NOTES TO DECISIONS

1. Applicability.

Because the parties'  contract dispute concerned a transaction for the sale of goods, and the parties had not agreed on governing law, the appropriate relationship test in T.C.A. § 47-1-301(b) governed the choice of law in the case. Carbon Processing & Reclamation, LLC v. Valero Mktg. & Supply Co., 823 F. Supp. 2d 786, 2011 U.S. Dist. LEXIS 120024 (W.D. Tenn. Oct. 17, 2011).

COMMENTS TO OFFICIAL TEXT

Source:  Former Section 1-105.

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.

COMMENTS TO OFFICIAL TEXT

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. Motion to Amend Wrongfully Granted.

Finding against a manufacturer was improper because the trial court erred in granting the wholesaler's motion to amend its answer on the day of trial. The amendment substantially changed the issues for consideration, T.C.A. § 47-1-303(d). KP Bldg. Prods. v. J. W. Garland Wholesale, Inc., — S.W.3d —, 2009 Tenn. App. LEXIS 595 (Tenn. Ct. App. Aug. 27, 2009).

2. General Consideration.

“Course of performance” statute, T.C.A. § 47-1-303, is part of Tennessee's Uniform Commercial Code (U.C.C.), which, of course, only applies to leases of goods. Real property leases are governed by Tennessee property law, not Tennessee's U.C.C. In re Goody's Family Clothing, Inc., 443 B.R. 5, 2010 Bankr. LEXIS 4120 (3rd Cir. Dec. 1, 2010).

Course of dealing or the usage of trade was relevant to ascertaining the meaning of the parties'  agreement and not the source of any duty independent of a contract, and courts applying Tennessee law have considered course of dealing and usage of trade in aid of construing contracts, not as the source of an independent duty to act. The plaintiff did not allege that it had a contract with the defendant or how evidence of course of dealing or usage of trade would be relevant to the construction of the contract; therefore, T.C.A. § 47-1-303 did not create an independent duty upon which the plaintiff could base a negligence claim under the Uniform Commercial Code. Notredan, LLC v. Old Rep. Exch. Facilitator Co., 875 F. Supp. 2d 780, 2012 U.S. Dist. LEXIS 85712 (W.D. Tenn. June 20, 2012).

3. Course of Dealing.

When parties entered into multiple agreements regarding the purchase and sale of lumber, the parties'  conduct in which, in earlier agreements, a seller allowed a buyer to pick up several loads after purported deadlines, did not constitute a “course of conduct” allowing the buyer to avoid a subsequent agreement's clear requirement to pick up loads by a certain date because (1) such a reading of the subsequent agreement was inconsistent with the contract's plain language, (2) when the parties entered into the subsequent agreement, the deadlines to pick up loads subject to the prior agreements had not expired, so no course of conduct allowing late pickups was established when the subsequent agreement was entered into, and (3) the seller's forbearance in permitting a handful of late pickups on the two previous agreements did not establish a “course of dealing” that overrode the plain and unambiguous contractual terms of the subsequent agreement. Miller v. Dairyman's Supply Co., — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 81613 (M.D. Tenn. June 12, 2012).

COMMENTS TO OFFICIAL TEXT

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. Good Faith.

Even assuming that a seller acted in bad faith, the purchasers did not initially seek to void the contract, but they continued operating the business, and thus, under the Uniform Commercial Code, damages for the nonconforming goods were the appropriate remedy. Lowe v. Smith, — S.W.3d —, 2016 Tenn. App. LEXIS 689 (Tenn. Ct. App. Sept. 19, 2016).

COMMENTS TO OFFICIAL TEXT

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.

COMMENTS TO OFFICIAL TEXT

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.

COMMENTS TO OFFICIAL TEXT

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).

COMMENTS TO OFFICIAL TEXT

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.

COMMENTS TO OFFICIAL TEXT

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. Liability for Rent.

Lender was authorized to accelerate amounts due under a deed of trust, including amounts the lender had paid to release a prior deed of trust, and the buyer of the property was liable to the lender for rents collected after notice of the mortgage acceleration. Higdon v. Regions Bank, — S.W.3d —, 2010 Tenn. App. LEXIS 331 (Tenn. Ct. App. May 13, 2010).

2. Failure to Maintain Insurance.

Evidence did not preponderate against a trial court's finding that a bank did not act in bad faith, T.C.A. § 47-1-309, by declaring a loan for an aircraft in default and accelerating the loan, even though all payments were made on time, because the borrower and guarantors materially breached the loan agreement by failing to maintain insurance on the aircraft; the bank made numerous attempts to contact the borrower, who never replied to the communications. Regions Bank v. Thomas, 422 S.W.3d 550, 2013 Tenn. App. LEXIS 156 (Tenn. Ct. App. Mar. 4, 2013).

COMMENTS TO OFFICIAL TEXT

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.

COMMENTS TO OFFICIAL TEXT

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.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Approval of Third Persons.

Where goods are sold subject to a third person's approval and are rejected, that decision is conclusive short of fraud or bad faith, and the burden of showing that is on the seller. Stone v. Blue Ridge Tie Co., 7 Tenn. App. 670, — S.W. —, 1927 Tenn. App. LEXIS 24 (Tenn. Ct. App. 1927).

2. Abandonment of Contract by Dealer.

Failure of dealer to furnish manufacturer with specifications as to amount of each size of articles desired where different sizes are contracted for, is evidence of abandonment of contract by dealer. Ault v. Dustin, 100 Tenn. 366, 45 S.W. 981, 1897 Tenn. LEXIS 125 (1898).

Collateral References. 67 Am. Jur. 2d Sales § 141 et seq.

COMMENTS TO OFFICIAL TEXT

Changes:  Rewritten.

Prior Uniform Statutory Provision:  Sections 11 and 41, Uniform Sales Act.

Purposes of Changes:

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

Cross-References:

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.

NOTES TO DECISIONS

1. Interpretation and Enforcement.

Grant of summary judgment in favor of the seller in the purchasers'  action for a breach of implied and express warranties was improper, because the purchasers only had to show that they were harmed by the contaminated product, not that the consumers were harmed; in light of the disputed fact as to whether the alcohol to be used in sunless tanning products bought from the seller was in fact contaminated, the purchasers put forth sufficient evidence to survive summary judgment on their causes of action. Invest v. Cone Solvents, — S.W.3d —, 2007 Tenn. App. LEXIS 480 (Tenn. Ct. App. July 26, 2007).

Decisions Under Prior Law

1. Interpretation and Enforcement.

Where one construction would make a contract unusual and extraordinary and another construction, equally consistent with the language employed, would make it reasonable, fair and just, the latter construction will prevail. Nashville Terminal Co. v. Tennessee C. R. Co., 2 Tenn. App. 646, — S.W. —, 1926 Tenn. App. LEXIS 64 (Tenn. Ct. App. 1926).

Courts will not make a contract for parties which they did not make for themselves. Southern Style Shops, Inc. v. Mann, 157 Tenn. 1, 4 S.W.2d 959, 1927 Tenn. LEXIS 41 (1928).

It is the function of a court, in the absence of fraud or mistake, to interpret and enforce contracts as they are written, notwithstanding they may contain terms which may be thought harsh or unjust. Smithart v. John Hancock Mut. Life Ins. Co., 167 Tenn. 513, 71 S.W.2d 1059, 1934 Tenn. LEXIS 10 (1934); E.O. Bailey & Co. v. Union Planters Title Guar. Co., 33 Tenn. App. 439, 232 S.W.2d 309, 1949 Tenn. App. LEXIS 130 (1949); Petty v. Sloan, 197 Tenn. 630, 277 S.W.2d 355, 1955 Tenn. LEXIS 329 (1955).

Courts are not at liberty to annul or change or amend the contract entered into between parties capable of contracting simply upon the ground that judges may be of the opinion that a better agreement would or should have been arrived at. Matthews v. Matthews, 24 Tenn. App. 580, 148 S.W.2d 3, 1940 Tenn. App. LEXIS 67 (Tenn. Ct. App. 1940).

2. Subject Matter.

Contracts must be construed with reference to the situation and surroundings of the parties, the nature of the business in which they are engaged and to which the contract relates, and also with reference to the subject matter. Southern R. Co. v. Bacon, 128 Tenn. 169, 159 S.W. 602, 1913 Tenn. LEXIS 35 (1913).

3. Specific Performance.

Specific performance of a contract will not be decreed when it is hard or unreasonable in itself, or when, from material change of circumstances since making the contract, the performance would be attended with any particular hardship. McCarty v. Kyle, 44 Tenn. 348, 1867 Tenn. LEXIS 55 (1867); Fultz v. Melcher, 1 Tenn. Civ. App. (1 Higgins) 72 (1910); Sanders v. Sanders, 40 Tenn. App. 20, 288 S.W.2d 473, 1955 Tenn. App. LEXIS 99, 57 A.L.R.2d 932 (1955).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  None.

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 C.A.) 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 C.A.), 47 T.L.R. 336, where a blanket clause prohibiting rejection of shipments by the buyer was restricted to apply to shipments where discrepancies represented merely mercantile variations; Meyer v. Packard Cleveland Motor Co., 106 Ohio St. 328, 140 N.E. 118 (1922), in which the court held that a “waiver” of all agreements not specified did not preclude implied warranty of fitness of a rebuilt dump truck for ordinary use as a dump truck; Austin Co. v. J.H. Tillman Co., 104 Or. 541, 209 P.131 (1922), where a clause limiting the buyer's remedy to return was held to be applicable only if the seller had delivered a machine needed for a construction job which reasonably met the contract description; Bekkevold v. Potts, 173 Minn. 87, 216 N.W. 790, 59 A.L.R. 1164 (1927), refusing to allow warranty of fitness for purpose imposed by law to be negated by clause excluding all warranties “made” by the seller; Robert A. Munroe & Co. v. Meyer (1930), 2 K.B. 312, holding that the warranty of description overrides a clause reading “with all faults and defects” where adulterated meat not up to the contract description was delivered.

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

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

Definitional Cross-References:

“Contract”. Section 1-201.

COMMENTS TO OFFICIAL TEXT

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 [Chapter] as they desire, always subject, of course, to the provisions on unconscionability.

Compare Section 1-102(4).

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

Cross-References:

Point 1: Sections 1-102, 2-302.

Point 2: Section 1-201.

Definitional Cross-References:

“Agreement”. Section 1-201.

“Party”. Section 1-201.

NOTES TO DECISIONS

1. Seller.

Breach of warranty claims remained against a retailer after its customer bit into insect-infested candy while shopping at its store because the undisputed evidence was that the retailer sold candies and soft drinks in addition to pet supplies and therefore it was a “merchant” for purposes of T.C.A. §§ 47-2-304(1) and 47-2-314(1). Gentry v. Hershey Co., 687 F. Supp. 2d 711, 2010 U.S. Dist. LEXIS 9278 (M.D. Tenn. Feb. 3, 2010).

Decisions Under Prior Law

1. Price Payable in Personal Property.

The distinction between sales and barter was abolished by the provision that the price may be payable in any personal property. Arledge v. Ridge, 12 Tenn. App. 415, — S.W.2d —, 1930 Tenn. App. LEXIS 81 (Tenn. Ct. App. 1930).

COMMENTS TO OFFICIAL TEXT

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

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

Cross-References:

Point 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.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Necessity of Fixed Price.

The former Uniform Sales Act did not change the common law principle that no recovery could be had on an executory contract in which price was not fixed. Washington Mills Co. v. Frohlich & Barbour, 5 Tenn. App. 217, — S.W. —, 1927 Tenn. App. LEXIS 52 (Tenn. Ct. App. 1927).

2. Price Fixed by Course of Dealing.

A buyer accepting and using castings in a finished condition, though ordered in the rough, with knowledge of the seller's price for finished castings, impliedly agreed to pay that sum therefor, though the castings were not reasonably worth that amount. Ross Meehan Foundries v. Nashville Bridge Co., 149 Tenn. 693, 261 S.W. 674, 1923 Tenn. LEXIS 126 (1924).

3. Price Fixed by Buyer.

Where complainant mill entered into executory contract with defendant for purchase of 600 bales of cotton at a price of 40 points on December quotations on New York Exchange to be fixed by the complainant but complainant never fixed the price, it was not entitled to recover damages for failure of defendant to ship cotton. Washington Mills Co. v. Frohlich & Barbour, 5 Tenn. App. 217, — S.W. —, 1927 Tenn. App. LEXIS 52 (Tenn. Ct. App. 1927).

4. Tender of Payment.

Time was not of the essence of the contract between neighboring farmers of a lot of cows to be delivered the next day, so as to require tender of prices on that day, where there is nothing to indicate that the seller would have suffered any loss, injury, or inconvenience by a day's delay, or that the cows had depreciated in value. Farris v. Ferguson, 146 Tenn. 498, 242 S.W. 873, 1922 Tenn. LEXIS 7, 23 A.L.R. 624 (1922).

Where the seller of cows refused checks tendered in payment on the day of delivery, the buyers were entitled to time until the next day to tender the money, where they had every reason, from previous dealings, to believe that the checks would be accepted. Farris v. Ferguson, 146 Tenn. 498, 242 S.W. 873, 1922 Tenn. LEXIS 7, 23 A.L.R. 624 (1922).

5. Quantity.

Where dealer wrote to a mill asking for its price on bran and mill stated that it could not “sell bran for less than $7.00 per ton” after which dealer wired mill for 50 tons at that price such wire constituted a binding acceptance of the offer of the mill, notwithstanding contention of mill that it could not be binding since no quantity was mentioned in their offer, since where no definite quantity was mentioned it was optional with the dealer to order any amount desired within the bounds of reason and the demands of business. College Mill Co. v. Fidler, 58 S.W. 382, 1899 Tenn. Ch. App. LEXIS 168 (1899).

Contract based on letter stating, “You may enter our contract for a minimum quantity of one hundred and twenty tons, maximum quantity of one hundred and forty-five tons” of paper specifying the prices and terms were not void for uncertainty or lack of mutuality. Southern Pub. Ass'n v. Clements Paper Co., 139 Tenn. 429, 201 S.W. 745, 1917 Tenn. LEXIS 119, L.R.A. (n.s.) 1918D580 (1918).

Collateral References.

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

“Escalator” price adjustment clause. 63 A.L.R.2d 1337.

Fraud in the inducement and fraud in the factum as defense under UCC § 3-305 against holder in due course. 78 A.L.R.3d 1020.

COMMENTS TO OFFICIAL TEXT

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

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

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

4.  The section recognizes that there may be cases in which a particular person's judgment is not chosen merely as a barometer or index of a fair price but is an essential condition to the parties' intent to make any contract at all. For example, the case where a known and trusted expert is to “value” a particular painting for which there is no market standard differs sharply from the situation where a named expert is to determine the grade of cotton, and the difference would support a finding that in the one the parties did not intend to make a binding agreement if that expert were unavailable whereas in the other they did so intend. Other circumstances would of course affect the validity of such a finding.

5.  Under subsection (3), wrongful interference by one party with any agreed machinery for price fixing in the contract may be treated by the other party as a repudiation justifying cancellation, or merely as a failure to take cooperative action thus shifting to the aggrieved party the reasonable leeway in fixing the price.

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

Cross-References:

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.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Validity.

A contract to buy all that one shall require for one's own use in a particular manufacturing business was valid. Loudenback Fertilizer Co. v. Tennessee Phosphate Co., 121 F. 298, 1903 U.S. App. LEXIS 4608, 61 L.R.A. 402 (6th Cir. Tenn. 1903).

2. Fixed Term.

The contract between a manufacturer of pig iron and one engaged in the business requiring the use of pig iron “that the former will supply to the latter, and the latter will purchase from him, all the pig iron which he will need, use, or consume, in his business,” for a fixed period, was held valid and binding, and required the purchaser to take “such a quantity of pig iron, in view of the situation and business of the purchaser, as was reasonably required and necessary in its manufacturing business.” Hardwick v. American Can Co., 113 Tenn. 657, 88 S.W. 797, 1904 Tenn. LEXIS 57 (1904) (citing Illinois case).

A contract to furnish a canning factory “all the cans they would use for packing in their factory” during a certain period is valid and binding. Hardwick v. American Can Co., 113 Tenn. 657, 88 S.W. 797, 1904 Tenn. LEXIS 57 (1904) (citing Michigan case).

Collateral References.

Construction and effect of contract for sale of commodity to fill buyer's requirements. 26 A.L.R.2d 1099.

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

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

COMMENTS TO OFFICIAL TEXT

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 [Chapter], a contract for output or requirements is not too indefinite since it is held to mean the actual good faith output or requirements of the particular party. Nor does such a contract lack mutuality of obligation since, under this section, the party who will determine quantity is required to operate his plant or conduct his business in good faith and according to commercial standards of fair dealing in the trade so that his output or requirements will approximate a reasonably foreseeable figure. Reasonable elasticity in the requirements is expressly envisaged by this section and good faith variations from prior requirements are permitted even when the variation may be such as to result in discontinuance. A 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 [Chapter] takes no position as to whether a requirements contract is a provable claim in bankruptcy.

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

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

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

Cross-References:

Point 4: Section 2-210.

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

Definitional Cross-References:

“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.

“Seller”. Section 2-103.

“Term”. Section 1-201.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Contract as an Entirety.

An agreement to sell and purchase, during the contract period, 50 cars of lumber, deliveries to be made upon specifications and orders of the purchaser, in different periods throughout the year, was entire, and not severable. John Deere Plow Co. v. Shellabarger, 140 Tenn. 123, 203 S.W. 756, 1918 Tenn. LEXIS 28 (1918).

A contract for the delivery of and payment for goods by installments is regarded as entire, and not severable, and the violation of installment terms as to delivery or payment will authorize a rescission of the entire contract. A provision under the subdivision “Terms,” that “each month's shipment to stand as a separate sale and contract,” is referable to payment and method of accounting for goods received, and cannot be extended to divide an otherwise entire contract. Tennessee Fertilizer Co. v. International Agr. Corp., 146 Tenn. 451, 243 S.W. 81, 1921 Tenn. LEXIS 27 (1922).

2. Waiver of Breach.

Where installments of lumber shipped under an installment contract were accepted and paid for by the purchaser, who was not aware of any defects, the breach of the contract as to such installments was waived, and the purchaser was precluded from using such breach as a discharge from the contract as to future installments. John Deere Plow Co. v. Shellabarger, 140 Tenn. 123, 203 S.W. 756, 1918 Tenn. LEXIS 28 (1918).

COMMENTS TO OFFICIAL TEXT

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.

“Lots”. Section 2-105.

“Party”. Section 1-201.

“Rights”. Section 1-201.

COMMENTS TO OFFICIAL TEXT

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 [Chapter] 4 spells out its duties and relations to its customer. Where the documents move forward under a letter of credit the Article [Chapter] on Letters of Credit spells out the duties and relations between the bank, the seller and the buyer.

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 [Chapters] 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.

NOTES TO DECISIONS

1. Time of Performance.

Although time was of the essence in a contract to supply acoustical tile and that fact was made known to the supplier in the contract, plaintiff waived the performance date through acquiescence in the repeated delays in performance and elected not to terminate the contract for nonperformance when delivery was not made as per the contract and as such the supplier, under a duty to perform within a reasonable date after the performance date, was entitled to payment for the goods delivered two months after the last promised date. Shankle-Clairday, Inc. v. Crow, 414 F. Supp. 160, 1976 U.S. Dist. LEXIS 17263 (M.D. Tenn. 1976).

Where automobile purchase order did not contain any specific limit on the time allowed buyer to obtain financing, buyer had a reasonable time to do so, and seller could terminate the contract and end the time for buyer to obtain financing only by giving notice. Skinner v. Cumberland Auto Ctr. (In re Skinner), 238 B.R. 120, 1999 Bankr. LEXIS 1149 (Bankr. M.D. Tenn. 1999).

Decisions Under Prior Law

1. Time of Performance.

Where time of performance is not fixed, the law fixes a reasonable time in which it is to be performed, and what is a reasonable time is the question to be determined in view of all the circumstances which may have been supposed reasonably to have been in contemplation of the parties. Memphis Furniture Mfg. Co. v. Wemyss Furniture Co., 2 F.2d 428, 1924 U.S. App. LEXIS 2065 (6th Cir. Tenn. 1924).

When no definite time for performance of a contract is specified, by either party, the law will imply a reasonable time under the circumstances in contemplation by both parties at the time of formation of the contract. Calcasieu Paper Co. v. Memphis Paper Co., 32 Tenn. App. 293, 222 S.W.2d 617, 1949 Tenn. App. LEXIS 97 (Tenn. Ct. App. 1949).

COMMENTS TO OFFICIAL TEXT

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

Changes:  Completely different in scope.

1.  Purposes of Changes and New Matter:  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 [Chapter] impracticable. The applicable principles, however, make it clear that surprise is to be avoided, good faith judgment is to be protected, and notice or negotiation to reduce the uncertainty to certainty is to be favored.

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

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

When both parties let an originally reasonable time go by in silence, the course of conduct under the contract may be viewed as enlarging the reasonable time for tender or demand of performance. The contract may be terminated by abandonment.

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

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

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

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

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

Cross-References:

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.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Terms of Payment.

Where the details of the terms of payment are not provided for in the contract, cash terms will apply. Neilson & Kittle Canning Co. v. F. G. Lowe & Co., 149 Tenn. 561, 260 S.W. 142, 1923 Tenn. LEXIS 114 (1924).

2. Relief Upon Examination.

If goods sold by sample, upon examination, are found to be unlike the samples, the buyer may elect to rescind the contract and refuse to receive the goods, or if the goods have already been received, return them or offer to return them to the seller and recover the price paid. Elbinger Shoe Co. v. Thomas, 1 Tenn. App. 161, — S.W. —, 1925 Tenn. App. LEXIS 24 (Tenn. Ct. App. 1925).

Collateral References.

Right of action for breach of contract which expressly leaves open for future agreement or negotiation the terms of payment for property. 68 A.L.R.2d 1221.

COMMENTS TO OFFICIAL TEXT

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 [Chapter] 4. 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 the documents.

3.  Unless otherwise agreed, the place for the receipt 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.

4.  Where the mode of shipment is such that goods must be unloaded immediately upon arrival, too rapidly to permit adequate inspection before receipt, the seller must be guided by the provisions of this Article [Chapter] on inspection which provide that if the seller wishes to demand payment before inspection, he must put an appropriate term into the contract. Even requiring payment against documents will not of itself have this desired result if the documents are to be held until the arrival of the goods. But under (b) and (c) if the terms are C.I.F., C.O.D., or cash against documents payment may be due before inspection.

5.  Paragraph (d) states the common commercial understanding that an agreed credit period runs from the time of shipment or from that dating of the invoice which is commonly recognized as a representation of the time of shipment. The provision concerning any delay in sending forth the invoice is included because such conduct results in depriving the buyer of his full notice and warning as to when he must be prepared to pay.

Cross-References:

Generally: Part 5.

Point 1: Section 2-509.

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

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

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

Definitional Cross-References:

“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.

NOTES TO DECISIONS

1. Good Faith and Commercial Reasonableness.

Purchaser of coal exercised good faith and commercial reasonableness with regard to its sampling and analysis procedures and practices, despite minor deviations from standards of American Society for Testing and Materials, and therefore was entitled to recover “penalty” for inferior coal in accordance with terms of contract. Georgia Power Co. v. East Tennessee Fuel, Inc., 496 F. Supp. 626, 1980 U.S. Dist. LEXIS 13173 (E.D. Tenn. 1980).

Decisions Under Prior Law

1. Certainty and Definiteness.

Where the stipulation by one party that he was to deliver salt when called on, and by the other that he would pay for the salt so delivered at a given price per bushel, the promises, the one in consideration of the other, are sufficient to make the contract binding. Cherry v. Smith, 22 Tenn. 19, 1842 Tenn. LEXIS 11 (1842).

Contract based on letter stating, “You may enter our contract for a minimum quantity of one hundred and twenty tons, maximum quantity of one hundred and forty-five tons” of paper specifying the prices and terms was not void for uncertainty or lack of mutuality. Southern Pub. Ass'n v. Clements Paper Co., 139 Tenn. 429, 201 S.W. 745, 1917 Tenn. LEXIS 119, L.R.A. (n.s.) 1918D580 (1918).

Where contract consisted of order and acknowledgment of order and order described the material desired without any price or shipping date except a reference to OPA regulations and acknowledgment showed the date of the order and the items specified, but no price except “OPA prices at time of shipment to apply” and further stated “this order is being entered for shipment when our schedule permits and no specific promise as to delivery can be made at this time” it was not indefinite or uncertain or lacking mutuality and purchaser was obligated to take whatever quantity the order specified whenever delivery could be made at OPA ceiling prices at time of delivery. Calcasieu Paper Co. v. Memphis Paper Co., 32 Tenn. App. 293, 222 S.W.2d 617, 1949 Tenn. App. LEXIS 97 (Tenn. Ct. App. 1949).

2. Cooperation by Third Party.

One who makes a promise which cannot be performed without the consent or cooperation of a third person, is not excused from liability because of inability to secure the required consent or cooperation, unless terms or nature of contract indicate that he does not assume this risk, and purely subjective impossibility of performance is immaterial. Allen v. Elliott Reynolds Motor Co., 33 Tenn. App. 179, 230 S.W.2d 418, 1950 Tenn. App. LEXIS 99 (Tenn. Ct. App. 1950).

COMMENTS TO OFFICIAL TEXT

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 noncooperating 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.

NOTES TO DECISIONS

1. Sellers.

2. —Disclosure.

The failure of sellers to make appropriate disclosure of the infirmities in the title of the sellers to the various items to be sold was sufficient to repel them from enforcing their contract. Massey v. Hardcastle, 753 S.W.2d 127, 1988 Tenn. App. LEXIS 189 (Tenn. Ct. App. 1988).

As a buyer who sued a used car dealer for his failure to give her a certificate of title was not claiming there was any encumbrance on the title other than the vendor's lien, the buyer was not suing for breach of warranty of title. Nzirubusa v. United Imps., Inc., — S.W.3d —, 2006 Tenn. App. LEXIS 413 (Tenn. Ct. App. June 21, 2006), appeal denied, — S.W.3d —, 2006 Tenn. LEXIS 1045 (Tenn. Nov. 6, 2006).

Decisions Under Prior Law

1. Implied Warranties.

2. —Generally.

Where at time of sale goods were in possession of vendor who deals with them as owner, it was implied at common law that vendor warranted title to property sold, and the former Uniform Sales Act was but declaratory of the common law on this subject. Rundle v. Capitol Chevrolet, Inc., 23 Tenn. App. 151, 129 S.W.2d 217, 1939 Tenn. App. LEXIS 21 (Tenn. Ct. App. 1939).

3. —Right to Sell and Quiet Enjoyment.

There was an implied warranty on part of person trading automobile to dealer as part payment for another automobile that he had a right to sell the automobile and that the dealer would enjoy quiet possession. Bunch v. D. S. Etheridge Co., 27 Tenn. App. 307, 180 S.W.2d 225, 1943 Tenn. App. LEXIS 144 (Tenn. Ct. App. 1943).

Where motor vehicle dealer failed to deliver to purchaser of automobile a properly executed bill of sale as required by law the dealer was guilty of a breach of an implied warranty under subsections (2) and (3) of § 13 of the Sales Act (former § 47-1213) and purchaser had the option to rescind the contract and recover the purchase price under former § 47-1269. Schaeffer v. Richard, 43 Tenn. App. 205, 306 S.W.2d 340, 1956 Tenn. App. LEXIS 149 (Tenn. Ct. App. 1956).

4. —Liens and Charges.

Warranty of title on part of one who sold automobile under conditional sales contract was breached by encumbrance on tires held to be essential part of automobile. Rundle v. Capitol Chevrolet, Inc., 23 Tenn. App. 151, 129 S.W.2d 217, 1939 Tenn. App. LEXIS 21 (Tenn. Ct. App. 1939).

The implied warranties by the vendor under Uniform Sales Act protect the vendee against liens or charges on the goods. Rundle v. Capitol Chevrolet, Inc., 23 Tenn. App. 151, 129 S.W.2d 217, 1939 Tenn. App. LEXIS 21 (Tenn. Ct. App. 1939).

5. —Conditional Sales Contract.

Although parol warranties or representations as to condition, quality, or fitness of the thing sold have been excluded by stipulations in conditional sales contracts as contradictory of the writing, a provision in a conditional sales contract that title to personal property should remain in the vendor until the balance of the purchase price has been paid, whereupon it would then pass to the vendee, is in itself a warranty of title by the vendor. Rundle v. Capitol Chevrolet, Inc., 23 Tenn. App. 151, 129 S.W.2d 217, 1939 Tenn. App. LEXIS 21 (Tenn. Ct. App. 1939).

6. Seller.

7. —Agent Acting as Principal.

A plaintiff could recover for the breach of the implied warranty of title to some mules which he had purchased from the defendant auctioneer at a sale even though the defendant had announced that he was selling for another, since the defendant in the bill of sale to the plaintiff did not designate himself as an agent but rather from the terms of the bill of sale as principal. Gessler v. Winton, 24 Tenn. App. 411, 145 S.W.2d 789, 1940 Tenn. App. LEXIS 47 (Tenn. Ct. App. 1940).

Where one in possession of a chattel sells it as owner the law implies a warranty of title by him. Gessler v. Winton, 24 Tenn. App. 411, 145 S.W.2d 789, 1940 Tenn. App. LEXIS 47 (Tenn. Ct. App. 1940).

8. —Auctioneer as Seller.

Section 13 of the Uniform Sales Act (former § 47-1213) relating to implied warranties did not prevent an auctioneer from becoming personally liable where he contracted in his own name as principal and not as agent. Gessler v. Winton, 24 Tenn. App. 411, 145 S.W.2d 789, 1940 Tenn. App. LEXIS 47 (Tenn. Ct. App. 1940).

Where an auctioneer sells personal property without disclosing his agency or principal the law implies a warranty of title by the auctioneer, but where he discloses his principal he is not responsible to the buyer for the title unless he makes an agreement pledging his own responsibility. Gessler v. Winton, 24 Tenn. App. 411, 145 S.W.2d 789, 1940 Tenn. App. LEXIS 47 (Tenn. Ct. App. 1940).

9. Knowledge of Buyer as to Encumbrances.

Where, during the negotiations for the sale of certain personal property, both the seller and the purchaser understood that the delinquent taxes were unpaid, and both parties assumed that the property might be subjected to payment of the taxes, that alone will not render the purchaser liable for the taxes assessed against the seller, in view of an implied warranty that the goods purchased are free from any charge or encumbrance of any third person. Johnson City v. Press, Inc., 171 Tenn. 80, 100 S.W.2d 657, 1936 Tenn. LEXIS 64 (1937).

10. Rescission of Contract.

Where vendee purchased automobile under conditional sales contract and, upon determining that vendor was guilty of breach of implied warranty of title, requested that vendor take car back and return money to vendee, vendor's refusal to do so made it unnecessary for vendee to make physical tender of automobile itself in order to entitle him to rescind. Rundle v. Capitol Chevrolet, Inc., 23 Tenn. App. 151, 129 S.W.2d 217, 1939 Tenn. App. LEXIS 21 (Tenn. Ct. App. 1939).

Where vendor under conditional sales contract sold automobile equipped with tires on which there was encumbrance, and refused to pay off encumbrance although offering to substitute encumbered tires with other tires, vendee's refusal to accept offer of substitution did not affect his right to rescind contract for sale of automobile on account of vendor's breach of implied warranty of title. Rundle v. Capitol Chevrolet, Inc., 23 Tenn. App. 151, 129 S.W.2d 217, 1939 Tenn. App. LEXIS 21 (Tenn. Ct. App. 1939).

Breach of implied warranty that seller has the right to sell the goods gives the buyer the absolute right to rescind. White v. Mid-City Motor Co., 39 Tenn. App. 429, 284 S.W.2d 689, 1955 Tenn. App. LEXIS 80 (Tenn. Ct. App. 1955).

Failure of automobile dealer to obtain certificate of title or title card from person from whom it had purchased used car or to clear the title and cause conditional purchaser of such car to be provided with title card or proper evidence of title in accordance with motor vehicle title and registration law constituted implied breach of warranty entitling buyer to rescind contract. White v. Mid-City Motor Co., 39 Tenn. App. 429, 284 S.W.2d 689, 1955 Tenn. App. LEXIS 80 (Tenn. Ct. App. 1955).

In action by purchaser to cancel and rescind conditional sales contract for sale of automobile for breach of implied warranty where seller failed to clear title and provide purchaser with proper evidence of title, use of automobile by purchaser and his failure to give notice of his election to rescind and return the automobile did not cut off the right of rescission where seller defaulted in its duty to perfect the title and continued to assure purchaser that title would soon be cleared. White v. Mid-City Motor Co., 39 Tenn. App. 429, 284 S.W.2d 689, 1955 Tenn. App. LEXIS 80 (Tenn. Ct. App. 1955).

In action by purchaser to rescind conditional sales contract for breach of implied warranty where seller failed to clear title or to provide purchaser with proper evidence of title, fact that car was taken to another state without permission of seller where it was seized because there was no certificate of title did not bar action by purchaser to rescind contract where it could not have been lawfully operated in Tennessee. White v. Mid-City Motor Co., 39 Tenn. App. 429, 284 S.W.2d 689, 1955 Tenn. App. LEXIS 80 (Tenn. Ct. App. 1955).

11. Burden of Proof.

The burden of establishing a breach of implied warranty is on the one asserting the breach. Bunch v. D. S. Etheridge Co., 27 Tenn. App. 307, 180 S.W.2d 225, 1943 Tenn. App. LEXIS 144 (Tenn. Ct. App. 1943).

12. Disclaimers.

An “as is” disclaimer of warranties does not bar an action for unfair or deceptive acts or practices. Morris v. Mack's Used Cars, 824 S.W.2d 538, 1992 Tenn. LEXIS 45 (Tenn. 1992).

Collateral References.

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

COMMENTS TO OFFICIAL TEXT

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

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

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

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

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

Cross-References:

Point 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.

NOTES TO DECISIONS

1. In General.

Suit for damages to chickens by chicken producer and suppliers of feed against feed manufacturer who allegedly furnished substandard meal to feed supplier was an action for breach of warranty of sale which was governed by the U.C.C. even though tortious breach on part of defendants was alleged. Mid-South Milling Co. v. Loret Farms, Inc., 521 S.W.2d 586, 1975 Tenn. LEXIS 693 (Tenn. 1975).

2. Express Warranties.

Plaintiffs were unable to make out a claim for breach of warranty against the manufacturers; although the manufacturers expressly warranted that the product was suitable for the purposes intended and free from defects, it was not clear that the injured party read or specifically relied on these affirmations. Coffey v. Dowley Mfg., 187 F. Supp. 2d 958, 2002 U.S. Dist. LEXIS 6898 (M.D. Tenn. 2002), aff'd, 89 Fed. Appx. 927, 2003 U.S. App. LEXIS 26610 (6th Cir. 2003).

Because a truck driver's amended complaint failed to include any allegations of express warranties that were created by the manufacturer of the tractor trailer operated by the driver as described in T.C.A. § 47-2-313(1), the court dismissed the driver's breach of express warranty for failure to allege sufficient facts in an action where the driver claimed that a windshield installed by the manufacturer had collapsed into the bed of the driver's truck, thereby causing him severe personal injuries. Galloway v. Big G Express, Inc., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 945 (E.D. Tenn. Jan. 7, 2008).

3. —Illustrations.

Where supplier expressly warranted that its okra seeds were of a particular variety, when in fact they were of an off-variety; and seller, relying on supplier's representation, made the same express warranty to purchaser, both supplier and seller breached their express warranties. Agricultural Services Asso. v. Ferry-Morse Seed Co., 551 F.2d 1057, 1977 U.S. App. LEXIS 14129 (6th Cir. Tenn. 1977).

Because breast implant company neither manufactured the products in question nor controlled the products' manufacturer, any claim of breach of warranty had to fail. McConkey v. McGhan Med. Corp., 144 F. Supp. 2d 958, 2000 U.S. Dist. LEXIS 19895 (E.D. Tenn. 2000).

4. —Inducement to Buy.

Material representations contained in written materials which were furnished by seller of roofing materials for the purpose of inducing sales of its products became a part of the basis of the bargain so as to create express warranties that the goods conformed to such representations. Cooper Paintings & Coatings, Inc. v. SCM Corp., 62 Tenn. App. 13, 457 S.W.2d 864, 1970 Tenn. App. LEXIS 250 (Tenn. Ct. App. 1970).

Evidence was sufficient to show that buyer relied on seller's representations, making them part of the basis of the bargain. Fletcher v. Coffee County Farmers Cooperative, 618 S.W.2d 490, 1981 Tenn. App. LEXIS 502 (Tenn. Ct. App. 1981).

Buyer's reliance on seller's representations that a tractor was in good shape and that he had used it for purposes similar to the intended use by the buyer made the representations a part of the basis of the sale. Smith v. Bearfield, 950 S.W.2d 40, 1997 Tenn. App. LEXIS 204 (Tenn. Ct. App. 1997), appeal denied, 1997 Tenn. LEXIS 432 (Tenn. Sept. 2, 1997).

5. —Indicators of Past Performance.

The exhibition of a sample created no express warranty where the seller merely offered samples and analyses as indicators or past performance but did not represent that all future production would conform to the sample. Kopper Glo Fuel, Inc. v. Island Lake Coal Co., 436 F. Supp. 91, 1977 U.S. Dist. LEXIS 15652 (E.D. Tenn. 1977).

6. —Sufficiency of Evidence.

Evidence did not establish existence of express warranty. Alumax Aluminum Corp., Magnolia Div. v. Armstrong Ceiling Systems, Inc., 744 S.W.2d 907, 1987 Tenn. App. LEXIS 2997 (Tenn. Ct. App. 1987).

Grant of summary judgment in favor of the seller in the purchasers'  action for a breach of implied and express warranties was improper, because the purchasers only had to show that they were harmed by the contaminated product, not that the consumers were harmed; in light of the disputed fact as to whether the alcohol to be used in sunless tanning products bought from the seller was in fact contaminated, the purchasers put forth sufficient evidence to survive summary judgment on their causes of action. Invest v. Cone Solvents, — S.W.3d —, 2007 Tenn. App. LEXIS 480 (Tenn. Ct. App. July 26, 2007).

7. —Breach of Warranty.

Breach of an express warranty by description can arise when a buyer purchases goods in reliance upon the seller's incorrect description of the goods. In re Jackson Television, Ltd., 121 B.R. 790, 1990 Bankr. LEXIS 2594 (Bankr. E.D. Tenn. 1990).

In order to establish a prima facie claim for breach of express warranty, plaintiff must prove that: (1) Seller made an affirmation of fact intending to induce the buyer to purchase the goods; (2) Buyer was in fact induced by the seller's acts; and (3) The affirmation of fact was false regardless of the seller's knowledge of the falsity or intention to create a warranty. Coffey v. Dowley Mfg., 187 F. Supp. 2d 958, 2002 U.S. Dist. LEXIS 6898 (M.D. Tenn. 2002), aff'd, 89 Fed. Appx. 927, 2003 U.S. App. LEXIS 26610 (6th Cir. 2003).

Prescription drug users'  claims against pharmaceutical manufacturing companies that made a brand name drug did not support a theory of relief based on breach of the warranties under T.C.A. §§ 47-2-313(1), 47-2-314(1), and 47-2-318, as the brand name pharmaceutical manufacturers did not sell the goods which allegedly caused the users'  injuries; rather, the users allegedly sustained injuries from taking the generic version of the drug. Strayhorn v. Wyeth Pharms., Inc., 882 F. Supp. 2d 1020, 2012 U.S. Dist. LEXIS 110804 (W.D. Tenn. Aug. 8, 2012).

There was no evidence to support appellant's contention that appellee breached an express warranty related to a harvester; the article in question did not quote or reference any statements or affirmations made on behalf of appellee. Smith v. Timberpro Inc., — S.W.3d —, 2017 Tenn. App. LEXIS 163 (Tenn. Ct. App. Mar. 9, 2017).

8. Reliance.

Purchaser of television station equipment at trustee's sale could not have relied upon a list of equipment so as to create an express warranty that the equipment would function properly where, at time of sale, purchaser was aware of the condition of the equipment based upon its own inspection of the equipment and where trustee made no express warranties as to the condition of the equipment. In re Jackson Television, Ltd., 121 B.R. 790, 1990 Bankr. LEXIS 2594 (Bankr. E.D. Tenn. 1990).

9. Disclaimers.

An “as is” disclaimer of warranties does not bar an action for unfair or deceptive acts or practices. Morris v. Mack's Used Cars, 824 S.W.2d 538, 1992 Tenn. LEXIS 45 (Tenn. 1992).

Decisions Under Prior Law

1. Express Warranties.

2. —Illustrations.

Seller's representation that hogs had been vaccinated for cholera was an express warranty, but it was not a warranty that they were immune from cholera, for this would be to hold that vaccination was an infallible preventive. W. H. Hay & Co. v. Pierce, 8 Tenn. App. 438, — S.W.2d —, 1928 Tenn. App. LEXIS 158 (Tenn. Ct. App. 1928).

Where the seller of a pump for water system represented that it would do the required work satisfactorily, the buyer being without knowledge of pumps or whether the one sold and installed would be sufficient, and relying upon the representation, the seller expressly warranted the sufficiency. Franklin v. Hermitage Engineering Co., 12 Tenn. App. 434, — S.W.2d —, 1930 Tenn. App. LEXIS 84 (Tenn. Ct. App. 1930).

A buyer was allowed to recover damages for false warranty where a dealer in cars represented the car the buyer was purchasing as a new car when, in fact, it was a used car. Mashburn v. Thornton, 35 Tenn. App. 216, 244 S.W.2d 173, 1951 Tenn. App. LEXIS 64 (Tenn. Ct. App. 1951).

Where defendant advertised “15-20 ton” crane but in actual operation it would lift something less than 10 tons there was a breach of express warranty even though defendant was guilty of no fraud. Standard Stevedoring Co. v. Jaffe, 42 Tenn. App. 378, 302 S.W.2d 829, 1956 Tenn. App. LEXIS 143 (Tenn. Ct. App. 1956).

3. —Latent Defects.

As to latent defects the buyer may enforce an express warranty, notwithstanding he may have personally examined the goods. Tennessee Roofing & Tile Co. v. Ely, 159 Tenn. 628, 21 S.W.2d 398, 1929 Tenn. LEXIS 21 (1929).

4. —Caveat Emptor.

The doctrine of caveat emptor does not apply where seller misrepresented seed to be “real sorghum seed” and buyer inspected seed at time of purchase. Sullivan v. Bandy, 15 Tenn. App. 411, — S.W.2d —, 1932 Tenn. App. LEXIS 108 (Tenn. Ct. App. 1932).

5. —Inducement to Buy.

When a seller states or represents a fact that induces a prospective customer to buy, such statement or representation constitutes an express warranty and if it is untrue the buyer may recover damages for the breach. E. I. Du Pont De Nemours & Co. v. E. L. Bruce Co., 174 Tenn. 148, 124 S.W.2d 243, 1938 Tenn. LEXIS 75 (1939).

Whether an affirmation amounts to a warranty or not is a question of fact as to whether the buyer was induced to buy on the strength of the statement. Wallace v. McCampbell, 178 Tenn. 224, 156 S.W.2d 442, 1941 Tenn. LEXIS 49 (1941).

Advertisements of automobile manufacturer extolling virtues of its products formed part of warranty from manufacturer to ultimate purchasers of automobiles. General Motors Corp. v. Dodson, 47 Tenn. App. 438, 338 S.W.2d 655, 1960 Tenn. App. LEXIS 86 (Tenn. Ct. App. 1960).

6. —Opinion.

Where buyer requested merchant to order milk homogenizer after having previously written the manufacturer for information and where after ordering machine but before delivery merchant forwarded manufacturer's letter containing alleged express warranty with a notation across the bottom “Am afraid you will have to have gas,” notation was simply an opinion by the merchant as to kind of fuel necessary to operate the machine and the merchant did not by delivery of the letter warrant that the machine would meet the requirements of the purchaser. Wallace v. McCampbell, 178 Tenn. 224, 156 S.W.2d 442, 1941 Tenn. LEXIS 49 (1941).

7. Nature of Obligation.

A warranty under § 12 of the Uniform Sales Act (former § 47-1212) consisting of an affirmation of fact by the seller which induces the sale or a promise that has that effect is a tort obligation and not a contract obligation. Huddleston v. Lee, 39 Tenn. App. 456, 39 Tenn. App. 465, 284 S.W.2d 705, 1955 Tenn. App. LEXIS 83 (Tenn. Ct. App. 1955).

The common-law distinction between express and implied warranties was given the force of statute by the enactment of the former Uniform Sales Law with the former constituting a tort warranty and the latter constituting a contract warranty. Huddleston v. Lee, 39 Tenn. App. 456, 39 Tenn. App. 465, 284 S.W.2d 705, 1955 Tenn. App. LEXIS 83 (Tenn. Ct. App. 1955).

8. Trial.

9. —Jury Questions.

Whether there is an express warranty is a fact question for the jury. Franklin v. Hermitage Engineering Co., 12 Tenn. App. 434, — S.W.2d —, 1930 Tenn. App. LEXIS 84 (Tenn. Ct. App. 1930).

It is a question for the jury to decide under all the circumstances whether the seller's statement to the buyer is a warranty or merely an expression of opinion and which of several reasonable inferences as to existence of a warranty should be drawn from the facts. Sullivan v. Bandy, 15 Tenn. App. 411, — S.W.2d —, 1932 Tenn. App. LEXIS 108 (Tenn. Ct. App. 1932).

10. —Evidence of Other Sales.

Where in action upon an express warranty of seed, the seller contended that the failure of the crop was due to climatic reasons, the buyer may introduce evidence of other sales of seed which turned out not to produce the kind of crop contemplated. Sullivan v. Bandy, 15 Tenn. App. 411, — S.W.2d —, 1932 Tenn. App. LEXIS 108 (Tenn. Ct. App. 1932).

11. —Sale by Sample.

When seller contracts to deliver goods sold by sample and buyer refuses same, the seller cannot recover without showing that buyer is in default in so refusing and this by proof that the goods corresponded with the sample. Elbinger Shoe Co. v. Thomas, 1 Tenn. App. 161, — S.W. —, 1925 Tenn. App. LEXIS 24 (Tenn. Ct. App. 1925).

12. —Sufficiency of Evidence.

Where evidence showed that discoloration of lumber was due to the reaction of tannic acid in lumber with iron in dipping vat and greenchain and not to action of chemical designed to prevent sap stain, the vendor of the chemical was not liable for breach of express warranty as to representations that the chemical would prevent sap stain. E. I. Du Pont De Nemours & Co. v. E. L. Bruce Co., 174 Tenn. 148, 124 S.W.2d 243, 1938 Tenn. LEXIS 75 (1939).

13. —Parol Evidence Rule Application.

Where the seller sold a used tractor to the defendant under a conditional sales contract which expressly limited warranty to the replacement of parts, oral testimony by the defendant that he purchased relying on the seller's statement that the tractor had been completely reconditioned was inadmissible because it constituted an express warranty under former law and contradicted the terms of the written contract. Southern Tractor Co. v. Brown Constructing Co., 20 Tenn. App. 332, 98 S.W.2d 1082, 1935 Tenn. App. LEXIS 14 (Tenn. Ct. App. 1935).

The parol evidence rule does not apply where the effort is not to change the contract but to hold the seller for a tort for making a false warranty or affirmation which was not a part of the contract but was the inducement to it. Huddleston v. Lee, 39 Tenn. App. 456, 39 Tenn. App. 465, 284 S.W.2d 705, 1955 Tenn. App. LEXIS 83 (Tenn. Ct. App. 1955).

Collateral References.

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

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

Liability for warranties and representations in connection with the sale of air-conditioning equipment. 15 A.L.R.3d 1207.

Liability of hospital, or medical practitioner, under doctrine of strict liability in tort, or breach of warranty, for harm caused by drug, medical instrument, or similar device used in treating patient. 54 A.L.R.3d 258.

Products liability: Failure to provide product warning or instruction in foreign language or to use universally accepted pictographs or symbols. 27 A.L.R.5th 697.

Requirement of notice, by buyer of goods, of breach of warranty as applicable to actions for personal injury. 6 A.L.R.3d 1371.

Statements on container that enclosed toy, game, sports equipment, or the like, is safe as affecting manufacturer's liability for injury caused by product sold. 74 A.L.R.3d 1298.

Third-party beneficiaries of warranties under UCC § 2-313. 50 A.L.R.5th 327.

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

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

COMMENTS TO OFFICIAL TEXT

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 [Chapter] are not designed in any way to disturb those lines of case law growth which have recognized that warranties need not be confined either to sales contracts or to the direct parties to such a contract. They may arise in other appropriate circumstances such as in the case of bailments for hire, whether such bailment is itself the main contract or is merely a supplying of containers under a contract for the sale of their contents. The provisions of Section 2-318 on third party beneficiaries expressly recognize this case law development within one particular area. Beyond that, the matter is left to the case law with the intention that the policies of this Act may offer useful guidance in dealing with further cases as they arise.

3.  The present section deals with affirmations of fact by the seller, descriptions of the goods or exhibitions of samples, exactly as any other part of a negotiation which ends in a contract is dealt with. No specific intention to make a warranty is necessary if any of these factors is made part of the basis of the bargain. In actual practice affirmations of fact made by the seller about the goods during a bargain are regarded as part of the description of those goods; hence no particular reliance on such statements need be shown in order to weave them into the fabric of the agreement. Rather, any fact which is to take such affirmations, once made, out of the agreement requires clear affirmative proof. The issue normally is one of fact.

4.  In view of the principle that the whole purpose of the law of warranty is to determine what it is that the seller has in essence agreed to sell, the policy is adopted of those cases which refuse except in unusual circumstances to recognize a material deletion of the seller's obligation. Thus, a contract is normally a contract for a sale of something describable and described. A clause generally disclaiming “all warranties, express or implied” cannot reduce the seller's obligation with respect to such description and therefore cannot be given literal effect under Section 2-316.

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

Cross-References:

Point 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.

NOTES TO DECISIONS

1. Implied Warranty.

2. —Requisites Generally.

There is a statutory implied warranty of merchantability unless excluded or modified by agreement of the parties. Ford Motor Co. v. Taylor, 60 Tenn. App. 271, 446 S.W.2d 521, 1969 Tenn. App. LEXIS 316 (Tenn. Ct. App. 1969).

Neither state nor federal statutes or regulations affirmatively require used car dealers to inspect or to discover and disclose defects in their cars prior to sale. In the absence of statutory inspection requirements, the court must look to judicial precedents for the nature and scope of a used car dealer's duty. Patton v. McHone, 822 S.W.2d 608, 1991 Tenn. App. LEXIS 564 (Tenn. Ct. App. 1991).

3. —Effect of Express Warranty.

Delivery of standard manufacturer's warranty to purchaser of tractor several days after sale did not exclude or modify statutory warranty of merchantability where there was no satisfactory showing that purchaser ever accepted the written warranty as a substitute of amendment of his original rights. Ford Motor Co. v. Taylor, 60 Tenn. App. 271, 446 S.W.2d 521, 1969 Tenn. App. LEXIS 316 (Tenn. Ct. App. 1969).

Where defects in tractor were so numerous and serious as to practically deprive the purchaser of any beneficial use thereof, dealer who sold tractor was liable on statutory warranty of merchantability and manufacturer was liable for tortious misrepresentation on basis of general advertising representations of quality and usefulness. Ford Motor Co. v. Taylor, 60 Tenn. App. 271, 446 S.W.2d 521, 1969 Tenn. App. LEXIS 316 (Tenn. Ct. App. 1969).

3.5. —Suitable for Purpose Sold.

Contractor was entitled to recover damages from a builder in a dispute over an agreement to install a heating and air conditioning system (HVAC) in a house, when there was no written contract between the parties, because the contractor in sizing the HVAC units that the contractor installed relied on specifications which the builder gave to the contractor and the contractor installed the HVAC per the parties'  agreement using merchantable, fit for purpose units. Wagner v. Novelli, — S.W.3d —, 2018 Tenn. App. LEXIS 281 (Tenn. Ct. App. May 21, 2018).

4. —Merchantable Quality.

Finding that tractor was so deficient as to falsify representations of general fitness would require a corresponding finding that it was not of merchantable quality so as to render seller liable for breach of statutory warranty of merchantability. Ford Motor Co. v. Taylor, 60 Tenn. App. 271, 446 S.W.2d 521, 1969 Tenn. App. LEXIS 316 (Tenn. Ct. App. 1969).

The defendant company breached implied warranties of merchantability and fitness for a particular purpose in the first pressing of the record albums where records were defective in that they were warped, pitted and blistered and produced excessive surface noises when played. Great American Music Machine, Inc. v. Mid-South Record Pressing Co., 393 F. Supp. 877, 1975 U.S. Dist. LEXIS 14093 (M.D. Tenn. 1975).

To be merchantable, a used car must be in reasonably safe condition and substantially free of defects that could render it inoperable, and must perform up to the level reasonably expected of a car of the same age, mileage, and price. Patton v. McHone, 822 S.W.2d 608, 1991 Tenn. App. LEXIS 564 (Tenn. Ct. App. 1991).

Paint products were not be fit for their ordinary purpose of covering the walls of buildings and because lay people would likely conclude that “something was wrong” with paint that quickly cracked, peeled, and faded, the paint products would not be merchantable, T.C.A. § 47-2-314(2)(c). Autozone, Inc. v. Glidden Co., 737 F. Supp. 2d 936, 2010 U.S. Dist. LEXIS 94699 (W.D. Tenn. Sept. 10, 2010).

Oyster suppliers did not breach the implied warranty of merchantability because the warnings it provided were sufficient to meet the reasonable care standard and because it had no ability to directly warn customers of restaurants that bought oysters from them they could not be held to have breached a duty to warn the eventual consumer of its products. Bissinger v. New Country Buffet, — S.W.3d —, 2014 Tenn. App. LEXIS 331 (Tenn. Ct. App. June 6, 2014), appeal denied, In re Estate of Bissinger, — S.W.3d —, 2014 Tenn. LEXIS 905 (Tenn. Oct. 20, 2014).

Trial court did not err by declining to grant the restaurant's summary judgment on the customer's claims of products liability or breach of the implied warrant of merchantability because if the restaurant was negligent in its handling of the oysters its conduct may have allowed the bacteria to proliferate and therefore actions of the restaurant may have rendered the oysters unfit for consumption. Bissinger v. New Country Buffet, — S.W.3d —, 2014 Tenn. App. LEXIS 331 (Tenn. Ct. App. June 6, 2014), appeal denied, In re Estate of Bissinger, — S.W.3d —, 2014 Tenn. LEXIS 905 (Tenn. Oct. 20, 2014).

5. Ordinary Purpose.

Particular model of inflatable penile prosthesis represented the state of the art, and plaintiff used the prosthesis for its ordinary purpose; accordingly, a breach of implied warranty was not established. Harwell v. American Medical Systems, Inc., 803 F. Supp. 1287, 1992 U.S. Dist. LEXIS 15671 (M.D. Tenn. 1992).

6. —Bankruptcy.

Within the context of bankruptcy, the implied warranty of merchantability can arise if the seller/debtor is a merchant with respect to the goods he is selling. In re Jackson Television, Ltd., 121 B.R. 790, 1990 Bankr. LEXIS 2594 (Bankr. E.D. Tenn. 1990).

Where the seller of television station equipment was a bankruptcy trustee who did not hold himself out as having knowledge or skill peculiar to the television station equipment sold and who did not deal in such equipment, he was not a merchant “with respect to goods of that kind” and no implied warranty of merchantability arose. In re Jackson Television, Ltd., 121 B.R. 790, 1990 Bankr. LEXIS 2594 (Bankr. E.D. Tenn. 1990).

7. Breach of Warranty.

There can be no recovery by purchaser from his immediate seller on implied warranty unless it can be shown that the goods purchased did not measure up to the requirements of the implied warranty at the time the goods passed from the seller to the purchaser. Leach v. Wiles, 58 Tenn. App. 286, 429 S.W.2d 823, 1968 Tenn. App. LEXIS 299 (Tenn. Ct. App. 1968).

Where a prescription drug is sold by a drug manufacturer which has warned the medical community of the specific risks associated with use of the drug, the warranty of merchantability is not breached where a particular user suffers the adverse side effect warned of. Dunkin v. Syntex Laboratories, Inc., 443 F. Supp. 121, 1977 U.S. Dist. LEXIS 13475 (W.D. Tenn. 1977).

Since Tennessee has generally viewed an action for breach of warranty as one sounding in contract rather than tort, the tort concept of contributory negligence was not applicable as a defense to a warranty action under this section. Holt v. Stihl, Inc., 449 F. Supp. 693, 1977 U.S. Dist. LEXIS 12812 (E.D. Tenn. 1977).

In a products liability action a cause of action for breach of warranty can be maintained against a lessor or bailor of personal property; if the action is not a products liability action for personal injury or property damage as defined in § 29-28-102(6), then the provisions of the U.C.C. would control and an actual “sale” would be required. Baker v. Promark Products West, Inc., 692 S.W.2d 844, 1985 Tenn. LEXIS 531 (Tenn. 1985).

The general assembly intended to expand the meaning of “seller” in products liability actions to include lease and bailment situations. Baker v. Promark Products West, Inc., 692 S.W.2d 844, 1985 Tenn. LEXIS 531 (Tenn. 1985).

Grant of summary judgment in favor of the seller in the purchasers'  action for a breach of implied and express warranties was improper, because the purchasers only had to show that they were harmed by the contaminated product, not that the consumers were harmed; in light of the disputed fact as to whether the alcohol to be used in sunless tanning products bought from the seller was in fact contaminated, the purchasers put forth sufficient evidence to survive summary judgment on their causes of action. Invest v. Cone Solvents, — S.W.3d —, 2007 Tenn. App. LEXIS 480 (Tenn. Ct. App. July 26, 2007).

There was nothing in the sales order to indicate that appellee intended to limit or disclaim any implied warranties on the harvester, and thus appellee could not rely on the order as evidence that appellant agreed to the disclaimer; furthermore, the delivery of a written warranty after the contract of sale also did not modify or negate the statutory obligations created by the sale, and the grant of summary judgment to appellee on appellant's claim for breach of the implied warranties was reversed. Smith v. Timberpro Inc., — S.W.3d —, 2017 Tenn. App. LEXIS 163 (Tenn. Ct. App. Mar. 9, 2017).

Breach of warranty was a substantial factor in the fire that destroyed the harvester regardless of it occurring before appellant's most recent act of leaving the master switch on; because leaving the master switch on was not sufficient by itself to cause the fire, leaving the switch on was reasonably foreseeable, and the breach of warranty was a substantial factor in the fire, the breach of warranty was the proximate cause of the loss. Smith v. Timberpro Inc., — S.W.3d —, 2019 Tenn. App. LEXIS 25 (Tenn. Ct. App. Jan. 17, 2019).

8. —Imputing Breach to Company.

A breach of warranty by a distributor may not be imputed to a company when there is no proof the distributor was acting as an agent for the company in making representations about the product. Fiddler's Inn, Inc. v. Andrews Distributing Co., 612 S.W.2d 166, 1980 Tenn. App. LEXIS 372 (Tenn. Ct. App. 1980).

Because breast implant company neither manufactured the products in question nor controlled the products' manufacturer, any claim of breach of warranty had to fail. McConkey v. McGhan Med. Corp., 144 F. Supp. 2d 958, 2000 U.S. Dist. LEXIS 19895 (E.D. Tenn. 2000).

9. Privity.

The rule requiring privity of contract between the parties is still an essential element of implied warranty in Tennessee except in cases where the product involved is in a defective condition unreasonably dangerous to the user or to the property. Leach v. Wiles, 58 Tenn. App. 286, 429 S.W.2d 823, 1968 Tenn. App. LEXIS 299 (Tenn. Ct. App. 1968).

10. Suits Against Manufacturer.

In cases where recovery is sought against manufacturer in absence of contractual privity for breach of implied warranty because of defective condition unreasonably dangerous to user or his property, a much heavier burden of proof is placed on the purchaser than where recovery is sought from the immediate seller under §§ 47-2-314, 47-2-315. Leach v. Wiles, 58 Tenn. App. 286, 429 S.W.2d 823, 1968 Tenn. App. LEXIS 299 (Tenn. Ct. App. 1968).

Prescription drug users'  claims against pharmaceutical manufacturing companies that made a brand name drug did not support a theory of relief based on breach of the warranties under T.C.A. §§ 47-2-313(1), 47-2-314(1), and 47-2-318, as the brand name pharmaceutical manufacturers did not sell the goods which allegedly caused the users'  injuries; rather, the users allegedly sustained injuries from taking the generic version of the drug. Strayhorn v. Wyeth Pharms., Inc., 882 F. Supp. 2d 1020, 2012 U.S. Dist. LEXIS 110804 (W.D. Tenn. Aug. 8, 2012).

Plaintiff's claim that a pharmaceutical company breached the implied warranty of merchantability by failing to adequately label its medications did not survive summary judgment; as the evidence established that plaintiff's physician independently learned that the medications posed a risk of bone death but prescribed them anyway, plaintiff did not establish that the improper labeling proximately caused her injury. Payne v. Novartis Pharms. Corp., 967 F. Supp. 2d 1223, 2013 U.S. Dist. LEXIS 127162 (E.D. Tenn. Sept. 6, 2013).

11. Recovery from the Immediate Seller.

Under this section there can be no recovery by the purchaser from the immediate seller unless it has shown that the goods purchased do not measure up to the requirements of the implied warranty at the time the goods passed from the seller to the purchaser. Hollingsworth v. Queen Carpet, Inc., 827 S.W.2d 306, 1991 Tenn. App. LEXIS 744 (Tenn. Ct. App. 1991), appeal denied, 1992 Tenn. LEXIS 150 (Tenn. Feb. 24, 1992).

Breach of warranty claims remained against a retailer after its customer bit into insect-infested candy while shopping at its store because the undisputed evidence was that the retailer sold candies and soft drinks in addition to pet supplies and therefore it was a “merchant” for purposes of T.C.A. §§ 47-2-304(1) and 47-2-314(1). Gentry v. Hershey Co., 687 F. Supp. 2d 711, 2010 U.S. Dist. LEXIS 9278 (M.D. Tenn. Feb. 3, 2010).

11.5. Sale.

Pursuant to T.C.A. §§ 47-2-106(1) and 47-2-314(1), a retailer made a “sale” of insect-infested candy when its customer ate the candy, as was her custom, while shopping, with the intent of paying for it when she left the store. Gentry v. Hershey Co., 687 F. Supp. 2d 711, 2010 U.S. Dist. LEXIS 9278 (M.D. Tenn. Feb. 3, 2010).

12. Disclaimer.

Disclaimer on label of roofing materials to effect that no warranties express or implied were made was ineffective to modify warranties as to merchantability or as to fitness and suitability since such disclaimer was not made until delivery of goods after contract was entered into. Cooper Paintings & Coatings, Inc. v. SCM Corp., 62 Tenn. App. 13, 457 S.W.2d 864, 1970 Tenn. App. LEXIS 250 (Tenn. Ct. App. 1970).

A contract provision in the sale of commercial goods that the seller “shall not in any event be held liable for any special, indirect or consequential damages” was sufficient to exclude liability for consequential damages under an implied warranty for merchantability. Beaunit Corp. v. Volunteer Nat'l Gas Co., 402 F. Supp. 1222, 1975 U.S. Dist. LEXIS 12187 (E.D. Tenn. 1975).

An “as is” disclaimer of warranties does not bar an action for unfair or deceptive acts or practices. Morris v. Mack's Used Cars, 824 S.W.2d 538, 1992 Tenn. LEXIS 45 (Tenn. 1992).

13. Application.

Suit for damages to chickens by chicken producer and suppliers of feed against feed manufacturer who allegedly furnished substandard meal to feed supplier was an action for breach of warranty of sale which was governed by the U.C.C. even though tortious breach on part of defendants was alleged. Mid-South Milling Co. v. Loret Farms, Inc., 521 S.W.2d 586, 1975 Tenn. LEXIS 693 (Tenn. 1975).

The home buying public has a legitimate expectation that the workmanship and materials used by a builder-vendor in the construction of a dwelling will meet the standard of the trade for homes in comparable locations and price range; such a warranty is implicit in the contract and survives the passing of title to the real estate and the taking of possession, as an exception to the doctrine of caveat emptor. Dixon v. Mountain City Constr. Co., 632 S.W.2d 538, 1982 Tenn. LEXIS 403 (Tenn. 1982).

The implied warranty of merchantability applies to the sale of used cars. Patton v. McHone, 822 S.W.2d 608, 1991 Tenn. App. LEXIS 564 (Tenn. Ct. App. 1991).

The implied warranty of merchantability applied to the sale of pesticide products; thus, action by homeowners against pesticide manufacturer and distributor was properly brought. Wright v. Dow Chem. U.S.A., 845 F. Supp. 503, 1993 U.S. Dist. LEXIS 19458 (M.D. Tenn. 1993).

Trial court did not specifically hold that the flooring company violated the implied warranty of merchantability; however, there was no proof in the record that the flooring was not merchantable at the time it was delivered, and the proof in this record was that the problems with the floor related to the timing of its installation. Dan Stern Homes, Inc. v. Designer Floors & Homes, Inc., — S.W.3d —, 2009 Tenn. App. LEXIS 412 (Tenn. Ct. App. June 30, 2009).

14. Trial.

15. —Evidence.

In an action for breach of warranties, physical evidence and testimony that the goods delivered by the seller did not conform to the samples shown the buyer and were not of the type suitable for the specific purpose which was known to the seller at the time of contract was sufficient to permit the district court to find that the seller breached his implied warranties of merchantability and fitness for a particular purpose. Jetero Constr. Co. v. South Memphis Lumber Co., 531 F.2d 1348, 1976 U.S. App. LEXIS 12610 (6th Cir. Tenn. 1976).

There was no conclusive proof that heating units were not merchantable when the heating problems were caused by having heaters that were too small for plaintiff's method of operation and not necessarily because the heaters failed to perform to their capacity. Fiddler's Inn, Inc. v. Andrews Distributing Co., 612 S.W.2d 166, 1980 Tenn. App. LEXIS 372 (Tenn. Ct. App. 1980).

In a civil case depending on circumstantial evidence it is sufficient for the party having the burden of proof to make out the more probable hypothesis, and the evidence need not arise to that degree of certainty which will exclude every other reasonable conclusion. Hollingsworth v. Queen Carpet, Inc., 827 S.W.2d 306, 1991 Tenn. App. LEXIS 744 (Tenn. Ct. App. 1991), appeal denied, 1992 Tenn. LEXIS 150 (Tenn. Feb. 24, 1992).

16. —Instructions.

Where seller's evidence indicated that buyer insisted that the custom and usage of the trade not be followed, it was not error for judge to refuse to instruct the jury that the implied warranty could be modified by course of dealing or usage of trade since the instruction would have been in direct opposition to seller's theory at trial. Fletcher v. Coffee County Farmers Cooperative, 618 S.W.2d 490, 1981 Tenn. App. LEXIS 502 (Tenn. Ct. App. 1981).

17. Appeals.

In a buyer's action against the seller for breach of implied warranties the district court's findings of fact as to the measure of damages were not made with sufficient particularity so as to permit review in the court of appeals. Jetero Constr. Co. v. South Memphis Lumber Co., 531 F.2d 1348, 1976 U.S. App. LEXIS 12610 (6th Cir. Tenn. 1976).

Decisions Under Prior Law

1. Uniform Sales Act Declaratory of Preexisting Law.

Provisions of Sales Act as to implied warranties were declaratory of the preexisting law of the state. Hoback v. Coca Cola Bottling Works, 20 Tenn. App. 280, 98 S.W.2d 113, 1936 Tenn. App. LEXIS 25 (Tenn. Ct. App. 1936).

2. Construction of Sales Act.

Uniform Sales of Goods Act was limited to delineating principals governing rights of parties to contract of sales and did not define rights, remedies and liabilities of a purchaser as against a manufacturer who was not the immediate vendor or a party to the contract of sale. Kyker v. General Motors Corp., 214 Tenn. 521, 381 S.W.2d 884, 1964 Tenn. LEXIS 502 (1964).

3. Implied Warranty.

4. —Requisites Generally.

In order to have an implied warranty, it must appear (1) that the buyer made known to the seller the special purpose for which the commodity was to be used, and (2) that the buyer was justified in relying upon the seller's judgment. Le Sueur v. Franklin Limestone Co., 14 Tenn. App. 67, — S.W.2d —, 1931 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1931).

5. —Article Sold for Known Purpose.

A pump sold for a particular purpose, made known by the buyer, impliedly warrants its fitness. Franklin v. Hermitage Engineering Co., 12 Tenn. App. 434, — S.W.2d —, 1930 Tenn. App. LEXIS 84 (Tenn. Ct. App. 1930).

Sale of automatic freezer under patent or trade name did not preclude implied warranty where freezer was sold for particular purpose made known to seller. Huddleston v. Lee, 39 Tenn. App. 456, 39 Tenn. App. 465, 284 S.W.2d 705, 1955 Tenn. App. LEXIS 83 (Tenn. Ct. App. 1955).

6. —Secondhand Goods.

There may be an implied warranty respecting secondhand goods. D'Armond v. Baker, 10 Tenn. App. 28, — S.W.2d —, 1928 Tenn. App. LEXIS 5 (Tenn. Ct. App. 1928); Weber Iron & Steel Co. v. Wright, 14 Tenn. App. 451, — S.W.2d —, 1932 Tenn. App. LEXIS 52 (Tenn. Ct. App. 1932).

7. —Suitable for Purpose Sold.

Where a defendant, a manufacturer of canopy frames, used a peculiar device on which a patent had been applied for, entered into a contract with complainant to furnish a particular type of casting to be used in frames, and complainant knew the purpose for which the castings were to be furnished, there was an implied warranty by the complainant that the castings would be fit for the purpose intended, and where castings furnished did not fit the defendant was entitled to recover damages for loss of expected profits where evidence showed that defendant had taken orders from solvent persons for goods amounting to $2,500 on which there was a profit of 50 percent. Chisholm & Moore Mfg. Co. v. United States Canopy Co., 111 Tenn. 202, 77 S.W. 1062, 1903 Tenn. LEXIS 21 (1903).

Where two barrels of paint were sold, there was an implied warranty that the paint was suitable and fit for the purposes for which it was purchased. Arco Co. v. Garner & Co., 143 Tenn. 262, 227 S.W. 1025, 1920 Tenn. LEXIS 16 (1921).

8. —Effect of Express Warranty.

An express warranty does not negative an implied warranty unless inconsistent therewith. Gilpin v. J. B. Colt Co., 7 Tenn. App. 630, — S.W.2d —, 1928 Tenn. App. LEXIS 89 (Tenn. Ct. App. 1928); Weber Iron & Steel Co. v. Wright, 14 Tenn. App. 451, — S.W.2d —, 1932 Tenn. App. LEXIS 52 (Tenn. Ct. App. 1932).

An express warranty, inconsistent with an implied warranty, excludes the implied warranty. White Co. v. Bacherig, 9 Tenn. App. 501, — S.W.2d —, 1928 Tenn. App. LEXIS 254 (Tenn. Ct. App. 1928).

An express warranty and an implied warranty may be in effect at the same time so long as they are not inconsistent. General Motors Corp. v. Dodson, 47 Tenn. App. 438, 338 S.W.2d 655, 1960 Tenn. App. LEXIS 86 (Tenn. Ct. App. 1960).

9. —Purchasers at Execution Sales.

Purchasers at execution sales, generally speaking, obtain no better title than the execution debtor had. Estes v. Doty, 169 Tenn. 683, 90 S.W.2d 754, 1935 Tenn. LEXIS 96 (1936).

10. —Unwholesome Beverages.

Where injuries were claimed as result of drinking bottled beverages containing deleterious substances, there must be evidence of negligence, and there is no liability on implied warranty. Yates v. Coca Cola Bottling Works, 14 Tenn. App. 7, — S.W.2d —, 1931 Tenn. App. LEXIS 9 (Tenn. Ct. App. 1931); Hoback v. Coca Cola Bottling Works, 20 Tenn. App. 280, 98 S.W.2d 113, 1936 Tenn. App. LEXIS 25 (Tenn. Ct. App. 1936).

In absence of statute changing the law, one serving food to be immediately consumed on premises is neither an insurer of fitness and wholesomeness of food served, nor liable under implied warranty thereof. Walton v. Guthrie, 50 Tenn. App. 383, 362 S.W.2d 41, 1962 Tenn. App. LEXIS 153 (Tenn. Ct. App. 1962).

In absence of proof of negligence by defendant in suit against restaurant owner for injuries allegedly sustained in eating barbecued ham hock allegedly containing staphylococci bacteria and in absence of proof of causal connection, question of whether defendant could be held liable for breach of implied warranty was properly withdrawn from the jury. Walton v. Guthrie, 50 Tenn. App. 383, 362 S.W.2d 41, 1962 Tenn. App. LEXIS 153 (Tenn. Ct. App. 1962).

11. —Goods Bought by Description.

Where goods are bought by description there is an implied warranty as to condition or merchantable quality, and which is not precluded generally by the fact that the article has a trade name. Kohn v. Ball, 36 Tenn. App. 281, 254 S.W.2d 755, 1952 Tenn. App. LEXIS 114 (Tenn. Ct. App. 1952).

12. —Merchantable Quality.

Manufacturers and dealers in automobiles are liable upon implied warranty as to condition of car when sold. Cantrell v. Burnett & Henderson Co., 187 Tenn. 552, 216 S.W.2d 307, 1948 Tenn. LEXIS 466 (1948).

A warranty as to the condition of car when sold is imposed upon the dealer by the Sales Act. Kohn v. Ball, 36 Tenn. App. 281, 254 S.W.2d 755, 1952 Tenn. App. LEXIS 114 (Tenn. Ct. App. 1952).

13. —Customs of Trade.

The custom or usage of the trade must appear to have been actually known by both parties, or to be of such notoriety by reason of its duration and dissemination as to charge both parties with knowledge and justify the inference that they contracted with the same in mind. Kohn v. Ball, 36 Tenn. App. 281, 254 S.W.2d 755, 1952 Tenn. App. LEXIS 114 (Tenn. Ct. App. 1952).

14. —Privity.

Where automobile was sold by independent dealer who was not agent of manufacturer action would not lie against manufacturer to rescind contract of sale and recover purchase price. Kyker v. General Motors Corp., 214 Tenn. 521, 381 S.W.2d 884, 1964 Tenn. LEXIS 502 (1964).

An automobile manufacturer was not liable for damages resulting from a defect in one of its automobiles and suffered by one who purchased the automobile from a franchised dealer in the absence of a showing that both the manufacturer and the dealer had knowledge of the defect. Johnson v. General Motors Corp., 243 F. Supp. 694, 1965 U.S. Dist. LEXIS 7400 (E.D. Tenn. 1965).

15. Breach of Warranty.

16. —Breach Not Shown.

There is no breach of warranty that a carriage was fit to convey a clover huller where it is shown that carriage was put to unduly increased strain. Gaar, Scott & Co. v. Hicks, 42 S.W. 455, 1897 Tenn. Ch. App. LEXIS 56 (1897).

A grocer, selling a box of sardines to buyer who opens the box and eats at the place of sale, does not impliedly warrant the fitness of the sardines as food, the buyer not relying upon any representation or superior judgment of the seller. Bell v. Bowers Stores, Inc., 3 Tenn. App. 590, — S.W. —, 1926 Tenn. App. LEXIS 134 (Tenn. Ct. App. 1926).

Where a tube of shoe polish was recommended and sold as being suitable and safe for polishing leather shoes, the fact that when purchaser removed the screw top of tube and pressed tube a part of the semiliquid contents squirted out and struck purchaser in the eye injuring the eye, did not show breach of warranty. Leach v. Nisley Co., 10 Tenn. App. 352, — S.W.2d —, 1929 Tenn. App. LEXIS 41 (Tenn. Ct. App. 1929).

17. —Purchaser With Notice.

No warranty as to quality or fitness of a commodity will be implied when defects in the same are known to the buyer, or he has knowledge of facts sufficient to put him on inquiry or to charge him with notice. No such warranty will be implied where the seller states enough to put one of ordinary intelligence on notice. Le Sueur v. Franklin Limestone Co., 14 Tenn. App. 67, — S.W.2d —, 1931 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1931).

The purchaser of a chose in action, with notice through his agent, of falsity of any implied warranty respecting it, cannot recover thereon. Freeman v. Citizens' Nat'l Bank, 167 Tenn. 399, 70 S.W.2d 25, 1933 Tenn. LEXIS 54 (1934).

Where manufacturer of automobile knew that brakes were dangerously defective but such condition was not apparent to purchaser, manufacturer was liable for damages arising out of accident resulting from condition of brakes. General Motors Corp. v. Dodson, 47 Tenn. App. 438, 338 S.W.2d 655, 1960 Tenn. App. LEXIS 86 (Tenn. Ct. App. 1960).

18. —Buyer's Examination.

In action to recover price paid for secondhand iron pipe, where seller was advised of purpose for which it was bought, and purchaser had opportunity to discover and could have discovered defects, there was no implied warranty. Weber Iron & Steel Co. v. Wright, 14 Tenn. App. 451, — S.W.2d —, 1932 Tenn. App. LEXIS 52 (Tenn. Ct. App. 1932).

19. Measure of Damages.

For breach of warranty, measure of damages is difference between represented and actual value. Garr, Scott & Co. v. Young, 62 S.W. 631, 1901 Tenn. Ch. App. LEXIS 59 (1901).

20. —Elements of Damages Not Allowable.

Purchaser, on continued use of machine, cannot recover of seller loss sustained by the running of the same or amount paid out for repairs. Gaar, Scott & Co. v. Stark, 36 S.W. 149, 1895 Tenn. Ch. App. LEXIS 37 (1895).

Cost of repairing defects in building to accommodate and operate elevator sold on implied warranty was not proper allowance. Reedy v. Weakley, 39 S.W. 739, 1897 Tenn. Ch. App. LEXIS 8 (1897).

21. Limitation of Actions.

Action for damages to personal property resulting from breach of implied warranty was subject to the three-year statute of limitations provided by § 28-305 (now § 28-3-105) for actions for injuries to personal property and not the six-year limitation provided by § 28-309 (now § 28-3-109) for actions on contracts not otherwise expressly provided for. Hackworth v. Ralston Purina Co., 214 Tenn. 506, 381 S.W.2d 292, 1964 Tenn. LEXIS 500 (1964).

22. Trial.

23. —Evidence.

Oral evidence as to express or implied warranty was inadmissible where the written contract specifically denied any warranty. Weeks v. Dealers' Implement Co., 16 Tenn. App. 599, 65 S.W.2d 585, 1933 Tenn. App. LEXIS 33 (Tenn. Ct. App. 1933).

24. —Directed Verdict.

Alleged error of trial court in entering directed verdict in favor of manufacturer in suit by automobile purchaser against dealer and manufacturer based on alleged defect in car was not prejudicial where jury on consideration of suit against dealer found there was no defect. Cantrell v. Burnett & Henderson Co., 187 Tenn. 552, 216 S.W.2d 307, 1948 Tenn. LEXIS 466 (1948).

Collateral References.

Application of warranty provisions of UCC to bailments. 48 A.L.R.3d 668.

Breach of warranty in sale, installation, repair, design, or inspection of septic or sewage disposal systems. 50 A.L.R.5th 417.

Chain, cable, or wire, implied warranty of strength or fitness. 59 A.L.R. 1235.

Construction and application of provision in conditional sale contract regarding implied warranties. 139 A.L.R. 1276.

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

Construction and effect of express or implied warranty on sale of an article intended for use as explosive. 62 A.L.R. 1510.

Cosmetics, implied warranty by retailer. 131 A.L.R. 123.

Drain cleaners. 85 A.L.R.3d 727.

Existence and scope of implied warranty of fitness on sale of livestock. 53 A.L.R.2d 892.

Existence of implied warranty of fitness by manufacturer, bottler or seller of beverage. 77 A.L.R.2d 215, 87 A.L.R.4th 804, 90 A.L.R.4th 12.

Existence of implied warranty of fitness by manufacturer or seller of food or food products. 77 A.L.R.2d 7, 96 A.L.R.3d 451, 1 A.L.R.5th 1, 2 A.L.R.5th 1, 2 A.L.R.5th 189.

Express warranty as excluding implied warranty of fitness. 164 A.L.R. 1321.

Implied warranty by manufacturer or seller of clothing, shoes and similar products. 80 A.L.R.2d 702.

Implied warranty by manufacturer or seller of drug or medicine. 79 A.L.R.2d 301.

Implied warranty by other than packer of fitness of food sold in sealed cans. 90 A.L.R. 1269, 142 A.L.R. 1434.

Implied warranty of fitness by manufacturer or seller of medical or health supplies, appliances or equipment. 79 A.L.R.2d 401.

Implied warranty of fitness by one serving food. 7 A.L.R.2d 1027.

Implied warranty of fitness on sale of article by trade name, trademark or other particular description. 49 A.L.R.2d 852.

Implied warranty of quality, condition or fitness on sale of “job lot,” “leftovers” and the like. 103 A.L.R. 1347.

Implied warranty of quality, condition or fitness on sale of secondhand article. 151 A.L.R. 446.

Implied warranty of reasonable fitness of food for human consumption, as breached by substance natural to the original product and not removed in processing. 143 A.L.R. 1421.

Jobber's or dealer's liability for injuries on theory of breach of warranty as affected by buyer's or user's allergy or unusual susceptibility to injury from the article. 26 A.L.R.2d 963.

Liability for injury incurred in operation of power golf cart. 66 A.L.R.4th 622.

Liability for injury or death allegedly caused by defect in mobile home or trailer. 81 A.L.R.3d 421.

Liability for injury or death allegedly caused by defective tires. 81 A.L.R.3d 318.

Liability of hospital, or medical practitioner, under doctrine of strict liability in tort, or breach of warranty, for harm caused by drug, medical instrument, or similar device used in treating patient. 54 A.L.R.3d 258.

Liability of manufacturer or packer of defective article for injury to person or property of ultimate consumer who purchased from middleman. 111 A.L.R. 1229, 140 A.L.R. 191.

Liability of manufacturer or seller for injury or death allegedly caused by use of contraceptive. 54 A.L.R.5th 1.

Liability of manufacturer or seller for personal injury or property damage caused by television set. 89 A.L.R.3d 210.

Liability of manufacturer, seller, or installer for personal injury caused by door glass. 84 A.L.R.3d 877.

Liability of owner or operator of business premises for injuries from electrically operated door. 44 A.L.R.5th 525.

Liability of seller of article not inherently dangerous for personal injuries due to the defective or dangerous condition of the article. 74 A.L.R. 343, 168 A.L.R. 1054.

Statements on container that enclosed toy, game, sports equipment, or the like, is safe as affecting manufacturer's liability for injury caused by product sold. 74 A.L.R.3d 1298.

Time to inspect or test for compliance with warranty of fitness or merchantability. 52 A.L.R.2d 900.

Warranty or misrepresentation as to character of article as new, where seller fails to disclose that article has been used or is secondhand. 36 A.L.R.3d 125, 36 A.L.R.3d 237.

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

What constitutes a contract for sale under Uniform Commercial Code § 2-314. 78 A.L.R.3d 696.

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

COMMENTS TO OFFICIAL TEXT

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

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

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

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

Cross-References:

Point 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.

NOTES TO DECISIONS

1. Creation of Warranty.

To create this warranty, the seller must have 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. Fiddler's Inn, Inc. v. Andrews Distributing Co., 612 S.W.2d 166, 1980 Tenn. App. LEXIS 372 (Tenn. Ct. App. 1980); Alumax Aluminum Corp., Magnolia Div. v. Armstrong Ceiling Systems, Inc., 744 S.W.2d 907, 1987 Tenn. App. LEXIS 2997 (Tenn. Ct. App. 1987).

2. Application.

This section was inapplicable where the purposes for which tractor was purchased were general and not particular. Ford Motor Co. v. Taylor, 60 Tenn. App. 271, 446 S.W.2d 521, 1969 Tenn. App. LEXIS 316 (Tenn. Ct. App. 1969).

In a products liability action a cause of action for breach of warranty can be maintained against a lessor or bailor of personal property; if the action is not a products liability action for personal injury or property damage as defined in § 29-28-102(6), then the provisions of the U.C.C. would control and an actual “sale” would be required. Baker v. Promark Products West, Inc., 692 S.W.2d 844, 1985 Tenn. LEXIS 531 (Tenn. 1985).

The general assembly intended to expand the meaning of “seller” in products liability actions to include lease and bailment situations. Baker v. Promark Products West, Inc., 692 S.W.2d 844, 1985 Tenn. LEXIS 531 (Tenn. 1985).

Evidence established that the patron had told the company that he was going to use the containers to store his personal property while he built a new home, and he would need them for a year, and his expert witness testified that the condensation was caused by lack of ventilation; thus, the evidence did not preponderate against the trial court's finding of liability. TEG Enters. v. Miller, — S.W.3d —, 2006 Tenn. App. LEXIS 730 (Tenn. Ct. App. Nov. 14, 2006).

Trial court's holding that the flooring company breached the warranty of fitness for a particular purpose was not supported by the preponderance of the evidence and was erroneous; the problems associated with the floor were due in substantial part to the fact that the floor did not properly acclimate to the home prior to being installed. Dan Stern Homes, Inc. v. Designer Floors & Homes, Inc., — S.W.3d —, 2009 Tenn. App. LEXIS 412 (Tenn. Ct. App. June 30, 2009).

3. Contributory Negligence Concept Not Applicable.

Since Tennessee has generally viewed an action for breach of warranty as one sounding in contract rather than tort, the tort concept of contributory negligence was not applicable as a defense to a warranty action under this section. Holt v. Stihl, Inc., 449 F. Supp. 693, 1977 U.S. Dist. LEXIS 12812 (E.D. Tenn. 1977).

4. Purpose for Which Sold.

There was no implied warranty of fitness of tractor for a particular purpose where preponderance of evidence was to the effect that purchaser relied principally on reputation and advertisements of manufacturer and did not particularly rely on judgment of dealer who had recently entered the tractor business and had no special skill or knowledge about tractors. Ford Motor Co. v. Taylor, 60 Tenn. App. 271, 446 S.W.2d 521, 1969 Tenn. App. LEXIS 316 (Tenn. Ct. App. 1969).

The defendant company breached implied warranties of merchantability and fitness for a particular purpose in the first pressing of the record albums where records were defective in that they were warped, pitted and blistered and produced excessive surface noises when played. Great American Music Machine, Inc. v. Mid-South Record Pressing Co., 393 F. Supp. 877, 1975 U.S. Dist. LEXIS 14093 (M.D. Tenn. 1975).

Flooring system as installed violated the implied warranty of fitness for a particular purpose and the fact that the buyer, a car dealership, continued to make substantial profit while utilizing the floor was not relevant; the intended purposes of the flooring system were to enhance the appearance of the areas covered, to facilitate cleaning, and to protect the underlying concrete and the flooring did not meet those known purposes. LeConte Props. v. Applied Flooring Sys., — S.W.3d —, 2007 Tenn. App. LEXIS 216 (Tenn. Ct. App. Apr. 13, 2007).

Paint products were not be fit for their ordinary purpose of covering the walls of buildings and because lay people would likely conclude that “something was wrong” with paint that quickly cracked, peeled, and faded, the paint products would not be merchantable, T.C.A. § 47-2-314(2)(c). Autozone, Inc. v. Glidden Co., 737 F. Supp. 2d 936, 2010 U.S. Dist. LEXIS 94699 (W.D. Tenn. Sept. 10, 2010).

Contractor was entitled to recover damages from a builder in a dispute over an agreement to install a heating and air conditioning system (HVAC) in a house, when there was no written contract between the parties, because the contractor in sizing the HVAC units that the contractor installed relied on specifications which the builder gave to the contractor and the contractor installed the HVAC per the parties'  agreement using merchantable, fit for purpose units. Wagner v. Novelli, — S.W.3d —, 2018 Tenn. App. LEXIS 281 (Tenn. Ct. App. May 21, 2018).

5. Privity.

The rule requiring privity of contract between the parties is still an essential element of implied warranty in Tennessee except in cases where the product involved is in a defective condition unreasonably dangerous to the user or to the property. Leach v. Wiles, 58 Tenn. App. 286, 429 S.W.2d 823, 1968 Tenn. App. LEXIS 299 (Tenn. Ct. App. 1968).

For liability to be imposed because of a breach of warranty privity must exist between the plaintiff and a defendant charged with the breach. Walker v. Decora, Inc., 225 Tenn. 504, 471 S.W.2d 778, 1971 Tenn. LEXIS 319 (1971). (See, however, § 29-34-104 since enacted.)

6. Disclaimers.

A contract provision in the sale of commercial goods that the seller “shall not in any event be held liable for any special, indirect or consequential damages” was sufficient to exclude liability for consequential damages under an implied warranty for fitness for a particular purpose. Beaunit Corp. v. Volunteer Nat'l Gas Co., 402 F. Supp. 1222, 1975 U.S. Dist. LEXIS 12187 (E.D. Tenn. 1975).

7. Procedure.

8. —Evidence.

In an action for breach of warranties, physical evidence and testimony that the goods delivered by the seller did not conform to the samples shown the buyer and were not of the type suitable for the specific purpose which was known to the seller at the time of contract was sufficient to permit the district court to find that the seller breached the implied warranties of merchantability and fitness for a particular purpose. Jetero Constr. Co. v. South Memphis Lumber Co., 531 F.2d 1348, 1976 U.S. App. LEXIS 12610 (6th Cir. Tenn. 1976).

Grant of summary judgment in favor of the seller in the purchasers'  action for a breach of implied and express warranties was improper, because the purchasers only had to show that they were harmed by the contaminated product, not that the consumers were harmed; in light of the disputed fact as to whether the alcohol to be used in sunless tanning products bought from the seller was in fact contaminated, the purchasers put forth sufficient evidence to survive summary judgment on their causes of action. Invest v. Cone Solvents, — S.W.3d —, 2007 Tenn. App. LEXIS 480 (Tenn. Ct. App. July 26, 2007).

9. —Appeals.

In a buyer's action against the seller for breach of implied warranties the district court's findings of fact as to the measure of damages was not made with sufficient particularity so as to permit review in the court of appeals. Jetero Constr. Co. v. South Memphis Lumber Co., 531 F.2d 1348, 1976 U.S. App. LEXIS 12610 (6th Cir. Tenn. 1976).

10. Knowledge or Expertise of Buyer.

Where buyer was knowledgeable of coal and was capable of independently determining the fitness of seller's coal for its intended use, no implied warranty of fitness for a particular purpose was created. Kopper Glo Fuel, Inc. v. Island Lake Coal Co., 436 F. Supp. 91, 1977 U.S. Dist. LEXIS 15652 (E.D. Tenn. 1977).

11. —Medicines.

Where a drug manufacturer sells a drug designed for a specific purpose and warns the medical profession of possible side effects in some users, the warranty of fitness for a particular purpose is not breached where one of those side effects occurs. Dunkin v. Syntex Laboratories, Inc., 443 F. Supp. 121, 1977 U.S. Dist. LEXIS 13475 (W.D. Tenn. 1977).

12. Medical Devices.

Particular model of inflatable penile prosthesis represented the state of the art, and plaintiff used the prosthesis for its ordinary purpose; accordingly, a breach of implied warranty was not established. Harwell v. American Medical Systems, Inc., 803 F. Supp. 1287, 1992 U.S. Dist. LEXIS 15671 (M.D. Tenn. 1992).

13. Burden of Proof.

There can be no recovery by purchaser from his immediate seller on implied warranty unless it can be shown that the goods purchased did not measure up to the requirements of the implied warranty at the time the goods passed from the seller to the purchaser. Leach v. Wiles, 58 Tenn. App. 286, 429 S.W.2d 823, 1968 Tenn. App. LEXIS 299 (Tenn. Ct. App. 1968).

The burden of establishing a breach of implied warranty is on the one asserting the breach. Cardwell v. Hackett, 579 S.W.2d 186, 1978 Tenn. App. LEXIS 337 (Tenn. Ct. App. 1978).

14. Manufacturer's Agent.

If manufacturer's agent served only as a conduit through which the manufacturer and the plaintiffs were brought together and plaintiffs did not rely upon such manufacturer's agent's skill or judgment to select or furnish suitable goods such agent was not liable for implied warranty. Commercial Refrigeration, Inc. v. Refrigeration Products Co., 586 S.W.2d 125, 1979 Tenn. App. LEXIS 329 (Tenn. Ct. App. 1979).

A breach of warranty by a distributor may not be imputed to a company when there is no proof the distributor was acting as an agent for the company in making representations about the product. Fiddler's Inn, Inc. v. Andrews Distributing Co., 612 S.W.2d 166, 1980 Tenn. App. LEXIS 372 (Tenn. Ct. App. 1980).

15. Reliance on Seller's Skill or Judgment.

Evidence was sufficient to show that buyer relied on seller's representations. Fletcher v. Coffee County Farmers Cooperative, 618 S.W.2d 490, 1981 Tenn. App. LEXIS 502 (Tenn. Ct. App. 1981).

Appellate court reversed a grant of summary judgment in favor of a material supplier because there was a question of fact as to whether the conversations between the supplier and the contractor constituted an implied warranty of fitness for a particular purpose under T.C.A. § 47-2-315. Lee's Home Ctr., Inc. v. Morris, — S.W.3d —, 2006 Tenn. App. LEXIS 412 (Tenn. Ct. App. June 21, 2006).

16. Suits Against Manufacturer.

In cases where recovery is sought against manufacturer in absence of contractual privity for breach of implied warranty because of defective condition unreasonably dangerous to user or his property, a much heavier burden of proof is placed on the purchaser than where recovery is sought from the immediate seller under §§ 47-2-314, 47-2-315. Leach v. Wiles, 58 Tenn. App. 286, 429 S.W.2d 823, 1968 Tenn. App. LEXIS 299 (Tenn. Ct. App. 1968).

17. Illustrations.

Because breast implant company neither manufactured the products in question nor controlled the products' manufacturer, any claim of breach of warranty had to fail. McConkey v. McGhan Med. Corp., 144 F. Supp. 2d 958, 2000 U.S. Dist. LEXIS 19895 (E.D. Tenn. 2000).

There was nothing in the sales order to indicate that appellee intended to limit or disclaim any implied warranties on the harvester, and thus appellee could not rely on the order as evidence that appellant agreed to the disclaimer; furthermore, the delivery of a written warranty after the contract of sale also did not modify or negate the statutory obligations created by the sale, and the grant of summary judgment to appellee on appellant's claim for breach of the implied warranties was reversed. Smith v. Timberpro Inc., — S.W.3d —, 2017 Tenn. App. LEXIS 163 (Tenn. Ct. App. Mar. 9, 2017).

Decisions Under Prior Law

1. Article Sold for Known Purpose.

A pump sold for a particular purpose, made known by the buyer, impliedly warrants its fitness. Franklin v. Hermitage Engineering Co., 12 Tenn. App. 434, — S.W.2d —, 1930 Tenn. App. LEXIS 84 (Tenn. Ct. App. 1930).

Sale of automatic freezer under patent or trade name did not preclude implied warranty where freezer was sold for particular purpose made known to seller. Huddleston v. Lee, 39 Tenn. App. 456, 39 Tenn. App. 465, 284 S.W.2d 705, 1955 Tenn. App. LEXIS 83 (Tenn. Ct. App. 1955).

2. —Suitable for Purpose Sold.

Where defendant, a manufacturer of canopy frames, used a peculiar device on which a patent had been applied for, entered into a contract with complainant to furnish a particular type of casting to be used in frames, and complainant knew the purpose for which the castings were to be furnished, there was an implied warranty by the complainant that the castings would be fit for the purpose intended, and where castings furnished did not fit the defendant was entitled to recover damages for loss of expected profits where evidence showed that defendant had taken orders from solvent persons for goods amounting to $2,500 on which there was a profit of 50 percent. Chisholm & Moore Mfg. Co. v. United States Canopy Co., 111 Tenn. 202, 77 S.W. 1062, 1903 Tenn. LEXIS 21 (1903).

Where two barrels of paint were sold, there was an implied warranty that the paint was suitable and fit for the purposes for which it was purchased. Arco Co. v. Garner & Co., 143 Tenn. 262, 227 S.W. 1025, 1920 Tenn. LEXIS 16 (1921).

3. —Customs of Trade.

The custom or usage of the trade must appear to have been actually known by both parties, or to be of such notoriety by reason of its duration and dissemination as to charge both parties with knowledge and justify the inference that they contracted with the same in mind. Kohn v. Ball, 36 Tenn. App. 281, 254 S.W.2d 755, 1952 Tenn. App. LEXIS 114 (Tenn. Ct. App. 1952).

4. Privity of Contract.

Former § 47-1215 of the Uniform Sales Act could not be utilized by purchaser of tractor and rotary cutter to maintain suit against manufacturer for breach of implied warranty where dealer did not act as agent for manufacturer. Oliver Corp. v. Green, 54 Tenn. App. 647, 393 S.W.2d 625, 1965 Tenn. App. LEXIS 284 (Tenn. Ct. App. 1965).

Collateral References.

Application of warranty provisions of UCC to bailments. 48 A.L.R.3d 668.

Breach of warranty in sale, installation, repair, design, or inspection of septic or sewage disposal systems. 50 A.L.R.5th 417.

Chain, cable or wire, implied warranty of strength or fitness. 59 A.L.R. 1235.

Construction and effect of express or implied warranty on sale of an article intended for use as explosive. 62 A.L.R. 1510.

Cosmetics, implied warranty by retailer. 131 A.L.R. 123.

Existence and scope of implied warranty of fitness on sale of livestock. 53 A.L.R.2d 892.

Existence of implied warranty of fitness by manufacturer, bottler or seller of beverage. 77 A.L.R.2d 215, 87 A.L.R.4th 804, 90 A.L.R.4th 12.

Existence of implied warranty of fitness by manufacturer or seller of food or food products. 77 A.L.R.2d 7, 96 A.L.R.3d 451, 1 A.L.R.5th 1, 2 A.L.R.5th 1, 2 A.L.R.5th 189.

Express warranty as excluding implied warranty of fitness. 164 A.L.R. 1321.

Implied warranty by other than packer of fitness of food sold in sealed cans. 90 A.L.R. 1269, 142 A.L.R. 1434.

Implied warranty of fitness by manufacturer or seller of industrial, business or farm machinery, tool, equipment or material. 78 A.L.R.2d 594, 2 A.L.R.4th 262, 4 A.L.R.4th 13, 7 A.L.R.4th 852, 8 A.L.R.4th 70, 10 A.L.R.4th 854, 13 A.L.R.4th 476, 19 A.L.R.4th 326, 72 A.L.R.4th 90, 75 A.L.R.4th 312, 80 A.L.R.4th 972.

Implied warranty of fitness by manufacturer or seller of medical or health supplies, appliances or equipment. 79 A.L.R.2d 401.

Implied warranty of fitness for particular purpose as including fitness for ordinary use. 83 A.L.R.3d 656.

Implied warranty of fitness on sale of article by trade name, trademark or other particular description. 49 A.L.R.2d 852.

Implied warranty of quality, condition or fitness on sale of “job lot,” “leftovers,” and the like. 103 A.L.R. 1347.

Implied warranty of reasonable fitness of food for human consumption as breached by substance natural to the original product and not removed in processing. 143 A.L.R. 1421.

Jobber's or dealer's liability for injuries on theory of breach of warranty as affected by buyer's or user's allergy or unusual susceptibility to injury from the article. 26 A.L.R.2d 963.

Liability of hospital, or medical practitioner, under doctrine of strict liability in tort, or breach of warranty, for harm caused by drug, medical instrument, or similar device used in treating patient. 54 A.L.R.3d 258.

Liability of manufacturer or seller for injury or death allegedly caused by use of contraceptive. 54 A.L.R.5th 1.

Liability of manufacturer, seller, or installer for personal injury caused by door glass. 84 A.L.R.3d 877.

Liability of owner or operator of business premises for injuries from electrically operated door. 44 A.L.R.5th 525.

Manufacturer's duty to test or inspect as affecting his liability for product-caused injury. 6 A.L.R.3d 91.

Products liability: strict liability in tort. 13 A.L.R.3d 1057, 46 A.L.R.3d 240, 52 A.L.R.3d 121.

Secondhand article, sale of, implied warranty of quality, condition or fitness. 151 A.L.R. 446.

Seller's duty to test or inspect as affecting his liability for product-caused injury. 6 A.L.R.3d 12.

Statements on container that enclosed toy, game, sports equipment, or the like, is safe as affecting manufacturer's liability for injury caused by product sold. 74 A.L.R.3d 1298.

Warranty or misrepresentation as to character of article as new, where seller fails to disclose that article has been used or is secondhand. 36 A.L.R.3d 125, 36 A.L.R.3d 237.

What amounts to “sale by sample” as regards implied warranties. 12 A.L.R.2d 524.

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

COMMENTS TO OFFICIAL TEXT

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

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

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

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

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

Cross-References:

Point 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.

NOTES TO DECISIONS

1. Constitutionality.

The fact that no case, state or federal, was cited whereby a statute such as this one was held unconstitutional and the fact that some 41 states have adopted similar legislation gave weight to the presumption that this section was not unconstitutional as a denial of due process and equal protection clauses of the U.S. Constitution.McDaniel v. Baptist Memorial Hospital, 469 F.2d 230, 1972 U.S. App. LEXIS 7001 (6th Cir. Tenn. 1972), aff'g McDaniel v. Baptist Memorial Hospital, 352 F. Supp. 690, 1971 U.S. Dist. LEXIS 10757 (W.D. Tenn. 1971), aff'd, 469 F.2d 230, 1972 U.S. App. LEXIS 7001 (6th Cir. Tenn. 1972).

2. Exclusions.

Implicit in subsection (3) of this section is the requirement that the attempted exclusion be conspicuous, or at least not hidden. Hardimon v. Cullum & Maxey Camping Centers, Inc., 591 S.W.2d 771, 1980 Tenn. App. LEXIS 322 (Tenn. Ct. App. 1979).

Mere reference to a “standard one (1) year warranty” did not constitute notification to a flooring system buyer, a car dealership, that the flooring company intended to limit either the implied warranty of fitness for a particular purpose or any other warranty to avoid any obligation to replace the entire flooring system, and nor was there evidence that the warranty was provided to the dealership at the time of invoice. LeConte Props. v. Applied Flooring Sys., — S.W.3d —, 2007 Tenn. App. LEXIS 216 (Tenn. Ct. App. Apr. 13, 2007).

3. —Blood Products.

Since this section declares the sale of blood to be a medical service rather than a sale of goods, the doctrine of strict liability for sale of an unreasonably dangerous, defective product which causes injury is inapplicable and plaintiff is obliged to show negligence on part of defendants in processing, distribution or administration of the blood. St. Martin v. Doty, 493 S.W.2d 95, 1972 Tenn. App. LEXIS 305 (Tenn. Ct. App. 1972).

Under subsection (5), contracts for the purpose of supplying human blood for transfusions are not considered sales subject to claims under the implied warranties of merchantability and fitness, or for claims under strict liability or warranty. Sawyer v. Methodist Hospital of Memphis, 383 F. Supp. 563, 1974 U.S. Dist. LEXIS 6831 (W.D. Tenn. 1974), aff'd, Sawyer v. Methodist Hospital, 522 F.2d 1102, 1975 U.S. App. LEXIS 13098 (6th Cir. 1975).

The exemption of human blood from implied warranties of merchantability and fitness under this section does not exclude human blood from the scope of the sale and use tax. Parkridge Hospital, Inc. v. Woods, 561 S.W.2d 754, 1978 Tenn. LEXIS 579 (Tenn. 1978).

4. Disclaimers.

Words “accepted in its present condition” in security agreement relating to sale of automobile were not synonymous with “as is,” “with all faults” or other like language calling buyer's attention to the exclusion of representations and warranties. Hull-Dobbs, Inc. v. Mallicoat, 57 Tenn. App. 100, 415 S.W.2d 344, 1966 Tenn. App. LEXIS 201 (Tenn. Ct. App. 1966).

Disclaimer on label of roofing materials to effect that no warranties express or implied were made was ineffective to modify warranties as to merchantability or as to fitness and suitability since such disclaimer was not made until delivery of goods after contract was entered into. Cooper Paintings & Coatings, Inc. v. SCM Corp., 62 Tenn. App. 13, 457 S.W.2d 864, 1970 Tenn. App. LEXIS 250 (Tenn. Ct. App. 1970).

A contract provision in the sale of commercial goods that the seller “shall not in any event be held liable for any special, indirect or consequential damages” was sufficient to exclude liability for consequential damages under implied warranties of merchantability or of fitness for a particular purpose. Beaunit Corp. v. Volunteer Nat'l Gas Co., 402 F. Supp. 1222, 1975 U.S. Dist. LEXIS 12187 (E.D. Tenn. 1975).

A valid disclaimer of the implied warranty of merchantability must mention “merchantability” and in case of a writing must be conspicuous. Curtis v. Murphy Elevator Co., 407 F. Supp. 940, 1976 U.S. Dist. LEXIS 17216 (E.D. Tenn. 1976).

The following language would not have effectively disclaimed an implied warranty of merchantability under subsection (2) because it did not include the word “merchantability”: “The Assignor conveys the aforesaid property and assets without any warranties, except as expressly stated herein….” In re Jackson Television, Ltd., 121 B.R. 790, 1990 Bankr. LEXIS 2594 (Bankr. E.D. Tenn. 1990).

An “as is” disclaimer does not effectively disclaim all prior representations under the Tennessee consumer protection act as a matter of law. Smith v. Scott Lewis Chevrolet, Inc., 843 S.W.2d 9, 1992 Tenn. App. LEXIS 346 (Tenn. Ct. App. 1992), appeal denied, 1992 Tenn. LEXIS 559 (Tenn. Sept. 8, 1992).

5. —Merchantability.

The implied warranty of merchantability cannot be disclaimed or limited if the seller either gives the buyer a written warranty or enters into a service contract with the buyer within 90 days after the sale. The inclusion of an “as is” disclaimer in a contract for the sale of a car will not be effective if the dealer sells a service contract to the buyer. Patton v. McHone, 822 S.W.2d 608, 1991 Tenn. App. LEXIS 564 (Tenn. Ct. App. 1991).

6. —Unfair or Deceptive Practices.

An “as is” disclaimer of warranties does not bar an action for unfair or deceptive acts or practices. Morris v. Mack's Used Cars, 824 S.W.2d 538, 1992 Tenn. LEXIS 45 (Tenn. 1992).

Disclaimers permitted by this section may limit or modify liability otherwise imposed by the code, but such disclaimers do not defeat separate causes of action for unfair or deceptive acts or practices under the Consumer Protection Act. Morris v. Mack's Used Cars, 824 S.W.2d 538, 1992 Tenn. LEXIS 45 (Tenn. 1992).

7. —Automobiles.

This section permits used car dealers to limit or disclaim the implied warranty of merchantability; however, in order to be effective, the disclaimer must comply strictly with the Uniform Commercial Code, the Magnuson-Moss Act, and the FTC's used car regulations. Dealers can disclaim all implied warranties by selling the car “as is”, but the “as is” language must be conspicuous, and must be contained on a form affixed to the side window of the car. Patton v. McHone, 822 S.W.2d 608, 1991 Tenn. App. LEXIS 564 (Tenn. Ct. App. 1991).

Sale of wrecked or dismantled truck, which was a reconstructed vehicle within the meaning of title 55, ch. 3, part 2, which was sold under an “as is” disclaimer of warranty, did not bar an action for unfair or deceptive acts or practices. Morris v. Mack's Used Cars, 824 S.W.2d 538, 1992 Tenn. LEXIS 45 (Tenn. 1992).

8. Notice of Defects.

No warranty as to quality or fitness of a commodity will be implied when defects in the same are known to the buyer, or he has knowledge of facts sufficient to put him on inquiry or to charge him with notice, or where the seller states enough to put one of ordinary intelligence on notice. Cardwell v. Hackett, 579 S.W.2d 186, 1978 Tenn. App. LEXIS 337 (Tenn. Ct. App. 1978).

Where plaintiffs purchased a mobile home after inspecting it twice, they could not recover from defendant for breach of an implied warranty that the mobile home was suitable for dwelling purposes. Cardwell v. Hackett, 579 S.W.2d 186, 1978 Tenn. App. LEXIS 337 (Tenn. Ct. App. 1978).

9. Conspicuous.

The party who signs a printed form furnished by the other party will be bound by the provisions in the form over which the parties actually bargained and such other provisions that are not unreasonable in view of the circumstances surrounding the transactions. Board of Dirs. v. Southwestern Petro. Corp., 757 S.W.2d 669, 1988 Tenn. App. LEXIS 22 (Tenn. Ct. App. 1988).

Decisions Under Prior Law

1. Effect of Buyer's Right to Inspect Goods.

Where a chattel, after inspection by the buyer, is bought for a specific purpose known to the seller, and there is no fraud, the rule caveat emptor strictly applies. There is in such case no implied warranty of fitness, and if the chattel perish, or become unfit to use by reason of some latent defect equally unknown to both parties, the buyer must sustain the loss. Goad v. Johnson, 53 Tenn. 340, 1871 Tenn. LEXIS 369 (1871).

In sales of personal property, in the absence of express warranty, where the buyer has an opportunity to inspect the commodity, and the seller is guilty of no fraud, and is neither the manufacturer nor grower of the article he sells, the maxim of caveat emptor applies. Crescent Cotton Oil Co. v. Union Gin & Lumber Co., 138 Tenn. 58, 195 S.W. 770, 1917 Tenn. LEXIS 5 (1917).

Although complainant may have sent employees to inspect machine where the preponderance of proof was that no attempt was made by complainant's employees, to ascertain maximum lifting capacity of machine by actual tests or demonstration, complainant could rely on express warranty that machine had a capacity of 15 to 20 tons. Standard Stevedoring Co. v. Jaffe, 42 Tenn. App. 378, 302 S.W.2d 829, 1956 Tenn. App. LEXIS 143 (Tenn. Ct. App. 1956).

2. Express Warranty Excluding Implied Warranty.

An express warranty, inconsistent with an implied warranty, excludes the implied warranty. White Co. v. Bacherig, 9 Tenn. App. 501, — S.W.2d —, 1928 Tenn. App. LEXIS 254 (Tenn. Ct. App. 1928).

Where a patented machine was sold with an express warranty for the replacement of defective parts there was no implied warranty since the express warranty made one unnecessary. Droll Patent Corp. v. Chattanooga Mattress Co., 11 Tenn. App. 546, — S.W.2d —, 1930 Tenn. App. LEXIS 33 (Tenn. Ct. App. 1930).

3. Coexistence of Express and Implied Warranties.

An express warranty and an implied warranty may be in effect at the same time so long as they are not inconsistent. General Motors Corp. v. Dodson, 47 Tenn. App. 438, 338 S.W.2d 655, 1960 Tenn. App. LEXIS 86 (Tenn. Ct. App. 1960).

Collateral References.

Application of warranty provisions of UCC to bailments. 48 A.L.R.3d 668.

Breach of warranty in sale, installation, repair, design, or inspection of septic or sewage disposal systems. 50 A.L.R.5th 417.

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

Construction and effect of new motor vehicle warranty limiting manufacturer's liability to repair or replacement of defective parts. 2 A.L.R.4th 576.

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

Express warranty as affecting existence of implied warranty by manufacturer or seller of drug or medicine. 79 A.L.R.2d 301.

Product liability: Cigarettes and other tobacco products. 36 A.L.R.5th 541.

Express warranty as excluding implied warranty of fitness. 164 A.L.R. 1321.

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

Liability on implied warranties in sale of used motor vehicles. 47 A.L.R.5th 677.

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

Validity of provision negativing implied warranties. 117 A.L.R. 1350.

Warranty of amount by contract for sale of commodity or goods wherein quantity is described as “about” or “more or less” than an amount specified. 58 A.L.R.2d 377.

COMMENTS TO OFFICIAL TEXT

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

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

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

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

6.  The exceptions to the general rule set forth in paragraphs (a), (b) and (c) of subsection (3) are common factual situations in which the circumstances surrounding the transaction are in themselves sufficient to call the buyer's attention to the fact that no implied warranties are made or that a certain implied warranty is being excluded.

7.  Paragraph (a) of subsection (3) deals with general terms such as “as is,” “as they stand,” “with all faults,” and the like. Such terms in ordinary commercial usage are understood to mean that the buyer takes the entire risk as to the quality of the goods involved. The terms covered by paragraph (a) are in fact merely a particularization of paragraph (c) which provides for exclusion or modification of implied warranties by usage of trade.

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

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

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

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

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.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Effect of Sale by Trade or Patent Name.

Where goods are bought by description there is an implied warranty as to condition or merchantable quality, and which is not precluded generally by the fact that the article has a trade name. Kohn v. Ball, 36 Tenn. App. 281, 254 S.W.2d 755, 1952 Tenn. App. LEXIS 114 (Tenn. Ct. App. 1952).

2. Coexistence of Express and Implied Warranties.

An express warranty and an implied warranty may be in effect at the same time so long as they are not inconsistent. General Motors Corp. v. Dodson, 47 Tenn. App. 438, 338 S.W.2d 655, 1960 Tenn. App. LEXIS 86 (Tenn. Ct. App. 1960).

Collateral References.

Application of warranty provisions of UCC to bailments. 48 A.L.R.3d 668.

Liability for injury incurred in operation of power golf cart. 66 A.L.R.4th 622.

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

COMMENTS TO OFFICIAL TEXT

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 [Chapter] that no warranty is created except by some conduct (either affirmative action or failure to disclose) on the part of the seller. Therefore, all warranties are made cumulative unless this construction of the contract is impossible or unreasonable.

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

2.  The rules of this section are designed to aid in determining the intention of the parties as to which of inconsistent warranties which have arisen from the circumstances of their transaction shall prevail. These rules of intention are to be applied only where factors making for an equitable estoppel of the seller do not exist and where he has in perfect good faith made warranties which later turn out to be inconsistent. To the extent that the seller has led the buyer to believe that all of the warranties can be performed, he is estopped from setting up any essential inconsistency as a defense.

3.  The rules in subsections (a), (b) and (c) are designed to ascertain the intention of the parties by reference to the factor which probably claimed the attention of the parties in the first instance. These rules are not absolute but may be changed by evidence showing that the conditions which existed at the time of contracting make the construction called for by the section inconsistent or unreasonable.

Cross-Reference:

Point 1: Section 2-315.

Definitional Cross-References:

“Party”. Section 1-201.

NOTES TO DECISIONS

1. Application and Scope.

This section only applied to personal injury cases and did not apply to action by buyer of oats against seller and processor for death of ponies allegedly caused from harmful substance in oats. Leach v. Wiles, 58 Tenn. App. 286, 429 S.W.2d 823, 1968 Tenn. App. LEXIS 299 (Tenn. Ct. App. 1968).

Employee of purchaser of mechanical dock had no privity of contract with either seller or manufacturer of dock and could not sue on basis of breach of express or implied warranty. Hargrove v. Newsome, 225 Tenn. 462, 470 S.W.2d 348, 1971 Tenn. LEXIS 315 (1971).

The provisions of § 29-34-104 must be read in conjunction with those of this section which is thus impliedly amended so as to broaden the class of persons who might claim the benefit of a warranty, as well as to eliminate the requirement of “vertical” privity. Commercial Truck & Trailer Sales, Inc. v. McCampbell, 580 S.W.2d 765, 1979 Tenn. LEXIS 427 (Tenn. 1979).

Prescription drug users'  claims against pharmaceutical manufacturing companies that made a brand name drug did not support a theory of relief based on breach of the warranties under T.C.A. §§ 47-2-313(1), 47-2-314(1), and 47-2-318, as the brand name pharmaceutical manufacturers did not sell the goods which allegedly caused the users'  injuries; rather, the users allegedly sustained injuries from taking the generic version of the drug. Strayhorn v. Wyeth Pharms., Inc., 882 F. Supp. 2d 1020, 2012 U.S. Dist. LEXIS 110804 (W.D. Tenn. Aug. 8, 2012).

2. Privity.

This section does not by implication dispense with requirement of privity between manufacturer and purchaser. Leach v. Wiles, 58 Tenn. App. 286, 429 S.W.2d 823, 1968 Tenn. App. LEXIS 299 (Tenn. Ct. App. 1968).

The effect of this section is to abolish the requirement of privity of contract for personal injuries received under circumstances as to members of the buyer's family, his household or a guest in his home in warranty actions brought against the buyer's immediate vendor. Hargrove v. Newsome, 225 Tenn. 462, 470 S.W.2d 348, 1971 Tenn. LEXIS 315 (1971).

The statute abolishing requirement of privity in all actions for personal injury whether brought under theory of tort, negligence or warranty, made substantive change in law, rather than procedural, and could not be applied retrospectively. Anderson v. Watling Ladder Co., 472 F.2d 576, 1973 U.S. App. LEXIS 12011 (6th Cir. Tenn. 1973).

3. Scope of Warranty.

Statutory warranties are made to run with the product, at least in the range of its intended and reasonably anticipated use. Commercial Truck & Trailer Sales, Inc. v. McCampbell, 580 S.W.2d 765, 1979 Tenn. LEXIS 427 (Tenn. 1979).

Decisions Under Prior Law

1. Persons Protected by Warranty.

Where manufacturer knew that automobile purchased by buyers from dealer was defective and that automobile in its defective condition was imminently dangerous to human life or from its use for which buyers purchased it and dangerous condition was not apparent on reasonable inspections, buyers could recover from manufacturer for damages resulting when automobile plunged into ditch because of defective brakes even if there was want of privity between manufacturer and buyers. General Motors Corp. v. Dodson, 47 Tenn. App. 438, 338 S.W.2d 655, 1960 Tenn. App. LEXIS 86 (Tenn. Ct. App. 1960).

Collateral References.

Application of strict liability in tort doctrine to lessor of personal property. 52 A.L.R.3d 121.

Application of warranty provisions of UCC to bailments. 48 A.L.R.3d 668.

Discovery, in products liability case, of defendant's knowledge as to injury to or complaints by others than plaintiff, related to product. 20 A.L.R.3d 1430.

Extension of strict liability in tort to permit recovery by a third person who was neither a purchaser nor user of product. 33 A.L.R.3d 415.

In personam jurisdiction over nonresidential manufacturer or seller under “long-arm” statutes. 19 A.L.R.3d 13.

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

Liability of manufacturer or seller for violation of privity of contract as affecting breach of warranty. 75 A.L.R.2d 39.

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

Liability of product endorser or certifier for product-caused injury. 39 A.L.R.3d 181.

Liability of seller of used product. 9 A.L.R.5th 1.

Manufacturer's responsibility for defective component supplied by another and incorporated in product. 3 A.L.R.3d 1016.

Necessity and propriety of instructing on alternative theories of negligence or breach of warranty, where instruction on strict liability in tort is given in products liability case. 52 A.L.R.3d 101.

Necessity and sufficiency of identification of defendant as manufacturer or seller of product alleged to have caused injury. 51 A.L.R.3d 1344.

Privity of contract as essential in action against remote manufacturer or distributor for defects in goods not causing injury to person or to other property. 16 A.L.R.3d 683.

Product as unreasonably dangerous or unsafe under doctrine of strict liability in tort. 54 A.L.R.3d 352.

Products liability: admissibility of evidence of other accidents to prove hazardous nature of product. 42 A.L.R.3d 780.

Products liability: alteration of product after it leaves hands of manufacturer or seller as affecting liability for product-caused harm. 41 A.L.R.3d 1251.

Products liability: extension of strict liability in tort to permit recovery by a third person who was neither a purchaser nor user of product. 33 A.L.R.3d 415.

Products liability: in personam jurisdiction over nonresident manufacturer or seller under “long-arm” statutes. 19 A.L.R.3d 13.

Products liability: manufacturer's responsibility for defective component supplied by another and incorporated in product. 3 A.L.R.3d 1016.

Products liability: right of manufacturer or seller to contribution or indemnity from user of product causing injury or damage to third person, and vice versa. 28 A.L.R.3d 943.

Proof of defect under doctrine of strict liability in tort. 51 A.L.R.3d 8, 65 A.L.R.4th 346.

Right of manufacturer or seller to contribution or indemnity from user of product causing injury or damage to third person, and vice versa. 28 A.L.R.3d 943.

Third-party beneficiaries of warranties under UCC § 2-313. 50 A.L.R.5th 327.

COMMENTS TO OFFICIAL TEXT

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 [1966 version of comment].

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 indicate by Restatement of Torts 2d § 402A (Tentative Draft No. 10, 1965) in extending the rule beyond injuries to the person [1966 version of comment].

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.

NOTES TO DECISIONS

1. Meaning of “F.O.B.” Provision.

F.O.B. seller provision in contract for sale of cotton means that buyer pays for costs of shipment, not that delivery or performance by seller is complete upon that occurrence. Marlow v. Oakland Gin Co., 128 B.R. 987, 1991 Bankr. LEXIS 948 (Bankr. W.D. Tenn. 1991), aff'd, Oakland Gin Co. v. Marlow (In re Julien Co.), 44 F.3d 426, 1995 FED App. 29P, 1995 U.S. App. LEXIS 1348 (6th Cir. Tenn. 1995).

2. Transfer of Title.

Where company which assembled trucks sometimes using parts they manufactured and sometimes parts purchased from other companies was deemed a manufacturer of utility trucks, the trucks in question were manufactured under contracts with out-of-state companies, and title to the trucks passed from the truck company to the purchasers outside of Tennessee after delivery of the trucks F.O.B. to the purchaser, for tax purposes the drop shipment sales fell within the “manufactured for export” exemption of § 67-6-313. Eusco, Inc. v. Huddleston, 835 S.W.2d 576, 1992 Tenn. LEXIS 431 (Tenn. 1992).

Decisions Under Prior Law

1. Meaning of “F.O.B.” Term.

Where goods were to be shipped “F.O.B. Knoxville,” this meant that the goods were to be put into the hands of a carrier at Knoxville free of expense to the buyer. State ex rel. Day Pulverizer Co. v. Fitts, 166 Tenn. 156, 60 S.W.2d 167, 1932 Tenn. LEXIS 125 (1933), vacated, Rescar, Inc. v. Ward, 2003 Tex. LEXIS 1 (Tex. Jan. 7, 2003).

It is a necessary implication in F.O.B. contracts that the buyer is to bear all expense in regard to the goods after the time when they are delivered free on board, and the property passes to the buyer at that time, and not before, though the goods are brought to the point of shipment and are ready for loading; furthermore the place where the goods are to be delivered F.O.B. is the place of delivery to the buyer. State ex rel. Day Pulverizer Co. v. Fitts, 166 Tenn. 156, 60 S.W.2d 167, 1932 Tenn. LEXIS 125 (1933), vacated, Rescar, Inc. v. Ward, 2003 Tex. LEXIS 1 (Tex. Jan. 7, 2003).

COMMENTS TO OFFICIAL TEXT

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 2-615 (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.

COMMENTS TO OFFICIAL TEXT

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 [Chapter].

Insurance secured in compliance with a C.I.F. term must cover the entire transportation of the goods to the named destination.

7.  An additional obligation is imposed upon the seller in requiring him to procure customary war risk insurance at the buyer's expense. This changes the common law on the point. The seller is not required to assume the risk of including in the C.I.F. price the cost of such insurance, since it often fluctuates rapidly, but is required to treat it simply as a necessary for the buyer's account. What war risk insurance is “current” or usual turns on the standard forms of policy or rider in common use.

8.  The C.I.F. contract calls for insurance covering the value of the goods at the time and place of shipment and does not include any increase in market value during transit or any anticipated profit to the buyer on a sale by him.

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

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

9.  Insurance “for the account of whom it may concern” is usual and sufficient. However, for a valid tender the policy of insurance must be one which can be disposed of together with the bill of lading and so must be “sufficiently shown to cover the same goods covered by the bill of lading.” It must cover separately the quantity of goods called for by the buyer's contract and not merely insure his goods as part of a larger quantity in which others are interested, a case provided for in American mercantile practice by the use of negotiable certificates of insurance which are expressly authorized by this section. By usage these certificates are treated as the equivalent of separate policies and are good tender under C.I.F. contracts. The term “certificate of insurance”, however, does not of itself include certificates or “cover notes” issued by the insurance broker and stating that the goods are covered by a policy. Their sufficiency as substitutes for policies will depend upon proof of an established usage or course of dealing. The present section rejects the English rule that not only brokers' certificates and “cover notes” but also certain forms of American insurance certificates are not the equivalent of policies and are not good tender under a C.I.F. contract.

The seller's failure to tender a proper insurance document is waived if the buyer refuses to make payment on other and untenable grounds at a time when proper insurance could have been obtained and tendered by the seller if timely objection had been made. Even a failure to insure on shipment may be cured by seasonable tender of a policy retroactive in effect; e.g., one insuring the goods “lost or not lost.” The provisions of this Article [Chapter] on cure of improper tender and on waiver of buyer's objections by silence are applicable to insurance tenders under a C.I.F. term. Where there is no waiver by the buyer as described above, however, the fact that the goods arrive safely does not cure the seller's breach of his obligations to insure them and tender to the buyer a proper insurance document.

10.  The seller's invoice of the goods shipped under a C.I.F. contract is regarded as a usual and necessary document upon which reliance may properly be placed. It is the document which evidences points of description, quality and the like which do not readily appear in other documents. This Article [Chapter] rejects those statements to the effect that the invoice is a usual but not a necessary document under a C.I.F. term.

11.  The buyer needs all of the documents required under a C.I.F. contract, in due form and with necessary indorsements, 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 [Chapter] 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.

COMMENTS TO OFFICIAL TEXT

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

Cross-Reference:

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.

COMMENTS TO OFFICIAL TEXT

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.

COMMENTS TO OFFICIAL TEXT

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 [Chapter] 5 (Section 5-113) authorizes banks presenting drafts under letters of credit to give indemnities against the missing parts, and this subsection means that the buyer must accept and act on such indemnities if he in good faith deems them adequate. But neither this subsection nor Article [Chapter] 5 decides whether a bank which has issued a letter of credit is similarly bound. The issuing bank's obligation under a letter of credit is independent and depends on its own terms. See Article [Chapter] 5.

Cross-References:

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.

COMMENTS TO OFFICIAL TEXT

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 [Chapter] on identification must be read together with the present section in order to bring the exemption into application. Until there is some designation of the goods in a particular shipment or on a particular ship as being those to which the contract refers there can be no application of an exemption for their 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 [Chapter] on casualty to identified goods applicable to such a situation. For the term cannot be regarded as intending to give the seller an unforeseen profit through casualty; it is intended only to protect him from loss due to causes beyond his control.

Cross-References:

Point 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.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Payment by Notes of Third Party.

When a party agrees to take the notes of a third person, payable to bearer as money, absolutely and without any condition, and they are what they purport to be, they operate as a satisfaction of the debt, though the maker be insolvent, if there be no fraud on the part of the vendee. Scruggs v. Gass, 16 Tenn. 175, 1835 Tenn. LEXIS 71 (1835).

2. Refusal of Seller to Accept Security on Note.

Where the terms of sale provide that the purchaser shall give a note with approved security, the seller cannot arbitrarily refuse to accept a surety who is proven to be good and solvent. Sweeney v. Vaughn, 94 Tenn. 534, 29 S.W. 903, 1894 Tenn. LEXIS 65 (1895).

COMMENTS TO OFFICIAL TEXT

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 [Chapter] and Article [Chapter] 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 [Chapter] 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.

NOTES TO DECISIONS

1. Scope of Section.

The provisions of this section encompass any commercial transaction in which delivered goods may be returned to the seller by the buyer. In re Plad, Inc., 22 B.R. 613, 1982 Bankr. LEXIS 3549 (Bankr. M.D. Tenn. 1982).

2. Filing.

Plaintiff failed to protect his rights by filing a UCC-1, which enables him to protect his interest in consigned goods under this section. Alsafi Oriental Rugs v. American Loan Co., 864 S.W.2d 41, 1993 Tenn. App. LEXIS 348 (Tenn. Ct. App. 1993).

3. Consignment by Consumer to Dealer was not Covered Transaction.

Consignment of a recreational vehicle (RV) by a consumer to a Tennessee RV dealer for the purpose of selling the RV to a third person was not a transaction covered under T.C.A. § 47-2-326, but was a true consignment, not a sale, of a consumer good. Accordingly, the RV was not a part of the RV dealer's bankruptcy estate. In re Music City RV, LLC, 304 S.W.3d 806, 2010 Tenn. LEXIS 86 (Tenn. Feb. 12, 2010).

Decisions Under Prior Law

1. Contracts Providing for Demonstration of Goods.

Where seller delivered machinery to buyer on approval under contract providing for demonstration by seller to satisfaction of buyer who had right to return the machinery if he did not approve, and seller's attempted demonstration failed because of defects, and he failed, on request, to repair the machinery and give a new demonstration as promised, the buyer was not obligated to return the machinery until reasonable demonstration was had. Newkirk v. Tennessee Metal Culvert Co., 15 Tenn. App. 417, — S.W.2d —, 1932 Tenn. App. LEXIS 109 (Tenn. Ct. App. 1932).

Defendant agreed to purchase machinery subject to his approval after reasonable demonstration; the title passes when the buyer signifies his approval to the seller or fails in the time fixed, or if no time has been fixed, within a reasonable time to give notice of rejection while retaining the goods. Newkirk v. Tennessee Metal Culvert Co., 15 Tenn. App. 417, — S.W.2d —, 1932 Tenn. App. LEXIS 109 (Tenn. Ct. App. 1932).

2. Sale or Return Contract.

In sale or return contract, title vests immediately in the buyer, who has the privilege of rescinding the sale, and, until this is exercised, the title remains in him. In such a case the property in the goods passes to the buyer, the price is fixed at the time of the sale and delivery, the buyer deals with the goods as his own, disposes of them as he pleases, for cash or on credit, is under no obligation to give any account of his disposition of them, and is only liable to pay for them at the price fixed beforehand, without any reference to the price at which he sells them. Peterson v. Cunningham, 6 Tenn. App. 427, — S.W. —, 1927 Tenn. App. LEXIS 165 (Tenn. Ct. App. 1927).

3. Effect of Delivery of Goods to Carrier.

In the absence of evidence of a contrary intent, the general rule is that the title to goods passes to the buyer upon delivery to a common carrier for transportation, subject to the right of the buyer to inspect the goods on arrival and reject if the goods do not correspond with the contract by rescinding the title. Sindle v. American R. E. Co., 8 Tenn. App. 594, — S.W.2d —, 1928 Tenn. App. LEXIS 183 (Tenn. Ct. App. 1928).

Collateral References.

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

“Sale on approval” and “sale or return” contracts under Uniform Commercial Code § 2-326. 44 A.L.R.6th 441.

COMMENTS TO OFFICIAL TEXT

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 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. Acoordingly, subsection (2) provides that goods delivered on approval are not subject to the 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 the goods for failure to conform to the contract does not make the transaction a “sale on approval” or “sale or return” and has nothing to do with this 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 presupposes 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 its 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 its 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 agreements 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 parol 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(d); 9-319.

Cross-References:

Point 2: Article [Chapter] 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.

NOTES TO DECISIONS

Decisions Under Prior Law

1. “Sale or Return” Contracts.

In sale or return contracts title vests immediately in the buyer, who has the privilege of rescinding the sale, and, until this is exercised, the title remains in him. In such a case the property in the goods passes to the buyer, the price is fixed at the time of the sale and delivery, the buyer deals with the goods as his own, disposes of them as he pleases, for cash or on credit, is under no obligation to give any account of his disposition of them, and is only liable to pay for them at the price fixed beforehand, without any reference to the price at which he sells them. Peterson v. Cunningham, 6 Tenn. App. 427, — S.W. —, 1927 Tenn. App. LEXIS 165 (Tenn. Ct. App. 1927).

2. Contracts Providing for Demonstration by Seller.

Where seller delivered machinery to buyer on approval under contract providing for demonstration by seller to satisfaction of buyer who had right to return the machinery if he did not approve, and seller's attempted demonstration failed because of defects, and he failed, on request, to repair the machinery and give a new demonstration as promised, the buyer was not obligated to return the machinery until reasonable demonstration was had. Newkirk v. Tennessee Metal Culvert Co., 15 Tenn. App. 417, — S.W.2d —, 1932 Tenn. App. LEXIS 109 (Tenn. Ct. App. 1932).

Defendant agreed to purchase machinery subject to his approval after reasonable demonstration; the title passes when the buyer signifies his approval to the seller or fails in the time fixed, or if no time has been fixed, within a reasonable time to give notice of rejection while retaining the goods. Newkirk v. Tennessee Metal Culvert Co., 15 Tenn. App. 417, — S.W.2d —, 1932 Tenn. App. LEXIS 109 (Tenn. Ct. App. 1932).

3. Effect of Delivery to Carrier.

In the absence of evidence of a contrary intent, the general rule is that the title to goods passes to the buyer upon delivery to a common carrier for transportation, subject to the right of the buyer to inspect the goods on arrival and reject if the goods do not correspond with the contract by rescinding the title. Sindle v. American R. E. Co., 8 Tenn. App. 594, — S.W.2d —, 1928 Tenn. App. LEXIS 183 (Tenn. Ct. App. 1928).

Collateral References.

Risk of loss of goods in “sale or return” transaction. 66 A.L.R.3d 190.

COMMENTS TO OFFICIAL TEXT

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 [Chapter] allowing partial acceptance of a defective delivery has no application here. A case where a buyer takes home two dresses to select one commonly involves two distinct contracts; if not, it is covered by the words “unless otherwise agreed”.

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 [Chapter] and of the contract on this point must be read with commercial reason and with full attention to good faith.

Cross-References:

Point 1: Sections 2-501, 2-601 and 2-603.

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

Point 4: Sections 1-201 and 1-204.

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.

NOTES TO DECISIONS

1. Withdrawal of Goods.

The seller could have withdrawn horse from sale after the fall of the hammer, but only before the horse was taken from the sale ring, as was the “customary manner.” Bradshaw v. Thompson, 454 F.2d 75, 1972 U.S. App. LEXIS 11729 (6th Cir. Tenn. 1972), cert. denied, 409 U.S. 878, 93 S. Ct. 130, 34 L. Ed. 2d 131, 1972 U.S. LEXIS 1665 (1972).

Decisions Under Prior Law

1. Completion of Auction Sales.

A sale of personalty at auction is complete as soon as it is struck off by the auctioneer to the highest bidder; hence, then the buyer is entitled to the property, and the seller is entitled to the price bid. Shaw v. Smith, 17 Tenn. 97, 1836 Tenn. LEXIS 23 (1836); Johnson v. Johnson, 49 Tenn. 521, 1871 Tenn. LEXIS 40 (1870), questioned, Cobb v. Brown, 42 Tenn. App. 595, 305 S.W.2d 241, 1956 Tenn. App. LEXIS 145 (Tenn. Ct. App. 1956).

A sale at public auction is ordinarily a valid and binding contract, as soon as the hammer is down. Polk v. Heirs of Pledge, 45 Tenn. 384, 1868 Tenn. LEXIS 19 (1868), modified, Polk v. Pledge, 52 Tenn. 371, 1871 Tenn. LEXIS 270 (1871).

2. Without Reserve.

If, by the advertisement, the property is to be sold without reserve, this excludes all interference by the vendor, or others for him, with the right of the public to have the property at the highest bid. Davis v. Petway, 40 Tenn. 667, 1859 Tenn. LEXIS 196 (1859).

3. Bidding.

The owner may, without notice, employ a person to bid for him, if he does this in good faith, with no other purpose than to prevent a sacrifice of the property under a given price. Davis v. Petway, 40 Tenn. 667, 1859 Tenn. LEXIS 196 (1859).

A sale at a fixed or flat price, no higher no lower, is not an auction sale regardless of manner in which merchandise is offered for sale at the fixed price. B. H. Stief Jewelry Co. v. Walker, 36 Tenn. App. 427, 256 S.W.2d 392, 1952 Tenn. App. LEXIS 132 (Tenn. Ct. App. 1952).

4. Intention of Parties.

Where seller intended to sell and buyer intended to buy a box of deceased's clothing, and neither party had any idea that valuable rings were secreted in the box of clothes or that they would pass by the auction sale, there was no contract, no meeting of the minds, and no sale. American Nat'l Bank v. West, 31 Tenn. App. 85, 212 S.W.2d 683, 1948 Tenn. App. LEXIS 75, 4 A.L.R.2d 314 (Tenn. Ct. App. 1948).

Collateral References.

Liability of defaulting purchaser to owner's broker or auctioneer. 30 A.L.R.3d 1395.

COMMENTS TO OFFICIAL TEXT

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 a closing in favor of such a bidder, but only that the bid has been accepted as a continuation of the bidding. If recognized, such a bid discharges the bid on which the hammer was falling when it was made.

2.  An auction “with reserve” is the normal procedure. The crucial point, however, for determining the nature of an auction is the “putting up” of the goods. This Article [Chapter] accepts the view that the goods may be withdrawn before they are actually “put up,” regardless of whether the auction is advertised as one without reserve, without liability on the part of the auction announcer to persons who are present. This is subject to any peculiar facts which might bring the case within the “firm offer” principle of this Article [Chapter], but an offer to persons generally would require unmistakable language in order to fall within that section. The prior announcement of the nature of the auction either as with reserve or without reserve will, however, enter as an “explicit term” in the “putting up” of the goods and conduct thereafter must be governed accordingly. The present section continues the prior rule permitting withdrawal of bids in auctions both with and without reserve; and the rule is made explicit that the retraction of a bid does not revive a prior bid.

Cross-Reference:

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.

47-2-401. Passing of title — Reservation for security — Limited application of this section.

Each provision of this chapter 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 chapter 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 (§ 47-2-501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by chapters 1-9 of this title. 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 chapter on Secured Transactions (chapter 9 of this title), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed to by the parties.
2. Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes 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 the seller 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 tangible document of title, title passes at the time when and the place where he delivers such documents and if the seller is to deliver an electronic document of title, title passes when the seller delivers the document; or
   2. If the goods are at the time of contracting already identified and no documents of title 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.”

Acts 1963, ch. 81, § 1 (2-401); Acts 2008, ch. 814, § 7.

Amendments. The 2008 amendment, in (3), rewrote (A) which read: “(a) if the seller is to deliver a document of title, title passes at the time when and the place where the seller delivers such documents; or”, and substituted “documents of title” for “documents” in (B).

Effective Dates. Acts 2008, ch. 814, § 40. July 1, 2008.

Prior Tennessee Law: §§ 47-1219, 47-1220.

Textbooks. Tennessee Jurisprudence, 4 Tenn. Juris., Automobiles, § 31; 6 Tenn. Juris., Commercial Law, §§ 2, 17, 98.

Law Reviews.

Creation, Perfection, and Enforcement of Security Interest Under the “Tennessee” Commercial Code (John A. Walker, Jr.), 48 Tenn. L. Rev. 819.

Cited: Pidgeon-Thomas Iron Co. v. Garner, 495 S.W.2d 826, 1973 Tenn. LEXIS 496 (Tenn. 1973); United States Fidelity & Guaranty Co. v. Thompson & Green Machinery Co., 568 S.W.2d 821, 1978 Tenn. LEXIS 613 (Tenn. 1978); In re Nixon Machinery Co., 6 B.R. 847, 1980 Bankr. LEXIS 4194 (Bankr. E.D. Tenn. 1980); In re Tom Woods Used Cars, Inc., 24 B.R. 529, 1982 Bankr. LEXIS 2925 (Bankr. E.D. Tenn. 1982); Porter Brown Limestone Co. v. Olson, 648 S.W.2d 242, 1982 Tenn. LEXIS 374 (Tenn. 1982); Four Seasons Gardening & Landscaping, Inc. v. Crouch, 688 S.W.2d 439, 1984 Tenn. App. LEXIS 3449 (Tenn. Ct. App. 1984); In re Production Steel, Inc., 54 B.R. 417, 1985 Bankr. LEXIS 5094 (Bankr. M.D. Tenn. 1985); In re Phillips, 77 B.R. 648, 1987 Bankr. LEXIS 1539 (Bankr. E.D. Tenn. 1987); Jack Daniel Distillery v. Jackson, 740 S.W.2d 413, 1987 Tenn. LEXIS 1014 (Tenn. 1987); Thomas Nelson, Inc. v. United States, 694 F. Supp. 428, 1988 U.S. Dist. LEXIS 15334 (M.D. Tenn. 1988); Volunteer Val-Pak v. Celauro, 767 S.W.2d 635, 1989 Tenn. LEXIS 124 (Tenn. 1989); Reprise Capital Corp. v. Rogers Group, Inc., 802 S.W.2d 608, 1990 Tenn. App. LEXIS 402 (Tenn. Ct. App. 1990); Illinois C. G. Railroad v. State, 805 S.W.2d 746, 1991 Tenn. LEXIS 80 (Tenn. 1991); Oakland Gin Co. v. Marlow (In re Julien Co.), 44 F.3d 426, 1995 FED App. 29P, 1995 U.S. App. LEXIS 1348 (6th Cir. Tenn. 1995).

47-2-402. 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 chapter (§§ 47-2-502 and 47-2-716).
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 chapter shall be deemed to impair the rights of creditors of the seller:

1. under the provisions of the chapter on Secured Transactions (chapter 9 of this title); 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 preexisting 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 chapter constitute the transaction a fraudulent transfer or voidable preference.

Acts 1963, ch. 81, § 1 (2-402).

Prior Tennessee Law: § 47-1226.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 3, 20.

Cited: In re Woods, 25 B.R. 924, 1982 Bankr. LEXIS 5219 (Bankr. E.D. Tenn. 1982).

47-2-403. 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.

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.

“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.

The rights of other purchasers of goods and of lien creditors are governed by the chapters on Secured Transactions (chapter 9 of this title) and Documents of Title (chapter 7 of this title).

Acts 1963, ch. 81, § 1 (2-403); 1998, ch. 641, § 3.

Prior Tennessee Law: §§ 47-1010, 47-1220, 47-1223, 47-1225.

Textbooks. Tennessee Jurisprudence, 4 Tenn. Juris., Automobiles, § 31; 6 Tenn. Juris., Commercial Law, §§ 3, 21.

Law Reviews.

Restitution on Default and Article Two of the Uniform Commercial Code (Robert J. Nordstrom), 19 Vand. L. Rev. 1143.

Cited: In re Morristown Lincoln-Mercury, Inc., 25 B.R. 375, 1982 Bankr. LEXIS 3124 (Bankr. E.D. Tenn. 1982); Butler v. Buick Motor Co., 813 S.W.2d 454, 1991 Tenn. App. LEXIS 61 (Tenn. Ct. App. 1991).

Part 5
Performance