CHAPTER 355 Uniform Commercial Code

Article 1. General Provisions

Compiler’s Notes.

Article 1 of Chapter 355 was revised by the Kentucky General Assembly during its 2006 Regular Session by 2006 Ky. Acts ch. 242, §§ 1–24 and 64, effective July 12, 2006. The revision is based on the 2001 revision of Article 1 of the Uniform Commercial Code as promulgated by the National Conference of Commissioners of Uniform State Laws. The previous version of Article 1 of Chapter 355 was based on 1958 Ky. Acts, ch. 77.

The official comments in this article are copyrighted by the National Conference of Commissioners of Uniform State Laws and the American Law Institute, and are reproduced by permission.

Part 1. Short Title — Construction, Application and Subject Matter of This Chapter

355.1-101. Short titles.

  1. This chapter shall be known and may be cited as Uniform Commercial Code.
  2. This article may be cited as Uniform Commercial Code - General Provisions.

History. Enact. Acts 1958, ch. 77, § 1-101, effective July 1, 1960; 2006, ch. 242, § 1, effective July 12, 2006.

Official Comment

Source:

Former Section 1-101.

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, 3-101, 4-101, 4A-101, 5-101, 6-101, 7-101, 8-101, and 9-101.

NOTES TO DECISIONS

Cited in:

Commonwealth v. Hallahan, 391 S.W.2d 378, 1965 Ky. LEXIS 305 ( Ky. 1965 ); Dalton v. First Nat’l Bank, 712 S.W.2d 954, 1986 Ky. App. LEXIS 1165 (Ky. Ct. App. 1986); Son v. Coal Equity, Inc., 293 B.R. 392, 2003 U.S. Dist. LEXIS 6941 (W.D. Ky. 2003 ).

Research References and Practice Aids

Kentucky Bench & Bar.

Gardner, Ten Traps for the Unwary in International Transactions, Vol. 60, No. 4, Fall 1996, Ky. Bench & Bar 26.

Kentucky Law Journal.

Young, Scope, Purpose, and Functions of the Uniform Commercial Code, 48 Ky. L.J. 191 (1960).

Weber, The Extension of the Voidable Title Principle Under the Code, 49 Ky. L.J. 437 (1961).

Smith, Uniform Commercial Code — Assignments — Conditional Sales Contracts — Waiver of Defense Clauses, 58 Ky. L.J. 850 (1970).

The Eroding Uniformity of the Uniform Commercial Code, 65 Ky. L.J. 799 (1976-77).

Lawson, Security Interests in Motor Vehicles: A Conflict in Kentucky Law, 66 Ky. L.J. 924 (1977-1978).

Kentucky Law Survey, Nowka, Commercial Law, 73 Ky. L.J. 315 (1984-85).

Northern Kentucky Law Review.

Notes, Torts — Products Liability — Should Contract or Tort Provide the Cause of Action When a Plaintiff Seeks Recovery Only for Damage to the Defective Product Itself — C & S Fuel, Inc. v. Clark Equip. Co.,10 N. Ky. L. Rev. 489 (1983).

355.1-102. Scope of article.

This article applies to a transaction to the extent that it is governed by another article of the Uniform Commercial Code.

History. Enact. Acts 1958, ch. 77, § 1-102, effective July 1, 1960; repealed and reenact., Acts 2006, ch. 242, § 2, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-102, effective July 1, 1960) relating to purposes, rules of construction, and variation by agreement, was repealed and reenacted by Acts 2006, ch. 242, § 2. For comparable provisions, see KRS 355.1-103 and 355.1-302 .

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.

NOTES TO DECISIONS

1.Priority of Creditor Against Reclaiming Seller.

Since the Kentucky Commercial Code does not contain any provision defining the relative priorities of a creditor as against a reclaiming seller the relevant common law of Kentucky will apply. In re Mel Golde Shoes, Inc., 403 F.2d 658, 1968 U.S. App. LEXIS 4652 (6th Cir. Ky. 1968 ).

2.Lien of Unpaid Seller of Personal Property.

Both at common law and under the Uniform Sales Act the implied lien of an unpaid seller of personal property depended on possession and was lost by delivery to the buyer and both the Uniform Sales Act and its successor the Uniform Commercial Code provide that unless displaced by the statutes the principles of common law and equity relative to fraud and other invalidating circumstances continue to apply. Greater Louisville Auto Auction, Inc. v. Ogle Buick, Inc., 387 S.W.2d 17, 1965 Ky. LEXIS 457 ( Ky. 1965 ).

3.Breach of Implied Warranty.

In Kentucky privity of contract between plaintiff and defendant is essential to cause of action for breach of implied warranty. Schultz v. Tecumseh Products, 310 F.2d 426, 1962 U.S. App. LEXIS 3505 (6th Cir. Mich. 1962).

4.Existing Laws.

Laws existing when the Uniform Commercial Code was adopted are supplemental to the Uniform Commercial Code unless displaced by it; thus KRS 446.060(1) was not displaced by the Uniform Commercial Code, but is supplemental to the Code. R. C. Durr Co. v. Bennett Industries, Inc., 590 S.W.2d 338, 1979 Ky. App. LEXIS 484 (Ky. Ct. App. 1979).

5.Negligent Paying on Instrument.

While the Uniform Commercial Code as adopted in Kentucky does not expressly state that a collecting or payor bank is liable for negligently paying on an instrument, this section and KRS 355.3-419 (3), 355.3-406 and 355.4-103 (1) indirectly indicate that this is so. Bullitt County Bank v. Publishers Printing Co., 684 S.W.2d 289, 1984 Ky. App. LEXIS 568 (Ky. Ct. App. 1984).

6.Jury Trier of Facts.

There is no special rule that ultimate or conclusory facts are for the courts to decide in commercial transactions; unless reasonable minds cannot differ on the conclusions, the ultimate facts are for the jury to decide. McCoy v. American Fidelity Bank & Trust Co., 715 S.W.2d 228, 1986 Ky. LEXIS 311 ( Ky. 1986 ).

Research References and Practice Aids

Kentucky Law Journal.

Weber, The Extension of the Voidable Title Principle Under the Code, 49 Ky. L.J. 437 (1961).

Brickey, Products Liability in Kentucky: The Doctrinal Dilemma, 65 Ky. L.J. 593 (1976-77).

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

Weinberg, Pleading and Practice in Commercial Paper Cases: Burdens of Proof, 72 Ky. L.J. 575 (1983-84).

Kentucky Law Survey, Weinberg, Graham and Stipanowich, Modernizing Kentucky’s Uniform Commercial Code, 73 Ky. L.J. 515 (1984-85).

Nowka and Taylor, Kentucky Employees’ Wage Liens: A Sneak Attack on Creditors, but Beware of the Bankruptcy Trustee, 84 Ky. L.J. 317 (1995-96).

355.1-103. Construction of code to promote its purposes and policies — Applicability of supplemental principles of law — Use of official comments.

  1. The Uniform Commercial Code shall be liberally construed and applied to promote its underlying purposes and policies, which are:
    1. To simplify, clarify, and modernize the law governing commercial transactions;
    2. To permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and
    3. To make uniform the law among the various jurisdictions.
  2. Unless displaced by the particular provisions of the Uniform Commercial Code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause, supplement its provisions.
  3. Official comments to the Uniform Commercial Code, as published from time to time by the National Conference of Commissioners on Uniform State Laws, represent the express legislative intent of the General Assembly and shall be used as a guide for interpretation of this chapter, except that if the text and the official comments conflict, the text shall control.

History. Enact. Acts 1958, ch. 77, §§ 1-103, effective July 1, 1960; repealed and reenact., Acts 2006, ch. 242, § 3, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-103, effective July 1, 1960) relating to supplementary general principles of law, was repealed and reenacted by Acts 2006, ch. 242, § 3.

Official Comment

Source:

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

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 . 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 it 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 . 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 . 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.

NOTES TO DECISIONS

1.Purpose.

The purpose in adopting the Uniform Commercial Code was to join other states in achieving uniformity and the realization of this purpose demands that so far as possible the meaning of the law be gathered from the instrument itself, unfettered by anachronisms indigenous to the respective jurisdictions in which it is in force. Lincoln Bank & Trust Co. v. Queenan, 344 S.W.2d 383, 1961 Ky. LEXIS 223 ( Ky. 1961 ).

2.Construction.

The court adopted a rule of construction that the code was plenary and exclusive except where the legislature clearly indicated otherwise. Lincoln Bank & Trust Co. v. Queenan, 344 S.W.2d 383, 1961 Ky. LEXIS 223 ( Ky. 1961 ).

A period of indulgence should be granted in connection with cases arising under the Uniform Commercial Code. Alloway v. Stuart, 385 S.W.2d 41, 1964 Ky. LEXIS 109 ( Ky. 1964 ).

Kentucky would follow the “economic loss doctrine” and would not allow recovery of commercial buyer in tort under either theories of negligence or strict liability where the subject damage is limited to the product itself, but would permit recovery in tort for damage to buyer’s other property; motion of defendant who manufactured defective utility poles to dismiss claims of utility company to recover in tort for the cost of identifying, repairing, or replacing defective poles was granted. Bowling Green Mun. Utils. v. Thomasson Lumber Co., 902 F. Supp. 134, 1995 U.S. Dist. LEXIS 15341 (W.D. Ky. 1995 ).

3.Effective Date.

When the effective date of this code is prior to the filing of an instrument which purports to create a security interest in personalty, both the instrument and the filing must comply with the terms of this code. In re Leckie Freeburn Coal Co., 405 F.2d 1043, 1969 U.S. App. LEXIS 9150 (6th Cir. Ky.), cert. denied, 395 U.S. 960, 89 S. Ct. 2101, 23 L. Ed. 2d 746, 1969 U.S. LEXIS 3173 (U.S. 1969).

Assignment by one partner to another of the right to collect money due and owing to the copartners was not an assignment of a “contract right” as contemplated by the Uniform Commercial Code since the right had already been earned by performance but was assignment of an “account” which was not a “security interest” requiring filing under subsection (1)(b) of KRS 355.9-301 to perfect the interest and the assignment had priority over a subsequent attachment by judgment creditor of assigning partner. Spurlin v. Sloan, 368 S.W.2d 314, 1963 Ky. LEXIS 41 ( Ky. 1963 ).

No part of the Uniform Commercial Code applies to a written assignment of funds presently due and owing for the purpose of liquidation or satisfying a prior existing obligation. Spurlin v. Sloan, 368 S.W.2d 314, 1963 Ky. LEXIS 41 ( Ky. 1963 ).

4.Equipment Leasing Transactions.

The UCC is applicable to equipment leasing transactions. Hertz Commercial Leasing Corp. v. Joseph, 641 S.W.2d 753, 1982 Ky. App. LEXIS 262 (Ky. Ct. App. 1982).

Cited in:

Cole v. Warren Cnty., 2015 Ky. App. LEXIS 157 (Nov. 13, 2015); Versailles Farm v. Haynes, 2021 Ky. App. LEXIS 17 (Ky. Ct. App. Feb. 12, 2021).

Research References and Practice Aids

Journal of Mineral Law & Policy.

Comments, Injected Gas: Realty or Personalty, 3 J.M.L. & P. 571 (1988).

Kentucky Law Journal.

Young, Scope, Purposes and Functions of the Uniform Commercial Code, 48 Ky. L.J. 191 (1960).

Weber, The Extension of the Voidable Title Principle Under the Code, 49 Ky. L.J. 437 (1961).

Whiteside, Lewis, Kentucky’s Commercial Code — Some Initial Problems in Security, 50 Ky. L.J. 61 (1961).

Whiteside, Amending the Uniform Commercial Code, 51 Ky. L.J. 3 (1962).

Kentucky Law Survey, Peltier and Coleman, Commercial Law, 67 Ky. L.J. 523 (1978-79).

Comments, The Role of Negligence in Section 3-405 of the Uniform Commercial Code: Owensboro National Bank v. Crisp, 69 Ky. L.J. 143 (1980-81).

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Kentucky Law Survey, Weinberg, Graham and Stipanowich, Modernizing Kentucky’s Uniform Commercial Code, 73 Ky. L.J. 515 (1984-85).

Northern Kentucky Law Review.

Notes, Torts — Products Liability — Should Contract or Tort Provide the Cause of Action When a Plaintiff Seeks Recovery Only for Damage to the Defective Product Itself — C & S Fuel, Inc. v. Clark Equip. Co.,10 N. Ky. L. Rev. 489 (1983).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Practice Context for Sales, § 190.00.

355.1-104. Construction against implicit repeal.

The Uniform Commercial Code being a general act intended as a unified coverage of its subject matter, no part of it shall be deemed to be impliedly repealed by subsequent legislation if such construction can reasonably be avoided.

History. Enact. Acts 1958, ch. 77, § 1-104, effective July 1, 1960; 2006, ch. 242, § 4, effective July 12, 2006.

Official Comment

Source:

Former Section 1-104.

Changes from former law:

Except for changing the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-104.

  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.

NOTES TO DECISIONS

1.Repeals by Implication.

Repeals by implication were not favored, and a statute would not be construed as repealing a prior statute unless it was so clearly repugnant as to admit of no other reasonable construction. Tipton v. Brown, 277 Ky. 625 , 126 S.W.2d 1067, 1939 Ky. LEXIS 690 ( Ky. 1939 ); Demunbrun v. Browning, 311 Ky. 71 , 223 S.W.2d 372, 1949 Ky. LEXIS 1058 ( Ky. 1949 ).

Cited in:

Home Lumber Co. v. Appalachian Regional Hospitals, Inc., 722 S.W.2d 912, 1987 Ky. App. LEXIS 425 (Ky. Ct. App. 1987).

Research References and Practice Aids

Kentucky Law Journal.

Whiteside, Lewis, Kentucky’s Commercial Code — Some Initial Problems in Security, The Lincoln Bank Case, 50 Ky. L.J. 61 (1961).

355.1-105. Severability.

If any provision or clause of the Uniform Commercial Code or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Uniform Commercial Code which can be given effect without the invalid provision or application, and to this end the provisions of the Uniform Commercial Code are severable.

History. Enact. Acts 1958, ch. 77, § 1-105, effective July 1, 1960; 1986, ch. 118, § 1, effective July 1, 1987; 1990, ch. 363, § 79, effective January 1, 1991; 1992, ch. 116, § 62, effective July 14, 1992; 1996, ch. 130, § 179, effective January 1, 1997; 2000, ch. 408, § 19, effective July 1, 2001; repealed and reenact., Acts 2006, ch. 242, § 5, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-105, effective July 1, 1960; 1986, ch. 118, § 1, effective July 1, 1987; 1990, ch. 363, § 79, effective January 1, 1991; 1992, ch. 116, § 62, effective July 14, 1992; 1996, ch. 130, § 179, effective January 1, 1997; 2000, ch. 408, § 19, effective July 1, 2001) relating to territorial application and parties’ choice of law, was repealed and reenacted by Acts 2006, ch. 242, § 5. For comparable provisions, see KRS 355.1-301 .

Official Comment

Source:

Former Section 1-108.

Changes from former law:

Except for changing the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-108.

  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.

NOTES TO DECISIONS

1.Multiple Acts.

Although an act was multiple, if it could be dissolved into its constituent parts and these separated from each other and one eliminated without defeating the legislative intention that part should be stricken and the rest allowed to stand. Owensboro v. Hazel, 229 Ky. 752 , 17 S.W.2d 1031, 1929 Ky. LEXIS 843 ( Ky. 1929 ).

355.1-106. Use of singular and plural — Gender.

In the Uniform Commercial Code, unless the statutory context otherwise requires:

  1. Words in the singular number include the plural, and those in the plural include the singular; and
  2. Words of any gender also refer to any other gender.

History. Enact. Acts 1958, ch. 77, § 1-106, effective July 1, 1960; repealed and reenact., Acts 2006, ch. 242, § 6, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-106, effective July 1, 1960) relating to remedies liberally administered, was repealed and reenacted by Acts 2006, ch. 242, § 6. For comparable provisions, see KRS 355.1-305 .

Official Comment

Source:

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

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.

355.1-107. Section headnotes.

Section headnotes are part of the Uniform Commercial Code.

History. Enact. Acts 1958, ch. 77, § 1-107, effective July 1, 1960; repealed and reenact., Acts 2006, ch. 242, § 7, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-107, effective July 1, 1960) relating to waiver or renunciation of claim or right after breach, was repealed and reenacted by Acts 2006, ch. 242, § 7. For comparable provisions, see KRS 355.1-306 .

Official Comment

Source:

Former Section 1-109.

Changes from former law:

None.

  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.”).

355.1-108. Relation to Electronic Signatures in Global and National Commerce Act.

This chapter modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. sec. 7001 et seq., except that nothing in this chapter modifies, limits, or supersedes Section 7001(c) of that Act or authorizes electronic delivery of any of the notices described in Section 7003(b) of that Act.

History. Enact. Acts 1958, ch. 77, § 1-108, effective July 1, 1960; repealed and reenact., Acts 2006, ch. 242, § 8, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-108, effective July 1, 1960) relating to severability, was repealed and reenacted by Acts 2006, ch. 242, § 8. For comparable provisions, see KRS 355.1-105 .

Legislative Research Commission Notes.

(7/12/2006). Section 102(a)(2)(B) of the federal Electronic Signatures in Global and National Commerce Act of 2000, 15 U.S.C. sec. 7002 , provides: “A State statute, regulation, or other rule of law may modify, limit, or supersede the provisions of section 7001 of this title with respect to State law only if such statute, regulation, or rule of law . . . enacted or adopted after June 30, 2000, makes specific reference tot this chapter.”

Official Comment

Source:

New

  1. The federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001et 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.

355.1-109. Section captions. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1958, ch. 77, § 1-109, effective July 1, 1960) was repealed by Acts 2006, ch. 242, § 64, effective July 12, 2006. For comparable provisions, see KRS 355.1-107 .

355.1-110. Comments of National Conference of Commissioners on Uniform State Laws and American Law Institute may be consulted in construction and application of chapter. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1990, ch. 478, § 5, effective July 13, 1990) was repealed by Acts 2006, ch. 242, § 64, effective July 12, 2006. For comparable provisions, see KRS 355.1-103 .

Part 2. General Definitions and Principles of Interpretation

355.1-201. General definitions.

  1. Unless the context otherwise requires, words or phrases defined in this section, or in the additional definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof, have the meanings stated.
  2. Subject to definitions contained in other articles of the Uniform Commercial Code that apply to particular articles or parts thereof:
    1. “Action,” in the sense of a judicial proceeding, includes recoupment, counterclaim, set-off, suit in equity, and any other proceeding in which rights are determined;
    2. “Aggrieved party” means a party entitled to pursue a remedy;
    3. “Agreement,” as distinguished from “contract,” means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in KRS 355.1-303 ;
    4. “Bank” means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union, and trust company;
    5. “Bearer” means a person in control of a negotiable electronic document of title or a person in possession of a negotiable instrument, a negotiable tangible document of title, or certificated security that is payable to bearer or indorsed in blank;
    6. “Bill of lading” means a document of title evidencing the receipt of goods for shipment issued by a person engaged in the business of directly or indirectly transporting or forwarding goods. The term does not include a warehouse receipt;
    7. “Branch” includes a separately incorporated foreign branch of a bank;
    8. “Burden of establishing” a fact means the burden of persuading the trier of fact that the existence of the fact is more probable than its nonexistence;
    9. “Buyer in ordinary course of business” means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller’s own usual or customary practices. A person that sells oil, gas, or other minerals at the wellhead or minehead is a person in the business of selling goods of that kind. A buyer in ordinary course of business may buy for cash, by exchange of other property, or on secured or unsecured credit, and may acquire goods or documents of title under a preexisting contract for sale. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under Article 2 of this chapter may be a buyer in ordinary course of business. “Buyer in ordinary course of business” does not include a person that acquires goods in a transfer in bulk or as security for or in total or partial satisfaction of a money debt;
    10. “Conspicuous,” with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is “conspicuous” or not is a decision for the court. Conspicuous terms include the following:
      1. A heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and
      2. Language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language;
    11. “Consumer” means an individual who enters into a transaction primarily for personal, family, or household purposes;
    12. “Contract,” as distinguished from “agreement,” means the total legal obligation that results from the parties’ agreement as determined by the Uniform Commercial Code as supplemented by any other applicable laws;
    13. “Creditor” includes a general creditor, a secured creditor, a lien creditor, and any representative of creditors, including an assignee for the benefit of creditors, a trustee in bankruptcy, a receiver in equity, and an executor or administrator of an insolvent debtor’s or assignor’s estate;
    14. “Defendant” includes a person in the position of defendant in a counterclaim, cross-claim, or third-party claim;
    15. “Delivery,” with respect to an electronic document of title means voluntary transfer of control and with respect to an instrument, document of title, or chattel paper, means voluntary transfer of possession;
    16. “Document of title” means a record that:
      1. In the regular course of business or financing is treated as adequately evidencing that the person in possession or control of the record is entitled to receive, control, hold, and dispose of the record and the goods the record covers; and
      2. Purports to be issued by or addressed to a bailee and to cover goods in the bailee’s possession which are either identified or are fungible portions of an identified mass. The term includes a bill of lading, transport document, dock warrant, dock receipt, warehouse receipt and order for delivery of goods. An electronic document of title is evidenced by a record consisting of information stored in an electronic medium. A tangible document of title is evidenced by a record consisting of information that is inscribed on a tangible medium;
    17. “Fault” means a default, breach, or wrongful act or omission;
    18. “Fungible goods” means:
      1. Goods of which any unit, by nature or usage of trade, is the equivalent of any other like unit; or
      2. Goods that by agreement are treated as equivalent;
    19. “Genuine” means free of forgery or counterfeiting;
    20. “Good faith,” except as otherwise provided in Article 5 of this chapter, means honesty in fact and the observance of reasonable commercial standards of fair dealing;
    21. “Holder” means:
      1. The person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession;
      2. The person in possession of a document of title if the goods are deliverable either to bearer or to the order of the person in possession; or
      3. A person in control of a negotiable electronic document of title;
    22. “Insolvency proceeding” includes an assignment for the benefit of creditors or other proceeding intended to liquidate or rehabilitate the estate of the person involved;
    23. “Insolvent” means:
      1. Having generally ceased to pay debts in the ordinary course of business other than as a result of bona fide dispute;
      2. Being unable to pay debts as they become due; or
      3. Being insolvent within the meaning of federal bankruptcy law;
    24. “Money” means a medium of exchange currently authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two (2) or more countries;
    25. “Organization” means a person other than an individual;
    26. “Party,” as distinguished from “third party,” means a person that has engaged in a transaction or made an agreement subject to the Uniform Commercial Code;
    27. “Person” means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency, or instrumentality, public corporation, or any other legal or commercial entity;
    28. “Present value” means the amount as of a date certain of one (1) or more sums payable in the future, discounted to the date certain by use of either an interest rate specified by the parties if that rate is not manifestly unreasonable at the time the transaction is entered into or, if an interest rate is not so specified, a commercially reasonable rate that takes into account the facts and circumstances at the time the transaction is entered into;
    29. “Purchase” means taking by sale, lease, discount, negotiation, mortgage, pledge, lien, security interest, issue or reissue, gift, or any other voluntary transaction creating an interest in property;
    30. “Purchaser” means a person that takes by purchase;
    31. “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form;
    32. “Remedy” means any remedial right to which an aggrieved party is entitled with or without resort to a tribunal;
    33. “Representative” means a person empowered to act for another, including an agent, an officer of a corporation or association, and a trustee, executor, or administrator of an estate;
    34. “Right” includes remedy;
    35. “Security interest” means an interest in personal property or fixtures which secures payment or performance of an obligation. “Security interest” includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory note in a transaction that is subject to Article 9 of this chapter. “Security interest” does not include the special property interest of a buyer of goods on identification of those goods to a contract for sale under KRS 355.2-401 , but a buyer may also acquire a “security interest” by complying with Article 9 of this chapter. Except as otherwise provided in KRS 355.2-505 , the right of a seller or lessor of goods under Article 2 or 2A of this chapter to retain or acquire possession of the goods is not a “security interest,” but a seller or lessor may also acquire a “security interest” by complying with Article 9 of this chapter. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer under KRS 355.2-401 is limited in effect to a reservation of a “security interest.” Whether a transaction in the form of a lease creates a “security interest” is determined pursuant to KRS 355.1-203 ;
    36. “Send” in connection with a writing, record, or notice means:
      1. To deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and, in the case of an instrument, to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances; or
      2. In any other way to cause to be received any record or notice within the time it would have arrived if properly sent;
    37. “Signed” includes using any symbol executed or adopted with present intention to adopt or accept a writing;
    38. “State” means a State of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States;
    39. “Surety” includes a guarantor or other secondary obligor;
    40. “Term” means a portion of an agreement that relates to a particular matter;
    41. “Unauthorized signature” means a signature made without actual, implied, or apparent authority. The term includes a forgery;
    42. “Warehouse receipt” means a document of title issued by a person engaged in the business of storing goods for hire; and
    43. “Writing” includes printing, typewriting, or any other intentional reduction to tangible form. “Written” has a corresponding meaning.

History. Enact. Acts 1958, ch. 77, § 1-201, effective July 1, 1960; 1964, ch. 130, § 1; 1986, ch. 118, § 2, effective July 1, 1987; 1990, ch. 363, § 80, effective January 1, 1991; 1996, ch. 130, § 70, effective January 1, 1997; 2000, ch. 408, § 157, effective July 1, 2001; repealed and reenact., Acts 2006, ch. 242, § 9, effective July 12, 2006; 2012, ch. 132, § 44, effective July 12, 2012.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-201, effective July 1, 1960; 1964, ch. 130, § 1; 1986, ch. 118, § 2, effective July 1, 1987; 1990, ch. 363, § 80, effective January 1, 1991; 1996, ch. 130, § 70, effective January 1, 1997; 2000, ch. 408, § 157, effective July 1, 2001) was repealed and reenacted by Acts 2006, ch. 242, § 9.

Official Comment

Legislative Research Commission Notes.

(1/9/2008). 2006 Ky. Acts ch. 242, sec. 9 (this section) contained a reference to “Section 11 of this Act” in the last sentence of subsection (2)(ai). Section 11 of that Act repealed and reenacted KRS 355.1-203 . In codification, a manifest clerical or typographical error resulted in that reference being cited as KRS 355.1-204 instead of KRS 355.1-203 . The Reviser of Statutes has corrected this error under the authority of KRS 7.136(1)(h).

Source:

Former Section 1-201.

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).

    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.

  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).
  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 and 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.

    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 Section1 (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.

NOTES TO DECISIONS

1.Bearer.

One in possession under a blank indorsement was a “bearer.” Doherty v. First Nat'l Bank, 170 Ky. 810 , 186 S.W. 937, 1916 Ky. LEXIS 142 ( Ky. 1916 ).

Indorsee, who had possession of a note and had taken under blank indorsement, was a “bearer.” Ohio Valley Banking & Trust Co. v. Great Southern Fire Ins. Co., 176 Ky. 694 , 197 S.W. 399, 1917 Ky. LEXIS 105 ( Ky. 1917 ).

2.Buyer in Ordinary Course of Business.

An employee of an automobile dealership who refinances a car with a bank while knowing that the car involved was included in a floor plan financing arrangement by the dealer with another lender does not meet the “good faith” requirement to qualify as “a buyer in the ordinary course of business.” Universal C. I. T. Credit Corp. v. Middlesboro Motor Sales, Inc., 424 S.W.2d 409, 1968 Ky. LEXIS 455 ( Ky. 1968 ).

A dealer may be a buyer in the ordinary course of business from another dealer in the same goods provided he meets the other requirements of subdivision (9) of this section. Cessna Finance Corp. v. Skyways Enterprises, Inc., 580 S.W.2d 491, 1979 Ky. LEXIS 249 ( Ky. 1979 ).

Recycling firm failed to qualify as a buyer in the ordinary course of business pursuant to KRS 355.1-201 (2)(i) because a coal company owner was not in the business of selling mining equipment, but in the business of mining; the owner’s earlier sale of underground mining equipment and subsequent sale of mechanized underground roof supports that were eventually bought by the recycling firm did not make the owner a seller of mining equipment in the ordinary course of business. Madison Capital Co., LLC v. S & S Salvage, LLC, 765 F. Supp. 2d 923, 2011 U.S. Dist. LEXIS 4791 (W.D. Ky. 2011 ).

Where a debtor and/or his landscaping company sold a piece of equipment to a purchaser, a creditor’s security interest in the equipment continued despite the sale pursuant to KRS 355.9-315 (1)(a), as the sale was made without the creditor’s consent or knowledge. Even if the purchaser had no knowledge of the creditor’s security interest, which was belied by judicial admissions that he made in his complaint, the exception in KRS 355.9-320 for a buyer in the ordinary course of business did not apply, as neither the debtor nor his company was in the business of selling equipment of this kind. Teague v. Taylor (In re Taylor), 2012 Bankr. LEXIS 2825 (Bankr. E.D. Ky. June 19, 2012).

3.Conspicuous.

Where the attempted exclusion of implied warranties was on the back of the contract and the exclusionary language was in the same size type as the general contract, the attempted exclusion was not valid or effective because it was not “conspicuous” within the meaning of the statute. Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57, 1969 Ky. LEXIS 353 ( Ky. 1969 ).

Where in a conditional sales contract it was stated on the back side of the contract that there were no implied warranties and reference was made to this clause on the front of the contract in larger than normal print, the buyer was bound by the contract. Childers & Venters, Inc. v. Sowards, 460 S.W.2d 343, 1970 Ky. LEXIS 582 ( Ky. 1970 ).

The fact that an exclusion of any warranty appears on the back of a contract will not per se render the exclusion ineffective. Cline v. Allis-Chalmers Corp., 690 S.W.2d 764, 1985 Ky. App. LEXIS 578 (Ky. Ct. App. 1985).

Where, on the back side of the contract, the exclusions were clearly stated in bold-face, entirely capitalized type, twice as large as the other type, the exclusions were conspicuous. Gooch v. Dowell, Inc., 743 S.W.2d 38, 1988 Ky. App. LEXIS 4 (Ky. Ct. App. 1988).

A disclaimer was conspicuous where it appeared in an offset boxed section, the heading was written in a bold typesetting, and the specific language disclaiming all the implied and express warranties appeared in all capital letters. Gooch v. E.I. DuPont de Nemours & Co., 40 F. Supp. 2d 863, 1999 U.S. Dist. LEXIS 10211 (W.D. Ky. 1999 ).

A retailer successfully disclaimed its obligations regarding implied warranties of fitness and of merchantability where the disclaimer was located on the front of the invoice in readable size print, the disclaimer language was printed in a type size that contrasted with the remaining printed information, the disclaimer was segregated from the rest of the invoice information, and the language plainly disclaimed all implied warranties including any implied warranty of merchantability or fitness for a particular use. Brown Sprinkler Corp. v. Plumbers Supply Co., 265 S.W.3d 237, 2007 Ky. App. LEXIS 347 (Ky. Ct. App. 2007).

4.Contract.

An option was not a contract for the purchase of property, but an offer to sell. Caskey v. Williams Bros., 227 Ky. 73 , 11 S.W.2d 991, 1928 Ky. LEXIS 459 ( Ky. 1928 ).

Bank and its president were properly granted summary judgment on a company’s breach of contract action because the company failed to meet its burden to show that a deposit from its former owner was a loan as the former owner never accepted and possessed the company’s promissory notes, the notes themselves did not establish the existence of a contract governing the deposit, and there was considerable evidence that the parties understood that there was no contract between the parties as to the deposit; because the company failed to establish that the deposit was a loan, the transfer of the funds was unauthorized and the bank properly cancelled and returned them. Wholesale Petro. Partners, L.P. v. South Cent. Bank of Daviess County, Inc., 565 Fed. Appx. 361, 2014 FED App. 0336N, 2014 U.S. App. LEXIS 8256 (6th Cir. Ky. 2014 ).

Court of Appeals erred in affirming a circuit court’s dismissal of a creditor’s claim against a decedent’s heirs because the creditor was a creditor of the decedent and his estate where he filed his tort action prior to the decedent’s death, timely revived the action against the estate administrator, proceeded to obtain a judgment in that action, and filed a judgment lien, which established his status as a creditor of the decedent’s estate and entitlement to a remedy. Gregory v. Hardgrove, 562 S.W.3d 911, 2018 Ky. LEXIS 523 ( Ky. 2018 ).

5.Delivery.

Indorsement of a note by cashier of a bank, and the placing of it in customer’s safety deposit box without customer’s knowledge was not delivery. Hughes v. West, 217 Ky. 40 , 288 S.W. 1011, 1926 Ky. LEXIS 4 ( Ky. 1926 ).

Retirement system’s refusal to allow a retiree to change his retirement payment option was improper because, although the first retirement check had been produced by the time the retiree notified the retirement system of the change, the check had not been delivered to the retiree, and thus the request was timely for purposes of KRS 61.590(3), which limited changes to the time before the first retirement allowance payment had been issued by the Kentucky state treasurer; under KRS 355.3-105 (1), “issue” meant delivery, under KRS 355.1-201 (2)(o), “delivery” meant transfer of possession, and thus, printing a retirement check at some unknown point in time did not make it issued, but rather, it had to have been delivered to the beneficiary to have been a “payment.” Lawson v. Ky. Ret. Sys., 291 S.W.3d 679, 2009 Ky. LEXIS 82 ( Ky. 2009 ).

6.Good Faith.

Mere suspicion was not to be regarded as bad faith. Montenegro-Riehm Music Co. v. Illinois Trust & Sav. Bank, 164 Ky. 608 , 176 S.W. 32, 1915 Ky. LEXIS 430 ( Ky. 1915 ).

Failure of a purchaser to act as an “ordinary prudent person under the same circumstances” was not proof of bad faith. Citizens' State Bank v. Johnson County, 182 Ky. 531 , 207 S.W. 8, 1918 Ky. LEXIS 419 ( Ky. 1918 ).

Where marks, apparently indicating cancellation, appeared on an instrument but were not reasonably discoverable in usual course of business, the purchaser took the instrument without bad faith. Citizens' State Bank v. Johnson County, 182 Ky. 531 , 207 S.W. 8, 1918 Ky. LEXIS 419 ( Ky. 1918 ).

Where nothing appeared which should have excited his suspicion, purchaser was not required to consult records of county fiscal court to prevent his buying in bad faith. Citizens' State Bank v. Johnson County, 182 Ky. 531 , 207 S.W. 8, 1918 Ky. LEXIS 419 ( Ky. 1918 ).

Generally, the good or bad faith of the purchaser of a negotiable instrument was a question for the jury, that of course was conditioned upon there being a conflict in evidence, but where the facts were undisputed on the controlling points it was the duty of the court to apply the law to the facts. Kentucky Rock Asphalt Co. v. Mazza's Adm'r, 264 Ky. 158 , 94 S.W.2d 316, 1936 Ky. LEXIS 283 ( Ky. 1936 ).

Where a purchaser had actual knowledge of suspicious circumstances or facts coupled with the means of informing himself of the facts and wilfully refrained from making inquiries, his intentional ignorance could have amounted to bad faith. Kentucky Rock Asphalt Co. v. Mazza's Adm'r, 264 Ky. 158 , 94 S.W.2d 316, 1936 Ky. LEXIS 283 ( Ky. 1936 ).

Generally suspicious circumstances or gross negligence at the time of acquisition would not defeat the title yet gross negligence was evidence of bad faith. Kentucky Rock Asphalt Co. v. Mazza's Adm'r, 264 Ky. 158 , 94 S.W.2d 316, 1936 Ky. LEXIS 283 ( Ky. 1936 ).

This section requires the submission to the jury of the issue of good faith unless the evidence relating to it is no more than a scintilla, or lacks probative value having fitness to induce conviction in the minds of reasonable men. Ft. Knox Nat'l Bank v. Gustafson, 385 S.W.2d 196, 1964 Ky. LEXIS 148 ( Ky. 1964 ).

The definition of good faith in subdivision (19) of this section does not include negligence; thus, the bank’s negligence in not ascertaining the guarantor’s lack of authority was not bad faith. Enzweiler v. Peoples Deposit Bank, 742 S.W.2d 569, 1987 Ky. App. LEXIS 607 (Ky. Ct. App. 1987).

“Good faith” is a subjective determination. Star Bank v. Parnell, 992 S.W.2d 189, 1998 Ky. App. LEXIS 82 (Ky. Ct. App. 1998).

Negligence not to be considered when determining “good faith.” Star Bank v. Parnell, 992 S.W.2d 189, 1998 Ky. App. LEXIS 82 (Ky. Ct. App. 1998).

7.—Bonds.

Where a company knew that certain of its bonds had been stolen from their owner, and it purchased such bonds without seeing them or asking the seller to specifically identify them, and the company’s agent who handled the purchase was also the one who was engaged in a search for the bonds, such company purchased under circumstances amounting to bad faith. Kentucky Rock Asphalt Co. v. Mazza's Adm'r, 264 Ky. 158 , 94 S.W.2d 316, 1936 Ky. LEXIS 283 ( Ky. 1936 ).

Though one had received actual notice, if by forgetfulness or negligence he did not have it in mind when he acquired a bond, he could still have been a good faith purchaser. Kentucky Rock Asphalt Co. v. Mazza's Adm'r, 264 Ky. 158 , 94 S.W.2d 316, 1936 Ky. LEXIS 283 ( Ky. 1936 ).

8.—Checks.

Where, despite evidence of a custom among bankers to look to their immediate indorser in suing on a check and of the solvency of such immediate indorser, the ultimate holder insisted upon suing the maker, there was no evidence of bad faith. Choteau Trust & Banking Co. v. Smith, 133 Ky. 418 , 118 S.W. 279, 1909 Ky. LEXIS 186 ( Ky. 1909 ).

Where maker proved business connection between payee and holder in several similar prior isolated transactions, such was not basis to infer bad faith on holder’s part as to check in suit. Asbury v. Taube, 151 Ky. 142 , 151 S.W. 372, 1912 Ky. LEXIS 768 ( Ky. 1912 ).

Where check had “For three sound mules” written across face, bank which cashed such check was not acting in bad faith. Roberts v. Drovers' Nat'l Bank, 199 Ky. 439 , 251 S.W. 198, 1923 Ky. LEXIS 852 ( Ky. 1923 ).

9.—Notes.

Where corporate president issued corporate note to himself and indorsed it to bank in payment of his personal debt owed the bank, such bank purchased in bad faith when it failed to ascertain president’s authority in the matter. Kenyon Realty Co. v. National Deposit Bank, 140 Ky. 133 , 130 S.W. 965, 1910 Ky. LEXIS 181 ( Ky. 1910 ).

Where person who sought to collect note was attorney of the holder and stockholder of payee, no knowledge of payee’s fraud was imputed to holder. Robertson v. Commercial Sec. Co., 152 Ky. 336 , 153 S.W. 450, 1913 Ky. LEXIS 660 ( Ky. 1913 ).

Where a holder bought note at 25 percent discount and had bought similar notes as an established practice, there was not sufficient evidence for a finding of bad faith. Pratt v. Rounds, 160 Ky. 358 , 169 S.W. 848, 1914 Ky. LEXIS 465 ( Ky. 1914 ).

That cashier of plaintiff bank knew that note in suit was given for stock sold, and that he received fee for suggesting name of purchaser, was not sufficient to prove that the bank’s taking was in bad faith. Farmers' Bank of Lynnville v. First Nat'l Bank, 164 Ky. 548 , 175 S.W. 1019, 1915 Ky. LEXIS 410 ( Ky. 1915 ).

Proof that plaintiff purchased the notes before maturity and for value, was insufficient to prove that he purchased without knowledge of fraud. Commercial Sec. Co. v. Archer, 179 Ky. 842 , 201 S.W. 479, 1918 Ky. LEXIS 300 ( Ky. 1918 ).

Where indorsee was auditor for indorser, his attorney was hired by indorser, costs of litigation borne by indorser, indorser collected notes, indorsee was familiar with indorser’s business and was a “very reticent witness,” there was sufficient evidence for jury to find that indorser’s purchase was in bad faith. Harrison v. Perry, 184 Ky. 722 , 212 S.W. 911, 1919 Ky. LEXIS 118 ( Ky. 1919 ).

Where holder was notified that the maker of a note believed that acreage of a farm purchased with note in suit was short and he intended to sue therefor, such party had sufficient notice to prevent his purchasing in good faith. Cockrill v. First Nat'l Bank, 208 Ky. 755 , 271 S.W. 1054, 1925 Ky. LEXIS 383 ( Ky. 1925 ).

Failure of plaintiff bank to introduce as witnesses members of the finance committee, who approved the note in suit, was sufficient evidence to show bad faith. Bedinger v. Citizens' Nat'l Bank, 212 Ky. 486 , 279 S.W. 622, 1926 Ky. LEXIS 180 ( Ky. 1926 ).

10.Security Interest.

Assignment by one partner to another of the right to collect money due and owing to the copartners was not an assignment of a “contract right” as contemplated by the Uniform Commercial Code since the right had already been earned by performance but was an assignment of an “account” which was not a “security interest” requiring filing under subsection (1)(b) of KRS 355.9-301 to perfect the interest and the assignment had priority over a subsequent attachment by judgment creditor of assigning partner. Spurlin v. Sloan, 368 S.W.2d 314, 1963 Ky. LEXIS 41 ( Ky. 1963 ).

Although there are many similarities between a mortgage and security interest there are many dissimilarities also. Corbin Deposit Bank v. King, 384 S.W.2d 302, 1964 Ky. LEXIS 83 ( Ky. 1964 ).

A lease of restaurant equipment, the terms of which specifically provided that upon expiration or earlier termination lessee would return the equipment to lessor, was not a security agreement. Diaz v. Goodwin Bros. Leasing, Inc., 511 S.W.2d 680, 1974 Ky. LEXIS 510 ( Ky. 1974 ).

Where a lease did not constitute a security agreement under subdivision (37) of this section, subsection (3) of KRS 355.9-504 was inapplicable. Diaz v. Goodwin Bros. Leasing, Inc., 511 S.W.2d 680, 1974 Ky. LEXIS 510 ( Ky. 1974 ).

A debtor’s tender of consideration to a bank in return for the bank’s assignment of its security interest in effect satisfied the debt owed the bank by the debtor, and extinguished the security interest. Bank of Lexington v. Jack Adams Aircraft Sales, Inc., 570 F.2d 1220, 1978 U.S. App. LEXIS 11865 (5th Cir. Miss. 1978).

In determining whether a document or set of documents constitute a valid security agreement, a court must first resolve, as a question of law, whether the language embodied in the writing objectively indicates that the parties may have intended to create or provide for a security interest, and secondly, a court must determine whether the parties actually intended to create a security interest. In re Owensboro Canning Co., 46 B.R. 607, 1985 Bankr. LEXIS 6683 (Bankr. W.D. Ky. 1985 ), aff'd, 82 B.R. 450, 1988 U.S. Dist. LEXIS 1109 (W.D. Ky. 1988 ).

Section 355.9-102 (2) specifically applies Article 9 to a lease intended as security; thus, the provisions of KRS 355.9-504 (3) apply only if a lease between parties was intended as security, and this intent is to be determined by the facts of each case. Ford Motor Credit Co. v. Webb-Elkhorn Coal Corp., 775 S.W.2d 945, 1989 Ky. App. LEXIS 111 (Ky. Ct. App. 1989).

Where the assignment of a mortgage to the bank was recorded after the bankruptcy was filed, because of an indorsement in blank, the note was negotiated by transfer alone pursuant to KRS 355.3-205 (2),and the bank’s possession of the note, coupled with its status as a bona fide purchaser rendered it a bearer, pursuant to KRS 355.1-201 (2) and KRS 355.3-301 , that was able to enforce the note against the debtors under KRS 355.9-330 (4); moreover the bank did not violate the automatic stay because it simply recorded its equitable interest in the property, which did not belong to the debtors. Rogan v. Bank One, N.A. (In re Cook), 457 F.3d 561, 2006 FED App. 0284P, 2006 U.S. App. LEXIS 20377 (6th Cir. Ky. 2006 ).

11.—Document of Title.

A warehouse receipt held by a bank was a document of title vesting a valid security interest in the bank. Lofton v. Mooney, 452 S.W.2d 617, 1970 Ky. LEXIS 370 ( Ky. 1970 ).

12.Holder.

Transferee, without indorsement of a note payable to order, was not a “holder.” Foster's Adm'r v. Metcalfe, 144 Ky. 385 , 138 S.W. 314, 1911 Ky. LEXIS 633 ( Ky. 1911 ).

An assignee for collection only was a “holder.” Harrison v. Pearcy & Coleman, 174 Ky. 485 , 192 S.W. 513, 1917 Ky. LEXIS 203 ( Ky. 1917 ).

Indorsee, who had possession of a note and had taken under blank indorsement, was a “holder.” Ohio Valley Banking & Trust Co. v. Great Southern Fire Ins. Co., 176 Ky. 694 , 197 S.W. 399, 1917 Ky. LEXIS 105 ( Ky. 1917 ).

Holder of check remained such, even though payment was stopped. Thomson v. Peck, 217 Ky. 766 , 290 S.W. 722, 1927 Ky. LEXIS 79 ( Ky. 1927 ).

Drawee of a check was not a “holder.” Louisa Nat'l Bank v. Kentucky Nat'l Bank, 239 Ky. 302 , 39 S.W.2d 497, 1931 Ky. LEXIS 776 ( Ky. 1931 ).

Bank was the holder of a mortgage note and could enforce it because the note contained a valid allonge with a properly executed indorsement in blank and the bank had provided sufficient proof that it acquired possession of the note approximately two years prior to the bankruptcy. Rogan v. EquiFirst Corp. (In re Vickers), 2013 Bankr. LEXIS 1596 (Bankr. E.D. Ky. Apr. 15, 2013).

Trial court erred in granting a mortgage servicer summary judgment because the evidence was insufficient to establish whether it was the holder of the mortgagors’ original note and thus, the real party in interest at the time the foreclosure action was filed; where a plaintiff attempts to enforce bearer paper as the holder, and a defendant raises an issue as to actual possession of the original note, the purported holder has a duty to establish such as required by the Uniform Commercial Code. Acuff v. Wells Fargo Bank, N.A., 460 S.W.3d 335, 2014 Ky. App. LEXIS 72 (Ky. Ct. App. 2014).

Chapter 13 debtor's complaint alleging that a creditor's security interest in her real property was void as against the trustee did not survive summary judgment; as she did not provide evidence for her claim that the note and mortgage were separated, the creditor was entitled to enforce the note and the mortgage because it was the holder of these instruments. Jernigan v. Household Fin. Corp. II (In re Jernigan), 2015 Bankr. LEXIS 2412 (Bankr. W.D. Ky. July 22, 2015).

Bank had the right to enforce a promissory note and maintain a foreclosure action as the real party in interest because the bank proved that it was the holder of the original note which was endorsed in blank and transferred to the bank, the bank produced the original note in open court for the borrower’s review and inspection. the mortgage document was filed with the county clerk’s office, and the borrower’s signature on the document had never been disputed. Moreover, the borrower did not dispute the validity or authenticity of the documents. Augenstein v. Deutsche Bank Nat'l Trust Co., 647 S.W.3d 857, 2021 Ky. App. LEXIS 116 (Ky. Ct. App. 2021).

13.Holder in Due Course.

Where X loaned money on Y corporation’s note, which loan was less than the limit of indebtedness permitted by Y’s articles of incorporation but together with other indebtedness of Y exceeded such limitation, X had no notice of facts which would prevent X being a holder in due course. Citizens' Bank v. Bank of Waddy, 126 Ky. 169 , 103 S.W. 249, 31 Ky. L. Rptr. 365 , 1907 Ky. LEXIS 32 (Ky. Ct. App. 1907).

Where officer of state bank was not only the cashier of the bank but was perhaps the most active of all concerned in the reorganization of that bank to a national bank of which he was a vice-president, his knowledge that note transferred from state bank to national bank was usurious was imputed to the national bank and the national bank was not a holder in due course. Manchester Nat'l Bank v. Herndon, 181 Ky. 117 , 203 S.W. 1055, 1918 Ky. LEXIS 492 ( Ky. 1918 ).

Knowledge of a defective title to a note gained after a transferee has accepted it, did not prevent his being a holder in due course. Gibson v. First Nat'l Bank, 196 Ky. 119 , 244 S.W. 290, 1922 Ky. LEXIS 459 ( Ky. 1922 ). See Worden v. Kennedy, 246 Ky. 716 , 56 S.W.2d 329, 1933 Ky. LEXIS 12 ( Ky. 1933 ).

Where payee set up a corporation and retained control thereof for the sole purpose of negotiating paper obtained by him, and creating such corporation a holder in due course, corporation was regarded as having notice of payee’s activities in obtaining the paper. Traders' Sec. Co. v. Pennington, 236 Ky. 110 , 32 S.W.2d 713, 1930 Ky. LEXIS 687 ( Ky. 1930 ).

Although a corporate officer was ignorant of defenses against a note payable to the corporation indorsed to him by the corporation he was not a holder in due course. Hughett v. Shain, 253 Ky. 330 , 69 S.W.2d 688, 1934 Ky. LEXIS 657 ( Ky. 1934 ).

Where street improvement bonds were purchased from contractor before maturity and without notice of payments having been made on the bonds purchaser was a holder in due course free from the defense of prior payments having been made on the bonds. Irvine v. Wallace, 254 Ky. 564 , 71 S.W.2d 974, 1934 Ky. LEXIS 91 ( Ky. 1934 ).

Where bonds were stolen from an owner it was justly presumed that the thief was not a holder in due course and that the bonds continued in the hands of a holder in the same class as the thief until the contrary was proven. Kentucky Rock Asphalt Co. v. Mazza's Adm'r, 264 Ky. 158 , 94 S.W.2d 316, 1936 Ky. LEXIS 283 ( Ky. 1936 ).

14.Signed.

The definition of “signed” contained in the Uniform Commercial Code relates to what constitutes a valid signature, not to where the signature must be placed. R. C. Durr Co. v. Bennett Industries, Inc., 590 S.W.2d 338, 1979 Ky. App. LEXIS 484 (Ky. Ct. App. 1979).

15.Purchase.

The buyer who was cloaked with indicia of ownership could pledge the vehicle as collateral on a loan, something that an owner of a vehicle may do. Foley v. Production Credit Asso. of Fourth Dist., 753 S.W.2d 876, 1988 Ky. App. LEXIS 87 (Ky. Ct. App. 1988).

Although “purchase” is not defined in the Kentucky Consumer Protection Act, KRS 367.110 et seq., even if the definition of purchase as reflected in Kentucky’s version of the Uniform Commercial Code is applicable, the plaintiffs were eligible to bring an action as purchasers since they took the car, at least for a time, following a period of negotiations and after giving value. Craig & Bishop, Inc. v. Piles, 247 S.W.3d 897, 2008 Ky. LEXIS 61 ( Ky. 2008 ).

16.Warehouse Receipts.

Purchaser bought warehouse receipts with knowledge of facts which should have put him on notice and he was not a holder in due course where the warehouse receipts issued by officer of distillery which has ceased to act as a warehouseman showed on their face that the whiskey was stored in a bonded government warehouse owned by another company. Old '76 Distillery Co. v. Wiechelman, 266 Ky. 533 , 99 S.W.2d 725, 1936 Ky. LEXIS 706 ( Ky. 1936 ).

Cited in:

In re Mel Golde Shoes, Inc., 403 F.2d 658, 1968 U.S. App. LEXIS 4652 (6th Cir. 1968); Blake v. Woodford Bank & Trust Co., 555 S.W.2d 589, 1977 Ky. App. LEXIS 790 (Ky. Ct. App. 1977); United Road Machinery Co. v. Jasper, 568 S.W.2d 242, 1978 Ky. App. LEXIS 550 (Ky. Ct. App. 1978); McKenzie v. Oliver, 571 S.W.2d 102, 1978 Ky. App. LEXIS 586 (Ky. Ct. App. 1978); Wahba v. Don Corlett Motors, Inc., 573 S.W.2d 357, 1978 Ky. App. LEXIS 608 (Ky. Ct. App. 1978); Parton v. Robinson, 574 S.W.2d 679, 1978 Ky. App. LEXIS 628 (Ky. Ct. App. 1978); In re Wathen’s Elevators, Inc., 32 B.R. 912, 1983 Bankr. LEXIS 5427 (Bankr. W.D. Ky. 1983 ); Central Bank & Trust Co. v. Metcalfe, 663 S.W.2d 957, 1984 Ky. App. LEXIS 449 (Ky. Ct. App. 1984); Placer Coal, Inc. v. Rhondale Coal Services Co., 684 S.W.2d 25, 1984 Ky. App. LEXIS 615 (Ky. Ct. App. 1984); Bartelt Aviation, Inc. v. Dry Lake Coal Co., 682 S.W.2d 796, 1985 Ky. App. LEXIS 493 (Ky. Ct. App. 1985); Revenue Cabinet Kentucky v. Saylor, 738 S.W.2d 426, 1987 Ky. App. LEXIS 585 (Ky. Ct. App. 1987).

Opinions of Attorney General.

Where a check was cashed by a forged indorsement, the drawer’s proper remedy is against the drawee bank and the bank is responsible for any collection from prior indorsers. OAG 63-825 .

The financing statement, or copy of the security agreement in lieu thereof, must be actually, physically and manually signed by the debtor and the secured party and a copy or reproduction of such signing is not sufficient. OAG 64-708 .

Since the signature on a carbon copy is made at the same time and by the same physical act as the signature on the original, the intent to authenticate the original financing statement, or security agreement, is also present as to the carbon itself, and therefore the carbon is signed within the meaning of subdivision (39) of this section and, consequently, within the meaning of KRS 355.9-402 . OAG 79-246 .

Research References and Practice Aids

Kentucky Bench & Bar.

Treatment of Leases in Bankruptcy, Vol. 69, No. 3, May 2005, Ky. Bench & Bar 15.

Kentucky Law Journal.

Young, Scope, Purposes and Functions of the Uniform Commercial Code, 48 Ky. L.J. 191 (1960).

Dorsey, Bulk Transfers, Subject Transfers — Compliance, 48 Ky. L.J. 244 (1960).

Whiteside, Uniform Commercial Code — Major Changes in Sales Law, 49 Ky. L.J. 165 (1960).

Weber, The Extension of the Voidable Title Principle Under the Code, 49 Ky. L.J. 437 (1961).

Viles, The Uniform Commercial Code v. The Bankruptcy Act, 55 Ky. L.J. 636 (1967).

Comments, What Chance for the New Car Purchaser of a “Lemon”?, 62 Ky. L.J. 557 (1973-1974).

Comments, The Role of Negligence in Section 3-405 of the Uniform Commercial Code: Owensboro National Bank v. Crisp, 69 Ky. L.J. 143 (1980-81).

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Weinberg, Pleading and Practice in Commercial Paper Cases: Burdens of Proof, 72 Ky. L.J. 575 (1983-84).

Kentucky Law Survey, Nowka, Commercial Law, 73 Ky. L.J. 315 (1984-85).

Kentucky Law Survey, Weinberg, Graham and Stipanowich, Modernizing Kentucky’s Uniform Commercial Code, 73 Ky. L.J. 515 (1984-85).

Nowka and Taylor, Kentucky Employees’ Wage Liens: A Sneak Attack on Creditors, but Beware of the Bankruptcy Trustee, 84 Ky. L.J. 317 (1995-96).

Northern Kentucky Law Review.

Cox, Lender Liability in the Bluegrass: Are New Theories Emerging Under Kentucky Law?, 16 N. Ky. L. Rev. 43 (1988).

Ellerman & Linneman, A Survey of Kentucky Commercial Law., 31 N. Ky. L. Rev. 201 (2004).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Practice Context for Sales, § 190.00.

355.1-202. Notice — Knowledge.

  1. Subject to subsection (6) of this section, a person has “notice” of a fact if the person:
    1. Has actual knowledge of it;
    2. Has received a notice or notification of it; or
    3. From all the facts and circumstances known to the person at the time in question, has reason to know that it exists.
  2. “Knowledge” means actual knowledge. “Knows” has a corresponding meaning.
  3. “Discover,” “learn,” or words of similar import refer to knowledge rather than to reason to know.
  4. A person “notifies” or “gives” a notice or notification to another person by taking such steps as may be reasonably required to inform the other person in ordinary course, whether or not the other person actually comes to know of it.
  5. Subject to subsection (6) of this section, a person “receives” a notice or notification when:
    1. It comes to that person’s attention; or
    2. It is duly delivered in a form reasonable under the circumstances at the place of business through which the contract was made or at another location held out by that person as the place for receipt of such communications.
  6. Notice, knowledge, or a notice or notification received by an organization is effective for a particular transaction from the time it is brought to the attention of the individual conducting that transaction and, in any event, from the time it would have been brought to the individual’s attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the organization to communicate information unless the communication is part of the individual’s regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information.

History. Enact. Acts 1958, ch. 77, § 1-202, effective July 1, 1960; repealed and reenact., Acts 2006, ch. 242, § 10, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-202, effective July 1, 1960) relating to prima facie evidence by third party documents, was repealed and reenacted by Acts 2006, ch. 242, § 10. For comparable provisions, see KRS 355.1-307 .

Official Comment

Source:

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

Changes from former law:

These provisions are substantive rather than purely definitional. Accordingly, they have been relocated from Section 1-201 to this section. The reference to the “forgotten notice” doctrine has been deleted.

  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.

NOTES TO DECISIONS

1.In General.

To constitute notice of a defect in title of the person negotiating the instruments, it was not necessary that the person have actual notice but it was sufficient if he had knowledge of such facts that his action in taking the bonds amounted to bad faith. Kentucky Rock Asphalt Co. v. Mazza's Adm'r, 264 Ky. 158 , 94 S.W.2d 316, 1936 Ky. LEXIS 283 ( Ky. 1936 ).

Sellers had superior rights to proceeds from sale of automobiles where auction company stopped payment on checks it had given buyer for acquisition of automobiles sold at auction when auction company had notice of buyer’s manner of operation and that their stop payment order would probably result in dishonor of buyer’s checks to sellers. Greater Louisville Auto Auction, Inc. v. Ogle Buick, Inc., 387 S.W.2d 17, 1965 Ky. LEXIS 457 ( Ky. 1965 ).

Question of whether bank who bought promissory notes from transferee to whom notes had been transferred by prior holder knew or should have known that maker had claims against transferor and defenses against payment of the notes was a question of fact and was not appropriate for summary judgment. J.P. Morgan Delaware v. Onyx Arabians II, Ltd., 825 F. Supp. 146, 1993 U.S. Dist. LEXIS 8694 (W.D. Ky. 1993 ).

355.1-203. Lease distinguished from security interest.

  1. Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.
  2. A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and:
    1. The original term of the lease is equal to or greater than the remaining economic life of the goods;
    2. The lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods;
    3. 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 upon compliance with the lease agreement; or
    4. The lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.
  3. A transaction in the form of a lease does not create a security interest merely because:
    1. The present value of the consideration the lessee is obligated to pay the lessor for the right to possession and use of the goods is substantially equal to or is greater than the fair market value of the goods at the time the lease is entered into;
    2. The lessee assumes risk of loss of the goods;
    3. The lessee agrees to pay, with respect to the goods, taxes, insurance, filing, recording, or registration fees, or service or maintenance costs;
    4. The lessee has an option to renew the lease or to become the owner of the goods;
    5. The lessee has an option to renew the lease for a fixed rent that is equal to or greater than the reasonably predictable fair market rent for the use of the goods for the term of the renewal at the time the option is to be performed; or
    6. The lessee has an option to become the owner of the goods for a fixed price that is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be performed.
  4. Additional consideration is nominal if it is less than the lessee’s reasonably predictable cost of performing under the lease agreement if the option is not exercised. Additional consideration is not nominal if:
    1. When the option to renew the lease is granted to the lessee, the rent is stated to be the fair market rent for the use of the goods for the term of the renewal determined at the time the option is to be performed; or
    2. When the option to become the owner of the goods is granted to the lessee, the price is stated to be the fair market value of the goods determined at the time the option is to be performed.
  5. The “remaining economic life of the goods” and “reasonably predictable” fair market rent, fair market value, or cost of performing under the lease agreement must be determined with reference to the facts and circumstances at the time the transaction is entered into.

History. Enact. Acts 1958, ch. 77, § 1-203, effective July 1, 1960; repealed and reenact., Acts 2006, ch. 242, § 11, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-203, effective July 1, 1960) relating to obligations of good faith, was repealed and reenacted by Acts 2006, ch. 242, § 11. For comparable provisions, see KRS 355.1-304 .

Official Comment

Source:

Former Section 1-201(37).

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 Section3.6, 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

NOTES TO DECISIONS

1.In General.

The bright-line-test in KRS 355.1-203 focuses not on whether a lessee has a contractual right to terminate under the agreement in question, but rather on whether the consideration the lessee is to pay the lessor for the right to use and possession of the goods is an obligation for the term of the lease not subject to termination by the lessee. If the lease agreement requires the debtor to pay the lessors upon termination the present value of precisely what they would receive if the debtor made all required monthly payments for the full contract term and then exercised the purchase option, it is not a true lease. In re Consol. Energy, Inc., 2007 Bankr. LEXIS 3470 (Bankr. E.D. Ky. Oct. 16, 2007).

2.Applicability.

The provision in the lease agreement which gave the debtor the right to purchase the equipment did not make the agreement a security agreement under KRS 355.1-203 because it did not show the amount the debtor would have to pay to purchase the equipment; it was not enough for the debtor to say that it might exercise its purchase option when it was unable to demonstrate what it would have to pay and whether that amount would be a nominal sum. In re Consol. Energy, Inc., 2007 Bankr. LEXIS 3470 (Bankr. E.D. Ky. Oct. 16, 2007).

Under the Uniform Commercial Code, KRS 355.1-203 , an agreement between a trust and a debtor constituted a security interest rather than an unexpired lease, as the rental payments over the term of the agreement reflected a purchase price of the vehicles with interest; nor was the agreement an executory contract as defined by 11 U.S.C.S. 365, as the debtor had no continuing obligations under the agreement other than payment. Further, under the Motor Vehicle Registration Act, KRS 186.010(7)(b), a conditional lessee, such as the debtor, could be considered the owner for the purposes of registering the vehicle, which the undisputed evidence showed was done, rendering the trust’s reliance on KRS 186A.215 inapplicable. Magdovitz Family Trust v. KY USA Energy, Inc. (In re KY USA Energy, Inc.), 449 B.R. 745, 2011 Bankr. LEXIS 1993 (Bankr. W.D. Ky. 2011 ).

Bank that loaned money to a debtor before the debtor declared Chapter 12 bankruptcy had a secured interest in cows the debtor owned at the time that he declared bankruptcy that was superior to an interest an LLC held in the cows because it perfected its interest before the LLC perfected its interest, and it was also entitled under 11 U.S.C.S. § 552(b) to receive income the debtor derived from selling milk the cows produced postpetition. Although the LLC claimed that cows that were part of the debtor’s herd were not subject to the bank’s security interest because it leased the cows to the debtor, the court found that five “Dairy Cow Leases” the debtor and the LLC entered were secured transactions under Ariz. Rev. Stat. § 47-1203 and KRS 355.1-203 , not true leases. In re Purdy, 490 B.R. 530, 2013 Bankr. LEXIS 772 (Bankr. W.D. Ky. 2013 ), aff'd, 2013 U.S. Dist. LEXIS 137361 (W.D. Ky. Sept. 25, 2013).

3.Lease.

Parties’ agreement was not a security agreement and the agreement was a lease that the debtor had to assume or reject as: (1) “term” was not ambiguous since it was defined as one month and multiple terms were discussed; (2) the debtor’s reading of “term” as a 48-month period would render the debtor’s right to terminate the agreement meaningless; (3) the title of the agreement was modified by a subtitle indicating that it was month to month; and (4) the debtor could not own the property after the completion of the immediate “term” without paying a substantial pay-off amount. Cardinal Grp., LLC v. McQuaig (In re McQuaig), 2019 Bankr. LEXIS 930 (Bankr. S.D. Ga. Mar. 28, 2019).

355.1-204. Value.

Except as otherwise provided in Articles 3, 4, and 5 of this chapter, a person gives value for rights if the person acquires them:

  1. In return for a binding commitment to extend credit or for the extension of immediately available credit, whether or not drawn upon and whether or not a charge-back is provided for in the event of difficulties in collection;
  2. As security for, or in total or partial satisfaction of, a preexisting claim;
  3. By accepting delivery under a preexisting contract for purchase; or
  4. In return for any consideration sufficient to support a simple contract.

History. Enact. Acts 1958, ch. 77, § 1-204, effective July 1, 1960; repealed and reenact., Acts 2006, ch. 242, § 12, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-204, effective July 1, 1960) relating to reasonable time, was repealed and reenacted by Acts 2006, ch. 242, § 12. For comparable provisions, see KRS 355.1-205 .

Official Comment

Source:

Former Section 1-201(44).

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

NOTES TO DECISIONS

1.In General.

Holder of shares of stock for a pre-existing debt was not a holder for value. Schuster v. Jones, 58 S.W. 595, 22 Ky. L. Rptr. 568 , 1900 Ky. LEXIS 245 (Ky. Ct. App. 1900).

Creditor, who took instrument as collateral for a debt took as holder for value to amount of indebtedness. Wilkins v. Usher, 123 Ky. 696 , 97 S.W. 37, 29 Ky. L. Rptr. 1232 , 1906 Ky. LEXIS 200 ( Ky. 1906 ). See Melton v. Pensacola Bank & Trust Co., 190 F. 126, 1911 U.S. App. LEXIS 4430 (6th Cir. Ky. 1911 ); Citizens' Bank v. Bank of Waddy, 126 Ky. 169 , 103 S.W. 249, 31 Ky. L. Rptr. 365 , 1907 Ky. LEXIS 32 (Ky. Ct. App. 1907); Campbell v. Fourth Nat'l Bank, 137 Ky. 555 , 126 S.W. 114, 1910 Ky. LEXIS 598 ( Ky. 1910 ); Elk Valley Coal Co. v. Third Nat'l Bank, 157 Ky. 617 , 163 S.W. 766, 1914 Ky. LEXIS 344 ( Ky. 1914 ); Sparr v. Fulton Nat'l Bank, 179 Ky. 755 , 201 S.W. 310, 1918 Ky. LEXIS 286 ( Ky. 1918 ); Cockrill v. First Nat'l Bank, 208 Ky. 755 , 271 S.W. 1054, 1925 Ky. LEXIS 383 ( Ky. 1925 ); Bedinger v. Citizens' Nat'l Bank, 212 Ky. 486 , 279 S.W. 622, 1926 Ky. LEXIS 180 ( Ky. 1926 ); Roberts v. Allen, 244 Ky. 353 , 50 S.W.2d 965, 1932 Ky. LEXIS 429 ( Ky. 1932 ); Worden v. Kennedy, 246 Ky. 716 , 56 S.W.2d 329, 1933 Ky. LEXIS 12 ( Ky. 1933 ).

An agreement by directors to become jointly liable on all obligations of the corporation indorsed by them was for value where bank renewed obligations of corporation. First Nat'l Bank v. Doherty, 156 Ky. 386 , 161 S.W. 211, 1913 Ky. LEXIS 444 ( Ky. 1913 ).

Although bonds had been stolen an innocent purchaser for value was protected but the burden shifted to holder to show circumstances under which the bonds were acquired and that the circumstances made him a holder in due course. Cawood v. Madison Southern Nat'l Bank & Trust Co., 251 Ky. 637 , 65 S.W.2d 734, 1933 Ky. LEXIS 931 ( Ky. 1933 ); Kentucky Rock Asphalt Co. v. Mazza's Adm'r, 264 Ky. 158 , 94 S.W.2d 316, 1936 Ky. LEXIS 283 ( Ky. 1936 ).

2.Checks.

If check was actually discounted for value in due course by an innocent purchaser after service of writ of garnishment, debt evidenced by check was not subject to garnishment but where check was drawn by depositor to transfer amount in drawer’s account to a different bank it was not sold or discounted to another for value in due course and the fact the check was certified was immaterial. Boswell v. Citizens' Sav. Bank, 123 Ky. 485 , 96 S.W. 797, 29 Ky. L. Rptr. 988 , 1906 Ky. LEXIS 175 ( Ky. 1906 ).

Bank was holder for value where check was deposited and money was withdrawn before the bank received notice of dishonor. Choteau Trust & Banking Co. v. Smith, 133 Ky. 418 , 118 S.W. 279, 1909 Ky. LEXIS 186 ( Ky. 1909 ).

Where two checks were deposited in bank, one certified and one not certified, and both were dishonored but bank was not notified of the dishonor of the uncertified check and the depositor withdrew the amount of both checks, the bank was holder for value of both checks since it had the right to assume the certified check would be honored. First Nat'l Bank v. Bank of Ravenswood, 141 Ky. 671 , 133 S.W. 581, 1911 Ky. LEXIS 68 ( Ky. 1911 ).

Where holder of check deposited it in drawee bank and check was credited to his account, value had been paid. First Nat'l Bank v. Mammoth Blue Gem Coal Co., 194 Ky. 580 , 240 S.W. 78, 1922 Ky. LEXIS 211 ( Ky. 1922 ).

Where bank, on order of indorser at time of depositing check, credited account of third parties, value was given to extent of such credit. National Deposit Bank v. Ohio Oil Co., 250 Ky. 288 , 62 S.W.2d 1048, 1933 Ky. LEXIS 686 ( Ky. 1933 ).

Where bank took check for collection, crediting depositor’s account with agreement to charge back in case of dishonor, it was holder for value to extent depositor checked against such credit. National Deposit Bank v. Ohio Oil Co., 250 Ky. 288 , 62 S.W.2d 1048, 1933 Ky. LEXIS 686 ( Ky. 1933 ).

Where bank took check for collection, reserving the right to charge check back if uncollectable, bank gave value as to amount drawn against such check. National Deposit Bank v. Ohio Oil Co., 250 Ky. 288 , 62 S.W.2d 1048, 1933 Ky. LEXIS 686 ( Ky. 1933 ).

3.Notes.

Partial failure of consideration did not affect holder of lien notes payable to and indorsed by an assignee for benefit of creditors where holder had no notice. Hargis v. Louisville Trust Co., 30 S.W. 877, 17 Ky. L. Rptr. 218 (1895).

Covenant in deed that if certain things were not done notes would be returned did not affect a purchaser for value without notice of the covenant. McCarty v. Louisville Banking Co., 100 Ky. 4 , 37 S.W. 144, 18 Ky. L. Rptr. 569 , 1896 Ky. LEXIS 133 ( Ky. 1896 ).

Where payee indorsed notes, which he held in settlement of, or as collateral, for his pre-existing debt, the indorsee took for value. Wilkins v. Usher, 123 Ky. 696 , 97 S.W. 37, 29 Ky. L. Rptr. 1232 , 1906 Ky. LEXIS 200 ( Ky. 1906 ). See Melton v. Pensacola Bank & Trust Co., 190 F. 126, 1911 U.S. App. LEXIS 4430 (6th Cir. Ky. 1911 ); Campbell v. Fourth Nat'l Bank, 137 Ky. 555 , 126 S.W. 114, 1910 Ky. LEXIS 598 ( Ky. 1910 ); Montenegro-Riehm Music Co. v. Illinois Trust & Sav. Bank, 164 Ky. 608 , 176 S.W. 32, 1915 Ky. LEXIS 430 ( Ky. 1915 ); Harrison v. Nicholson-Foley Co., 179 Ky. 513 , 200 S.W. 929, 1918 Ky. LEXIS 245 ( Ky. 1918 ).

Where a note was given as collateral security for a pre-existing debt, the creditor took such note as a holder for value in respect to a joint maker, who signed the note subsequent to the contraction of the original debt but pre-existent to the creditor’s taking. Wilkins v. Usher, 123 Ky. 696 , 97 S.W. 37, 29 Ky. L. Rptr. 1232 , 1906 Ky. LEXIS 200 ( Ky. 1906 ).

Promise of surety on a note discharged from liability by failure to sue thereon within seven years was unenforceable unless based on a new consideration but where payee accepted renewal note in the same sum with the same maker and the same surety this extension of time given by payee to maker was consideration to support the surety’s obligation to pay the new note. Steger v. Jackson, 139 Ky. 491 , 102 S.W. 329, 31 Ky. L. Rptr. 434 , 1907 Ky. LEXIS 2 ( Ky. 1907 ).

A note due one day after date for a pre-existing indebtedness did not afford new consideration which would support payee’s claim that he was a holder for value of bonds given to secure such note. Walker v. Harris' Ex'rs, 114 S.W. 775 ( Ky. 1908 ).

Where a note was given upon the understanding that the payee would satisfy a judgment outstanding against the maker and such judgment was satisfied subsequently to the giving of the note, the payee was a holder for value as to a surety who signed prior to the giving of the note. Hermann's Ex'r v. Gregory, 131 Ky. 819 , 115 S.W. 809, 1909 Ky. LEXIS 65 ( Ky. 1909 ).

Where, creditor, feeling insecure, debtor indorsed note to him as collateral, such creditor was holder for value. Campbell v. Fourth Nat'l Bank, 137 Ky. 555 , 126 S.W. 114, 1910 Ky. LEXIS 598 ( Ky. 1910 ).

Bank was holder for value to the extent of its lien where it accepted notes as collateral to secure other debts and agreed to extend the time for payment of debts for agreement in collateral notes that notes pledged could be used to secure any other debt. American Nat'l Bank v. J. S. Minor & Son, 142 Ky. 792 , 135 S.W. 278, 1911 Ky. LEXIS 287 ( Ky. 1911 ).

Where X delivered note under agreement that Y would go surety on another obligation and become owner of note if required to pay off as surety, which Y had to do, Y was a holder for value. Jett v. Standafer, 143 Ky. 787 , 137 S.W. 513, 1911 Ky. LEXIS 503 ( Ky. 1911 ).

Where a note was executed in renewal of a previous note from which the sureties had been released and the sureties signed the renewal note without any fraud or deceit of any character they were bound by it as the extension of time to the principal was sufficient consideration to bind sureties and the holder of the note was a holder for value. Davis v. Bank of Clarkson, 144 Ky. 417 , 138 S.W. 246, 1911 Ky. LEXIS 606 ( Ky. 1911 ).

Purchaser of note for one third of its value was a holder in due course. Ham v. Merritt, 150 Ky. 11 , 149 S.W. 1131, 1912 Ky. LEXIS 829 ( Ky. 1912 ).

Where a holder bought notes at a 25 per cent discount, he purchased for value. Pratt v. Rounds, 160 Ky. 358 , 169 S.W. 848, 1914 Ky. LEXIS 465 ( Ky. 1914 ).

Where title was claimed through a holder in due course, who held note as collateral security, claimant could recover only to the amount of the lien of the prior holder when, with claimant’s knowledge, the note was originally issued in fraud since the holder in due course was a holder for value only to the amount of his lien. Thomas v. Siddens, 230 Ky. 651 , 20 S.W.2d 482, 1928 Ky. LEXIS 1 ( Ky. 1928 ).

Where X Bank took over notes of Y Bank under agreement to use them to pay depositors of Y Bank, it was holder for value. First Nat'l Bank v. Combs, 237 Ky. 834 , 36 S.W.2d 644, 1931 Ky. LEXIS 703 ( Ky. 1931 ).

Extension of time in which to pay note with privilege of renewal of it on the payment of interest was a sufficient consideration to support father’s indemnity against loss through son’s nonpayment of instalments on first mortgage on property on which transferee had several mortgages and transferee was a holder for value. Bank of Blaine v. Hanshaw, 255 Ky. 825 , 75 S.W.2d 529, 1934 Ky. LEXIS 339 ( Ky. 1934 ).

355.1-205. Reasonable time — Seasonableness.

  1. Whether a time for taking an action required by the Uniform Commercial Code is reasonable depends on the nature, purpose, and circumstances of the action.
  2. An action is taken seasonably if it is taken at or within the time agreed or, if no time is agreed, at or within a reasonable time.

History. Enact. Acts 1958, ch. 77, § 1-205, effective July 1, 1960; repealed and reenact., Acts 2006, ch. 242, § 13, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-205, effective July 1, 1960) relating to course of dealing and usage of trade, was repealed and reenacted by Acts 2006, ch. 242, § 13. For comparable provisions, see KRS 355.1-303 .

Official Comment

Source:

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

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.

NOTES TO DECISIONS

1.Acceptance.
2.—Revocation.

A buyer’s actions do not necessarily have to be detrimental to the seller’s interest to preclude revocation, only inconsistent with any intention to revoke. Chernick v. Casares, 759 S.W.2d 832, 1988 Ky. App. LEXIS 179 (Ky. Ct. App. 1988).

Although a buyer is entitled to rely on a seller’s assurances, once put on notice he or she should not be allowed to wait indefinitely for a defect to materialize before revoking acceptance. Chernick v. Casares, 759 S.W.2d 832, 1988 Ky. App. LEXIS 179 (Ky. Ct. App. 1988).

Where the buyer was put on notice of the possibility of a defect in a mare three (3) months after he purchased her and while she was still in his possession, three (3) years between the purchase of the mare and the attempted revocation of her was clearly unreasonable as a matter of law, and the attempted revocation was properly determined to be untimely because a thoroughbred horse, particularly a broodmare, has a limited useful life. Chernick v. Casares, 759 S.W.2d 832, 1988 Ky. App. LEXIS 179 (Ky. Ct. App. 1988).

The buyer’s attempt to breed the mare three (3) years after he was put on notice of the possibility of a breeding defect, was an act of dominion which precluded revocation. Chernick v. Casares, 759 S.W.2d 832, 1988 Ky. App. LEXIS 179 (Ky. Ct. App. 1988).

3.Excessive Delay.

While ordinarily “reasonable time” for taking action is a question of fact to be submitted to the jury, there are situations in which a buyer has delayed so excessively that his or her actions become untimely as a matter of law. Chernick v. Casares, 759 S.W.2d 832, 1988 Ky. App. LEXIS 179 (Ky. Ct. App. 1988).

4.Reasonable Time.

A reasonable time was such time “as may be necessary in the circumstances of the case for a reasonably prudent and diligent person to do what the contract or duty requires should be done, having due regard for the rights and possibility of loss to the other party.” Carhartt Holding Co. v. Mitchell, 261 Ky. 297 , 87 S.W.2d 360, 1935 Ky. LEXIS 616 ( Ky. 1935 ).

5.—Check.

Two days after issuance was a reasonable time in which to negotiate a check. Asbury v. Taube, 151 Ky. 142 , 151 S.W. 372, 1912 Ky. LEXIS 768 ( Ky. 1912 ).

Nine months after date was an unreasonable time for a bank to cash a check. Fayette Nat'l Bank v. Meyers, 211 Ky. 185 , 277 S.W. 292, 1925 Ky. LEXIS 842 ( Ky. 1925 ).

6.—Presentment of Demand Note.

Where it was established that it was the custom among banks of the locality to not allow demand paper to remain outstanding for more than four months, presentment for payment of a demand note six months after date was an unreasonable time. Frazee v. Phoenix Nat'l Bank, 161 Ky. 175 , 170 S.W. 532, 1914 Ky. LEXIS 28 ( Ky. 1914 ).

7.—Presentment of Draft by Insured.

Reinsurer agreed to be bound for all unsettled claims of insurer, but insured was not appraised of this fact. Insurer issued draft to pay a claim and reinsurer reimbursed insurer. Insured did not present draft for three (3) months, during which time insurer went bankrupt, but this was not an unreasonable time as reinsurer would have suffered no loss had reinsurer chosen financially responsible agent. Stewart v. Inter-Ocean Reinsurance Corp., 260 Ky. 787 , 86 S.W.2d 703, 1935 Ky. LEXIS 554 ( Ky. 1935 ).

8.—Husband’s Approval of Wife’s Note.

Where a wife signed and delivered a note upon the condition that her husband approve the transaction and he did not notify of his disapproval for two weeks, such was an unreasonable time. Carhartt Holding Co. v. Mitchell, 261 Ky. 297 , 87 S.W.2d 360, 1935 Ky. LEXIS 616 ( Ky. 1935 ).

9.—Filling in Payee’s Name.

Where the joint makers were still alive, the note had not been negotiated, and there was no other evidence of prejudice to any rights of the makers, but the original payee had died, seven years after that death was not an unreasonable time for the payee’s administrator to fill in the payee’s name in an instrument blank in that respect. Finley v. Rose, 189 Ky. 359 , 224 S.W. 1059, 1920 Ky. LEXIS 431 ( Ky. 1920 ). See Fayette Nat'l Bank v. Meyers, 211 Ky. 185 , 277 S.W. 292, 1925 Ky. LEXIS 842 ( Ky. 1925 ).

10.Type of Goods.

The type of goods involved may be dispositive of what constitutes a reasonable time in which to revoke acceptance; perishable or seasonable goods demand prompter action than, for instance, a long-term fixture. Chernick v. Casares, 759 S.W.2d 832, 1988 Ky. App. LEXIS 179 (Ky. Ct. App. 1988).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Peltier and Coleman, Commercial Law, 67 Ky. L.J. 523 (1978-79).

355.1-206. Presumptions.

Whenever the Uniform Commercial Code creates a “presumption” with respect to a fact, or provides that a fact is “presumed,” the trier of fact must find the existence of the fact unless and until evidence is introduced that supports a finding of its nonexistence.

History. Enact. Acts 1958, ch. 77, § 1-206, effective July 1, 1960; 1996, ch. 130, § 180, effective January 1, 1997; repealed and reenact., Acts 2006, ch. 242, § 14, effective July 12, 2006.

Compiler’s Notes.

The former section (Enact. Acts 1958, ch. 77, § 1-206, effective July 1, 1960; 1996, ch. 130, § 180, effective January 1, 1997) relating to statutes of frauds for personal property not otherwise covered, was repealed and reenacted by Acts 2006, ch. 242, § 14.

Official Comment

Source:

Former Section 1-201(31).

Changes from former law:

None, other than stylistic changes.

  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.

355.1-207. Performance or acceptance under reservation of rights. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1958, ch. 77, § 1-207, effective July 1, 1960; 1996, ch. 130, § 71, effective January 1, 1997) was repealed by Acts 2006, ch. 242, § 64, effective July 12, 2006.

355.1-208. Option to accelerate at will. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1958, ch. 77, § 1-208, effective July 1, 1960) was repealed by Acts 2006, ch. 242, § 64, effective July 12, 2006.

355.1-209. Subordinated obligations. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1986, ch. 118, § 3, effective July 1, 1987) was repealed by Acts 2006, ch. 242, § 64, effective July 12, 2006.

Part 3. Applicability and General Rules

355.1-301. Parties’ power to choose applicable law — Exceptions.

  1. This section applies to a transaction to the extent that it is governed by another article of the Uniform Commercial Code.
  2. Except as otherwise provided in this section, when a transaction bears a reasonable relation to this state and also to another state or nation, the parties may agree that the law of either this state or such other state or nation shall govern their rights and duties.
  3. In the absence of an agreement effective under subsection (2) of this section, the rights and obligations of the parties are determined by the law that would be selected by application of this state’s conflict-of-laws principles.
  4. To the extent that the Uniform Commercial Code governs a transaction, if one (1) of the following provisions of the Uniform Commercial Code specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law so specified:
    1. KRS 355.2-402 ;
    2. KRS 355.2A-105 and 355.2A-106 ;
    3. KRS 355.4-102 ;
    4. KRS 355.4A-507 ;
    5. KRS 355.5-116 ;
    6. KRS 355.8-110 ;
    7. KRS 355.9-301 to 355.9-307 .

History. Enact. Acts 2006, ch. 242, § 15, effective July 12, 2006.

Official Comment

Source:

Former Section 1-105.

Summary of changes from former law:

This section is substantively identical to former Section 1-105. Changes in language are stylistic only.

  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.

NOTES TO DECISIONS

1.In General.

KRS 355.1-105 does not require that an “as is” disclaimer of warranty only be honored when reasonable or appropriate; rather, the statute concerns the parties’ power to choose Kentucky law or the law of another jurisdiction to govern their contract. Thornton v. Deere & Co., 2001 U.S. Dist. LEXIS 15676 (W.D. Ky. Sept. 28, 2001).

Where a propane gas purchaser produced only an exemplary purchase order and not the actual purchase orders, there was no meeting of the minds between the purchaser and the supplier on the forum selection clause that was on back of the purchaser’s purchase order. The purchaser’s attempt to prove the supplier’s assent to the forum selection clause by circumstantial evidence, including course of dealing, failed. United Propane Gas, Inc. v. Harsco Corp., 2006 U.S. Dist. LEXIS 63568 (W.D. Ky. Sept. 1, 2006).

2.Contracts.

Matters bearing upon the execution, the interpretation, and the validity of a contract were determined by the law of the place where the contract was made. Matters connected with its performance were regulated by the law prevailing at the place of performance. Matters respecting the remedy, such as the bringing of suits, admissibility of evidence, statutes of limitation, depended upon the law of the place where the suit was brought. Scudder v. Union Nat'l Bank, 91 U.S. 406, 23 L. Ed. 245, 1875 U.S. LEXIS 1382 (U.S. 1875).

While there was occasional conflict of authority as to which law prevailed where the contract was made in one state and was to be performed in another, the authorities were uniform that where the contract was not only made in one state but by its terms was to be performed there, its validity had to be determined by the laws of the state where it was made and was to be performed. Arnett v. Pinson, 108 S.W. 852, 33 Ky. L. Rptr. 36 (1908).

In an action brought in Kentucky attempting to hold a person liable on a contract made in another state, the particular statute under which it was sought to make the party liable had to be pleaded as any other fact, so the court could judge from the law as set out in the pleading what was its meaning and effect. Wettlaufer v. Baxter, 137 Ky. 362 , 125 S.W. 741, 1910 Ky. LEXIS 579 ( Ky. 1910 ).

3.Conditional Sales Contracts.

Where Kentucky required recording of conditional sales contract and creditors procured attachment on machinery located in Kentucky sold under a conditional sales contract made in Illinois which was not recorded in Kentucky the creditors were without notice of seller’s right under the conditional sales contract and their attachment prevailed over the seller. Johnson v. Sauerman Bros., Inc., 243 Ky. 587 , 49 S.W.2d 331, 1932 Ky. LEXIS 152 ( Ky. 1932 ).

4.Indorsements.

A note made, payable, indorsed and transferred in New York was to be determined by the laws of New York and the indorsement being a new contract fixed the rights and liabilities under the law of the place of indorsement. Wettlaufer v. Baxter, 137 Ky. 362 , 125 S.W. 741, 1910 Ky. LEXIS 579 ( Ky. 1910 ).

Where the place of indorsement was established, the law of that place governed such indorsement and not the law of the place of execution of the instrument. Fogarty v. Neal, 201 Ky. 85 , 255 S.W. 1049, 1923 Ky. LEXIS 237 ( Ky. 1923 ).

5.Reasonable Relation Test.

Where a physician residing in Kentucky entered into a loan agreement disguised as a sale/leaseback agreement with a leasing corporation in California, with the agreement specifying that California law would control, it was clear that California law should apply in determining if the agreement was an executory contract, since the contract came into existence in California upon its acceptance there by the leasing company and, thus, a reasonable relation existed with California. In re Velasco, 13 B.R. 872, 1981 Bankr. LEXIS 3028 (Bankr. W.D. Ky. 1981 ), disapproved, Limor v. Weinstein & Sutton (In re SMEC, Inc.), 160 B.R. 86, 1993 U.S. Dist. LEXIS 15232 (M.D. Tenn. 1993).

Research References and Practice Aids

Kentucky Law Journal.

Young, Scope, Purpose, and Functions of the Uniform Commercial Code, 48 Ky. L.J. 191 (1960).

Cullen, Conflict of Laws Problems Under the Uniform Commercial Code, 48 Ky. L.J. 417 (1960).

Gilbert, Choice of Forum Clauses in International and Interstate Contracts, Part VI, Other Influencing Factors, 65 Ky. L.J. 29 (1976-77).

355.1-302. Variation by agreement.

  1. Except as otherwise provided in subsection (2) of this section or elsewhere in the Uniform Commercial Code, the effect of provisions of the Uniform Commercial Code may be varied by agreement.
  2. The obligations of good faith, diligence, reasonableness, and care prescribed by the Uniform Commercial Code may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable. Whenever the Uniform Commercial Code requires an action to be taken within a reasonable time, a time that is not manifestly unreasonable may be fixed by agreement.
  3. The presence in certain provisions of the Uniform Commercial Code of the phrase “unless otherwise agreed,” or words of similar import, does not imply that the effect of other provisions may not be varied by agreement under this section.

History. Enact. Acts 2006, ch. 242, § 16, effective July 12, 2006.

Official Comment

Source:

Former Sections 1-102(3)-(4) and 1-204(1).

Changes:

This section combines the rules from subsections (3) and (4) of former Section 1-102 and subsection (1) of former Section 1-204. No substantive changes are made.

  1. Subsection (a) states affirmatively at the outset that freedom of contract is a principle of the Uniform Commercial Code: “the effect” of its provisions may be varied by “agreement.” The meaning of the statute itself must be found in its text, including its definitions, and in appropriate extrinsic aids; it cannot be varied by agreement. But the Uniform Commercial Code seeks to avoid the type of interference with evolutionary growth found in pre-Code cases such as Manhattan Co. v. Morgan, 242 N.Y. 38, 150 N.E. 594 (1926). Thus, private parties cannot make an instrument negotiable within the meaning of Article 3 except as provided in Section 3-104; nor can they change the meaning of such terms as “bona fide purchaser,” “holder in due course,” or “due negotiation,” as used in the Uniform Commercial Code. But an agreement can change the legal consequences that would otherwise flow from the provisions of the Uniform Commercial Code. “Agreement” here includes the effect given to course of dealing, usage of trade and course of performance by Sections 1-201 and 1-303; the effect of an agreement on the rights of third parties is left to specific provisions of the Uniform Commercial Code and to supplementary principles applicable under Section 1-103. The rights of third parties under Section 9-317 when a security interest is unperfected, for example, cannot be destroyed by a clause in the security agreement.

    This principle of freedom of contract is subject to specific exceptions found elsewhere in the Uniform Commercial Code and to the general exception stated here. The specific exceptions vary in explicitness: the statute of frauds found in Section 2-201, for example, does not explicitly preclude oral waiver of the requirement of a writing, but a fair reading denies enforcement to such a waiver as part of the “contract” made unenforceable; Section 9-602, on the other hand, is a quite explicit limitation on freedom of contract. Under the exception for “the obligations of good faith, diligence, reasonableness and care prescribed by [the Uniform Commercial Code],” provisions of the Uniform Commercial Code prescribing such obligations are not to be disclaimed. However, the section also recognizes the prevailing practice of having agreements set forth standards by which due diligence is measured and explicitly provides that, in the absence of a showing that the standards manifestly are unreasonable, the agreement controls. In this connection, Section 1-303 incorporating into the agreement prior course of dealing and usages of trade is of particular importance.

    Subsection (b) also recognizes that nothing is stronger evidence of a reasonable time than the fixing of such time by a fair agreement between the parties. However, provision is made for disregarding a clause which whether by inadvertence or overreaching fixes a time so unreasonable that it amounts to eliminating all remedy under the contract. The parties are not required to fix the most reasonable time but may fix any time which is not obviously unfair as judged by the time of contracting.

  2. An agreement that varies the effect of provisions of the Uniform Commercial Code may do so by stating the rules that will govern in lieu of the provisions varied. Alternatively, the parties may vary the effect of such provisions by stating that their relationship will be governed by recognized bodies of rules or principles applicable to commercial transactions. Such bodies of rules or principles may include, for example, those that are promulgated by intergovernmental authorities such as UNCITRAL or Unidroit (see, e.g., Unidroit Principles of International Commercial Contracts), or non-legal codes such as trade codes.
  3. Subsection (c) is intended to make it clear that, as a matter of drafting, phrases such as “unless otherwise agreed” have been used to avoid controversy as to whether the subject matter of a particular section does or does not fall within the exceptions to subsection (b), but absence of such words contains no negative implication since under subsection (b) the general and residual rule is that the effect of all provisions of the Uniform Commercial Code may be varied by agreement.

NOTES TO DECISIONS

1.In General.

A coal supply agreement, as an instrument for the sale of goods, does trigger the UCC. However, two (2) sophisticated parties with able and learned legal counsel, contracted away from the UCC, its definitions and interpretations which the parties were legally entitled to do. The coal supply agreement provided for the risk allocation agreed to by the parties and the contractual standard was not based on whether the events or conditions could or should have been forseen, but required only a factual determination that the events or conditions were not forseen. The contractual standard was a negotiated provision for period price review, not an excuse from performance clause. Kentucky Utilities Co. v. South East Coal Co., 836 S.W.2d 392, 1992 Ky. LEXIS 96 ( Ky. 1992 ), cert. dismissed, 506 U.S. 1090, 113 S. Ct. 1147, 122 L. Ed. 2d 498, 1993 U.S. LEXIS 1038 (U.S. 1993).

355.1-303. Course of performance — Course of dealing — Usage of trade.

  1. A “course of performance” is a sequence of conduct between the parties to a particular transaction that exists if:
    1. The agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and
    2. The other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.
  2. A “course of dealing” is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
  3. A “usage of trade” is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law.
  4. A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties’ agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance.
  5. Except as otherwise provided in subsection (6) of this section, the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:
    1. Express terms prevail over course of performance, course of dealing, and usage of trade;
    2. Course of performance prevails over course of dealing and usage of trade; and
    3. Course of dealing prevails over usage of trade.
  6. Subject to KRS 355.2-209 , a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance.
  7. Evidence of a relevant usage of trade offered by one (1) party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise to the other party.

History. Enact. Acts 2006, ch. 242, § 17, effective July 12, 2006.

Official Comment

Source:

Former Sections 1-205, 2-208, and Section 2A-207.

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.

NOTES TO DECISIONS

1.Applicability.

“Course of dealing between parties” and “any usage of trade” may be competent to explain any ambiguities in a contract but this does not mean that a course of dealing or trade usage may be used to make a contract between parties and where the whole issue was whether or not there was an agreement to give ten percent (10%) discount on purchases, the term ten percent (10%) was a plain term requiring no trade usage or custom to determine its meaning. Martin v. Ben P. Eubank Lumber Co., 395 S.W.2d 385, 1965 Ky. LEXIS 146 ( Ky. 1965 ).

Where a propane gas purchaser produced only an exemplary purchase order and not the actual purchase orders, there was no meeting of the minds between the purchaser and the supplier on the forum selection clause that was on back of the purchaser’s purchase order. The purchaser’s attempt to prove the supplier’s assent to the forum selection clause by circumstantial evidence, including course of dealing, failed. United Propane Gas, Inc. v. Harsco Corp., 2006 U.S. Dist. LEXIS 63568 (W.D. Ky. Sept. 1, 2006).

2.Express Terms of Agreement.

Express terms of an agreement and an applicable course of dealing or trade usage shall be construed as being consistent with each other whenever reasonable, but whenever such construction is unreasonable, the express terms control both a course of dealing and trade usage, and the same considerations and principles apply to a course of performance. Savannah Sugar Refinery, Div. of Savannah Foods & Industries, Inc. v. RC Canada Dry Bottling Co., Div. of Beatrice Foods Co., 593 S.W.2d 880, 1979 Ky. App. LEXIS 509 (Ky. Ct. App. 1979).

Fact that bank had previously accepted a promisor’s late payments on a loan did not constitute a waiver of its right to accelerate the loan when the promisor again defaulted on a payment, and in any event, under former KRS 355.1-205 (4) (now this section), if the course of dealing between the parties and the express terms of their agreement could not reasonably be construed as consistent with each other, the express terms of the agreement controlled. Catron v. Citizens Union Bank, 229 S.W.3d 54, 2006 Ky. App. LEXIS 273 (Ky. Ct. App. 2006).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

355.1-304. Obligation of good faith.

Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement.

History. Enact. Acts 2006, ch. 242, § 18, effective July 12, 2006.

Official Comment

Source:

Former Section 1-203.

Changes from former law:

Except for changing the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-203.

  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.

NOTES TO DECISIONS

1.In General.

Court dismissed a buyer’s claim for consequential damages where the complaint failed to allege bad faith by a seller in its performance under a contract, pursuant to KRS 355.2-719 (3) and KRS 355.1-203 ; the buyer’s only allegation of bad faith related to the negotiations surrounding the contract, rather than to the performance of the contract. Strathmore Web Graphics v. Sanden Mach., Ltd., 2000 U.S. Dist. LEXIS 22618 (W.D. Ky. May 16, 2000).

Father's claim against a custody evaluator under Ky. Rev. Stat. Ann. § 355.1-304 failed because (1) the Uniform Commercial Code did not apply, and (2) the statute did not create an independent cause of action for breach of good faith. J.S. v. Berla, 456 S.W.3d 19, 2015 Ky. App. LEXIS 14 (Ky. Ct. App. 2015).

2.Duty of Banks to Customers.

This section and KRS 355.4-103 impose a duty of good faith and fair dealing on banks, and implied in this duty of good faith and fair dealing is a duty on the part of a bank to provide its former customers with records of their accounts. Ousley v. First Commonwealth Bank, 8 S.W.3d 45, 1999 Ky. App. LEXIS 11 (Ky. Ct. App. 1999).

3.Failure to Demand Payment.

In claim and delivery action to enforce lien on automobiles, where there was no specific assurance of an extension of time for payment and the defendant company had not shown that they relied on any specific assurances to their detriment, there had been no breach of the obligation of good faith as would prevent enforcement and failure to demand immediate payment or to refuse anything less than full payment would not amount to bad faith. Universal C. I. T. Credit Corp. v. Middlesboro Motor Sales, Inc., 424 S.W.2d 409, 1968 Ky. LEXIS 455 ( Ky. 1968 ).

4.Notice.

Where the subordination agreement did not contain any provision which prohibited additional loans from the bank nor specify that any payments received would be used first to reduce the original secured portion of the renewed promissory note, the bank did not breach the subordination agreement when it renewed the note and approved an additional unsecured loan, but did breach its implied covenant of good faith and fair dealing when it failed to give notice to the private lender of its subsequent loan and when it unilaterally applied the payments it received first to the unsecured portion of the new promissory note. Ranier v. Mt. Sterling Nat'l Bank, 812 S.W.2d 154, 1991 Ky. LEXIS 78 ( Ky. 1991 ).

5.Force Majeure.

Utility company was obligated under this section to use good faith in invoking force majeure against coal company so that utility company could refuse to take delivery of coal. Good faith is “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” Utility company was also under a contractual obligation to eliminate the disabling effect of such force majeure as soon as, and to the extent, possible. Kentucky Utilities Co. v. South East Coal Co., 836 S.W.2d 392, 1992 Ky. LEXIS 96 ( Ky. 1992 ), cert. dismissed, 506 U.S. 1090, 113 S. Ct. 1147, 122 L. Ed. 2d 498, 1993 U.S. LEXIS 1038 (U.S. 1993).

6.Mortgage Contract.

Mortgage contract contained such a covenant of good faith and fair dealing and neither the loan delinquency nor the foreclosure process impaired its validity. This covenant imposed upon the bank, as mortgagee, the duty to act in a bona fide manner throughout the foreclosure proceedings and the breach of this duty resulted in extinguishing the mortgagor’s obligation to the bank when the bank contracted with third parties to sell the mortgaged property during the foreclosure action and, in fact, ultimately sold the property for an amount which would have wholly satisfied the debt owed by mortgagor. Pearman v. West Point Nat'l Bank, 887 S.W.2d 366, 1994 Ky. App. LEXIS 135 (Ky. Ct. App. 1994).

Research References and Practice Aids

Kentucky Law Journal.

Young, Scope, Purposes, and Functions of the Uniform Commercial Code, 48 Ky. L.J. 191 (1960).

Harvey and Wiseman, First Party Bad Faith: Common Law Remedies and a Proposed Legislative Solution, 72 Ky. L.J. 141 (1983-84).

Northern Kentucky Law Review.

Cox, Lender Liability in the Bluegrass: Are New Theories Emerging Under Kentucky Law?, 16 N. Ky. L. Rev. 43 (1988).

Treatises

Kentucky Instructions To Juries (Civil), 5th Ed., Conversion, § 29.03.

355.1-305. Remedies to be liberally administered.

  1. The remedies provided by the Uniform Commercial Code must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed, but neither consequential or special damages nor penal damages may be had except as specifically provided in the Uniform Commercial Code or by other rule of law.
  2. Any right or obligation declared by the Uniform Commercial Code is enforceable by action unless the provision declaring it specifies a different and limited effect.

History. Enact. Acts 2006, ch. 242, § 19, effective July 12, 2006.

Official Comment

Source:

Former Section 1-106.

Changes from former law:

Other than changes in the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-106.

  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.

NOTES TO DECISIONS

1.Construction in Favor of Remedy.

It was a well-adopted principle and rule that statutory enactment should be liberally construed in respect of the purpose for which it was enacted, and, where there was a doubt as to the construction, the statute should be construed always in favor of the remedy. Nall v. Commonwealth, 299 Ky. 792 , 187 S.W.2d 443, 1945 Ky. LEXIS 803 ( Ky. 1945 ).

2.Punitive Damages.

The Uniform Commercial Code grants no new right to punitive damages. Ford Motor Co. v. Mayes, 575 S.W.2d 480, 1978 Ky. App. LEXIS 649 (Ky. Ct. App. 1978).

Punitive damages were not usually recoverable for a breach of contract. Cumberland Tel. & Tel. Co. v. Sutton, 156 Ky. 191 , 160 S.W. 949, 1913 Ky. LEXIS 409 ( Ky. 191 3).

Research References and Practice Aids

Northern Kentucky Law Review.

Notes, U.C.C. — Consumer Protection Act — Limited Warranties — Automobile Manufac- turer’s Refusal to Recognize Buyers’ Rights Under the U.C.C. When a Limited Warranty Fails of Its Essential Purpose Constitutes an Unfair Trade Practice Under the Consumer Protection Act, 6 N. Ky. L. Rev. 403 (1979).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Practice Context for Sales, § 190.00.

355.1-306. Waiver or renunciation of claim or right after breach.

A claim or right arising out of an alleged breach may be discharged in whole or in part without consideration by agreement of the aggrieved party in an authenticated record.

History. Enact. Acts 2006, ch. 242, § 20, effective July 12, 2006.

Official Comment

Source:

Former Section 1-107.

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 forego 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).

Research References and Practice Aids

Kentucky Law Journal.

Young, Scope, Purposes and Functions of the Uniform Commercial Code, 48 Ky. L.J. 191 (1960).

Whiteside, Uniform Commercial Code — Major Changes in Sales Law, The Contract of Sale, 49 Ky. L.J. 165 (1960).

355.1-307. Prima facie evidence by third-party documents.

A document in due form purporting to be a bill of lading, policy or certificate of insurance, official weigher’s or inspector’s certificate, consular invoice, or any other document authorized or required by the contract to be issued by a third party is prima facie evidence of its own authenticity and genuineness and of the facts stated in the document by the third party.

History. Enact. Acts 2006, ch. 242, § 21, effective July 12, 2006.

Official Comment

Source:

Former Section 1-202.

Changes from former law:

Except for minor stylistic changes, this Section is identical to former Section 1-202.

  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.

355.1-308. Performance or acceptance under reservation of rights.

  1. A party that with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as “without prejudice,” “under protest,” or the like are sufficient.
  2. Subsection (1) of this section does not apply to an accord and satisfaction.

History. Enact. Acts 2006, ch. 242, § 22, effective July 12, 2006.

Official Comment

Source:

Former Section 1-207.

Changes from former law:

This section is identical to former Section 1-207.

  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.

NOTES TO DECISIONS

1.In General.

Performance contemplates and encompasses such concepts as delivery and acceptance, as well as payment. Ditch Witch Trenching Co. v. C & S Carpentry Servs., Inc., 812 S.W.2d 171, 1991 Ky. App. LEXIS 52 (Ky. Ct. App. 1991).

2.Conditional Language.

Where creditor received a check with “payment in full” written on it and accepted the check, he did not lose his right to sue for the balance of the payment as he explicitly reserved those rights by crossing out the conditional language and notifying the debtor. Ditch Witch Trenching Co. v. C & S Carpentry Servs., Inc., 812 S.W.2d 171, 1991 Ky. App. LEXIS 52 (Ky. Ct. App. 1991).

Where an owner’s check contained a conspicuous statement that it was tendered as full satisfaction of a paver’s claim pursuant to KRS 355.3-311 (2), (4), when the check was cashed, the claim was discharged despite a notation of protest pursuant to former KRS 355.1-207 ; therefore, the trial court’s grant of summary judgment to the owner was proper. Morgan v. Crawford, 106 S.W.3d 480, 2003 Ky. App. LEXIS 103 (Ky. Ct. App. 2003).

3.Accord and Satisfaction.

A literal interpretation of the plain language contained in former UCC 1-207, not to mention a liberal construction, compels the conclusion that the common law doctrine of accord and satisfaction has been superseded by the passage of this statute. Ditch Witch Trenching Co. v. C & S Carpentry Servs., Inc., 812 S.W.2d 171, 1991 Ky. App. LEXIS 52 (Ky. Ct. App. 1991).

Research References and Practice Aids

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Practice Context for Accord and Satisfaction, § 211.00.

355.1-309. Option to accelerate at will.

A term providing that one (1) party or that party’s successor in interest may accelerate payment or performance or require collateral or additional collateral “at will” or when the party “deems itself insecure,” or words of similar import, means that the party has power to do so only if that party in good faith believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on the party against which the power has been exercised.

History. Enact. Acts 2006, ch. 242, § 23, effective July 12, 2006.

Official Comment

Source:

Former Section 1-208.

Changes from former law:

Except for minor stylistic changes, this section is identical to former Section 1-208.

  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.

NOTES TO DECISIONS

1.Sufficient Evidence to Accelerate.

Evidence showing financial difficulties of maker of security agreement and note was sufficient to authorize acceleration of payment or performance of the note and so authorize foreclosure of the security agreement. Ft. Knox Nat'l Bank v. Gustafson, 385 S.W.2d 196, 1964 Ky. LEXIS 148 ( Ky. 1964 ).

Mortgage loan was properly accelerated without a demand for payment, and subsequent payments were properly refused, because (1) the statute requiring good faith belief in an impaired prospect of payment or performance did not apply, given express mortgage terms setting out specific borrower requirements preventing acceleration, and (2) mortgagors defaulted due to missed payments and tax delinquency. Clay v. Wesbanco Bank, Inc., 589 S.W.3d 550, 2019 Ky. App. LEXIS 50 (Ky. Ct. App. 2019).

355.1-310. Subordinated obligations.

An obligation may be issued as subordinated to performance of another obligation of the person obligated, or a creditor may subordinate its right to performance of an obligation by agreement with either the person obligated or another creditor of the person obligated. Subordination does not create a security interest as against either the common debtor or a subordinated creditor.

History. Enact. Acts 2006, ch. 242, § 24, effective July 12, 2006.

Official Comment

Source:

Former Section 1-209.

Changes from former law:

This section is substantively identical to former Section 1-209. The language in that section stating that it “shall be construed as declaring the law as it existed prior to the enactment of this section and not as modifying it” has been deleted.

  1. Billions of dollars of subordinated debt are held by the public and by institutional investors. Commonly, the subordinated debt is subordinated on issue or acquisition and is evidenced by an investment security or by a negotiable or non-negotiable note. Debt is also sometimes subordinated after it arises, either by agreement between the subordinating creditor and the debtor, by agreement between two creditors of the same debtor, or by agreement of all three parties. The subordinated creditor may be a stockholder or other “insider” interested in the common debtor; the subordinated debt may consist of accounts or other rights to payment not evidenced by any instrument. All such cases are included in the terms “subordinated obligation,” “subordination,” and “subordinated creditor.”
  2. Subordination agreements are enforceable between the parties as contracts; and in the bankruptcy of the common debtor dividends otherwise payable to the subordinated creditor are turned over to the superior creditor. This “turn-over” practice has on occasion been explained in terms of “equitable lien,” “equitable assignment,” or “constructive trust,” but whatever the label the practice is essentially an equitable remedy and does not mean that there is a transaction “that creates a security interest in personal property…by contract” or a “sale of accounts, chattel paper, payment intangibles, or promissory notes” within the meaning of Section 9-109. On the other hand, nothing in this section prevents one creditor from assigning his rights to another creditor of the same debtor in such a way as to create a security interest within Article 9, where the parties so intend.
  3. The enforcement of subordination agreements is largely left to supplementary principles under Section 1-103. If the subordinated debt is evidenced by a certificated security, Section 8-202(a) authorizes enforcement against purchasers on terms stated or referred to on the security certificate. If the fact of subordination is noted on a negotiable instrument, a holder under Sections 3-302 and 3-306 is subject to the term because notice precludes him from taking free of the subordination. Sections 3-302(3)(a), 3-306, and 8-317 severely limit the rights of levying creditors of a subordinated creditor in such cases.

Article 2. Sales

Compiler’s Notes.

The official comments in this article are copyrighted by the National Conference of Commissioners of Uniform State Laws and the American Law Institute, and are reproduced by permission.

Part 1. Short Title — General Construction and Subject Matter

355.2-101. Short title.

This article shall be known and may be cited as Uniform Commercial Code — Sales.

History. Enact. Acts 1958, ch. 77, § 2-101, effective July 1, 1960.

Official Comment

This Article 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 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 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 and Practice Aids

Kentucky Law Journal.

Young, Scope, Purposes, and Functions of the Uniform Commercial Code, 48 Ky. L.J. 191 (1960).

Cullen, Conflict of Laws, Problems Under the Uniform Commercial Code, 48 Ky. L.J. 417 (1960).

Whiteside, Uniform Commercial Code — Major Changes in Sales Law, 49 Ky. L.J. 165 (1960).

Weber, The Extension of Voidable Title Principle Under the Code, 49 Ky. L.J. 437 (1961).

Viles, The Uniform Commercial Code v. The Bankruptcy Act, 55 Ky. L.J. 36l (1967).

355.2-102. Scope — Certain security and other transactions excluded from this article.

Unless the context otherwise requires, this article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.

History. Enact. Acts 1958, ch. 77, § 2-102, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 75, Uniform Sales Act.

Changes:

Section 75 has been rephrased.

Purposes of changes and new matter:

To make it clear that:

The Article 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 on Secured Transactions (Article 9).

Cross reference:

Article 9.

Definitional cross references:

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

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NOTES TO DECISIONS

1.Sale of Motor Vehicle.

Where a seller gave an absolute bill of sale to an automobile and the purchaser, as a part of the same transaction, executed a conditional sales contract reciting that title remained in the seller, the transaction was a sale and the conditional sales contract only created a lien on the automobile to secure the debt. (decided under prior law) Cartwright v. C. I. T. Corp., 253 Ky. 690 , 70 S.W.2d 388, 1934 Ky. LEXIS 729 ( Ky. 1934 ).

The sale of a motor vehicle and the rights and duties of the parties to such a sale are governed by this article. Lexington Mack, Inc. v. Miller, 555 S.W.2d 249, 1977 Ky. LEXIS 500 ( Ky. 1977 ).

Where the testimony and undisputed facts at a state court trial established that a creditor had legal title to a motorcycle when a Chapter 7 debtor exercised dominion and control over it and that debtor denied creditor his right to use and enjoy the motorcycle, then conversion was established under Kentucky law, and the state court judgment was nondischargeable. Dunn v. Campbell (In re Campbell), 2014 Bankr. LEXIS 1639 (Bankr. W.D. Ky. Apr. 15, 2014).

2.Equipment Leasing Transactions.

The UCC is applicable to equipment leasing transactions. Hertz Commercial Leasing Corp. v. Joseph, 641 S.W.2d 753, 1982 Ky. App. LEXIS 262 (Ky. Ct. App. 1982).

3.Goods.

Goods incorporated into a real estate construction contract are not goods. Wehr Constructors, Inc. v. Steel Fabricators, Inc., 769 S.W.2d 51, 1988 Ky. App. LEXIS 197 (Ky. Ct. App. 1988).

Where the predominate purpose of an agreement between a manufacturer and a distributor was for the distributor to service a new client, not to buy the manufacturer’s product, it was not governed by Article II of the Uniform Commercial Code, KRS 355.2-102 . MidAmerican Distrib. v. Clarification Tech., Inc., 807 F. Supp. 2d 646, 2011 U.S. Dist. LEXIS 89143 (E.D. Ky. 2011 ), aff'd, 485 Fed. Appx. 779, 2012 FED App. 671N, 2012 U.S. App. LEXIS 12886 (6th Cir. Ky. 2012 ).

4.Conditional Sales Contract.

In the conventional conditional sales contract, the “property” remained in the seller. (decided under prior law)Brown v. Woods Motor Co., 239 Ky. 312 , 39 S.W.2d 507, 1931 Ky. LEXIS 779 ( Ky. 1931 ), limited, Commonwealth v. Larson, 242 Ky. 317 , 46 S.W.2d 82, 1932 Ky. LEXIS 251 ( Ky. 1932 ).

Conditional sales contracts had to be recorded to be valid against innocent purchasers, even though there was no express requirement of recording in law regulating sales. (decided under prior law) Munz v. National Bond & Inv. Co., 243 Ky. 293 , 47 S.W.2d 1055, 1932 Ky. LEXIS 72 ( Ky. 1932 ).

Cited in:

T-Birds, Inc. v. Thoroughbred Helicopter Service, Inc., 540 F. Supp. 548, 1982 U.S. Dist. LEXIS 14161 (E.D. Ky. 1982 ); Marley Cooling Tower Co. v. Caldwell Energy & Envtl., Inc., 280 F. Supp. 2d 651, 2003 U.S. Dist. LEXIS 15213 (W.D. Ky. 2003 ).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Thoroughbred Certificate Law: A Proposal, 78 Ky. L.J. 659 (1989-90).

355.2-103. Definitions and index of definitions.

  1. In this article unless the context otherwise requires:
    1. “Buyer” means a person who buys or contracts to buy goods;
    2. (Reserved)
    3. “Receipt” of goods means taking physical possession of them; and
    4. “Seller” means a person who sells or contracts to sell goods.
  2. Other definitions applying to this article or to specified parts thereof, and the sections in which they appear are:
    1. “Acceptance.” KRS 355.2-606 ;
    2. “Banker’s credit.” KRS 355.2-325 ;
    3. “Between merchants.” KRS 355.2-104 ;
    4. “Cancellation.” KRS 355.2-106 (4);
    5. “Commercial unit.” KRS 355.2-105 ;
    6. “Confirmed credit.” KRS 355.2-325 ;
    7. “Conforming to contract.” KRS 355.2-106 ;
    8. “Contract for sale.” KRS 355.2-106;
    9. “Cover.” KRS 355.2-712 ;
    10. “Entrusting.” KRS 355.2-403 ;
    11. “Financing agency.” KRS 355.2-104 ;
    12. “Future goods.” KRS 355.2-105 ;
    13. “Goods.” KRS 355.2-105;
    14. “Identification.” KRS 355.2-501 ;
    15. “Installment contract.” KRS 355.2-612 ;
    16. “Letter of credit.” KRS 355.2-325;
    17. “Lot.” KRS 355.2-105;
    18. “Merchant.” KRS 355.2-104;
    19. “Overseas.” KRS 355.2-323 ;
    20. “Person in position of seller.” KRS 355.2-707 ;
    21. “Present sale.” KRS 355.2-106;
    22. “Sale.” KRS 355.2-106;
    23. “Sale on approval.” KRS 355.2-326 ;
    24. “Sale or return.” KRS 355.2-326 ; and
    25. “Termination.” KRS 355.2-106.
  3. The following definitions in other articles apply to this article:
    1. “Check.” KRS 355.3-104 ;
    2. “Consignee.” KRS 355.7-102 ;
    3. “Consignor.” KRS 355.7-102 ;
    4. “Consumer goods.” KRS 355.9-102 ;
    5. “Control.” KRS 355.7-106 ;
    6. “Dishonor.” KRS 355.3-502 ; and
    7. “Draft.” KRS 355.3-104 .
  4. In addition, Article 1 contains general definitions and principles of construction and interpretation applicable throughout this article.

History. Enact. Acts 1958, ch. 77, § 2-103, effective July 1, 1960; 2000, ch. 408, § 158, effective July 1, 2001; 2006, ch. 242, § 25, effective July 12, 2006; 2012, ch. 132, § 45, effective July 12, 2012.

Legislative Research Commission Notes.

(7/12/2006). Under the authority of KRS 7.136(1), the Reviser of Statutes has added paragraph headings [(a), (b), etc.] before terms referenced in subsection (2) of this statute that are defined in other statutes. The words in the text were not changed.

Official Comment

Prior uniform statutory provision:

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

Changes:

The definitions of “buyer” and “seller” have been slightly rephrased, the reference in Section 76 of the prior Act to “any legal successor in interest of such person” being omitted. The definition of “receipt” is new.

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, 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.
  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 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:

“Person”. Section 1-201.

NOTES TO DECISIONS

1.Seller.

Mechanical contracting firm which solicited an order for special machinery to be built by another firm, which guaranteed its work for a period of one (1) year, and which billed buyer and accepted payment for the machinery was a seller within the meaning of subsection (1)(d) of this section. Frantz, Inc. v. Blue Grass Hams, Inc., 520 S.W.2d 313, 1974 Ky. LEXIS 7 ( Ky. 1974 ).

The General Assembly has expressly adopted the privity requirement, and warranty protections are limited to those engaged in a buyer-seller relationship. Brown Sprinkler Corp. v. Plumbers Supply Co., 265 S.W.3d 237, 2007 Ky. App. LEXIS 347 (Ky. Ct. App. 2007).

2.Good Faith.

Utility company was obligated under KRS 355.1-203 to use good faith in invoking force majeure against coal company so that utility company could refuse to take delivery of coal. Good faith is “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” Utility company was also under a contractual obligation to eliminate the disabling effect of such force majeure as soon as, and to the extent, possible. Kentucky Utilities Co. v. South East Coal Co., 836 S.W.2d 392, 1992 Ky. LEXIS 96 ( Ky. 1992 ), cert. dismissed, 506 U.S. 1090, 113 S. Ct. 1147, 122 L. Ed. 2d 498, 1993 U.S. LEXIS 1038 (U.S. 1993).

3.Buyer.

A son did not have an actionable claim for injuries against the manufacturer of a chair when the son claimed that the chair, which had been purchased by the son’s parents and kept in the parents’ home, collapsed when the son sat in it. Although the parents met the definition of buyers under KRS 355.2-103 (1)(a), they did not purchase the chair from the manufacturer, and KRS 355.2-318 did not provide grounds for the son’s claim. Compex Int'l Co. v. Taylor, 209 S.W.3d 462, 2006 Ky. LEXIS 253 ( Ky. 2006 ), modified, 2007 Ky. LEXIS 13 (Ky. Jan. 25, 2007).

Cited in:

Leeper v. Banks, 487 S.W.2d 58, 1972 Ky. LEXIS 58 ( Ky. 1972 ).

Research References and Practice Aids

Journal of Mineral Law & Policy.

Comments, Injected Gas: Realty or Personalty, 3 J.M.L. & P. 571 (1988).

Kentucky Law Journal.

Comments, The Role of Negligence in Section 3-405 of the Uniform Commercial Code: Owensboro National Bank v. Crisp, 69 Ky. L.J. 143 (1980-81).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Northern Kentucky Law Review.

Cox, Lender Liability in the Bluegrass: Are New Theories Emerging Under Kentucky Law?, 16 N. Ky. L. Rev. 43 (1988).

355.2-104. 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 (KRS 355.2-707 ).
  3. “Between merchants” means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.

History. Enact. Acts 1958, ch. 77, § 2-104, effective July 1, 1960; 2012, ch. 132, § 46, effective July 12, 2012.

Official Comment

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.

Purposes:

  1. This Article assumes that transaction 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 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 1: See Sections 1-102 and 1-203.

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

Definitional cross references:

“Bank”. Section 1-201. “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.

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Research References and Practice Aids

Kentucky Law Journal.

Comments, The Role of Negligence in Section 3-405 of the Uniform Commercial Code: Owensboro National Bank v. Crisp, 69 Ky. L.J. 143 (1980-81).

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

355.2-105. Definitions: transferability — “Goods” — “Future” goods — “Lot” — “Commercial unit.”

  1. “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (KRS 355.2-107 ).
  2. Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are “future” goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.
  3. There may be a sale of a part interest in existing identified goods.
  4. An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller’s interest in the bulk be sold to the buyer who then becomes an owner in common.
  5. “Lot” means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract.
  6. “Commercial unit” means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole.

History. Enact. Acts 1958, ch. 77, § 2-105, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

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

Changes:

Rewritten.

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. 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.

    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 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. It is not intended by this exclusion, however, to prevent the application of a particular section of this Article 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 of this Act dealing specifically with such securities (Article 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:

Point 1: Sections 2-107, 2-201, 2-501 and Article 8.

Point 5: Section 2-501.

See also Section 1-201.

Definitional cross references:

“Buyer”. Section 2-103. “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.

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NOTES TO DECISIONS

1.Goods.

Goods incorporated into a real estate construction contract are not goods. Wehr Constructors, Inc. v. Steel Fabricators, Inc., 769 S.W.2d 51, 1988 Ky. App. LEXIS 197 (Ky. Ct. App. 1988).

Stray voltage is not a “good,” because: (1) electricity is not a good; and/or (2) stray voltage does not pass through the customer’s meter. G & K Dairy v. Princeton Electric Plant Bd., 781 F. Supp. 485, 1991 U.S. Dist. LEXIS 20439 (W.D. Ky. 1991 ).

The Uniform Commercial Code was inapplicable to an insurer’s subrogation claim against a fire alarm company seeking damages arising from a house fire because the contract between the insureds and the fire alarm company was not for the sale of goods, but was for services; while the fire alarm company agreed to supply the alarm system, title to the control set remained with the fire alarm company. United Servs. Auto. Ass'n v. ADT Sec. Servs., 241 S.W.3d 335, 2006 Ky. App. LEXIS 284 (Ky. Ct. App. 2006).

Where plaintiffs brought an action against defendants, asserting that a fatal airplane crash resulted from the negligence of defendants and that defendants breached implied warranties associated with the purchase of an airline ticket, plaintiffs had no viable breach of warranty claim against defendants because the Uniform Commercial Code (U.C.C.) was inapplicable to contracts for services, and the state had declined to create common law rights that expanded on the parameters of implied warranty established in the U.C.C. In re Air Crash, 2008 U.S. Dist. LEXIS 51062 (E.D. Ky. July 2, 2008).

Purchasers of scratch-off game tickets that paid out $20 in winnings did not have a claim against the Kentucky Lottery Corporation for violation of the Consumer Protection Act, based on advertising that promised that the minimum prize was $25 dollars, because the tickets were not goods. Collins v. Ky. Lottery Corp., 399 S.W.3d 449, 2012 Ky. App. LEXIS 212 (Ky. Ct. App. 2012).

Research References and Practice Aids

Kentucky Bench & Bar.

An Overview of the Magnuson-Moss Warranty Act, Vol. 55, No. 3, Summer 1991, Ky. Bench & Bar 18.

Kentucky Law Journal.

Kentucky Law Survey, Weinberg, Commercial Law and Consumer Credit, 65 Ky. L.J. 370 (1976-77).

Kentucky Law Survey, Peltier and Coleman, Commercial Law, 67 Ky. L.J. 523 (1978-79).

Kentucky Law Survey, Nowka, Commercial Law, 73 Ky. L.J. 315 (1984-85).

Northern Kentucky Law Review.

Ellerman & Linneman, A Survey of Kentucky Commercial Law., 31 N. Ky. L. Rev. 201 (2004).

355.2-106. Definitions: “contract” — “Agreement” — “Contract for sale” — “Sale” — “Present sale” — “Conforming” to contract — “Termination” — “Cancellation.”

  1. In this article unless the context otherwise requires “contract” and “agreement” are limited to those relating to the present or future sale of goods. “Contract for sale” includes both a present sale of goods and a contract to sell goods at a future time. A “sale” consists in the passing of title from the seller to the buyer for a price (KRS 355.2-401 ). A “present sale” means a sale which is accomplished by the making of the contract.
  2. Goods or conduct including any part of a performance are “conforming” or conform to the contract when they are in accordance with the obligations under the contract.
  3. “Termination” occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On “termination” all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives.
  4. “Cancellation” occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of “termination” except that the canceling party also retains any remedy for breach of the whole contract or any unperformed balance.

History. Enact. Acts 1958, ch. 77, § 2-106, effective July 1, 1960.

Official Comment

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:

Completely rewritten.

Purposes of changes and new matter:

  1. Subsection (1): “Contract for sale” is used as a general concept throughout this Article, 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 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 between termination and cancellation.

Cross references:

Point 2: Sections 1-203, 1-205, 2-208 and 2-508.

Definitional cross references:

“Agreement”. Section 1-201. “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.

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NOTES TO DECISIONS

1.Sale.

Where customer called at store in Covington, Kentucky, and asked for cart displayed in catalogue and was advised by clerk that the article was out of stock but she would have one sent to him in Cincinnati, Ohio, and the customer paid for the cart while in the Kentucky store and the cart was sent to him in Cincinnati, Ohio, and received by him in due time, the article was held for sale and a sale consummated in Kentucky which gave the Federal District Court of Kentucky jurisdiction of a patent infringement action since, under law defining “sale,” a “sale” included a bargain and sale as well as a sale and delivery. (decided under prior law) Buer v. Montgomery Ward & Co., 85 F. Supp. 449, 1949 U.S. Dist. LEXIS 2480 (D. Ky. 1949 ), rev'd, 186 F.2d 614, 1951 U.S. App. LEXIS 4081 (6th Cir. Ky. 1951 ).

2.Option.

An option was not a contract for the purchase of property, but an offer to sell. (decided under prior law) Caskey v. Williams Bros., 227 Ky. 73 , 11 S.W.2d 991, 1928 Ky. LEXIS 459 ( Ky. 1928 ).

3.Termination.

Where contract for sale of 10,000 to 50,000 tons of coal was terminated in accordance with its terms after 10,000 tons were delivered, the seller was released from all executory obligations thereunder. United States v. P. & D. Coal Mining Co., 251 F. Supp. 1005, 1964 U.S. Dist. LEXIS 7891 (W.D. Ky. 1964 ), aff'd, 358 F.2d 619, 1966 U.S. App. LEXIS 6725 (6th Cir. Ky. 1966 ).

Cited in:

In re Wathen’s Elevators, Inc., 32 B.R. 912, 1983 Bankr. LEXIS 5427 (Bankr. W.D. Ky. 1983 ).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Clark, Medical Malpractice, 65 Ky. L.J. 337 (1976-77).

355.2-107. Goods to be severed from realty — Recording.

  1. A contract for the sale of minerals or the like (including oil and gas) or a structure or its materials to be removed from realty is a contract for the sale of goods within this article if they are to be severed by the seller, but until severance a purported present sale thereof which is not effective as a transfer of an interest in land is effective only as a contract to sell.
  2. A contract for the sale apart from the land of growing crops or other things attached to realty and capable of severance without material harm thereto but not described in subsection (1) or of timber to be cut is a contract for the sale of goods within this article whether the subject matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting, and the parties can by identification effect a present sale before severance.
  3. The provisions of this section are subject to any third party rights provided by the law relating to realty records, and the contract for sale may be executed and recorded as a document transferring an interest in land and shall then constitute notice to third parties of the buyer’s rights under the contract for sale.

History. Enact. Acts 1958, ch. 77, § 2-107, effective July 1, 1960; 1986, ch. 118, § 4, effective July 1, 1987.

Official Comment

Prior uniform statutory provision:

See Section 76, Uniform Sales Act on prior policy; Section 7, Uniform Conditional Sales Act.

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 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 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 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 on Secured Transactions (Article 9) and it is to be noted that the definition of goods in that Article differs from the definition of goods in this Article.

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

Cross references:

Point 1: Section 2-201.

Point 2: Section 2-105.

Point 3: Articles 9 and 9-102(a)(44).

Definitional cross references:

“Buyer”. Section 2-103. “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.

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NOTES TO DECISIONS

Cited in:

Illinois Valley Asphalt, Inc. v. Harry Berry, Inc., 578 S.W.2d 244, 1979 Ky. LEXIS 230 ( Ky. 1979 ); Son v. Coal Equity, Inc., 293 B.R. 392, 2003 U.S. Dist. LEXIS 6941 (W.D. Ky. 2003 ), aff’d in part, rev’d in part, — F.3d —, 122 Fed. Appx. 797, 2004 U.S. App. LEXIS 24106 (6th Cir. Ky. 2004 ).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Weinberg, Graham and Stipanowich, Modernizing Kentucky’s Uniform Commercial Code, 73 Ky. L.J. 515 (1984-85).

Part 2. Form, Formation and Readjustment of Contract

355.2-201. Formal requirements — Statute of frauds.

  1. Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.
  2. Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within ten (10) days after it is received.
  3. A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable
    1. if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or
    2. if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or
    3. with respect to goods for which payment has been made and accepted or which have been received and accepted (KRS 355.2-606 ).

History. Enact. Acts 1958, ch. 77, § 2-201, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

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

Changes:

Completely re-phrased; restricted to sale of goods. See also Sections 1-206, 8-319 and 9-203.

Purposes of changes:

The changed phraseology of this section is intended to make it clear that:

  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.

    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.

  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.

    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 therefor, 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.

  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.

Cross references:

See Sections 1-201, 2-202, 2-207, 2-209 and 2-304.

Definitional cross references:

“Action”. Section 1-201. “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. “Sale”. Section 2-106. “Seller”. Section 2-103.

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NOTES TO DECISIONS

1.Received and Accepted.

Retention of the goods for an unreasonable length of time did not necessarily constitute an acceptance under law that required contract for the sale of goods to be in writing, unless such retention was under circumstances which showed an actual assent by the buyer to become the owner of the specific goods. (decided under prior law) Marilyn Shoe Co. v. Martin's Shoe Store, Inc., 253 S.W.2d 18, 1952 Ky. LEXIS 1058 ( Ky. 1952 ).

Where shoes were shipped and received in installments and all the shoes were returned within a very few days of receipt of the last shipment and the shoes were not put on display and only a few boxes were opened for inspection purposes, there was no acceptance. (decided under prior law) Marilyn Shoe Co. v. Martin's Shoe Store, Inc., 253 S.W.2d 18, 1952 Ky. LEXIS 1058 ( Ky. 1952 ).

Motor vehicle orally sold and physically delivered but not paid for was owned by buyer at time of accident within insurance policy covering cars “owned” and “held for sale by” insured. Motors Ins. Corp. v. Safeco Ins. Co., 412 S.W.2d 584, 1967 Ky. LEXIS 434 ( Ky. 1967 ).

In a patent infringement suit, a supplier’s argument that “prebate contracts” violated the statute of frauds due to a lack of signature was misplaced because, under KRS 355.2-201 (3)(c), the contracts were enforceable as payment had been made and accepted and the goods had been received and accepted. Static Control Components, Inc. v. Lexmark Int'l, Inc., 487 F. Supp. 2d 830, 2007 U.S. Dist. LEXIS 31445 (E.D. Ky. 2007 ), aff'd, 697 F.3d 387, 2012 FED App. 0289P, 2012 U.S. App. LEXIS 18316 (6th Cir. Ky. 2012 ).

2.Contract for Services.

An agreement between the plaintiff and the defendant that the plaintiff would sell the defendant’s cameras was not a sale of goods as such but was a contract for personal services and the statute would not preclude its enforcement. Buttorff v. United Electronic Laboratories, Inc., 459 S.W.2d 581, 1970 Ky. LEXIS 133 ( Ky. 1970 ).

The Uniform Commercial Code was inapplicable to an insurer’s subrogation claim against a fire alarm company seeking damages arising from a house fire because the contract between the insureds and the fire alarm company was not for the sale of goods, but was for services; while the fire alarm company agreed to supply the alarm system, title to the control set remained with the fire alarm company. United Servs. Auto. Ass'n v. ADT Sec. Servs., 241 S.W.3d 335, 2006 Ky. App. LEXIS 284 (Ky. Ct. App. 2006).

Where plaintiffs brought an action against defendants asserting that a fatal airplane crash resulted from the negligence of defendants and that defendants breached implied warranties associated with the purchase of an airline ticket, plaintiffs had no viable breach of warranty claim against defendants because the Uniform Commercial Code (U.C.C.) was inapplicable to contracts for services, and the state had declined to create common law rights that expanded on the parameters of implied warranty established in the U.C.C. In re Air Crash, 2008 U.S. Dist. LEXIS 51062 (E.D. Ky. July 2, 2008).

3.Evidence.

In an action to recover purchase price of a sawmill where there was ample proof that a contract for sale of the sawmill existed and that vendors had received and accepted the sawmill, it was necessary for the court to determine by all the evidence just what the provisions for the sale might have been. Barnett v. Stewart Lumber Co., 547 S.W.2d 788, 1977 Ky. App. LEXIS 638 (Ky. Ct. App. 1977).

Where a putative buyer who sought to purchase coal from a putative seller was not able to satisfy the merchant’s exception to the statute of frauds, KRS 355.2-201 , by showing that a purchase agreement was a confirmation, the court entered judgment in favor of the putative seller, and the complaint was dismissed with prejudice. Appalachian Fuels, LLC v. Logan & Kanawha Coal Co., 2005 U.S. Dist. LEXIS 29211 (E.D. Ky. Nov. 22, 2005).

4.Oral Bid.

The relief provided by subsection (2) of this section cannot be effective in a case where an oral bid was used and the contract awarded before there was any time to comply with that subsection. C. G. Campbell & Son, Inc. v. Comdeq Corp., 586 S.W.2d 40, 1979 Ky. App. LEXIS 450 (Ky. Ct. App. 1979).

Plaintiff-contractor, who had accepted defendant’s telephone bid to furnish certain kitchen equipment for a contract to construct a school building, could not enforce this oral contract when defendant failed to perform, since the requirement of subsection (1) of this section is unambiguous in requiring a writing and no equitable exception, based on defendant’s knowledge that plaintiff would rely on such a bid to its detriment, would be permitted to contravene this section. C. G. Campbell & Son, Inc. v. Comdeq Corp., 586 S.W.2d 40, 1979 Ky. App. LEXIS 450 (Ky. Ct. App. 1979).

5.Written Sales Agreement.

Where the purchaser took possession of a vehicle under a so-called “car order” whereby the seller was to retain title to the vehicle until he had been paid in full, purchaser giving seller a $70.00 deposit toward a $200 purchase price with the balance of the price to be paid in $50.00 installments every two (2) weeks, and the agreement was signed by both parties, described the vehicle to be sold, and stated the terms of the sale, the exclusionary language of an insurance policy held by the seller applied to the purchaser, precluding coverage as an “insured” of one to whom possession had been transferred pursuant to an agreement of sale, as under this section all the formal requirements of a contract for the sale of goods had been satisfied. American Interinsurance Exchange v. Norton, 631 S.W.2d 851, 1982 Ky. App. LEXIS 207 (Ky. Ct. App. 1982).

6.Option.

An option, not being a contract for the purchase and sale of property but an offer to sell, was not within provision of law that provided that contract for sale of goods had to be in writing. (decided under prior law) Caskey v. Williams Bros., 227 Ky. 73 , 11 S.W.2d 991, 1928 Ky. LEXIS 459 ( Ky. 1928 ).

Law that required contracts for the sale of goods to be in writing was not applicable where the transaction was but the creation of a debtor-creditor relationship by an agreement to devise estate in consideration for board and care for needs during the rest of life and payment of burial expenses, since this was not a sale of goods or choses in action. (decided under prior law) Finn v. Finn's Adm'r, 244 S.W.2d 435, 1951 Ky. LEXIS 1209 ( Ky. 1951 ).

7.Choice of Laws.

Where a Kentucky resident executed an automobile sales installment contract in Kentucky and accepted delivery of the vehicle in Kentucky, questions concerning the formation of the contract in the first instance should have been determined by the law of Kentucky, despite a provision in the contract that required interpretation according to the law of Tennessee. In re Morristown Lincoln-Mercury, Inc., 25 B.R. 377, 1982 Bankr. LEXIS 2893 (Bankr. E.D. Tenn. 1982).

8.Written Objection.

The subcontractor entered into a contract with the contractor, even though the purchase order was not signed by a representative of the subcontractor, where the subcontractor shipped the goods, and the subcontractor did not object to the purchase order within ten days. Home Lumber Co. v. Appalachian Regional Hospitals, Inc., 722 S.W.2d 912, 1987 Ky. App. LEXIS 425 (Ky. Ct. App. 1987).

9.Sufficiency of Writing.

A promissory note and purchase order signed by representatives of stave manufacturer and distiller were sufficient under subsection (1) of this section to show that the parties had entered an oral exclusive output contract. Lonnie Hayes & Sons Staves, Inc. v. Bourbon Cooperage Co., 777 S.W.2d 940, 1989 Ky. App. LEXIS 123 (Ky. Ct. App. 1989).

10.Basis for Required Writing.

The purpose of the writing required by this section is to provide evidence of a contract. Lonnie Hayes & Sons Staves, Inc. v. Bourbon Cooperage Co., 777 S.W.2d 940, 1989 Ky. App. LEXIS 123 (Ky. Ct. App. 1989).

11.Applicable Terms.

Lower court did not commit error when it denied the corporation’s motion to compel arbitration because the representative of the restaurant deliberately obliterated the condition of the contract that required arbitration of any dispute. The representative’s act eliminated that condition from the agreement, pursuant to KRS 355.2-201 . General Steel Corp. v. Collins, 196 S.W.3d 18, 2006 Ky. App. LEXIS 182 (Ky. Ct. App. 2006).

12.Specially Manufactured for Buyer.

Architect’s plans for a dwelling house were goods “manufactured by the seller especially for the buyer and not suitable for sale to others in the ordinary course of the seller’s business,” and architect could recover for his services under an oral contract, although plans were not accepted. (decided under prior law) Minary v. Hammond, 294 Ky. 51 , 170 S.W.2d 873, 1943 Ky. LEXIS 367 ( Ky. 1943 ).

Where shoes were not manufactured by the seller especially for the buyer and were suitable for sale to others in the ordinary course of the seller’s business and were ordered from a sample shoe and the colors selected from “swatches” of leather shown by seller’s salesman and order placed according to “stock numbers” and not made according to any special design, plan, or specification, or any model furnished by the buyer such as the seller did not use in the ordinary course of its business, they were not manufactured “especially for the buyer” and the fact the shoes were of the “fad type” was not important, since the business of seller was making shoes of that type. (decided under prior law) Marilyn Shoe Co. v. Martin's Shoe Store, Inc., 253 S.W.2d 18, 1952 Ky. LEXIS 1058 ( Ky. 1952 ).

Cited in:

Hicks v. Kentucky Farm Bureau Mut. Ins. Co., 455 S.W.2d 52, 1970 Ky. LEXIS 241 ( Ky. 1970 ); Renfroe v. Ladd, 701 S.W.2d 148, 1985 Ky. App. LEXIS 690 (Ky. Ct. App. 1985); Craig v. Stapp (In re Craig), 334 B.R. 572, 2005 Bankr. LEXIS 2417 (Bankr. W.D. Ky. 2005 ).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Domestic Relations, 65 Ky. L.J. 383 (1976-77).

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Northern Kentucky Law Review.

Ellerman & Linneman, A Survey of Kentucky Commercial Law., 31 N. Ky. L. Rev. 201 (2004).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Answer Asserting Various Defenses Based upon Writing or Signature Formalities or Lack of Definiteness, Form 210.16.

Caldwell’s Kentucky Form Book, 5th Ed., Complaint for Breach of Written Contract (General Form), Form 210.04.

Caldwell’s Kentucky Form Book, 5th Ed., Practice Context for Sales, § 210.00

355.2-202. Final written expression — Parol or extrinsic evidence.

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented:

  1. By course of performance, course of dealing, or usage of trade (KRS 355.1-303 ); and
  2. By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

History. Enact. Acts 1958, ch. 77, § 2-202, effective July 1, 1960; 2006, ch. 242, § 26, effective July 12, 2006.

Legislative Research Commission Notes.

(7/12/2006). Under the authority of KRS 7.136(1), the Reviser of Statutes has changed the internal numbering system in this statute by inserting subsection numbers [(1) and (2)] in place of paragraph designations [(a) and (b)]. The words in the text were not changed.

Official Comment

Prior uniform statutory provision:

Purposes:

  1. This section definitely rejects:
    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:

Point 3: Sections 1-303, 2-207, 2-302 and 2-316.

Definitional cross references:

“Agreed” and “agreement”. Section 1-201. “Course of dealing”. Section 1-303. “Course of performance”. Section 1-303. “Party”. Section 1-201. “Terms”. Section 1-201. “Usage of trade”. Section 1-303. “Written” and “writing”. Section 1-201.

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NOTES TO DECISIONS

1.Admissibility of Parol Evidence.

Parol evidence is admissible to explain or supplement the meaning of a written contract if it relates to a course of dealing or a usage of trade, or if it concerns a course of performance. Savannah Sugar Refinery, Div. of Savannah Foods & Industries, Inc. v. RC Canada Dry Bottling Co., Div. of Beatrice Foods Co., 593 S.W.2d 880, 1979 Ky. App. LEXIS 509 (Ky. Ct. App. 1979).

Where oral agreement to repurchase mare did not contradict the terms of agreement to purchase shares in syndicated Arabian stallion but explained buyer’s agreement to purchase mares, and since promise to repurchase mare was obtained in writing at buyer’s request subsequent to execution of written agreement to buy shares in syndication and the representative of one of the parties testified that during negotiation of the agreement he believed that oral repurchase promise had been reduced to writing, the parties to the syndication agreement intended to include a repurchase provision and the failure to honor that provision was a breach of the agreement. J.P. Morgan Delaware v. Onyx Arabians II, Ltd., 825 F. Supp. 146, 1993 U.S. Dist. LEXIS 8694 (W.D. Ky. 1993 ).

Debtor had carried its burden of demonstrating that movant was not entitled to relief from the automatic stay in order to terminate its contract with debtor; the movant’s treatment of prior non-compliances established a course of dealing that militated against its argument that the failure to deliver coal that tested out at 12,000 British thermal units was a fatal breach and lent credence to the contention that, because of the economic conditions of the coal market, that was merely an excuse to try to terminate a contract which had become unprofitable. In re Clearwater Natural Res., 2009 Bankr. LEXIS 2461 (Bankr. E.D. Ky. July 23, 2009).

2.Oral Warranty.

Counterclaim to action on notes issued in payment of machinery which did not allege fraud or mistake was demurrable where it relied on oral warranty that machinery would crush 200 tons of stone per day when in fact it would crush only 100 to 130 tons of stone per day, and the oral warranty was made before or contemporaneously with written sales contract containing provision that machinery was purchased on conditions therein and none other, and the only warranty in the written contract was that the machinery was to be of first-class material and workmanship coupled with agreement to replace free of charge any part which might within 90 days from date of delivery prove to have been defective when furnished. (decided under prior law) Pace Const. Co. v. Brandeis Machinery & Supply Co., 239 Ky. 693 , 40 S.W.2d 268, 1931 Ky. LEXIS 829 ( Ky. 1931 ).

3.Contemporaneous Documents.

Two written documents executed contemporaneously may be considered together as evidence of the parties’ agreement. Calumet Farm, Inc. v. Northern Equine Thoroughbred Productions, Ltd., 150 B.R. 403, 1992 Bankr. LEXIS 2131 (Bankr. E.D. Ky. 1992 ).

Cited in:

Wickliffe Farms, Inc. v. Owensboro Grain Co., 684 S.W.2d 17, 1984 Ky. App. LEXIS 560 (Ky. Ct. App. 1984); Potts v. Draper, 864 S.W.2d 896, 1993 Ky. LEXIS 117 ( Ky. 1993 ); A & A Mech. v. Thermal Equip. Sales, 998 S.W.2d 505, 1999 Ky. App. LEXIS 84 (Ky. Ct. App. 1999).

Research References and Practice Aids

Kentucky Bench & Bar.

Gardner, Ten Traps for the Unwary in International Transactions, Vol. 60, No. 4, Fall 1996, Ky. Bench & Bar 26.

Northern Kentucky Law Review.

Ellerman & Linneman, A Survey of Kentucky Commercial Law., 31 N. Ky. L. Rev. 201 (2004).

355.2-203. Seals inoperative.

The affixing of a seal to a writing evidencing a contract for sale or an offer to buy or sell goods does not constitute the writing a sealed instrument and the law with respect to sealed instruments does not apply to such a contract or offer.

History. Enact. Acts 1958, ch. 77, § 2-203, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 3, Uniform Sales Act.

Changes:

Portion pertaining to “seals” rewritten.

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 references:

Point 1: Section 2-205.

Definitional cross references:

“Contract for sale”. Section 2-106. “Goods”. Section 2-105. “Writing”. Section 1-201.

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355.2-204. Formation in general.

  1. A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
  2. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
  3. Even though one (1) or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

History. Enact. Acts 1958, ch. 77, § 2-204, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Sections 1 and 3, Uniform Sales Act.

Changes:

Completely rewritten by this and other sections of this Article.

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.

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. 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:

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:

“Agreement”. Section 1-201. “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.

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NOTES TO DECISIONS

1.Terms Open.

While a degree of indefiniteness and ambiguity was created in the agreement which provided that it was an “annual contract,” that the plaintiff was to furnish only “part of the city’s requirement for parking meters,” that the number to have been furnished was “approximately 7,650 parking meters” and that delivery was to have been made only “after receipt of a purchase order” from the city, such terms did not render the agreement illusory or lacking in mutuality. Louisville v. Rockwell Mfg. Co., 482 F.2d 159, 1973 U.S. App. LEXIS 9143 (6th Cir. Ky. 1973 ).

2.Intention to Make Contract.

Where the seller agreed to sell the buyer a given number of aluminum extrusions at a given price to be delivered by a given date, the parties reached this agreement after many weeks of negotiations, and the seller prepared blueprints for the buyer’s inspection and constructed sample parts at great expense for the buyer’s approval, the parties intended to enter into a binding agreement for the sale of the extrusions. Consolidated Aluminum Corp. v. Krieger, 710 S.W.2d 869, 1986 Ky. App. LEXIS 1120 (Ky. Ct. App. 1986).

3.Buyer’s Signature.

A limitation of warranties printed on the reverse side of each of a manufacturer’s acknowledgements for parts for a heating and air conditioning system did not require the buyer’s signature in order to be effective. Middletown Eng'g Co. v. Climate Conditioning Co., 810 S.W.2d 57 (Ky. Ct. App. 1991).

4.Moment of Contract Formation.

In a patent infringement case, the fact that an executive member of the patent holder’s staff did not know when a prebate/return contract was formed was irrelevant because, pursuant to KRS 355.2-204 (2), an agreement sufficient to constitute a contract for sale could be found even though the moment of its making was undetermined. Static Control Components, Inc. v. Lexmark Int'l, Inc., 487 F. Supp. 2d 830, 2007 U.S. Dist. LEXIS 31445 (E.D. Ky. 2007 ), aff'd, 697 F.3d 387, 2012 FED App. 0289P, 2012 U.S. App. LEXIS 18316 (6th Cir. Ky. 2012 ).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

Northern Kentucky Law Review.

Ellerman & Linneman, A Survey of Kentucky Commercial Law., 31 N. Ky. L. Rev. 201 (2004).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Practice Context for Sales, Form 210.00.

355.2-205. Firm offers.

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three (3) months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

History. Enact. Acts 1958, ch. 77, § 2-205, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Sections 1 and 3, Uniform Sales Act.

Changes:

Completely rewritten by this and other sections of this Article.

Purposes of changes:

  1. This section is intended to modify the former rule which required that “firm offers” be sustained by consideration in order to bind, and to require instead that they must merely be characterized as such and expressed in signed writings.
  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 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 1: Section 1-102.

Point 2: Section 1-102.

Point 3: Section 2-201.

Point 5: Section 2-302.

Definitional cross references:

“Goods”. Section 2-105. “Merchant”. Section 2-104. “Signed”. Section 1-201. “Writing”. Section 1-201.

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NOTES TO DECISIONS

1.Evidence.

A bid sheet which was signed and indicated a firm commitment to a stated price and quantity for a particular project for a particular period was properly found to constitute an offer. A & A Mech. v. Thermal Equip. Sales, 998 S.W.2d 505, 1999 Ky. App. LEXIS 84 (Ky. Ct. App. 1999).

Research References and Practice Aids

Kentucky Law Journal.

Smith, Implied and Conditional Consent in the Sale of Horse Shares or Seasons, 74 Ky. L.J. 839 (1985-86).

355.2-206. Offer and acceptance in formation of contract.

  1. Unless otherwise unambiguously indicated by the language or circumstances
    1. an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;
    2. an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods, but such a shipment of nonconforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.
  2. Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

History. Enact. Acts 1958, ch. 77, § 2-206, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Sections 1 and 3, Uniform Sales Act.

Changes:

Completely rewritten in this and other sections of this Article.

Purposes of changes:

To make it clear that:

  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 (b).
  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.
  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.

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NOTES TO DECISIONS

1.Shipment of Goods.

The subcontractor entered into a contract with the contractor, even though the purchase order was not signed by a representative of the subcontractor, where the subcontractor shipped the goods, and the subcontractor did not object to the purchase order within ten days. Home Lumber Co. v. Appalachian Regional Hospitals, Inc., 722 S.W.2d 912, 1987 Ky. App. LEXIS 425 (Ky. Ct. App. 1987).

Under KRS 355.2-206 (1)(b), it was not necessary for a purchase order to be signed to constitute an acceptance of the contract; when the seller shipped the units, it accepted the contract. Thomas & Betts Corp. v. A & A Mech., Inc., 2004 Ky. App. LEXIS 339 (Ky. Ct. App. Nov. 24, 2004, sub. op., 2004 Ky. App. Unpub. LEXIS 996 (Ky. Ct. App. Nov. 24, 2004), review denied, ordered not published, 2005 Ky. LEXIS 269 (Ky. Sept. 14, 2005).

355.2-207. Additional terms in acceptance or confirmation.

  1. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
  2. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
    1. The offer expressly limits acceptance to the terms of the offer;
    2. They materially alter it; or
    3. Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
  3. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this chapter.

History. Enact. Acts 1958, ch. 77, § 2-207, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Sections 1 and 3, Uniform Sales Act.

Changes:

Completely rewritten by this and other sections of this Article.

Purposes of Changes:

  1. This section is intended to deal with two typical situations. The one is 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 acknowledgments or memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is one in which a wire or letter expressed and intended as the closing or confirmation 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 “acknowledgement”) 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 either 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 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:

See generally Section 2-302.

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:

“Between merchants”. Section 2-104. “Contract”. Section 1-201. “Notification”. Section 1-201. “Reasonable time”. Section 1-204. “Seasonably”. Section 1-204. “Send”. Section 1-201. “Term”. Section 1-201. “Written”. Section 1-201.

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NOTES TO DECISIONS

1.Contract Formed.

Where the terms incorporated by plaintiff in its bid to install powder dumping machines were additional to the terms contained in the specifications submitted by the defendant, in that they covered a subject on which the proposal was silent, that is, the conditions under which defendant could repair defective parts within the warranty period, defendant accepted these additional conditions imposed by the plaintiff when it executed its purchase order and specifically stated that its purchase order was in accordance with the quotations, and a contract was formed by the specifications and inquiries submitted to plaintiff by defendant, plaintiff’s quotations and defendant’s purchase order. Thaler v. I C I United States, Inc., 476 F. Supp. 67, 1979 U.S. Dist. LEXIS 11201 (W.D. Ky. 1979 ).

Under the Uniform Commercial Code, the negotiated terms in the seller’s acknowledgment form stood as the contract between the parties. Consolidated Aluminum Corp. v. Krieger, 710 S.W.2d 869, 1986 Ky. App. LEXIS 1120 (Ky. Ct. App. 1986).

Where the seller’s acknowledgment, which contained terms different from those agreed upon, did not condition the contract on the buyer’s accepting the additional proposed terms, the parties formed a contract according to the common terms in the buyer’s purchase order and the seller’s acknowledgment. Consolidated Aluminum Corp. v. Krieger, 710 S.W.2d 869, 1986 Ky. App. LEXIS 1120 (Ky. Ct. App. 1986).

Where a manufacturer expressly conditioned its acceptance of the purchase offer on the purchaser’s assent to additional terms and conditions limiting remedies and damages, and the purchaser did not notify the manufacturer of any objection to the terms and conditions until long after the goods were delivered and installed, the additional terms became a part of the contract between the parties. Middletown Eng'g Co. v. Climate Conditioning Co., 810 S.W.2d 57 (Ky. Ct. App. 1991).

2.Evidence.

Where the proof was diametrically opposed as to whether there was any oral agreement for defendant to do the repairs and to keep a running account of its expenses incurred in so doing, defendant failed to meet the burden of proving by clear and convincing evidence that the written contract was orally modified to allow defendant to make the repairs and back charge the plaintiff for them. Thaler v. I C I United States, Inc., 476 F. Supp. 67, 1979 U.S. Dist. LEXIS 11201 (W.D. Ky. 1979 ).

3.Additional or Different Terms.

Where the parties had agreed on a purchase price, but the seller’s acknowledgment contained the term “price in effect at time of shipment to apply,” that phrase constituted “terms additional to or different from those offered or agreed upon,” under subsection (1) of this section, but the buyer’s timely objection to the terms excluded them from the contract. Consolidated Aluminum Corp. v. Krieger, 710 S.W.2d 869, 1986 Ky. App. LEXIS 1120 (Ky. Ct. App. 1986).

Cited in:

A & A Mech. v. Thermal Equip. Sales, 998 S.W.2d 505, 1999 Ky. App. LEXIS 84 (Ky. Ct. App. 1999); General Steel Corp. v. Collins, 196 S.W.3d 18, 2006 Ky. App. LEXIS 182 (Ky. Ct. App. 2006).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Northern Kentucky Law Review.

Ellerman & Linneman, A Survey of Kentucky Commercial Law., 31 N. Ky. L. Rev. 201 (2004).

355.2-208. Course of performance or practical construction. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1958, ch. 77, § 2-208, effective July 1, 1960) was repealed by Acts 2006, ch. 242, § 64, effective July 12, 2006. For present comparable provisions, see KRS 355.1-303 .

355.2-209. Modification, rescission and waiver.

  1. An agreement modifying a contract within this article needs no consideration to be binding.
  2. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
  3. The requirements of the statute of frauds section of this article (KRS 355.2-201 ) must be satisfied if the contract as modified is within its provisions.
  4. Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
  5. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

History. Enact. Acts 1958, ch. 77, § 2-209, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

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

Purposes of changes and new matter:

  1. This section seeks to protect and make effective all necessary and desirable modifications of sales contracts without regard to the technicalities which at present hamper such adjustments.
  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 a 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 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 1: Section 1-203.

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:

“Agreement”. Section 1-201. “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.

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NOTES TO DECISIONS

1.Strict Performance.

The trial court erred in not awarding utility company recovery of royalty overcharges. Coal company was obtaining more money from utility company than it paid out to the lessors on coal sold to utility company. Both the initial adjustment of payments and utility company’s later request for relief were consistent with the language of the contract between utility company and coal company that utility company’s royalty payments equal the actual royalty obligation of coal company. Kentucky Utilities Co. v. South East Coal Co., 836 S.W.2d 392, 1992 Ky. LEXIS 96 ( Ky. 1992 ), cert. dismissed, 506 U.S. 1090, 113 S. Ct. 1147, 122 L. Ed. 2d 498, 1993 U.S. LEXIS 1038 (U.S. 1993).

2.Retraction of Waiver.

In a breach of contract action, even if a supplier executed a waiver, KRS 255.2-209(5) allowed the supplier to retract the waiver because there was no detrimental reliance, and the supplier ultimately clearly reiterated that it intended to enforce the contract. Marley Cooling Tower Co. v. Caldwell Energy & Envtl., Inc., 280 F. Supp. 2d 651, 2003 U.S. Dist. LEXIS 15213 (W.D. Ky. 2003 ).

3.Modification of Agreement.

Under KRS 355.2-209 (2), a supplier and a purchaser in a breach of contract action could not modify their agreement orally, or through conduct, where their agreement plainly stated that no changes could be made without a written change order. Marley Cooling Tower Co. v. Caldwell Energy & Envtl., Inc., 280 F. Supp. 2d 651, 2003 U.S. Dist. LEXIS 15213 (W.D. Ky. 2003 ).

Two-year oral extension of a written contract for distribution of cosmetics in Japan was a contract modification rather than a new contract because no terms were changed. However, under KRS 355.2-209 (2), the modification was ineffective because it was not in writing, as required by the agreement’s express terms. The oral attempt at modification did not result in a waiver under KRS 355.2-209 (4). TWB Distrib., LLC v. BBL, Inc., 2009 U.S. Dist. LEXIS 117467 (W.D. Ky. Dec. 16, 2009).

355.2-210. Delegation of performance — Assignment of rights.

  1. A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.
  2. Except as otherwise provided in KRS 355.9-406 , unless otherwise agreed, all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor’s due performance of his entire obligation can be assigned despite agreement otherwise.
  3. The creation, attachment, perfection, or enforcement of a security interest in the seller’s interest under a contract is not a transfer that materially changes the duty of or increases materially the burden or risk imposed on the buyer or impairs materially the buyer’s chance of obtaining return performance within the purview of subsection (2) of this section unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the seller. Even in that event, the creation, attachment, perfection, and enforcement of the security interest remain effective, but:
    1. The seller is liable to the buyer for damages caused by the delegation to the extent that the damages could not reasonably be prevented by the buyer; and
    2. A court having jurisdiction may grant other appropriate relief, including cancellation of the contract for sale or an injunction against enforcement of the security interest or consummation of the enforcement.
  4. Unless the circumstances indicate the contrary a prohibition of assignment of “the contract” is to be construed as barring only the delegation to the assignee of the assignor’s performance.
  5. An assignment of “the contract” or of “all my rights under the contract” or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract.
  6. The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (KRS 355.2-609 ).

History. Enact. Acts 1958, ch. 77, § 2-210, effective July 1, 1960; 2000, ch. 408, § 159, effective July 1, 2001.

Official Comment

Prior uniform statutory provision:

Purposes:

  1. Generally, this section recognizes both delegation of performance and assignability as normal and permissible incidents of a contract for the sale of goods.
  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 may be assigned although the agreement prohibits assignment. In such cases no question of delegation of any performance is involved. Subsection (2) is subject to Section 9-406, which makes rights to payment for goods sold (“accounts”), whether or not earned, freely alienable notwithstanding a contrary agreement or rule of law.
  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 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 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 on Secured Transactions (Article 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 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 9.

Cross references:

Point 3: Articles 5 and 9.

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

Point 5: Article 9, Sections 9-402, 9-404 to 9-406.

Point 7: Article 9.

Definitional cross references:

“Agreement”. Section 1-201. “Buyer”. Section 2-103. “Contract”. Section 1-201. “Party”. Section 1-201. “Rights”. Section 1-201. “Seller”. Section 2-103. “Term”. Section 1-201.

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Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Weinberg, Commercial Law and Consumer Credit, 65 Ky. L.J. 370 (1976-77).

Part 3. General Obligation and Construction of Contract

355.2-301. General obligations of parties.

The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.

History. Enact. Acts 1958, ch. 77, § 2-301, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Sections 11 and 41, Uniform Sales Act.

Changes:

Rewritten.

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 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 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:

Section 1-106. See also Sections 1-205, 2-208, 2-209, 2-508 and 2-612.

Definitional cross references:

“Buyer”. Section 2-103. “Contract”. Section 1-201. “Party”. Section 1-201. “Seller”. Section 2-103.

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NOTES TO DECISIONS

1.Delivery.

Where there was no showing of a “course of performance” between parties, who had an ongoing seller-buyer relationship, under which the seller withheld delivery of acknowledged orders when the buyer was in arrears on earlier orders, seller had no legal right to withhold delivery of orders, which it accepted without conditions and subject to future payment, for the reason that buyer had an unpaid account for earlier orders. In re H.J. Scheirich Co., 982 F.2d 945, 1993 U.S. App. LEXIS 31 (6th Cir. Ky. 1993 ).

Cited in:

Permalum Window & Awning Mfg. Co. v. Permalum Window Mfg. Corp., 412 S.W.2d 863, 1967 Ky. LEXIS 440 ( Ky. 1967 ).

355.2-302. Unconscionable contract or clause.

  1. If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
  2. When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

History. Enact. Acts 1958, ch. 77, § 2-302, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

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.

Definitional cross reference:

“Contract”. Section 1-201.

NOTES TO DECISIONS

1.Limitation of Damages.

A clause limiting consequential damages for injury resulting from the application of agricultural chemicals was not unconscionable. Gooch v. E.I. DuPont de Nemours & Co., 40 F. Supp. 2d 863, 1999 U.S. Dist. LEXIS 10211 (W.D. Ky. 1999 ).

2.Disclaimer of Warranty.

Evidence supported verdict for buyers in an action by seller to recover purchase price of new machine where there was a disclaimer of warranty which, although clear in its terms, was to be found in a long and formidable document prepared by the seller and which was doubtless unnoticed or its import uncomprehended by the buyers, and there was complete failure of the machine to accomplish the purpose for which it was designed. (decided under prior law) Myers v. Land, 314 Ky. 514 , 235 S.W.2d 988, 1950 Ky. LEXIS 1095 ( Ky. 1950 ).

Research References and Practice Aids

Kentucky Law Journal.

Brickey, Products Liability in Kentucky: The Doctrinal Dilemma, 65 Ky. L.J. 593 (1976-77).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Treatises

Petrilli, Kentucky Family Law, Dissolution Decree, § 24.23.

355.2-303. Allocation or division of risks.

Where this article 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. Enact. Acts 1958, ch. 77, § 2-303, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

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 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 1: Sections 1-102, 2-302.

Point 2: Section 1-201.

Definitional cross references:

“Party”. Section 1-201. “Agreement”. Section 1-201.

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355.2-304. Price payable in money, goods, realty, or otherwise.

  1. The price can be made payable in money or otherwise. If it is payable in whole or in part in goods each party is a seller of the goods which he is to transfer.
  2. Even though all or part of the price is payable in an interest in realty the transfer of the goods and the seller’s obligations with reference to them are subject to this article, but not the transfer of the interest in realty or the transferor’s obligations in connection therewith.

History. Enact. Acts 1958, ch. 77, § 2-304, effective July 1, 1960.

Official Comment

Prior uniform statutory provisions:

Subsections (2) and (3) of Section 9, Uniform Sales Act.

Changes:

Rewritten.

Purposes of changes:

  1. This section corrects the phrasing of the Uniform Sales Act so as to avoid misconstruction and produce greater accuracy in commercial result. While it continues the essential intent and purpose of the Uniform Sales Act it rejects any purely verbalistic construction in disregard of the underlying reason of the provisions.
  2. Under subsection (1) the provisions of this Article 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 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 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 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 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. In contrast, this Article 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 control.

Cross references:

Point 1: Section 1-102.

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

Definitional cross references:

“Goods”. Section 2-105. “Money”. Section 1-201. “Party”. Section 1-201. “Seller”. Section 2-103.

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355.2-305. Open price term.

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

History. Enact. Acts 1958, ch. 77, § 2-305, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Sections 9 and 10, Uniform Sales Act.

Changes:

Completely rewritten.

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 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 recognizes the dominant intention of the parties to have the deal continue to be binding upon both. As to future performance, since this Article 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:

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:

“Agreement”. Section 1-201. “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.

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NOTES TO DECISIONS

1.Reasonable Value.

The term “reasonable value,” as used in subsection (4) of this section, is merely a codification of the doctrine of restitution as the basis of recovery in cases involving a quasi-contract, or contract implied in law; the term is not to be considered synonymous with the term “reasonable price,” although it is possible—and certainly a commercial ideal—that an item’s reasonable value and reasonable price might coincide. In re Glover Constr. Co., 49 B.R. 581, 1985 Bankr. LEXIS 6008 (Bankr. W.D. Ky. 1985 ).

Where parties to purchase order never agreed as to the meaning of the price and payment terms of the order and did not intend to be bound by the terms of the order unless the other party acquiesced to their interpretation of the price and payment terms, no contract existed between the parties, and plaintiff was entitled to the reasonable value of the goods delivered to debtor. In re Glover Constr. Co., 49 B.R. 581, 1985 Bankr. LEXIS 6008 (Bankr. W.D. Ky. 1985 ).

2.Open Price.

Where agreement in contract as to price was for original cost plus cost of handling and a “nice” profit, it could not be enforced for indefiniteness. (decided under prior law) Gaines & Sea v. R. J. Reynolds Tobacco Co., 163 Ky. 716 , 174 S.W. 482, 1915 Ky. LEXIS 293 ( Ky. 1915 ).

Research References and Practice Aids

Kentucky Law Journal.

Whiteside, Uniform Commercial Code — Major Changes in Sales Law, 49 Ky. L.J. 165 (1960).

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

355.2-306. Output, requirements and exclusive dealings.

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

History. Enact. Acts 1958, ch. 77, § 2-306, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

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, 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 shut-down by a requirements buyer for lack of orders might be permissible when a shut-down 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 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, 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.
  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.

Cross references:

Point 4: Section 2-210.

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

Definitional cross references:

“Agreement”. Section 1-201. “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.

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NOTES TO DECISIONS

Analysis

1.Applicability.

A supply contract at issue was not the sort of contract ordinarily thought of as a requirements contract under the statute where there was no attempt to establish a unit price to which both parties were willing to commit themselves and, instead, the agreement contemplated a total price for a given quantity of materials, which both parties believed was a reasonable estimate of the quantity required for a project, but the parties also recognized that the quantity ultimately required was apt to exceed the estimate and addressed this contingency by a provision allowing for additional payment for “extra” materials and labor. A & A Mech. v. Thermal Equip. Sales, 998 S.W.2d 505, 1999 Ky. App. LEXIS 84 (Ky. Ct. App. 1999).

Requirements contract must be exclusive, and under Kentucky law, a term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith; a supply agreement between a seat manufacturer and three stamping companies did not constitute a requirements contract as a matter of law because: (1) the manufacturer was not obligated to order any certain amount of stamping work from the companies and, in fact, was not contractually obligated to purchase anything from them; (2) the agreement did not measure output by reference to a quantity term but by reference to the issuance of release schedules; and (3) no exclusivity was present in the agreement. Johnson Controls, Inc. v. Anson Stamping Co., 2000 U.S. Dist. LEXIS 22615 (W.D. Ky. Mar. 27, 2000).

2.Evidence.

Where the quantity actually required was at least 29 percent more than had been estimated, there was an unreasonable deviation from the stated estimate and, therefore, the statute did not apply. A & A Mech. v. Thermal Equip. Sales, 998 S.W.2d 505, 1999 Ky. App. LEXIS 84 (Ky. Ct. App. 1999).

3.Output.

A contract of new company to purchase the entire output of tobacco stems for a period of ten (10) years from an existing company was not void for indefiniteness and by implication obligated the existing company to sell its output of tobacco stems to the new company. (decided under prior law) Kentucky Tobacco Products Co. v. Lucas, 5 F.2d 723, 1925 U.S. Dist. LEXIS 1065 (W.D. Ky. 1925 ).

A contract to deliver at a designated place all the good, sound railroad ties that could be made from seller’s own land or purchased or acquired from others for a designated time did not specify the number of ties, and it could not be known exactly the number of ties that could be secured from the land or purchased, but whatever could be made or could be purchased was covered by the contract and buyer was liable for breach of contract for failure to accept the ties delivered and to be delivered. (decided under prior law) Mitchell Taylor Tie Co. v. Whitaker, 158 Ky. 651 , 166 S.W. 193, 1914 Ky. LEXIS 686 ( Ky. 1914 ). See Ayer & Lord Tie Co. v. O. T. O'Bannon & Co., 164 Ky. 34 , 174 S.W. 783, 1915 Ky. LEXIS 330 ( Ky. 1915 ).

On breach of contract to accept all railroad ties seller could deliver at a designated place prior to a designated date, the measure of damages for failure to accept was: (1) for those on hand which seller had purchased from others, the difference between the contract price and the market price; (2) for those seller could have procured from others within the designated time, the difference between the contract price and the price it would have cost seller to have procured the ties at the time and place of delivery; (3) for those on hand which he had manufactured prior to cancellation of the contract or to be made from timber cut at that time for the purpose of manufacture into ties, the difference between the contract price and the market price at the time and place of delivery; but as to those he could have thereafter manufactured and delivered, the difference between the contract price and the cost of such manufacture and delivery. (decided under prior law) Ayer & Lord Tie Co. v. O. T. O'Bannon & Co., 164 Ky. 34 , 174 S.W. 783, 1915 Ky. LEXIS 330 ( Ky. 1915 ).

Contract stating “I have this day sold to Ross-Vaughn Tobacco Co., Incorporated, my present crop of tobacco, the growth of 19 _________ , supposed to be _________ pounds, for which they agree to pay me as follows . . . . . Said tobacco to be delivered well cured and in good order and free from damage at the option of the purchasers at their factory in _________ ” was not an option contract giving the privilege of purchasing the tobacco if purchaser elected to take it but was a mutually binding contract with delivery at the option of the purchaser. (decided under prior law) Ross-Vaughan Tobacco Co. v. Johnson, 182 Ky. 325 , 206 S.W. 487, 1918 Ky. LEXIS 364 ( Ky. 1918 ).

Where a contract to mine coal was only to pay a designated price per ton for each and every ton removed on contract out of two (2) entries and no time limit was provided, the contract did not state any agreement to mine a definite quantity of coal, nor to take any specified quantity from any designated portion of the mine nor agree to exhaust the coal from any portion of the mine, and the contract could be abandoned at any time and recovery could be had only for the coal removed. (decided under prior law) Springton Coal Co. v. Bowling, 228 Ky. 317 , 14 S.W.2d 1082, 1929 Ky. LEXIS 537 ( Ky. 1929 ).

Notes to Unpublished Decisions

1.Applicability.

Unpublished decision: Under KRS 355.2-306 (1) the manufacturer had reduced its requirements in good faith because the decision to alter the specifications for certain parts was a legitimate business reason and it would be “unreasonable” to require the manufacturer to continue to manufacture with inefficient parts simply to honor a requirements contract. Wiseco, Inc. v. Johnson Controls, Inc., 155 Fed. Appx. 815, 2005 FED App. 0884N, 2005 U.S. App. LEXIS 24147 (6th Cir. Ky. 2005 ).

Research References and Practice Aids

Northern Kentucky Law Review.

Ellerman & Linneman, A Survey of Kentucky Commercial Law., 31 N. Ky. L. Rev. 201 (2004).

355.2-307. Delivery in single lot or several lots.

Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.

History. Enact. Acts 1958, ch. 77, § 2-307, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 45(1), Uniform Sales Act.

Changes:

Rewritten and expanded.

Purposes of Changes:

  1. This section applies where the parties have not specifically agreed whether delivery and payment are to be by lots and generally continues the essential intent of original Act, Section 45(1) by assuming that the parties intended delivery to be in a single lot.
  2. Where the actual agreement or the circumstances do not indicate otherwise, delivery in lots is not permitted under this section and the buyer is properly entitled to reject for a deficiency in the tender, subject to any privilege in the seller to cure the tender.
  3. The “but” clause of this section goes to the case in which it is not commercially feasible to deliver or to receive the goods in a single lot as for example, where a contract calls for the shipment of ten carloads of coal and only three cars are available at a given time. Similarly, in a contract involving brick necessary to build a building the buyer’s storage space may be limited so that it would be impossible to receive the entire amount of brick at once, or it may be necessary to assemble the goods as in the case of cattle on the range, or to mine them.

    In such cases, a partial delivery is not subject to rejection for the defect in quantity alone, if the circumstances do not indicate a repudiation or default by the seller as to the expected balance or do not give the buyer ground for suspending his performance because of insecurity under the provisions of Section 2-609. However, in such cases the undelivered balance of goods under the contract must be forthcoming within a reasonable time and in a reasonable manner according to the policy of Section 2-503 on manner of tender of delivery. This is reinforced by the express provisions of Section 2-608 that if a lot has been accepted on the reasonable assumption that its nonconformity will be cured, the acceptance may be revoked if the cure does not seasonably occur. The section rejects the rule of Kelly Construction Co. v. Hackensack Brick Co., 91 N.J.L. 585, 103 A. 417, 2 A.L.R. 685 (1918) and approves the result in Lynn M. Ranger, Inc. v. Gildersleeve, 106 Conn. 372, 138 A. 142 (1927) in which a contract was made for six carloads of coal then rolling from the mines and consigned to the seller but the seller agreed to divert the carloads to the buyer as soon as the car numbers became known to him. He arranged a diversion of two cars and then notified the buyer who then repudiated the contract. The seller was held to be entitled to his full remedy for the two cars diverted because simultaneous delivery of all of the cars was not contemplated by either party.

  4. Where the circumstances indicate that a party has a right to delivery in lots, the price may be demanded for each lot if it is apportionable.

Cross references:

Point 1: Section 1-201.

Point 2: Sections 2-508 and 2-601.

Point 3: Sections 2-503, 2-608 and 2-609.

Definitional cross references:

“Contract for sale”. Section 2-106. “Goods”. Section 2-105. “Lot”. Section 2-105. “Party”. Section 1-201. “Rights”. Section 1-201.

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NOTES TO DECISIONS

1.Separate Payments per Lot.

Although contract for sale of logs provided for measurement and branding in December and April and one half (1/2) of amount due would be paid on the 15th of the month following measurement and branding, where measurement and branding was made in January, February and March, the amounts due under the contract became due on the 15th of each month following measurement and branding. (decided under prior law) Collins v. Swan-Day Lumber Co., 158 Ky. 231 , 164 S.W. 813, 1914 Ky. LEXIS 597 ( Ky. 1914 ).

355.2-308. Absence of specified place for delivery.

Unless otherwise agreed

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

History. Enact. Acts 1958, ch. 77, § 2-308, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

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

Changes:

Slight modification in language.

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 on hand, 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 documents or has undertaken its collection on behalf of the seller, Part 5 of Article 4 spells out its duties and relations to its customer. Where the documents move forward under a letter of credit the Article on Letters of Credit spells out the duties and relations between the bank, the seller and the buyer.
  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 1: Sections 2-504 and 2-505.

Point 2: Section 2-503.

Point 3: Section 2-512, Articles 4, Part 5, and 5.

Definitional cross references:

“Contract for sale”. Section 2-106. “Delivery”. Section 1-201. “Document of title”. Section 1-201. “Goods”. Section 2-105. “Party”. Section 1-201. “Seller”. Section 2-103.

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NOTES TO DECISIONS

Cited in:

Cline v. Allis-Chalmers Corp., 690 S.W.2d 764, 1985 Ky. App. LEXIS 578 (Ky. Ct. App. 1985).

355.2-309. Absence of specific time provisions — Notice of termination.

  1. The time for shipment or delivery or any other action under a contract if not provided in this article or agreed upon shall be a reasonable time.
  2. Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.
  3. Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.

History. Enact. Acts 1958, ch. 77, § 2-309, effective July 1, 1960.

Official Comment

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, Subsection (2)—none; Subsection (3)—none.

Changes:

Completely different in scope.

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 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 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 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 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:

Point 1: Sections 1-203, 1-204 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:

“Agreement”. Section 1-201. “Contract”. Section 1-201. “Notification”. Section 1-201. “Party”. Section 1-201. “Reasonable time”. Section 1-204. “Termination”. Section 2-106.

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NOTES TO DECISIONS

1.Reasonable Notification.

If the provisions of Article 2 of the Uniform Commercial Code apply to the relationship, reasonable notice of the intention to terminate the agreement must be given, and, in some cases, it would be required even if a written agreement provided for dispensing with notification. Leibel v. Raynor Mfg. Co., 571 S.W.2d 640, 1978 Ky. App. LEXIS 595 (Ky. Ct. App. 1978).

Reasonable notification is required in order to terminate an on-going oral agreement for the sale of goods in a relationship of manufacturer-supplier and dealer-distributor or franchisee. Leibel v. Raynor Mfg. Co., 571 S.W.2d 640, 1978 Ky. App. LEXIS 595 (Ky. Ct. App. 1978).

Reasonable notification should be the minimum amount of protection afforded to either party upon the termination of an on-going sales agreement and when such reasonable notice is not given, a cause of action for damages may exist. Leibel v. Raynor Mfg. Co., 571 S.W.2d 640, 1978 Ky. App. LEXIS 595 (Ky. Ct. App. 1978).

The requirement of a reasonable notification does not relate to the method of giving notice, but to the circumstances under which the notice is given and the extent of advanced warning of termination that the notification gives. Leibel v. Raynor Mfg. Co., 571 S.W.2d 640, 1978 Ky. App. LEXIS 595 (Ky. Ct. App. 1978).

Under this section, an at-will contract is to continue for a reasonable period of time and may be breached by termination without reasonable notice beforehand. Pharo Distributing Co. v. Stahl, 782 S.W.2d 635, 1989 Ky. App. LEXIS 154 (Ky. Ct. App. 1989).

Reasonable notice is that period of time which, under the circumstances of the case, would allow one to make alternate arrangements upon cessation of the contract and minimize losses. Pharo Distributing Co. v. Stahl, 782 S.W.2d 635, 1989 Ky. App. LEXIS 154 (Ky. Ct. App. 1989).

Whether reasonable notice was given under the circumstances of the case is a question of fact. It is to be determined by the finder of fact unless only one legitimate inference can be drawn from the facts proven, in which case the question is one of law for the court. Pharo Distributing Co. v. Stahl, 782 S.W.2d 635, 1989 Ky. App. LEXIS 154 (Ky. Ct. App. 1989).

The obvious object of the reasonable notice requirement is to afford the party losing the contract an opportunity to make appropriate arrangement in lieu thereof by dispersing inventory, adjusting work force, exploring probable alternatives, and in general, “getting his house in order” to proceed in absence of the former relationship. It is based upon fairness and equity. Pharo Distributing Co. v. Stahl, 782 S.W.2d 635, 1989 Ky. App. LEXIS 154 (Ky. Ct. App. 1989).

2.Damages.

Where oral, open-ended sub-distributorship agreement had been in existence for many years, and was terminated almost instantaneously (in just six days), as a matter of law, the notice was clearly unreasonable; the contract was breached. However, damages would be limited to those elements directly relating to lack of notice and the lost opportunity to “put company’s house in order.” Pharo Distributing Co. v. Stahl, 782 S.W.2d 635, 1989 Ky. App. LEXIS 154 (Ky. Ct. App. 1989).

3.Performance Delays.

Court granted a furniture manufacturer’s motion for summary judgment in a wholesaler’s breach of contract action because the wholesaler provided no evidence of any specific furniture deliveries that were unreasonably delayed. The wholesaler conceded that a guaranteed delivery time of 90 to 120 days was not a term of the parties’ agreement. Peters Wholesale Furniture, Inc. v. Manchester Furniture Group, 2005 U.S. Dist. LEXIS 21583 (W.D. Ky. Sept. 26, 2005).

4.Reasonable Time.

Where written contract for sale and installation of engine on boat did not provide any time for performance, the law implied a reasonable time, and parol evidence of an agreement as to time for delivery was inadmissible in absence of fraud or mistake and, on failure to install within a reasonable time, the buyer could recover any such damages as would fairly compensate him for the loss of use of the engine for any ordinary purposes during the delay. (decided under prior law) Fairbanks, Morse & Co. v. Hooper, 147 Ky. 154 , 143 S.W. 1025, 1912 Ky. LEXIS 211 ( Ky. 1912 ).

5.Notice of Termination.

Contract giving broker exclusive sale of coal company’s output so long as the broker’s services were satisfactory was terminable at will of either party on notice and, where company claimed it gave notice but broker denied notice was given, the question of whether notice was given was for the jury. (decided under prior law) Elkhorn Consol. Coal & Coke Co. v. Eaton, Rhodes & Co., 163 Ky. 306 , 173 S.W. 798, 1915 Ky. LEXIS 227 ( Ky. 1915 ).

Unauthorized contract giving retailer exclusive privilege of selling shoes for an indefinite time could be terminated at any time by either party and no damages could be had for failure to fill orders. (decided under prior law) Peters Branch of International Shoe Co. v. Jones, 247 Ky. 193 , 56 S.W.2d 994, 1933 Ky. LEXIS 374 ( Ky. 193 3 ).

Cited in:

In re Louisville Motor Exchange, Inc., 26 B.R. 490, 1983 Bankr. LEXIS 7038 (Bankr. W.D. Ky. 1983 ).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Peltier and Coleman, Commercial Law, 67 Ky. L.J. 523 (1978-79).

355.2-310. Open time for payment or running of credit — Authority to ship under reservation.

Unless otherwise agreed:

  1. Payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; and
  2. If the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of the contract (KRS 355.2-513 ); and
  3. If delivery is authorized and made by way of documents of title otherwise than by subsection (2) of this section, then payment is due regardless of where the goods are to be received:
    1. At the time and place at which the buyer is to receive delivery of the tangible documents; or
    2. At the time the buyer is to receive delivery of the electronic documents and at the seller’s place of business or, if none, the seller’s residence; and
  4. Where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but postdating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.

History. Enact. Acts 1958, ch. 77, § 2-310, effective July 1, 1960; 2012, ch. 132, § 47, effective July 12, 2012.

Official Comment

Prior uniform statutory provision:

Sections 42 and 47(2), Uniform Sales Act.

Changes:

Completely rewritten in this and other sections.

Purposes of changes:

This section is drawn to reflect modern business methods of dealing at a distance rather than face to face. Thus:

  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 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 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:

Generally: Part 5.

Point 1: Section 2-509.

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

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

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

Definitional cross references:

“Buyer”. Section 2-103. “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.

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355.2-311. Options and cooperation respecting performance.

  1. An agreement for sale which is otherwise sufficiently definite (subsection (3) of KRS 355.2-204 ) to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one (1) of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.
  2. Unless otherwise agreed specifications relating to assortment of the goods are at the buyer’s option and except as otherwise provided in subsections (1)(c) and (3) of KRS 355.2-319 specifications or arrangements relating to shipment are at the seller’s option.
  3. Where such specification would materially affect the other party’s performance but is not seasonably made or where one party’s cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies
    1. is excused for any resulting delay in his own performance; and
    2. may also either proceed to perform in any reasonable manner or after the time for a material part of his own performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.

History. Enact. Acts 1958, ch. 77, § 2-311, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

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 non-cooperating party.

Cross references:

Point 1: Sections 1-201, 2-204 and 1-203.

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

Point 4: Section 2-614.

Definitional cross references:

“Agreement”. Section 1-201. “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. “Seller”. Section 2-103.

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355.2-312. Warranty of title and against infringement — Buyer’s obligation against infringement.

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

History. Enact. Acts 1958, ch. 77, § 2-312, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 13, Uniform Sales Act.

Changes:

Completely rewritten, the provisions concerning infringement being new.

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 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 “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, certain foreclosing lienors and persons similarly situated may be 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.

    Foreclosure sales under Article 9 are another matter. Section 9-610 provides that a disposition of collateral under that section includes warranties such as those imposed by this section on a voluntary disposition of property of the kind involved. Consequently, unless properly excluded under subsection (2) or under the special provisions for exclusion in Section 9-610, a disposition under Section 9-610 of collateral consisting of goods includes the warranties imposed by subsection (1) and, if applicable, subsection (3).

  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 1: Section 2-403.

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.

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NOTES TO DECISIONS

1.No Title.

Where one innocently purchased a car which it was later proved had been stolen and the purchaser had to give it up to the true owner, there was breach of the implied warranty that the seller had the right to sell and give the purchaser peaceful enjoyment of the property. (decided under prior law) Sego v. Lynch, 233 Ky. 176 , 25 S.W.2d 353, 1929 Ky. LEXIS 462 ( Ky. 1929 ).

Where in the sale of a cleaning and pressing plant and equipment, the seller did not have title to a boiler, smokestack and tank, there was breach of warranty. (decided under prior law) Sandige v. Stephens, 252 Ky. 620 , 67 S.W.2d 967, 1934 Ky. LEXIS 826 ( Ky. 1934 ).

2.Title Subject to Undisclosed Mortgage.

Although sheriff had no right to pass title to a gas shovel which was subject to an undisclosed mortgage lien of $363.18 to a purchaser at an execution sale, where purchaser paid this amount to the mortgage lienholder to free the shovel of the mortgage lien and paid the execution debtor the surplus amount due him under purchaser’s bond less the amount paid the mortgage lienholder, the execution debtor ratified or adopted the sale by acceptance of that amount; and, although the execution debtor was entitled to the $363.18 balance from the purchaser under the bond, the execution debtor owed the purchaser the $363.18 that the purchaser had paid the mortgage lien debtor and the mutual debts and obligations were canceled. (decided under prior law) Commodari v. Hart-Commodari Const. Co., 262 Ky. 774 , 91 S.W.2d 8, 1936 Ky. LEXIS 84 ( Ky. 1936 ).

Cited in:

Nick’s Auto Sales, Inc. v. Radcliff Auto Sales, Inc., 591 S.W.2d 709, 1979 Ky. App. LEXIS 496 (Ky. Ct. App. 1979).

355.2-313. Express warranties by affirmation, promise, description, sample.

  1. Express warranties by the seller are created as follows:
    1. Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
    2. Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
    3. Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.
  2. It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.

History. Enact. Acts 1958, ch. 77, § 2-313, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Sections 12, 14 and 16, Uniform Sales Act.

Changes:

Rewritten.

Purposes of changes:

To consolidate and systematize basic principles with the result that:

  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.

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

  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 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.

    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.

  5. Paragraph (1)(b) makes specific some of the principles set forth above when a description of the goods is given by the seller.

    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 (b), 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 1: Section 2-316.

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) and 2-314.

Point 6: Section 2-316.

Point 7: Section 2-209.

Point 8: Section 1-103.

Definitional cross references:

“Buyer”. Section 2-103. “Conforming”. Section 2-106. “Goods”. Section 2-105. “Seller”. Section 2-103.

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NOTES TO DECISIONS

Analysis

1.Reliance.

An agreement that the buyer of a beverage for distribution would “be taken care of on the product” was too indefinite to warrant a recovery by the buyer for its failure to sell. (decided under prior law) Morgan-Abbott Barker Co. v. Southwest Cracker Co., 225 Ky. 418 , 9 S.W.2d 119, 1928 Ky. LEXIS 799 ( Ky. 1928 ).

Where a contract for the purchase of a rock crusher stated that the machine was sold with a guarantee of “first-class material and workmanship” and no other warranties, the purchaser was not allowed to rely upon an oral warranty that the machine would crush 200 tons of stone per day. (decided under prior law) Pace Const. Co. v. Brandeis Machinery & Supply Co., 239 Ky. 693 , 40 S.W.2d 268, 1931 Ky. LEXIS 829 ( Ky. 1931 ).

Reliance is an element of a cause of action for express warranty under subdivision (1)(a) of this section. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

A warranty is “the basis of the bargain” if it has been relied upon as one of the inducements for purchasing the product. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

A buyer is not under a duty to investigate the seller’s representations and he may accept them at face value; however, a buyer may not rely blindly on a statement or affirmation that he knows is incorrect. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

2.Expression of Opinion.

Seller’s warranty of a furnace would not be held to include a warranty of a flue with which he had no connection or responsibility. A mere expression of opinion by seller’s agent that flue was sufficient would not be construed as a warranty of the flue. (decided under prior law) Plumbers Supply Co. v. Lanter, 280 Ky. 523 , 133 S.W.2d 739, 1939 Ky. LEXIS 159 ( Ky. 1939 ).

Every statement made by a seller does not create an express warranty; a seller may puff his wares and state his opinion on their value without creating an express warranty. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

3.Description of Goods.

Where seller represented that the automobile sold was a new one, whereas it had actually been driven by another party about 2,000 miles and was, without the seller’s knowledge, a “secondhand car,” purchaser was allowed to recover the value of a new car minus the value of the car purchased. Scienter need not be proven in an action for breach of warranty. (decided under prior law) Steuerle v. National Bond & Inv. Co., 272 Ky. 728 , 115 S.W.2d 283, 1938 Ky. LEXIS 188 ( Ky. 1938 ).

The existence of an express warranty depends upon the particular circumstances in which the language is used and read and a catalog description or advertisement may create an express warranty in appropriate circumstances. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

4.Test for Warranty.

The trier of fact must determine whether the circumstances necessary to create an express warranty are present in a given case; the test is whether the seller assumes to assert a fact of which the buyer is ignorant, or whether he merely states an opinion or expresses a judgment about a thing as to which they may each be expected to have an opinion and exercise a judgment. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

Retailer that sold a tree stand which allegedly broke and caused the purchaser to fall to his death was not entitled to summary judgment in a product liability case where a question remained as to whether the retailer created an express warranty under KRS 355.2-313 by advertising that it field-tested all of the products it sold before sending them to the customer; thus, a question remained as to whether the retailer was more than a mere seller for purposes of the Kentucky Middleman Statute, KRS 411.340 . Morgan v. Cabela's Inc., 788 F. Supp. 2d 552, 2011 U.S. Dist. LEXIS 22683 (E.D. Ky. 2011 ).

5.Compliance with Directions for Use.

The scope of a product warranty is limited to the product’s intended use; use of a product contrary to its directions will preclude recovery for breach of an express warranty. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

Substantial compliance with the directions for the use of a product is a condition precedent to the existence of an express warranty. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

6.Instructions.

Where the operator of a horse breeding farm brought a breach of warranty action against a manufacturer of a horse vaccine alleging that the manufacturer breached expressed and implied warranties in connection with the sale of the vaccine, the jury instructions, which allowed the jury to award a judgment against the manufacturer without stating which warranty was breached, were erroneous because in order to recover on an express warranty the plaintiff must establish that he relied on the warranty. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

7.Scope of Protection.

Package inserts provided by manufacturer of polio vaccine could constitute an express warranty, however, any such warranty was not extended to child vaccinated by physician who did not show such inserts to child’s mother; child lacked privity with manufacturer and was beyond the scope of the warranty protection accorded by KRS 355.2-318 . Snawder v. Cohen, 749 F. Supp. 1473, 1990 U.S. Dist. LEXIS 14410 (W.D. Ky. 1990 ).

Assuming, arguendo, that a warranty exist pursuant to Ky. Rev. Stat. Ann. § 355.2-313 , summary judgment was properly granted in favor of the manufacturer on the consumer's breach of warranty claim. Pursuant to Kentucky law, the scope of a product warranty was limited to the product's intended use, and using a ratchet strap intended to tie down items to a vehicle to instead hang a tree stand 21 feet in the air was not an intended use. Hopper v. New Buffalo Corp., 664 Fed. Appx. 530, 2016 FED App. 0634N, 2016 U.S. App. LEXIS 21527 (6th Cir. Ky. 2016 ).

8.Federal Preemption.

A breach of express warranty claim in connection with the failure of a mechanical heart valve was preempted by federal law since the federal Food and Drug Administration’s conditions of approval regarding the mechanical heart valve required its approval of any modifications or additions to the valve’s labeling. Enlow v. St. Jude Med., Inc., 171 F. Supp. 2d 684, 2001 U.S. Dist. LEXIS 16843 (W.D. Ky. 2001 ), amended, 2001 U.S. Dist. LEXIS 16843 (W.D. Ky. Oct. 18, 2001).

Defendant heart valve manufacturer, whose pre-market approval application supplement for a heart valve, a Class III device, was approved by the Food and Drug Administration under the Medical Device Amendments of 1976, 21 U.S.C.S. §§ 360c(a)(1), 360e(d)(2), was granted partial summary judgment in plaintiff’s product liability action because 21 U.S.C.S. § 360k(a), preempted plaintiff’s design defect, failure to warn, breach of express warranties under KRS 355.2-313 (1), and breach of implied warranties claims, and plaintiff’s claims of negligent design, negligent manufacturing, testing, or inspection, and manufacturing defect were preempted to the extent they alleged defendant was negligent or the valve was defective despite adherence to FDA approved design and manufacturing processes and specifications. Enlow v. St. Jude Med., Inc., 210 F. Supp. 2d 853, 2003 U.S. Dist. LEXIS 28027 (W.D. Ky. 2003 ).

9.Actionable.

Manufacturer failed to show alleged representations that dog treats were nutritious, safe and wholesome were non-actionable because use of objectively verifiable terms arguably could mislead reasonable consumer; court could reasonably infer that plaintiffs relied on representations on packaging, plaintiffs alleged that manufacturer made express warranties for their benefit, and dismissal for lack of pre-suit notice was not warranted. Bietsch v. Sergeant's Pet Care Prods., 2016 U.S. Dist. LEXIS 32928 (N.D. Ill. Mar. 15, 2016).

Where plaintiff alleged that her injuries were caused by defendants’ defective medical device, plaintiff sufficiently pled privity of contract to support a breach of express warranty claim because although plaintiff’s physician purchased the device, it was intended to be used on plaintiff as a medical device. Duff v. C.R. Bard, 2021 U.S. Dist. LEXIS 41658 (W.D. Ky. Mar. 4, 2021).

10.Damages.

Fact issues as to damages precluded summary judgment on a claim for breach of express warranty; there was sufficient evidence of damages because any uncertainty did not run to the existence of damages flowing from defective goods, but rather to the existence of lost profits, a question on which the parties had provided conflicting proof. Smart & Assocs., LLC v. Indep. Liquor (NZ) Ltd., 226 F. Supp. 3d 828, 2016 U.S. Dist. LEXIS 180159 (W.D. Ky. 2016 ).

Cited in:

Bell v. Louisville Motors, Inc., 573 S.W.2d 351, 1978 Ky. App. LEXIS 606 (Ky. Ct. App. 1978).

Notes to Unpublished Decisions

2.Expression of Opinion.

Unpublished decision: Seller's agent's statement that he liked a racehorse a lot did not create an express warranty that the horse had no significant problem affecting her ability to train or race; the statement was more akin to sales talk or an expression of opinion. Biszantz v. Thoroughbreds, 620 Fed. Appx. 535, 2015 FED App. 0716N, 2015 U.S. App. LEXIS 18954 (6th Cir. Ky. 2015 ).

Research References and Practice Aids

Kentucky Bench & Bar.

Bertlesman, Views from the Federal Bench, Vol. 46, No. 3, July 1982, Ky. Bench & Bar 16.

An Overview of the Magnuson-Moss Warranty Act, Vol. 55, No. 3, Summer 1991, Ky. Bench & Bar 18.

Kentucky Law Journal.

Brickey, Products Liability in Kentucky: The Doctrinal Dilemma, 65 Ky. L.J. 593 (1976-77).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Northern Kentucky Law Review.

Notes, Torts — Products Liability — Should Contract or Tort Provide the Cause of Action When a Plaintiff Seeks Recovery Only for Damage to the Defective Product Itself — C & S Fuel, Inc. v. Clark Equip. Co.,10 N. Ky. L. Rev. 489 (1983).

Miller, The Kentucky Law of Products Liability In A Nutshell, 12 N. Ky. L. Rev. 201 (1985).

Ellerman & Linneman, A Survey of Kentucky Commercial Law., 31 N. Ky. L. Rev. 201 (2004).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Complaint on a Warranty, Form 190.07.

Caldwell’s Kentucky Form Book, 5th Ed., Complaint on by Purchaser to Recover Damages for Fraud, Without Averring a Request to Cancel the Contract, Form 190.12.

355.2-314. Implied warranty: merchantability — Usage of trade.

  1. Unless excluded or modified (KRS 355.2-316 ), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
  2. Goods to be merchantable must be at least such as
    1. pass without objection in the trade under the contract description; and
    2. in the case of fungible goods, are of fair average quality within the description; and
    3. are fit for the ordinary purposes for which such goods are used; and
    4. run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
    5. are adequately contained, packaged, and labeled as the agreement may require; and
    6. conform to the promises or affirmations of fact made on the container or label if any.
  3. Unless excluded or modified (KRS 355.2-316 ) other implied warranties may arise from course of dealing or usage of trade.

History. Enact. Acts 1958, ch. 77, § 2-314, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 15(2), Uniform Sales Act.

Changes:

Completely rewritten.

Purposes of changes:

This section, drawn in view of the steadily developing case law on the subject, is intended to make it clear that:

  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 requires 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, 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 1: Section 2-316.

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

Point 5: Section 2-315.

Point 11: Section 2-316.

Point 12: Sections 1-201, 1-205 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.

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NOTES TO DECISIONS

1.Fitness for Ordinary Purposes for Which Used.

In a contract for the purchase of a home lighting system, express warranties to the effect that the machine was (a) “thoroughly durable galvanized steel acetylene generator,” (b) “automatic in action,” and (c) “of good material and workmanship” did not negative an implied warranty that the machine would “make light so that the purchaser may not dwell in darkness.” (decided under prior law) J. B. Colt Co. v. Asher, 239 Ky. 235 , 39 S.W.2d 263, 1931 Ky. LEXIS 763 ( Ky. 1931 ).

Where a letter relating to the sale of firecrackers mentioned a first grade as to which an unlimited warranty was given, a second grade without any mention of the matter of warranties, and other inferior grades as to which all warranties were expressly renounced, there was by inference a warranty of the second grade as to their reasonably adequate quality. (decided under prior law) Balfour-Guthrie & Co. v. L. S. Du Bois Son & Co., 245 Ky. 640 , 54 S.W.2d 13, 1932 Ky. LEXIS 648 ( Ky. 1932 ).

Where customer telephoned order to grocer without opportunity for inspection and chicken was picked up by her son, and she established she communicated to the grocer that she desired the chicken for eating and relied on the grocer’s selection of it, and she received it and immediately or within a reasonable time used it for that purpose and sustained injury therefrom, she could recover under the doctrine of implied warranty. (decided under prior law) Great Atlantic & Pacific Tea Co. v. Eiseman, 259 Ky. 103 , 81 S.W.2d 900, 1935 Ky. LEXIS 267 ( Ky. 1935 ).

In seller’s action to recover payment for machinery sold, nonresident buyer’s counterclaim and setoff that there was a breach of implied warranty and certain items of equipment were not fit for purpose for which sold were properly subject to jury’s determination as to whether buyer and seller had entered into an oral agreement as to the manner in which defects in the equipment were to be corrected. (decided under prior law) Cincinnati Butchers Supply Co. v. Kentucky Packers, Inc., 285 Ky. 104 , 147 S.W.2d 48, 1941 Ky. LEXIS 344 ( Ky. 1941 ).

Express warranties of construction, materials and performance did not necessarily include implied warranty that article sold was reasonably suited to the use intended. (decided under prior law) Frick Co. v. Wiley, 290 Ky. 665 , 162 S.W.2d 190, 1942 Ky. LEXIS 458 ( Ky. 1942 ).

Where the language excluding implied warranties was not conspicuous, the dealer was considered to have made an implied warranty that the tractor was fit for the ordinary purpose for which goods are used. Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57, 1969 Ky. LEXIS 353 ( Ky. 1969 ).

2.Merchant.

Where a mechanical contracting firm guaranteed its work for a period of one (1) year against defects and accepted orders to supply cooling equipment which would accomplish the standards required, the mechanical contracting firm held itself out as skilled or expert in the mechanical contracting business, thereby becoming “a merchant with respect to goods of that kind” as provided in subsection (1) of this section. Frantz, Inc. v. Blue Grass Hams, Inc., 520 S.W.2d 313, 1974 Ky. LEXIS 7 ( Ky. 1974 ).

3.Manufacturer.

In action by farmer for harm done to cattle by poisoned feed, instruction that manufacturer impliedly warranted the fitness and quality of the feed for the purpose for which it was purchased was not error, where feed was sold in original package by authorized agent of manufacturer. (decided under prior law) Moorman Mfg. Co. v. Harris, 280 Ky. 845 , 134 S.W.2d 936, 1939 Ky. LEXIS 218 ( Ky. 1939 ).

4.Evidence.

An implied warranty that peach preserves were of merchantable quality existed where express language or necessary implication did not exclude it and seller sold the goods to purchaser knowing the goods had been seized by the United States and determined to be misbranded and contraband because of shortage in net weight and knowing that purchaser was securing the goods for resale to his retail trade. (decided under prior law) Porter v. Craddock, 84 F. Supp. 704, 1949 U.S. Dist. LEXIS 2733 (D. Ky. 1949 ).

Fact goods were identified in a sale by a patent or trade name would not of itself preclude an implied warranty. (decided under prior law) Halterman v. Louisville Bridge & Iron Co., 254 S.W.2d 493, 1953 Ky. LEXIS 593 ( Ky. 1953 ).

Where there was evidence of a breach of implied warranty of merchantability defendant was not entitled to a directed verdict even if there was no evidence of negligence on his part. Belcher v. Hamilton, 475 S.W.2d 483, 1971 Ky. LEXIS 71 ( Ky. 1971 ).

The defendant motor vehicle manufacturer and dealer were not entitled to summary judgment in an action by the purchaser of a van since there was a material issue of fact as to whether the van’s stalling at highway speed was a material defect which rendered the van unmerchantable. Smith v. GMC, 979 S.W.2d 127, 1998 Ky. App. LEXIS 99 (Ky. Ct. App. 1998).

5.Services.

The warranty provisions of this section apply to services when the sale is primarily one of goods and the services are necessary to insure that those goods are merchantable. Riffe v. Black, 548 S.W.2d 175, 1977 Ky. App. LEXIS 651 (Ky. Ct. App. 1977).

Where the predominant aspect of a contract was the rendition of services, i.e., a major engine overhaul of a helicopter, the UCC warranty provisions did not apply to this transaction. T-Birds, Inc. v. Thoroughbred Helicopter Service, Inc., 540 F. Supp. 548, 1982 U.S. Dist. LEXIS 14161 (E.D. Ky. 1982 ).

6.Negligent Installation.

A hole at the bottom of a pool caused by negligent installation of the vinyl liner breached the implied warranty of merchantability. Riffe v. Black, 548 S.W.2d 175, 1977 Ky. App. LEXIS 651 (Ky. Ct. App. 1977).

7.Reliance.

The implied warranty of merchantability is a duty imposed by Kentucky law and plaintiff’s reliance thereon is not a requisite to defendant’s liability for breach. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

8.Pleadings.

In action by buyer to recover for alleged breach of the implied warranty referred to in law that provided if buyer made known to seller the particular purpose for which goods were required and relied on the seller’s skill and judgment that there was an implied warranty, the goods should have been reasonably fit for such purpose, it was proper to compel him to make his petition more definite and certain by alleging whether contract for purchase was oral or written and, if written, to file a copy of the contract. (decided under prior law) Citizens Ice & Fuel Co. v. Fairbanks, Morse & Co., 293 Ky. 64 , 168 S.W.2d 586, 1943 Ky. LEXIS 578 ( Ky. 1943 ).

Where there was no triable issue concerning breach of an implied warranty of merchantable quality where plaintiff alleged building developed holes and apertures and leaked badly when there was rain which rendered the building unfit for use as a commercial garage, pleading did not put defendant on notice of any claim that the building was so defective as not to be reasonably fit for general use as a building. (decided under prior law) Halterman v. Louisville Bridge & Iron Co., 280 S.W.2d 175, 1955 Ky. LEXIS 137 ( Ky. 1955 ).

9.Instructions.

Where the operator of a horse breeding farm brought a breach of warranty action against a manufacturer of a horse vaccine alleging that the manufacturer breached expressed and implied warranties in connection with the sale of the vaccine, the jury instructions, which allowed the jury to award a judgment against the manufacturer without stating which warranty was breached, were erroneous because in order to recover on an express warranty the plaintiff must establish that he relied on the warranty. Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286, 1982 U.S. App. LEXIS 22121 (6th Cir. Ky. 1982 ).

10.Additional Remedies.

This section and KRS 355.2-315 , provide a contractual remedy in a case such as this where a product sold proves to be unfit for its ordinary use, and this expression of public policy does not necessarily preclude the courts from fashioning an additional remedy based upon strict liability in tort, although it may well lessen the need, if any, for such a policy. Falcon Coal Co. v. Clark Equipment Co., 802 S.W.2d 947, 1990 Ky. App. LEXIS 153 (Ky. Ct. App. 1990).

11.Adequately Contained, Packaged and Labeled.

In an action against milk company, there was no breach of implied warranty of fitness of milk bottle which broke and injured milk buyer’s hand, where it was not shown that the milk bottle was sold or that it had a specific defect and evidence established seller used reasonable care in processing and inspecting. The commodity sold by the milk company was the milk which carried with it the seller’s implied warranty that it was wholesome. (decided under prior law) Rowe v. Oscar Ewing Distributing Co., 357 S.W.2d 882, 1962 Ky. LEXIS 160 ( Ky. 1962 ).

12.Privity of Contract.

Where no contractual relation was alleged or shown between seller of boat which exploded and a guest of the son of the buyer, there was no cause of action against seller on any implied warranty. (decided under prior law) Caplinger v. Werner, 311 S.W.2d 201, 1958 Ky. LEXIS 184 ( Ky. 1958 ).

13.Exclusion of Implied Warranties.

Implied warranty could be excluded by express agreement between the parties, or by necessary implications to be drawn from the purchase agreement. (decided under prior law) Citizens Ice & Fuel Co. v. Fairbanks, Morse & Co., 293 Ky. 64 , 168 S.W.2d 586, 1943 Ky. LEXIS 578 ( Ky. 1943 ).

Where contract for sale of truck expressly agreed that there were no warranties, express or implied, except designated warranty against defective materials or workmanship and the equities of the situation did not justify a rescission of the contract on theory of failure of consideration, buyer could not recover for breach of implied warranty. (decided under prior law) L. R. Cooke Chevrolet Co. v. Culligan Soft Water Service, Inc., 282 S.W.2d 349, 1955 Ky. LEXIS 246 ( Ky. 1955 ).

Provisions in written contract excluded implied warranty and owners could not recover damages for breach of implied warranty of fitness. (decided under prior law) Amos v. Montgomery, 339 S.W.2d 471, 1960 Ky. LEXIS 466 ( Ky. 1960 ).

14.Performance of Conditions.

When express and implied warranties were coextensive, buyer would not fail to perform conditions attached to the express warranty and seek recovery on the implied warranty. (decided under prior law) Frick Co. v. Wiley, 290 Ky. 665 , 162 S.W.2d 190, 1942 Ky. LEXIS 458 ( Ky. 1942 ).

15.Acceptance.

Because a distributor accepted goods that it later claimed were defective, the distributor’s claim for breach of the implied warranty of merchantability failed both pursuant to statute and under the parties’ agreement, by which the distributor contractually assumed the risk of loss. Smart & Assocs., LLC v. Indep. Liquor (NZ) Ltd., 226 F. Supp. 3d 828, 2016 U.S. Dist. LEXIS 180159 (W.D. Ky. 2016 ).

Cited in:

McMichael v. American Red Cross, 532 S.W.2d 7, 1975 Ky. LEXIS 21 ( Ky. 1975 ); Ford Motor Co. v. Mayes, 575 S.W.2d 480, 1978 Ky. App. LEXIS 649 (Ky. Ct. App. 1978); Compex Int’l Co. v. Taylor, 209 S.W.3d 462, 2006 Ky. LEXIS 253 ( Ky. 2006 ).

Research References and Practice Aids

Kentucky Bench & Bar.

An Overview of the Magnuson-Moss Warranty Act, Vol. 55, No. 3, Summer 1991, Ky. Bench & Bar 18.

Kentucky Law Journal.

Siler, Legal Liability in Tobacco Products Cases, 53 Ky. L.J. 712 (1965).

Hodge and Snyder, Can the Kentucky Consumer Ever Forget Caveat Emptor and Find True Happiness?, 58 Ky. L.J. 325 (1970).

Brickey, Products Liability in Kentucky: The Doctrinal Dilemma, 65 Ky. L.J. 593 (1976-77).

Kentucky Law Survey, Clark, Medical Malpractice, 65 Ky. L.J. 337 (1976-77).

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Northern Kentucky Law Review.

Notes, Torts — Products Liability — Should Contract or Tort Provide the Cause of Action When a Plaintiff Seeks Recovery Only for Damage to the Defective Product Itself — C & S Fuel, Inc. v. Clark Equip. Co.,10 N. Ky. L. Rev. 489 (1983).

Miller, The Kentucky Law of Products Liability In A Nutshell, 12 N. Ky. L. Rev. 201 (1985).

Notes, Torts — No Defense for The Manufacturer — The Supreme Court of Kentucky Restricts The Shifting Responsibility Defense In Strict Products Liability Cases — Montgomery Elevator Co. v. McCullough, 676 S.W.2d 776, 1984 Ky. LEXIS 267 , 45 A.L.R.4th 761 ( Ky. 1984 ).

Comments, Reda Pump, a Division of TRW, Inc. v. Finck: An Update on Kentucky Product Liability Law, 14 N. Ky. L. Rev. 395 (1988).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Complaint on a Warranty, Form 190.07.

355.2-315. Implied warranty: fitness for particular purpose.

Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under KRS 355.2-316 an implied warranty that the goods shall be fit for such purpose.

History. Enact. Acts 1958, ch. 77, § 2-315, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 15 (1), (4), (5), Uniform Sales Act.

Changes:

Rewritten.

Purposes of changes:

  1. Whether or not this warranty arises in any individual case is basically a question of fact to be determined by the circumstances of the contracting. Under this section the buyer need not bring home to the seller actual knowledge of the particular purpose for which the goods are intended or of his reliance on the seller’s skill and judgment, if the circumstances are such that the seller has reason to realize the purpose intended or that the reliance exists. The buyer, of course, must actually be relying on the seller.
  2. A “particular purpose” differs from the ordinary purpose for which the goods are used in that it envisages a specific use by the buyer which is peculiar to the nature of his business whereas the ordinary purposes for which goods are used are those envisaged in the concept of merchantability and go to uses which are customarily made of the goods in question. For example, shoes are generally used for the purpose of walking upon ordinary ground, but a seller may know that a particular pair was selected to be used for climbing mountains.

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

    The provisions of this Article 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 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 non-merchants 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. 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 2: Sections 2-314 and 2-317.

Point 3: Section 2-303.

Point 6: Section 2-316.

Definitional cross references:

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

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NOTES TO DECISIONS

1.Fitness for Particular Purpose.

Where purchaser, desiring an oil that would harden a race track, told seller that he would rely on seller’s judgment as to what oil should be used as he knew nothing about the matter, the seller impliedly warranted the oil that was furnished to be reasonably suitable for the purpose in question. (decided under prior law) Louisville Grinding & Mach. Co. v. Southern Oil & Tar Co., 230 Ky. 39 , 18 S.W.2d 877, 1929 Ky. LEXIS 17 ( Ky. 1929 ).

A guarantee of “material and workmanship” did not negative an implied warranty that a machine would do the work for which it was, with the seller’s knowledge, purchased. (decided under prior law) Day Pulverizer Co. v. Rutledge, 238 Ky. 817 , 38 S.W.2d 949, 1931 Ky. LEXIS 316 ( Ky. 1931 ).

Where a purchaser stated that he wished to do a certain type of rock crushing and asked seller to recommend which type of seller’s various machines was suited to the work, and seller subsequently purchased a machine of the recommended type, there was an implied warranty that such machine would do the work for which intended. (decided under prior law) Day Pulverizer Co. v. Rutledge, 238 Ky. 817 , 38 S.W.2d 949, 1931 Ky. LEXIS 316 ( Ky. 1931 ).

Where a seller sold and installed a home lighting system, he was aware of its intended purpose, and warranted that the system was reasonably suited to the use intended. (decided under prior law) J. B. Colt Co. v. Asher, 239 Ky. 235 , 39 S.W.2d 263, 1931 Ky. LEXIS 763 ( Ky. 1931 ).

In suit on a contract for the sale of a rock crusher, an allegation that the machine would crush only 130 tons of rock per day and not the 200 tons orally warranted was insufficient to allege a breach of implied warranty of fitness for particular purpose. (decided under prior law) Pace Const. Co. v. Brandeis Machinery & Supply Co., 239 Ky. 693 , 40 S.W.2d 268, 1931 Ky. LEXIS 829 ( Ky. 1931 ).

Where, in a suit for the price on a contract for the sale of an air compressor, the contract provided that the compressor was “in perfect condition” but the complaint of the purchaser was that it would not produce a certain amount of air per minute, there was no breach of warranty of fitness for a particular purpose. (decided under prior law) Vandiver v. B. B. Wilson & Co., 244 Ky. 601 , 51 S.W.2d 899, 1932 Ky. LEXIS 473 ( Ky. 1932 ).

Where firecrackers were, with the seller’s knowledge, bought for resale on the retail market, there was a warranty that they would reasonably satisfy the purchaser’s customers. (decided under prior law) Balfour-Guthrie & Co. v. L. S. Du Bois Son & Co., 245 Ky. 640 , 54 S.W.2d 13, 1932 Ky. LEXIS 648 ( Ky. 1932 ).

Where a seller knew that certain feed purchased was to be fed to chickens, he impliedly warranted that such feed would do chickens no harm. (decided under prior law) McBride v. Farmers' Seed Ass'n, 248 Ky. 514 , 58 S.W.2d 909, 1933 Ky. LEXIS 262 ( Ky. 1933 ).

A vendor of chicken, selected, sold and delivered by the retailer in a visible condition to the purchaser for his immediate domestic use, was bound to know at his peril that the same was sound and wholesome and fit for immediate human consumption; and if it turned out to be unsound and not wholesome, and the purchaser was injured thereby, the seller was liable to him therefor, and the purchaser in so using it did not assume the risk. (decided under prior law) Great Atlantic & Pacific Tea Co. v. Eiseman, 259 Ky. 103 , 81 S.W.2d 900, 1935 Ky. LEXIS 267 ( Ky. 1935 ).

Where a woman called her grocer and asked him to pick out a chicken which her son would pick up, she was entitled to the protection of the warranty that such food was fit for human consumption. To bring her right to recovery within this principle it is indispensably essential that she establish that she had communicated to the seller the particular purpose for which she desired it (the product sold) and that she relied on its (the vendor’s) skill and judgment in selecting it; that she received and immediately or within a reasonable time used it for that purpose, and sustained an injury therefrom. (decided under prior law) Great Atlantic & Pacific Tea Co. v. Eiseman, 259 Ky. 103 , 81 S.W.2d 900, 1935 Ky. LEXIS 267 ( Ky. 1935 ).

Where a purchaser ordered and received “No. 1 hard-burned Coral Ridge common brick,” there was no implied warranty as to its fitness for any specific purpose. The spirit and intent of law that provided that where there was a sale of a specified article under its patent or trade name, there was no implied warranty as to fitness for any particular purpose is that the seller is not held to an implied warranty because the buyer gets the distinct thing selected by him, an exact article, for which he bargains. So, acting upon his own desires, he takes his own chances as to the fitness of the article, and should not be permitted to complain of the seller who has supplied him with the very thing he sought. (decided under prior law) R. B. Tyler Co. v. Hampton Cracker Co., 265 Ky. 236 , 96 S.W.2d 593, 1936 Ky. LEXIS 463 ( Ky. 1936 ).

Where seller knew that purchaser was buying the gas from his well for resale for domestic use, there was an implied warranty that it would be usable for that purpose and there was breach of such warranty when the gas later developed such a high sulphur content that it could not be used for such purpose. (decided under prior law) McNabb v. Central Kentucky Natural Gas Co., 272 Ky. 112 , 113 S.W.2d 470, 1938 Ky. LEXIS 71 ( Ky. 1938 ).

There was an implied warranty by retailer of food articles that they were suitable for the purpose intended even though they were in sealed packages and he did not have an opportunity to inspect them and, where customer alleged he purchased a sealed package of “chili con carne” to be consumed as food by himself and his family, the package was opened by customer after his arrival home and a part of the contents consumed by customer and his family who became violently ill, and the contents of the package were then emptied and a part of a dead rat leg found in the bottom, it was error to sustain demurrer to the petition. (decided under prior law) Martin v. Great Atlantic & Pacific Tea Co., 301 Ky. 429 , 192 S.W.2d 201, 1946 Ky. LEXIS 498 ( Ky. 1946 ).

Breach of implied warranty permitted recovery for personal injury where the commodity sold was the one actually manufactured or processed by the seller and, where buyer became violently ill from consuming barbecued mutton, seller had breached an implied warranty of fitness for human consumption, the particular purpose for which sold. (decided under prior law) Snead v. Waite, 306 Ky. 587 , 208 S.W.2d 749, 1948 Ky. LEXIS 615 ( Ky. 1948 ).

There was breach of an implied warranty that truck sold to farmer was free from defects and suitable for purposes for which bought. (decided under prior law) White Motor Co. v. Johnson, 254 S.W.2d 931, 1953 Ky. LEXIS 624 ( Ky. 1953 ).

The existence of an implied warranty of suitability for a particular purpose when the goods were sold under a patent or trade name depended upon the facts of the particular case, and there was no such implied warranty when buyer exercised his own judgment in the selection of the goods and did not rely upon judgment of the seller regarding its suitability for his purpose; but where buyer made known to the seller the purpose for which goods were desired and seller recommended building identified by patent or trade name “Quonset,” which buyer ordered for a garage on recommendation, relying on judgment and skill of seller, there was an implied warranty of suitability for the particular purpose. (decided under prior law) Halterman v. Louisville Bridge & Iron Co., 254 S.W.2d 493, 1953 Ky. LEXIS 593 ( Ky. 1953 ).

There was no merit in contention that because buyer made a profit in his garage business, the building necessarily must have been suitable for garage purposes and that therefore there was no breach of warranty, since it was conceivable the buyer could have operated profitably in a tent or under a makeshift shelter. “Reasonably fit” meant something more than barely usable. (decided under prior law) Halterman v. Louisville Bridge & Iron Co., 280 S.W.2d 175, 1955 Ky. LEXIS 137 ( Ky. 1955 ).

There could be no recovery against milk company for breach of implied warranty where milk bottle collapsed and injured buyer, since the milk bottle was not the subject of sale but the milk, which carried with it the seller’s implied warranty that it was wholesome. (decided under prior law) Rowe v. Oscar Ewing Distributing Co., 357 S.W.2d 882, 1962 Ky. LEXIS 160 ( Ky. 1962 ).

No implied warranty of fitness for a particular purpose existed as to beverages because they had only an ordinary purpose of consumption. Smart & Assocs., LLC v. Indep. Liquor (NZ) Ltd., 226 F. Supp. 3d 828, 2016 U.S. Dist. LEXIS 180159 (W.D. Ky. 2016 ).

2.Exclusion of Implied Warranties.

Where contract expressly provided that no warranty was made or could be relied upon, a warranty could not be implied. (decided under prior law) Sears, Roebuck & Co. v. Lea, 198 F.2d 1012, 1952 U.S. App. LEXIS 3274 (6th Cir. Ky. 1952 ).

Where, under a contract specifically stating it covered the entire agreement, seller agreed only to connect its condensing units “to the present ammonia coils in your two ice cream hardening rooms” and in the case of unsatisfactory service “to remove its equipment and refund all moneys paid to it by you,” the seller, after being notified of the buyer’s dissatisfaction, removed the units and returned all payments under the contract, he was not liable on an implied warranty that the units sold were suitable for the purpose for which they were purchased or for damages from methyl-chloride gas in the units becoming mixed with remnants of ammonia in the old coils with which seller had nothing to do under the contract. (decided under prior law) Graves Ice Cream Co. v. Rudolph W. Wurlitzer Co., 267 Ky. 1 , 100 S.W.2d 819, 1937 Ky. LEXIS 265 ( Ky. 1 937 ).

Under law that provided that where buyer informed seller of the purpose the goods are required, and relied on the seller’s skill and judgment, there was an implied warranty that the article sold was reasonably suited to the use intended when the seller was informed of same, unless expressly or by necessary implication excluded by the contract of sale. (decided under prior law) Frick Co. v. Wiley, 290 Ky. 665 , 162 S.W.2d 190, 1942 Ky. LEXIS 458 ( Ky. 1942 ).

Where seller of truck specifically limited his liability to replacement of defective parts returned to factory within 90 days, buyer could not recover on implied warranty that truck would do work for which it was purchased. (decided under prior law) James v. International Harvester Co., 294 Ky. 722 , 172 S.W.2d 670, 1943 Ky. LEXIS 548 ( Ky. 1943 ).

Where liability was predicated on an implied warranty of fitness, language in the contract that liability was restricted to replacement cost with no claim for labor or damages allowable was not sufficient to exclude the implied warranty. Water Works & Industrial Supply Co. v. Wilburn, 437 S.W.2d 951, 1968 Ky. LEXIS 172 ( Ky. 1968 ).

Where the language excluding implied warranties was not conspicuous, the dealer was considered to have made an implied warranty that the machine was fit for the purpose for which the buyer required it, there being a showing that the dealer knew of such purpose and the buyer relied on the dealer’s skill and judgment to select and furnish a suitable machine. Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57, 1969 Ky. LEXIS 353 ( Ky. 1969 ).

Where in a conditional sales contract it was stated on the back side of the contract that there were no implied warranties and reference was made to this clause on the front of the contract in larger than normal print, the buyer was bound by the contract. Childers & Venters, Inc. v. Sowards, 460 S.W.2d 343, 1970 Ky. LEXIS 582 ( Ky. 1970 ).

The General Assembly has expressly adopted the privity requirement, and warranty protections are limited to those engaged in a buyer-seller relationship. Brown Sprinkler Corp. v. Plumbers Supply Co., 265 S.W.3d 237, 2007 Ky. App. LEXIS 347 (Ky. Ct. App. 2007).

A retailer successfully disclaimed its obligations regarding implied warranties of fitness and of merchantability where the disclaimer was located on the front of the invoice in readable size print, the disclaimer language was printed in a type size that contrasted with the remaining printed information, the disclaimer was segregated from the rest of the invoice information, and the language plainly disclaimed all implied warranties including any implied warranty of merchantability or fitness for a particular use. Brown Sprinkler Corp. v. Plumbers Supply Co., 265 S.W.3d 237, 2007 Ky. App. LEXIS 347 (Ky. Ct. App. 2007).

3.Inspection by Buyers.

There was no implied warranty as to defects which should have been observed by buyers at the time of their inspection and the evidence did not establish any breach of direct warranty as to the suitability of sawmill for the purpose of buyers. (decided under prior law) Wells v. Ray, 253 S.W.2d 590, 1952 Ky. LEXIS 1102 ( Ky. 1952 ).

Where railroad requested seller to have manufacturer send cant hooks directly to the railroad’s agent, the railroad never had opportunity to inspect the cant hook and was not liable for injury to worker caused by alleged defective condition of cant hook and law that provided that if buyer relies on skill and judgment of seller, there is an implied warranty and informs seller of the purpose for which the goods are required did not apply because there was no showing that the railroad relied upon the seller’s skill or judgment in purchase, since the seller had no opportunity to inspect the cant hook. (decided under prior law) Continental Casualty Co. v. Belknap Hardware & Mfg. Co., 281 S.W.2d 914, 1955 Ky. LEXIS 213 ( Ky. 1955 ).

4.Defects in Equipment.

Former law regulating the sale of goods had no application where buyer’s claim against seller was directed in the main to defects in the equipment and not to whether the equipment was reasonably suited for the purpose for which it was sold, the processing of meat in a packing house. (decided under prior law) Cincinnati Butchers Supply Co. v. Kentucky Packers, Inc., 285 Ky. 104 , 147 S.W.2d 48, 1941 Ky. LEXIS 344 ( Ky. 1941 ).

Where there was a complete failure of a machine designed to make merchantable cement blocks, the purpose for which it was designed, there was much more than the breach of an implied warranty of suitability of fitness for a particular purpose. There was a breach of contract for failure of consideration. (decided under prior law) Myers v. Land, 314 Ky. 514 , 235 S.W.2d 988, 1950 Ky. LEXIS 1095 ( Ky. 1950 ).

5.Services.

The implied warranty of fitness for a particular purpose applies to services when the sale is primarily one of goods and the services are necessary to insure that those goods are merchantable. Riffe v. Black, 548 S.W.2d 175, 1977 Ky. App. LEXIS 651 (Ky. Ct. App. 1977).

Where the predominant aspect of a contract was the rendition of services, i.e., a major engine overhaul of a helicopter, the UCC warranty provisions did not apply to this transaction. T-Birds, Inc. v. Thoroughbred Helicopter Service, Inc., 540 F. Supp. 548, 1982 U.S. Dist. LEXIS 14161 (E.D. Ky. 1982 ).

6.Manufacturer.

A manufacturer could give an express warranty, such as a warranty of contents, or it could give an implied warranty, such as a warranty of general fitness for commonly recognized use, but there could be no breach of an implied warranty by the manufacturer that the product was an unfit fertilizer unsuited to a special use upon tobacco beds. (decided under prior law) North American Fertilizer Co. v. Combs, 307 Ky. 869 , 212 S.W.2d 526, 1948 Ky. LEXIS 844 ( Ky. 1948 ).

7.Negligent Installation.

A hole at the bottom of a pool caused by negligent installation of the vinyl liner breached the implied warranty of fitness for a particular purpose. Riffe v. Black, 548 S.W.2d 175, 1977 Ky. App. LEXIS 651 (Ky. Ct. App. 1977).

8.Privity of Contract.

Where there was no contractual relation alleged or shown between seller and a third party who had no contractual relation with the buyer, there was a failure to allege or show any cause of action on any implied warranty or representation. (decided under prior law) Caplinger v. Werner, 311 S.W.2d 201, 1958 Ky. LEXIS 184 ( Ky. 1958 ).

9.Additional Remedies.

KRS 355.2-314 and this section, provide a contractual remedy in a case such as this where a product sold proves to be unfit for its ordinary use, and this expression of public policy does not necessarily preclude the courts from fashioning an additional remedy based upon strict liability in tort, although it may well lessen the need, if any, for such a policy. Falcon Coal Co. v. Clark Equipment Co., 802 S.W.2d 947, 1990 Ky. App. LEXIS 153 (Ky. Ct. App. 1990).

10.Sufficiency of Evidence.

Evidence supported the jury’s finding that a manufacturer breached an implied warranty of fitness for a particular purpose, as it was aware of the particular use intended for the units it sold and of the specifications they had to meet, and the buyer had reason to rely on the manufacturer’s ability to produce suitable units for the job. Thomas & Betts Corp. v. A & A Mech., Inc., 2004 Ky. App. LEXIS 339 (Ky. Ct. App. Nov. 24, 2004, sub. op., 2004 Ky. App. Unpub. LEXIS 996 (Ky. Ct. App. Nov. 24, 2004), review denied, ordered not published, 2005 Ky. LEXIS 269 (Ky. Sept. 14, 2005).

11.Sale Merged with Contract.

There was a sale merged with a contract for performance with no inconsistency in the implied warranty to stop damage by termites already present under the sales law and the express warranty under the contract for performance to prevent further attacks. (decided under prior law) King v. Ohio Valley Terminix Co., 309 Ky. 35 , 214 S.W.2d 993, 1948 Ky. LEXIS 960 ( Ky. 1948 ).

12.Jury Instructions.

An instruction which authorized recovery for breach of warranty if the goods “failed to reasonably perform the function for which they were bought” was erroneous, although probably not reversible error. It would have been better to have adopted from the statutes the appropriate words or words of like import. (decided under prior law) Balfour-Guthrie & Co. v. L. S. Du Bois Son & Co., 245 Ky. 640 , 54 S.W.2d 13, 1932 Ky. LEXIS 648 ( Ky. 1932 ).

Cited in:

McMichael v. American Red Cross, 532 S.W.2d 7, 1975 Ky. LEXIS 21 ( Ky. 1975 ); Compex Int’l Co. v. Taylor, 209 S.W.3d 462, 2006 Ky. LEXIS 253 ( Ky. 2006 ).

Research References and Practice Aids

Kentucky Bench & Bar.

An Overview of the Magnuson-Moss Warranty Act, Vol. 55, No. 3, Summer 1991, Ky. Bench & Bar 18.

Kentucky Law Journal.

Comments, What Chance for the New Car Purchaser of a “Lemon”?, 62 Ky. L.J. 557 (1973-1974).

Kentucky Law Survey, Clark, Medical Malpractice, 65 Ky. L.J. 337 (1976-77).

Kentucky Law Survey, Roeder, Commercial Law, 69 Ky. L.J. 517 (1980-81).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Northern Kentucky Law Review.

Notes, Torts — Products Liability — Should Contract or Tort Provide the Cause of Action When a Plaintiff Seeks Recovery Only for Damage to the Defective Product Itself — C & S Fuel, Inc. v. Clark Equip. Co.,10 N. Ky. L. Rev. 489 (1983).

Miller, The Kentucky Law of Products Liability In A Nutshell, 12 N. Ky. L. Rev. 201 (1985).

Notes, Torts — No Defense for The Manufacturer — The Supreme Court of Kentucky Restricts The Shifting Responsibility Defense In Strict Products Liability Cases — Montgomery Elevator Co. v. McCullough, 676 S.W.2d 776, 1984 Ky. LEXIS 267 , 45 A.L.R.4th 761 ( Ky. 1984 ).

Comments, Reda Pump, a Division of TRW, Inc. v. Finck: An Update on Kentucky Product Liability Law, 14 N. Ky. L. Rev. 395 (1988).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Complaint on a Warranty, Form 190.07.

355.2-316. Exclusion or modification of warranties.

  1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this article on parol or extrinsic evidence (KRS 355.2-202 ) negation or limitation is inoperative to the extent that such construction is unreasonable.
  2. Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.”
  3. Notwithstanding subsection (2)
    1. unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is,” “with all faults” or other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty; and
    2. when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and
    3. an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade; and
    4. with respect to the sale of bovine, porcine, ovine, and equine animals, or poultry there shall be no implied warranty that the animals are free from disease or sickness. This exemption shall not apply when the seller knowingly sells animals which are diseased or sick.
  4. Remedies for breach of warranty can be limited in accordance with the provisions of this article on liquidation or limitation of damages and on contractual modification of remedy (KRS 355.2-718 and 355.2-719 ).

History. Enact. Acts 1958, ch. 77, § 2-316, effective July 1, 1960; 1980, ch. 7, § 1, effective July 15, 1980.

Official Comment

Prior uniform statutory provision:

None. See Sections 15 and 71, Uniform Sales Act.

Purposes:

  1. This section is designed principally to deal with those frequent clauses in sales contracts which seek to exclude “all warranties, express or implied.” It seeks to protect a buyer from unexpected and unbargained language of disclaimer by denying effect to such language when inconsistent with language of express warranty and permitting the exclusion of implied warranties only by conspicuous language or other circumstances which protect the buyer from surprise.
  2. The seller is protected under this Article 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 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 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. 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.

  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 and 2-208.

Definitional cross references:

“Agreement”. Section 1-201. “Buyer”. Section 2-103. “Contract”. Section 1-201. “Course of dealing”. Section 1-205. “Goods”. Section 2-105. “Remedy”. Section 1-201. “Seller”. Section 2-103. “Usage of trade”. Section 1-205.

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NOTES TO DECISIONS

1.In General.

In interpreting warranty disclaimers, the court must construe, when reasonable, words which create an express warranty and words that negate or limit such warranties in a manner consistent with one another. Gooch v. E.I. DuPont de Nemours & Co., 40 F. Supp. 2d 863, 1999 U.S. Dist. LEXIS 10211 (W.D. Ky. 1999 ).

Neither the heavy equipment safety guidelines published by the federal Occupational Safety and Health Administration nor the enactment of KRS 411.340 preempt the “as is” provision of the statute. Thornton v. Deere & Co., 2001 U.S. Dist. LEXIS 15676 (W.D. Ky. Sept. 28, 2001).

2.Exclusion by Express Warranty.

Where contract expressly provided that no warranty was made or could be relied upon, a warranty could not be implied. (decided under prior law) Sears, Roebuck & Co. v. Lea, 198 F.2d 1012, 1952 U.S. App. LEXIS 3274 (6th Cir. Ky. 1952 ).

Contract containing specific warranty that the machinery was to be of first-class material and workmanship coupled with the agreement to replace free of charge any part which might within 90 days of delivery prove defective excluded all other warranties. (decided under prior law) Pace Const. Co. v. Brandeis Machinery & Supply Co., 239 Ky. 693 , 40 S.W.2d 268, 1931 Ky. LEXIS 829 ( Ky. 1931 ).

It was competent for parties by express language to exclude any and all implied warranties from a contract of sale. (decided under prior law) Graves Ice Cream Co. v. Rudolph W. Wurlitzer Co., 267 Ky. 1 , 100 S.W.2d 819, 1937 Ky. LEXIS 265 ( Ky. 1 937 ).

The seller and purchaser of an article would make a definite contract limiting the liability of each under the contract and purchaser could not refuse to pay purchase price on grounds goods were worthless where he did not comply with express warranty which excluded all other liabilities of seller. (decided under prior law) James v. International Harvester Co., 294 Ky. 722 , 172 S.W.2d 670, 1943 Ky. LEXIS 548 ( Ky. 1943 ).

A warranty would not be implied where the contract stipulated expressly against its existence or declared no other warranty was made. (decided under prior law) Dreyer-Whitehead & Goedecke, Inc. v. Land, 309 Ky. 1 13 , 216 S.W.2d 413, 1948 Ky. LEXIS 1074 ( Ky. 1 948 ). See Vandiver v. B. B. Wilson & Co., 244 Ky. 601 , 51 S.W.2d 899, 1932 Ky. LEXIS 473 ( Ky. 1932 ); Graves Ice Cream Co. v. Rudolph W. Wurlitzer Co., 267 Ky. 1, 100 S.W.2d 819, 1937 Ky. LEXIS 265 ( Ky. 1937 ); Citizens Ice & Fuel Co. v. Fairbanks, Morse & Co., 293 Ky. 64 , 168 S.W.2d 586, 1943 Ky. LEXIS 578 ( Ky. 1943 ); Whayne Supply Co. v. Gregory, 291 S.W.2d 835, 1956 Ky. LEXIS 406 ( Ky. 1956 ), overruled, Brown v. Noland Co., 403 S.W.2d 33, 1966 Ky. LEXIS 321 ( Ky. 1966 ).

Where contract for sale of truck contained an express warranty which specifically excluded all implied warranties and the truck was reasonably suitable for its intended use and facts did not warrant breach of a covenant or condition that would justify rescission of the contract, buyer could not recover in action for breach of implied warranty. (decided under prior law) L. R. Cooke Chevrolet Co. v. Culligan Soft Water Service, Inc., 282 S.W.2d 349, 1955 Ky. LEXIS 246 ( Ky. 1955 ).

Provisions in written contract excluded implied warranty of fitness for special purpose and owners could not recover damages for breach of implied warranty of fitness of paint. (decided under prior law) Amos v. Montgomery, 339 S.W.2d 471, 1960 Ky. LEXIS 466 ( Ky. 1960 ).

Motor vehicle warranty that it was free from defects in material and workmanship and was in lieu of all other warranties excluded implied warranties and limited remedies for breach of the warranty. Cox Motor Car Co. v. Castle, 402 S.W.2d 429, 1966 Ky. LEXIS 364 ( Ky. 1966 ).

Where liability was predicated on an implied warranty of fitness, language in the contract that liability was restricted to replacement cost with no claim for labor or damages allowable was not sufficient to exclude the implied warranty. Water Works & Industrial Supply Co. v. Wilburn, 437 S.W.2d 951, 1968 Ky. LEXIS 172 ( Ky. 1968 ).

Where a contract for the sale of a car excluded warranties in bold, large type, and in red ink, the parties had clearly entered into a binding contract regardless of defects with the automobile. Greg Coats Cars, Inc. v. Kasey, 576 S.W.2d 251, 1978 Ky. App. LEXIS 659 (Ky. Ct. App. 1978).

3.“As Is” Clauses.

Appellant executed a written sales contract that stated the vehicle was sold “as is,” and he acknowledged that he made the purchase knowingly without any guarantee; the effect of the as is clause shifted the assumption of risk concerning the condition and value of the vehicle to appellant, and as the injury concerned the value of the vehicle and the sole cause of the injury was appellant, he was unable to prove that the seller’s representations caused the injury, and the trial court properly dismissed his action. Roberts v. Lanigan Auto Sales, 406 S.W.3d 882, 2013 Ky. App. LEXIS 4 (Ky. Ct. App. 2013).

By agreeing to buy a vehicle as is, appellant agreed that he would make his own assessment of the vehicle’s condition in spite of appellee’s representations, and thus appellant could not later allege that he reasonably relied on those representations when he agreed to buy the vehicle. Roberts v. Lanigan Auto Sales, 406 S.W.3d 882, 2013 Ky. App. LEXIS 4 (Ky. Ct. App. 2013).

This is not to say that an “as is” clause bars any claim of fraud, and when circumstances indicate otherwise, express or implied warranties may not be disclaimed by a written contract, for purposes of KRS 355.2-316 (3)(a); different circumstances could support an action for fraud despite an “as is” clause when the injury results in consequential damages, that is, injury to a person or property as a result of a breach of warranty, rather than an injury as a result of decreased value of the goods, and the court’s holding here merely follows the rationale that an “as is” clause transfers the risk to the buyer that the condition or value of the goods is not what the seller represents. Roberts v. Lanigan Auto Sales, 406 S.W.3d 882, 2013 Ky. App. LEXIS 4 (Ky. Ct. App. 2013).

4.Conspicuousness.

Where the attempted exclusion of implied warranties was on the back of the contract and the exclusionary language was in the same size type as the general contract, the attempted exclusion was not valid or effective because it was not conspicuous within the meaning of the law. Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57, 1969 Ky. LEXIS 353 ( Ky. 1969 ).

Where the language excluding implied warranties was not conspicuous, the dealer was considered to have made an implied warranty that the machine was fit for the purpose for which the buyer required it, there being a showing that the dealer knew of such purpose and the buyer relied on the dealer’s skill and judgment to select and furnish a suitable machine. Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57, 1969 Ky. LEXIS 353 ( Ky. 1969 ).

Where the language excluding implied warranties was not conspicuous, the dealer was considered to have made an implied warranty that the tractor was fit for the ordinary purpose for which goods are used. Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57, 1969 Ky. LEXIS 353 ( Ky. 1969 ).

Where in a conditional sales contract it was stated on the back side of the contract that there were no implied warranties and reference was made to this clause on the front of the contract in larger than normal print, the buyer was bound by the contract. Childers & Venters, Inc. v. Sowards, 460 S.W.2d 343, 1970 Ky. LEXIS 582 ( Ky. 1970 ).

The fact that an exclusion of any warranty appears on the back of a contract will not per se render the exclusion ineffective. Cline v. Allis-Chalmers Corp., 690 S.W.2d 764, 1985 Ky. App. LEXIS 578 (Ky. Ct. App. 1985).

Where, on the back side of the contract, the exclusions were clearly stated in bold-face, entirely capitalized type, twice as large as the other type, the exclusions were conspicuous. Gooch v. Dowell, Inc., 743 S.W.2d 38, 1988 Ky. App. LEXIS 4 (Ky. Ct. App. 1988).

A retailer successfully disclaimed its obligations regarding implied warranties of fitness and of merchantability where the disclaimer was located on the front of the invoice in readable size print, the disclaimer language was printed in a type size that contrasted with the remaining printed information, the disclaimer was segregated from the rest of the invoice information, and the language plainly disclaimed all implied warranties including any implied warranty of merchantability or fitness for a particular use. Brown Sprinkler Corp. v. Plumbers Supply Co., 265 S.W.3d 237, 2007 Ky. App. LEXIS 347 (Ky. Ct. App. 2007).

5.Limiting Language Ineffective.

The evidence supported the trial judge’s determination that the “repair or replace” limited remedy language of a tractor shovel sales contract failed of its essential purpose within the meaning of KRS 355.2-719 (2), especially since the defective part was small, and the defect resulted in the immediate destruction of the entire tractor shovel; accordingly, regardless of how the fire damage was characterized, to the extent that express limitations in the contract precluded the owner from recovering at least the purchase price of the truck, such limitations were ineffective under KRS 355.2-719 (2). Rudd Constr. Equipment Co. v. Clark Equipment Co., 735 F.2d 974, 1984 U.S. App. LEXIS 21942 (6th Cir. Ky. 1984 ).

6.Damages Recoverable.

Where a machine simply bursts into flame, the entire machine is one big defective part, entitling the plaintiff buyer to recover the difference in value between the machine as warranted and the one actually received. Rudd Constr. Equipment Co. v. Clark Equipment Co., 735 F.2d 974, 1984 U.S. App. LEXIS 21942 (6th Cir. Ky. 1984 ).

7.Failure of Consideration.

Where purchaser agreed to purchase a yearling “as-is” the only way there could be a failure of consideration would be if purchaser had received (1) nothing, (2) a dead yearling, or (3) a live yearling different from the one on which he bid. Therefore sale would not be rescinded for failure of consideration. Cohen v. North Ridge Farms, Inc., 712 F. Supp. 1265, 1989 U.S. Dist. LEXIS 5482 (E.D. Ky. 1989 ).

Cited in:

Ford Motor Co. v. Mayes, 575 S.W.2d 480, 1978 Ky. App. LEXIS 649 (Ky. Ct. App. 1978); Bartelt Aviation, Inc. v. Dry Lake Coal Co., 682 S.W.2d 796, 1985 Ky. App. LEXIS 493 (Ky. Ct. App. 1985); Skilcraft Sheetmetal, Inc. v. Kentucky Machinery, Inc., 836 S.W.2d 907, 1992 Ky. App. LEXIS 175 (Ky. Ct. App. 1992); Evans v. JNT, Inc., 2015 Ky. App. LEXIS 124 (Aug. 21, 2015).

Research References and Practice Aids

Kentucky Law Journal.

Comments, What Chance for the New Car Purchaser of a “Lemon”?, 62 Ky. L.J. 557 (1973-1974).

Brickey, Products Liability in Kentucky: The Doctrinal Dilemma, 65 Ky. L.J. 593 (1976-77).

The Sale of Horses and Horse Interests: A Transactional Approach, 78 Ky. L.J. 517 (1989-90).

Northern Kentucky Law Review.

Notes, U.C.C. — Consumer Protection Act — Limited Warranties — Automobile Manufac- turer’s Refusal to Recognize Buyers’ Rights Under the U.C.C. When a Limited Warranty Fails of its Essential Purpose Constitutes an Unfair Trade Practice Under the Consumer Protection Act, 6 N. Ky. L. Rev. 403 (1979).

Notes, Torts — Products Liability — Should Contract or Tort Provide the Cause of Action When a Plaintiff Seeks Recovery Only for Damage to the Defective Product Itself — C & S Fuel, Inc. v. Clark Equip. Co.,10 N. Ky. L. Rev. 489 (1983).

Miller, The Kentucky Law of Products Liability In A Nutshell, 12 N. Ky. L. Rev. 201 (1985).

Notes, Torts — No Defense for The Manufacturer — The Supreme Court of Kentucky Restricts The Shifting Responsibility Defense In Strict Products Liability Cases — Montgomery Elevator Co. v. McCullough, 676 S.W.2d 776, 1984 Ky. LEXIS 267 , 45 A.L.R.4th 761 ( Ky. 1984 ).

Comments, Reda Pump, a Division of TRW, Inc. v. Finck: An Update on Kentucky Product Liability Law, 14 N. Ky. L. Rev. 395 (1988).

Ellerman & Linneman, A Survey of Kentucky Commercial Law., 31 N. Ky. L. Rev. 201 (2004).

355.2-317. Cumulation and conflict of warranties express or implied.

Warranties whether express or implied shall be construed as consistent with each other and as cumulative, but if such construction is unreasonable the intention of the parties shall determine which warranty is dominant. In ascertaining that intention the following rules apply:

  1. Exact or technical specifications displace an inconsistent sample or model or general language of description.
  2. A sample from an existing bulk displaces inconsistent general language of description.
  3. Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose.

History. Enact. Acts 1958, ch. 77, § 2-317, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

On cumulation of warranties, see Sections 14, 15, and 16, Uniform Sales Act.

Changes:

Completely rewritten into one section.

Purposes of changes:

  1. The present section rests on the basic policy of this Article 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 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 references:

Point 1: Section 2-315.

Definitional cross reference:

“Party”. Section 1-201.

NOTES TO DECISIONS

1.Consistency.

An implied warranty to stop present termite damage was not inconsistent with express warranty to “insulate” the property against further attacks where a sale of chemicals to exterminate termites was merged with a contract for performance. (decided under prior law) King v. Ohio Valley Terminix Co., 309 Ky. 35 , 214 S.W.2d 993, 1948 Ky. LEXIS 960 ( Ky. 1948 ).

2.Sale by Sample.

Where, in purchasing firecrackers for resale, samples were tested which proved satisfactory but 40 per cent of the firecrackers delivered would not explode, causing the purchaser to refund considerable money to his customers, there was a breach of warranty that firecrackers were fit for such purpose. (decided under prior law) Balfour-Guthrie & Co. v. L. S. Du Bois Son & Co., 245 Ky. 640 , 54 S.W.2d 13, 1932 Ky. LEXIS 648 ( Ky. 1932 ).

3.Express Warranties.

Where, under terms of contract containing a clause that the contract covered all the agreements and promises express or implied between the buyer and the seller, the only agreement was to sell a condensing unit, install it in plant, connect it up with the plant’s theretofore installed equipment and, if it was unsatisfactory, to remove it and refund the money paid and, when the seller was informed that it was not operating properly, he removed it and refunded the money paid, he was not liable for alleged damages for breach of an alleged implied warranty, since the language of the contract had the effect of negating any implied warranty arising from the contract. (decided under prior law) Graves Ice Cream Co. v. Rudolph W. Wurlitzer Co., 267 Ky. 1 , 100 S.W.2d 819, 1937 Ky. LEXIS 265 ( Ky. 1 937 ).

Owners could not recover damages for breach of implied warranty of fitness of paint where provisions in written contract excluded implied warranty of fitness for special purpose. (decided under prior law) Amos v. Montgomery, 339 S.W.2d 471, 1960 Ky. LEXIS 466 ( Ky. 1960 ).

355.2-318. Third party beneficiaries of warranties express or implied.

A seller’s warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.

History. Enact. Acts 1958, ch. 77, § 2-318, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

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 Sections 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 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. The first alternative 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. The second alternative is designed for states where the case law has already developed further and for those that desire to expand the class of beneficiaries. The third alternative goes further, following the trend of modern decisions as indicated by Restatement of Torts 2d §π402A (Tentative Draft No. 10, 1965) in extending the rule beyond injuries to the person.

Cross references:

Point 1: Sections 2-316, 2-718 and 2-719.

Point 2: Section 2-314.

Definitional cross references:

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

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NOTES TO DECISIONS

Analysis

1.Applicability.

The Legislature did not intend to include employees of a commercial purchaser within the parameters of this section. McLain v. Dana Corp., 16 S.W.3d 320, 1999 Ky. App. LEXIS 133 (Ky. Ct. App. 1999).

A son did not have an actionable claim for injuries against the manufacturer of a chair when the son claimed that the chair, which had been purchased by the son’s parents and kept in the parents’ home, collapsed when the son sat in it. Although the parents met the definition of buyers under KRS 355.2-103 (1)(a), they did not purchase the chair from the manufacturer, and KRS 355.2-318 did not provide grounds for the son’s claim. Compex Int'l Co. v. Taylor, 209 S.W.3d 462, 2006 Ky. LEXIS 253 ( Ky. 2006 ), modified, 2007 Ky. LEXIS 13 (Ky. Jan. 25, 2007).

Subrogor was not the buyer of the motorcycle on which the subrogor was riding as a passenger when the subrogor was injured in an accident for which the subrogee paid workers’ compensation benefits to the subrogor, and the alleged manufacturer was not the seller of that motorcycle. As a result, the subrogee could not maintain a subrogation action against the alleged manufacturer for breach of warranty, as KRS 355.2-318 , as a “buyer-seller” relationship had to be established and since there was not one between the subrogor and the alleged manufacturer, the subrogee was not in privity of contract with a party who could sue for breach of warranty. Bridgefield Cas. Ins. Co. v. Yamaha Motor Mfg. Corp. of Am., 385 S.W.3d 430, 2012 Ky. App. LEXIS 224 (Ky. Ct. App. 2012).

2.Lessee.

Warranties made by a manufacturer and dealer (seller) with regard to a piece of farm equipment applied to a farmer who leased the equipment from the corporation which purchased the combine from the dealer, where the lessor had assigned all its rights for breach of warranty to the farmer and manufacturer and dealer had previously treated the farmer as the owner. Cline v. Allis-Chalmers Corp., 690 S.W.2d 764, 1985 Ky. App. LEXIS 578 (Ky. Ct. App. 1985).

3.Privity.

Kentucky’s commercial code does not expressly extend breach of warranty standing beyond the buyer/seller setting and there was no privity of contract between patient who had a nail implanted in his femur by a physician, and manufacturers of the nail. Munn v. Pfizer Hosp. Products Group, Inc., 750 F. Supp. 244, 1990 U.S. Dist. LEXIS 15750 (W.D. Ky. 1990 ).

Package inserts provided by manufacturer of polio vaccine could constitute an express warranty, however, any such warranty was not extended to child vaccinated by physician who did not show such inserts to child’s mother; child lacked privity with manufacturer and was beyond the scope of the warranty protection accorded by KRS 355.2-318 . Snawder v. Cohen, 749 F. Supp. 1473, 1990 U.S. Dist. LEXIS 14410 (W.D. Ky. 1990 ).

Warranty actions may be brought only by purchasers or one in purchasers’ household. Halderman v. Sanderson Forklifts Co., 818 S.W.2d 270, 1991 Ky. App. LEXIS 56 (Ky. Ct. App. 1991).

Breach of warranty is not a viable theory in a personal injury claim for a product sold in a defective condition unless there is privity of contract, except in limited circumstances specified in the statute. Real Estate Mktg. v. Franz, 885 S.W.2d 921, 1994 Ky. LEXIS 127 ( Ky. 1994 ).

Where the injured person suffered an accident on a ladder borrowed at the work site, and sued the manufacturer for breach of an implied warranty of merchantability, in addition to negligence claims, the injured person was not included within the parameters of KRS 355.2-318 , as the necessary element of privity was lacking. Eversole v. Louisville Ladder Group, 2003 Ky. App. LEXIS 270 (Ky. Ct. App. Sept. 5, 2003).

Because a manufacturer was not a seller and a workers’ compensation claimant was not a buyer, a workers’ compensation insurer, as subrogee to the claimant, lacked the requisite privity of contract with the manufacturer and was not otherwise entitled to bring a claim of breach of warranty under Kentucky’s version of the Uniform Commercial Code. Bridgefield Cas. Ins. Co. v. Yamaha Motor Mfg. Corp. of Am., 2012 Ky. App. LEXIS 176 (Ky. Ct. App. Sept. 21, 2012).

Board did not purchase the school bus for personal, family or household purposes, nor were appellants in the board’s family or household or guests in its home; therefore, appellants could not be considered part of the board’s “family” pursuant to the statutes; the warranty protections were only afforded to the board, not appellants, and there was no privity of contract between the parties to support a Kentucky Consumer Protection Act or breach of warranty claim on behalf of appellants. Jones v. IC Bus, LLC, 626 S.W.3d 661, 2020 Ky. App. LEXIS 114 (Ky. Ct. App. 2020).

Cited in:

Teel v. American Steel Foundries, 529 F. Supp. 337, 1981 U.S. Dist. LEXIS 16835 (E.D. Mo. 1981); Williams v. Fulmer, 695 S.W.2d 411, 1985 Ky. LEXIS 232 ( Ky. 1985 ).

Notes to Unpublished Decisions

1.Privity.

Unpublished decision: Summary judgment for a buckle manufacturer was proper in an action which arose when a deer hunter fell from a deer stand after a safety belt containing the manufacturer’s buckle broke; the hunter failed to show that buckle was defective for purposes of strict liability, failed to show any duty to warn end-users, and failed to show privity between the parties for purposes of his breach of warranty claims under KRS 355.2-318 . Waterfill v. Nat'l Molding Corp., 215 Fed. Appx. 402, 2007 FED App. 0096N, 2007 U.S. App. LEXIS 3056 (6th Cir. Ky. 2007 ).

Unpublished decision: Consumer's breach of express warranty claim failed, as it was undisputed that the consumer was not the original purchaser of the arrow that injured him, he bought the arrow second-hard. Yonts v. Easton Tech. Prods., 676 Fed. Appx. 413, 2017 FED App. 0032N, 2017 U.S. App. LEXIS 723 (6th Cir. Ky. 2017 ).

Research References and Practice Aids

Kentucky Bench & Bar.

An Overview of the Magnuson-Moss Warranty Act, Vol. 55, No. 3, Summer 1991, Ky. Bench & Bar 18.

Kentucky Law Journal.

Brickey, Products Liability in Kentucky: The Doctrinal Dilemma, 65 Ky. L.J. 593 (1976-77).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Northern Kentucky Law Review.

Notes, Torts — Products Liability — Should Contract or Tort Provide the Cause of Action When a Plaintiff Seeks Recovery Only for Damage to the Defective Product Itself — C & S Fuel, Inc. v. Clark Equip. Co.,10 N. Ky. L. Rev. 489 (1983).

Miller, The Kentucky Law of Products Liability In A Nutshell, 12 N. Ky. L. Rev. 201 (1985).

Comments, Reda Pump, a Division of TRW, Inc. v. Finck: An Update on Kentucky Product Liability Law, 14 N. Ky. L. Rev. 395 (1988).

Ellerman & Linneman, A Survey of Kentucky Commercial Law., 31 N. Ky. L. Rev. 201 (2004).

355.2-319. F.O.B. and F.A.S. terms.

  1. Unless otherwise agreed the term F.O.B. (which means “free on board”) at a named place, even though used only in connection with the stated price, is a delivery term under which
    1. when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this article (KRS 355.2-504 ) and bear the expense and risk of putting them into the possession of the carrier; or
    2. when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this article (KRS 355.2-503 );
    3. when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this article on the form of bill of lading (KRS 355.2-323 ).
  2. Unless otherwise agreed the term F.A.S. vessel (which means “free alongside”) at a named port, even though used only in connection with the stated price, is a delivery term under which the seller must
    1. at his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer; and
    2. obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading.
  3. Unless otherwise agreed in any case falling within subsection (1)(a) or (c) or subsection (2) the buyer must seasonably give any needed instructions for making delivery, including when the term is F.A.S. or F.O.B. the loading berth of the vessel and in an appropriate case its name and sailing date. The seller may treat the failure of needed instructions as a failure of cooperation under this article (KRS 355.2-311 ). He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment.
  4. Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

History. Enact. Acts 1958, ch. 77, § 2-319, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

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 re 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 case law; 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:

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

Definitional cross references:

“Agreed”. Section 1-201. “Bill of lading”. Section 1-201. “Buyer”. Section 2-103. “Goods”. Section 2-105. “Seasonably”. Section 1-204. “Seller”. Section 2-103. “Term”. Section 1-201.

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NOTES TO DECISIONS

1.F.O.B.

Under law that provided that where seller was to send the goods to the buyer, delivery of goods to a carrier for the purpose of transmission to the buyer was a delivery to the buyer, and law that provided that a delivery to a carrier for the purpose of transmission was an unconditional presumption that the seller had delivered the goods to the buyer, and it was expressly stated that this presumption was applicable, although by the terms of the contract, the buyer was to pay the price before receiving delivery of the goods and the goods marked with the words “collect on delivery” or their equivalent, where fuel oil was sold for delivery to barge of common carrier and F.O.B. seller’s dock, seller was not liable for loss through sinking of the barge when filled to 15 or 18 inches of the top. (decided under prior law) Troy Refining Corp. v. Slagter Oil & Grease Co., 61 F. Supp. 369, 1945 U.S. Dist. LEXIS 2188 (D. Ky. 1945 ).

Where parties had what was known as a shipment or F.O.B. contract, delivery under it was not at the destination but at the point of departure and, where shipper proved it shipped the goods and buyer did not affirmatively plead they were not received, shipper established a prima facie case of debt. (decided under prior law) Permalum Window & Awning Mfg. Co. v. Permalum Window Mfg. Corp., 412 S.W.2d 863, 1967 Ky. LEXIS 440 ( Ky. 1967 ).

In a Chapter 11 bankruptcy proceeding, a lender who had a security interest in all of debtor’s assets was entitled to the proceeds of a sale of goods delivered to debtor by a seller; because the goods were shipped “F.O.B. destination” and had arrived at property debtor leased, there had been a tender of delivery of the goods, and under KRS 355.2-401 (2), KRS 355.2-319 (1)(b), KRS 355.2-503 (1), and KRS 355.9-203 (1) and (2)(b), title to the goods had passed to debtor from the seller, and the lender’s security interest had attached to the goods. In re Ashland Steel Liquidating Co., 2004 Bankr. LEXIS 908 (Bankr. E.D. Ky. July 7, 2004).

Cited in:

Department of Revenue v. Cox Machinery Co., 650 S.W.2d 261, 1982 Ky. App. LEXIS 291 (Ky. Ct. App. 1982).

Research References and Practice Aids

Kentucky Bench & Bar.

Gardner, Ten Traps for the Unwary in International Transactions, Vol. 60, No. 4, Fall 1996, Ky. Bench & Bar 26.

Kentucky Law Journal.

Brickey, Products Liability in Kentucky: The Doctrinal Dilemma, 65 Ky. L.J. 593 (1976-77).

355.2-320. C.I.F. and C. & F. terms.

  1. The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named destination. The term C. & F. or C.F. means that the price so includes cost and freight to the named destination.
  2. Unless otherwise agreed and even though used only in connection with the stated price and destination, the term C.I.F. destination or its equivalent requires the seller at his own expense and risk to
    1. put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the entire transportation to the named destination; and
    2. load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the freight has been paid or provided for; and
    3. obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at the port of shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by the bill of lading and providing for payment of loss to the order of the buyer or for the account of whom it may concern; but the seller may add to the price the amount of the premium for any such war risk insurance; and
    4. prepare an invoice of the goods and procure any other documents required to effect shipment or to comply with the contract; and
    5. forward and tender with commercial promptness all the documents in due form and with any indorsement necessary to perfect the buyer’s rights.
  3. Unless otherwise agreed the term C. & F. or its equivalent has the same effect and imposes upon the seller the same obligations and risks as a C.I.F. term except the obligation as to insurance.
  4. Under the term C.I.F. or C. & F. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

History. Enact. Acts 1958, ch. 77, § 2-320, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

Purposes:

To make it clear that:

  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.

    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 in the appropriate space 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.

  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.

    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.

    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 against 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.

  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 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 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 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.
  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 4: Section 2-323.

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 5.

Definitional cross references:

“Bill of lading”. Section 1-201. “Buyer”. Section 2-103. “Contract”. Section 1-201. “Goods”. Section 2-105. “Rights”. Section 1-201. “Seller”. Section 2-103. “Term”. Section 1-201.

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355.2-321. C.I.F. or C. & F.: “Net landed weights” — “Payment on arrival” — Warranty of condition on arrival.

Under a contract containing a term C.I.F. or C. & F.

  1. Where the price is based on or is to be adjusted according to “net landed weights”, “delivered weights”, “out turn” quantity or quality or the like, unless otherwise agreed the seller must reasonably estimate the price. The payment due on tender of the documents called for by the contract is the amount so estimated, but after final adjustment of the price a settlement must be made with commercial promptness.
  2. An agreement described in subsection (1) or any warranty of quality or condition of the goods on arrival places upon the seller the risk of ordinary deterioration, shrinkage and the like in transportation but has no effect on the place or time of identification to the contract for sale or delivery or on the passing of the risk of loss.
  3. Unless otherwise agreed where the contract provides for payment on or after arrival of the goods the seller must before payment allow such preliminary inspection as is feasible; but if the goods are lost delivery of the documents and payment are due when the goods should have arrived.

History. Enact. Acts 1958, ch. 77, § 2-321, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

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. Paragraphs (a)(i) and (ii), 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. Paragraph (a)(iii) 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:

Section 2-324.

Definitional cross references:

“Agreement”. Section 1-201. “Contract”. Section 1-201. “Delivery”. Section 1-201. “Goods”. Section 2-105. “Seller”. Section 2-103. “Term”. Section 1-201.

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355.2-322. Delivery “ex-ship.”

  1. Unless otherwise agreed a term for delivery of goods “ex-ship” (which means from the carrying vessel) or in equivalent language is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination where goods of the kind are usually discharged.
  2. Under such a term unless otherwise agreed
    1. the seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the carrier under a duty to deliver the goods; and
    2. the risk of loss does not pass to the buyer until the goods leave the ship’s tackle or are otherwise properly unloaded.

History. Enact. Acts 1958, ch. 77, § 2-322, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

Purposes:

  1. The delivery term, “ex ship” as between seller and buyer, is the reverse of the f.a.s. term covered.
  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:

Point 1: Section 2-319(2).

Definitional cross references:

“Buyer”. Section 2-103. “Goods”. Section 2-105. “Seller”. Section 2-103. “Term”. Section 1-201.

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355.2-323. Form of bill of lading required in overseas shipment — “Overseas.”

  1. Where the contract contemplates overseas shipment and contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise agreed must obtain a negotiable bill of lading stating that the goods have been loaded on board or, in the case of a term C.I.F. or C. & F., received for shipment.
  2. Where in a case within subsection (1) a bill of lading has been issued in a set of parts, unless otherwise agreed if the documents are not to be sent from abroad the buyer may demand tender of the full set; otherwise only one part of the bill of lading need be tendered. Even if the agreement expressly requires a full set
    1. due tender of a single part is acceptable within the provisions of this article on cure of improper delivery (subsection (1) of KRS 355.2-508 ); and
    2. even though the full set is demanded, if the documents are sent from abroad the person tendering an incomplete set may nevertheless require payment upon furnishing an indemnity which the buyer in good faith deems adequate.
  3. A shipment by water or by air or a contract contemplating such shipment is “overseas” insofar as by usage of trade or agreement it is subject to the commercial, financing or shipping practices characteristic of international deep water commerce.

History. Enact. Acts 1958, ch. 77, § 2-323, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

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.

    This subsection codifies that practice as between buyer and seller. Article 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 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 5.

Cross references:

Sections 2-508(2), 5-113.

Definitional cross references:

“Bill of lading”. Section 1-201. “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.

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355.2-324. “No arrival, no sale” term.

Under a term “no arrival, no sale” or terms of like meaning, unless otherwise agreed,

  1. the seller must properly ship conforming goods and if they arrive by any means he must tender them on arrival but he assumes no obligation that the goods will arrive unless he has caused the nonarrival; and
  2. where without fault of the seller the goods are in part lost or have so deteriorated as no longer to conform to the contract or arrive after the contract time, the buyer may proceed as if there had been casualty to identified goods (KRS 355.2-613 ).

History. Enact. Acts 1958, ch. 77, § 2-324, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

Purposes:

  1. The “no arrival, no sale” term in a “destination” overseas contract leaves risk of loss on the seller but gives him an exemption from liability for non-delivery. Both the nature of the case and the duty of good faith require that the seller must not interfere with the arrival of the goods in any way. If the circumstances impose upon him the responsibility for making or arranging the shipment, he must have a shipment made despite the exemption clause. Further, the shipment made must be a conforming one, for the exemption under a “no arrival, no sale” term applies only to the hazards of transportation and the goods must be proper in all other respects.

    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 non-delivery if the goods do not arrive or if the goods which actually arrive are non-conforming. 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 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 non-arrival.
  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 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 1: Section 1-203.

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

Point 5: Section 2-613.

Definitional cross references:

“Buyer”. Section 2-103. “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.

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355.2-325. “Letter of credit” term — “Confirmed credit.”

  1. Failure of the buyer seasonably to furnish an agreed letter of credit is a breach of the contract for sale.
  2. The delivery to seller of a proper letter of credit suspends the buyer’s obligation to pay. If the letter of credit is dishonored, the seller may on seasonable notification to the buyer require payment directly from him.
  3. Unless otherwise agreed the term “letter of credit” or “banker’s credit” in a contract for sale means an irrevocable credit issued by a financing agency of good repute and where the shipment is overseas, of good international repute. The term “confirmed credit” means that the credit must also carry the direct obligation of such an agency which does business in the seller’s financial market.

History. Enact. Acts 1958, ch. 77, § 2-325, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

Purposes:

To express the established commercial and banking understanding as to the meaning and effects of terms calling for “letters of credit” or “confirmed credit”:

  1. Subsection (2) follows the general policy of this Article and Article 3 (Section 3-802) on conditional payment, under which payment by check or other short-term instrument is not ordinarily final as between the parties if the recipient duly presents the instrument and honor is refused. Thus the furnishing of a letter of credit does not substitute the financing agency’s obligation for the buyer’s, but the seller must first give the buyer reasonable notice of his intention to demand direct payment from him.
  2. Subsection (3) requires that the credit be irrevocable and be a prime credit as determined by the standing of the issuer. It is not necessary, unless otherwise agreed, that the credit be a negotiation credit; the seller can finance himself by an assignment of the proceeds under Section 5-116(2).
  3. The definition of “confirmed credit” is drawn on the supposition that the credit is issued by a bank which is not doing direct business in the seller’s financial market; there is no intention to require the obligation of two banks both local to the seller.

Cross references:

Sections 2-403, 2-511(3) and 3-802 and Article 5.

Definitional cross references:

“Buyer”. Section 2-103. “Contract for sale”. Section 2-106. “Draft”. Section 3-104. “Financing agency”. Section 2-104. “Notifies”. Section 1-201. “Overseas”. Section 2-323. “Purchaser”. Section 1-201. “Seasonably”. Section 1-204. “Seller”. Section 2-103. “Term”. Section 1-201.

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355.2-326. Sale on approval and sale or return — Rights of creditors.

  1. Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is:
    1. A “sale on approval” if the goods are delivered primarily for use; and
    2. A “sale or return” if the goods are delivered primarily for resale.
  2. Goods held on approval are not subject to the claims of the buyer’s creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer’s possession.
  3. Any “or return” term of a contract for sale is to be treated as a separate contract for sale within the statute of frauds section of this article (KRS 355.2-201 ) and as contradicting the sale aspect of the contract within the provisions of this article on parol or extrinsic evidence (KRS 355.2-202 ).

History. Enact. Acts 1958, ch. 77, § 2-326, effective July 1, 1960; 2000, ch. 408, § 160, effective July 1, 2001.

Official Comment

Prior uniform statutory provision:

Section 19(3), Uniform Sales Act.

Changes:

Completely rewritten in this and the succeeding section.

Purposes of changes:

To make it clear that:

  1. Both a “sale on approval” and a “sale or return” should be distinguished from other types of transactions with which they frequently have been confused. A “sale on approval,” sometimes also called a sale “on trial” or “on satisfaction,” deals with a contract under which the seller undertakes a risk in order to satisfy its prospective buyer with the appearance or performance of the goods that are sold. 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. A “sale or return,” on the other hand, typically 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. A sale or return is a present sale of goods which may be undone at the buyer’s option. Accordingly, subsection (2) provides that goods delivered on approval are not subject to the prospective buyer’s creditors until acceptance, and goods delivered in a sale or return are subject to the buyer’s creditors while in the buyer’s possession.

    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.”

  2. The right to return 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 section or Section 2-327. This 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. This section nevertheless pre-supposes that a contract for sale is contemplated by the parties although that contract may be of the particular character that this section addresses (i.e., a sale on approval or a sale or return).

    If a 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” when an industrial machine is involved, this Article takes no position.

    If a 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” when an industrial machine is involved, this Article takes no position.

  3. Subsection (3) resolves a conflict in the pre-UCC case law by recognizing that an “or return” provision is so definitely at odds with any ordinary contract for sale of goods that if a written agreement is involved the “or return” term 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 parole or extrinsic evidence are concerned.
  4. Certain true consignment transactions were dealt with in former Sections 2-326(3) and 9-114. These provisions have been deleted and have been replaced by new provisions in Article 9. See, e.g., Sections 9-109(a)(4); 9-103(b); 9-319.

Cross references:

Point 2: Article 9.

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

Definitional cross references:

“Between merchants”. Section 2-104. “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.

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NOTES TO DECISIONS

1.Consignments.

Creditor’s goods sold by debtor in debtor’s store were not held on consignment where there was no notice to third parties that any of the inventory in debtor’s store belonged to creditor and testimony describing the business practices between the parties directly contravened creditor’s characterization that the goods were sold on consignment. Brown v. Foley (In re Brown), 213 B.R. 317, 1997 Bankr. LEXIS 1548 (Bankr. W.D. Ky. 1997 ).

2.Agreements to Return.

An agreement to return in a reasonable time all unsold or unsalable goods which was made after the contract of purchase was not valid unless it was supported by a consideration. (decided under prior law) Stratton & Terstegge Co. v. Criswell, 290 Ky. 64 , 160 S.W.2d 137, 1942 Ky. LEXIS 339 ( Ky. 1942 ).

3.Delivery.

Liquor shipped subject to inspection was not subject to attachment by buyer’s creditors where sheriff appeared with the attachment and was notified prior to the levy upon the goods that they were not the property of buyer and the drayman having the packages in charge was told that they would not be received. (decided under prior law) Porter v. Rice, 128 S.W. 70 ( Ky. 1910 ).

4.Parol Evidence.

While parol evidence was inadmissible to vary or contradict the terms of a written contract, this rule did not apply where the writing only purported to express part of the contract, or was expressed in such incomplete terms as to be unintelligible, and parol evidence under such circumstances was admissible to explain the writing so long as it did not vary or contradict it. (decided under prior law) Fannin v. Williams, 231 Ky. 392 , 21 S.W.2d 482, 1929 Ky. LEXIS 283 ( Ky. 1929 ).

Cited in:

In re Morristown Lincoln-Mercury, Inc., 25 B.R. 377, 1982 Bankr. LEXIS 2893 (Bankr. E.D. Tenn. 1982).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Peltier and Coleman, Commercial Law, 67 Ky. L.J. 523 (1978-79).

Kentucky Law Survey, Weinberg, Graham and Stipanowich, Modernizing Kentucky’s Uniform Commercial Code, 73 Ky. L.J. 515 (1984-85).

355.2-327. Special incidents of sale on approval and sale or return.

  1. Under a sale on approval unless otherwise agreed
    1. although the goods are identified to the contract the risk of loss and the title do not pass to the buyer until acceptance; and
    2. use of the goods consistent with the purpose of trial is not acceptance but failure seasonably to notify the seller of election to return the goods is acceptance, and if the goods conform to the contract acceptance of any part is acceptance of the whole; and
    3. after due notification of election to return, the return is at the seller’s risk and expense but a merchant buyer must follow any reasonable instructions.
  2. Under a sale or return unless otherwise agreed
    1. the option to return extends to the whole or any commercial unit of the goods while in substantially their original condition, but must be exercised seasonably; and
    2. the return is at the buyer’s risk and expense.

History. Enact. Acts 1958, ch. 77, § 2-327, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 19(3), Uniform Sales Act.

Changes:

Completely rewritten in preceding and this section.

Purposes of changes:

To make it clear that:

  1. In the case of a sale on approval:

    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 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”.

  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.
  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. Nevertheless, the provisions of both this Article 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.

Definitional cross references:

“Agreed”. Section 1-201. “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. “Seller”. Section 2-103.

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NOTES TO DECISIONS

1.Return Within Reasonable Time.

Generally it is for jury to determine whether or not the offer to return goods sold on approval is made within a reasonable time. However, when all the facts and circumstances in a case plainly show the offer was not made within a reasonable time, the question becomes one of law for the court. (decided under prior law) Stratton & Terstegge Co. v. Criswell, 290 Ky. 64 , 160 S.W.2d 137, 1942 Ky. LEXIS 339 ( Ky. 1942 ).

If sustained by the evidence, an answer in a suit for balance due on merchandise sold in February, March and April that at the time of the purchase of the goods, seller agreed that defendant partnership might return within a reasonable time all unsold and unsalable goods after a few months’ effort at selling same, and seller accepted the return of the goods from one of the partnership stores in August of the same year at a ten per cent discount, which discount was in consideration of seller releasing one of the partners from his partnership obligation for the balance due on account of goods sold, the partnership stated a valid defense. (decided under prior law) Stratton & Terstegge Co. v. Criswell, 290 Ky. 64 , 160 S.W.2d 137, 1942 Ky. LEXIS 339 ( Ky. 1942 ).

Where partners, after purchasing goods in February, March and April under alleged contract to return, had formed a corporation in April and, on its failure, dissolved the partnership in August and, when sued for balance of the purchase price, made a tender in December by answer in the suit to return the merchandise, the tender was not made within a reasonable time and was ineffective where one of the partners testified on trial that the goods could not be located. (decided under prior law) Stratton & Terstegge Co. v. Criswell, 290 Ky. 64 , 160 S.W.2d 137, 1942 Ky. LEXIS 339 ( Ky. 1942 ).

355.2-328. Sale by auction.

  1. In a sale by auction if goods are put up in lots each lot is the subject of a separate sale.
  2. A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.
  3. Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case a bidder may retract his bid until the auctioneer’s announcement of completion of the sale, but a bidder’s retraction does not revive any previous bid.
  4. If the auctioneer knowingly receives a bid on the seller’s behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale. This subsection shall not apply to any bid at a forced sale.

History. Enact. Acts 1958, ch. 77, § 2-328, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 21, Uniform Sales Act.

Changes:

Completely rewritten.

Purposes of changes:

To make it clear that:

  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 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 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, 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:

Point 2: Section 2-205.

Definitional cross references:

“Buyer”. Section 2-103. “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.

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NOTES TO DECISIONS

1.Disclaimer of Warranties.

Disclaimer of warranties in horse auctioneer’s Conditions of Sale was not unconscionable. Keeneland Ass'n v. Eamer, 830 F. Supp. 974, 1993 U.S. Dist. LEXIS 12623 (E.D. Ky. 1993 ).

2.Fall of the Hammer.

Although the hammer had fallen and the commissioner, at a decretal sale of land, announced the property was sold and asked the clerk to write the name of the purchaser down, the commissioner could offer the property for sale again where two (2) parties made the same bid but the commissioner understood only the bid of one (1) party and the hammer fell. (decided under prior law) Head v. Clark, 88 Ky. 362 , 11 S.W. 203, 10 Ky. L. Rptr. 917 , 1889 Ky. LEXIS 42 ( Ky. 1889 ).

Until the hammer fell, the seller could withdraw his property from the sale or the bidder could withdraw his bid even though the conditions of sale provided that bids could not be withdrawn. (decided under prior law) Becker v. Crabb, 223 Ky. 549 , 4 S.W.2d 370, 1928 Ky. LEXIS 382 ( Ky. 1928 ).

3.Bids on Seller’s Behalf.

Right of purchaser to refuse to comply with his bid because of by-bidder or puffer’s bid was that such a bid was made whereby he, in the excitement, was induced to bid still more so, where seller negotiated for bidding by a by-bidder or puffer but such by-bidder or puffer did not actually make a bid for the seller, the purchaser could not refuse to comply with his bid. (decided under prior law) Newman v. Woolley, 201 Ky. 139 , 255 S.W. 1050, 1923 Ky. LEXIS 238 ( Ky. 1923 ).

The purchaser at an auction sale purporting to be without reserve could repudiate the contract and decline to perform it if the vendor of the property or his agent, for whose acts he was responsible, employed by-bidders or puffers who actually bid upon the property with the understanding that they were not to take it if it should be knocked off to them. (decided under prior law) Burdon v. Seitz, 206 Ky. 336 , 267 S.W. 219, 1924 Ky. LEXIS 360 ( Ky. 1924 ).

4.Conspiracy.

Purchaser of land at auction sale could not have specific performance or recover deposits where written contracts for sale of land were fixed by auctioneer at much lower price than that knocked down to him, since it could not have been done except to deceive somebody — if nobody else, then other bidders at the sale — and was a fraudulent and unlawful transaction against public policy which courts would not enforce, leaving parties where they had enforce, leaving parties where they had placed themselves. (decided under prior law) Robenson v. Yann, 224 Ky. 56 , 5 S.W.2d 271, 1928 Ky. LEXIS 523 ( Ky. 1928 ).

Research References and Practice Aids

Kentucky Law Journal.

Waxman, Auctioning Off Integrity: The Legitimacy of Seller-Rebate Agreements in the Thoroughbred Auction Context, 96 Ky. L.J. 139 (2007).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Practice Context for Auctions and Auctioneers, § 334.00.

Part 4. Title, Creditors and Good Faith Purchasers

355.2-401. Passing of title — Reservation for security — Limited application of this section.

Each provision of this article with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other provisions of this article and matters concerning title become material the following rules apply:

  1. Title to goods cannot pass under a contract for sale prior to their identification to the contract (KRS 355.2-501 ), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this chapter. Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the article on secured transactions (Article 9), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.
  2. Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading
    1. if the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but
    2. if the contract requires delivery at destination, title passes on tender there.
  3. Unless otherwise explicitly agreed where delivery is to be made without moving the goods,
    1. if the seller is to deliver a document of title, title passes at the time when and the place where he delivers such documents; or
    2. if the goods are at the time of contracting already identified and no documents are to be delivered, title passes at the time and place of contracting.
  4. A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller. Such revesting occurs by operation of law and is not a “sale.”

History. Enact. Acts 1958, ch. 77, § 2-401, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

See generally, Sections 17, 18, 19 and 20, Uniform Sales Act.

Purposes:

To make it clear that:

  1. This Article deals with the issues between seller and buyer in terms of step by step performance or non-performance 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 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 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 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 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.
  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.

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:

“Agreement”. Section 1-201. “Bill of lading”. Section 1-201. “Buyer”. Section 2-103. “Contract”. Section 1-201. “Contract for sale”. Section 2-106. “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.

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NOTES TO DECISIONS

1.Delivery to Buyer.

Where parties agreed to exchange machinery and defendant agreed to put his machinery in good running condition, and machinery was delivered to plaintiff but was not in good running condition, presumption that property did not pass because something remained to be done to make property deliverable did not apply. (decided under prior law) Greene v. Hyden, 273 Ky. 783 , 117 S.W.2d 985, 1938 Ky. LEXIS 718 ( Ky. 1938 ).

Where bankrupt sawmill had, prior to bankruptcy, accepted orders for and received advancements upon lumber, the parties intended a bona fide purchase and sale and the marking and segregation of the lumber on the mill yard as provided by the contract constituted delivery of possession so that title was in the purchaser, although it was the practice of the sawmill to again run the lumber through the mill and thus raise it to a higher grade, even though it was deliverable at the lower grade. (decided under prior law) In re Shipley Stave & Lumber Co., 29 F. Supp. 746, 1939 U.S. Dist. LEXIS 2129 (D. Ky. 1939 ).

Where a school building to be removed from the land was sold, title passed at time of execution of the contract of sale. (decided under prior law) Arnold v. Clark County Board of Education, 288 Ky. 700 , 157 S.W.2d 306, 1941 Ky. LEXIS 193 ( Ky. 1941 ).

Unless it was expressly provided by contract that title did not pass to buyer upon delivery by seller to carrier, title passed. (decided under prior law) Troy Refining Corp. v. Slagter Oil & Grease Co., 61 F. Supp. 369, 1945 U.S. Dist. LEXIS 2188 (D. Ky. 1945 ).

There was no transfer of title and possession of automobile which would take it out of insurance policy “held for sale” provision where buyer signed conditional sale contract calling for $500 cash payment and paid $50.00 and dealer held contract pending payment of the balance of $450 but permitted buyer to drive car to obtain the balance of the money, even though buyer used the car for another purpose. (decided under prior law) Rash v. North British & Mercantile Ins. Co., 246 S.W.2d 990, 1951 Ky. LEXIS 1279 ( Ky. 1951 ).

Evidence that sustained sale of colt was completed by verbal telephone agreement at a date earlier than colt’s accidental death, where seller was to retain colt for monthly board and there was no intention to condition the sale upon execution of a written contract, although a written contract was executed at a later date. The loss of the colt was to be borne by the buyer. (decided under prior law) Courtin v. Sharp, 280 F.2d 345, 1960 U.S. App. LEXIS 3942 (5th Cir. La. 1960), cert. denied, 365 U.S. 814, 81 S. Ct. 693, 5 L. Ed. 2d 692, 1961 U.S. LEXIS 1725 (U.S. 1961).

Motor vehicle orally sold and physically delivered but not paid for was owned by buyer at time of accident within insurance policy covering cars “owned” and “held for sale by” insured. Motors Ins. Corp. v. Safeco Ins. Co., 412 S.W.2d 584, 1967 Ky. LEXIS 434 ( Ky. 1967 ).

Where a truck was delivered by the seller to the buyer and the buyer did not reject it but used it to haul coal, the sale occurred and title passed to the buyer at the time of delivery despite the fact that the buyer never received the documents of title. Lexington Mack, Inc. v. Miller, 555 S.W.2d 249, 1977 Ky. LEXIS 500 ( Ky. 1977 ).

In a Chapter 11 bankruptcy proceeding, a lender who had a security interest in all of debtor’s assets was entitled to the proceeds of a sale of goods delivered to debtor by a seller; because the goods were shipped “F.O.B. destination” and had arrived at property debtor leased, there had been a tender of delivery of the goods, and under KRS 355.2-401 (2) and (2)(b), and KRS 355.9-203 (1) and (2)(b), title to the goods had passed to debtor from the seller, and the lender’s security interest had attached to the goods. In re Ashland Steel Liquidating Co., 2004 Bankr. LEXIS 908 (Bankr. E.D. Ky. July 7, 2004).

2.Delivery to Carrier.

For the purposes of criminal prosecution for conversion, milk delivered to a milk wagon driver for delivery to a dairy became the property of the dairy upon its receipt by the driver notwithstanding that the dairy had a right to reject the milk and was not required to pay for any more milk than it actually received. Underwood v. Commonwealth, 390 S.W.2d 635, 1965 Ky. LEXIS 354 ( Ky. 1965 ).

Where the purchase price for an automobile was paid and the automobile was delivered and accepted by the buyer, and the entire transaction took place in Kentucky between residents thereof, even though a bill of sale had not been executed and title had not been transferred in the clerk’s office, the buyer was the “owner” and the coverage of the seller’s insurance would not extend to the buyer. Hicks v. Kentucky Farm Bureau Mut. Ins. Co., 455 S.W.2d 52, 1970 Ky. LEXIS 241 ( Ky. 1970 ).

3.Delivery to Construction Site.

Supplier’s reclamation of fabricated steel from debtor’s construction site was held not to constitute a preferential transfer where the debtor and its contractor never paid for the steel and the steel was never property of the debtor or contractor. Spradlin v. Jarvis (In re Tri-City Turf Club, Inc.), 323 F.3d 439, 2003 FED App. 0088P, 2003 U.S. App. LEXIS 5559 (6th Cir. Ky. 2003 ).

4.Delivery to Grain Warehouse.

Where farmer delivered grain to elevator and received “scale ticket,” but did not receive a “warehouse receipt” or “grain storage receipt” giving evidence of retained title in the grain, there was no bailment of the grain to the elevator company; although the grain was “stored grain” under KRS 251.410 (4), the farmer was not an “owner” under KRS 251.010(2) or 251.410 (6), which require a warehouse or grain storage receipt, and pursuant to subsection (2) of this section, governing passing of title in goods, and KRS 251.410(4), defining “stored grain,” the grain belonged to the elevator company because title to the grain passed to the elevator upon delivery. In re Wathen's Elevators, Inc., 37 B.R. 870, 1984 Bankr. LEXIS 6132 (Bankr. W.D. Ky. 1984 ). (Decision prior to 1982 amendment to KRS 251.410.).

5.Choice of Laws.

Where a Kentucky resident executed an automobile sales installment contract in Kentucky and accepted delivery of the vehicle in Kentucky, questions concerning the formation of the contract in the first instance should have been determined by the law of Kentucky, despite a provision in the contract that required interpretation according to the law of Tennessee. In re Morristown Lincoln-Mercury, Inc., 25 B.R. 377, 1982 Bankr. LEXIS 2893 (Bankr. E.D. Tenn. 1982).

6.Security Interest.

Where the record indicated that sellers delivered grain to a grain dealership which purchased grain for resale and received a promise of payment at a future date, and nothing more, the credit extended by the sellers was unsecured. These sellers did not obtain an enforceable security interest in the goods delivered, which was the protective avenue permissible under this section. In re Wathen's Elevators, Inc., 32 B.R. 912, 1983 Bankr. LEXIS 5427 (Bankr. W.D. Ky. 1983 ).

The seller transferred free and unfettered possession and title to the defendant at the time of delivery, pursuant to this section. By maintaining the registration certificates, the most the seller retained was a security interest in the cattle, which he admitted was never perfected. Therefore, there was no conversion on the part of the third party buyer. Bowling Green Livestock Mkt. v. Young (In re Clark), 206 B.R. 439, 1996 Bankr. LEXIS 1790 (Bankr. W.D. Ky. 1996 ).

7.Temporary Injunction.

Where the seller brought an action for temporary injunction against the buyer in order to prevent the transfer of goods to a third person, the circuit court abused its discretion in denying the seller’s motion for a temporary injunction because the seller raised a substantial question concerning the passage of title of the goods and the likelihood of irreparable injury. R.O. Hahn, Inc. v. MDG Diagnostics, Inc., 737 S.W.2d 180, 1987 Ky. App. LEXIS 537 (Ky. Ct. App. 1987).

8.Payment as Affecting Passing of Title.

Fact of payment or nonpayment of purchase price had no bearing on question of title unless payment was condition to passing title. (decided under prior law) Stimson's Ex'x v. Tharp, 284 Ky. 389 , 144 S.W.2d 1031, 1940 Ky. LEXIS 504 ( Ky. 1940 ).

Although items were not picked up for three (3) or four (4) days, for purposes of uttering a “cold check” under law that provided that making or drawing a check without sufficient funds was punishable by a fine and imprisonment, title passed on day of sale at auction simultaneously with delivery of the check and thus a thing of value was obtained simultaneously with the giving of the check. (decided under prior law) Stiles v. Commonwealth, 348 S.W.2d 843, 1961 Ky. LEXIS 37 ( Ky. 1961 ).

Where the testimony and undisputed facts at a state court trial established that a creditor had legal title to a motorcycle when a Chapter 7 debtor exercised dominion and control over it and that debtor denied creditor his right to use and enjoy the motorcycle, then conversion was established under Kentucky law, and the state court judgment was nondischargeable. Dunn v. Campbell (In re Campbell), 2014 Bankr. LEXIS 1639 (Bankr. W.D. Ky. Apr. 15, 2014).

Cited in:

Spurlin v. Sloan, 368 S.W.2d 314, 1963 Ky. LEXIS 41 ( Ky. 1963 ); Jack Walker Trucking Service, Inc. v. Strong, 488 S.W.2d 689, 1972 Ky. LEXIS 50 ( Ky. 1972 ); McKenzie v. Oliver, 571 S.W.2d 102, 1978 Ky. App. LEXIS 586 (Ky. Ct. App. 1978); Revenue Cabinet v. Corum & Edwards, Inc., 673 S.W.2d 736, 1984 Ky. App. LEXIS 559 (Ky. Ct. App. 1984); Placer Coal, Inc. v. Rhondale Coal Services Co., 684 S.W.2d 25, 1984 Ky. App. LEXIS 615 (Ky. Ct. App. 1984); Brown v. Foley (In re Brown), 213 B.R. 317, 1997 Bankr. LEXIS 1548 (Bankr. W.D. Ky. 1997 ).

Opinions of Attorney General.

The personal property tax on a vehicle should be based on the date of the bill of sale since the bill of sale provides evidence of ownership under the Uniform Commercial Code. OAG 82-68 .

Research References and Practice Aids

Kentucky Law Journal.

Whiteside, Uniform Commercial Code — Major Changes in Sales Law, 49 Ky. L.J. 165 (1960).

Weber, The Extension of the Voidable Title Principle Under the Code, 49 Ky. L.J. 437 (1961).

355.2-402. Rights of seller’s creditors against sold goods.

  1. Except as provided in subsections (2) and (3), rights of unsecured creditors of the seller with respect to goods which have been identified to a contract for sale are subject to the buyer’s rights to recover the goods under this article (KRS 355.2-502 and 355.2-716 ).
  2. A creditor of the seller may treat a sale or an identification of goods to a contract for sale as void if as against him a retention of possession by the seller is fraudulent under any rule of law of the state where the goods are situated, except that retention of possession in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale or identification is not fraudulent.
  3. Nothing in this article shall be deemed to impair the rights of creditors of the seller
    1. under the provisions of the article on secured transactions (Article 9); or
    2. where identification to the contract or delivery is made not in current course of trade but in satisfaction of or as security for a pre-existing claim for money, security or the like and is made under circumstances which under any rule of law of the state where the goods are situated would apart from this article constitute the transaction a fraudulent transfer or voidable preference.

History. Enact. Acts 1958, ch. 77, § 2-402, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Subsection (2)—Section 26, Uniform Sales Act; Subsections (1) and (3)—none.

Changes:

Rephrased.

Purposes of changes and new matter:

To avoid confusion on ordinary issues between current sellers and buyers and issues in the field of preference and hindrance by making it clear that:

  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, 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.
  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:

“Contract for sale”. Section 2-106. “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. “Rights”. Section 1-201. “Sale”. Section 2-106. “Seller”. Section 2-103.

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NOTES TO DECISIONS

1.Retention of Possession and Title.

Claim of mortgagee of automobile prevailed over buyer where son sold his automobile to his mother by a bill of sale but retained possession of the car and licensed it in his own name and then mortgaged it, since the mortgagee had no notice of the mother’s claim. (decided under prior law) National Fire Ins. Co. v. Collinsworth, 288 Ky. 398 , 156 S.W.2d 157, 1941 Ky. LEXIS 102 ( Ky. 1941 ).

Research References and Practice Aids

Kentucky Law Journal.

Cullen, Conflict of Laws Problems Under the Uniform Commercial Code, 48 Ky. L.J. 417 (1960).

355.2-403. Power to transfer — Good faith purchase of goods — “Entrusting.”

  1. A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though
    1. the transferor was deceived as to the identity of the purchaser, or
    2. the delivery was in exchange for a check which is later dishonored, or
    3. it was agreed that the transaction was to be a “cash sale,” or
    4. the delivery was procured through fraud punishable as larcenous under the criminal law.
  2. Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.
  3. “Entrusting” includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor’s disposition of the goods have been such as to be larcenous under the criminal law.
  4. The rights of other purchasers of goods and of lien creditors are governed by the articles on secured transactions (Article 9) and documents of title (Article 7).

History. Enact. Acts 1958, ch. 77, § 2-403, effective July 1, 1960; 1992, ch. 116, § 63, effective July 14, 1992.

Official Comment

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:

Consolidated and rewritten.

Purposes of changes:

To gather together a series of prior uniform statutory provisions and the case law thereunder and to state a unified and simplified policy on good faith purchase of goods.

  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.

    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.

  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.

    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 9-320, which deny protection to a person buying farm products from a person engaged in farming operations.

  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 on Secured Transactions, Documents of Title, and Bulk Sales.

Cross references:

Point 1: Sections 1-103 and 1-201.

Point 2: Sections 1-201, 2-402, 7-205 and 9-320.

Points 3 and 4: Sections 1-102, 1-201, 2-104, 2-707 and Articles 6, 7 and 9.

Definitional cross references:

“Buyer in ordinary course of business”. Section 1-201. “Good faith”. Sections 1-201 & 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.

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NOTES TO DECISIONS

1.Entrusting of Possession to Dealer.

Where seller made delivery of a vegetable case and later was put in possession for purpose of making repairs, such possession was not in capacity of seller and, when he resold it, the original buyer was not estopped from recovering possession, although he had left the case in possession of the seller for ten months, since he had no knowledge that the seller was handling the case so as to lead his customers to believe that he had authority to sell it. (decided under prior law) Adkins v. Damron, 324 S.W.2d 489, 1959 Ky. LEXIS 374 ( Ky. 1959 ).

Where goods are entrusted to a dealer, he can give good title, but the one to be protected must be “a buyer in ordinary course of business.” Universal C. I. T. Credit Corp. v. Middlesboro Motor Sales, Inc., 424 S.W.2d 409, 1968 Ky. LEXIS 455 ( Ky. 1968 ).

2.Transaction of Purchase.

Where parties entered into a lease-purchase agreement for truck scales such agreement was a “transaction of purchase” within the meaning of this section. United Road Machinery Co. v. Jasper, 568 S.W.2d 242, 1978 Ky. App. LEXIS 550 (Ky. Ct. App. 1978).

The buyer who was cloaked with indicia of ownership could pledge the vehicle as collateral on a loan, something that an owner of a vehicle may do. Foley v. Production Credit Asso. of Fourth Dist., 753 S.W.2d 876, 1988 Ky. App. LEXIS 87 (Ky. Ct. App. 1988).

3.Good Faith Purchaser.

A “good faith purchaser for value” can be defined as one who takes by purchase getting sufficient consideration to support a simple contract, and who is honest in the transaction of the purchase. United Road Machinery Co. v. Jasper, 568 S.W.2d 242, 1978 Ky. App. LEXIS 550 (Ky. Ct. App. 1978).

This section requires a purchaser to act in good faith to ensure an unassailable title and mandates honesty in fact in commercial conduct; in order to meet this standard, the purchaser must have displayed reasonable commercial standards of fair dealing. In re Wathen's Elevators, Inc., 32 B.R. 912, 1983 Bankr. LEXIS 5427 (Bankr. W.D. Ky. 1983 ).

A person with voidable title has power to transfer a good title to a good faith purchaser for value; further, when goods have been delivered under a transaction of purchase, the purchaser has such power even though the delivery was procured through fraud punishable as larcenous under the criminal law. Foley v. Production Credit Asso. of Fourth Dist., 753 S.W.2d 876, 1988 Ky. App. LEXIS 87 (Ky. Ct. App. 1988).

When equipment owners put the equipment on certain land, the land was foreclosed on, and the land's buyer sold the equipment to buyers, it was error to dismiss the owners' conversion suit against the buyers because the buyers' good faith in buying the equipment was irrelevant when the land's buyer lacked title to the equipment, as the equipment was never “delivered” to the land's buyer under a transaction of purchase, and the buyer was not a merchant in such goods, so the buyers could not receive good title, and nothing showed the land's buyer had voidable title to the equipment, as the buyer's commissioner's deed to the land did not include the equipment. Baciomiculo, LLC v. Nick Bohanon, LLC, 498 S.W.3d 790, 2016 Ky. App. LEXIS 147 (Ky. Ct. App. 2016).

4.Title.

Where check issued by buyer of used automobile was a forgery and was not honored by the bank, seller could rescind on the ground of fraud, but buyer could pass good title to the automobile to a bona fide purchaser for value without notice that buyer had a voidable title. (decided under prior law) Dudley v. Lovins, 310 Ky. 491 , 220 S.W.2d 978, 1949 Ky. LEXIS 939 ( Ky. 1949 ).

Incorporating the principle of voidable title, this section gives a transferor the power to pass good title to certain transferees although the transferor himself does not possess good title; this power is not limited to cash transferees, but is granted to good-faith “purchasers” for value. In re Wathen's Elevators, Inc., 32 B.R. 912, 1983 Bankr. LEXIS 5427 (Bankr. W.D. Ky. 1983 ).

If a seller cloaks a buyer with indications of ownership, then anyone who subsequently purchases from that buyer has a right to rely on those indications, even if the original seller eventually proves to have been the victim of some fraud; where the seller traded the truck to the buyer for a front-end loader, the seller cloaked the buyer with indicia of ownership, and had the buyer sold the vehicle to a subsequent purchaser, that bona fide purchaser would own the vehicle. Foley v. Production Credit Asso. of Fourth Dist., 753 S.W.2d 876, 1988 Ky. App. LEXIS 87 (Ky. Ct. App. 1988).

In an action by the seller of a truck against a creditor with a security interest in the truck who sold it in partial satisfaction of the loan balance, the principle of “voidable title” operated to protect the creditor where the buyer traded stolen property for the truck. Foley v. Production Credit Asso. of Fourth Dist., 753 S.W.2d 876, 1988 Ky. App. LEXIS 87 (Ky. Ct. App. 1988).

5.—Goods.

Where a search of county records by purchasers revealed no encumbrances upon the machinery, and purchasers had no knowledge of or reason to suspect a dispute between possessor and dealer, purchasers were bona fide purchasers in good faith and had good title as against dealer. United Road Machinery Co. v. Jasper, 568 S.W.2d 242, 1978 Ky. App. LEXIS 550 (Ky. Ct. App. 1978).

Where purchaser bought truck scales from corporation which had obtained them under lease-purchase agreement from dealer, purchasers had good title whether corporation had good title, voidable title or no title, since: in the first instance, they got good title; in the second instance, there was a transaction of purchase conferring good title, and, in the third instance, they were bona fide purchasers. United Road Machinery Co. v. Jasper, 568 S.W.2d 242, 1978 Ky. App. LEXIS 550 (Ky. Ct. App. 1978).

6.Consignment.

Where a diamond wholesaler consigned a diamond to a consignee for preliminary examination and the consignee gave it to the defendant as collateral for a loan on which he later defaulted, the defendant had no title to the diamond since, under this section, he could only take such rights as the consignee had in it, which were none; thus, the plaintiff wholesaler could properly recover the diamond in a conversion action. Kimberly & European Diamonds, Inc. v. Burbank, 518 F. Supp. 599, 1981 U.S. Dist. LEXIS 13573 (W.D. Ky. 1981 ), aff'd, 684 F.2d 363, 1982 U.S. App. LEXIS 17008 (6th Cir. Ky. 1982 ).

Cited in:

In re Mel Golde Shoes, Inc., 403 F.2d 658, 1968 U.S. App. LEXIS 4652 (6th Cir. 1968); Greater Louisville Auto Auction, Inc. v. Ogle Buick, Inc., 387 S.W.2d 17, 1965 Ky. LEXIS 457 ( Ky. 1965 ).

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Peltier and Coleman, Commercial Law, 67 Ky. L.J. 523 (1978-79).

Kentucky Survey of Law, Nowka, Commercial Law, 72 Ky. L.J. 337 (1983-84).

Treatises

Petrilli, Kentucky Family Law, Minors, § 30.5.

Part 5. Performance

355.2-501. Insurable interest in goods — Manner of identification of goods.

  1. The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are nonconforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs
    1. when the contract is made if it is for the sale of goods already existing and identified;
    2. if the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers;
    3. when the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve (12) months after contracting or for the sale of crops to be harvested within twelve (12) months or the next normal harvest season after contracting whichever is longer.
  2. The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified.
  3. Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.

History. Enact. Acts 1958, ch. 77, § 2-501, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

See Sections 17 and 19, Uniform Sales Act.

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 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.
  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 1: Section 2-502.

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:

“Agreement”. Section 1-201. “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.

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NOTES TO DECISIONS

Cited in:

In re Wathen’s Elevators, Inc., 32 B.R. 912, 1983 Bankr. LEXIS 5427 (Bankr. W.D. Ky. 1983 ).

Research References and Practice Aids

Kentucky Law Journal.

Whiteside, Uniform Commercial Code — Major Changes in Sales Law, 49 Ky. L.J. 165 (1960).

355.2-502. Buyer’s right to goods on seller’s repudiation, failure to deliver, or insolvency.

  1. Subject to subsections (2) and (3) of this section and even though the goods have not been shipped a buyer who has paid a part or all of the price of goods in which he has a special property under the provisions of the immediately preceding section may on making and keeping good a tender of any unpaid portion of their price recover them from the seller if:
    1. In the case of goods bought for personal, family, or household purposes, the seller repudiates or fails to deliver as required by contract; or
    2. In all cases, the seller becomes insolvent within ten (10) days after receipt of the first installment on their price.
  2. The buyer’s right to recover the goods under subsection (1)(a) of this section vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver.
  3. If the identification creating his special property has been made by the buyer he acquires the right to recover the goods only if they conform to the contract for sale.

History. Enact. Acts 1958, ch. 77, § 2-502, effective July 1, 1960; 2000, ch. 408, § 161, effective July 1, 2001.

Official Comment

Prior uniform statutory provision:

Compare Sections 17, 18 and 19, Uniform Sales Act.

Purposes:

  1. This section gives an additional right to the buyer as a result of identification of the goods to the contract in the manner provided in Section 2-501. The buyer is given a right to recover the goods, conditioned upon making and keeping good a tender of any unpaid portion of the price, in two limited circumstances. First, the buyer may recover goods bought for personal, family, or household purposes if the seller repudiates the contract or fails to deliver the goods. Second, in any case, the buyer may recover the goods if the seller becomes insolvent within 10 days after the seller receives the first installment on their price. The buyer’s right to recover the goods under this section is an exception to the usual rule, under which the disappointed buyer must resort to an action to recover damages.
  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 on Secured Transactions (Article 9).
  3. Under subsection (2), the buyer’s right to recover consumer goods under subsection (1)(a) vests upon 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 to recover under this section 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. Subsection (3) is included to preclude the possibility of unjust enrichment, which would exist 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 1: Sections 1-201 and 2-702.

Point 2: Article 9.

Definitional cross references:

“Buyer”. Section 2-103. “Conform”. Section 2-106. “Contract for sale”. Section 2-106. “Goods”. Section 2-105. “Insolvent”. Section 1-201. “Right”. Section 1-201. “Seller”. Section 2-103.

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Research References and Practice Aids

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Practice Context for Insolvent Debtors, § 154.00.

355.2-503. Manner of seller’s tender of delivery.

  1. Tender of delivery requires that the seller put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this article, and in particular:
    1. Tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but
    2. Unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods.
  2. Where the case is within KRS 355.2-504 respecting shipment tender requires that the seller comply with its provisions.
  3. Where the seller is required to deliver at a particular destination tender requires that he comply with subsection (1) and also in any appropriate case tender documents as described in subsections (4) and (5) of this section.
  4. Where goods are in the possession of a bailee and are to be delivered without being moved:
    1. Tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgement by the bailee of the buyer’s right to possession of the goods; but
    2. Tender to the buyer of a nonnegotiable document of title or of a written direction to the bailee to deliver is sufficient tender unless the buyer seasonably objects, and receipt by the bailee of notification of the buyer’s rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the nonnegotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender.
  5. Where the contract requires the seller to deliver documents:
    1. He must tender all such documents in correct form, except as provided in this article with respect to bills of lading in a set (subsection (2) of KRS 355.2-323 ); and
    2. Tender through customary banking channels is sufficient and dishonor of a draft accompanying or associated with the documents constitutes nonacceptance or rejection.

History. Enact. Acts 1958, ch. 77, § 2-503, effective July 1, 1960; 2012, ch. 132, § 48, effective July 12, 2012.

Official Comment

Prior uniform statutory provision:

See Sections 11, 19, 20, 43 (3) and (4), 46 and 51, Uniform Sales Act.

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 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 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. 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 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 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 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 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 acknowledgement 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 on substituted performance as to whether the agreed manner of delivery is actually commercially impracticable and whether the substitute is commercially reasonable.

Cross references:

Point 2: Sections 1-205, 2-301, 2-310, 2-507 and 2-513 and Article 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. See Sections 1-205, 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:

“Agreement”. Section 1-201. “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. “Receipt” of goods. Section 2-103. “Rights”. Section 1-201. “Seasonably”. Section 1-204. “Seller”. Section 2-103. “Written”. Section 1-201.

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NOTES TO DECISIONS

1.Delivery of Goods to Buyer’s Property.

In a Chapter 11 bankruptcy proceeding, a lender who had a security interest in all of debtor’s assets was entitled to the proceeds of a sale of goods delivered to debtor by a seller; because the goods were shipped “F.O.B. destination” and had arrived at property debtor leased, there had been a tender of delivery of the goods, and under KRS 355.2-401 (2), KRS 355.2-319 (1)(b), KRS 355.2-503 (1), and KRS 355.9-203 (1) and (2)(b), title to the goods had passed to debtor from the seller, and the lender’s security interest had attached to the goods. In re Ashland Steel Liquidating Co., 2004 Bankr. LEXIS 908 (Bankr. E.D. Ky. July 7, 2004).

Research References and Practice Aids

Kentucky Law Journal.

Brickey, Products Liability in Kentucky: The Doctrinal Dilemma, 65 Ky. L.J. 593 (1976-77).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Answer Pleading Tender of Chattels, Form 190.18.

355.2-504. Shipment by seller.

Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must

  1. put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and
  2. obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and
  3. promptly notify the buyer of the shipment.

Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material delay or loss ensues.

History. Enact. Acts 1958, ch. 77, § 2-504, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 46, Uniform Sales Act.

Changes:

Rewritten.

Purposes of changes:

To continue the general policy of the prior uniform statutory provision while incorporating certain modifications with respect to the requirement that the contract with the carrier be made expressly on behalf of the buyer and as to the necessity of giving notice of the shipment to the buyer, so that:

  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 case 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 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 on form of bills of lading required in overseas shipment.
  3. In the absence of agreement, the provision of this Article on options and co-operation 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 livestock, 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, 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.

  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:

“Agreement”. Section 1-201. “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.

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NOTES TO DECISIONS

1.Action to Recover for F.O.B. Shipment.

Where parties had what was known as a shipment or F.O.B. contract, delivery under it was not at the destination but at the point of departure and, where shipper proved it shipped the goods and buyer did not affirmatively plead they were not received, shipper established a prima facie case of debt. Permalum Window & Awning Mfg. Co. v. Permalum Window Mfg. Corp., 412 S.W.2d 863, 1967 Ky. LEXIS 440 ( Ky. 1967 ).

355.2-505. Seller’s shipment under reservation.

  1. Where the seller has identified goods to the contract by or before shipment:
    1. His procurement of a negotiable bill of lading to his own order or otherwise reserves in him a security interest in the goods. His procurement of the bill to the order of a financing agency or of the buyer indicates in addition only the seller’s expectation of transferring that interest to the person named.
    2. A nonnegotiable bill of lading to himself or his nominee reserves possession of the goods as security but except in a case of conditional delivery (subsection (2) of KRS 355.2-507 ) a nonnegotiable bill of lading naming the buyer as consignee reserves no security interest even though the seller retains possession or control of the bill of lading.
  2. When shipment by the seller with reservation of a security interest is in violation of the contract for sale it constitutes an improper contract for transportation within KRS 355.2-504 but impairs neither the rights given to the buyer by shipment and identification of the goods to the contract nor the seller’s powers as a holder of a negotiable document.

History. Enact. Acts 1958, ch. 77, § 2-505, effective July 1, 1960; 2012, ch. 132, § 49, effective July 12, 2012.

Official Comment

Prior uniform statutory provision:

Section 20(2), (3), (4), Uniform Sales Act.

Changes:

Completely rephrased, the “powers” of the parties in cases of reservation being emphasized primarily rather than the “rightfulness” of reservation.

Purposes of changes:

To continue in general the policy of the prior uniform statutory provision with certain modifications of emphasis and language, so that:

  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, 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, rest on the contract and its performance or breach and not on stereotyped presumptions as to the location of title.

    This Article 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).

    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 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 on Documents of Title (Article 7).

  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.

Cross references:

Point 1: Section 1-201.

Point 2: Article 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 7.

Definitional cross references:

“Bill of lading”. Section 1-201. “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.

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NOTES TO DECISIONS

1.Conditional Sales Contracts.

Under a conditional sales contract, title did not pass to the purchaser until performance of the condition provided in the contract which was payment of the price. (decided under prior law) White v. General Motors Acceptance Corp., 2 F. Supp. 406, 1932 U.S. Dist. LEXIS 1640 (D. Ky. 1932 ).

In a conditional seller’s action to repossess the automobile sold, an instruction to the jury that title thereto had always been in the seller and that their only question was as to whether or not there had been default in payments upon which the right of repossession arose was proper. (decided under prior law) Brown v. Woods Motor Co., 239 Ky. 312 , 39 S.W.2d 507, 1931 Ky. LEXIS 779 ( Ky. 1931 ), limited, Commonwealth v. Larson, 242 Ky. 317 , 46 S.W.2d 82, 1932 Ky. LEXIS 251 ( Ky. 1932 ).

The rule prevailing in this state before the enactment of the Uniform Sales Act, to the effect that a reservation of title by the seller of personal property did not have the effect of continuing the title in him but only gave him a lien upon the property sold, was repealed by the Uniform Sales Act. (decided under prior law) Brown v. Woods Motor Co., 239 Ky. 312 , 39 S.W.2d 507, 1931 Ky. LEXIS 779 ( Ky. 1931 ), limited, Commonwealth v. Larson, 242 Ky. 317 , 46 S.W.2d 82, 1932 Ky. LEXIS 251 ( Ky. 1932 ); Commonwealth v. Larson, 242 Ky. 317 , 46 S.W.2d 82, 1932 Ky. LEXIS 251 ( Ky. 1932 ).

2.Absolute Bill of Sale.

Where, in a transaction involving the transfer of ownership of an automobile, the seller gave an absolute bill of sale and the purchaser, in addition, executed a conditional sales contract reciting that title remained in the seller, the transaction was a sale and the conditional sales contract only created a lien on the automobile to secure the debt. (decided under prior law) Cartwright v. C. I. T. Corp., 253 Ky. 690 , 70 S.W.2d 388, 1934 Ky. LEXIS 729 ( Ky. 1934 ).

355.2-506. Rights of financing agency.

  1. A financing agency by paying or purchasing for value a draft which relates to a shipment of goods acquires to the extent of the payment or purchase and in addition to its own rights under the draft and any document of title securing it any rights of the shipper in the goods including the right to stop delivery and the shipper’s right to have the draft honored by the buyer.
  2. The right to reimbursement of a financing agency which has in good faith honored or purchased the draft under commitment to or authority from the buyer is not impaired by subsequent discovery of defects with reference to any relevant document which was apparently regular.

History. Enact. Acts 1958, ch. 77, § 2-506, effective July 1, 1960; 2012, ch. 132, § 50, effective July 12, 2012.

Official Comment

Prior uniform statutory provision:

None.

Purposes:

  1. “Financing agency” is broadly defined in this Article to cover every normal instance in which a party aids or intervenes in the financing of a sales transaction. The term as used in subsection (1) is not in any sense intended as a limitation and covers any other appropriate situation which may arise outside the scope of the definition.
  2. “Paying” as used in subsection (1) is typified by the letter of credit, or “authority to pay” situation in which a banker, by arrangement with the buyer or other consignee, pays on his behalf a draft for the price of the goods. It is immaterial whether the draft is formally drawn on the party paying or his principal, whether it is a sight draft paid in cash or a time draft “paid” in the first instance by acceptance, or whether the payment is viewed as absolute or conditional. All of these cases constitute “payment” under this subsection. Similarly, “purchasing for value” is used to indicate the whole area of financing by the seller’s banker, and the principle of subsection (1) is applicable without any niceties of distinction between “purchase,” “discount,” “advance against collection” or the like. But it is important to notice that the only right to have the draft honored that is acquired is that  against the buyer; if any right against anyone else is claimed it will have to be under some separate obligation of that other person. A letter of credit does not necessarily protect  purchasers of drafts. See Article 5. And for the relations of the parties to documentary drafts see Part 5 of Article 4.
  3. Subsection (1) is made applicable to payments or advances against a draft which “relates to” a shipment of goods and this has been chosen as a term of maximum breadth. In particular the term is intended to cover the case of a draft against an invoice or against a delivery order. Further, it is unnecessary that there be an explicit assignment of the invoice attached to the draft to bring the transaction within the reason of this subsection.
  4. After shipment, “the rights of the shipper in the goods” are merely security rights and are subject to the buyer’s right to force delivery upon tender of the price. The rights acquired by the financing agency are similarly limited and, moreover, if the agency fails to procure any outstanding negotiable document of title, it may find its exercise of these rights hampered or even defeated by the seller’s disposition of the document to a third party. This section does not attempt to create any new rights in the financing agency against the carrier which would force the latter to honor a stop order from the agency, a stranger to the shipment, or any new rights against a holder to whom a document of title has been duly negotiated under Article 7.
  5. The deletion of the language “on its face” from subsection (2) is designed to accommodate electronic documents of title without changing the requirement of regularity of the document.

Cross references:

Point 1: Section 2-104(2) and Article 4.

Point 2: Part 5 of Article 4, and Article 5.

Point 4: Sections 2-501 and 2-502(1) and Article 7.

Definitional cross references:

“Buyer”. Section 2-103. “Document of title”. Section 1-201. “Draft”. Section 3-104. “Financing agency”. Section 2-104. “Good faith”. Section 2-103. “Goods”. Section 2-105. “Honor”. Section 1-201. “Purchase”. Section 1-201. “Rights”. Section 1-201. “Value”. Section 1-201.

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355.2-507. Effect of seller’s tender — Delivery on condition.

  1. Tender of delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract.
  2. Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.

History. Enact. Acts 1958, ch. 77, § 2-507, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

See Section 11, 41, 42 and 69, Uniform Sales Act.

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 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 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. 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. 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 1: Sections 2-310, 2-503, 2-511, 2-601 and 2-711 to 2-713.

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:

“Buyer”. Section 2-103. “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.

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NOTES TO DECISIONS

1.Rights of Unpaid Seller.

The rights of an unpaid seller under this section are no less than in the case of sale falling within KRS 355.2-702 concerning a sale on credit to an insolvent buyer. Greater Louisville Auto Auction, Inc. v. Ogle Buick, Inc., 387 S.W.2d 17, 1965 Ky. LEXIS 457 ( Ky. 1965 ).

Sellers of used cars who were paid by checks which were later dishonored had the same right to reclamation that a seller who is unpaid has under KRS 355.2-702 . Greater Louisville Auto Auction, Inc. v. Ogle Buick, Inc., 387 S.W.2d 17, 1965 Ky. LEXIS 457 ( Ky. 1965 ).

In a cash transaction a buyer may not retain or dispose of the seller’s goods until he makes the payment due; payment by check is conditional and the buyer’s rights are defeated if his check is dishonored. Cumulatively read therefore, this section and KRS 355.2-511 implicitly permit the cash seller to reclaim his goods if the buyer refuses to pay upon demand or if his draft is not accepted by the bank. In re Wathen's Elevators, Inc., 32 B.R. 912, 1983 Bankr. LEXIS 5427 (Bankr. W.D. Ky. 1983 ).

Supplier’s reclamation of fabricated steel from debtor’s construction site was held not to constitute a preferential transfer where the debtor and its contractor never paid for the steel and the steel was never property of the debtor or contractor. Spradlin v. Jarvis (In re Tri-City Turf Club, Inc.), 323 F.3d 439, 2003 FED App. 0088P, 2003 U.S. App. LEXIS 5559 (6th Cir. Ky. 2003 ).

Corporations that terminated exclusive sales distributorships, putting the distributors out of business, did not breach distributorship contracts because the distributorships’ receipt of goods for sale, even if nonconforming, constituted acceptance under KRS 355.2-606 (1)(c), 355.2-507 (1), requiring payment in full. Powerscreen USA, LLC v. D & L Equip., Inc., 661 F. Supp. 2d 705, 2009 U.S. Dist. LEXIS 93427 (W.D. Ky. 2009 ).

Cited in:

In re Wathen’s Elevators, Inc., 37 B.R. 870, 1984 Bankr. LEXIS 6132 (Bankr. W.D. Ky. 1984 ).

355.2-508. Cure by seller of improper tender or delivery — Replacement.

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

History. Enact. Acts 1958, ch. 77, § 2-508, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

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 2: Section 2-302.

Point 3: Section 2-511.

Point 4: Sections 1-205 and 2-721.

Definitional cross references:

“Buyer”. Section 2-103. “Conforming”. Section 2-106. “Contract”. Section 1-201. “Money”. Section 1-201. “Notifies”. Section 1-201. “Reasonable time”. Section 1-204. “Seasonably”. Section 1-204. “Seller”. Section 2-103.

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NOTES TO DECISIONS

1.Minor Repairs.

The buyer of a mobile home could not rescind the purchase on grounds of nonconformity without allowing the seller an opportunity to remove the defect by providing minor repairs to the damaged panel. Leitchfield Dev. Corp. v. Clark, 757 S.W.2d 207, 1988 Ky. App. LEXIS 81 (Ky. Ct. App. 1988).

2.Defect Communicated.

In situations involving the delivery of a mobile home by the seller to a buyer, a seller’s right to cure a nonconforming tendered delivery, if communicated to the buyer, prohibits the buyer from rescinding the contract on the basis of a defective condition. Leitchfield Dev. Corp. v. Clark, 757 S.W.2d 207, 1988 Ky. App. LEXIS 81 (Ky. Ct. App. 1988).

3.Perfect Tender Rule.

The right of a seller to cure an improper tender or delivery modifies or limits the perfect tender rule. Leitchfield Dev. Corp. v. Clark, 757 S.W.2d 207, 1988 Ky. App. LEXIS 81 (Ky. Ct. App. 1988).

355.2-509. Risk of loss in the absence of breach.

  1. Where the contract requires or authorizes the seller to ship the goods by carrier:
    1. If it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation (KRS 355.2-505 ); but
    2. If it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery.
  2. Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer:
    1. On the buyer’s receipt of possession or control of a negotiable document of title covering the goods; or
    2. On acknowledgement by the bailee of the buyer’s right to possession of the goods; or
    3. After the buyer’s receipt of possession or control of a nonnegotiable document of title or other written direction to deliver, as provided in subsection (4)(b) of KRS 355.2-503 .
  3. In any case not within subsection (1) or (2) of this section, the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery.
  4. The provisions of this section are subject to contrary agreement of the parties and to the provisions of this article on sale on approval (KRS 355.2-327 ) and on effect of breach on risk of loss (KRS 355.2-510 ).

History. Enact. Acts 1958, ch. 77, § 2-509, effective July 1, 1960; 2012, ch. 132, § 51, effective July 12, 2012.

Official Comment

Prior uniform statutory provision:

Section 22. Uniform Sales Act.

Changes:

Rewritten, subsection (3) of this section modifying prior law.

Purposes of changes:

To make it clear that:

  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.

    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.

  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.

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:

“Agreement”. Section 1-201. “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.

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NOTES TO DECISIONS

1.Risk of Loss.

When seller delivered oil to barge owned by common carrier under a contract to deliver all seller’s oil to barges F.O.B. seller’s dock, the risk of loss was on buyer when barge sank before it was completely filled. (decided under prior law) Troy Refining Corp. v. Slagter Oil & Grease Co., 61 F. Supp. 369, 1945 U.S. Dist. LEXIS 2188 (D. Ky. 1945 ).

2.Tender of Delivery.

When seller had sawed lumber, graded it and placed it in piles with purchaser’s name on it, there was delivery to purchaser who, under terms of contracts, had made the advances required by the contract. (decided under prior law) In re Shipley Stave & Lumber Co., 29 F. Supp. 746, 1939 U.S. Dist. LEXIS 2129 (D. Ky. 1939 ).

355.2-510. Effect of breach on risk of loss.

  1. Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance.
  2. Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning.
  3. Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time.

History. Enact. Acts 1958, ch. 77, § 2-510, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

Purposes:

To make clear that:

  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.

    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.

  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.

Cross reference:

Section 2-509.

Definitional cross references:

“Buyer”. Section 2-103. “Conform”. Section 2-106. “Contract for sale”. Section 2-106. “Goods”. Section 2-105. “Seller”. Section 2-103.

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Research References and Practice Aids

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Answer Denying Fraud, Form 190.21.

355.2-511. Tender of payment by buyer — Payment by check.

  1. Unless otherwise agreed tender of payment is a condition to the seller’s duty to tender and complete any delivery.
  2. Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.
  3. Subject to the provisions of this chapter on the effect of an instrument on an obligation (KRS 355.3-310 ), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.

History. Enact. Acts 1958, ch. 77, § 2-511, effective July 1, 1960; 1996, ch. 130, § 69, effective January 1, 1997.

Official Comment

Prior uniform statutory provision:

Section 42, Uniform Sales Act.

Changes:

Rewritten by this section and Section 2-507.

Purposes of changes:

  1. The requirement of payment against delivery in subsection (1) is applicable to noncommercial 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 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 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 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 3. 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 the Article on Commercial Paper. 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 1: Sections 2-307, 2-310, 2-320, 2-325, 2-503, 2-513 and 2-609.

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 3, esp. Sections 3-411 and 3-802.

Point 6: Sections 2-507, 2-702, and Article 3.

Definitional cross references:

“Buyer”. Section 2-103. “Check”. Section 3-104. “Dishonor”. Section 3-508. “Party”. Section 1-201. “Reasonable time”. Section 1-204. “Seller”. Section 2-103.

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NOTES TO DECISIONS

1.Rights of Unpaid Seller.

In a cash transaction a buyer may not retain or dispose of the seller’s goods until he makes the payment due; payment by check is conditional and the buyer’s rights are defeated if his check is dishonored. Cumulatively read therefore, KRS 355.2-507 and this section implicitly permit the cash seller to reclaim his goods if the buyer refuses to pay upon demand or if his draft is not accepted by the bank. In re Wathen's Elevators, Inc., 32 B.R. 912, 1983 Bankr. LEXIS 5427 (Bankr. W.D. Ky. 1983 ).

Cited in:

Greater Louisville Auto Auction, Inc. v. Ogle Buick, Inc., 387 S.W.2d 17, 1965 Ky. LEXIS 457 ( Ky. 1965 ).

Research References and Practice Aids

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Answer Pleading Tender of Money, Form 190.19.

355.2-512. Payment by buyer before inspection.

  1. Where the contract requires payment before inspection nonconformity of the goods does not excuse the buyer from so making payment unless:
    1. The nonconformity appears without inspection; or
    2. Despite tender of the required documents the circumstances would justify injunction against honor under this chapter (KRS 355.5-109 (2)).
  2. Payment pursuant to subsection (1) of this section does not constitute an acceptance of goods or impair the buyer’s right to inspect or any of his remedies.

History. Enact. Acts 1958, ch. 77, § 2-512, effective July 1, 1960; 2000, ch. 408, § 20, effective July 1, 2001.

Official Comment

Prior uniform statutory provision:

None, but see Sections 47 and 49, Uniform Sales Act.

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 non-conformity 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 reserved 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:

Point 4: Article 5.

Point 5: Section 1-207.

Point 6: Section 2-513(3).

Definitional cross references:

“Buyer”. Section 2-103. “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.

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355.2-513. Buyer’s right to inspection of goods.

  1. Unless otherwise agreed and subject to subsection (3), where goods are tendered or delivered or identified to the contract for sale, the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner. When the seller is required or authorized to send the goods to the buyer, the inspection may be after their arrival.
  2. Expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected.
  3. Unless otherwise agreed and subject to the provisions of this article on C.I.F. contracts (subsection (3) of KRS 355.2-321 ), the buyer is not entitled to inspect the goods before payment of the price when the contract provides
    1. for delivery “C.O.D.” or on other like terms; or
    2. for payment against documents of title, except where such payment is due only after the goods are to become available for inspection.
  4. A place or method of inspection fixed by the parties is presumed to be exclusive but unless otherwise expressly agreed it does not postpone identification or shift the place for delivery or for passing the risk of loss. If compliance becomes impossible, inspection shall be as provided in this section unless the place or method fixed was clearly intended as an indispensable condition failure of which avoids the contract.

History. Enact. Acts 1958, ch. 77, § 2-513, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 47(2), (3), Uniform Sales Act.

Changes:

Rewritten, subsections (2) and (3) being new.

Purposes of changes and new matter:

To correspond in substance with the prior uniform statutory provision and to incorporate in addition some of the results of the better case law so that:

  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 to 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 arrive and be tendered while the goods are still in transit.

    This Article recognizes no exception in any peculiar case in which the goods happen to arrive before the documents. 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 held until arrival 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.

    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 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 which requires that such a time limitation must be reasonable.
  8. Inspection under this Article 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 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:

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.

Point 8: Comment to Section 2-401.

Point 9: Section 2-316(3)(b).

Definitional cross references:

“Buyer”. Section 2-103. “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. “Rights”. Section 1-201. “Seller”. Section 2-103. “Send”. Section 1-201. “Term”. Section 1-201.

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NOTES TO DECISIONS

1.Obligation to Inspect.

Buyer who bought candy on faith of sample on basis of trial order from seller who shipped almost immediately was not under duty to inspect contents of unbroken original packages to see that the goods were in accordance with sample. (decided under prior law) James Grocery Co. v. Walter O. Birk Candy Co., 228 Ky. 11 , 14 S.W.2d 214, 1928 Ky. LEXIS 5 ( Ky. 1928 ).

355.2-514. When documents deliverable on acceptance — When on payment.

Unless otherwise agreed documents against which a draft is drawn are to be delivered to the drawee on acceptance of the draft if it is payable more than three (3) days after presentment; otherwise, only on payment.

History. Enact. Acts 1958, ch. 77, § 2-514, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 41, Uniform Bills of Lading Act.

Changes:

Rewritten.

Purposes of changes:

To make the provision one of general application so that:

  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:

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:

“Delivery”. Section 1-201. “Draft”. Section 3-104.

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355.2-515. Preserving evidence of goods in dispute.

In furtherance of the adjustment of any claim or dispute

  1. either party on reasonable notification to the other and for the purpose of ascertaining the facts and preserving evidence has the right to inspect, test and sample the goods including such of them as may be in the possession or control of the other; and
  2. the parties may agree to a third party inspection or survey to determine the conformity or condition of the goods and may agree that the findings shall be binding upon them in any subsequent litigation or adjustment.

History. Enact. Acts 1958, ch. 77, § 2-515, effective July 1, 1960.

Official Comment

Prior uniform statutory provisions:

None.

Purposes:

  1. To meet certain serious problems which arise when there is a dispute as to the quality of the goods and thereby perhaps to aid the parties in reaching a settlement, and to further the use of devices which will promote certainty as to the condition of the goods, or at least aid in preserving evidence of their condition.
  2. Under paragraph (a), to afford either party an opportunity for preserving evidence, whether or not agreement has been reached, and thereby to reduce uncertainty in any litigation and, in turn perhaps, to promote agreement.

    Paragraph (a) does not conflict with the provisions on the seller’s right to resell rejected goods or the buyer’s similar right. Apparent conflict between these provisions which will be suggested in certain circumstances is to be resolved by requiring prompt action by the parties. Nor does paragraph (a)(i) impair the effect of a term for payment before inspection. Short of such defects as amount to fraud or substantial failure of consideration, nonconformity is neither an excuse nor a defense to an action for non-acceptance of documents. Normally, therefore, until the buyer has made payment, inspected and rejected the goods, there is no occasion or use for the rights under paragraph (a).

  3. Under paragraph (b), to provide for third party inspection upon the agreement of the parties, thereby opening the door to amicable adjustments based upon the findings of such third parties.

    The use of the phrase “conformity or condition” makes it clear that the parties’ agreement may range from a complete settlement of all aspects of the dispute by a third party to the use of a third party merely to determine and record the condition of the goods so that they can be resold or used to reduce the stake in controversy. “Conformity”, at one end of the scale of possible issues, includes the whole question of interpretation of the agreement and its legal effect, the state of the goods in regard to quality and condition, whether any defects are due to factors which operate at the risk of the buyer, and the degree of non-conformity where that may be material. “Condition”, at the other end of the scale, includes nothing but the degree of damage or deterioration which the goods show. Paragraph (b) is intended to reach any point in the gamut which the parties may agree upon.

    The principle of the section on reservation of rights reinforces this paragraph in simplifying such adjustments as the parties wish to make in partial settlement while reserving their rights as to any further points. Paragraph (b) also suggests the use of arbitration, where desired, of any points left open, but nothing in this section is intended to repeal or amend any statute governing arbitration. Where any question arises as to the extent of the parties’ agreement under the paragraph, the presumption should be that it was meant to extend only to the relation between the contract description and the goods as delivered, since that is what a craftsman in the trade would normally be expected to report upon. Finally, a written and authenticated report of inspection or tests by a third party, whether or not sampling has been practicable, is entitled to be admitted as evidence under this Act, for it is a third party document.

Cross references:

Point 2: Sections 2-513(3), 2-706 and 2-711(2) and Article 5.

Point 3: Sections 1-202 and 1-207.

Definitional cross references:

“Conform”. Section 2-106. “Goods”. Section 2-105. “Notification”. Section 1-201. “Party”. Section 1-201.

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Part 6. Breach, Repudiation and Excuse

355.2-601. Buyer’s rights on improper delivery.

Subject to the provisions of this article on breach in installment contracts (KRS 355.2-612 ) and unless otherwise agreed under the sections on contractual limitations of remedy (KRS 355.2-718 and 355.2-719 ), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may

  1. reject the whole; or
  2. accept the whole; or
  3. accept any commercial unit or units and reject the rest.

History. Enact. Acts 1958, ch. 77, § 2-601, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

No one general equivalent provision but numerous provisions, dealing with situations of non-conformity where buyer may accept or reject, including Sections 11, 44 and 69(1), Uniform Sales Act.

Changes:

Partial acceptance in good faith is recognized and the buyer’s remedies on the contract for breach of warranty and the like, where the buyer has returned the goods after transfer of title, are no longer barred.

Purposes of changes:

To make it clear that:

  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 be 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.
  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:

“Buyer”. Section 2-103. “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.

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NOTES TO DECISIONS

1.Conformity.

Where acceptance is not effective, the burden is on the seller to show conformity with the description of the goods sold. Keck v. Wacker, 413 F. Supp. 1377, 1976 U.S. Dist. LEXIS 14786 (E.D. Ky. 1976 ).

2.Rejection.

Where there was complete failure of machine to accomplish purpose for which it was designed, which was to manufacture a merchantable product, there was much more than the breach of an implied warranty of suitability or fitness for a particular purpose. It was not a merchantable article, since it would not do what it was intended to do and there had been no delivery of that which was bought. This was a breach of a covenant or condition which by law was made part of every contract of sale unless such essential element was explicitly denied and clearly understood by buyer, and buyer could recover purchase price where it had tendered return of the machinery and seller refused to take it back. (decided under prior law) Myers v. Land, 314 Ky. 514 , 235 S.W.2d 988, 1950 Ky. LEXIS 1095 ( Ky. 1950 ).

3.—Prohibited.

In situations involving the delivery of a mobile home by the seller to a buyer, a seller’s right to cure a nonconforming tendered delivery, if communicated to the buyer, prohibits the buyer from rescinding the contract on the basis of a defective condition. Leitchfield Dev. Corp. v. Clark, 757 S.W.2d 207, 1988 Ky. App. LEXIS 81 (Ky. Ct. App. 1988).

4.Waiver of Rejection.

The continued personal use of the goods by buyer after seller had refused the buyer’s tender of them in an attempted rescission for breach of warranty constituted a waiver of the attempted rescission which defeated it. (decided under prior law) Thomas Bros. v. Puffer Mfg. Co., 211 Ky. 695 , 277 S.W. 1022, 1925 Ky. LEXIS 948 ( Ky. 1925 ); Wagner v. Guy, 252 S.W.2d 420, 1952 Ky. LEXIS 994 ( Ky. 1952 ).

5.Acceptance.

Where, in regard to a contract to furnish and lay tile for a hotel, the purchaser objected that the coloring of the tile was irregular and the seller defiantly told him to take that being laid or none and the purchaser permitted the seller to proceed rather than submit to a costly delay while other tile was procured, the purchaser was electing to accept the work and recover for the breach of warranty, but the purchaser did not by such action forfeit his right to recover for the defects. (decided under prior law) Weil v. B. E. Buffaloe & Co., 251 Ky. 673 , 65 S.W.2d 704, 1933 Ky. LEXIS 923 ( Ky. 1933 ).

Because a distributor accepted goods that it later claimed were defective, the distributor’s claim for breach of the implied warranty of merchantability failed both pursuant to statute and under the parties’ agreement, by which the distributor contractually assumed the risk of loss. Smart & Assocs., LLC v. Indep. Liquor (NZ) Ltd., 226 F. Supp. 3d 828, 2016 U.S. Dist. LEXIS 180159 (W.D. Ky. 2016 ).

6.—In Part.

Where a seller contracted to deliver a minimum of 500 tons of crushed rock per day for a certain period but delivered only an average of 352 tons per day, which the purchaser accepted, the purchaser was bound to pay for that quantity delivered at the contract rate, but this did not prevent him from having a recoupment for the damage caused by such inadequate delivery. (decided under prior law) Olive Hill Limestone Co. v. Gay-Coleman Const. Co., 244 Ky. 822 , 51 S.W.2d 465, 1932 Ky. LEXIS 459 ( Ky. 1932 ).

7.Minor Repairs.

The buyer of a mobile home could not rescind the purchase on grounds of nonconformity without allowing the seller an opportunity to remove the defect by providing minor repairs to the damaged panel. Leitchfield Dev. Corp. v. Clark, 757 S.W.2d 207, 1988 Ky. App. LEXIS 81 (Ky. Ct. App. 1988).

8.Perfect Tender Rule.

The right of a seller to cure an improper tender or delivery modifies or limits the perfect tender rule. Leitchfield Dev. Corp. v. Clark, 757 S.W.2d 207, 1988 Ky. App. LEXIS 81 (Ky. Ct. App. 1988).

355.2-602. Manner and effect of rightful rejection.

  1. Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller.
  2. Subject to the provisions of the two (2) following sections on rejected goods (KRS 355.2-603 and 355.2-604 ),
    1. after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and
    2. if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this article (subsection (3) of KRS 355.2-711 ), he is under a duty after rejection to hold them with reasonable care at the seller’s disposition for a time sufficient to permit the seller to remove them; but
    3. the buyer has no further obligations with regard to goods rightfully rejected.
  3. The seller’s rights with respect to goods wrongfully rejected are governed by the provisions of this article on seller’s remedies in general (KRS 355.2-703 ).

History. Enact. Acts 1958, ch. 77, § 2-602, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 50. Uniform Sales Act.

Changes:

Rewritten.

Purposes of changes:

To make it clear that:

  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 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 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.
  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) 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:

“Buyer”. Section 2-103. “Commercial unit”. Section 2-105. “Goods”. Section 2-105. “Merchant”. Section 2-104. “Notifies”. Section 1-201. “Reasonable time”. Section 1-204. “Remedy”. Section 1-201. “Rights”. Section 1-201. “Seasonably”. Section 1-204. “Security interest”. Section 1-201. “Seller”. Section 2-103.

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NOTES TO DECISIONS

1.Reasonable Time.

Where subject of sale was a restaurant, the ground for rescission was fraud, and the buyers discovered the alleged misrepresentations within nine (9) days after taking the business over and they continued to operate it and treat the contract as still in force for two (2) months before attempting to rescind, court held for seller and said that on discovery of fraud the buyer must act promptly and “will not be permitted to speculate as to the result of the trade and then rescind after it proves to be unprofitable.” (decided under prior law) Gargotto v. Sherman, 297 Ky. 597 , 180 S.W.2d 565, 1944 Ky. LEXIS 776 ( Ky. 1944 ).

355.2-603. Merchant buyer’s duties as to rightfully rejected goods.

  1. Subject to any security interest in the buyer (subsection (3) of KRS 355.2-711 ), when the seller has no agent or place of business at the market of rejection a merchant buyer is under a duty after rejection of goods in his possession or control to follow any reasonable instructions received from the seller with respect to the goods and in the absence of such instructions to make reasonable efforts to sell them for the seller’s account if they are perishable or threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming.
  2. When the buyer sells goods under subsection (1), he is entitled to reimbursement from the seller or out of the proceeds for reasonable expenses of caring for and selling them, and if the expenses include no selling commission then to such commission as is usual in the trade or if there is none to a reasonable sum not exceeding ten percent (10%) on the gross proceeds.
  3. In complying with this section the buyer is held only to good faith and good faith conduct hereunder is neither acceptance nor conversion nor the basis of an action for damages.

History. Enact. Acts 1958, ch. 77, § 2-603, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

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 practically 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 2: Sections 4-503 and 5-112.

Point 5: Section 1-106. Compare generally Section 2-706.

Definitional cross references:

“Buyer”. Section 2-103. “Good faith”. Section 1-201. “Goods”. Section 2-105. “Merchant”. Section 2-104. “Security interest”. Section 1-201. “Seller”. Section 2-103.

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NOTES TO DECISIONS

1.Offer to Return.

A buyer entitled to rescind became bailee for the seller after an offer to return and, where affirmative relief was sought by buyer and he sought recovery on ground he had made tender, his tender had to be kept good for he could not, upon rescission, keep the goods but had to return goods or account for their nonreturn before he could recover his purchase price. (decided under prior law) Automatic Equipment Co. v. Mohney, 295 Ky. 451 , 174 S.W.2d 716, 1943 Ky. LEXIS 263 ( Ky. 1943 ).

355.2-604. Buyer’s options as to salvage of rightfully rejected goods.

Subject to the provisions of KRS 355.2-603 on perishables if the seller gives no instructions within a reasonable time after notification of rejection the buyer may store the rejected goods for the seller’s account or reship them to him or resell them for the seller’s account with reimbursement as provided in KRS 355.2-603 . Such action is not acceptance or conversion.

History. Enact. Acts 1958, ch. 77, § 2-604, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

None.

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.

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 nonmerchant 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), 2-603(1) and 2-706.

Definitional cross references:

“Buyer”. Section 2-103. “Notification”. Section 1-201. “Reasonable time”. Section 1-204. “Seller”. Section 2-103.

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355.2-605. Waiver of buyer’s objections by failure to particularize.

  1. The buyer’s failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach:
    1. Where the seller could have cured it if stated seasonably; or
    2. Between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely.
  2. A buyer’s payment against documents tendered to the buyer made without reservation of rights precludes recovery of the payment for defects apparent in the documents.

History. Enact. Acts 1958, ch. 77, § 2-605, effective July 1, 1960; 2012, ch. 132, § 52, effective July 12, 2012.

Official Comment

Prior uniform statutory provision:

None.

Purposes:

  1. The present section rests upon a policy of permitting the buyer to give a quick and informal notice of defects in a tender without penalizing him for omissions in his statement, while at the same time protecting a seller who is reasonably misled by the buyer’s failure to state curable defects.
  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 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 (1)(b) will be sufficient in the case of a merchant-buyer.
  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) and 2-607(2).

Definitional cross references:

“Between merchants”. Section 2-104. “Buyer”. Section 2-103. “Seasonably”. Section 1-204. “Seller”. Section 2-103. “Writing” and “written”. Section 1-201.

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NOTES TO DECISIONS

1.Reservation of Rights.

Where a seller had erroneously put a harmful substance into chicken feed, the buyer’s testimony that seller promised to make good any loss from feeding the mixture to buyer’s chickens was admissible to show that buyer had not waived recovery for the loss by giving a note for the price after feeding a part of such mixture. (decided under prior law) McBride v. Farmers' Seed Ass'n, 248 Ky. 514 , 58 S.W.2d 909, 1933 Ky. LEXIS 262 ( Ky. 1933 ).

Cited in:

Leitchfield Dev. Corp. v. Clark, 757 S.W.2d 207, 1988 Ky. App. LEXIS 81 (Ky. Ct. App. 1988).

355.2-606. What constitutes acceptance of goods.

  1. Acceptance of goods occurs when the buyer
    1. after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their nonconformity; or
    2. fails to make an effective rejection (subsection (1) of KRS 355.2-602 ), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or
    3. does any act inconsistent with the seller’s ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him.
  2. Acceptance of a part of any commercial unit is acceptance of that entire unit.

History. Enact. Acts 1958, ch. 77, § 2-606, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 48, Uniform Sales Act.

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:

To make it clear that:

  1. Under this Article “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 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 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 (a)(iii) 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.

    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.

  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.

Cross references:

Point 2: Section 2-401, 2-509, 2-510, 2-607, 2-608 and Part 7.

Point 4: Sections 2-601 through 2-604.

Point 5: Section 2-601.

Definitional cross references:

“Buyer”. Section 2-103. “Commercial unit”. Section 2-105. “Goods”. Section 2-105. “Seller”. Section 2-103.

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NOTES TO DECISIONS

1.Acceptance by Conduct.

Where a buyer did not reject a truck, but accepted delivery and used the truck to haul coal over a period of several months, his conduct constituted an acceptance of the goods. Lexington Mack, Inc. v. Miller, 555 S.W.2d 249, 1977 Ky. LEXIS 500 ( Ky. 1977 ).

2.Promise to Purchase Exclusively from One Supplier.

Corporations that terminated exclusive sales distributorships, putting the distributors out of business, did not breach distributorship contracts because the distributorships’ receipt of farm goods for sale constituted acceptance under KRS 355.2-606 (1)(c), 355.2-507 (1), requiring payment in full. Powerscreen USA, LLC v. D & L Equip., Inc., 661 F. Supp. 2d 705, 2009 U.S. Dist. LEXIS 93427 (W.D. Ky. 2009 ).

Cited in:

Keck v. Wacker, 413 F. Supp. 1377, 1976 U.S. Dist. LEXIS 14786 (E.D. Ky. 1976 ); Greene v. Waddell, 657 S.W.2d 589, 1983 Ky. App. LEXIS 321 (Ky. Ct. App. 1983).

355.2-607. Effect of acceptance — Notice of breach — Burden of establishing breach after acceptance — Notice of claim or litigation to person answerable over.

  1. The buyer must pay at the contract rate for any goods accepted.
  2. Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a nonconformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this article for nonconformity.
  3. Where a tender has been accepted
    1. the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and
    2. if the claim is one for infringement or the like (subsection (3) of KRS 355.2-312 ) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation.
  4. The burden is on the buyer to establish any breach with respect to the goods accepted.
  5. Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over:
    1. He may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two (2) litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound.
    2. If the claim is one for infringement or the like (subsection (3) of KRS 355.2-312 ) the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred.
  6. The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (subsection (3) of KRS 355.2-312 ).

History. Enact. Acts 1958, ch. 77, § 2-607, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Subsection (1)—Section 41, Uniform Sales Act; Subsections (2) and (3)—Sections 49 and 69, Uniform Sales Act.

Changes:

Rewritten.

Purposes of changes:

To continue the prior basic policies with respect to acceptance of goods while making a number of minor though material changes in the interest of simplicity and commercial convenience so that:

  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 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 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 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 cross-claim 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 1: Section 1-201.

Point 2: Section 2-608.

Point 4: Sections 1-204 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:

“Burden of establishing”. Section 1-201. “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. “Remedy”. Section 1-201. “Seasonably”. Section 1-204.

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NOTES TO DECISIONS

1.Notice.

Under law that provided that acceptance of the goods by buyer did not discharge seller from liability for damages, if the buyer, after acceptance of the goods, failed to give notice to the seller of the breach of any warranty within a reasonable time after the buyer knew of such breach, the seller was not liable therefor. (decided under prior law) Sears, Roebuck & Co. v. Lea, 198 F.2d 1012, 1952 U.S. App. LEXIS 3274 (6th Cir. Ky. 1952 ).

Where the purchaser of a packaged item from a retail grocer gave no notice to the grocer of her claim for breach of warranty, but did notify the manufacturer, such notice did not satisfy the requirement of this section insofar as an action against the retailer was concerned. Leeper v. Banks, 487 S.W.2d 58, 1972 Ky. LEXIS 58 ( Ky. 1972 ).

Failure to provide pre-litigation notice is not fatal to a civil action for breach of warranty, particularly in circumstances where pre-litigation notice to vendor might be to purchaser’s detriment or where seller would not welcome notice of breach and would resist recovery by purchaser. Mullins v. Wyatt, 887 S.W.2d 356, 1994 Ky. LEXIS 133 ( Ky. 1994 ).

Manufacturer failed to show alleged representations that dog treats were nutritious, safe and wholesome were non-actionable because use of objectively verifiable terms arguably could mislead reasonable consumer; court could reasonably infer that plaintiffs relied on representations on packaging, plaintiffs alleged that manufacturer made express warranties for their benefit, and dismissal for lack of pre-suit notice was not warranted. Bietsch v. Sergeant's Pet Care Prods., 2016 U.S. Dist. LEXIS 32928 (N.D. Ill. Mar. 15, 2016).

2.Obligation to Pay Contract Price.

Where a buyer accepted a truck and used it to haul coal over a period of several months, he became obligated to pay the contract price. Lexington Mack, Inc. v. Miller, 555 S.W.2d 249, 1977 Ky. LEXIS 500 ( Ky. 1977 ).

Where defendant did not comply with either the written provisions contained in the warranty made by the plaintiff or with the provisions of this section, and where the proof was not clear and convincing that plaintiff waived its rights under the contract or under the statute by orally agreeing to defendant’s keeping a running tab on the back charges for repairs, judgment would be entered for plaintiff in the amount of the balance due, together with interest at the rate of 6 percent from August 1, 1974, until June 19, 1976, at which time KRS 360.040 was amended to provide for interest upon liquidated judgments at the rate of 8 percent, and plaintiff would be entitled to the full 8 percent rate accruing after June 19, 1976. Thaler v. I C I United States, Inc., 476 F. Supp. 67, 1979 U.S. Dist. LEXIS 11201 (W.D. Ky. 1979 ).

Jury’s verdict awarding a buyer damages for breach of warranty but denying the seller’s claim for the purchase price of the goods was inconsistent, as a buyer who accepts non-conforming goods, although entitled to breach of warranty damages, is responsible for payment of the contract price under KRS 355.2-607 . Thomas & Betts Corp. v. A & A Mech., Inc., 2004 Ky. App. LEXIS 339 (Ky. Ct. App. Nov. 24, 2004, sub. op., 2004 Ky. App. Unpub. LEXIS 996 (Ky. Ct. App. Nov. 24, 2004), review denied, ordered not published, 2005 Ky. LEXIS 269 (Ky. Sept. 14, 2005).

3.Reasonable Time.

Whether litigation notice given is “within a reasonable time” is an issue of fact and should be determined upon equitable principles with the party seeking application of the rule being required to show that the delay in giving notice was unreasonable and prejudicial. Mullins v. Wyatt, 887 S.W.2d 356, 1994 Ky. LEXIS 133 ( Ky. 1994 ).

4. Performance Delays.

Court granted a furniture manufacturer’s motion for summary judgment in a wholesaler’s breach of contract action because the wholesaler provided no evidence of any specific furniture deliveries that were unreasonably delayed. Even if certain deliveries were made in an unreasonable time, the wholesaler accepted the deliveries without complaint. Peters Wholesale Furniture, Inc. v. Manchester Furniture Group, 2005 U.S. Dist. LEXIS 21583 (W.D. Ky. Sept. 26, 2005).

5.Effect of Acceptance.

Because a distributor accepted goods that it later claimed were defective, the distributor’s claim for breach of the implied warranty of merchantability failed both pursuant to statute and under the parties’ agreement, by which the distributor contractually assumed the risk of loss. Smart & Assocs., LLC v. Indep. Liquor (NZ) Ltd., 226 F. Supp. 3d 828, 2016 U.S. Dist. LEXIS 180159 (W.D. Ky. 2016 ).

Cited in:

Keck v. Wacker, 413 F. Supp. 1377, 1976 U.S. Dist. LEXIS 14786 (E.D. Ky. 1976 ); Bell v. Louisville Motors, Inc., 573 S.W.2d 351, 1978 Ky. App. LEXIS 606 (Ky. Ct. App. 1978); Snawder v. Cohen, 749 F. Supp. 1473, 1990 U.S. Dist. LEXIS 14410 (W.D. Ky. 1990 ).

Research References and Practice Aids

Kentucky Law Journal.

Brickey, Products Liability in Kentucky: The Doctrinal Dilemma, 65 Ky. L.J. 593 (1976-77).

Kentucky Law Survey, Weinberg, Commercial Law and Consumer Credit, 65 Ky. L.J. 370 (1976-77).

Northern Kentucky Law Review.

Notes, Torts — Products Liability — Should Contract or Tort Provide the Cause of Action When a Plaintiff Seeks Recovery Only for Damage to the Defective Product Itself — C & S Fuel, Inc. v. Clark Equip. Co.,10 N. Ky. L. Rev. 489 (1983).

Treatises

Caldwell’s Kentucky Form Book, 5th Ed., Complaint for Breach of Express Warranty — General Form, Form 137.05.

Caldwell’s Kentucky Form Book, 5th Ed., Complaint for Breach of Implied Warranty of Fitness — General Form, Form 137.07.

Caldwell’s Kentucky Form Book, 5th Ed., Notice of Breach of Warranty Required under the UCC, Form 137.03.

Caldwell’s Kentucky Form Book, 5th Ed., Notice to Seller of Litigation, Form 137.04.

355.2-608. Revocation of acceptance in whole or in part.

  1. The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it
    1. on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or
    2. without discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances.
  2. Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.
  3. A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

History. Enact. Acts 1958, ch. 77, § 2-608, effective July 1, 1960.

Official Comment

Prior uniform statutory provision:

Section 69(1)(d), (3), (4) and (5), Uniform Sales Act.

Changes:

Rewritten.

Purposes of changes:

To make it clear that:

  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 is available to the buyer under the section on remedies for fraud.
  4. Subsection (2) requires