351.

§ 28-3-108, which comprised 1967, ch. 161,§ 3-108, p. 351.

§ 28-3-109, which comprised 1967, ch. 161,§ 3-109, p. 351.

§ 28-3-110, which comprised 1967, ch. 161,§ 3-110, p. 351.

§ 28-3-111, which comprised 1967, ch. 161,§ 3-111, p. 351.

§ 28-3-112, which comprised 1967, ch. 161,§ 3-112, p. 351.

§ 28-3-113, which comprised 1967, ch. 161,§ 3-113, p. 351.

§ 28-3-114, which comprised 1967, ch. 161,§ 3-114, p. 351.

§ 28-3-115, which comprised 1967, ch. 161,§ 3-115, p. 351.

§ 28-3-116, which comprised 1967, ch. 161,§ 3-116, p. 351.

§ 28-3-117, which comprised 1967, ch. 161,§ 3-117, p. 351.

§ 28-3-118, which comprised 1967, ch. 161,§ 3-118, p. 351.

§ 28-3-119, which comprised 1967, ch. 161,§ 3-119, p. 351.

§ 28-3-120, which comprised 1967, ch. 161,§ 3-120, p. 351.

§ 28-3-121, which comprised 1967, ch. 161,§ 3-121, p. 351.

§ 28-3-122, which comprised 1967, ch. 161,§ 3-122, p. 351.

§ 28-3-201, which comprised 1967, ch. 161,§ 3-201, p. 351.

§ 28-3-202, which comprised 1967, ch. 161,§ 3-202, p. 351.

§ 28-3-203, which comprised 1967, ch. 161,§ 3-203, p. 351. § 28-3-204, which comprised 1967, ch. 161,§ 3-204, p. 351.

§ 28-3-205, which comprised 1967, ch. 161,§ 3-205, p. 351.

§ 28-3-206, which comprised 1967, ch. 161,§ 3-206, p. 351.

§ 28-3-207, which comprised 1967, ch. 161,§ 3-207, p. 351.

§ 28-3-208, which comprised 1967, ch. 161,§ 3-208, p. 351.

§ 28-3-301, which comprised 1967, ch. 161,§ 3-301, p. 351.

§ 28-3-302, which comprised 1967, ch. 161,§ 3-302, p. 351.

§ 28-3-303, which comprised 1967, ch. 161,§ 3-303, p. 351.

§ 28-3-304, which comprised 1967, ch. 161,§ 3-304, p. 351.

§ 28-3-305, which comprised 1967, ch. 161,§ 3-305, p. 351.

§ 28-3-306, which comprised 1967, ch. 161,§ 3-306, p. 351.

§ 28-3-307, which comprised 1967, ch. 161,§ 3-307, p. 351.

§ 28-3-401, which comprised 1967, ch. 161,§ 3-401, p. 351.

§ 28-3-402, which comprised 1967, ch. 161,§ 3-402, p. 351.

§ 28-3-403, which comprised 1967, ch. 161,§ 3-403, p. 351.

§ 28-3-404, which comprised 1967, ch. 161,§ 3-404, p. 351.

§ 28-3-405, which comprised 1967, ch. 161,§ 3-405, p. 351.

§ 28-3-406, which comprised 1967, ch. 161,§ 3-406, p. 351.

§ 28-3-407, which comprised 1967, ch. 161,§ 3-407, p. 351.

§ 28-3-408, which comprised 1967, ch. 161,§ 3-408, p. 351.

§ 28-3-409, which comprised 1967, ch. 161,§ 3-409, p. 351.

§ 28-3-410, which comprised 1967, ch. 161,§ 3-410, p. 351.

§ 28-3-411, which comprised 1967, ch. 161,§ 3-411, p. 351.

§ 28-3-412, which comprised 1967, ch. 161,§ 3-412, p. 351.

§ 28-3-413, which comprised 1967, ch. 161,§ 3-413, p. 351.

§ 28-3-414, which comprised 1967, ch. 161,§ 3-414, p. 351.

§ 28-3-415, which comprised 1967, ch. 161,§ 3-415, p. 351.

§ 28-3-416, which comprised 1967, ch. 161,§ 3-416, p. 351.

§ 28-3-417, which comprised 1967, ch. 161,§ 3-417, p. 351.

§ 28-3-418, which comprised 1967, ch. 161,§ 3-418, p. 351.

§ 28-3-419, which comprised 1967, ch. 161,§ 3-419, p. 351.

§ 28-3-501, which comprised 1967, ch. 161,§ 3-501, p. 351.

§ 28-3-502, which comprised 1967, ch. 161,§ 3-502, p. 351.

§ 28-3-503, which comprised 1967, ch. 161,§ 3-503, p. 351.

§ 28-3-504, which comprised 1967, ch. 161,§ 3-504, p. 351.

§ 28-3-505, which comprised 1967, ch. 161,§ 3-505, p. 351.

§ 28-3-506, which comprised 1967, ch. 161,§ 3-506, p. 351.

§ 28-3-507, which comprised 1967, ch. 161,§ 3-507, p. 351.

§ 28-3-508, which comprised 1967, ch. 161,§ 3-508, p. 351.

§ 28-3-509, which comprised 1967, ch. 161,§ 3-509, p. 351.

§ 28-3-510, which comprised 1967, ch. 161,§ 3-510, p. 351.

§ 28-3-510A, which comprised I.C.,§ 28-3-510A, as added by 1973, ch. 120, § 1, p. 227; am. 1982, ch. 105, § 1, p. 286; am. 1984, ch. 50, § 1, p. 91; am. 1988, ch. 179, § 1, p. 312.

§ 28-3-510B, which comprised I.C.,§ 28-3-510B, as added by 1973, ch. 120, § 2, p. 227.

§ 28-3-510C, which comprised I.C.,§ 28-3-510C, as added by 1973, ch. 120, § 3, p. 227; am. 1982, ch. 105, § 2, p. 286; am. 1988, ch. 179, § 2, p. 312. § 28-3-511, which comprised 1967, ch. 161,§ 3-511, p. 351.

§ 28-3-601, which comprised 1967, ch. 161,§ 3-601, p. 351.

§ 28-3-602, which comprised 1967, ch. 161,§ 3-602, p. 351.

§ 28-3-603, which comprised 1967, ch. 161,§ 3-603, p. 351.

§ 28-3-604, which comprised 1967, ch. 161,§ 3-604, p. 351.

§ 28-3-605, which comprised 1967, ch. 161,§ 3-605, p. 351.

§ 28-3-606, which comprised 1967, ch. 161,§ 3-606, p. 351.

§ 28-3-701, which comprised 1967, ch. 161,§ 3-701, p. 351.

§ 28-3-801, which comprised 1967, ch. 161,§ 3-801, p. 351.

§ 28-3-802, which comprised 1967, ch. 161,§ 3-802, p. 351.

§ 28-3-803, which comprised 1967, ch. 161,§ 3-803, p. 351.

§ 28-3-804, which comprised 1967, ch. 161,§ 3-804, p. 351.

§ 28-3-805, which comprised 1967, ch. 161,§ 3-805, p. 351.

Compiler’s Notes.

The official comments in chapters 1 to 12 of this title are copyrighted by the National Conference of Commissioners of Uniform State Laws and the American Law Institute and are reproduced by permission.

Section 1 of S.L. 1993, ch. 288 repealed chapter 3, Title 28 of the Idaho Code.

Section 54 of S.L. 1993, ch. 288 read: “Rights and obligations that arose under Chapter 6, Title 28, Idaho Code, and Section 28-9-111, Idaho Code, before their repeal remain valid and may be enforced as though those statutes had not been repealed.”

Since the Idaho legislature, in enacting Uniform Commercial Code — Leases (S.L. 1993, ch. 288), did not adopt section 3-307 of the uniform version,§§ 28-3-307 to 28-3-111 of the Idaho Code correspond to§§ 3-308 to 3-312 of the uniform version.

Am. Jur. 2d.

C.J.S.

ALR.

Construction and effect of UCC Art. 3, dealing with commercial paper. 23 A.L.R.3d 932; 42 A.L.R.5th 137.

Account stated based upon check or note tendered in payment of debt. 46 A.L.R.3d 1325.

Personal liability of officer or directors of corporation on corporate checks issued against insufficient funds. 47 A.L.R.3d 1250.

Discharge of debtor who makes payment by delivering check payable to creditor to latter’s agent, where agent forges creditor’s signature and absconds with proceeds. 49 A.L.R.3d 843.

Commercial paper: what amounts to “negligence contributing to alteration or unauthorized signature” under UCC§ 3-406. 67 A.L.R.3d 144.

Fraud in the inducement and fraud in the factum as defenses under UCC§ 3-305 against holder in due course. 78 A.L.R.3d 1020.

What constitutes unconditional promise to pay under UCC§ 3-104(1)(b). 88 A.L.R.3d 1100. Construction and application of UCC§ 3-403(2) dealing with personal liability of authorized representative who signs negotiable instrument in his own name. 97 A.L.R.3d 798.

Payee’s right of recovery, in conversion under UCC§ 3-419(1)(c), for money paid on unauthorized indorsement. 23 A.L.R.4th 855.

Extent of bank’s liability for paying postdated check. 31 A.L.R.4th 329.

What constitutes taking instrument in good faith, and without notice of infirmities or defenses, to support holder-in-due-course status, under UCC§ 3-302. 36 A.L.R.4th 212.

Creditor’s retention without negotiation of check purporting to be final settlement of disputed amount as constituting accord and satisfaction. 42 A.L.R.4th 117.

What constitutes “dealing” under UCC§ 3-305(2), providing that holder in due course takes instrument free from all defenses of any party to instrument with whom holder has not dealt. 42 A.L.R.5th 137.

When is instrument issued or transferred for “value” under UCC§ 3-303. 77 A.L.R.5th 429.

Prior Laws.

Former§ 28-3-102 was repealed. See Prior Laws,§ 28-3-101.

Compiler’s Notes.

The bracketed insertions in subsections (1) and (2) were added by the compiler to conform to the statutory citation style.

Official Comment

1. Former Article 3 had no provision affirmatively stating its scope. Former Section 3-103 was a limitation on scope. In revised Article 3, Section 3-102 states that Article 3 applies to “negotiable instruments,” defined in Section 3-104. Section 3-104(b) also defines the term “instrument” as a synonym for “negotiable instrument.” In most places Article 3 uses the shorter term “instrument.” This follows the convention used in former Article 3.
2. The reference in former Section 3-103(1) to “documents of title” is omitted as superfluous because these documents contain no promise to pay money. The definition of “payment order” in Section 4A-103(a)(1)(iii) excludes drafts which are governed by Article 3. Section 3-102(a) makes clear that a payment order governed by Article 4A is not governed by Article 3. Thus, Article 3 and Article 4A are mutually exclusive.
3. Although the terms of Article 3 apply to transactions by Federal Reserve Banks, federal preemption would make ineffective any Article 3 provision that conflicts with federal law. The activities of the Federal Reserve Banks are governed by regulations of the Federal Reserve Board and by operating circulars issued by the Reserve Banks themselves. In some instances, the operating circulars are issued pursuant to a Federal Reserve Board regulation. In other cases, the Reserve Bank issues the operating circular under its own authority under the Federal Reserve Act, subject to review by the Federal Reserve Board. Section 3-102(c) states that Federal Reserve Board regulations and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of Article 3 to the extent of the inconsistency. Federal Reserve Board regulations, being valid exercises of regulatory authority pursuant to a federal statute, take precedence over state law if there is an inconsistency. Childs v. Federal Reserve Bank of Dallas, 719 F.2d 812 (5th Cir. 1983), reh. den. 724 F.2d 127 (5th Cir. 1984). Section 3-102(c) treats operating circulars as having the same effect whether issued under the Reserve Bank’s own authority or under a Federal Reserve Board regulation. Federal statutes may also preempt Article 3. For example, the Expedited Funds Availability Act, 12 U.S.C. § 4001 et seq., provides that the Act and the regulations issued pursuant to the Act supersede any inconsistent provisions of the UCC. 12 U.S.C. § 4007(b).
4. In Clearfield Trust Co. v. United States, 318 U.S. 363 (1943), the Court held that if the United States is a party to an instrument, its rights and duties are governed by federal common law in the absence of a specific federal statute or regulation. In United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979), the Court stated a three-pronged test to ascertain whether the federal common-law rule should follow the state rule. In most instances courts under the Kimbell test have shown a willingness to adopt UCC rules in formulating federal common law on the subject. In Kimbell the Court adopted the priorities rules of Article 9.
5. In 1989 the United Nations Commission on International Trade Law completed a Convention on International Bills of Exchange and International Promissory Notes. If the United States becomes a party to this Convention, the Convention will preempt state law with respect to international bills and notes governed by the Convention. Thus, an international bill of exchange or promissory note that meets the definition of instrument in Section 3-104 will not be governed by Article 3 if it is governed by the Convention. That Convention applies only to bills and notes that indicate on their face that they involve cross-border transactions. It does not apply at all to checks. Convention Articles 1(3), 2(1), 2(2). Moreover, because it applies only if the bill or note specifically calls for application of the Convention, Convention Article 1, there is little chance that the Convention will apply accidentally to a transaction that the parties intended to be governed by this Article.

Article 8 states in Section 8-103(d) that “A writing that is a security certificate is governed by this Article and not by Article 3, even though it also meets the requirements of that Article.” Section 3-102(a) conforms to this provision. With respect to some promises or orders to pay money, there may be a question whether the promise or order is an instrument under Section 3-104(a) or a certificated security under Section 8-102(a)(4) and (15). Whether a writing is covered by Article 3 or Article 8 has important consequences. Among other things, under Section 8-207, the issuer of a certificated security may treat the registered owner as the owner for all purposes until the presentment for registration of a transfer. The issuer of a negotiable instrument, on the other hand, may discharge its obligation to pay the instrument only by paying a person entitled to enforce under Section 3-301. There are also important consequences to an indorser. An indorser of a security does not undertake the issuer’s obligation or make any warranty that the issuer will honor the underlying obligation, while an indorser of a negotiable instrument becomes secondarily liable on the underlying obligation. Ordinarily the distinction between instruments and certificated securities in non-bearer form should be relatively clear. A certificated security under Article 8 must be in registered form (Section 8-102(a)(13)) so that it can be registered on the issuer’s records. By contrast, registration plays no part in Article 3. The distinction between an instrument and a certificated security in bearer form may be somewhat more difficult and will generally lie in the economic functions of the two writings. Ordinarily, negotiable instruments under Article 3 will be separate and distinct instruments, while certificated securities under Article 8 will be either one of a class or series or by their terms divisible into a class or series (Section 8-102(a)(15)(ii)). Thus, a promissory note in bearer form could come under either Article 3 if it were simply an individual note, or under Article 8 if it were one of a series of notes or divisible into a series. An additional distinction is whether the instrument is of the type commonly dealt in on securities exchanges or markets or commonly recognized as a medium for investment (Section 8-102(a)(15)(iii)). Thus, a check written in bearer form (i.e., a check made payable to “cash”) would not be a certificated security within Article 8 of the Uniform Commercial Code.

Occasionally, a particular writing may fit the definition of both a negotiable instrument under Article 3 and of an investment security under Article 8. In such cases, the instrument is subject exclusively to the requirements of Article 8. Section 8-102(1)(c) and Section 8-103(d).

Prior Laws.

Former§ 28-3-103 was repealed. See Prior Laws,§ 28-3-101.

Compiler’s Notes.

The bracketed insertions in paragraphs (1)(g) and (1)(j) and throughout subsections (2), (3) and (4) were added by the compiler to conform to the statutory citation style. The words enclosed in parentheses so appeared in the law as enacted.

In implementing the conforming amendments to the revision of Article 1 by S.L. 2004, ch. 43, the state of Idaho did not delete the definition of “good faith” contained in subsection (1)(d) of this section, as did the uniform act. The following comments to this section were not updated to conform to the revised uniform comments.

Decisions Under Prior Law

Holder.

Assignee for purpose of collection was a holder within meaning of former statute. Craig v. Palo Alto Stock Farm, 16 Idaho 701, 102 P. 393 (1909).

Law raised presumption that title had passed to the holder. Home Land Co. v. Osborn, 19 Idaho 95, 112 P. 764 (1910).

Any person was authorized to bring action on promissory note who held it under proper authority and for the real owner thereof. Anderson v. Coolin, 28 Idaho 494, 155 P. 677 (1916).

Indorsee who was in possession of a promissory note was holder thereof and could sue thereon in his own name. Utah Implement-Vehicle Co. v. Kenyon, 30 Idaho 407, 164 P. 1176 (1917).

Official Comment

1. Subsection (a) defines some common terms used throughout the Article that were not defined by former Article 3 and adds the definitions of “order” and “promise” found in former Section 3-102(1)(b) and (c).
2. The definition of “order” includes an instruction given by the signer to itself. The most common example of this kind of order is a cashier’s check: a draft with respect to which the drawer and drawee are the same bank or branches of the same bank. Former Section 3-118(a) treated a cashier’s check as a note. It stated “a draft drawn on the drawer is effective as a note.” Although it is technically more correct to treat a cashier’s check as a promise by the issuing bank to pay rather than an order to pay, a cashier’s check is in the form of a check and it is normally referred to as a check. Thus, revised Article 3 follows banking practice in referring to a cashier’s check as both a draft and a check rather than a note. Some insurance companies also follow the practice of issuing drafts in which the drawer draws on itself and makes the draft payable at or through a bank. These instruments are also treated as drafts. The obligation of the drawer of a cashier’s check or other draft drawn on the drawer is stated in Section 3-412.

An order may be addressed to more than one person as drawee either jointly or in the alternative. The authorization of alternative drawees follows former Section 3-102(1)(b) and recognizes the practice of drawers, such as corporations issuing dividend checks, who for commercial convenience name a number of drawees, usually in different parts of the country. Section 3-501(b)(1) provides that presentment may be made to any one of multiple drawees. Drawees in succession are not permitted because the holder should not be required to make more than one presentment. Dishonor by any drawee named in the draft entitles the holder to rights of recourse against the drawer or indorsers. 3. The last sentence of subsection (a)(9) is intended to make it clear that an I.O.U. or other written acknowledgement of indebtedness is not a note unless there is also an undertaking to pay the obligation.

4. Subsection (a)(4) introduces a definition of good faith to apply to Articles 3 and 4. Former Articles 3 and 4 used the definition in Section 1-201(19). The definition in subsection (a)(4) is consistent with the definitions of good faith applicable to Articles 2, 2A, 4, and 4A. The definition requires not only honesty in fact but also “observance of reasonable commercial standards of fair dealing.” Although fair dealing is a broad term that must be defined in context, it is clear that it is concerned with the fairness of conduct rather than the care with which an act is performed. Failure to exercise ordinary care in conducting a transaction is an entirely different concept than failure to deal fairly in conducting the transaction. Both fair dealing and ordinary care, which is defined in Section 3-103(a)(7), are to be judged in the light of reasonable commercial standards, but those standards in each case are directed to different aspects of commercial conduct.

5. Subsection (a)(7) is a definition of ordinary care which is applicable not only to Article 3 but to Article 4 as well. See Section 4-104(c). The general rule is stated in the first sentence of subsection (a)(7) and it applies both to banks and to persons engaged in businesses other than banking. Ordinary care means observance of reasonable commercial standard of the relevant business prevailing in the area in which the person is located. The second sentence of subsection (a)(7) is a particular rule limited to the duty of a bank to examine an instrument taken by a bank for processing for collection or payment by automated means. This particular rule applies primarily to Section 4-406 and it is discussed in Comment 4 to that section. Nothing in Section 3-103(a)(7) is intended to prevent a customer from proving that the procedures followed by a bank are unreasonable, arbitrary, or unfair.

6. In subsection (c) reference is made to a new definition of “bank” in amended Article 4.

Prior Laws.

Former§ 28-3-104 was repealed. See Prior Laws,§ 28-3-101.

Decisions Under Prior Law

Application of Law.

Negotiable instruments law did not affect rights of parties to nonnegotiable instruments. Moody v. Morris-Roberts Co., 38 Idaho 414, 226 P. 278 (1923).

Attorney’s Fees.

Provision in note that it was to be paid with costs of collection and attorney’s fees in case of nonpayment before maturity did not destroy negotiability of instrument. Hutson v. Rankin, 36 Idaho 169, 213 P. 345 (1922).

Certainty as to Sum Payable.

So long as the amount payable was certain up to the time of maturity, it was not essential that after that time, when the instrument has become nonnegotiable for other reasons, certainty as to amount should continue. Hutson v. Rankin, 36 Idaho 169, 213 P. 345 (1922).

Conflict of Laws.

Negotiability of a note was determined by the law of the place of payment. McCornick & Co. v. Tolmie Bros., 46 Idaho 544, 269 P. 96 (1928).

Instruments Held Negotiable.

Bank was a holder in due course though material furnished by payee was allegedly defective and completion certificate was signed only by the wife, where the bank took the note which was regular on its face without any notice of alleged defects. United States v. Skinner, 137 F. Supp. 234 (D. Idaho 1956).

Note providing, “In case this note is collected by an attorney, either with or without suit, the maker agrees to pay a reasonable attorney’s fee,” was not deprived of negotiability by such provision. Hutson v. Rankin, 36 Idaho 169, 213 P. 345 (1922).

Acceleration clause, none of the conditions of which depended on act of holder or were in his control, did not destroy negotiability of note. McCornick & Co. v. Gem State Oil & Prods. Co., 38 Idaho 470, 222 P. 286 (1923).

Trade acceptances could have been negotiable instruments. Harris v. Sainsbury, 50 Idaho 502, 298 P. 360 (1931).

A trade acceptance, an instrument in the form of a draft, which recites that “the obligation of the acceptor hereof arises out of the purchase of goods from the drawer” was negotiable. Continental Nat’l Bank & Trust Co. v. Stirling, 65 Idaho 123, 140 P.2d 230 (1943).

Instruments Held Nonnegotiable.

County warrants were not negotiable paper in sense that transferee for value was protected from defenses available against original payee. Dexter Horton Trust & Sav. Bank v. Clearwater County, 235 F. 743 (D. Idaho 1916), aff’d, 248 F. 401 (9th Cir. 1918).

Promissory note containing stipulation whereby sureties, indorsers and makers waived notice of the granting of any extension of time for payment and waived right of defense on ground that extension had been made without notice to them or either of them, was not a “negotiable promissory note.” Union Stockyards Nat’l Bank v. Bolan, 14 Idaho 87, 93 P. 508 (1908).

Recital in a title-retaining note that title to property for which it was given should remain in payee and that he should have the right to take possession of it whenever he deemed himself insecure, even before maturity of note, rendered such instrument nonnegotiable. Kimpton v. Studebaker Bros. Co., 14 Idaho 552, 94 P. 1039 (1908); Wright v. Horton, 32 Idaho 516, 185 P. 555 (1919); Moyer v. Hyde, 35 Idaho 161, 204 P. 1068 (1922).

Note was nonnegotiable where time for payment was not fixed. Sanderson v. Clark, 33 Idaho 359, 194 P. 472 (1920).

Instrument which acknowledged receipt by bank of securities deposited with it in trust for insurance company, in compliance with state insurance laws, was held not negotiable. Radke v. Liberty Ins. Co., 37 Idaho 436, 216 P. 1040 (1923).

Note, negotiable in form, transferred by original payee after maturity, did not become negotiable instrument. Moody v. Morris-Roberts Co., 38 Idaho 414, 226 P. 278 (1923).

Notes attached to agency agreement and forming a part thereof were not negotiable, even though detached, when purchaser knew that they had been given in connection with written contracts and later detached. Security Fin. Co. v. Jensen Auto Co., 48 Idaho 376, 282 P. 88 (1929). Receipts which provided that O would pay $2,000 “when K pays $2,500 note which I now hold against him which will be in about thirty days,” was held not a negotiable instrument. Kite v. Eckley, 48 Idaho 454, 282 P. 868 (1929).

Nature and Effect of Check.

A check was an instrument by which a depositor sought to withdraw funds from a bank, and was evidence of indebtedness between drawer and payee. It was equivalent to the drawer’s promise to pay and an action might be brought thereon as on a promissory note. Camas Prairie State Bank v. Newman, 15 Idaho 719, 99 P. 833 (1909).

A check is not cash and an appellant’s deposit of his uncertified personal check is not a “deposit of money” in lieu of an appeal bond as provided by§ 13-202. Martinson v. Martinson, 90 Idaho 490, 414 P.2d 204 (1966).

Note.

A note may be either negotiable or nonnegotiable; where the note is payable to specific persons, rather than to order or to bearer, the note is nonnegotiable, but it does not lose its character as a note. Spidell v. Jenkins, 111 Idaho 857, 727 P.2d 1285 (Ct. App. 1986).

Even if a “note” may not contain an express condition, the instrument, under which one party promised to perform specified services and the other party promised to pay for those services, was a “note” where the instrument did not expressly excuse the payor’s promise if the performer failed to perform, and the payor did not expressly promise to pay only “if” the performer performed. Spidell v. Jenkins, 111 Idaho 857, 727 P.2d 1285 (Ct. App. 1986).

Although a negotiable instrument must contain an unconditional promise to pay, it does not necessarily follow that a note must be unconditional, because under the Uniform Commercial Code, a note may or may not be negotiable. Spidell v. Jenkins, 111 Idaho 857, 727 P.2d 1285 (Ct. App. 1986).

Option to Declare Due.

Where it was stipulated in a promissory note that “the whole sum of principal and interest shall become immediately due and collectible at the option of the holder of the note” if payment of interest and principal instalments were not made when due, such stipulation was a penalty and would not be enforced as to the interest not yet earned on the principal. Tipton v. Ellsworth, 18 Idaho 207, 109 P. 134 (1910).

Negotiability of a note was not destroyed by provision that, upon default in payment of interest on note, whole shall become due. Hutson v. Rankin, 36 Idaho 169, 213 P. 345 (1922).

Acceleration clause, none of the provisions of which depended on act of holder or were within his control, did not destroy negotiability of note. McCornick & Co. v. Gem State Oil & Prods. Co., 38 Idaho 470, 222 P. 286 (1923).

Am. Jur. 2d.

68A Am. Jur. 2d, Secured Transactions, § 158 et seq.

ALR.

ALR. — What constitutes unconditional promise to pay under Uniform Commercial Code§ 3-104(1)(b). 88 A.L.R.3d 1100.

What constitutes undertaking or instruction to do any act in addition to payment of money as limitation on definition of negotiable instrument under UCC§ 3-104. 75 A.L.R.5th 559.

What constitutes “fixed amount of money” for purposes of [rev]§ 3-104 of Uniform Commercial Code providing that negotiable instrument must contain unconditional promise to pay fixed amount of money. 76 A.L.R.5th 289.

When is instrument “payable to bearer or to order” as required to constitute negotiable instrument under Article 3 of the Uniform Commercial Code [rev]§§ 3-104(a)(1) and 3-109. 77 A.L.R.5th 523.

Official Comment

1. The definition of “negotiable instrument” defines the scope of Article 3 since Section 3-102 states: “This Article applies to negotiable instruments.” The definition in Section 3-104(a) incorporates other definitions in Article 3. An instrument is either a “promise,” defined in Section 3-103(a)(9), or “order,” defined in Section 3-103(a)(6). A promise is a written undertaking to pay money signed by the person undertaking to pay. An order is a written instruction to pay money signed by the person giving the instruction. Thus, the term “negotiable instrument” is limited to a signed writing that orders or promises payment of money. “Money” is defined in Section 1-201(24) and is not limited to United States dollars. It also includes a medium of exchange established by a foreign government or monetary units of account established by an intergovernmental organization or by agreement between two or more nations. Five other requirements are stated in Section 3-104(a): First, the promise or order must be “unconditional.” The quoted term is explained in Section 3-106. Second, the amount of money must be “a fixed amount *** with or without interest or other charges described in the promise or order.” Section 3-112(b) relates to “interest.” Third, the promise or order must be “payable to bearer or to order.” The quoted phrase is explained in Section 3-109. An exception to this requirement is stated in subsection (c). Fourth, the promise or order must be payable “on demand or at a definite time.” The quoted phrase is explained in Section 3-108. Fifth, the promise or order may not state “any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money” with three exceptions. The quoted phrase is based on the first sentence of N.I.L. Section 5 which is the precursor of “no other promise, order, obligation or power given by the maker or drawer” appearing in former Section 3-104(1)(b). The words “instruction” and “undertaking” are used instead of “order” and “promise” that are used in the N.I.L. formulation because the latter words are defined terms that include only orders or promises to pay money. The three exceptions stated in Section 3-104(a)(3) are based on and are intended to have the same meaning as former Section 3-112(1)(b), (c), (d), and (e), as well as N.I.L. § 5(1), (2), and (3). Subsection (b) states that “instrument” means a “negotiable instrument.” This follows former Section 3-102(1)(e) which treated the two terms as synonymous.
2. Unless subsection (c) applies, the effect of subsection (a)(1) and Section 3-102(a) is to exclude from Article 3 any promise or order that is not payable to bearer or to order. There is no provision in revised Article 3 that is comparable to former Section 3-805. The Comment to former Section 3-805 states that the typical example of a writing covered by that section is a check reading “Pay John Doe.” Such a check was governed by former Article 3 but there could not be a holder in due course of the check. Under Section 3-104(c) such a check is governed by revised Article 3 and there can be a holder in due course of the check. But subsection (c) applies only to checks. The Comment to former Section 3-805 does not state any example other than the check to illustrate that section. Subsection (c) is based on the belief that is it good policy to treat checks, which are payment instruments, as negotiable instruments whether or not they contain the words “to the order of”. These words are almost always preprinted on the check form. Occasionally the drawer of a check may strike out these words before issuing the check. In the past some credit unions used check forms that did not contain the quoted words. Such check forms may still be in use but they are no longer common. Absence of the quoted words can easily be overlooked and should not affect the rights of holders who may pay money or give credit for a check without being aware that it is not in the conventional form. Total exclusion from Article 3 of other promises or orders that are not payable to bearer or to order serves a useful purpose. It provides a simple device to clearly exclude a writing that does not fit the pattern of typical negotiable instruments and which is not intended to be a negotiable instrument. If a writing could be an instrument despite the absence of “to order” or “to bearer” language and a dispute arises with respect to the writing, it might be argued that the writing is a negotiable instrument because the other requirements of subsection (a) are somehow met. Even if the argument is eventually found to be without merit it can be used as a litigation ploy. Words making a promise or order payable to bearer or to order are the most distinguishing feature of a negotiable instrument and such words are frequently referred to as “words of negotiability.” Article 3 is not meant to apply to contracts for the sale of goods or services or the sale or lease of real property or similar writings that may contain a promise to pay money. The use of words of negotiability in such contracts would be an aberration. Absence of the words precludes any argument that such contracts might be negotiable instruments.
3. Subsection (d) allows exclusion from Article 3 of a writing that would otherwise be an instrument under subsection (a) by a statement to the effect that the writing is not negotiable or is not governed by Article 3. For example, a promissory note can be stamped with the legend NOT NEGOTIABLE. The effect under subsection (d) is not only to negate the possibility of a holder in due course, but to prevent the writing from being a negotiable instrument for any purpose. Subsection (d) does not, however, apply to a check. If a writing is excluded from Article 3 by subsection (d), a court could, nevertheless, apply Article 3 principles to it by analogy as stated in Comment 2.
4. Instruments are divided into two general categories: drafts and notes. A draft is an instrument that is an order. A note is an instrument that is a promise. Section 3-104(e). The term “bill of exchange” is not used in Article 3. It is generally understood to be a synonym for the term “draft.” Subsection (f) through (j) define particular instruments that fall within the categories of draft and note. The term “draft,” defined in subsection (e), includes a “check” which is defined in subsection (f). “Check” includes a share draft drawn on a credit union payable through a bank because the definition of bank (Section 4-105) includes credit unions. However, a draft drawn on an insurance company payable through a bank is not a check because it is not drawn on a bank. “Money orders” are sold both by banks and non-banks. They vary in form and their form determines how they are treated in Article 3. The most common form of money order sold by banks is that of an ordinary check drawn by the purchaser except that the amount is machine impressed. That kind of money order is a check under Article 3 and is subject to a stop order by the purchaser-drawer as in the case of ordinary checks. The seller bank is the drawee and has no obligation to a holder to pay the money order. If a money order falls within the definition of a teller’s check, the rules applicable to teller’s checks apply. Postal money orders are subject to federal law. “Teller’s check” is separately defined in subsection (h). A teller’s check is always drawn by a bank and is usually drawn on another bank. In some cases a teller’s check is drawn on a nonbank but is made payable at or through a bank. Article 3 treats both types of teller’s check identically, and both are included in the definition of “check.” A cashier’s check, defined in subsection (g), is also included in the definition of “check.” Traveler’s checks are issued both by banks and non-banks and may be in the form of a note or draft. Subsection (i) states the essential characteristics of a traveler’s check. The requirement that the instrument be “drawn on or payable at or through a bank” may be satisfied without words on the instrument that identify a bank as drawee or paying agent so long as the instrument bears an appropriate routing number that identifies a bank as paying agent.
5. There are some differences between the requirements of Article 3 and the requirements included in Article 3 of the Convention on International Bills of Exchange and International Promissory Notes. Most obviously, the Convention does not include the limitation on extraneous undertakings set forth in Section 3-104(a)(3), and does not permit documents payable to bearer that would be permissible under Section 3-104(a)(1) and Section 3-109. See Convention Article 3. In most respects, however, the requirements of Section 3-104 and Article 3 of the Convention are quite similar.

An order or promise that is excluded from Article 3 because of the requirements of Section 3-104(a) may nevertheless be similar to a negotiable instrument in many respects. Although such a writing cannot be made a negotiable instrument within Article 3 by contract or conduct of its parties, nothing in Section 3-104 or in Section 3-102 is intended to mean that in a particular case involving such a writing a court could not arrive at a result similar to the result that would follow if the writing were a negotiable instrument. For example, a court might find that the obligor with respect to a promise that does not fall within Section 3-104(a) is precluded from asserting a defense against a bona fide purchaser. The preclusion could be based on estoppel or ordinary principles of contract. It does not depend upon the law of negotiable instruments. An example is stated in the paragraph following Case # 2 in Comment 4 to Section 3-302.

Moreover, consistent with the principle stated in Section 1-102(2)(b), the immediate parties to an order or promise that is not an instrument may provide by agreement that one or more of the provisions of Article 3 determine their rights and obligations under the writing. Upholding the parties’ choice is not inconsistent with Article 3. Such an agreement may bind a transferee of the writing if the transferee has notice of it or the agreement arises from usage of trade and the agreement does not violate other law or public policy. An example of such an agreement is a provision that a transferee of the writing has the rights of a holder in due course stated in Article 3 if the transferee took rights under the writing in good faith, for value, and without notice of a claim or defense. Even without an agreement of the parties to an order or promise that is not an instrument, it may be appropriate, consistent with the principles stated in Section 1-102(2), for a court to apply one or more provisions of Article 3 to the writing by analogy, taking into account the expectations of the parties and the differences between the writing and an instrument governed by Article 3. Whether such application is appropriate depends upon the facts of each case.

The definitions in Regulation CC § 229.2 of the terms “check,” “cashier’s check,” “teller’s check,” and “traveler’s check” are different from the definitions of those terms in Article 3.

Certificates of deposit are treated in former Article 3 as a separate type of instrument. In revised Article 3, Section 3-104(j) treats them as notes.

Prior Laws.

Former§ 28-3-105 was repealed. See Prior Laws,§ 28-3-101.

Official Comment

1. Under former Section 3-102(1)(a) “issue” was defined as the first delivery to a “holder or a remitter” but the term “remitter” was neither defined nor otherwise used. In revised Article 3, Section 3-105(a) defines “issue” more broadly to include the first delivery to anyone by the drawer or maker for the purpose of giving rights to anyone on the instrument. “Delivery” with respect to instruments is defined in Section 1-201(14) as meaning “voluntary transfer of possession.”
2. Subsection (b) continues the rule that nonissuance, conditional issuance or issuance for a special purpose is a defense of the maker or drawer of an instrument. Thus, the defense can be asserted against a person other than a holder in due course. The same rule applies to nonissuance of an incomplete instrument later completed.
3. Subsection (c) defines “issuer” to include the signer of an unissued instrument for convenience of reference in the statute.

Prior Laws.

Former§ 28-3-106 was repealed. See Prior Laws,§ 28-3-101.

Compiler’s Notes.

The bracketed insertions in subsections (1), (3), and (4) were added by the compiler to conform to the statutory citation style.

Decisions Under Prior Law

Statement of transaction.

Unconditional. Statement of Transaction.

Instrument was not deprived of negotiability by the first sentence in the margin thereof, stating that “the obligation of the acceptor of this bill arises out of the purchase of goods from the drawer.” McCornick & Co. v. Gem State Oil & Prods. Co., 38 Idaho 470, 222 P. 286 (1923).

Title-Retaining Note.

Recital in title-retaining note that title to property for which it was given should remain in payee and that he should have the right to take possession of it whenever he might deem himself insecure, even before maturity of note, rendered such instrument nonnegotiable under former law. Kimpton v. Studebaker Bros. Co., 14 Idaho 552, 94 P. 1039 (1908).

Unconditional.

Even if a “note” may not contain an express condition, the instrument, under which one party promised to perform specified services and the other party promised to pay for those services, was a “note” where the instrument did not expressly excuse the payor’s promise if the performer failed to perform, and the payor did not expressly promise to pay only “if” the performer performed. Spidell v. Jenkins, 111 Idaho 857, 727 P.2d 1285 (Ct. App. 1986).

Am. Jur. 2d.

Official Comment

1. This provision replaces former Section 3-105. Its purpose is to define when a promise or order fulfills the requirement in Section 3-104(a) that it be an “unconditional” promise or order to pay. Under Section 3-106(a) a promise or order is deemed to be unconditional unless one of the two tests of the subsection make the promise or order conditional. If the promise or order states an express condition to payment, the promise or order is not an instrument. For example, a promise states, “I promise to pay $100,000 to the order of John Doe if he conveys title to Blackacre to me.” The promise is not an instrument because there is an express condition to payment. However, suppose a promise states, “In consideration of John Doe’s promise to convey title to Blackacre I promise to pay $100,000 to the order of John Doe.” That promise can be an instrument if Section 3-104 is otherwise satisfied. Although the recital of the executory promise of Doe to convey Blackacre might be read as an implied condition that the promise be performed, the condition is not an express condition as required by Section 3-106(a)(i). This result is consistent with former Section 3-105(1)(a) and (b). Former Section 3-105(1)(b) is not repeated in Section 3-106 because it is not necessary. It is an example of an implied condition. Former Section 3-105(1)(d), (e), and (f) and the first clause of former Section 3-105(1)(c) are other examples of implied conditions. They are not repeated in Section 3-106 because they are not necessary. The law is not changed.
2. Subsection (c) applies to traveler’s checks or other instruments that may require a countersignature. Although the requirement of a countersignature is a condition to the obligation to pay, traveler’s checks are treated in the commercial world as money substitutes and therefore should be governed by Article 3. The first sentence of subsection (c) allows a traveler’s check to meet the definition of instrument by stating that the countersignature condition does not make it conditional for the purposes of Section 3-104. The second sentence states the effect of a failure to meet the condition. Suppose a thief steals a traveler’s check and cashes it by skillfully imitating the specimen signature so that the countersignature appears to be authentic. The countersignature is for the purpose of identification of the owner of the instrument. It is not an indorsement. Subsection (c) provides that the failure of the owner to countersign does not prevent a transferee from becoming a holder. Thus, the merchant or bank that cashed the traveler’s check becomes a holder when the traveler’s check is taken. The forged countersignature is a defense to the obligation of the issuer to pay the instrument, and is included in defenses under Section 3-305(a)(2). These defenses may not be asserted against a holder in due course. Whether a holder has notice of the defense is a factual question. If the countersignature is a very bad forgery, there may be notice. But if the merchant or bank cashed a traveler’s check and the countersignature appeared to be similar to the specimen signature, there might not be notice that the countersignature was forged. Thus, the merchant or bank could be a holder in due course. 3. Subsection (d) concerns the effect of a statement to the effect that the rights of a holder or transferee are subject to claims and defenses that the issuer could assert against the original payee. The subsection applies only if the statement is required by statutory or administrative law. The prime example is the Federal Trade Commission Rule (16 C.F.R. Part 433) preserving consumers’ claims and defenses in consumer credit sales. The intent of the FTC rule is to make it impossible for there to be a holder in due course of a note bearing the FTC legend and undoubtedly that is the result. But, under former Article 3, the legend may also have had the unintended effect of making the note conditional, thus excluding the note from former Article 3 altogether. Subsection (d) is designed to make it possible to preclude the possibility of a holder in due course without excluding the instrument from Article 3. Most of the provisions of Article 3 are not affected by the holder-in-due-course doctrine and there is no reason why Article 3 should not apply to a note bearing the FTC legend if holder-in-due-course rights are not involved. Under subsection (d) the statement does not make the note conditional. If the note otherwise meets the requirements of Section 3-104(a) it is a negotiable instrument for all purposes except that there cannot be a holder in due course of the note. No particular form of legend or statement is required by subsection (d). The form of a particular legend or statement may be determined by the other statute or administrative law. For example, the FTC legend required in a note taken by the seller in a consumer sale of goods or services is tailored to that particular transaction and therefore uses language that is somewhat different from that stated in subsection (d), but the difference in expression does not affect the essential similarity of the message conveyed. The effect of the FTC legend is to make the rights of a holder or transferee subject to claims or defenses that the issuer could assert against the original payee of the note.

Section 3-106(a)(ii) and (iii) carry forward the substance of former Section 3-105(2)(a). The only change is the use of “writing” instead of “agreement” and a broadening of the language that can result in conditionality. For example, a promissory note is not an instrument defined by Section 3-104 if it contains any of the following statements: 1. “This note is subject to a contract of sale dated April 1, 1990 between the payee and maker of this note.” 2. “This note is subject to a loan and security agreement dated April 1, 1990 between the payee and maker of this note.” 3. “Rights and obligations of the parties with respect to this note are stated in an agreement dated April 1, 1990 between the payee and maker of this note.” It is not relevant whether any condition to payment is or is not stated in the writing to which reference is made. The rationale is that the holder of a negotiable instrument should not be required to examine another document to determine rights with respect to payment. But subsection (b)(i) permits reference to a separate writing for information with respect to collateral, prepayment, or acceleration. Many notes issued in commercial transactions are secured by collateral, are subject to acceleration in the event of default, or are subject to prepayment. A statement of rights and obligations concerning collateral, prepayment, or acceleration does not prevent the note from being an instrument if the statement is in the note itself. See Section 3-104(a)(3) and Section 3-108(b). In some cases it may be convenient not to include a statement concerning collateral, prepayment, or acceleration in the note, but rather to refer to an accompanying loan agreement, security agreement or mortgage for that statement. Subsection (b)(i) allows a reference to the appropriate writing for a statement of these rights. For example, a note would not be made conditional by the following statement: “This note is secured by a security interest in collateral described in a security agreement dated April 1, 1990 between the payee and maker of this note. Rights and obligations with respect to the collateral are [stated in] [governed by] the security agreement.” The bracketed words are alternatives, either of which complies.

Subsection (b)(ii) addresses the issues covered by former Section 3-105(1)(f), (g), and (h) and Section 3-105(2)(b). Under Section 3-106(a) a promise or order is not made conditional because payment is limited to payment from a particular source or fund. This reverses the result of former Section 3-105(2)(b). There is no cogent reason why the general credit of a legal entity must be pledged to have a negotiable instrument. Market forces determine the marketability of instruments of this kind. If potential buyers don’t want promises or orders that are payable only from a particular source or fund, they won’t take them, but Article 3 should apply.

Prior Laws.

Former§ 28-3-107 was repealed. See Prior Laws,§ 28-3-101.

Am. Jur. 2d.

Official Comment

The definition of instrument in Section 3-104 requires that the promise or order be payable in “money.” That term is defined in Section 1-201(24) and is not limited to United States dollars. Section 3-107 states than an instrument payable in foreign money may be paid in dollars if the instrument does not prohibit it. It also states a conversion rate which applies in the absence of a different conversion rate stated in the instrument. The reference in former Section 3-107(1) to instruments payable in “currency” or “current funds” has been dropped as superfluous.

Prior Laws.

Former§ 28-3-108 was repealed. See Prior Laws,§ 28-3-101.

Decisions Under Prior Law

Option to Declare Due.

Where it was stipulated in promissory note, that “principal and interest shall become immediately due and collectible at the option of the holder of the note” if payment of interest and principal installments are not made when due, such stipulation is a penalty and will not be enforced as to the interest not yet earned on the principal. Tipton v. Ellsworth, 18 Idaho 207, 109 P. 134 (1910).

Negotiability of note was not destroyed by provision that, upon default in payment of interest on note, whole shall become due. Hutson v. Rankin, 36 Idaho 169, 213 P. 345 (1922).

Acceleration clause, none of the provisions of which depend on act of holder or are in his control, did not destroy negotiability of note. McCornick & Co. v. Gem State Oil & Prods. Co., 38 Idaho 470, 222 P. 286 (1923).

Reasonable Time.

As a general rule, question of what was a reasonable length of time in which to present for payment a promissory note which was indorsed after maturity was one of fact to be determined by circumstances of each particular case. Sheffield v. Cleland, 19 Idaho 612, 115 P. 20 (1911).

Am. Jur. 2d.

Official Comment

This section is a restatement of former Section 3-108 and Section 3-109. Subsection (b) broadens former Section 3-109 somewhat by providing that a definite time includes a time readily ascertainable at the time the promise or order is issued. Subsection (b)(iii) and (iv) restates former Section 3-109(1)(d). It adopts the generally accepted rule that a clause providing for extension at the option of the holder, even without a time limit, does not affect negotiability since the holder is given only a right which the holder would have without the clause. If the extension is to be at the option of the maker or acceptor or is to be automatic, a definite time limit must be stated or the time of payment remains uncertain and the order or promise is not a negotiable instrument. If a definite time limit is stated, the effect upon certainty of time of payment is the same as if the instrument were made payable at the ultimate date with a term providing for acceleration.

Prior Laws.

Former§ 28-3-109 was repealed. See Prior Laws,§ 28-3-101.

Compiler’s Notes.

The bracketed insertions in subsections (3) were added by the compiler to conform to the statutory citation style.

Decisions Under Prior Law

Fictitious Payee.

Where payee named never owned or received delivery of note and note was delivered to holder who lent money to makers, payee was fictitious and note was payable to bearer. Ritter v. Moore, 64 Idaho 144, 128 P.2d 639 (1942).

RESEARCH REFERENCES

ALR.

ALR. — When is instrument “payable to bearer or to order” as required to constitute negotiable instrument under Article 3 of the Uniform Commercial Code [rev]§§ 3-104(a)(1) and 3-109. 77 A.L.R.5th 523.

Official Comment

1. Under Section 3-104(a), a promise or order cannot be an instrument unless the instrument is payable to bearer or to order when it is issued or unless Section 3-104(c) applies. The terms “payable to bearer” and “payable to order” are defined in Section 3-109. The quoted terms are also relevant in determining how an instrument is negotiated. If the instrument is payable to bearer it can be negotiated by delivery alone. Section 3-201(b). An instrument that is payable to an identified person cannot be negotiated without the indorsement of the identified person. Section 3-201(b). An instrument payable to order is payable to an identified person. Section 3-109(b). Thus, an instrument payable to order requires the indorsement of the person to whose order the instrument is payable.
2. Subsection (a) states when an instrument is payable to bearer. An instrument is payable to bearer if it states that it is payable to bearer, but some instruments use ambiguous terms. For example, check forms usually have the words “to the order of” printed at the beginning of the line to be filled in for the name of the payee. If the drawer writes in the word “bearer” or “cash,” the check reads “to the order of bearer” or “to the order of cash.” In each case the check is payable to bearer. Sometimes the drawer will write the name of the payee “John Doe” but will add the words “or bearer.” In that case the check is payable to bearer. Subsection (a). Under subsection (b), if an instrument is payable to bearer it can’t be payable to order. This is different from former Section 3-110(3). An instrument that purports to be payable both to order and bearer states contradictory terms. A transferee of the instrument should be able to rely on the bearer term and acquire rights as a holder without obtaining the indorsement of the identified payee. An instrument is also payable to bearer if it does not state a payee. Instruments that do not state a payee are in most cases incomplete instruments. In some cases the drawer of a check may deliver or mail it to the person to be paid without filling in the line for the name of the payee. Under subsection (a) the check is payable to bearer when it is sent or delivered. It is also an incomplete instrument. This case is discussed in Comment 2 to Section 3-115. Subsection (a)(3) contains the words “otherwise indicates that it is not payable to an identified person.” The quoted words are meant to cover uncommon cases in which an instrument indicates that it is not meant to be payable to a specific person. Such an instrument is treated like a check payable to “cash.” The quoted words are not meant to apply to an instrument stating that it is payable to an identified person such as “ABC Corporation” if ABC Corporation is a nonexistent company. Although the holder of the check cannot be the nonexistent company, the instrument is not payable to bearer. Negotiation of such an instrument is governed by Section 3-404(b).

Prior Laws.

Former§ 28-3-110 was repealed. See Prior Laws,§ 28-3-101.

Am. Jur. 2d.

Official Comment

1. Section 3-110 states rules for determining the identity of the person to whom an instrument is initially payable if the instrument is payable to an identified person. This issue usually arises in a dispute over the validity of an indorsement in the name of the payee. Subsection (a) states the general rule that the person to whom an instrument is payable is determined by the intent of “the person, whether or not authorized, signing as, or in the name or behalf of, the issuer of the instrument.” “Issuer” means the maker or drawer of the instrument. Section 3-105(c). If X signs a check as drawer of a check on X’s account, the intent of X controls. If X, as President of Corporation, signs a check as President in behalf of Corporation as drawer, the intent of X controls. If X forges Y’s signature as drawer of a check, the intent of X also controls. Under Section 3-103(a)(3), Y is referred to as the drawer of the check because the signing of Y’s name identifies Y as the drawer. But since Y’s signature was forged Y has no liability as drawer (Section 3-403(a)) unless some other provision of Article 3 or Article 4 makes Y liable. Since X, even though unauthorized, signed in the name of Y as issuer, the intent of X determines to whom the check is payable.

In the case of a check payable to “John Smith,” since there are many people in the world named “John Smith” it is not possible to identify the payee of the check unless there is some further identification or the intention of the drawer is determined. Name alone is sufficient under subsection (a), but the intention of the drawer determines which John Smith is the person to whom the check is payable. The same issue is presented in cases of misdescriptions of the payee. The drawer intends to pay a person known to the drawer as John Smith. In fact that person’s name is James Smith or John Jones or some other entirely different name. If the check identifies the payee as John Smith, it is nevertheless payable to the person intended by the drawer. That person may indorse the check in either the name John Smith or the person’s correct name or in both names. Section 3-204(d). The intent of the drawer is also controlling in fictitious payee cases. Section 3-404(b). The last sentence of subsection (a) refers to rare cases in which the signature of an organization requires more than one signature and the persons signing on behalf of the organization do not all intend the same person as payee. Any person intended by a signer for the organization is the payee and an indorsement by that person is an effective indorsement.

Subsection (b) recognizes the fact that in a large number of cases there is no human signer of an instrument because the instrument, usually a check, is produced by automated means such as a check-writing machine. In that case, the relevant intent is that of the person who supplied the name of the payee. In most cases that person is an employee of the drawer, but in some cases the person could be an outsider who is committing a fraud by introducing names of payees of checks into the system that produces the checks. A check-writing machine is likely to be operated by means of a computer in which is stored information as to name and address of the payee and the amount of the check. Access to the computer may allow production of fraudulent checks without knowledge of the organization that is the issuer of the check. Section 3-404(b) is also concerned with this issue. See Case #4 in Comment 2 to Section 3-404. 2. Subsection (c) allows the payee to be identified in any way including the various ways stated. Subsection (c)(1) relates to instruments payable to bank accounts. In some cases the account might be identified by name and number, and the name and number might refer to different persons. For example, a check is payable to “X Corporation Account No. 12345 in Bank of Podunk.” Under the last sentence of subsection (c)(1), this check is payable to X Corporation and can be negotiated by X Corporation even if Account No. 12345 is some other person’s account or the check is not deposited in that account. In other cases the payee is identified by an account number and the name of the owner of the account is not stated. For example, Debtor pays Creditor by issuing a check drawn on Payor Bank. The check is payable to a bank account owned by Creditor but identified only by number. Under the first sentence of subsection (c)(1) the check is payable to Creditor and, under Section 1-201(20), Creditor becomes the holder when the check is delivered. Under Section 3-201(b), further negotiation of the check requires the indorsement of Creditor. But under Section 4-205(a), if the check is taken by a depositary bank for collection, the bank may become a holder without the indorsement. Under Section 3-102(b), provisions of Article 4 prevail over those of Article 3. The depositary bank warrants that the amount of the check was credited to the payee’s account.

3. Subsection (c)(2) replaces former Section 3-117 and subsection (1)(e), (f), and (g) of former Section 3-110. This provision merely determines who can deal with an instrument as a holder. It does not determine ownership of the instrument or its proceeds. Subsection (c)(2)(i) covers trusts and estates. If the instrument is payable to the trust or estate or to the trustee or representative of the trust or estate, the instrument is payable to the trustee or representative or any successor. Under subsection (c)(2)(ii), if the instrument states that it is payable to Doe, President of X Corporation, either Doe or X Corporation can be holder of the instrument. Subsection (c)(2)(iii) concerns informal organizations that are not legal entities such as unincorporated clubs and the like. Any representative of the members of the organization can act as holder. Subsection (c)(2)(iv) applies principally to instruments payable to public offices such as a check payable to County Tax Collector.

4. Subsection (d) replaces former Section 3-116. An instrument payable to X or Y is governed by the first sentence of subsection (d). An instrument payable to X and Y is governed by the second sentence of subsection (d). If an instrument is payable to X or Y, either is the payee and if either is in possession that person is the holder and the person entitled to enforce the instrument. Section 3-301. If an instrument is payable to X and Y, neither X nor Y acting alone is the person to whom the instrument is payable. Neither person, acting alone, can be the holder of the instrument. The instrument is “payable to an identified person.” The “identified person” is X and Y acting jointly. Section 3-109(b) and Section 1-102(5)(a). Thus, under Section 1-201(20) X or Y, acting alone, cannot be the holder or the person entitled to enforce or negotiate the instrument because neither, acting alone, is the identified person stated in the instrument.

The third sentence of subsection (d) is directed to cases in which it is not clear whether an instrument is payable to multiple payees alternatively. In the case of ambiguity persons dealing with the instrument should be able to rely on the indorsement of a single payee. For example, an instrument payable to X and/or Y is treated like an instrument payable to X or Y.

Prior Laws.

Former§ 28-3-111 was repealed. See Prior Laws,§ 28-3-101.

Compiler’s Notes.

The bracketed insertion in the first sentence was added by the compiler to conform to the statutory citation style.

Official Comment

If an instrument is payable at a bank in the United States, Section 3-501(b)(1) states that presentment must be made at the place of payment, i.e. the bank. The place of presentment of a check is governed by Regulation CC § 229.36.

Prior Laws.

Former§ 28-3-112 was repealed. See Prior Laws,§ 28-3-101.

Official Comment

1. Under Section 3-104(a) the requirement of a “fixed amount” applies only to principal. The amount of interest payable is that described in the instrument. If the description of interest in the instrument does not allow for the amount of interest to be ascertained, interest is payable at the judgment rate. Hence, if an instrument calls for interest, the amount of interest will always be determinable. If a variable rate of interest is prescribed, the amount of interest is ascertainable by reference to the formula or index described or referred to in the instrument. The last sentence of subsection (b) replaces subsection (d) of former Section 3-118.
2. The purpose of subsection (b) is to clarify the meaning of “interest” in the introductory clause of Section 3-104(a). It is not intended to validate a provision for interest in an instrument if that provision violates other law.

Prior Laws.

Former§ 28-3-113 was repealed. See Prior Laws,§ 28-3-101.

Compiler’s Notes.

The bracketed insertion in subsection (1) was added by the compiler to conform to the statutory citation style.

Decisions Under Prior Law

Certified Check.

Where bank on which postdated check was drawn certified it, liability of bank attached from time of certification, irrespective of date which check bore. Smith v. Field, 19 Idaho 558, 114 P. 668 (1911).

Postdated Check.

Postdated check is in effect a note. Noall v. Dickinson, 49 Idaho 706, 292 P. 219 (1930).

Official Comment

This section replaces former Section 3-114. Subsections (1) and (3) of former Section 3-114 are deleted as unnecessary. Section 3-113(a) is based in part on subsection (2) of former Section 3-114. The rule that a demand instrument is not payable before the date of the instrument is subject to Section 4-401(c) which allows the payor bank to pay a postdated check unless the drawer has notified the bank of the postdating pursuant to a procedure prescribed in that subsection. With respect to an undated instrument, the date is the date of issue.

Prior Laws.

Former§ 28-3-114 was repealed. See Prior Laws,§ 28-3-101.

Decisions Under Prior Law

Contract of Guaranty.

Contract of guaranty indorsed upon the back of a promissory note in the following words: “For value received I hereby guarantee payment of the within note and waive protest, demand and notice for nonpayment thereof,” was a several as well as a joint obligation of each person who executes such contract. Miller v. Lewiston Nat’l Bank, 18 Idaho 124, 108 P. 901 (1910).

Liability of Indorser.

Unless otherwise indicated by appropriate words, one who puts his name to instrument, otherwise than as a maker, drawer or acceptor, was liable as indorser, and it was immaterial whether he signed before or after delivery. Thomas v. Hoebel, 46 Idaho 744, 271 P. 931 (1928).

Official Comment

Section 3-114 replaces subsections (b) and (c) of former Section 3-118.

Prior Laws.

Former§ 28-3-115 was repealed. See Prior Laws,§ 28-3-101.