Chapter 1
Uniform Commercial Code — General Provisions

Part 1
General Provisions

47-1-101. Short title.

  1. Chapters 1-9 of this title shall be known and may be cited as the Uniform Commercial Code.
  2. This chapter shall be known and may be cited as the “Uniform Commercial Code — General Provisions.”

Acts 2008, ch. 930, § 1.

Compiler's Notes. Official Comments in Article 1 (title 47, chapter 1): Copyright by the American Law Institute and the National Conference of Commissioners on Uniform State Laws. Reprinted with permission of the Permanent Editorial Board of the Uniform Commercial Code.

This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

COMMENTS TO OFFICIAL TEXT

Source:  Former Section 1-101.

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

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

47-1-102. Scope of chapter.

This chapter applies to a transaction to the extent that it is governed by chapters 2-9 of this title.

Acts 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

COMMENTS TO OFFICIAL TEXT

Source:  New.

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

47-1-103. Construction of chapters 1-9 to promote their purposes and policies — Applicability of supplemental principles of law.

  1. Chapters 1-9 of this title must be liberally construed and applied to promote its underlying purposes and policies, which are:
    1. To simplify, clarify, and modernize the law governing commercial transactions;
    2. To permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and
    3. To make uniform the law among the various jurisdictions.
  2. Unless displaced by the particular provisions of chapters 1-9 of this title, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions.
  3. In any dispute as to the proper construction of one (1) or more sections of chapters 1-9 of this title, the Official Comments pertaining to the corresponding sections of the Uniform Commercial Code, Official Text, as adopted by the National Conference of Commissioners on Uniform State Laws and the American Law Institute and as in effect on July 1, 2013, in this state, shall constitute evidence of the purposes and policies underlying such sections, unless:
    1. The sections of chapters 1-9 of this title that are applicable to the dispute differ materially from the sections of the Official Text that would be applicable thereto; or
    2. The Official Comments are inconsistent with the plain meaning of the applicable sections of chapters 1-9 of this title.

Acts 2008, ch. 930, § 1; 2012, ch. 708, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Amendments. The 2012 amendment, effective July 1, 2013, added (c).

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

Acts 2012, ch. 708, § 22. July 1, 2013; provided, that, for the purpose of the secretary of state taking necessary actions for the implementation of the act, the act shall take effect April 11, 2012.

Cited: Metro. Gov't of Nashville v. Affiliated Computer Servs., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 59622 (M.D. Tenn. July 17, 2008).

NOTES TO DECISIONS

5. Remedy.

Trial court was not required to abide by the parties'  contract in fashioning a remedy because nothing in the parties'  contract specifically stated that the remedy provided was intended to be the sole remedy available in the event of a breach; thus, other remedies under the Uniform Commercial Code were available in the event of a breach. Lowe v. Smith, — S.W.3d —, 2016 Tenn. App. LEXIS 689 (Tenn. Ct. App. Sept. 19, 2016).

COMMENTS TO OFFICIAL TEXT

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

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

1.  The Uniform Commercial Code is drawn to provide flexibility so that, since it is intended to be a semi-permanent and infrequently-amended piece of legislation, it will provide its own machinery for expansion of commercial practices. It is intended to make it possible for the law embodied in the Uniform Commercial Code to be applied by the courts in the light of unforeseen and new circumstances and practices. The proper construction of the Uniform Commercial Code requires, of course, that its interpretation and application be limited to its reason.

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

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

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

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

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

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

47-1-104. Construction against implied repeal.

Chapters 1-9 of this title being a general act intended as a unified coverage of its subject matter, no part of it shall be deemed to be impliedly repealed by subsequent legislation if such construction can reasonably be avoided.

Acts 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

COMMENTS TO OFFICIAL TEXT

Source:  Former Section 1-104.

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

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

47-1-105. Severability.

If any provision or clause of chapters 1-9 of this title or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of chapters 1-9 of this title that can be given effect without the invalid provision or application, and to this end the provisions of chapters 1-9 of this title are severable.

Acts 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

COMMENTS TO OFFICIAL TEXT

Source:  Former Section 1-108.

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

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

47-1-106. Use of singular and plural — Gender.

In chapters 1-9 of this title, unless the statutory context otherwise requires:

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

Acts 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

COMMENTS TO OFFICIAL TEXT

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

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

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

47-1-107. Relation to Electronic Signatures in Global and National Commerce Act.

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

Acts 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

COMMENTS TO OFFICIAL TEXT

Source:  New.

1.  The federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq, became effective in 2000. Section 102(a) of that Act provides that a State statute may modify, limit, or supersede the provisions of section 101 of that Act with respect to state law if such statute, inter alia , specifies the alternative procedures or requirements for the use or acceptance (or both) of electronic records or electronic signatures to establish the legal effect, validity, or enforceability of contracts or other records, and (i) such alternative procedures or requirements are consistent with Titles I and II of that Act, (ii) such alternative procedures or requirements do not require, or accord greater legal status or effect to, the implementation or application of a specific technology or technical specification for performing the functions of creating, storing, generating, receiving, communicating, or authenticating electronic records or electronic signatures; and (iii) if enacted or adopted after the date of the enactment of that Act, makes specific reference to that Act. Article 1 fulfills the first two of those three criteria; this Section fulfills the third criterion listed above.

2.  As stated in this section, however, Article 1 does not modify, limit, or supersede Section 101(c) of the Electronic Signatures in Global and National Commerce Act (requiring affirmative consent from a consumer to electronic delivery of transactional disclosures that are required by state law to be in writing); nor does it authorize electronic delivery of any of the notices described in Section 103(b) of that Act.

Part 2
General Definitions and Principles of Interpretation

47-1-201. General definitions.

  1. Unless the context otherwise requires, words or phrases defined in this section, or in the additional definitions contained in chapters 2-9 of this title that apply to particular chapters or parts thereof, have the meanings stated.
  2. Subject to definitions contained in chapters 2-9 of this title that apply to particular chapters or parts thereof:
    1. “Action”, in the sense of a judicial proceeding, includes recoupment, counterclaim, set-off, suit in equity, and any other proceeding in which rights are determined;
    2. “Aggrieved party” means a party entitled to pursue a remedy;
    3. “Agreement”, as distinguished from “contract”, means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in § 47-1-303;
    4. “Bank” means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union, and trust company;
    5. “Bearer” means a person in control of a negotiable electronic document of title or a person in possession of a negotiable instrument, negotiable tangible document of title, or certificated security that is payable to bearer or indorsed in blank;
    6. “Bill of lading” means a document of title evidencing the receipt of goods for shipment issued by a person engaged in the business of directly or indirectly transporting or forwarding goods. The term does not include a warehouse receipt;
    7. “Branch” includes a separately incorporated foreign branch of a bank;
    8. “Burden of establishing” a fact means the burden of persuading the trier of fact that the existence of the fact is more probable than its nonexistence;
    9. “Buyer in ordinary course of business” means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller's own usual or customary practices. A person that sells oil, gas, or other minerals at the wellhead or minehead is a person in the business of selling goods of that kind. A buyer in ordinary course of business may buy for cash, by exchange of other property, or on secured or unsecured credit, and may acquire goods or documents of title under a preexisting contract for sale. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under chapter 2 may be a buyer in ordinary course of business. “Buyer in ordinary course of business” does not include a person that acquires goods in a transfer in bulk or as security for or in total or partial satisfaction of a money debt;
    10. “Conspicuous”, with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is “conspicuous” or not is a decision for the court. Conspicuous terms include the following:
      1. A heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and
      2. Language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language;
    11. “Consumer” means an individual who enters into a transaction primarily for personal, family, or household purposes;
    12. “Contract”, as distinguished from “agreement”, means the total legal obligation that results from the parties’ agreement as determined by chapters 1-9 of this title as supplemented by any other applicable laws;
    13. “Creditor” includes a general creditor, a secured creditor, a lien creditor, and any representative of creditors, including an assignee for the benefit of creditors, a trustee in bankruptcy, a receiver in equity, and an executor or administrator of an insolvent debtor's or assignor's estate;
    14. “Defendant” includes a person in the position of defendant in a counterclaim, cross-claim, or third-party claim;
    15. “Delivery”, with respect to an electronic document of title, means voluntary transfer of control and, with respect to an instrument, a tangible document of title, or chattel paper, means voluntary transfer of possession;
    16. “Document of title” means:
      1. That document which, in the regular course of business or financing, is treated as adequately evidencing that the person in possession or control of the record is entitled to receive, hold, and dispose of the record and the goods the record covers; and
      2. A record that purports to be issued by or addressed to a bailee and to cover goods in the bailee's possession that are either identified or are fungible portions of an identified mass. The term includes a bill of lading, transport document, dock warrant, dock receipt, warehouse receipt, and order for delivery of goods. An electronic document of title means a document of title evidenced by a record consisting of information stored in an electronic medium. A tangible document of title means a document of title evidenced by a record consisting of information that is inscribed on a tangible medium;
    17. “Fault” means a default, breach, or wrongful act or omission;
    18. “Fungible goods” means:
      1. Goods of which any unit, by nature or usage of trade, is the equivalent of any other like unit; or
      2. Goods that by agreement are treated as equivalent;
    19. “Genuine” means free of forgery or counterfeiting;
    20. “Good faith”, except as otherwise provided in chapter 5 of this title, means honesty in fact in the conduct or transaction concerned;
    21. “Holder” means the person:
      1. In possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession;
      2. In possession of a negotiable tangible document of title if the goods are deliverable either to bearer or to the order of the person in possession; or
      3. In control of a negotiable electronic document of title;
    22. “Insolvency proceeding” includes an assignment for the benefit of creditors or other proceeding intended to liquidate or rehabilitate the estate of the person involved;
    23. “Insolvent” means:
      1. Having generally ceased to pay debts in the ordinary course of business other than as a result of bona fide dispute;
      2. Being unable to pay debts as they become due; or
      3. Being insolvent within the meaning of federal bankruptcy law;
    24. “Money” means a medium of exchange currently authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two (2) or more countries;
    25. “Organization” means a person other than an individual;
    26. “Party”, as distinguished from “third party”, means a person that has engaged in a transaction or made an agreement subject to chapters 1-9 of this title;
    27. “Person” means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency, or instrumentality, public corporation, or any other legal or commercial entity;
    28. “Present value” means the amount as of a date certain of one (1) or more sums payable in the future, discounted to the date certain by use of either an interest rate specified by the parties if that rate is not manifestly unreasonable at the time the transaction is entered into or, if an interest rate is not so specified, a commercially reasonable rate that takes into account the facts and circumstances at the time the transaction is entered into;
    29. “Purchase” means taking by sale, lease, discount, negotiation, mortgage, pledge, lien, security interest, issue or reissue, gift, or any other voluntary transaction creating an interest in property;
    30. “Purchaser” means a person that takes by purchase;
    31. “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form;
    32. “Remedy” means any remedial right to which an aggrieved party is entitled with or without resort to a tribunal;
    33. “Representative” means a person empowered to act for another, including an agent, an officer of a corporation or association, and a trustee, executor, or administrator of an estate;
    34. “Right” includes remedy;
    35. “Security interest” means an interest in personal property or fixtures that secures payment or performance of an obligation. “Security interest” includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory note in a transaction that is subject to chapter 9 of this title. “Security interest” does not include the special property interest of a buyer of goods on identification of those goods to a contract for sale under § 47-2-401, but a buyer may also acquire a “security interest” by complying with chapter 9 of this title. Except as otherwise provided in § 47-2-505, the right of a seller or lessor of goods under chapter 2 or 2A of this title to retain or acquire possession of the goods is not a “security interest”, but a seller or lessor may also acquire a “security interest” by complying with chapter 9 of this title. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer under § 47-2-401 is limited in effect to a reservation of a “security interest”. Whether a transaction in the form of a lease creates a “security interest” is determined pursuant to § 47-2-401;
    36. “Send” in connection with a writing, record, or notice means:
      1. To deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and, in the case of an instrument, to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances; or
      2. In any other way to cause to be received any record or notice within the time it would have arrived if properly sent;
    37. “Signed” includes using any symbol executed or adopted with present intention to adopt or accept a writing;
    38. “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States;
    39. “Surety” includes a guarantor or other secondary obligor;
    40. “Term” means a portion of an agreement that relates to a particular matter;
    41. “Unauthorized signature” means a signature made without actual, implied, or apparent authority. The term includes a forgery;
    42. “Warehouse receipt” means a document of title issued by a person engaged in the business of storing goods for hire;
    43. “Writing” includes printing, typewriting, or any other intentional reduction to tangible form. “Written” has a corresponding meaning.

Acts 2008, ch. 814, § 2; 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Amendments. The 2008 amendment by ch. 814 to the section as enacted by Acts 2008, ch. 930, § 1, both effective July 1, 2008, substituted “in control of a negotiable electronic document of title or a person in possession of a negotiable instrument, negotiable tangible document of title” for “in possession of a negotiable instrument, document of title” in the definition of “bearer”; in the definition of “bill of lading”, substituted “document of title” for “document”, inserted “directly or indirectly” and added the last sentence; in the definition of “delivery”, substituted “to an electronic document of title means voluntary transfer of control and with respect to an instrument, a tangible document of title” for “to an instrument, document of title”; rewrote the definition of “document of title” which read: “ ‘Document of title’ includes bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers. To be a document of title, a document must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass;”; in the definition of “holder”, substituted “possession of a negotiable tangible document” for “possession of a document” and added (C); and, in the definition of “warehouse receipt”, substituted “document of title” for “receipt”.

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

Acts 2008, ch. 930, § 15. July 1, 2008.

NOTES TO DECISIONS

1. “Buyer in Ordinary Course of Business.”

Truck buyer acquired title because buyer was a bona fide purchaser in the ordinary course of business, and under T.C.A. § 47-2-403 claimant's entrustment of the truck to merchant provided merchant the authority to transfer title to buyer, as buyer purchased the truck from merchant without knowledge that the transaction violated claimant's rights; although actions of merchant appeared to rise to the level of larceny under criminal law, this fact did not negate the power that was conferred on him by claimant's act of voluntarily entrusting merchant with the truck. Best Signs, Inc. v. King, 358 S.W.3d 226, 2009 Tenn. App. LEXIS 6 (Tenn. Ct. App. Jan. 12, 2009).

Circuit court properly awarded a trailer to the original owner because he held the certificate of title, the record contained no evidence to demonstrate that the person who sold the trailer to the buyer was a merchant who dealt in trailers of the kind at issue, the record suggested that the seller's sale of the scrap trailer to the buyer was an isolated casual sale, and the buyer was not entitled to the protection of the entrustment statute, regardless of whether he purchased the trailer in good faith or otherwise qualified as a bona fide purchaser. Duffy v. Elam, — S.W.3d —, 2016 Tenn. App. LEXIS 609 (Tenn. Ct. App. Aug. 24, 2016).

2. Consignments.

In an adversary proceeding in which a Chapter 7 trustee sought the avoidance and recovery of transfers of nine items of jewelry by the debtor to a jeweler as preferential or fraudulent transfers and the debtor moved for summary judgment, arguing that the debtor had no interest in the items transferred, because the jeweler acknowledged that two of the items of jewelry were delivered to the debtor for sale and because of the conflicting evidence regarding whether the remaining seven items were delivered to the debtor for the purpose of sale, there were genuine issues of fact precluding summary judgment on the ground that the jeweler's transactions with the debtor constituted consignments. Jahn v. Carley Jewels, LLC (In re WFG, LLC), — B.R. —, 2010 Bankr. LEXIS 3900 (Bankr. E.D. Tenn. Nov. 2, 2010).

3. Bad Faith.

Plaintiff corporation's motion to strike defendant's holder in due course affirmative defense was granted because defendant's arguments did not show any bad faith by the corporation; even assuming that the corporation's sole member owed defendant a fiduciary duty and that he or his representatives breached that duty, those facts would not show that the corporation acted dishonestly or in bad faith in its purchase of the promissory notes. Starnes Family Office, LLC  v. McCullar, 765 F. Supp. 2d 1036, 2011 U.S. Dist. LEXIS 9310 (W.D. Tenn. Jan. 28, 2011).

4. Good Faith.

Neither T.C.A. § 47-1-201(b)(20), which defines good faith, nor T.C.A. § 47-3-405(b), which imposes a good-faith requirement under the “fictitious payee rule,” draws any distinction between customers and non-customers or suggests that the bank's measure of good faith depends upon the plaintiff's status as a customer. Therefore, the meaning of good faith under Tennessee law does not hinge upon the plaintiff's status as a customer or non-customer. Contour Indus. v. U.S. Bank, N.A., — F.3d —, 2011 FED App. 627N, 2011 U.S. App. LEXIS 18113 (6th Cir. Aug. 26, 2011).

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).

5. Holder.

Plaintiff homeowners'  argument to amend its complaint to assert defendant Deed of Trust holder did not have the legal authority to foreclose failed because under T.C.A. §§ 47-1-201, 47-3-301, the holder did not have to be the owner of the note in order to enforce it and a person was entitled to enforce the instrument even if the person was not the owner of the instrument or in wrongful possession. Gibson v. Mortg. Elec. Registration Sys., — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 63510 (W.D. Tenn. May 7, 2012).

Creditor did not submit sufficient proof of perfection under the Tennessee UCC when it filed its proof of claim with a copy of a note endorsed in blank that only referenced the original lender and certain other documents, and although a Chapter 7 trustee sent notice of noncompliance with a local bankruptcy rule, it was not until four months after he filed an adversary proceeding that creditor supplied an affidavit indicating it was in possession of the original note. Excluding proof of perfection would be too harsh a sanction, but trustee was entitled to attorney's fees and expenses he was forced to incur in contesting creditor's deficient proof of claim. Waldschmidt v. Nationstar Mortg. LLC (In re Phillips), — B.R. —, 2015 Bankr. LEXIS 1886 (Bankr. M.D. Tenn. June 9, 2015).

6. Agreement.

Purchasers and a seller did not enter into a modification contract because nothing in the record indicated that the seller agreed, either expressly or by his conduct, to modify the parties'  agreement; the trial court clearly indicated that the purchasers'  evidence on the issue was neither sufficient nor credible, and the purchaser did not present clear and convincing evidence that would allow the court of appeals to disregard the trial court's implied credibility finding in favor of the seller. Lowe v. Smith, — S.W.3d —, 2016 Tenn. App. LEXIS 689 (Tenn. Ct. App. Sept. 19, 2016).

COMMENTS TO OFFICIAL TEXT

Source:  Former Section 1-201.

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

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

Two definitions in former Section 1-201 have been deleted. The definition of “honor” in former Section 1-201(21) has been moved to Section 2-103(1)(b), inasmuch as the definition only applies to the use of the word in Article 2. The definition of “telegram” in former Section 1-201(41) has been deleted because that word no longer appears in the definition of “conspicuous.”

Other than minor stylistic changes and renumbering, the remaining definitions in this section are as in former Article 1 except as noted below.

1.  “Action.” Unchanged from former Section 1-201, which was derived from similar definitions in Section 191, Uniform Negotiable Instruments Law; Section 76, Uniform Sales Act; Section 58, Uniform Warehouse Receipts Act; Section 53, Uniform Bills of Lading Act.

2.  “Aggrieved party.” Unchanged from former Section 1-201.

3.  “Agreement.” Derived from former Section 1-201. As used in the Uniform Commercial Code the word is intended to include full recognition of usage of trade, course of dealing, course of performance and the surrounding circumstances as effective parts thereof, and of any agreement permitted under the provisions of the Uniform Commercial Code to displace a stated rule of law. Whether an agreement has legal consequences is determined by applicable provisions of the Uniform Commercial Code and, to the extent provided in Section 1-103, by the law of contracts.

4.  “Bank.” Derived from Section 4A-104.

5.  “Bearer.” Unchanged from former Section 1-201, which was derived from Section 191, Uniform Negotiable Instruments Law.

6.  “Bill of Lading.” Derived from former Section 1-201. The reference to, and definition of, an “airbill” has been deleted as no longer necessary.

7.  “Branch.” Unchanged from former Section 1-201.

8.  “Burden of establishing a fact.” Unchanged from former Section 1-201.

9.  “Buyer in ordinary course of business.” Except for minor stylistic changes, identical to former Section 1-201 (as amended in conjunction with the 1999 revisions to Article 9). The major significance of the phrase lies in Section 2-403 and in the Article on Secured Transactions (Article 9).

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

10.  “Conspicuous.” Derived from former Section 1-201(10). This definition states the general standard that to be conspicuous a term ought to be noticed by a reasonable person. Whether a term is conspicuous is an issue for the court. Subparagraphs (A) and (B) set out several methods for making a term conspicuous. Requiring that a term be conspicuous blends a notice function (the term ought to be noticed) and a planning function (giving guidance to the party relying on the term regarding how that result can be achieved). Although these paragraphs indicate some of the methods for making a term attention-calling, the test is whether attention can reasonably be expected to be called to it. The statutory language should not be construed to permit a result that is inconsistent with that test.

11.  “Consumer.” Derived from Section 9-102(a)(25).

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

13.  “Creditor.” Unchanged from former Section 1-201.

14.  “Defendant.” Except for minor stylistic changes, identical to former Section 1-201, which was derived from Section 76, Uniform Sales Act.

15.  “Delivery.” Derived from former Section 1-201. The reference to certificated securities has been deleted in light of the more specific treatment of the matter in Section 8-301.

16.  “Document of title.” Unchanged from former Section 1-201, which was derived from Section 76, Uniform Sales Act. By making it explicit that the obligation or designation of a third party as “bailee” is essential to a document of title, this definition clearly rejects any such result as obtained in Hixson v. Ward , 254 Ill.App. 505 (1929), which treated a conditional sales contract as a document of title. Also the definition is left open so that new types of documents may be included. It is unforeseeable what documents may one day serve the essential purpose now filled by warehouse receipts and bills of lading. Truck transport has already opened up problems which do not fit the patterns of practice resting upon the assumption that a draft can move through banking channels faster than the goods themselves can reach their destination. There lie ahead air transport and such probabilities as teletype transmission of what may some day be regarded commercially as “Documents of Title.” The definition is stated in terms of the function of the documents with the intention that any document which gains commercial recognition as accomplishing the desired result shall be included within its scope. Fungible goods are adequately identified within the language of the definition by identification of the mass of which they are a part.

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

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

The definition is broad enough to include an airway bill.

17.  “Fault.” Derived from former Section 1-201. “Default” has been added to the list of events constituting fault.

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

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

20.  “Good faith.”  Former Section 1-201(19) defined “good faith” simply as honesty in fact; the definition contained no element of commercial reasonableness.  Initially, that definition applied throughout the Code with only one exception.  Former Section 2-103(1)(b) provided that “in that Article, ‘good faith’ in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.”  This alternative definition was limited in applicability, though, because it applied only to transactions within the scope of Article 2 and it applied only to merchants.

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

Thus, the definition of “good faith” in this section merely confirms what has been the case for a number of years as Articles of the UCC have been amended or revised  — the obligation of “good faith,” applicable in each Article, is to be interpreted in the context of all Articles except for Article 5 as including both the subjective element of honesty in fact and the objective element of the observance of reasonable commercial standards of fair dealing.  As a result, both the subjective and objective elements are part of the standard of “good faith,” whether that obligation is specifically referenced in another Article of the Code (other than Article 5) or is provided by this Article.

Of course, as noted in the statutory text, the definition of “good faith” in this section does not apply when the narrower definition of “good faith” in revised Article 5 is applicable.

As noted above, the definition of “good faith” in this section requires not only honesty in fact but also “observance of reasonable commercial standards of fair dealing.”  Although “fair dealing” is a broad term that must be defined in context, it is clear that it is concerned with the fairness of conduct rather than the care with which an act is performed.  This is an entirely different concept than whether a party exercised ordinary care in conducting a transaction.  Both concepts are to be determined in the light of reasonable commercial standards, but those standards in each case are directed to different aspects of commercial conduct.  See e.g., Sections 3-103(a)(9) and 4-104(c) and Comment 4 to Section 3-103.

21.  “Holder.” Derived from former Section 1-201. The definition has been reorganized for clarity.

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

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

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

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

26.  “Party.” Substantively identical to former Section 1-201. Mention of a party includes, of course, a person acting through an agent. However, where an agent comes into opposition or contrast to the principal, particular account is taken of that situation.

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

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

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

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

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

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

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

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

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

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

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

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

39.  “Surety.” This definition makes it clear that “surety” includes all secondary obligors, not just those whose obligation refers to the person obligated as a surety. As to the nature of secondary obligations generally, see Restatement (Third), Suretyship and Guaranty Section1 (1996).

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

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

42.  “Warehouse receipt.” Unchanged from former Section 1-201, which was derived from Section 76(1), Uniform Sales Act; Section 1, Uniform Warehouse Receipts Act. Receipts issued by a field warehouse are included, provided the warehouseman and the depositor of the goods are different persons.

43.  “Written” or “writing.” Unchanged from former Section 1-201.

47-1-202. Notice — Knowledge.

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

Acts 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

COMMENTS TO OFFICIAL TEXT

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

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

1.  Under subsection (a), a person has notice of a fact when, inter alia , the person has received a notification of the fact in question.

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

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

47-1-203. Lease distinguished from security interest.

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

Acts 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

COMMENTS TO OFFICIAL TEXT

Source:  Former Section 1-201(37).

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

1.  An interest in personal property or fixtures which secures payment or performance of an obligation is a “security interest.” See Section 1-201(37). Security interests are sometimes created by transactions in the form of leases. Because it can be difficult to distinguish leases that create security interests from those that do not, this section provides rules that govern the determination of whether a transaction in the form of a lease creates a security interest.

2.  One of the reasons it was decided to codify the law with respect to leases was to resolve an issue that created considerable confusion in the courts: what is a lease? The confusion existed, in part, due to the last two sentences of the definition of security interest in the 1978 Official Text of the Act, Section 1-201(37). The confusion was compounded by the rather considerable change in the federal, state and local tax laws and accounting rules as they relate to leases of goods. The answer is important because the definition of lease determines not only the rights and remedies of the parties to the lease but also those of third parties. If a transaction creates a lease and not a security interest, the lessee's interest in the goods is limited to its leasehold estate; the residual interest in the goods belongs to the lessor. This has significant implications to the lessee's creditors. “On common law theory, the lessor, since he has not parted with title, is entitled to full protection against the lessee's creditors and trustee in bankruptcy....” 1 G. Gilmore, Security Interests in Personal Property  Section 3.6, at 76 (1965).

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

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

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

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

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

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

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

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

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

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

47-1-204. Value.

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

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

Acts 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

Cited: Baptist Mem. Hosp. v. Argo Constr. Corp., 308 S.W.3d 337, 2009 Tenn. App. LEXIS 502 (Tenn. Ct. App. July 29, 2009).

COMMENTS TO OFFICIAL TEXT

Source:  Former Section 1-201(44).

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

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

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

47-1-205. Reasonable time — Seasonableness.

  1. Whether a time for taking an action required by chapters 1-9 of this title is reasonable depends on the nature, purpose, and circumstances of the action.
  2. An action is taken seasonably if it is taken at or within the time agreed or, if no time is agreed, at or within a reasonable time.

Acts 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

COMMENTS TO OFFICIAL TEXT

Source:  Former Section 1-204(2)-(3).

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

1.  Subsection (a) makes it clear that requirements that actions be taken within a “reasonable” time are to be applied in the transactional context of the particular action.

2.  Under subsection (b), the agreement that fixes the time need not be part of the main agreement, but may occur separately. Notice also that under the definition of “agreement” (Section 1-201) the circumstances of the transaction, including course of dealing or usages of trade or course of performance may be material. On the question what is a reasonable time these matters will often be important.

47-1-206. Presumptions.

Whenever chapters 1-9 of this title create a “presumption” with respect to a fact, or provide that a fact is “presumed”, the trier of fact must find the existence of the fact unless and until evidence is introduced that supports a finding of its nonexistence.

Acts 2008, ch. 930, § 1.

Compiler's Notes. This revised chapter 1 replaces former chapter 1, effective July 1, 2008.

Former chapter 1, §§ 47-1-10147-1-110, 47-1-20147-1-208 (Acts 1963, ch. 81, §§ 1 (1-101) — 1 (1-108), 1 (1-201) — 1 (1-208), 1 (10-102(2)), 1 (10-105); 1983, ch. 154, § 1; 1985, ch. 404, §§ 1, 2; 1986, ch. 737, § 53; 1987, ch. 225, § 16; 1991, ch. 52, § 2; 1993, ch. 398, §§ 2, 3; 1995, ch. 397, § 1; 1997, ch. 66, §§ 1, 2; 1997, ch. 79, §§ 15, 16; 1997, ch. 272, §§ 3, 4; 1998, ch. 641, § 2; 1998, ch. 675, § 4; 2000, ch. 846, §§ 2, 3; 2002, ch. 522, § 1), concerning general provisions of the Uniform Commercial Code, was repealed by Acts 2008, ch. 930, § 1, effective July 1, 2008, which enacted this revised chapter 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

NOTES TO DECISIONS

1. Rebuttable Presumption Rule.

Although T.C.A. § 47-9-626 does not use the term “presumption,” there is no question that this statutory provision is intended to be a codification of the rebuttable presumption rule and that it serves to create a rebuttable presumption; the analytical framework generally applicable to such presumptions is thus applicable to this section and the rebuttable presumption rule codified therein. Regions Bank v. Thomas, 532 S.W.3d 330, 2017 Tenn. LEXIS 699 (Tenn. Oct. 16, 2017).

COMMENTS TO OFFICIAL TEXT

Source:  Former Section 1-201(31).

Changes from former law:  None, other than stylistic changes.

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

Part 3
Territorial Applicability and General Rules

47-1-301. Territorial applicability — Parties' power to choose applicable law.

  1. Except as otherwise provided in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.
  2. In the absence of an agreement effective under subsection (a), and except as provided in subsection (c), chapters 1-9 of this title apply to transactions bearing an appropriate relation to this state.
  3. If one (1) of the following provisions of chapters 1-9 of this title specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law so specified:
    1. Section 47-2-402;
    2. Sections 47-2A-105 and 47-2A-106;
    3. Section 47-4-102;
    4. Section 47-4A-507;
    5. Section 47-5-116;
    6. Section 47-8-110; or
    7. Sections 47-9-301 — 47-9-307.

Acts 2008, ch. 930, § 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

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.

47-1-302. Variation by agreement.

  1. Except as otherwise provided in subsection (b) or elsewhere in chapters 1-9 of this title, the effect of provisions of chapters 1-9 of this title may be varied by agreement.
  2. The obligations of good faith, diligence, reasonableness, and care prescribed by chapters 1-9 of this title may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable. Whenever chapters 1-9 of this title require an action to be taken within a reasonable time, a time that is not manifestly unreasonable may be fixed by agreement.
  3. The presence in certain provisions of chapters 1-9 of this title of the phrase “unless otherwise agreed”, or words of similar import, does not imply that the effect of other provisions may not be varied by agreement under this section.

Acts 2008, ch. 930, § 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

Cited: Baptist Mem. Hosp. v. Argo Constr. Corp., 308 S.W.3d 337, 2009 Tenn. App. LEXIS 502 (Tenn. Ct. App. July 29, 2009).

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.

47-1-303. Course of performance, course of dealing, and usage of trade.

  1. A “course of performance” is a sequence of conduct between the parties to a particular transaction that exists if:
    1. The agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and
    2. The other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.
  2. A “course of dealing” is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
  3. A “usage of trade” is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law.
  4. A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance.
  5. Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:
    1. Express terms prevail over course of performance, course of dealing, and usage of trade;
    2. Course of performance prevails over course of dealing and usage of trade; and
    3. Course of dealing prevails over usage of trade.
  6. Subject to § 47-2-209, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance.
  7. Evidence of a relevant usage of trade offered by one party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise to the other party.

Acts 2008, ch. 930, § 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

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.

47-1-304. Obligation of good faith.

Every contract or duty within chapters 1-9 of this title imposes an obligation of good faith in its performance and enforcement.

Acts 2008, ch. 930, § 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

Cited: SecurAmerica Bus. Credit v. Lynch, — S.W.3d —, 2011 Tenn. App. LEXIS 462 (Tenn. Ct. App. Aug. 26, 2011).

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.

47-1-305. Remedies to be liberally administered.

  1. The remedies provided by chapters 1-9 of this title must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specifically provided in chapters 1-9 of this title or by other rule of law.
  2. Any right or obligation declared by chapters 1-9 of this title is enforceable by action unless the provision declaring it specifies a different and limited effect.

Acts 2008, ch. 930, § 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

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.

47-1-306. Waiver or renunciation of claim or right after breach.

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

Acts 2008, ch. 930, § 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

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).

47-1-307. Prima facie evidence by third-party documents.

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

Acts 2008, ch. 930, § 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

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.

47-1-308. Performance or acceptance under reservation of rights.

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

Acts 2008, ch. 930, § 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

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.

47-1-309. Option to accelerate at will.

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

Acts 2008, ch. 930, § 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

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.

47-1-310. Subordinated obligations.

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

Acts 2008, ch. 930, § 1.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

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.

Chapter 2
Sales

Part 1
Short Title, General Construction and Subject Matter

47-2-101. Short title.

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

Acts 1963, ch. 81, § 1 (2-101).

Compiler's Notes. Official Comments in Article 2 (title 47, chapter 2): Copyright by the American Law Institute and the National Conference of Commissioners on Uniform State Laws. Reprinted with permission of the Permanent Editorial Board of the Uniform Commercial Code.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 2, 3, 17.

Law Reviews.

“Bad Faith Breach”: A New and Growing Concern for Financial Institutions, 42 Vand. L. Rev. 891 (1989).

Note, Bailor Beware: Limitations and Exclusions of Liability in Commercial Bailments, 41 Vand. L. Rev. 129 (1988).

Comparative Legislation. Uniform Commercial Code — Sales:

Ala.  Code § 7-2-101 et seq.

Ark.  Code § 4-2-201 et seq.

Ga. O.C.G.A. § 11-2-101 et seq.

Ky. Rev. Stat. Ann. § 355.2-101 et seq.

Miss.  Code Ann. § 75-2-101 et seq.

Mo. Rev. Stat. § 400.2-101 et seq.

N.C.  Gen. Stat. § 25-2-101 et seq.

Va. Code § 8.2-101 et seq.

Cited: Metropolitan Dev. & Housing Agency v. Brown Stove Works, Inc., 637 S.W.2d 876, 1982 Tenn. App. LEXIS 390 (Tenn. Ct. App. 1982); Haverlah v. Memphis Aviation, Inc., 674 S.W.2d 297, 1984 Tenn. App. LEXIS 3389 (Tenn. Ct. App. 1984); Thomas Nelson, Inc. v. United States, 694 F. Supp. 428, 1988 U.S. Dist. LEXIS 15334 (M.D. Tenn. 1988); Olin Corp. v. Lambda Elecs., 39 F. Supp. 2d 912, 1998 U.S. Dist. LEXIS 20765 (E.D. Tenn. 1998); Big Creek Landscaping v. Hudson Constr. Co., — S.W.3d —, 2007 Tenn. App. LEXIS 645 (Tenn. Ct. App. Oct. 22, 2007); Wilson Sporting Goods Co. v. U.S. Golf & Tennis Ctrs., Inc., — S.W.3d —, 2012 Tenn. App. LEXIS 117 (Tenn. Ct. App. Feb. 24, 2012).

NOTES TO DECISIONS

1. Security Interests.

Security interests under this chapter arise by operation of law while security interests under chapter 9 of this title are created by agreement. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

The seller with a security interest under this chapter has only the remedies provided by this chapter. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

2. Title.

Article 2 of the U.C.C. generally allows the parties to a sale to agree on when title to or ownership of goods will pass to the buyer, but it limits the effect of a seller's retention of title after delivery. In re Tom Woods Used Cars, Inc., 24 B.R. 529, 1982 Bankr. LEXIS 2925 (Bankr. E.D. Tenn. 1982).

3. Goods and Nongoods.

Where a contract of sale involving both goods and nongoods was not consummated and damages were sought for breach of contract, the transaction was viewed as a whole, and if the predominant assets to be transferred were goods the U.C.C. would govern, but if the predominant assets were nongoods the U.C.C. would have no application. Hudson v. Town & Country True Value Hardware, Inc., 666 S.W.2d 51, 1984 Tenn. LEXIS 919 (Tenn. 1984).

4. Damages Generally.

Most transparent method for calculating the buyer's damages was by a series of distinct steps: (1) The first step was to calculate the profits that the buyer would have obtained if all parties had performed their contracts in accordance with their terms, and same would result in the buyer's lost profits; (2) to have determined the buyer's damages, however, the figure for gross lost profits had to be adjusted by reducing that number by the amount the buyer received from the sale of the nonconforming garments on the secondary market, that was, its efforts at mitigation; (3) the third step was to add to the consequential damages of lost profits any incidental damages, that was, the storage cost incurred by the buyer; and (4) issues surrounding the partial payment to the manufacturer, through its draw on the buyer's letter of credit, as well as the portion of the original contract price that had not been paid by the buyer and that was sought by the manufacturer, had to be determined to arrive at the final amount due the buyer for the breach by the apparel manufacturer. Wings Mfg. Corp. v. Lawson, — S.W.3d —, 2005 Tenn. App. LEXIS 485 (Tenn. Ct. App. 2005).

Decisions Under Prior Law

1. Construction.

Uniform Sales of Goods Act was limited to delineating principle 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).

Collateral References. 67 Am. Jur. 2d Sales § 1 et seq.

77 C.J.S. Sales § 1 et seq.

Applicability of UCC Article 2 to mixed contracts for sale of goods and services. 5 A.L.R.4th 501.

Causes of action governed by limitations period in UCC § 2-725. 49 A.L.R.5th 1.

Construction and effect of UCC Art. 2, dealing with sales. 17 A.L.R.3d 1010, 42 A.L.R.3d 182, 66 A.L.R.3d 145, 66 A.L.R.3d 190, 73 A.L.R.3d 248, 88 A.L.R.3d 416, 90 A.L.R.3d 1141, 91 A.L.R.3d 1237, 93 A.L.R.3d 584, 96 A.L.R.3d 299, 96 A.L.R.3d 1275, 97 A.L.R.3d 908, 98 A.L.R.3d 586, 98 A.L.R.3d 1183; 4 A.L.R.4th 85, 4 A.L.R.4th 912, 26 A.L.R.4th 294, 30 A.L.R.4th 396, 36 A.L.R.4th 544, 44 A.L.R.4th 110, 45 A.L.R.4th 1126, 51 A.L.R.4th 537, 82 A.L.R.4th 709.

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

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

What constitutes “goods” within scope of UCC Article 2. 4 A.L.R.4th 85, 4 A.L.R.4th 912, 26 A.L.R.4th 294, 30 A.L.R.4th 396, 36 A.L.R.4th 544, 44 A.L.R.4th 110, 45 A.L.R.4th 1126, 51 A.L.R.4th 537, 82 A.L.R.4th 709.

COMMENTS TO OFFICIAL TEXT

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

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

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

47-2-102. Scope — Certain security and other transactions excluded from this chapter.

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

Acts 1963, ch. 81, § 1 (2-102).

Prior Tennessee Law: § 47-1275.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 2-4.

Law Reviews.

Note, Bailor Beware: Limitations and Exclusions of Liability in Commercial Bailments, 41 Vand. L. Rev. 129 (1988).

Cited: Pennyrile Tours, Inc. v. Country Inns, USA, Inc., 559 F. Supp. 15, 1982 U.S. Dist. LEXIS 17297 (E.D. Tenn. 1982); Knoxville Rod & Bearing, Inc. v. Bettis Corp. of Knoxville, Inc., 672 S.W.2d 203, 1983 Tenn. App. LEXIS 719 (Tenn. Ct. App. 1983); Beds & More, Inc. v. Deutscher (In re Southern Indus. Banking Corp.), 36 B.R. 1008, 1984 Bankr. LEXIS 6267 (Bankr. E.D. Tenn. 1984); Baker v. Promark Products West, Inc., 692 S.W.2d 844, 1985 Tenn. LEXIS 531 (Tenn. 1985).

NOTES TO DECISIONS

1. Applicability.

The uniform commercial code applies to the sale of a mobile home. Paskell v. Nobility Homes, 845 S.W.2d 750, 1992 Tenn. App. LEXIS 401 (Tenn. Ct. App. 1992), rehearing denied, 845 S.W.2d 750, 1992 Tenn. App. LEXIS 474 (Tenn. Ct. App. 1992), rev'd, 871 S.W.2d 481, 1994 Tenn. LEXIS 11 (Tenn. 1994).

The provisions of article 2 would not apply to a service contract for the production of brochures. Starr Printing Co. v. Air Jamaica, 45 F. Supp. 2d 625, 1999 U.S. Dist. LEXIS 4917 (W.D. Tenn. 1999).

2. Federally Guaranteed Mortgages.

Government National Mortgage Association certificates (GNMA's) are pools of federally guaranteed individual mortgages, usually in one million dollar lots, which are bought and sold just as commodities are, with delivery to be made at a future date; while the U.C.C. chapter 2 applies to goods, which the GNMA's are not, it may be applied to GNMA's by analogy as with investment securities. UMIC Government Secur., Inc. v. Pioneer Mortg. Co., 707 F.2d 251, 1983 U.S. App. LEXIS 27955 (6th Cir. Tenn. 1983).

3. Goods and Nongoods.

Where a contract of sale involving both goods and nongoods was not consummated and damages were sought for breach of contract, the transaction was viewed as a whole, and if the predominant assets to be transferred were goods the U.C.C. would govern, but if the predominant assets were nongoods the U.C.C. would have no application. Hudson v. Town & Country True Value Hardware, Inc., 666 S.W.2d 51, 1984 Tenn. LEXIS 919 (Tenn. 1984).

Collateral References.

Applicability of U.C.C. Article 2 to mixed contracts for sale of goods and services. 5 A.L.R.4th 9.

Applicability of Uniform Sales Act and Uniform Commercial Code to contract between grower of vegetable or fruit crops and purchasing processor, packer or canner. 87 A.L.R.2d 732.

Conflict of laws as to conditional sale of chattels. 148 A.L.R. 375, 13 A.L.R.2d 1312.

Sufficiency of notice of claim for damages for breach of warranty. 53 A.L.R.2d 270.

Title to unknown valuables secreted in articles sold. 4 A.L.R.2d 318.

Use of conditional sale contract to secure debt in addition to the purchase price. 148 A.L.R. 346.

Validity and mutuality of agreement to buy where there is no express agreement to sell. 60 A.L.R. 215.

Violation of statute as to form of, or terms to be included in, conditional sale contract, as invalidating entire transaction or merely its effect to reserve title in vendor. 144 A.L.R. 1103.

What amounts to conditional sale. 175 A.L.R. 1366.

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Section 75, Uniform Sales Act.

Changes:  Section 75 has been rephrased.

Purposes of Changes and New Matter:

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

Cross-Reference:

Article [Chapter] 9.

Definitional Cross-References:

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Present sale”. Section 2-106.

“Sale”. Section 2-106.

47-2-103. Definitions and index of definitions.

  1. In this chapter unless the context otherwise requires:
  1. “Buyer” means a person who buys or contracts to buy goods.
  2. “Good faith” in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.
  3. “Receipt” of goods means taking physical possession of them.
  4. “Seller” means a person who sells or contracts to sell goods.

    “Acceptance.” § 47-2-606.

    “Banker's credit.” § 47-2-325.

    “Between merchants.” § 47-2-104.

    “Cancellation.” § 47-2-106(4).

    “Commercial unit.” § 47-2-105.

    “Confirmed credit.” § 47-2-325.

    “Conforming to contract.” § 47-2-106.

    “Contract for sale.” § 47-2-106.

    “Cover.” § 47-2-712.

    “Entrusting.” § 47-2-403.

    “Financing agency.” § 47-2-104.

    “Future goods.” § 47-2-105.

    “Goods.” § 47-2-105.

    “Identification.” § 47-2-501.

    “Installment contract.” § 47-2-612.

    “Letter of credit.” § 47-2-325.

    “Lot.” § 47-2-105.

    “Merchant.” § 47-2-104.

    “Overseas.” § 47-2-323.

    “Person in position of seller.” § 47-2-707.

    “Present sale.” § 47-2-106.

    “Sale.” § 47-2-106.

    “Sale on approval.” § 47-2-326.

    “Sale or return.” § 47-2-326.

    “Termination.” § 47-2-106.

    “Check.” § 47-3-104.

    “Consignee.” § 47-7-102.

    “Consignor.” § 47-7-102.

    “Consumer goods.” § 47-9-102.

    “Dishonor.” § 47-3-502.

    “Draft.” § 47-3-104.

Other definitions applying to this chapter or to specified parts thereof, and the sections in which they appear are:

“Control” as provided in § 47-7-106 and the following definitions in other chapters apply to this chapter:

In addition chapter 1 of this title contains general definitions and principles of construction and interpretation applicable throughout this chapter.

Acts 1963, ch. 81, § 1 (2-103); Acts 2000, ch. 846, § 4; 2008, ch. 814, § 3.

Amendments. The 2008 amendment added “‘Control’ as provided in § 47-7-106 and” to the beginning of (3).

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

Prior Tennessee Law: § 47-1276.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 3, 10-22.

Law Reviews.

1985 Tennessee Survey: Selected Developments in Tennessee Law, 53 Tenn. L. Rev. 415 (1986).

Cited: Misco, Inc. v. United States Steel Corp., 784 F.2d 198, 1986 U.S. App. LEXIS 22403 (6th Cir. Tenn. 1986); Patton v. McHone, 822 S.W.2d 608, 1991 Tenn. App. LEXIS 564 (Tenn. Ct. App. 1991); Watts v. Mercedes-Benz United States, 254 S.W.3d 422, 2007 Tenn. App. LEXIS 580 (Tenn. Ct. App. Sept. 17, 2007); In re Music City RV, LLC, 304 S.W.3d 806, 2010 Tenn. LEXIS 86 (Tenn. Feb. 12, 2010).

NOTES TO DECISIONS

1. Good Faith.

2. —Good Faith Purchaser for Value.

Where the terms of the purchase and sale of collateral were so highly unusual and beneficial to the buyer that the buyer, as a merchant and chargeable with the knowledge and skill of a merchant, could not in good faith have believed that they were commercially reasonable, the buyer was not a good faith purchaser for value and as such did not take clear of the debtor's rights in the collateral. In re Four Star Music Co., 2 B.R. 454, 1979 Bankr. LEXIS 715 (Bankr. M.D. Tenn. 1979).

3. Seller.

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).

4. Elements of Sale.

Payment upon delivery is not necessary in order to establish that a sale occurred; therefore, in a case involving a violation of a city ordinance prohibiting the sale of alcoholic beverages to a person under the age of 21, there was no error in the finding that the order of a beer by a confidential informant (CI) and the subsequent delivery of that beer by a waitress was a completed sale, even though the CI testified that she never had any intention of consuming or paying for the beer. The elements of a sale were the transfer or title or possession or both of tangible personal property for consideration, and the buyer's failure to pay allowed the seller to collect the price for the accepted goods. City of Athens v. Blair Strong Enters., LLC, — S.W.3d —, 2014 Tenn. App. LEXIS 334 (Tenn. Ct. App. June 10, 2014).

Decisions Under Prior Law

1. Construction and Interpretation.

2. —In General.

The Uniform Sales Act contained the same definitions of “purchaser,” “value,” and “good faith” as were contained in the Uniform Warehouse Receipts Act. Starkey v. Nixon, 151 Tenn. 637, 270 S.W. 980, 1924 Tenn. LEXIS 92 (1924).

3. —Delivery.

A “setoff” in a board of trade transaction is equivalent to delivery. Palmer v. Love, 18 Tenn. App. 579, 80 S.W.2d 100, 1934 Tenn. App. LEXIS 59 (Tenn. Ct. App. 1934).

4. —“Deliverable State.”

One is not bound to take delivery of a furnace and materials, under a contract calling for installation, where same were merely deposited in his basement by seller, no part of installation being done. Knoxville Tinware & Mfg. Co. v. Rogers, 158 Tenn. 126, 11 S.W.2d 874, 1928 Tenn. LEXIS 132 (1928).

5. —“Goods.”

Timber which was agreed to be severed before sale, was personalty and constituted “goods.” Gilbert v. Smith, 14 Tenn. App. 500, — S.W.2d —, 1932 Tenn. App. LEXIS 59 (Tenn. Ct. App. 1932).

6. —“Future Goods.”

A purported sale of a crop to be planted and grown in the future is at best only a sale of future goods and is an executory contract of sale. Dysart v. Hamilton, 11 Tenn. App. 43, — S.W.2d —, 1929 Tenn. App. LEXIS 73 (Tenn. Ct. App. 1929).

Collateral References.

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

COMMENTS TO OFFICIAL TEXT

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

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

Purposes of Changes and New Matter:

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

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

Cross-References:

Point 1: See Section 2-210 and Comment thereon.

Point 2: Section 1-201.

Definitional Cross-References:

“Person”. Section 1-201.

47-2-104. Definitions — “Merchant” — “Between merchants” — “Financing agency.”

  1. “Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
  2. “Financing agency” means a bank, finance company or other person who in the ordinary course of business makes advances against goods or documents of title or who by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment due or claimed under the contract for sale, as by purchasing or paying the seller's draft or making advances against it or by merely taking it for collection whether or not documents of title accompany or associated with the draft. “Financing agency” includes also a bank or other person who similarly intervenes between persons who are in the position of seller and buyer in respect to the goods (§ 47-2-707).
  3. “Between merchants” means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.

Acts 1963, ch. 81, § 1 (2-104); Acts 2008, ch. 814, § 4.

Amendments. The 2008 amendment inserted “or associated with” in the first sentence of (2).

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

Prior Tennessee Law: § 47-1271.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 2, 3.

Law Reviews.

Breach of Implied Warranty: Has the Foreign/Natural Test Lost Its Bite?, 20 Mem. St. U.L. Rev. 377 (1990).

NOTES TO DECISIONS

1. “Between Merchants.”

There was no transaction “between merchants” where defendant had 10 years of experience as an automobile dealer but got out of the business 15 years prior to trial date and prior to the adoption of the U.C.C. Couch v. Cockroft, 490 S.W.2d 713, 1972 Tenn. App. LEXIS 317 (Tenn. Ct. App. 1972).

2. “Merchant.”

A financial institution which sold a repossessed truck was not a merchant as defined in this section; although the bank engaged in the business of financing automobiles and related type motor vehicles, it did not normally finance trucks of the type involved. Foley v. Dayton Bank & Trust, 696 S.W.2d 356, 1985 Tenn. App. LEXIS 2778 (Tenn. Ct. App. 1985).

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).

Question of whether defendant farmer qualified as a merchant under T.C.A. § 47-2-104(1) for purposes of the Uniform Commercial Code Statute of Frauds, T.C.A. § 47-2-201(b), raised genuine issues regarding the inferences to be drawn from the facts in a contract action by plaintiff cotton company; thus, summary judgment was inappropriate. Brooks Cotton Co. v. Williams, 381 S.W.3d 414, 2012 Tenn. App. LEXIS 262 (Tenn. Ct. App. Apr. 23, 2012).

Pursuant to T.C.A. § 47-2-104(1), a farmer may be considered a merchant for the purposes of the merchant exception to the Statute of Frauds, T.C.A. § 47-2-201(b), when the farmer possesses sufficient expertise in not only the cultivation, but also the sale of crops. However, the determination of whether a particular farmer is a merchant is a mixed question of fact and law, which must be determined on a case-by-case basis, taking into account the individual experience and activities of the person involved. Brooks Cotton Co. v. Williams, 381 S.W.3d 414, 2012 Tenn. App. LEXIS 262 (Tenn. Ct. App. Apr. 23, 2012).

Trial courts should consider the following, nonexhaustive, criteria in determining whether a particular farmer is a merchant for purposes of the Statute of Frauds: (1) the length of time the farmer has been engaged in the practice of selling his product to the marketers of his product; (2) the degree of business acumen shown by the farmer in his dealings with other parties; (3) the farmer's awareness of the operation and existence of farm markets; and (4) the farmer's past experience with or knowledge of the customs and practices which are unique to the particular marketing of the product which he sells. Brooks Cotton Co. v. Williams, 381 S.W.3d 414, 2012 Tenn. App. LEXIS 262 (Tenn. Ct. App. Apr. 23, 2012).

Trial court properly concluded that the UCC applied to the transaction between a buyer and a seller as the evidence showed that the seller was a merchant, in that she sold telecommunications goods and otherwise held herself out as a telecommunications equipment merchant, and that the buyer was a buyer. 3L Communs., LLC v. Merola, — S.W.3d —, 2013 Tenn. App. LEXIS 589 (Tenn. Ct. App. Sept. 6, 2013).

In this case, whether one engaged in the practice of mining was a merchant was a mixed question of law and fact. Thomas Energy Corp. v. Caterpillar Fin. Servs. Corp., — S.W.3d —, 2014 Tenn. App. LEXIS 855 (Tenn. Ct. App. Dec. 26, 2014).

Plaintiff claimed a modification clause was void pursuant to the statute, and if plaintiff proved there was an oral agreement, the viability of that claim depended on whether plaintiff was a merchant; given that plaintiff testified extensively concerning his experience with mining equipment in his mining business, there was insufficient evidence for a jury to find that plaintiff did not hold himself out as having knowledge peculiar to the practices involved in the transaction, and the trial court did not err in finding that plaintiff was a merchant as a matter of law. Thomas Energy Corp. v. Caterpillar Fin. Servs. Corp., — S.W.3d —, 2014 Tenn. App. LEXIS 855 (Tenn. Ct. App. Dec. 26, 2014).

Collateral References.

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

COMMENTS TO OFFICIAL TEXT

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

Purposes:

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

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

The special provisions as to merchants appear only in this Article [Chapter] and they are of three kinds. Sections 2-201(2), 2-205, 2-207 and 2-209 dealing with the statute of frauds, firm offers, confirmatory memoranda and modification rest on normal business practices which are or ought to be typical of and familiar to any person in business. For purposes of these sections almost every person in business would, therefore, be deemed to be a “merchant” under the language “who … by his occupation holds himself out as having knowledge or skill peculiar to the practices … involved in the transaction …” since the practices involved in the transaction are non-specialized business practices such as answering mail. In this type of provision, banks or even universities, for example, well may be “merchants.” But even these sections only apply to a merchant in his mercantile capacity; a lawyer or bank president buying fishing tackle for his own use is not a merchant.

On the other hand, in Section 2-314 on the warranty of merchantability, such warranty is implied only “if the seller is a merchant with respect to goods of that kind.” Obviously this qualification restricts the implied warranty to a much smaller group than everyone who is engaged in business and requires a professional status as to particular kinds of goods. The exception in Section 2-402 (2) for retention of possession by a merchant-seller falls in the same class; as does Section 2-403(2) on entrusting of possession to a merchant “who deals in goods of that kind.”

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

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

Cross-References:

Point 1: See Sections 1-102 and 1-203.

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

Definitional Cross-References:

“Bank”. Section 1-201.

“Buyer”. Section 2-103.

“Contract for sale”. Section 2-106.

“Document of title”. Section 1-201.

“Draft”. Section 3-104.

“Goods”. Section 2-105.

“Person”. Section 1-201.

“Purchase”. Section 1-201.

“Seller”. Section 2-103.

47-2-105. Definitions — Transferability — “Goods” — “Future goods” — “Lot” — “Commercial unit.”

  1. “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (chapter 8 of this title) and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (§ 47-2-107).
  2. Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are “future goods.” A purported present sale of future goods or of any interest therein operates as a contract to sell.
  3. There may be a sale of a part interest in existing identified goods.
  4. An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller's interest in the bulk be sold to the buyer who then becomes an owner in common.
  5. “Lot” means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract.
  6. “Commercial unit” means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole.

Acts 1963, ch. 81, § 1 (2-105).

Prior Tennessee Law: §§ 47-1205 and 47-1276.

Textbooks. Tennessee Jurisprudence, 1 Tenn. Juris., Agriculture, § 4; 6 Tenn. Juris., Commercial Law, §§ 3, 98.

Law Reviews.

The Federal Consumer Warranty Act and Its Effect on State Law, 43 Tenn. L. Rev. 429.

Cited: Studley & Millard Machine Co. v. Endsley Marble Co., 497 S.W.2d 927, 1973 Tenn. App. LEXIS 303 (Tenn. Ct. App. 1973); Allenberg Cotton Co. v. Woods, 640 S.W.2d 543, 1982 Tenn. LEXIS 350 (Tenn. 1982); In re Tom Woods Used Cars, Inc., 21 B.R. 560, 1982 Bankr. LEXIS 3811 (Bankr. E.D. Tenn. 1982); Beds & More, Inc. v. Deutscher (In re Southern Indus. Banking Corp.), 36 B.R. 1008, 1984 Bankr. LEXIS 6267 (Bankr. E.D. Tenn. 1984); Hudson v. Town & Country True Value Hardware, Inc., 666 S.W.2d 51, 1984 Tenn. LEXIS 919 (Tenn. 1984); Bill Brown Constr. Co. v. Glens Falls Ins. Co., 818 S.W.2d 1, 1991 Tenn. LEXIS 426 (Tenn. 1991); Brooks Cotton Co. v. Williams, 381 S.W.3d 414, 2012 Tenn. App. LEXIS 262 (Tenn. Ct. App. Apr. 23, 2012).

NOTES TO DECISIONS

1. Federally Guaranteed Mortgages.

Government National Mortgage Association certificates (GNMA's) are pools of federally guaranteed individual mortgages, usually in one million dollar lots, which are bought and sold just as commodities are, with delivery to be made at a future date; while the U.C.C. chapter 2 applies to goods, which the GNMA's are not, it may be applied to GNMA's by analogy as with investment securities. UMIC Government Secur., Inc. v. Pioneer Mortg. Co., 707 F.2d 251, 1983 U.S. App. LEXIS 27955 (6th Cir. Tenn. 1983).

2. Goods.

Sale of an aircraft was a transaction in goods. Haverlah v. Memphis Aviation, Inc., 674 S.W.2d 297, 1984 Tenn. App. LEXIS 3389 (Tenn. Ct. App. 1984).

A contract for the sale of the assets of a business, which involved goods as well as nongoods, was a contract for the sale of goods. Knoxville Rod & Bearing, Inc. v. Bettis Corp. of Knoxville, Inc., 672 S.W.2d 203, 1983 Tenn. App. LEXIS 719 (Tenn. Ct. App. 1983).

The sale of implants for surgical purposes falls under the Uniform Commercial Code. Harwell v. American Medical Systems, Inc., 803 F. Supp. 1287, 1992 U.S. Dist. LEXIS 15671 (M.D. Tenn. 1992).

Pursuant to T.C.A. §§ 47-2-105 and 47-2-401, unless the parties otherwise explicitly agreed, title to the goods covered by the parties' agreement, which did not specifically address when title to the assets being sold would pass, passed when they were delivered to the debtor and, at most, all that creditor retained pending receipt of payment was a security interest. Pro Page Partners, LLC  v. Message Express Paging  Co. (In re Pro Page Partners), 270 B.R. 221, 2001 Bankr. LEXIS 1574 (Bankr. E.D. Tenn. 2001).

Although food broker contended that making private labels did not fall under the California UCC because it is a rendition of services rather than a sale of goods, he cited no legal authority for this proposition and there was no merit to his contention; UCC defines “goods” as all things which are movable at the time of identification to the contract, and thus it was clear that sandwich crackers qualified as “goods” under the UCC definition. Zoroufie v. Lance, Inc., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 50012 (W.D. Tenn. June 27, 2008).

Trial court properly found that a contract between a homeowner and a company for a “smart home” was predominately for the sale of goods. The contract contemplated the sale of various, moveable components, which were to be integrated via a control system; the installation and service that the company performed were incidental to the overarching purpose of its business, which was to sell “smart home” components; the homeowner contracted for electronic equipment; and the costs of labor and services were insignificant compared to the cost of the equipment. Audio Visual Artistry v. Tanzer, 403 S.W.3d 789, 2012 Tenn. App. LEXIS 903 (Tenn. Ct. App. Dec. 26, 2012).

3. —Reasonable Totality of Circumstances.

For the statute of frauds, relating to the sale of goods, to become applicable, the court did not believe every asset subject to a sale must qualify under the “movable” test of this section, rather than a view of mechanical technicality or of mathematical nicety, a view of the reasonable totality of the circumstances should control the characterization of the contract for sale, and if, viewed as a whole, it can be concluded that the essential bulk of the assets to be transferred qualify as goods, then it is appropriate to consider the transaction a contract for the sale of goods. Knoxville Rod & Bearing, Inc. v. Bettis Corp. of Knoxville, Inc., 672 S.W.2d 203, 1983 Tenn. App. LEXIS 719 (Tenn. Ct. App. 1983).

Decisions Under Prior Law

1. Certainty and Mutuality.

A letter from one corporation to another, 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, signed by the proposing corporation and accepted by the other, is 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).

2. Construction and Interpretation.

3. —“Goods.”

Timber which was agreed to be severed before sale, was personalty and constituted “goods.” Gilbert v. Smith, 14 Tenn. App. 500, — S.W.2d —, 1932 Tenn. App. LEXIS 59 (Tenn. Ct. App. 1932).

4. —“Future Goods.”

A purported sale of a crop to be planted and grown in the future is at best only a sale of future goods and is an executory contract of sale. Dysart v. Hamilton, 11 Tenn. App. 43, — S.W.2d —, 1929 Tenn. App. LEXIS 73 (Tenn. Ct. App. 1929).

Collateral References.

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

What constitutes “future goods” within scope of U.C.C. article 2. 48 A.L.R.6th 475.

COMMENTS TO OFFICIAL TEXT

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

Changes:  Rewritten.

Purposes of Changes and New Matter:

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

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

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

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

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

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

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

2.  References to the fact that a contract for sale can extend to future or contingent goods and that ownership in common follows the sale of a part interest have been omitted here as obvious without need for expression; hence no inference to negate these principles should be drawn from their omission.

3.  Subsection (4) does not touch the question of how far an appropriation of a bulk of fungible goods may or may not satisfy the contract for sale.

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

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

Cross-References:

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

Point 5: Section 2-501.

See also Section 1-201.

Definitional Cross-References:

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Fungible”. Section 1-201.

“Money”. Section 1-201.

“Present sale”. Section 2-106.

“Sale”. Section 2-106.

“Seller”. Section 2-103.

47-2-106. Definitions — “Contract” — “Agreement” — “Contract for sale” — “Sale” — “Present sale” — “Conforming to contract” — “Termination” — “Cancellation.”

  1. In this chapter unless the context otherwise requires “contract” and “agreement” are limited to those relating to the present or future sale of goods. “Contract for sale” includes both a present sale of goods and a contract to sell goods at a future time. A “sale” consists in the passing of title from the seller to the buyer for a price (§ 47-2-401). A “present sale” means a sale which is accomplished by the making of the contract.
  2. Goods or conduct including any part of a performance are “conforming” or conform to the contract when they are in accordance with the obligations under the contract.
  3. “Termination” occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On “termination” all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives.
  4. “Cancellation” occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of “termination” except that the cancelling party also retains any remedy for breach of the whole contract or any unperformed balance.

Acts 1963, ch. 81, § 1 (2-106).

Prior Tennessee Law: § 47-1201.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 3, 5, 10, 19.

Cited: Bowling v. Ford Motor Co., 296 F. Supp. 312, 1968 U.S. Dist. LEXIS 9671 (E.D. Tenn. 1968); Lindsey v. Stein Bros. & Boyce, Inc., 222 Tenn. 149, 433 S.W.2d 669, 1968 Tenn. LEXIS 418 (1968); In re Morristown Lincoln-Mercury, Inc., 25 B.R. 377, 1982 Bankr. LEXIS 2893 (Bankr. E.D. Tenn. 1982); In re Phillips, 77 B.R. 648, 1987 Bankr. LEXIS 1539 (Bankr. E.D. Tenn. 1987); Thomas Nelson, Inc. v. United States, 694 F. Supp. 428, 1988 U.S. Dist. LEXIS 15334 (M.D. Tenn. 1988); Patton v. McHone, 822 S.W.2d 608, 1991 Tenn. App. LEXIS 564 (Tenn. Ct. App. 1991); Watts v. Mercedes-Benz United States, 254 S.W.3d 422, 2007 Tenn. App. LEXIS 580 (Tenn. Ct. App. Sept. 17, 2007); In re Music City RV, LLC, 304 S.W.3d 806, 2010 Tenn. LEXIS 86 (Tenn. Feb. 12, 2010).

NOTES TO DECISIONS

1. Requirements for a Sale.

A pinball machine game does not qualify as a sale, because there is no passage of title in anything from a seller to a buyer. Borchert Enterprises, Inc. v. Webb, 584 S.W.2d 208, 1978 Tenn. App. LEXIS 356 (Tenn. Ct. App. 1978).

Where buyer's absolute and unqualified right to rescind all its obligations under the contract of sale and any collateral agreements rendered its promise illusory and inoperative as consideration for a binding contract, the transaction between the buyer and seller did not qualify as a sale under this section. In re Four Star Music Co., 2 B.R. 454, 1979 Bankr. LEXIS 715 (Bankr. M.D. Tenn. 1979).

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).

Payment upon delivery is not necessary in order to establish that a sale occurred; therefore, in a case involving a violation of a city ordinance prohibiting the sale of alcoholic beverages to a person under the age of 21, there was no error in the finding that the order of a beer by a confidential informant (CI) and the subsequent delivery of that beer by a waitress was a completed sale, even though the CI testified that she never had any intention of consuming or paying for the beer. The elements of a sale were the transfer or title or possession or both of tangible personal property for consideration, and the buyer's failure to pay allowed the seller to collect the price for the accepted goods. City of Athens v. Blair Strong Enters., LLC, — S.W.3d —, 2014 Tenn. App. LEXIS 334 (Tenn. Ct. App. June 10, 2014).

2. Conforming to Contract.

Where plaintiff contracted for habitable mobile home plus installation and loss occurred before installation was complete, defendant had not delivered conforming goods which would shift the risk of loss to plaintiff under § 47-2-509(3). Moses v. Newman, 658 S.W.2d 119, 1983 Tenn. App. LEXIS 609 (Tenn. Ct. App. 1983).

3. Seller.

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).

4. Termination.

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. Construction and Interpretation.

2. —“Sale of Goods” — Meaning.

Where defendant pursuant to written agreement delivered stock of goods at an agreed price of $2,500 to bankrupt subject to privilege of defendant to withdraw “this amount of merchandise of his selection at cost price at any time after its expiration of 90 days from this date,” there was a sale within meaning of definition of sale. McCallum v. Jones, 150 Tenn. 492, 265 S.W. 984, 1924 Tenn. LEXIS 25 (1924).

3. —Mortgage of Future Crops.

Uniform Sales Act had no application to mortgages of future crops. Dysart v. Hamilton, 11 Tenn. App. 43, — S.W.2d —, 1929 Tenn. App. LEXIS 73 (Tenn. Ct. App. 1929); Cunningham v. Moore, 161 Tenn. 128, 29 S.W.2d 654, 1929 Tenn. LEXIS 40 (1930).

4. —Refusal of Purchaser to Accept Goods.

The rule that seller may treat goods as purchaser's property and sue for contract price, where latter refuses to accept delivery and pay, was changed by the former uniform act except as provided in subsection 3 of § 1 of the Uniform Sales Act and never applied where the state was the real party defendant. 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).

5. —Completed Contract.

Where the determinative issue is whether there was a completed contract, such a construction should be adopted, if possible, as to constitute an agreement rather than defeat an agreement. Neilson & Kittle Canning Co. v. F. G. Lowe & Co., 149 Tenn. 561, 260 S.W. 142, 1923 Tenn. LEXIS 114 (1924).

6. —Alternative Terms.

A contract of sale and purchase is not rendered incomplete by the seller's reservation of the right to demand a settlement upon delivery in one of two alternative forms, either on 30 days' credit or on sight draft against bill of lading. Eastern Products Corp. v. Tennessee C., I. & R. Co., 151 Tenn. 239, 269 S.W. 4, 1924 Tenn. LEXIS 64, 40 A.L.R. 1483 (1925), cert. denied, 269 U.S. 572, 46 S. Ct. 100, 70 L. Ed. 418, 1925 U.S. LEXIS 193 (1925); Eastern Products Corp. v. Tennessee C., I. & R. Co., 269 U.S. 572, 46 S. Ct. 100, 70 L. Ed. 418, 1925 U.S. LEXIS 193 (1925).

7. —Withdrawal from Contract.

It is an elementary principle that until both parties are bound by a contract, either party may withdraw. Canton Cotton Mills v. Bowman Overall Co., 149 Tenn. 18, 257 S.W. 398, 1923 Tenn. LEXIS 81 (1924).

8. Acceptance — Requisites.

While an assent to an offer to purchase is requisite to the formation of a contract or an agreement, yet such assent is a condition of mind, and may be either express or evidenced by circumstances from which the assent may be inferred. Cole-McIntyre-Norfleet Co. v. Holloway, 141 Tenn. 679, 214 S.W. 817, 1919 Tenn. LEXIS 19, 7 A.L.R. 1683 (1919).

Where a buyer canceled an order with the seller, when the latter refused to make further concessions in price, the buyer, in an action against him for breach, is not estopped from interposing a defense that the contract sued on was not finally consummated. Canton Cotton Mills v. Bowman Overall Co., 149 Tenn. 18, 257 S.W. 398, 1923 Tenn. LEXIS 81 (1924).

An acceptance, to be effectual, must be identical with the offer, and unconditional; and in order to make an acceptance effectual, there must be no variance between it and the offer, and accordingly a proposal to accept, or an acceptance, upon terms varying from those offered, is a rejection of the offer, and puts an end to negotiation unless the party who made the original offer renews it, or assents to the modifications suggested. Canton Cotton Mills v. Bowman Overall Co., 149 Tenn. 18, 257 S.W. 398, 1923 Tenn. LEXIS 81 (1924).

9. —Implied Acceptance.

Where an order for meal was solicited and obtained by a wholesaler's traveling salesman, the wholesaler's delay for 60 days after the order was taken in notifying the customer that it had not confirmed or accepted the order, was an unreasonable delay, and such silence was construed to effect an acceptance of the order. Cole-McIntyre-Norfleet Co. v. Holloway, 141 Tenn. 679, 214 S.W. 817, 1919 Tenn. LEXIS 19, 7 A.L.R. 1683 (1919).

10. —New Negotiations — Effect on Contract.

After a contract has been completed by means of correspondence, subsequent letters opening new negotiations cannot affect it, unless they result in a new contract. Neilson & Kittle Canning Co. v. F. G. Lowe & Co., 149 Tenn. 561, 260 S.W. 142, 1923 Tenn. LEXIS 114 (1924).

11. Contracts by Letters or Telegrams.

A binding contract may be entered into through the medium of correspondence by letters or telegrams. Neilson & Kittle Canning Co. v. F. G. Lowe & Co., 149 Tenn. 561, 260 S.W. 142, 1923 Tenn. LEXIS 114 (1924).

12. Prohibited Contracts.

Courts will not lend their aid to enforce contracts which are impliedly prohibited either by statute or public policy. Eastern Products Corp. v. Tennessee C., I. & R. Co., 151 Tenn. 239, 269 S.W. 4, 1924 Tenn. LEXIS 64, 40 A.L.R. 1483 (1925), cert. denied, 269 U.S. 572, 46 S. Ct. 100, 70 L. Ed. 418, 1925 U.S. LEXIS 193 (1925).

13. Quantity — Maximum and Minimum.

Where contract for purchase of paper specified a maximum and minimum quantity, if the option was with the seller it was bound to deliver at least the minimum quantity of paper and might deliver any additional quantity it might choose up to the maximum limit, and if the option lay with the purchaser it would be compelled to accept the minimum and might require delivery up to the maximum quantity limit. 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 publishing company delivered an offer to paper company in letter form requesting it to enter their contract “for a minimum quantity of one hundred twenty tons, maximum quantity of one hundred forty-five tons” paper which was accepted by the paper company, the incorporation of the minimum and maximum provision was meant to be a factor of safety for the publisher it being its needs that were to be gauged and therefore the option to determine the exact amount was with the publisher. 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 for purchase of paper contained provision for a minimum and maximum amount to be delivered and in carrying out the contract a disagreement arose as to which party could determine the exact amount between such minimum and maximum, and in one of the letters purchaser stated that it would be satisfactory if delivery was made some time during the remainder of the year and also asked assurance that seller would make the shipments, a suit brought by purchaser prior to the end of the year and before receiving reply from seller that it intended to comply with the contract and was discussing the proper construction of the contract with purchaser's attorney, was premature. 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).

14. —Appropriate Quantity.

In a contract under which a stone company agreed to furnish a contractor the amount of stone “approximately” needed, there was a lack of finality in the agreement at that time, as regards acceptance of estimate made by the stone company. Reed Bros. Stone Co. v. Pittman Const. Co., 20 Tenn. App. 552, 101 S.W.2d 478, 1936 Tenn. App. LEXIS 46 (Tenn. Ct. App. 1936).

15. Notice to Perform — After Waiver.

Where time limit for the delivery of goods purchased has been waived, the purchaser, before he can terminate the contract and sue for its breach, must notify the seller to perform within a reasonable time. Vosburg v. Southern Lumber & Mfg. Co., 147 Tenn. 647, 251 S.W. 41, 1922 Tenn. LEXIS 72 (1923).

Where time fixed by contract for performance is permitted to pass, both parties concurring, the time of performance thereafter becomes indefinite, and one party cannot put the other in default except upon notice and a reasonable time for performance given. Lamborn & Co. v. Green & Green, 150 Tenn. 38, 262 S.W. 467, 1923 Tenn. LEXIS 61 (1924).

16. —Reasonableness of Notice.

Where time for shipment of lumber under contract had expired, but for two years the parties kept the contract alive, before the purchaser could sue for its breach a notice to seller to perform within a reasonable time would be required and demand that seller ship lumber immediately was unreasonable. Vosburg v. Southern Lumber & Mfg. Co., 147 Tenn. 647, 251 S.W. 41, 1922 Tenn. LEXIS 72 (1923).

Where performance of contract has been delayed by consent what is a reasonable time for performance after demand must be determined by the facts of each case, and where sugar was held for shipment to purchaser and demand was made upon purchaser to furnish shipping instructions without delay, to which letter purchaser never replied, and resale of sugar was made a week thereafter, the demand and resale were not unreasonable. Lamborn & Co. v. Green & Green, 150 Tenn. 38, 262 S.W. 467, 1923 Tenn. LEXIS 61 (1924).

17. —When Unnecessary.

Where one of the parties unequivocally refuses to go on with the contract, it is not necessary for the other to make a demand upon the defaulting party for performance. Lamborn & Co. v. Green & Green, 150 Tenn. 38, 262 S.W. 467, 1923 Tenn. LEXIS 61 (1924).

18. Directions Not to Ship — Effect.

Although contract period for shipping lumber had expired without the contracted shipments being made, where purchaser continued to ask for shipments, threatening to sue if such shipments were not continued and seller continued to promise the shipments the contract was kept alive, and when purchaser thereafter wrote seller not to ship any more lumber, this amounted to a termination of the contract by purchaser thereby releasing seller from making further shipments. Wildberg Box Co. v. Darby, 143 Tenn. 73, 223 S.W. 855, 1919 Tenn. LEXIS 26 (1920).

COMMENTS TO OFFICIAL TEXT

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

Changes:  Completely rewritten.

Purposes of Changes and New Matter:

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

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

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

Cross-References:

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

Definitional Cross-References:

“Agreement”. Section 1-201.

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Goods”. Section 2-105.

“Party”. Section 1-201.

“Remedy”. Section 1-201.

“Rights”. Section 1-201.

“Seller”. Section 2-103.

47-2-107. Goods to be severed from realty — Recording.

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

Acts 1963, ch. 81, § 1 (2-107); 1985, ch. 404, § 3.

Cross-References. Continuation of provisions beyond December 31, 1985, ch. 9, part 6 of this title.

Transition provisions, ch. 9, part 6 of this title.

Textbooks. Tennessee Jurisprudence, 1 Tenn. Juris., Agriculture, § 4; 6 Tenn. Juris., Commercial Law, § 3.

Cited: Hudson v. Town & Country True Value Hardware, Inc., 666 S.W.2d 51, 1984 Tenn. LEXIS 919 (Tenn. 1984).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Crops.

At common law growing crops are personal property, and are subject to sale by execution or otherwise without passing any interest in the land. Langford v. Hudson, 146 Tenn. 309, 241 S.W. 393, 1921 Tenn. LEXIS 21 (1921).

Crops partake of the nature of realty, so on the sale of land, either private or judicial, a conveyance passing title to the land carries with it growing crops thereon, unless they are excepted from the conveyance. Langford v. Hudson, 146 Tenn. 309, 241 S.W. 393, 1921 Tenn. LEXIS 21 (1921).

Although person entered into contract to grow wheat for another, such growing crop being in the possession of the grower, he could convey a good title to an innocent purchaser for value without notice and therefore a mortgage on such crop was superior to the rights of the purchaser of the wheat. Dysart v. Hamilton, 11 Tenn. App. 43, — S.W.2d —, 1929 Tenn. App. LEXIS 73 (Tenn. Ct. App. 1929).

A purported sale of a crop to be planted and grown in the future is at best only a sale of future goods and is an executory contract of sale. Dysart v. Hamilton, 11 Tenn. App. 43, — S.W.2d —, 1929 Tenn. App. LEXIS 73 (Tenn. Ct. App. 1929).

2. Timber.

A sale of standing timber is a sale of an interest in land. Childers v. Wm. H. Coleman Co., 122 Tenn. 109, 118 S.W. 1018, 1909 Tenn. LEXIS 6 (1909); Galloway-Pease Co. v. Sabin, 130 Tenn. 575, 172 S.W. 292, 1914 Tenn. LEXIS 60 (1914).

An instrument assigning a contract for the sale of growing trees and extension of the time limited for the removal thereof transfers an interest in land, and is required to be registered. Childers v. Wm. H. Coleman Co., 122 Tenn. 109, 118 S.W. 1018, 1909 Tenn. LEXIS 6 (1909).

Timber retains its character as realty until severance which converts it into personalty. New River Lumber Co. v. Blue Ridge Lumber Co., 146 Tenn. 181, 240 S.W. 763, 1921 Tenn. LEXIS 12 (1922).

Standing timber may be transferred by deed, grant, or reservation, and constitute an estate separate from the land and, when so separated, it retains its character so long as it remains uncut, but when severed it becomes personal property. New River Lumber Co. v. Blue Ridge Lumber Co., 146 Tenn. 181, 240 S.W. 763, 1921 Tenn. LEXIS 12 (1922).

Growing trees are a part of the land, and the title to or interest in them can be conveyed or transferred only by a written instrument complying with the statute of frauds, and this is true whether or not the parties contemplate their immediate severance and removal by the vendee. New River Lumber Co. v. Blue Ridge Lumber Co., 146 Tenn. 181, 240 S.W. 763, 1921 Tenn. LEXIS 12 (1922).

Timber which was agreed to be severed before sale, was personalty and constituted “goods.” Gilbert v. Smith, 14 Tenn. App. 500, — S.W.2d —, 1932 Tenn. App. LEXIS 59 (Tenn. Ct. App. 1932).

Collateral References.

Grant, lease, exception, or reservation of “oil, gas, and other minerals,” or the like, as including coal or metallic ores. 59 A.L.R.3d 1146.

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  See Section 76, Uniform Sales Act on prior policy; Section 7, Uniform Conditional Sales Act.

Purposes:

1.  Subsection (1). Notice that this subsection applies only if the minerals or structures “are to be severed by the seller”. If the buyer is to sever, such transactions are considered contracts affecting land and all problems of the Statute of Frauds and of the recording of land rights apply to them. Therefore, the Statute of Frauds section of this Article does not apply to such contracts though they must conform to the Statute of Frauds affecting the transfer of interests in land.

2.  Subsection (2). “Things attached” to the realty which can be severed without material harm are goods within this Article regardless of who is to effect the severance. The word “fixtures” has been avoided because of the diverse definitions of this term, the test of “severance without material harm” being substituted.

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

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

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

Cross-References:

Point 1: Section 2-201.

Point 2: Section 2-105.

Point 3: Articles 9 and 9-105.

Definitional Cross-References:

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Goods”. Section 2-105.

“Party”. Section 1-201.

“Present sale”. Section 2-106.

“Rights”. Section 1-201.

“Seller”. Section 2-103.

Part 2
Form, Formation and Readjustment of Contract

47-2-201. Formal requirements — Statute of frauds.

  1. Except as otherwise provided in this section, a contract for sale of goods for the price of five hundred dollars ($500) or more is not enforceable by way of action or defense unless there is some writing or record sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing or record is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing or record.
  2. Between merchants if within a reasonable time a writing or record in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within ten (10) days after it is received.
  3. A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable:
  1. if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or
  2. if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or
  3. with respect to goods for which payment has been made and accepted or which have been received and accepted (§ 47-2-606).

Acts 1963, ch. 81, § 1 (2-201); 1997, ch. 272, § 5.

Prior Tennessee Law: § 47-1204.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 1-8.03-19.

Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 3, 8, 10; 7 Tenn. Juris., Contracts, § 14; 11 Tenn. Juris., Evidence, § 130.

Law Reviews.

The E-Sign Act: A Move in the Right Direction and a Boost for E-Commerce (Daniel W. Van Horn), 37 No. 2 Tenn. B.J. 14 (2001).

Cited: Lindsey v. Stein Bros. & Boyce, Inc., 222 Tenn. 149, 433 S.W.2d 669, 1968 Tenn. LEXIS 418 (1968); Studley & Millard Machine Co. v. Endsley Marble Co., 497 S.W.2d 927, 1973 Tenn. App. LEXIS 303 (Tenn. Ct. App. 1973); Hardin v. Cliff Pettit Motors, Inc., 407 F. Supp. 297, 1976 U.S. Dist. LEXIS 16945 (E.D. Tenn. 1976); In re Morristown Lincoln-Mercury, Inc., 25 B.R. 377, 1982 Bankr. LEXIS 2893 (Bankr. E.D. Tenn. 1982); Allenberg Cotton Co. v. Woods, 640 S.W.2d 543, 1982 Tenn. LEXIS 350 (Tenn. 1982); Hudson v. Town & Country True Value Hardware, Inc., 666 S.W.2d 51, 1984 Tenn. LEXIS 919 (Tenn. 1984); In re Phillips, 77 B.R. 648, 1987 Bankr. LEXIS 1539 (Bankr. E.D. Tenn. 1987); Massey v. Hardcastle, 753 S.W.2d 127, 1988 Tenn. App. LEXIS 189 (Tenn. Ct. App. 1988); Talkington v. Anchor Gasoline Corp., 821 F. Supp. 505, 1993 U.S. Dist. LEXIS 6886 (M.D. Tenn. 1993); McLemore v. Powell, 968 S.W.2d 799, 1997 Tenn. App. LEXIS 541 (Tenn. Ct. App. 1997); In re Music City RV, LLC, 304 S.W.3d 806, 2010 Tenn. LEXIS 86 (Tenn. Feb. 12, 2010); Brooks Cotton Co. v. Williams, 381 S.W.3d 414, 2012 Tenn. App. LEXIS 262 (Tenn. Ct. App. Apr. 23, 2012).

NOTES TO DECISIONS

1. Defense to Oral Contract.

Although a plea of the statute of frauds may implicitly admit the existence of an oral contract, and may therefore be inconsistent with defendant's denial that the contract exists, both defenses though inconsistent may be advanced by a party under Tenn. R. Civ. P. 8.05; and the implicit admission of a contract's existence, made solely in connection with a motion to dismiss, would not necessarily constitute an admission chargeable to the defendant for the purposes of the litigation as a whole. Anthony v. Tidwell, 560 S.W.2d 908, 1977 Tenn. LEXIS 648 (Tenn. 1977).

Even if agreement had been reached between food broker and bakery, enforcement of any alleged contract would have been barred by the statute of frauds under T.C.A. § 47-2-201 because parties did not execute a written agreement for production and sale of private label sandwich crackers at issue. Zoroufie v. Lance, Inc., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 50012 (W.D. Tenn. June 27, 2008).

Statute was not applicable to a purchaser's claim that an oral contract was unenforceable because the testimony was clear that the transaction did not involve the sale of real property; rather, a purchaser agreed to lease a building that housed a market. Mesad v. Yousef, — S.W.3d —, 2018 Tenn. App. LEXIS 95 (Tenn. Ct. App. Feb. 22, 2018).

2. Unenforceable Contracts.

An oral contract for the sale of cattle for $50,000 was unenforceable under this section. Anthony v. Tidwell, 560 S.W.2d 908, 1977 Tenn. LEXIS 648 (Tenn. 1977).

3. —Partial Payment.

Where a “good faith” payment of $1,000 was made on an oral contract for the purchase of cattle for $50,000, the “good faith” payment could constitute a partial payment within the meaning of subsection (3)(c), in which case the plaintiffs would be entitled to enforce the oral contract to the extent of the payment made. Anthony v. Tidwell, 560 S.W.2d 908, 1977 Tenn. LEXIS 648 (Tenn. 1977).

4. Reasonable Totality of Circumstances.

For the statute of frauds, relating to the sale of goods, to become applicable, the court did not believe every asset subject to a sale must qualify under the “movable” test of § 47-2-105, rather than a view of mechanical technicality or of mathematical nicety, a view of the reasonable totality of the circumstances should control the characterization of the contract for sale, and if, viewed as a whole, it can be concluded that the essential bulk of the assets to be transferred qualify as goods, then it is appropriate to consider the transaction a contract for the sale of goods. Knoxville Rod & Bearing, Inc. v. Bettis Corp. of Knoxville, Inc., 672 S.W.2d 203, 1983 Tenn. App. LEXIS 719 (Tenn. Ct. App. 1983).

5. Oral Changes to Written Contracts.

Merchants may not verbally change an existing contract between themselves which provides that it may be changed only in writing. Knoxville Rod & Bearing, Inc. v. Bettis Corp. of Knoxville, Inc., 672 S.W.2d 203, 1983 Tenn. App. LEXIS 719 (Tenn. Ct. App. 1983).

6. Writing Sufficient.

Bill of sale was sufficient to satisfy the statute of frauds, T.C.A. § 47-2-201, because it was a writing or record sufficient to indicate that a contract of sale was made between the parties and all three parties participating in the transaction signed the bill of sale; further, the fact that the exact consideration was not specified was of no consequence as the statute provided that a writing was not insufficient merely because it omitted a term agreed upon. In re Estate of Reynolds, — S.W.3d —, 2007 Tenn. App. LEXIS 576 (Tenn. Ct. App. Sept. 11, 2007).

7. Merchant Exception.

Question of whether defendant farmer qualified as a merchant under T.C.A. § 47-2-104(1) for purposes of the Uniform Commercial Code Statute of Frauds, T.C.A. § 47-2-201(b), raised genuine issues regarding the inferences to be drawn from the facts in a contract action by plaintiff cotton company; thus, summary judgment was inappropriate. Brooks Cotton Co. v. Williams, 381 S.W.3d 414, 2012 Tenn. App. LEXIS 262 (Tenn. Ct. App. Apr. 23, 2012).

Trial courts should consider the following, nonexhaustive, criteria in determining whether a particular farmer is a merchant for purposes of the Statute of Frauds: (1) the length of time the farmer has been engaged in the practice of selling his product to the marketers of his product; (2) the degree of business acumen shown by the farmer in his dealings with other parties; (3) the farmer's awareness of the operation and existence of farm markets; and (4) the farmer's past experience with or knowledge of the customs and practices which are unique to the particular marketing of the product which he sells. Brooks Cotton Co. v. Williams, 381 S.W.3d 414, 2012 Tenn. App. LEXIS 262 (Tenn. Ct. App. Apr. 23, 2012).

Pursuant to T.C.A. § 47-2-104(1), a farmer may be considered a merchant for the purposes of the merchant exception to the Statute of Frauds, T.C.A. § 47-2-201(b), when the farmer possesses sufficient expertise in not only the cultivation, but also the sale of crops. However, the determination of whether a particular farmer is a merchant is a mixed question of fact and law, which must be determined on a case-by-case basis, taking into account the individual experience and activities of the person involved. Brooks Cotton Co. v. Williams, 381 S.W.3d 414, 2012 Tenn. App. LEXIS 262 (Tenn. Ct. App. Apr. 23, 2012).

8. Enforceable Verbal Agreement.

Verbal agreements between buyers and a seller were enforceable against the buyers, under T.C.A. § 47-2-201(3)(b), even though the agreements were not memorialized in a contemporaneous writing signed by the buyers, because (1) one of the buyers admitted in a deposition that the buyers had entered into the agreement, and (2) the conduct of the buyers clearly reflected the agreements'  existence, under T.C.A. § 47-2-204. Miller v. Dairyman's Supply Co., — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 81613 (M.D. Tenn. June 12, 2012).

9. Enforceable Modification.

When parties entered into multiple agreements regarding the purchase and sale of lumber, a modification of an agreement requiring that loads be picked up by a date certain was enforceable because (1) the seller testified that the seller granted an extension to the buyer to complete pickups and the buyer sought to enforce that promise against the seller, satisfying T.C.A. § 47-2-201(3), and (2) no consideration was required for the modification. Miller v. Dairyman's Supply Co., — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 81613 (M.D. Tenn. June 12, 2012).

10. Enforceable Contract.

Enforcement of parties'  contract for the sale of a vent hood was proper under the exception of T.C.A. § 47-2-201(3), as the contract did not fail for lack of a writing where both parties admitted that payment for the goods was made and accepted, and that the hood was delivered, accepted, and then returned as unusable. Austin v. A 1 Used Rest. Equip., Inc., — S.W.3d —, 2012 Tenn. App. LEXIS 658 (Tenn. Ct. App. Sept. 13, 2012).

To the extent the Uniform Commercial Code applied to the purchase of goods that constituted inventory, a signed inventory agreement satisfied the statute because the purchaser acquired the predominant assets of the business, including the inventory and rights to rebates, and the purchaser assumed the seller's building lease and gas contract. Mesad v. Yousef, — S.W.3d —, 2018 Tenn. App. LEXIS 95 (Tenn. Ct. App. Feb. 22, 2018).

Decisions Under Prior Law

1. Goods Produced Especially for Buyer.

Contracts which require a party to produce goods especially for the buyer which are not suitable for sale to others in the ordinary course of the seller's business are not within the statute of frauds. Anderson-Gregory Co. v. Lea, 51 Tenn. App. 612, 370 S.W.2d 934, 1963 Tenn. App. LEXIS 85 (Tenn. Ct. App. 1963); Studley & Millard Machine Co. v. Endsley Marble Co., 497 S.W.2d 927, 1973 Tenn. App. LEXIS 303 (Tenn. Ct. App. 1973).

Collateral References.

Acceptance satisfying statute where purchaser in possession at time of sale. 111 A.L.R. 1312.

Acceptance which will take oral sale or contract for sale out of statute of frauds as affected by cancellation of order or repudiation of contract before goods were shipped or delivered to buyer. 113 A.L.R. 810.

Admission of contract by defendant as affecting sufficiency of acts relied on to constitute part performance under statute of frauds. 90 A.L.R. 231.

Agency to purchase personal property for another as within statute of frauds. 20 A.L.R.2d 1140.

Buyer's note as payment within contemplation of statute of frauds. 81 A.L.R.2d 1355.

Check as payment within contemplation of statute of frauds. 8 A.L.R.2d 251.

Check or note as memorandum satisfying statute of frauds. 153 A.L.R. 1112.

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

Construction and application of UCC § 2-201(3)(c) rendering contract of sale enforceable notwithstanding Statute of Frauds with respect to goods for which payment has been made and accepted or which have been received and accepted. 97 A.L.R.3d 908.

Construction and application of Uniform Sales Act, other than Section 4 relating to statute of frauds, as regards distinction between contract of sale and contract for work or labor. 111 A.L.R. 341.

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

Construction and effect of exception making the statute of frauds provision inapplicable where goods are manufactured by seller for buyer. 25 A.L.R.2d 672.

Contract for sale of goods as entire or divisible. 2 A.L.R. 643.

Contract to fill in land as one for sale of goods within statute of frauds. 161 A.L.R. 1158.

Contract which violates statute of frauds as evidence of value in action not based on the contract. 21 A.L.R.3d 9.

Contracts relating to corporate stock as within provisions of statute of frauds dealing with sales of goods, etc. 59 A.L.R. 597.

Dealings between seller and buyer after latter's knowledge of former's fraud as waiver of claim for damages on account of fraud. 106 A.L.R. 172.

Divisibility of contract for the sale of an outfit, plant or machinery. 4 A.L.R. 1442.

Doctrine of part performance as sustaining action at law based on contract within statute of frauds. 59 A.L.R. 1305.

Effect of statute of frauds on right to modify by parol agreement required to be in writing. 80 A.L.R. 539, 118 A.L.R. 1511.

Extrinsic writing referred to in written agreement as part thereof for purposes of statute of frauds. 73 A.L.R. 1383.

Failure to comply with statute of frauds as to part of a contract within the statute as affecting the enforceability of another part not covered by the statute. 71 A.L.R. 479.

Money in possession of seller before contract was made as part payment. 131 A.L.R. 1252, 170 A.L.R. 245.

Mutuality and enforceability of an agreement upon the sale of goods, to give the purchaser an option on the exclusive sale of similar goods without a corresponding obligation on his part. 45 A.L.R. 1197.

Necessity and sufficiency of statement in writing of consideration or price for sale of goods or choses in action in order to satisfy statute of frauds. 59 A.L.R. 1422.

Necessity that each of several papers constituting contract be signed by party to be charged. 85 A.L.R. 1184.

Oral contract to enter into written contract as within statute of frauds. 58 A.L.R. 1015.

Oral contracts of sale not to be performed within a year as taken out of statute of frauds by performance. 6 A.L.R.2d 1053.

Place of signature on memorandum to satisfy statute of frauds. 112 A.L.R. 937.

Printed, stamped or typewritten name as satisfying requirement of statute of frauds as regards signature. 171 A.L.R. 334.

Public record as satisfying requirement of statute of frauds as to written contract or memorandum. 127 A.L.R. 236.

Recovery, on theory of quasi contract, unjust enrichment or restitution, of money paid in reliance upon unenforceable promise to accept a bill of exchange or draft. 81 A.L.R.2d 587.

Reformation of memorandum relied upon to take an oral contract out of the statute of frauds. 73 A.L.R. 99.

Relation between doctrines of estoppel and part performance as basis of enforcement of contract not conforming to the statute of frauds. 117 A.L.R. 939.

Sale of contractual rights; defect in written record as ground for avoiding sale. 10 A.L.R.2d 728.

Statute of frauds and conflict of laws. 47 A.L.R.3d 137.

Statute of frauds as applicable to seller's oral warranty as to quality or condition of chattel. 40 A.L.R.2d 760.

Statute of frauds as applied to agreements of repurchase or repayment on sale of corporate stock or other personal property. 121 A.L.R. 312.

Sufficiency of identification of vendor or purchaser in memorandum. 70 A.L.R. 196.

Sufficiency, under statute of frauds, of description or designation of property in real estate brokerage contract. 30 A.L.R.3d 935.

Terms “bags,” “bales,” “cars” or other terms indefinite as to quantity or weight as satisfying statute of frauds. 129 A.L.R. 1230.

Trade custom or usage to explain or supply essential terms in writing required by statute of frauds (or Sales Act) in sale of goods. 29 A.L.R. 1218.

Undelivered lease or contract (other than for sale of land), or undelivered memorandum thereof, as satisfying statute of frauds. 12 A.L.R.2d 508.

When goods remaining in custody of seller or some third person deemed received by buyer within exception to statute. 4 A.L.R. 902.

Writing between one of the parties to a contract and his agent or a third person as satisfying statute of frauds. 112 A.L.R. 490.

Satisfaction of statute of frauds by e-mail. 110 A.L.R.5th 277.

COMMENTS TO OFFICIAL TEXT

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

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

Purposes of Changes:

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

1.  The required writing need not contain all the material terms of the contract and such material terms as are stated need not be precisely stated. All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction. It may be written in lead pencil on a scratch pad. It need not indicate which party is the buyer and which the seller. The only term which must appear is the quantity term which need not be accurately stated but recovery is limited to the amount stated. The price, time and place of payment or delivery, the general quality of the goods, or any particular warranties may all be omitted.

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

Only three definite and invariable requirements as to the memorandum are made by this subsection. First, it must evidence a contract for the sale of goods; second, it must be “signed”, a word which includes any authentication which identifies the party to be charged; and third, it must specify a quantity.

2.  “Partial performance” as a substitute for the required memorandum can validate the contract only for the goods which have been accepted or for which payment has been made and accepted.

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

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

3.  Between merchants, failure to answer a written confirmation of a contract within ten days of receipt is tantamount to a writing under subsection (2) and is sufficient against both parties under subsection (1). The only effect, however, is to take away from the party who fails to answer the defense of the Statute of Frauds; the burden of persuading the trier of fact that a contract was in fact made orally prior to the written confirmation is unaffected. Compare the effect of a failure to reply under Section 2-207.

4.  Failure to satisfy the requirements of this section does not render the contract void for all purposes, but merely prevents it from being judicially enforced in favor of a party to the contract. For example, a buyer who takes possession of goods as provided in an oral contract which the seller has not meanwhile repudiated, is not a trespasser. Nor would the Statute of Frauds provisions of this section be a defense to a third person who wrongfully induces a party to refuse to perform an oral contract, even though the injured party cannot maintain an action for damages against the party so refusing to perform.

5.  The requirement of “signing” is discussed in the comment to Section 1-201.

6.  It is not necessary that the writing be delivered to anybody. It need not be signed or authenticated by both parties but it is, of course, not sufficient against one who has not signed it. Prior to a dispute no one can determine which party's signing of the memorandum may be necessary but from the time of contracting each party should be aware that to him it is signing by the other which is important.

7.  If the making of a contract is admitted in court, either in a written pleading, by stipulation or by oral statement before the court, no additional writing is necessary for protection against fraud. Under this section it is no longer possible to admit the contract in court and still treat the Statute as a defense. However, the contract is not thus conclusively established. The admission so made by a party is itself evidential against him of the truth of the facts so admitted and of nothing more; as against the other party, it is not evidential at all.

Cross-References:

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

Definitional Cross-References:

“Action”. Section 1-201.

“Between merchants”. Section 2-104.

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Goods”. Section 2-105.

“Notice”. Section 1-201.

“Party”. Section 1-201.

“Reasonable time”. Section 1-204.

“Sale”. Section 2-106.

“Seller”. Section 2-103.

47-2-202. Final written expression — Parol or extrinsic evidence.

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

  1. By course of performance, course of dealing or usage of trade, pursuant to § 47-1-303; and
  2. By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

Acts 1963, ch. 81, § 1 (2-202); Acts 2008, ch. 930, § 2.

Amendments. The 2008 amendment rewrote (a), which read: “by course of dealing or usage of trade (§ 47-1-205) or by course of performance (§ 47-2-208); and”.

Effective Dates. Acts 2008, ch. 930, § 15. July 1, 2008.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 3, 16, 36.

Law Reviews.

Lender Liability: A Survey of Common-Law Theories, 42 Vand. L. Rev. 855 (1989).

Resolving Contractual Ambiguity in Tennessee: A Systematic Approach, 68 Tenn. L. Rev. 73 (2000).

Written Agreements in the Lender-Borrower Context: The Illusion of Certainty, 42 Vand. L. Rev. 917 (1989).

Cited: In re Estate of Upchurch, 62 Tenn. App. 634, 466 S.W.2d 886, 1970 Tenn. App. LEXIS 290 (Tenn. Ct. App. 1970); Hardin v. Cliff Pettit Motors, Inc., 407 F. Supp. 297, 1976 U.S. Dist. LEXIS 16945 (E.D. Tenn. 1976); McGee v. Nashville White Trucks, Inc., 633 S.W.2d 311, 1981 Tenn. App. LEXIS 594 (Tenn. Ct. App. 1981); Perryman v. Peterbilt of Knoxville, Inc., 708 S.W.2d 403, 1985 Tenn. App. LEXIS 3273 (Tenn. Ct. App. 1985); In re McFarland, 112 B.R. 906, 1990 Bankr. LEXIS 635 (Bankr. E.D. Tenn. 1990); Marlow v. Oakland Gin Co., 128 B.R. 987, 1991 Bankr. LEXIS 948 (Bankr. W.D. Tenn. 1991); Next Generation, Inc. v. Wal-Mart, Inc., 49 S.W.3d 860, 2001 Tenn. App. LEXIS 66 (Tenn. Ct. App. 2001); In re Music City RV, LLC, 304 S.W.3d 806, 2010 Tenn. LEXIS 86 (Tenn. Feb. 12, 2010); Ruth v. Home Health Care of Middle Tenn., LLC, — S.W.3d —, 2012 Tenn. App. LEXIS 693 (Tenn. Ct. App. Oct. 1, 2012); Gatlinburg Roadhouse Investors, LLC v. Porter, — S.W.3d —, 2012 Tenn. App. LEXIS 880 (Tenn. Ct. App. Dec. 20, 2012).

NOTES TO DECISIONS

1. Parol Evidence.

The parol evidence rule does not apply where parol evidence in no way contradicts or alters the terms of the written contract but the representations or statements are made as an inducement to the contract and form the basis or consideration of it. Hull-Dobbs, Inc. v. Mallicoat, 57 Tenn. App. 100, 415 S.W.2d 344, 1966 Tenn. App. LEXIS 201 (Tenn. Ct. App. 1966).

Where security agreement relating to sale of automobile stated that it constituted entire “agreement” between the parties but as to “warranties, representations and promises” the language was that they were not “to be binding on any assignee” of seller, the two matters were treated as being separate and distinct and parol evidence as to condition of the automobile was admissible where not inconsistent with any provision of the contract. Hull-Dobbs, Inc. v. Mallicoat, 57 Tenn. App. 100, 415 S.W.2d 344, 1966 Tenn. App. LEXIS 201 (Tenn. Ct. App. 1966).

Proof of inconsistent oral agreements cannot be used even to show that a writing was not intended as a final expression of the parties' agreement. In re Tom Woods Used Cars, Inc., 23 B.R. 563, 1982 Bankr. LEXIS 3299 (Bankr. E.D. Tenn. 1982).

Parol proof of “inducing representations” or “collateral agreements” to the written contract must be limited to subject matter which does not contradict or vary terms which are plainly expressed in the writing. Airline Constr., Inc. v. Barr, 807 S.W.2d 247, 1990 Tenn. App. LEXIS 847 (Tenn. Ct. App. 1990); Harry J. Whelchel Co. v. Ripley Tractor Co., 900 S.W.2d 691, 1995 Tenn. App. LEXIS 51 (Tenn. Ct. App. 1995).

Parol evidence rule did not apply to a trustee's 11 U.S.C. §§  544 and 550 action seeking to recover one half of the value of an aircraft where a bill of sale was drawn and executed by the sellers of the aircraft, with whom the debtor had no contact, and there was therefore no evidence showing that the bill of sale was a confirmatory memorandum, to which the parties had agreed or that it was intended as a final expression of an agreement of any kind. In re Tomlinson, — B.R. —, 2006 Bankr. LEXIS 1743 (Bankr. E.D. Tenn. Aug. 7, 2006).

Grant of summary judgment in favor of buyers was proper because it was undisputed that sellers did not timely exercise the option to repurchase the land at issue, and thus it expired and sellers were required to comply with the contract and execute and deliver to buyers a warranty deed for the property; court correctly determined that the contract was unambiguous and thus parol evidence was inadmissible. Keenan v. Delemos, — S.W.3d —, 2008 Tenn. App. LEXIS 546 (Tenn. Ct. App. Sept. 19, 2008).

For purposes of T.C.A. § 47-2-202, the trial court erred by considering extrinsic evidence, and by going beyond the four corners of an integrated contract, to ascertain whether the right to recover attorney fees under the indemnification provision applied to a dispute between the parties. Individual Healthcare Specialists v. Bluecross Blueshield of Tenn., — S.W.3d —, 2017 Tenn. App. LEXIS 316 (Tenn. Ct. App. May 15, 2017).

Even if the parties had not included an integration provision, the trial court should not have considered extrinsic evidence under T.C.A. § 47-2-202 in ascertaining the parties'  intention about the meaning of the indemnity provision with respect to interparty claims. Individual Healthcare Specialists v. Bluecross Blueshield of Tenn., — S.W.3d —, 2017 Tenn. App. LEXIS 316 (Tenn. Ct. App. May 15, 2017).

Testimony that the lender was making one loan, evidenced by two identical promissory notes, was consistent with the terms of the notes and therefore could not constitute inadmissible parol evidence. Laxmi Hosp. Grp., LLC v. Narayan, — S.W.3d —, 2018 Tenn. App. LEXIS 740 (Tenn. Ct. App. Dec. 18, 2018).

2. Final Expression of Agreement.

Although a clause of a grain contract for future delivery read “this confirmation covers buyer's understanding of the terms of this transaction. Failure to wire buyer immediately on receipt of this confirmation will be understood as seller's acceptance of these terms” the court found that neither the terms of the contract nor other evidence indicated that the contract was a complete and exclusive statement of the agreement and evidence of additional terms concerning damages was admitted. Bunge Corp. v. Miller, 381 F. Supp. 176, 1974 U.S. Dist. LEXIS 12086 (W.D. Tenn. 1974).

Whether a writing was intended as a final expression of the parties' agreement is determined in the first instance by considering the writing itself. In re Tom Woods Used Cars, Inc., 23 B.R. 563, 1982 Bankr. LEXIS 3299 (Bankr. E.D. Tenn. 1982).

3. Consistent Additional Terms.

An oral agreement that explains or supplements the terms of a written agreement is not precluded by this section. Bunge Corp. v. Miller, 381 F. Supp. 176, 1974 U.S. Dist. LEXIS 12086 (W.D. Tenn. 1974).

4. Subsequent Oral Agreements.

This section does not exclude evidence of oral agreements which were made subsequent to the making of a written contract. Gold Kist, Inc. v. Pillow, 582 S.W.2d 77, 1979 Tenn. App. LEXIS 307 (Tenn. Ct. App. 1979).

Evidence of a subsequent agreement, after the execution of a written agreement, was not barred by the parol evidence rule. Accordingly, a written contract was alterable by the express words of the parties after the contract was made. Cadence Bank, N.A. v. Alpha Trust, 473 S.W.3d 756, 2015 Tenn. App. LEXIS 86 (Tenn. Ct. App. Feb. 25, 2015), appeal denied, Cadence Bank, NA v. Alpha Trust, — S.W.3d —, 2015 Tenn. LEXIS 506 (Tenn. June 11, 2015).

5. 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).

Decisions Under Prior Law

1. Substantive Law.

The parol evidence rule is not merely a rule of evidence, but is a rule of substantive law. Deaver v. J. C. Mahan Motor Co., 163 Tenn. 429, 43 S.W.2d 199, 1931 Tenn. LEXIS 133 (1931).

2. Application to Written Contracts.

The rule is well settled, that when a contract has been reduced to writing, in plain and unambiguous terms, without any uncertainty as to the object or undertaking of the parties, it is conclusively presumed that the whole engagement of the parties, and the extent and manner of their undertaking, was embraced in such written contract. Bedford v. Flowers, 30 Tenn. 242, 1850 Tenn. LEXIS 102 (1850).

Whatever the law implies from a contract in writing is as much a part of the contract as that which is therein expressed, and if the contract, with what the law implies, is clear, definite and complete, the contract cannot be added to, varied, or contradicted by extrinsic evidence. McQuiddy Printing Co. v. Hirsig, 23 Tenn. App. 434, 134 S.W.2d 197, 1939 Tenn. App. LEXIS 52 (Tenn. Ct. App. 1939).

3. Contracts Partly in Writing.

A contract partly in writing and partly in parol is an oral contract. Smith v. O'Donnell, 76 Tenn. 468, 1881 Tenn. LEXIS 35 (1881).

4. Admissibility of Parol Evidence.

Parol evidence cannot be admitted to contradict, or vary the terms or to enlarge, or diminish the obligation of a written instrument or deed, except upon grounds of fraud, accident, or mistake. Littlejohn v. Fowler, 45 Tenn. 284, 1868 Tenn. LEXIS 10 (1868).

Parol evidence cannot be received to contradict a written agreement, nor to detract from or add to any part of the contract which was within the view of the parties when contracting. Hines v. Willcox, 96 Tenn. 148, 33 S.W. 914, 34 L.R.A. 824, 54 Am. St. Rep. 823, 1895 Tenn. LEXIS 20 (1895), rehearing denied, Hines v. Wilcox, 96 Tenn. 328, 34 S.W. 420, 1895 Tenn. LEXIS 34, 34 L.R.A. 832 (1895).

Parol evidence is admissible to show conditions relating to the delivery or taking effect of the instrument as that it shall only become effective upon certain conditions or contingencies, for this is not an oral contradiction or violation of the written instrument, but goes to the very existence of the contract and tends to show that no valid and effective contract ever existed. Crotzer v. Shawl, 5 Tenn. App. 240, — S.W. —, 1927 Tenn. App. LEXIS 54 (Tenn. Ct. App. 1927).

The parol evidence rule does not exclude extrinsic evidence which tends to aid, confirm or explain a writing rather than alter it or which assists the court in understanding and interpreting the language of the writing. Faulkner v. Ramsey, 178 Tenn. 370, 158 S.W.2d 710, 1941 Tenn. LEXIS 67 (1942).

Where agreement is completely integrated in a written memorial, there can be no modification of it, although ambiguous terms therein may be explained by oral evidence that illuminates intention of parties in use of such terms, however parol evidence rule assumes agreement upon writing as a complete statement of the bargain, and if parties never adopted the writing as a statement of the whole agreement, rule does not exclude parol evidence of additional promises. Anderson v. St. Louis Terminal Warehouse Co., 173 F.2d 436, 1949 U.S. App. LEXIS 2855 (6th Cir. Tenn. 1949).

The parol evidence rule does not apply where the parol evidence in no way contradicts or alters the terms of the written contract, but tends to establish an independent or collateral agreement not in conflict with it, nor when the representations or statements are made as an inducement to the contract and form the basis or consideration of it. Haynes v. Morton, 32 Tenn. App. 251, 222 S.W.2d 389, 1949 Tenn. App. LEXIS 96 (1949).

5. Question of Fact.

Where the parol evidence rule applies, some authority must determine whether the parties intended the document to embody all the terms of the contract. In most states, the judge has this power. In Tennessee, however, this is the privilege of the jury. Cobb v. Wallace, 45 Tenn. 539, 1868 Tenn. LEXIS 44 (1868).

It is for the jury to say whether the writing is intended to embrace all that was finally agreed upon. Stewart, Gwynne & Co. v. Phoenix Ins. Co., 77 Tenn. 104, 1882 Tenn. LEXIS 18 (1882).

The question as to whether the entire contract was reduced to writing or an indeterminate collateral agreement was made was a question of fact and where there was any evidence to sustain the contention, it was a matter for the jury to determine, and not for the court. Hines v. Willcox, 96 Tenn. 148, 33 S.W. 914, 34 L.R.A. 824, 54 Am. St. Rep. 823, 1895 Tenn. LEXIS 20 (1895), rehearing denied, Hines v. Wilcox, 96 Tenn. 328, 34 S.W. 420, 1895 Tenn. LEXIS 34, 34 L.R.A. 832 (1895).

6. Application to Third Parties.

In Tennessee, the parol evidence rule does not apply in litigation between one or more parties to the written instrument and a stranger, but only applies to litigation between the parties and their privies. Bowaters Southern Paper Corp. v. Brown, 253 F.2d 631, 1958 U.S. App. LEXIS 5205 (6th Cir. Tenn. 1958).

Collateral References.

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

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  None.

Purposes:

1.  This section definitely rejects:

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

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

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

    Cross-References:

    Point 3: Sections 1-205, 2-207, 2-302 and 2-316.

    Definitional Cross-References:

    “Agreed” and “agreement”. Section 1-201.

    “Course of dealing”. Section 1-205.

    “Parties”. Section 1-201.

    “Term”. Section 1-201.

    “Usage of trade”. Section 1-205.

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

47-2-203. Seals inoperative.

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

Acts 1963, ch. 81, § 1 (2-203).

Prior Tennessee Law: § 47-1203.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 7; 7 Tenn. Juris., Contracts, § 15.

Law Reviews.

“Bad Faith Breach”: A New and Growing Concern for Financial Institutions, 42 Vand. L. Rev. 891 (1989).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Seals Inoperative.

Use of private seals in written contracts, except the seals of corporations, has been abolished, and the addition of a private seal to an instrument of writing does not affect its character in any respect. Garrett v. Belmont Land Co., 94 Tenn. 459, 29 S.W. 726, 1894 Tenn. LEXIS 59 (1895).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Section 3, Uniform Sales Act.

Changes:  Portion pertaining to “seals” rewritten.

Purposes of Changes:

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

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

Cross-Reference:

Point 1: Section 2-205.

Definitional Cross-References:

“Contract for sale”. Section 2-106.

“Goods”. Section 2-105.

“Writing”. Section 1-201.

47-2-204. Formation in general.

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

Acts 1963, ch. 81, § 1 (2-204).

Prior Tennessee Law: §§ 47-1201 and 47-1203.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 5, 7; 7 Tenn. Juris., Contracts, § 13.

Law Reviews.

Foreign exchange sales and the law of contracts: A case for analogy to the Uniform Commercial Code, 35 Vand. L. Rev. 1173 (1982).

Cited: Cumberland Corp. v. E. I. Du Pont de Nemours & Co., 383 F. Supp. 595, 1973 U.S. Dist. LEXIS 11437 (E.D. Tenn. 1973).

NOTES TO DECISIONS

1. Certainty.

Lack of definiteness in payment terms where auto purchase order provided that the buyer had to obtain financing did not prevent the formation of a contract. Skinner v. Cumberland Auto Ctr. (In re Skinner), 238 B.R. 120, 1999 Bankr. LEXIS 1149 (Bankr. M.D. Tenn. 1999).

2. Enforceable Verbal Agreement.

Verbal agreements between buyers and a seller were enforceable against the buyers, under T.C.A. § 47-2-201(3)(b), even though the agreements were not memorialized in a contemporaneous writing signed by the buyers, because (1) one of the buyers admitted in a deposition that the buyers had entered into the agreement, and (2) the conduct of the buyers clearly reflected the agreements'  existence, under T.C.A. § 47-2-204. Miller v. Dairyman's Supply Co., — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 81613 (M.D. Tenn. June 12, 2012).

3. Meeting of the Minds.

Purchasers'  waived their argument that there was no meeting of the minds when the bill of sale was signed because their brief contained little, if any, argument regarding their contention, and the purchasers failed to cite any legal authority in support of their argument; lack of legal authority and the nearly complete failure to even address the argument in the brief constituted a waiver of the issue on appeal. Lowe v. Smith, — S.W.3d —, 2016 Tenn. App. LEXIS 689 (Tenn. Ct. App. Sept. 19, 2016).

4. Agreement Enforceable.

Evidence did not preponderate against the trial court's ruling that the parties entered into an enforceable agreement for the sale of a business, which included inventory, equipment, and goodwill, because the purchasers'  answer to the seller's complaint referred to the bill of sale as a sale of all equipment and inventory; that claim supported the trial court's finding that the purchasers did not initially contemplate that the real estate would be included in the sale. Lowe v. Smith, — S.W.3d —, 2016 Tenn. App. LEXIS 689 (Tenn. Ct. App. Sept. 19, 2016).

Decisions Under Prior Law

1. Construction.

Where the determinative issue is whether there was a completed contract, such a construction should be adopted, if possible, as to constitute an agreement rather than defeat an agreement. Neilson & Kittle Canning Co. v. F. G. Lowe & Co., 149 Tenn. 561, 260 S.W. 142, 1923 Tenn. LEXIS 114 (1924).

2. Intention.

The previous dealings of the parties and the circumstances in which the contract was made and the situation of the parties were matters proper to be considered by the court in ascertaining the intention of the parties. 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).

While an assent to an offer to purchase is requisite to the formation of a contract or an agreement, yet such assent is a condition of mind, and may be either express or evidenced by circumstances from which the assent may be inferred. Cole-McIntyre-Norfleet Co. v. Holloway, 141 Tenn. 679, 214 S.W. 817, 1919 Tenn. LEXIS 19, 7 A.L.R. 1683 (1919).

3. Offer and Acceptance.

An acceptance, to be effectual, must be identical with the offer, and unconditional; and in order to make an acceptance effectual, there must be no variance between it and the offer, and hence a proposal to accept, or an acceptance, upon terms varying from those offered, is a rejection of the offer, and puts an end to negotiations unless the party who made the original offer renews it, or assents to the modifications suggested. Canton Cotton Mills v. Bowman Overall Co., 149 Tenn. 18, 257 S.W. 398, 1923 Tenn. LEXIS 81 (1924).

Where both parties signed contract for the sale and purchase of pig iron but reserved the question of terms of payment, that is, on 30 days' credit or “sight draft against bill of lading,” such reservation did not prevent the contract from being effective. Eastern Products Corp. v. Tennessee C., I. & R. Co., 151 Tenn. 239, 269 S.W. 4, 1924 Tenn. LEXIS 64, 40 A.L.R. 1483 (1925), cert. denied, 269 U.S. 572, 46 S. Ct. 100, 70 L. Ed. 418, 1925 U.S. LEXIS 193 (1925).

Mere silence and inaction cannot be construed as an assent to an offer. Armistead v. Tennessee Consol. Coal Co., 14 Tenn. App. 434, — S.W.2d —, 1932 Tenn. App. LEXIS 51 (Tenn. Ct. App. 1932).

4. Consideration.

The fact that an agreement is optional as to one of the parties, and obligatory as to the other, does not destroy its mutuality, there being a sufficient consideration on both sides; as where the stipulation by one party 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 to the other, are sufficient to make the contract binding. Cherry v. Smith, 22 Tenn. 19, 1842 Tenn. LEXIS 11 (1842).

5. Certainty.

A contract, in order to be binding, must be sufficiently definite and certain, to render the contract enforceable. Hardwick v. American Can Co., 113 Tenn. 657, 88 S.W. 797, 1904 Tenn. LEXIS 57 (1904).

6. Form.

A binding contract may be entered into through the medium of correspondence by letter or telegraph. Neilson & Kittle Canning Co. v. F. G. Lowe & Co., 149 Tenn. 561, 260 S.W. 142, 1923 Tenn. LEXIS 114 (1924).

It is not necessary that contract be contained in a single document, and any number of papers may be taken together to make out the written expression of the contract of the parties, provided that there is sufficient connection between the papers, and such connection may be established either by physical attachment of different papers at time of signature, or by reference. Springfield Tobacco Redryers Corp. v. Springfield, 41 Tenn. App. 254, 293 S.W.2d 189, 1956 Tenn. App. LEXIS 166 (Tenn. Ct. App. 1956).

Collateral References.

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

Contract for sale of commodity to extent of buyer's requirements. 26 A.L.R.2d 1099.

Contract for sale of goods as entire or divisible. 2 A.L.R. 643.

Divisibility of contract for sale of an outfit, plant or machinery. 4 A.L.R. 1442.

Sale agreement fixing price at retail less specified percent as indefinite. 57 A.L.R. 747.

Validity and construction of contract for sale of season's output. 1 A.L.R. 1392, 9 A.L.R. 276, 23 A.L.R. 574.

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Sections 1 and 3, Uniform Sales Act.

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

Purposes of Changes:

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

Under subsection (1) appropriate conduct by the parties may be sufficient to establish an agreement. Subsection (2) is directed primarily to the situation where the interchanged correspondence does not disclose the exact point at which the deal was closed, but the actions of the parties indicate that a binding obligation has been undertaken. Subsection (3) states the principle as to “open terms” underlying later sections of the Article [Chapter]. If the parties intend to enter into a binding agreement, this subsection recognizes that agreement as valid in law, despite missing terms, if there is any reasonably certain basis for granting a remedy. The test is not certainty as to what the parties were to do nor as to the exact amount of damages due the plaintiff. Nor is the fact that one or more terms are left to be agreed upon enough of itself to defeat an otherwise adequate agreement. Rather, commercial standards on the point of “indefiniteness” are intended to be applied, this Act making provision elsewhere for missing terms needed for performance, open price, remedies and the like.

The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreement, but their actions may be frequently conclusive on the matter despite the omissions.

Cross-References:

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

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

Subsection (3): See Part 3.

Definitional Cross-References:

“Agreement”. Section 1-201.

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Goods”. Section 2-105.

“Party”. Section 1-201.

“Remedy”. Section 1-201.

“Term”. Section 1-201.

47-2-205. Firm offers.

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

Acts 1963, ch. 81, § 1 (2-205).

Prior Tennessee Law: §§ 47-1201, 47-1203, 47-1206.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 3, 6, 9.

Law Reviews.

Foreign exchange sales and the law of contracts: A case for analogy to the Uniform Commercial Code, 35 Vand. L. Rev. 1173 (1982).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Offer.

In order to convert into a contract an offer for which no consideration was paid, there must be an acceptance of the offer before it is withdrawn. Hoover Motor Express Co. v. Clements Paper Co., 193 Tenn. 6, 241 S.W.2d 851, 1951 Tenn. LEXIS 319 (1951).

Continued existence of an offer until acceptance is necessary to make possible the formation of a contract. Hoover Motor Express Co. v. Clements Paper Co., 193 Tenn. 6, 241 S.W.2d 851, 1951 Tenn. LEXIS 319 (1951).

An offer may be terminated in a number of ways, such as by rejection by offeree or failure to accept within time fixed, or if no time is fixed, within a reasonable time, and an offer terminated in these ways ceases to exist and cannot thereafter be accepted. Akers v. J. B. Sedberry, Inc., 39 Tenn. App. 633, 286 S.W.2d 617, 1955 Tenn. App. LEXIS 91 (Tenn. Ct. App. 1955).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Sections 1 and 3, Uniform Sales Act.

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

Purposes of Changes:

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

2.  The primary purpose of this section is to give effect to the deliberate intention of a merchant to make a current firm offer binding. The deliberation is shown in the case of an individualized document by the merchant's signature to the offer, and in the case of an offer included on a form supplied by the other party to the transaction by the separate signing of the particular clause which contains the offer. “Signed” here also includes authentication but the reasonableness of the authentication herein allowed must be determined in the light of the purpose of the section. The circumstances surrounding the signing may justify something less than a formal signature or initialing but typically the kind of authentication involved here would consist of a minimum of initialing of the clause involved. A handwritten memorandum on the writer's letterhead purporting in its terms to “confirm” a firm offer already made would be enough to satisfy this section, although not subscribed, since under the circumstances it could not be considered a memorandum of mere negotiation and it would adequately show its own authenticity. Similarly, an authorized telegram will suffice, and this is true even though the original draft contained only a typewritten signature. However, despite settled courses of dealing or usages of the trade whereby firm offers are made by oral communication and relied upon without more evidence, such offers remain revocable under this Article [Chapter] since authentication by a writing is the essence of this section.

3.  This section is intended to apply to current “firm” offers and not to long term options, and an outside time limit of three months during which such offers remain irrevocable has been set. The three month period during which firm offers remain irrevocable under this section need not be stated by days or by date. If the offer states that it is “guaranteed” or “firm” until the happening of a contingency which will occur within the three month period, it will remain irrevocable until that event. A promise made for a longer period will operate under this section to bind the offeror only for the first three months of the period but may of course be renewed. If supported by consideration it may continue for as long as the parties specify. This section deals only with the offer which is not supported by consideration.

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

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

Cross-References:

Point 1: Section 1-102.

Point 2: Section 1-102.

Point 3: Section 2-201.

Point 5: Section 2-302.

Definitional Cross-References:

“Goods”. Section 2-105.

“Merchant”. Section 2-104.

“Signed”. Section 1-201.

“Writing”. Section 1-201.

47-2-206. Offer and acceptance in formation of contract.

  1. Unless otherwise unambiguously indicated by the language or circumstances:
  1. an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;
  2. an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

Acts 1963, ch. 81, § 1 (2-206).

Prior Tennessee Law: §§ 47-1201, 47-1203.

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

NOTES TO DECISIONS

Decisions Under Prior Law

1. Formation of Contract.

2. —Acceptance.

An acceptance, to be effectual, must be identical with the offer, and unconditional; and in order to make an acceptance effectual, there must be no variance between it and the offer, and hence a proposal to accept, or an acceptance, upon terms varying from those offered, is a rejection of the offer, and puts an end to the negotiations unless the party who made the original offer renews it, or assents to the modifications suggested. Canton Cotton Mills v. Bowman Overall Co., 149 Tenn. 18, 257 S.W. 398, 1923 Tenn. LEXIS 81 (1924).

Where offer contains alternative propositions and it was plain that only one of such propositions was within contemplation of the parties, and there is a time limit fixed in the offer for acceptance, it is necessary that the offeree exercise such choice when the offer is accepted. Armistead v. Tennessee Consol. Coal Co., 14 Tenn. App. 434, — S.W.2d —, 1932 Tenn. App. LEXIS 51 (Tenn. Ct. App. 1932).

Where offer of contract for delivery of coal contained a time limit for its acceptance and under the contract purchaser was required to give bond, there was no binding contract until bond was given and there could not be a valid acceptance of the contract on the last day without also executing and delivering the bond. Armistead v. Tennessee Consol. Coal Co., 14 Tenn. App. 434, — S.W.2d —, 1932 Tenn. App. LEXIS 51 (Tenn. Ct. App. 1932).

Although mere acknowledgment of receipt of an order without more is not an acceptance and likewise, the additions of mere words of business courtesy which do not convey the idea of acceptance do not make a contract, expressions which are fairly susceptible of being construed as an acceptance will be so construed. 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).

Acceptance of an offer must exactly and precisely accord with the terms of offer. Ray v. Thomas, 191 Tenn. 195, 232 S.W.2d 32, 1950 Tenn. LEXIS 564 (1950).

3. —Reasonable Time.

Question, what is reasonable time within which to accept an offer where no time is fixed, is a question of fact, depending on nature of contract proposed, usages of business and other circumstances of the case. Akers v. J. B. Sedberry, Inc., 39 Tenn. App. 633, 286 S.W.2d 617, 1955 Tenn. App. LEXIS 91 (Tenn. Ct. App. 1955).

4. Bilateral Contract.

An offer to make a bilateral contract must be accepted precisely according to the terms of the offer. Jones v. Horner, 36 Tenn. App. 657, 260 S.W.2d 198, 1953 Tenn. App. LEXIS 147 (Tenn. Ct. App. 1953).

5. Unilateral Contract.

Where offer for a unilateral contract is made the offeree's part performance furnishes the “acceptance” and “consideration” for a binding subsidiary promise not to revoke the offer and turns the offer into a presently binding contract conditional upon the offeree's full performance. Hutchinson v. Dobson-Bainbridge Realty Co., 31 Tenn. App. 490, 217 S.W.2d 6, 1946 Tenn. App. LEXIS 115 (Tenn. Ct. App. 1946).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Sections 1 and 3, Uniform Sales Act.

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

Purposes of Changes:

To make it clear that: 1.  Any reasonable manner of acceptance is intended to be regarded as available unless the offeror has made quite clear that it will not be acceptable. Former technical rules as to acceptance, such as requiring that telegraphic offers be accepted by telegraphed acceptance, etc., are rejected and a criterion that the acceptance be “in any manner and by any medium reasonable under the circumstances,” is substituted. This section is intended to remain flexible and its applicability to be enlarged as new media of communication develop or as the more time-saving present day media come into general use.

2.  Either shipment or a prompt promise to ship is made a proper means of acceptance of an offer looking to current shipment. In accordance with ordinary commercial understanding the section interprets an order looking to current shipment as allowing acceptance either by actual shipment or by a prompt promise to ship and rejects the artificial theory that only a single mode of acceptance is normally envisaged by an offer. This is true even though the language of the offer happens to be “ship at once” or the like. “Shipment” is here used in the same sense as in Section 2-504; it does not include the beginning of delivery by the seller's own truck or by messenger. But loading on the seller's own truck might be a beginning of performance under subsection (2).

3.  The beginning of performance by an offeree can be effective as acceptance so as to bind the offeror only if followed within a reasonable time by notice to the offeror. Such a beginning of performance must unambiguously express the offeree's intention to engage himself. For the protection of both parties it is essential that notice follow in due course to constitute acceptance. Nothing in this section however bars the possibility that under the common law performance begun may have an intermediate effect of temporarily barring revocation of the offer, or at the offeror's option, final effect in constituting acceptance.

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

Definitional Cross-References:

“Buyer”. Section 2-103.

“Conforming”. Section 2-106.

“Contract”. Section 1-201.

“Goods”. Section 2-105.

“Notifies”. Section 1-201.

“Reasonable time”. Section 1-204.

47-2-207. Additional terms in acceptance or confirmation.

  1. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
  2. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
  1. the offer expressly limits acceptance to the terms of the offer;
  2. they materially alter it; or
  3. notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of chapters 1-9 of this title.

Acts 1963, ch. 81, § 1 (2-207).

Prior Tennessee Law: §§ 47-1201, 47-1203.

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

Law Reviews.

The Chaos of the “Battle of the Forms.”: Solutions (John E. Murray, Jr.), 39 Vand. L. Rev. 1307 (1986).

Cited: Kopper Glo Fuel, Inc. v. Island Lake Coal Co., 436 F. Supp. 91, 1977 U.S. Dist. LEXIS 15652 (E.D. Tenn. 1977); Starr Printing Co. v. Air Jamaica, 45 F. Supp. 2d 625, 1999 U.S. Dist. LEXIS 4917 (W.D. Tenn. 1999).

NOTES TO DECISIONS

1. Addition of New Terms.

If forms sent by manufacturer to dealer in response to oral orders were not acceptances but confirmations of prior oral agreements, then arbitration provision in such forms is considered proposal for addition to contracts and would be deemed accepted by dealer only if they did not materially change prior agreement. Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1972 U.S. App. LEXIS 11982 (6th Cir. Tenn. 1972).

2. Variance from Offer.

Acceptance forms sent by manufacturer to dealer in response to oral orders and stating that acceptances subject to specific conditions, including arbitration “being accepted by lawyer”, did not constitute acceptances expressly conditioned on buyers' assent to such conditions. Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1972 U.S. App. LEXIS 11982 (6th Cir. Tenn. 1972).

Although this section concerning offer and acceptance presents problems of interpretation it clearly intended to alter “ribbon matching” or “mirror” rule of common law, under which terms of an acceptance or confirmation were required to be identical to the terms of the offer or oral agreement, respectively. Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1972 U.S. App. LEXIS 11982 (6th Cir. Tenn. 1972).

2.5. Contracts.

Pursuant to T.C.A. § 47-2-207(3), the parties had a contract based on their conduct and exchanges of writings because the parties acknowledged that they had a deal for the purchase and sale of slurry, made repeated references to their contract and numerous statements about the termination of a contract, and clearly recognized the existence of an agreement by their actions in the sale of over 35 loads of slurry totaling 1.35 million barrels. 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).

Because the parties'  writings agreed that the provisions of their agreement would automatically renew for two additional one year terms, unless either party gave the other party at least ninety days advance written notice prior to the expiration of the initial term or any renewal term of its intention not to renew the agreement, under T.C.A. § 47-2-207(3), these terms became part of the parties'  delivered contract by conduct. 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).

Court found good cause to clarify its previous summary judgment order under Fed. R. Civ. P. 54(b) since the plaintiffs cited portions of its summary judgment briefing demonstrating that it did previously seek judgment as a matter of law as to the existence of a binding contract, including the volume and price terms of the agreement; accordingly, the plaintiffs'  motion for clarification was granted as to the existence of a binding contract, which included terms for volume and price. Pursuant to T.C.A. § 47-2-207(3), the parties'  free-on-board contract agreed on the volume and price, and so those provisions became part of the parties'  contract by conduct. Carbon Processing & Reclamation, LLC v. Valero Mktg. & Supply Co., — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 93967 (W.D. Tenn. July 6, 2012).

Pursuant to T.C.A. § 47-2-207(3), the parties'  delivered contract had a volume provision and a price provision. Because the parties'  writings agreed on those terms, those provisions became part of the parties'  contract by conduct. Therefore, the plaintiffs'  motion for clarification and/or elaboration of the court's summary judgment under Fed. R. Civ. P. 54(b) was granted. Carbon Processing & Reclamation, LLC v. Valero Mktg. & Supply Co., — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 93967 (W.D. Tenn. July 6, 2012).

Decisions Under Prior Law

1. Compliance with Offer.

Acceptance of an offer must exactly and precisely accord with the terms of the offer. Ray v. Thomas, 191 Tenn. 195, 232 S.W.2d 32, 1950 Tenn. LEXIS 564 (1950).

An offer to make a bilateral contract must be accepted precisely according to the terms of the offer. Jones v. Horner, 36 Tenn. App. 657, 260 S.W.2d 198, 1953 Tenn. App. LEXIS 147 (Tenn. Ct. App. 1953).

2. Addition of New Terms.

Where contract consisted merely of offer to purchase or an order and an acknowledgment of the order showing order number, date sold and the items sold there was an offer and acceptance, and fact that such acknowledgment also had printed on it “General conditions” stating that all agreements are subject to strikes and containing other statements did not have the effect of injecting new and different conditions not contained in the offer or order. 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).

3. Variance from Offer.

An offer must be unconditionally accepted, and if the acceptance is conditional or if the terms are varied from the offer this constitutes a new offer and cannot be relied on as acceptance of the original offer. Petway v. Loew's Nashville & Knoxville Corp., 22 Tenn. App. 59, 117 S.W.2d 975, 1938 Tenn. App. LEXIS 5 (Tenn. Ct. App. 1938).

Collateral References.

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

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Sections 1 and 3, Uniform Sales Act.

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

Purposes of Changes:

1.  This section is intended to deal with two typical situations. The one is the written confirmation, where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is offer and acceptance, in which a wire or letter expressed and intended as an acceptance or the closing of an agreement adds further minor suggestions or proposals such as “ship by Tuesday,” “rush,” “ship draft against bill of lading inspection allowed,” or the like. A frequent example of the second situation is the exchange of printed purchase order and acceptance (sometimes called “acknowledgment”) forms. Because the forms are oriented to the thinking of the respective drafting parties, the terms contained in them often do not correspond. Often the seller's form contains terms different from or additional to those set forth in the buyer's form. Nevertheless, the parties proceed with the transaction. [1966 version of comment]

2.  Under this Article a proposed deal which in commercial understanding has in fact been closed is recognized as a contract. Therefore, any additional matter contained in the confirmation or in the acceptance falls subsection (2) and must be regarded as a proposal for an added term unless the acceptance is made conditional on the acceptance of the additional terms. [1966 version of comment]

3.  Whether or not additional or different terms will become part of the agreement depends upon the provisions of subsection (2). If they are such as materially to alter the original bargain, they will not be included unless expressly agreed to by the other party. If, however, they are terms which would not so change the bargain they will be incorporated unless notice of objection to them has already been given or is given within a reasonable time.

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

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

6.  If no answer is received within a reasonable time after additional terms are proposed, it is both fair and commercially sound to assume that their inclusion has been assented to. Where clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in subsection (2) is satisfied and the conflicting terms do not become a part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act, including subsection (2). The written confirmation is also subject to Section 2-201. Under that section a failure to respond permits enforcement of a prior oral agreement; under this section a failure to respond permits additional terms to become part of the agreement [1966 version of comment].

7.  In many cases, as where goods are shipped, accepted and paid for before any dispute arises, there is no question whether a contract has been made. In such cases, where the writings of the parties do not establish a contract, it is not necessary to determine which act or document constituted the offer and which the acceptance. See Section 2-204. The only question is what terms are included in the contract, and subsection (3) furnishes the governing rule [1966 version of comment].

Cross-References:

See generally Section 2-302.

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

Point 6: Sections 1-102 and 2-104.

Definitional Cross-References:

“Between merchants”. Section 2-104.

“Contract”. Section 1-201.

“Notification”. Section 1-201.

“Reasonable time”. Section 1-204.

“Seasonably”. Section 1-204.

“Send”. Section 1-201.

“Term”. Section 1-201.

“Written”. Section 1-201.

47-2-208. [Repealed.]

Compiler's Notes. Former § 47-2-208, (Acts 1963, ch. 81, § 1 (2-208)), concerning the course of performance or practical construction of a contract for sale, was repealed by Acts 2008, ch. 930, § 3, effective July 1, 2008.

47-2-209. Modification, rescission and waiver.

  1. An agreement modifying a contract within this chapter needs no consideration to be binding.
  2. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
  3. The requirements of the statute of frauds section of this chapter (§ 47-2-201) must be satisfied if the contract as modified is within its provisions.
  4. Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
  5. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

Acts 1963, ch. 81, § 1 (2-209).

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 3-10, 13.

Law Reviews.

Modification of Sales Contracts Under the Uniform Commercial Code: Section 2-209 Reconsidered, (Beth A. Eisler), 57 Tenn. L. Rev. 401 (1990).

Cited: In re Estate of Upchurch, 62 Tenn. App. 634, 466 S.W.2d 886, 1970 Tenn. App. LEXIS 290 (Tenn. Ct. App. 1970); Walker v. Associates Commercial Corp., 673 S.W.2d 517, 1983 Tenn. App. LEXIS 688 (Tenn. Ct. App. 1983); Guesthouse Int'l, LLC v. Shoney's N. Am. Corp., 330 S.W.3d 166, 2010 Tenn. App. LEXIS 206 (Tenn. Ct. App. Mar. 18, 2010).

NOTES TO DECISIONS

1. Modification.

When parties entered into multiple agreements regarding the purchase and sale of lumber, a modification of an agreement requiring that loads be picked up by a date certain was enforceable because (1) the seller testified that the seller granted an extension to the buyer to complete pickups and the buyer sought to enforce that promise against the seller, satisfying T.C.A. § 47-2-201(3), and (2) no consideration was required for the modification. Miller v. Dairyman's Supply Co., — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 81613 (M.D. Tenn. June 12, 2012).

Purchasers and a seller did not enter into a modification contract because nothing in the record indicated that the seller agreed, either expressly or by his conduct, to modify the parties'  agreement; the trial court clearly indicated that the purchasers'  evidence on the issue was neither sufficient nor credible, and the purchaser did not present clear and convincing evidence that would allow the court of appeals to disregard the trial court's implied credibility finding in favor of the seller. Lowe v. Smith, — S.W.3d —, 2016 Tenn. App. LEXIS 689 (Tenn. Ct. App. Sept. 19, 2016).

2. —Good Faith Required.

Where a farmer contracted to sell and deliver a specified quantity of soybeans (not from specified land or a particular crop) on or before a specific date and was prevented from doing so by flood-caused crop failures and the contract was extended beyond and partial deliveries made after the original delivery date, the court held that the measure of damages under § 47-2-713 was the difference between the market price of soybeans on the original contract delivery date and the contract price and not the difference on the date to which the contract was extended, since, under this section and § 47-2-208 (repealed), the preservation of contracts, and the allowance of subsequent modifications therein, is conditional on the strict requirement of demonstrable good faith and, although in this case the contracts were validly extended, the buyer knew, or should have known, of the contract breach on the original delivery date and that its extending the contracts almost inevitably would result in compounding, rather than limiting, the damages. Ralston Purina Co. v. McNabb, 381 F. Supp. 181, 1974 U.S. Dist. LEXIS 7109 (W.D. Tenn. 1974).

3. —Oral Modification.

Merchants may not verbally change an existing contract between themselves which provides that it may be changed only in writing. Knoxville Rod & Bearing, Inc. v. Bettis Corp. of Knoxville, Inc., 672 S.W.2d 203, 1983 Tenn. App. LEXIS 719 (Tenn. Ct. App. 1983).

As between merchants a clause in a contract prohibiting oral modification is binding without any separate signing by either party. Knoxville Rod & Bearing, Inc. v. Bettis Corp. of Knoxville, Inc., 672 S.W.2d 203, 1983 Tenn. App. LEXIS 719 (Tenn. Ct. App. 1983).

If a nonmerchant is contracting with a merchant using a form supplied by the merchant containing such a clause, the nonmerchant must separately sign such a provision in order to prohibit oral modification. Knoxville Rod & Bearing, Inc. v. Bettis Corp. of Knoxville, Inc., 672 S.W.2d 203, 1983 Tenn. App. LEXIS 719 (Tenn. Ct. App. 1983).

Plaintiff's silence after being told of defendant's sale of a business did not constitute waiver of a provision in a dealer liability agreement requiring the defendant to give written notice that he would no longer be responsible for any debt pursuant to the agreement. Stovall of Chattanooga v. Cunningham, 890 S.W.2d 442, 1994 Tenn. App. LEXIS 321 (Tenn. Ct. App. 1994), rehearing denied, — S.W.2d —, 1994 Tenn. App. LEXIS 405 (Tenn. Ct. App. July 25, 1994), appeal denied, Cunningham v. Stovall of Chattanooga, Inc., 1994 Tenn. LEXIS 322 (Tenn. Oct. 31, 1994).

4. Waiver.

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).

Although contracts provided that the contracts “may be amended only by written agreement signed by the party to be bound,” parol evidence was admissible to show a waiver of a contractual provision. Gold Kist, Inc. v. Pillow, 582 S.W.2d 77, 1979 Tenn. App. LEXIS 307 (Tenn. Ct. App. 1979).

Plaintiff, who knew defendant was in a competing business, sold goods to defendant, and allowed defendant to continue for two and one-half years in violation of noncompetition covenant, waived any right to enforce noncompetition covenant. Knoxville Rod & Bearing, Inc. v. Bettis Corp. of Knoxville, Inc., 672 S.W.2d 203, 1983 Tenn. App. LEXIS 719 (Tenn. Ct. App. 1983).

When parties entered into multiple agreements regarding the purchase and sale of lumber, a modification of an agreement requiring that loads be picked up by a date certain was enforceable because the seller waived this requirement. Miller v. Dairyman's Supply Co., — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 81613 (M.D. Tenn. June 12, 2012).

5. Minors.

Where the minor has not been overreached in any way, and there has been no undue influence, and the contract is a fair and reasonable one, and the minor has actually paid money on the purchase price, and taken and used the article purchased, then he ought not to be permitted to recover the amount actually paid, without allowing the vendor of the goods reasonable compensation for the use of, depreciation, and willful or negligent damage to the article purchased, while in his hands. If there has been any fraud or imposition on the part of the seller or if the contract is unfair, or any unfair advantage has been taken of the minor inducing him to make the purchase, then the rule does not apply. Dodson v. Shrader, 824 S.W.2d 545, 1992 Tenn. LEXIS 42 (Tenn. 1992).

Decisions Under Prior Law

1. Modification.

A written contract may be modified after it is made by the express words of the parties in writing as well as by parol. Co-operative Stores Co. v. United States Fidelity & Guaranty Co., 137 Tenn. 609, 195 S.W. 177, 1917 Tenn. LEXIS 172 (1917).

2. —Consideration.

It is competent for the parties to an executory written contract, at any time before the breach thereof, by a subsequent verbal agreement founded upon a sufficient consideration, either to waive altogether or dissolve or annul the previous written agreement, or in any manner to add to, subtract from, or vary or qualify the stipulations of such agreement and thus to make a new or different contract. Bryan v. Hunt, 36 Tenn. 543, 1857 Tenn. LEXIS 49 (1857).

3. —Mutual Assent.

Modification of an existing contract cannot be accomplished by the unilateral action of one of the parties but there must be the same mutuality of assent and meeting of minds as required to make a contract. Balderacchi v. Ruth, 36 Tenn. App. 421, 256 S.W.2d 390, 1952 Tenn. App. LEXIS 131 (Tenn. Ct. App. 1952).

4. Rescission.

5. —Mutual Assent.

Either in making of contract or in rescission or abandonment of same, intention to do so must be mutual, and unexpressed intention of one of parties not known to other, either expressly or by reasonable implication, forms no part of mutual act. Arkansas Dailies, Inc. v. Dan, 36 Tenn. App. 663, 260 S.W.2d 200, 1953 Tenn. App. LEXIS 149 (Tenn. Ct. App. 1953).

6. —Notice.

Where contract expired on a specific date and delivery was not made by such date there could have been a suit for breach without notice, but where contract was extended for an indefinite time by the actions of the parties, buyer should have given notice that it would rescind at the expiration of a reasonable time, and where buyer notified seller not to make any more shipments without giving such notice, it terminated a contract that was presently in force thereby breaching the contract and precluding it from recovering damages from seller. Wildberg Box Co. v. Darby, 143 Tenn. 73, 223 S.W. 855, 1919 Tenn. LEXIS 26 (1920).

Where a buyer, after discovering that goods purchased were inferior to those he had ordered, returned some of goods to the seller but did not give notice of rescission or ever claim rescission and the seller gave no credit for the returned goods, the seller could not claim as a defense that the buyer had rescinded so as to bar buyer's action for breach of warranty. Bagwell v. Susman, 165 F.2d 412, 1947 U.S. App. LEXIS 2069 (6th Cir. Tenn. 1947).

7. —Effect.

In the absence of a reservation of rights to damages, a contract operating to rescind a former contract constitutes a final settlement between the parties of any differences they might have under the first contract. Decca Records, Inc. v. Republic Recording Co., 235 F.2d 360, 1956 U.S. App. LEXIS 4569 (6th Cir. Tenn. 1956).

COMMENTS TO OFFICIAL TEXT

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

Purposes of Changes and New Matter:

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

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

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

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

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

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

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

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

Cross-References:

Point 1: Section 1-203.

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

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

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

Definitional Cross-References:

“Agreement”. Section 1-201.

“Between merchants”. Section 2-104.

“Contract”. Section 1-201.

“Notification”. Section 1-201.

“Signed”. Section 1-201.

“Term”. Section 1-201.

“Writing”. Section 1-201.

47-2-210. Delegation of performance — Assignment of rights.

  1. A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.
  2. Except as otherwise provided in § 47-9-406, unless otherwise agreed, all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise.
  3. The creation, attachment, perfection, or enforcement of a security interest in the seller's interest under a contract is not a transfer that materially changes the duty of or increases materially the burden or risk imposed on the buyer or impairs materially the buyer's chance of obtaining return performance within the purview of subsection (2) unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the seller. Even in that event, the creation, attachment, perfection, and enforcement of the security interest remain effective, but (i) the seller is liable to the buyer for damages caused by the delegation to the extent that the damages could not reasonably be prevented by the buyer; and (ii) a court having jurisdiction may grant other appropriate relief, including cancellation of the contract for sale or an injunction against enforcement of the security interest or consummation of the enforcement.
  4. Unless the circumstances indicate the contrary a prohibition of assignment of “the contract” is to be construed as barring only the delegation to the assignee of the assignor's performance.
  5. An assignment of “the contract” or of “all my rights under the contract” or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract.
  6. The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (§ 47-2-609).

Acts 1963, ch. 81, § 1 (2-210); 2000, ch. 846, § 5.

Cited: National Shawmut Bank v. International Yarn Corp., 322 F. Supp. 116, 1970 U.S. Dist. LEXIS 10937 (S.D.N.Y. 1970); Clark v. BP Oil Co., 930 F. Supp. 1196, 1996 U.S. Dist. LEXIS 9482 (E.D. Tenn. 1996); Clark v. BP Oil Co., 137 F.3d 386, 1998 FED App. 63P, 1998 U.S. App. LEXIS 2851 (6th Cir. Tenn. 1998); Cascade Ohio, Inc. v. Modern Mach. Corp., — S.W.3d —, 2010 Tenn. App. LEXIS 710 (Tenn. Ct. App. Nov. 15, 2010).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Contracts Assignable.

A contract containing nothing to indicate that there is any reliance upon any personal skill, trust or confidence is assignable without the consent of the other party but even then the assignment may be ratified by the other party. Edgewood Lumber Co. v. Hull, 32 Tenn. App. 577, 223 S.W.2d 210, 1949 Tenn. App. LEXIS 110, 17 A.L.R.2d 228 (Tenn. Ct. App. 1949).

2. Contracts Not Assignable.

Rights arising out of a contract cannot be transferred if they are coupled with liabilities or if they involve a relationship of personal credit and confidence. Berger v. Paalzow, 40 Tenn. App. 153, 289 S.W.2d 861, 1956 Tenn. App. LEXIS 132 (Tenn. Ct. App. 1956).

3. Assignment of Expectancies.

Where it is found that a contract for the disposition of an expectancy has been fairly made and upon a valuable consideration, it will be enforced, as against the grantor and privies, whenever the property covered by it comes into possession. Taylor v. Swafford, 122 Tenn. 303, 123 S.W. 350, 1909 Tenn. LEXIS 24, 25 L.R.A. (n.s.) 442 (1909).

Under doctrine of equitable assignment of property to be acquired in the future, the instrument of conveyance will be treated as contract of an expectant and enforced whenever the property covered by it comes into possession. Hobson v. Hobson, 184 Tenn. 484, 201 S.W.2d 659, 1947 Tenn. LEXIS 401 (1947).

4. Choses in Action and Property Rights.

A contract for the purchase and erection of a bridge and containing an order for the payment of money, while not negotiable was assignable and assignee could bring suit in his own name. Smith v. Hubbard, 85 Tenn. 306, 2 S.W. 569, 1886 Tenn. LEXIS 45 (1887).

Contract for the sale of good will is a property right, valuable and assignable, and not affected by changes made by purchaser in the manner in which it conducted its business, that is, in changing from partnership to corporation. Bradford & Carson v. Montgomery Furniture Co., 115 Tenn. 610, 92 S.W. 1104, 1905 Tenn. LEXIS 95, 9 L.R.A. (n.s.) 979 (1906).

In the absence of statute, an obligee has a right to assign a chose in action and the general rule is that the unqualified assignment of such right of action vests in the assignee the title thereto to the same extent that the assignor had at the date of the assignment. Kivett v. Mayes, 49 Tenn. App. 272, 354 S.W.2d 492, 1961 Tenn. App. LEXIS 110 (Tenn. Ct. App. 1961).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  None.

Purposes:

1.  Generally, this section recognizes both delegation of performance and assignability as normal and permissible incidents of a contract for the sale of goods.

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

3.  Under subsection (2) rights which are no longer executory such as a right to damages for breach may be assigned although the agreement prohibits assignment. In such cases no question of delegation of any performance is involved. Subsection (2) is subject to Section 9-406, which makes rights to payment for goods sold (“accounts”), whether or not earned, freely alienable notwithstanding a contrary agreement or rule of law.

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

5.  Subsection (4) lays down a general rule of construction distinguishing between a normal commercial assignment, which substitutes the assignee for the assignor both as to rights and duties, and a financing assignment in which only the assignor's rights are transferred.

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

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

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

Cross-References:

Point 3: Articles [Chapters] 5 and 9.

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

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

Point 7: Article [Chapter] 9.

Definitional Cross-References:

“Agreement”. Section 1-201.

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Party”. Section 1-201.

“Rights”. Section 1-201.

“Seller”. Section 2-103.

“Term”. Section 1-201.

Part 3
General Obligation and Construction of Contract

47-2-301. General obligation of parties.

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

Acts 1963, ch. 81, § 1 (2-301).

Prior Tennessee Law: §§ 47-1211 and 47-1241.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 5-24.

Law Reviews.

Resolving Contractual Ambiguity in Tennessee: A Systematic Approach, 68 Tenn. L. Rev. 73 (2000).

Warranties in Livestock, Feed, Seed, and Pesticide Transactions (J. W. Looney), 25 U. Mem. L. Rev. 1123 (1995).

Cited: Ruffin Bldg. Sys. v. Varner, — S.W.3d —, 2004 Tenn. App. LEXIS 326 (Tenn. Ct. App. May 21, 2004).

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.

47-2-302. Unconscionable contract or clause.

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

Acts 1963, ch. 81, § 1 (2-302).

Law Reviews.

Contractual Choice of Law and the Prudential Foundations of Appellate Review (David Frisch), 56 Vand. L. Rev. 57 (2003).

Note, Bailor Beware: Limitations and Exclusions of Liability in Commercial Bailments, 41 Vand. L. Rev. 129 (1988).

Cited: MBI Motor Co. v. Lotus/East, Inc., 506 F.2d 709, 1974 U.S. App. LEXIS 5713 (6th Cir. Tenn. 1974); Bunge Corp. v. Miller, 381 F. Supp. 176, 1974 U.S. Dist. LEXIS 12086 (W.D. Tenn. 1974).

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.

47-2-303. Allocation or division of risks.

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

Acts 1963, ch. 81, § 1 (2-303).

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.

47-2-304. Price payable in money, goods, realty, or otherwise.

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

Acts 1963, ch. 81, § 1 (2-304).

Prior Tennessee Law: § 47-1209.

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

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.

47-2-305. Open price term.

  1. The parties, if they so intend, can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if:
  1. nothing is said as to price; or
  2. the price is left to be agreed by the parties and they fail to agree; or
  3. the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.

A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one (1) party the other may at his option treat the contract as cancelled or himself fix a reasonable price.

Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.

Acts 1963, ch. 81, § 1 (2-305).

Prior Tennessee Law: §§ 47-1209, 47-1210.

Law Reviews.

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

Cited: Clark v. BP Oil Co., 137 F.3d 386, 1998 FED App. 63P, 1998 U.S. App. LEXIS 2851 (6th Cir. Tenn. 1998).

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.

47-2-306. Output, requirements and exclusive dealings.

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

Acts 1963, ch. 81, § 1 (2-306).

Cited: Tennessee Valley Authority v. Imperial Professional Coatings, 599 F. Supp. 436, 1984 U.S. Dist. LEXIS 24251 (E.D. Tenn. 1984); John P. Saad & Sons, Inc. v. Nashville Thermal Transfer Corp., 715 S.W.2d 41, 1986 Tenn. LEXIS 783 (Tenn. 1986).

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.

47-2-307. Delivery in single lot or several lots.

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

Acts 1963, ch. 81, § 1 (2-307).

Prior Tennessee Law: § 47-1245.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

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.

47-2-308. Absence of specified place for delivery.

Unless otherwise agreed:

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

Acts 1963, ch. 81, § 1 (2-308).

Prior Tennessee Law: §§ 47-1243, 47-1704, 47-1705.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

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.

47-2-309. Absence of specific time provisions — Notice of termination.

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

Acts 1963, ch. 81, § 1 (2-309).

Prior Tennessee Law:  §§ 47-1243, 47-1245, 47-1248, 47-1704, 47-1705.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 5, 23.

Cited: K.M.C. Co. v. Irving Trust Co., 757 F.2d 752, 1985 U.S. App. LEXIS 29638, 92 A.L.R. Fed. 661 (6th Cir. Tenn. 1985).

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.

47-2-310. Open time for payment or running of credit — Authority to ship under reservation.

Unless otherwise agreed:

  1. Payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; and
  2. If the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of the contract (§ 47-2-513); and
  3. If delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment is due regardless of where the goods are to be received (i) at the time and place at which the buyer is to receive delivery of the tangible documents or (ii) at the time the buyer is to receive delivery of the electronic documents and at the seller's place of business or, if none, the seller's residence; and
  4. Where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but post-dating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.

Acts 1963, ch. 81, § 1 (2-310); Acts 2008, ch. 814, § 5.

Amendments. The 2008 amendment rewrote (c) which read: “(c) if delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment is due at the time and place at which the buyer is to receive the documents regardless of where the goods are to be received; and”.

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

Prior Tennessee Law: §§ 47-1242, 47-1247, 47-1704, 47-1705.

Cited: In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980); Ruffin Bldg. Sys. v. Varner, — S.W.3d —, 2004 Tenn. App. LEXIS 326 (Tenn. Ct. App. May 21, 2004).

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.

47-2-311. Options and cooperation respecting performance.

  1. An agreement for sale which is otherwise sufficiently definite (§ 47-2-204(3)) to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one (1) of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.
  2. Unless otherwise agreed specifications relating to assortment of the goods are at the buyer's option and except as otherwise provided in § 47-2-319(1)(c) and (3) specifications or arrangements relating to shipment are at the seller's option.
  3. Where such specification would materially affect the other party's performance but is not seasonably made or where one (1) party's cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies:
  1. is excused for any resulting delay in his own performance; and
  2. may also either proceed to perform in any reasonable manner or after the time for a material part of his own performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.

Acts 1963, ch. 81, § 1 (2-311).

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Contracts, § 88.

Cited: In re Precise Tool & Gage Co., 42 B.R. 677, 1984 Bankr. LEXIS 5419 (E.D. Tenn. 1984).

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.

47-2-312. Warranty of title and against infringement — Buyer's obligation against infringement.

  1. Subject to subsection (2) there is in a contract for sale a warranty by the seller that:
  1. the title conveyed shall be good, and its transfer rightful; and
  2. the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.

Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications.

Acts 1963, ch. 81, § 1 (2-312).

Prior Tennessee Law: § 47-1213.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 12-16.

Law Reviews.

Case Comment, Contracts — Morris v. Mack's Used Cars: Another Weapon for the Consumer Protection Arsenal, 23 Mem. St. U.L. Rev. 871 (1993).

The Consumer Product Safety Act — Front-End Protection for the Consumer, 3 Mem. St. U.L. Rev. 344.

Cited: Insurance Co. of North America v. Cliff Pettit Motors, Inc., 513 S.W.2d 785, 1974 Tenn. LEXIS 471 (Tenn. 1974); Capitol Chevrolet Co. v. Earheart, 627 S.W.2d 369, 1981 Tenn. App. LEXIS 533 (Tenn. Ct. App. 1981).

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.

47-2-313. Express warranties by affirmation, promise, description, sample.

  1. Express warranties by the seller are created as follows:
  1. Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
  2. Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
  3. Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.

Acts 1963, ch. 81, § 1 (2-313).

Prior Tennessee Law: §§ 47-1212 — 47-1214, 47-1216.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 12, 13, 16.

Law Reviews.

Case Comment, Contracts — Morris v. Mack's Used Cars: Another Weapon for the Consumer Protection Arsenal, 23 Mem. St. U.L. Rev. 871 (1993).

Contractual Choice of Law and the Prudential Foundations of Appellate Review (David Frisch), 56 Vand. L. Rev. 57 (2003).

The Predominant Factor Test Under the Uniform Commercial Code (R. Alan Pritchard), 37 No. 7 Tenn. B.J. 23 (2001).

Cited: Parker v. Warren, 503 S.W.2d 938, 1973 Tenn. App. LEXIS 280 (Tenn. Ct. App. 1973); Fuller v. Orkin Exterminating Co., 545 S.W.2d 103, 1975 Tenn. App. LEXIS 207 (Tenn. Ct. App. 1975); Wilson v. Dake Corp., 497 F. Supp. 1339, 1980 U.S. Dist. LEXIS 14130 (E.D. Tenn. 1980); In re Ashley, 5 B.R. 262, 1980 Bankr. LEXIS 4801 (Bankr. E.D. Tenn. 1980); Motley v. Fluid Power of Memphis, Inc., 640 S.W.2d 222, 1982 Tenn. App. LEXIS 408 (Tenn. Ct. App. 1982); Haverlah v. Memphis Aviation, Inc., 674 S.W.2d 297, 1984 Tenn. App. LEXIS 3389 (Tenn. Ct. App. 1984); Higgs v. General Motors Corp., 655 F. Supp. 22, 1985 U.S. Dist. LEXIS 12146 (E.D. Tenn. 1985); Foley v. Dayton Bank & Trust, 696 S.W.2d 356, 1985 Tenn. App. LEXIS 2778 (Tenn. Ct. App. 1985); Mitchell v. White Motor Credit Corp., 627 F. Supp. 1241, 1986 U.S. Dist. LEXIS 30042 (M.D. Tenn. 1986); Paty v. Herb Adcox Chevrolet Co., 756 S.W.2d 697, 1988 Tenn. App. LEXIS 302 (Tenn. Ct. App. 1988); Board of Dirs. v. Southwestern Petro. Corp., 757 S.W.2d 669, 1988 Tenn. App. LEXIS 22 (Tenn. Ct. App. 1988).

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.

47-2-314. Implied warranty — Merchantability — Usage of trade.

  1. Unless excluded or modified (§ 47-2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
  2. Goods to be merchantable must be at least such as:
  1. pass without objection in the trade under the contract description; and
  2. in the case of fungible goods, are of fair average quality within the description; and
  3. are fit for the ordinary purposes for which such goods are used; and
  4. run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
  5. are adequately contained, packaged, and labeled as the agreement may require; and
  6. conform to the promises or affirmations of fact made on the container or label if any.

Unless excluded or modified (§ 47-2-316) other implied warranties may arise from course of dealing or usage of trade.

Acts 1963, ch. 81, § 1 (2-314).

Prior Tennessee Law: § 47-1215.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 2, 3, 12, 14, 16; 13 Tenn. Juris., Food, § 5.

Law Reviews.

Case Comment, Contracts — Morris v. Mack's Used Cars: Another Weapon for the Consumer Protection Arsenal, 23 Mem. St. U.L. Rev. 871 (1993).

New Home Construction Liability (Jeff Mueller), 43 Tenn. B.J. 18 (2007).

The Aftermath of Owens and Whitehead — Products Liability and Comparative Fault in Tennessee-How Deep Does the Relationship Run?, 32 U. Mem. L. Rev. 443 (2002).

Cited: Crown Cork & Seal Co. v. Morton Pharmaceuticals, Inc., 417 F.2d 921, 1969 U.S. App. LEXIS 10620 (6th Cir. Tenn. 1969); Country Clubs, Inc. v. Allis-Chalmers Mfg. Co., 430 F.2d 1394, 1970 U.S. App. LEXIS 7643 (6th Cir. Tenn. 1970); MBI Motor Co. v. Lotus/East, Inc., 506 F.2d 709, 1974 U.S. App. LEXIS 5713 (6th Cir. Tenn. 1974); Fuller v. Orkin Exterminating Co., 545 S.W.2d 103, 1975 Tenn. App. LEXIS 207 (Tenn. Ct. App. 1975); Curtis v. Murphy Elevator Co., 407 F. Supp. 940, 1976 U.S. Dist. LEXIS 17216 (E.D. Tenn. 1976); Kopper Glo Fuel, Inc. v. Island Lake Coal Co., 436 F. Supp. 91, 1977 U.S. Dist. LEXIS 15652 (E.D. Tenn. 1977); R. Clinton Constr. Co. v. Bryant & Reaves, Inc., 442 F. Supp. 838, 1977 U.S. Dist. LEXIS 12222 (N.D. Miss. 1977); Wilson v. Dake Corp., 497 F. Supp. 1339, 1980 U.S. Dist. LEXIS 14130 (E.D. Tenn. 1980); In re Ashley, 5 B.R. 262, 1980 Bankr. LEXIS 4801 (Bankr. E.D. Tenn. 1980); Haverlah v. Memphis Aviation, Inc., 674 S.W.2d 297, 1984 Tenn. App. LEXIS 3389 (Tenn. Ct. App. 1984); Higgs v. General Motors Corp., 655 F. Supp. 22, 1985 U.S. Dist. LEXIS 12146 (E.D. Tenn. 1985); Foley v. Dayton Bank & Trust, 696 S.W.2d 356, 1985 Tenn. App. LEXIS 2778 (Tenn. Ct. App. 1985); Beaman v. Schwartz, 738 S.W.2d 632, 1986 Tenn. App. LEXIS 3462 (Tenn. Ct. App. 1986); Paty v. Herb Adcox Chevrolet Co., 756 S.W.2d 697, 1988 Tenn. App. LEXIS 302 (Tenn. Ct. App. 1988); Board of Dirs. v. Southwestern Petro. Corp., 757 S.W.2d 669, 1988 Tenn. App. LEXIS 22 (Tenn. Ct. App. 1988).

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.

47-2-315. Implied warranty — Fitness for particular purpose — Exception for certain livestock.

Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose. With respect to the sale of cattle, hogs, sheep, and horses, there shall be no implied warranty that the cattle, hogs, sheep, and horses are free from disease.

Acts 1963, ch. 81, § 1 (2-315); 1980, ch. 723, § 1.

Prior Tennessee Law: § 47-1215.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 12, 14, 16; 13 Tenn. Juris., Food, § 5.

Law Reviews.

New Home Construction Liability (Jeff Mueller), 43 Tenn. B.J. 18 (2007).

Note, Bailor Beware: Limitations and Exclusions of Liability in Commercial Bailments, 41 Vand. L. Rev. 129 (1988).

Cited: Cumberland Corp. v. E. I. Du Pont de Nemours & Co., 383 F. Supp. 595, 1973 U.S. Dist. LEXIS 11437 (E.D. Tenn. 1973); Parker v. Warren, 503 S.W.2d 938, 1973 Tenn. App. LEXIS 280 (Tenn. Ct. App. 1973); Fuller v. Orkin Exterminating Co., 545 S.W.2d 103, 1975 Tenn. App. LEXIS 207 (Tenn. Ct. App. 1975); In re Ashley, 5 B.R. 262, 1980 Bankr. LEXIS 4801 (Bankr. E.D. Tenn. 1980); Motley v. Fluid Power of Memphis, Inc., 640 S.W.2d 222, 1982 Tenn. App. LEXIS 408 (Tenn. Ct. App. 1982); Haverlah v. Memphis Aviation, Inc., 674 S.W.2d 297, 1984 Tenn. App. LEXIS 3389 (Tenn. Ct. App. 1984); Higgs v. General Motors Corp., 655 F. Supp. 22, 1985 U.S. Dist. LEXIS 12146 (E.D. Tenn. 1985); Edwards v. International Harvester Co., 688 S.W.2d 456, 1985 Tenn. App. LEXIS 2640 (Tenn. Ct. App. 1985); Foley v. Dayton Bank & Trust, 696 S.W.2d 356, 1985 Tenn. App. LEXIS 2778 (Tenn. Ct. App. 1985); Board of Dirs. v. Southwestern Petro. Corp., 757 S.W.2d 669, 1988 Tenn. App. LEXIS 22 (Tenn. Ct. App. 1988); Bill Brown Constr. Co. v. Glens Falls Ins. Co., 818 S.W.2d 1, 1991 Tenn. LEXIS 426 (Tenn. 1991); Hollingsworth v. Queen Carpet, Inc., 827 S.W.2d 306, 1991 Tenn. App. LEXIS 744 (Tenn. Ct. App. 1991).

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.

47-2-316. Exclusion or modification of warranties.

  1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this chapter on parol or extrinsic evidence (§ 47-2-202) negation or limitation is inoperative to the extent that such construction is unreasonable.
  2. Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.”
  3. Notwithstanding subsection (2):
  1. unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is,” “with all faults” or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and
  2. when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and
  3. an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.

Remedies for breach of warranty can be limited in accordance with the provisions of this chapter on liquidation or limitation of damages and on contractual modification of remedy (§§ 47-2-718 and 47-2-719).

The implied warranties of merchantability and fitness shall not be applicable to a contract for the sale, procurement, processing, distribution or use of human tissues (such as corneas, bones, or organs), whole blood, plasma, blood products, or blood derivatives. Such human tissues, whole blood, plasma, blood products, or blood derivatives shall not be considered commodities subject to sale or barter, and the transplanting, injection, transfusion or other transfer of such substances into the human body shall be considered a medical service.

Acts 1963, ch. 81, § 1 (2-316); 1967, ch. 206, § 1.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 12, 13, 16, 37; 7 Tenn. Juris., Contracts, § 45; 14 Tenn. Juris., Hospitals, §§ 2, 5; 19 Tenn. Juris., Negligence, § 14.

Law Reviews.

Case Comment, Contracts — Morris v. Mack's Used Cars: Another Weapon for the Consumer Protection Arsenal, 23 Mem. St. U.L. Rev. 871 (1993).

Tennessee's Theories of Misrepresentation (Joe E. Manuel and Stuart F. James), 22 Mem. St. U.L. Rev. 633 (1992).

Cited: Country Clubs, Inc. v. Allis-Chalmers Mfg. Co., 430 F.2d 1394, 1970 U.S. App. LEXIS 7643 (6th Cir. Tenn. 1970); MBI Motor Co. v. Lotus/East, Inc., 506 F.2d 709, 1974 U.S. App. LEXIS 5713 (6th Cir. Tenn. 1974); Ford Motor Co. v. Moulton, 511 S.W.2d 690, 1974 Tenn. LEXIS 498 (Tenn. 1974); Affiliated Professional Services v. South Cent. Bell Tel. Co., 606 S.W.2d 671, 1980 Tenn. LEXIS 505 (Tenn. 1980); In re Ashley, 5 B.R. 262, 1980 Bankr. LEXIS 4801 (Bankr. E.D. Tenn. 1980); Fletcher v. Coffee County Farmers Cooperative, 618 S.W.2d 490, 1981 Tenn. App. LEXIS 502 (Tenn. Ct. App. 1981); McCullough v. General Motors Corp., 577 F. Supp. 41, 1982 U.S. Dist. LEXIS 17634 (W.D. Tenn. 1982); Perryman v. Peterbilt of Knoxville, Inc., 708 S.W.2d 403, 1985 Tenn. App. LEXIS 3273 (Tenn. Ct. App. 1985); Mitchell v. White Motor Credit Corp., 627 F. Supp. 1241, 1986 U.S. Dist. LEXIS 30042 (M.D. Tenn. 1986); Wright v. Dow Chem. U.S.A., 845 F. Supp. 503, 1993 U.S. Dist. LEXIS 19458 (M.D. Tenn. 1993); Spence v. Miles Lab., 37 F.3d 1185, 1994 FED App. 352P, 1994 U.S. App. LEXIS 29071 (6th Cir. 1994); Lee's Home Ctr., Inc. v. Morris, — S.W.3d —, 2006 Tenn. App. LEXIS 412 (Tenn. Ct. App. June 21, 2006); Invest v. Cone Solvents, — S.W.3d —, 2007 Tenn. App. LEXIS 480 (Tenn. Ct. App. July 26, 2007).

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.

47-2-317. Cumulation and conflict of warranties express or implied.

Warranties whether express or implied shall be construed as consistent with each other and as cumulative, but if such construction is unreasonable the intention of the parties shall determine which warranty is dominant. In ascertaining that intention the following rules apply:

  1. Exact or technical specifications displace an inconsistent sample or model or general language of description.
  2. A sample from an existing bulk displaces inconsistent general language of description.
  3. Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose.

Acts 1963, ch. 81, § 1 (2-317).

Prior Tennessee Law: §§ 47-1214 — 47-1216.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 12, 16; 13 Tenn. Juris., Food, § 5.

Law Reviews.

The Federal Consumer Warranty Act and Its Effect on State Law, 43 Tenn. L. Rev. 429.

Cited: Fuller v. Orkin Exterminating Co., 545 S.W.2d 103, 1975 Tenn. App. LEXIS 207 (Tenn. Ct. App. 1975).

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.

47-2-318. Third party beneficiaries of warranties express or implied.

A seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.

Acts 1963, ch. 81, § 1 (2-318).

Cross-References. Privity not required, § 29-34-104.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 2, 12.

Law Reviews.

Breach of Implied Warranty: Has the Foreign/Natural Test Lost Its Bite?, 20 Mem. St. U.L. Rev. 377 (1990).

Cited: Ford Motor Co. v. Lonon, 217 Tenn. 400, 398 S.W.2d 240, 1966 Tenn. LEXIS 604 (1966); Baker v. Promark Products West, Inc., 692 S.W.2d 844, 1985 Tenn. LEXIS 531 (Tenn. 1985).

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.

47-2-319. O.B. and F.A.S. terms.

  1. Unless otherwise agreed the term F.O.B. (which means “free on board”) at a named place, even though used only in connection with the stated price, is a delivery term under which:
  1. when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this chapter (§ 47-2-504) and bear the expense and risk of putting them into the possession of the carrier; or
  2. when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this chapter (§ 47-2-503);
  3. when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this chapter on the form of bill of lading (§ 47-2-323).

Unless otherwise agreed the term F.A.S. vessel (which means “free alongside”) at a named port, even though used only in connection with the stated price, is a delivery term under which the seller must:

at his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer; and

obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading.

Unless otherwise agreed in any case falling within subsection (1)(a) or (c) or subsection (2) the buyer must seasonably give any needed instructions for making delivery, including when the term is F.A.S. or F.O.B. the loading berth of the vessel and in an appropriate case its name and sailing date. The seller may treat the failure of needed instructions as a failure of cooperation under this chapter (§ 47-2-311). He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment.

Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

Acts 1963, ch. 81, § 1 (2-319).

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

Cited: In re Production Steel, Inc., 54 B.R. 417, 1985 Bankr. LEXIS 5094 (Bankr. M.D. Tenn. 1985); Illinois C. G. Railroad v. State, 805 S.W.2d 746, 1991 Tenn. LEXIS 80 (Tenn. 1991).

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.

47-2-320. I.F. and C. & F. terms.

  1. The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named destination. The term C. & F. or C.F. means that the price so includes cost and freight to the named destination.
  2. Unless otherwise agreed and even though used only in connection with the stated price and destination, the term C.I.F. destination or its equivalent requires the seller at his own expense and risk to:
  1. put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the entire transportation to the named destination; and
  2. load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the freight has been paid or provided for; and
  3. obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at the port of shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by the bill of lading and providing for payment of loss to the order of the buyer or for the account of whom it may concern; but the seller may add to the price the amount of the premium for any such war risk insurance; and
  4. prepare an invoice of the goods and procure any other documents required to effect shipment or to comply with the contract; and
  5. forward and tender with commercial promptness all the documents in due form and with any endorsement necessary to perfect the buyer's rights.

Unless otherwise agreed the term C. & F. or its equivalent has the same effect and imposes upon the seller the same obligations and risks as a C.I.F. term except the obligation as to insurance.

Under the term C.I.F. or C. & F. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

Acts 1963, ch. 81, § 1 (2-320).

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

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.

47-2-321. I.F. or C. & F. — “Net landed weights” — “Payment on arrival” — Warranty of condition on arrival.

Under a contract containing a term C.I.F. or C. & F.:

  1. Where the price is based on or is to be adjusted according to “net landed weights,” “delivered weights,” “out turn” quantity or quality or the like, unless otherwise agreed the seller must reasonably estimate the price. The payment due on tender of the documents called for by the contract is the amount so estimated, but after final adjustment of the price a settlement must be made with commercial promptness.
  2. An agreement described in subsection (1) or any warranty of quality or condition of the goods on arrival places upon the seller the risk of ordinary deterioration, shrinkage and the like in transportation but has no effect on the place or time of identification to the contract for sale or delivery or on the passing of the risk of loss.
  3. Unless otherwise agreed where the contract provides for payment on or after arrival of the goods the seller must before payment allow such preliminary inspection as is feasible; but if the goods are lost, delivery of the documents and payment are due when the goods should have arrived.

Acts 1963, ch. 81, § 1 (2-321).

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

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.

47-2-322. Delivery “ex-ship.”

  1. Unless otherwise agreed a term for delivery of goods “ex-ship” (which means from the carrying vessel) or in equivalent language is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination where goods of the kind are usually discharged.
  2. Under such a term unless otherwise agreed:
  1. the seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the carrier under a duty to deliver the goods; and
  2. the risk of loss does not pass to the buyer until the goods leave the ship's tackle or are otherwise properly unloaded.

Acts 1963, ch. 81, § 1 (2-322).

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

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.

47-2-323. Form of bill of lading required in overseas shipment — “Overseas.”

  1. Where the contract contemplates overseas shipment and contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise agreed must obtain a negotiable bill of lading stating that the goods have been loaded on board or, in the case of a term C.I.F. or C. & F., received for shipment.
  2. Where in a case within subdivision (1) a tangible  bill of lading has been issued in a set of parts, unless otherwise agreed if the documents are not to be sent from abroad the buyer may demand tender of the full set; otherwise only one (1) part of the bill of lading need be tendered. Even if the agreement expressly requires a full set:
  1. due tender of a single part is acceptable within the provisions of this chapter on cure of improper delivery (§ 47-2-508(1)); and
  2. even though the full set is demanded, if the documents are sent from abroad the person tendering an incomplete set may nevertheless require payment upon furnishing an indemnity which the buyer in good faith deems adequate.

A shipment by water or by air or a contract contemplating such shipment is “overseas” insofar as by usage of trade or agreement it is subject to the commercial, financing or shipping practices characteristic of international deep water commerce.

Acts 1963, ch. 81, § 1 (2-323); Acts 2008, ch. 814, § 6.

Amendments. The 2008 amendment substituted “a tangible bill of lading” for “a bill of lading” in (2).

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

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

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.

47-2-324. “No arrival, no sale” term.

Under a term “no arrival, no sale” or terms of like meaning, unless otherwise agreed:

  1. the seller must properly ship conforming goods and if they arrive by any means he must tender them on arrival but he assumes no obligation that the goods will arrive unless he has caused the nonarrival; and
  2. where without fault of the seller the goods are in part lost or have so deteriorated as no longer to conform to the contract or arrive after the contract time, the buyer may proceed as if there had been casualty to identified goods (§ 47-2-613).

Acts 1963, ch. 81, § 1 (2-324).

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 23, 37.

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.

47-2-325. “Letter of credit” term — “Confirmed credit.”

  1. Failure of the buyer seasonably to furnish an agreed letter of credit is a breach of the contract for sale.
  2. The delivery to seller of a proper letter of credit suspends the buyer's obligation to pay. If the letter of credit is dishonored, the seller may on seasonable notification to the buyer require payment directly from him.
  3. Unless otherwise agreed the term “letter of credit” or “banker's credit” in a contract for sale means an irrevocable credit issued by a financing agency of good repute and, where the shipment is overseas, of good international repute. The term “confirmed credit” means that the credit must also carry the direct obligation of such an agency which does business in the seller's financial market.

Acts 1963, ch. 81, § 1 (2-325).

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.

47-2-326. Sale on approval and sale or return — Consignment sales and rights of creditors.

  1. Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is:
  1. a “sale on approval” if the goods are delivered primarily for use, and
  2. a “sale or return” if the goods are delivered primarily for resale.

Goods held on approval are not subject to the claims of the buyer's creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer's possession.

Any “or return” term of a contract for sale is to be treated as a separate contract for sale within the Statute of Frauds section of this chapter (§ 47-2-201) and as contradicting the sale aspect of the contract within the provisions of this chapter on parol or extrinsic evidence (§ 47-2-202).

Acts 1963, ch. 81, § 1 (2-326); 2000, ch. 846, § 6.

Cross-References. Creditor's rights, art consignments, § 47-25-1005.

Prior Tennessee Law: § 47-1219.

Textbooks. Tennessee Jurisprudence, 1 Tenn. Juris., Agency, § 13; 6 Tenn. Juris., Commercial Law, §§ 25, 98; 13 Tenn. Juris., Factors and Commission Merchants, §§ 5, 9.

Law Reviews.

The New Article 9: Its Impact on Tennessee Law (Part I), 67 Tenn. L. Rev. 125 (1999).

Cited: In re Phippens, 4 B.R. 155, 1980 Bankr. LEXIS 5223 (Bankr. M.D. Tenn. 1980); In re Kingsport Hardware, Inc., 40 B.R. 838, 1984 Bankr. LEXIS 5471 (Bankr. E.D. Tenn. 1984); Transouth Financial Corp. v. General Electric Capital Corp., 832 S.W.2d 568, 1992 Tenn. App. LEXIS 79 (Tenn. Ct. App. 1992).

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.

47-2-327. Special incidents of sale on approval and sale or return.

  1. Under a sale on approval unless otherwise agreed:
  1. although the goods are identified to the contract the risk of loss and the title do not pass to the buyer until acceptance; and
  2. use of the goods consistent with the purpose of trial is not acceptance but failure seasonably to notify the seller of election to return the goods is acceptance, and if the goods conform to the contract acceptance of any part is acceptance of the whole; and
  3. after due notification of election to return, the return is at the seller's risk and expense but a merchant buyer must follow any reasonable instructions.

Under a sale or return unless otherwise agreed:

the option to return extends to the whole or any commercial unit of the goods while in substantially their original condition, but must be exercised seasonably; and

the return is at the buyer's risk and expense.

Acts 1963, ch. 81, § 1 (2-327).

Prior Tennessee Law: § 47-1219.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 3; 13 Tenn. Juris., Factors and Commission Merchants, § 5.

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.

47-2-328. Sale by auction.

  1. In a sale by auction if goods are put up in lots each lot is the subject of a separate sale.
  2. A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.
  3. Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case a bidder may retract his bid until the auctioneer's announcement of completion of the sale, but a bidder's retraction does not revive any previous bid.
  4. If the auctioneer knowingly receives a bid on the seller's behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale. This subsection shall not apply to any bid at a forced sale.

Acts 1963, ch. 81, § 1 (2-328).

Prior Tennessee Law: § 47-1221.

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.

Part 4
Title, Creditors and Good Faith Purchasers

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).

NOTES TO DECISIONS

1. Delivery to Buyer.

Where dealer sold and delivered automobile on a conditional sales contract, and where purchaser filed for bankruptcy before dealer could apply for new certificate of title with notation as to the lien, the dealer had only an unperfected security interest, and the trustee's rights in the collateral were superior. In re Russell, 300 F. Supp. 6, 1969 U.S. Dist. LEXIS 9451 (E.D. Tenn. 1969).

2. Reservation of Security.

Parties to sale can agree on when title passes only to a degree; any retention or reservation of title in seller after delivery to buyer amounts to retention of security interest. In re Tom Woods Used Cars, Inc., 21 B.R. 560, 1982 Bankr. LEXIS 3811 (Bankr. E.D. Tenn. 1982).

Seller's retention of title certificate to car was not sufficient to create an enforceable security interest under this article. In re Tom Woods Used Cars, Inc., 21 B.R. 560, 1982 Bankr. LEXIS 3811 (Bankr. E.D. Tenn. 1982).

3. Intention of Parties.

The intention of the parties, and not the certificate of title, determined the ownership of the car. In re Crabtree, 39 B.R. 713, 1984 Bankr. LEXIS 6065 (Bankr. E.D. Tenn. 1984).

Notation on invoice was only an indication of the intent of seller to retain a security interest, which remained unperfected since seller failed to file a UCC-1 with the office of secretary of state of Tennessee. In re Microwave Products of America, Inc., 94 B.R. 967, 1989 Bankr. LEXIS 208 (Bankr. W.D. Tenn. 1989).

Facts that debtor was named as co-owner when the transfer of an aircraft to her former husband was recorded pursuant to the Federal Aviation Act, that she signed the note for the purchase price of the aircraft, and that the affidavits of the debtor and former husband that they never intended for the debtor to have an interest in the aircraft and that the debtor did not exercise control over it, raised genuine issues of material fact under Tennessee law regarding the debtor's initial ownership interest in the aircraft; therefore, Chapter 7 trustee was denied summary judgment on a claim for turnover of the aircraft in the former husband's possession. Johnson v. Tomlinson (In re Tomlinson), 347 B.R. 639, 2006 Bankr. LEXIS 1775 (Bankr. E.D. Tenn. 2006).

4. Passing of Title.

A purchaser with a voidable title may confer good title upon a good faith purchaser for value where the goods were procured through fraud punishable as larcenous under the criminal law. Jernigan v. Ham, 691 S.W.2d 553, 1984 Tenn. App. LEXIS 3348 (Tenn. Ct. App. 1984).

Where a buyer places a container on the premises of the seller for the purpose of receiving fungible goods, when the seller places such fungible goods in the container of the buyer, such goods have been “identified to the contract” and the buyer thereby receives title, or at least a “special interest” in the goods. Sadek v. Nashville Recycling Co., 751 S.W.2d 428, 1988 Tenn. App. LEXIS 185 (Tenn. Ct. App. 1988).

Seller divested itself of title in restaurant equipment at the time of executing the sales agreement, and could not recover for conversion of property because the title was in buyer. AHCI, Inc. v. Short, 878 S.W.2d 112, 1993 Tenn. App. LEXIS 719 (Tenn. Ct. App. 1993), rehearing denied, — S.W.2d —, 1994 Tenn. App. LEXIS 35 (Tenn. Ct. App. Jan. 24, 1994), appeal denied, AHCI v. Short, 1994 Tenn. LEXIS 159 (Tenn. June 6, 1994).

Pursuant to T.C.A. §§ 47-2-401 and 47-2-105, unless the parties otherwise explicitly agreed, title to the goods covered by the parties' agreement, which did not specifically address when title to the assets being sold would pass, passed when they were delivered to the debtor and, at most, all that creditor retained pending receipt of payment was a security interest. Pro Page Partners, LLC  v. Message Express Paging  Co. (In re Pro Page Partners), 270 B.R. 221, 2001 Bankr. LEXIS 1574 (Bankr. E.D. Tenn. 2001).

Payment upon delivery is not necessary in order to establish that a sale occurred; therefore, in a case involving a violation of a city ordinance prohibiting the sale of alcoholic beverages to a person under the age of 21, there was no error in the finding that the order of a beer by a confidential informant (CI) and the subsequent delivery of that beer by a waitress was a completed sale, even though the CI testified that she never had any intention of consuming or paying for the beer. The elements of a sale were the transfer or title or possession or both of tangible personal property for consideration, and the buyer's failure to pay allowed the seller to collect the price for the accepted goods. City of Athens v. Blair Strong Enters., LLC, — S.W.3d —, 2014 Tenn. App. LEXIS 334 (Tenn. Ct. App. June 10, 2014).

5. —Delivery to Buyer.

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).

Where a contract provided that the purchaser would pay a certain amount upon delivery of a guitar, the purchaser never acquired title to it under the Tennessee Uniform Commercial Code, even assuming that he verbally agreed to the guitar's continued display at a museum, as nothing in the contract indicated that delivery was to be made without physically moving the guitar. Nat'l Music Museum: America's Shrine to Music v. Johnson,  — FED App. —, 904 F.3d 598, 2018 U.S. App. LEXIS 26050 (8th Cir. Sept. 14, 2018).

6. —Transfer of Motor Vehicles.

Under suitable circumstances a transfer of ownership of a motor vehicle may occur without compliance with the requirements of the Motor Vehicle Title and Registration Law. Mercado v. Travelers Ins. Co., 59 Tenn. App. 741, 443 S.W.2d 819, 1969 Tenn. App. LEXIS 352 (Tenn. Ct. App. 1969).

Failure to comply with the certificate of title statute, § 55-3-126, did not prevent title to a motor vehicle from passing to the transferee since title to goods generally passes according to the agreement of the parties. In re Custom Caps, Inc., 1 B.R. 99, 1979 Bankr. LEXIS 844 (Bankr. E.D. Tenn. 1979).

Tennessee's certificate of title laws do not require that the transfer of an ownership interest in an automobile be accompanied by a transfer of the certificate of title. In re Omni Mechanical Contractors, Inc., 114 B.R. 518, 1990 Bankr. LEXIS 1023 (Bankr. E.D. Tenn. 1990).

Where a debtor agreed to buy and took possession of a car on February 7 under a contract, and the secured creditor purchased the contract from the dealer on March 12, the transfer of the security interest to the creditor was on account of an antecedent debt and was avoided in bankruptcy by the debtor's trustee under 11 U.S.C. § 547(b); under T.C.A. § 47-2-401(1), T.C.A. § 47-2-501(1)(a), and T.C.A. § 47-9-203(a), the debtor had rights in the collateral when she received possession of the car under the contract and delivery of the car to the debtor under the contract conferred upon the debtor a special property right. In re Jeans, 326 B.R. 722, 2005 Bankr. LEXIS 1254 (Bankr. W.D. Tenn. 2005).

7. 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).

Decisions Under Prior Law

1. Transfer of Title of Goods.

There had been no passage to the state of title to machines, manufactured for purpose of filling state's order, on date of cancellation of the order, where the manufacturer had done no act to mark them or set them aside as the state's property or as intended to fill its orders. 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).

Invoices sent to state agricultural department by manufacturer of machines, made to fill state's order, were not a sufficient appropriation of these particular machines to the state's executory contract therefor to effect a transfer of title. Agricultural commissioner's assent to such an appropriation is not to be implied from the delay in writing letter impliedly canceling order. 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).

2. —Intention to Transfer Title.

In a sale and delivery of ten bales of cotton on the receipt of checks for the price, the question whether the title passed is one of intention. Young v. Harris-Cortner Co., 152 Tenn. 15, 268 S.W. 125, 1924 Tenn. LEXIS 97, 54 A.L.R. 516 (1924), rehearing denied, 152 Tenn. 34, 268 S.W. 1120, 1924 Tenn. LEXIS 98, 54 A.L.R. 524 (1925).

3. —Examples of Transfer of Title.

A wholesaler at various times shipped goods to a retailer, the bills therefor being marked “consigned, our property until paid for.” The wholesaler knew that the retailer mingled the goods with the regular stock and sold them to customers, placed no restriction on such sales, and required no report of sales. No account of sales was kept and part of goods was paid for out of general proceeds. There was no title retained valid as against a later assignee for creditors. Mayer v. Catron, 48 S.W. 255, 1898 Tenn. Ch. App. LEXIS 55 (1898).

Where A sells to B 40 barrels of corn still in field, agreeing to gather and measure it and store until B wants it, B to pay for the gathering, title is not passed as against levying creditor of A when no part of the field was measured off or designated. Ford v. Measle, 56 S.W. 1036, 1900 Tenn. Ch. App. LEXIS 8 (1900).

Where judgment debtor entered into a written contract to exchange old tractor for new tractor but exchange was not final until approved by manufacturer by means of a “delivery authorization,” title did not pass to old tractor until execution of “delivery authorization,” hence sheriff who levied on old tractor prior to execution of “delivery authorization” was entitled to tractor. Ford Implement Co. v. Spence, 181 Tenn. 242, 181 S.W.2d 3, 1944 Tenn. LEXIS 366 (1944).

Where contract for sale of white phosphate rock provided that title would remain in seller until delivery by carrier in acceptable condition and such goods were delivered in barges at buyer's docks on Sunday, a nonwork day, with one of the barges in leaky condition and the barges sank before buyer could inspect the goods, title had not passed to buyer. Parish & Parish Mining Co. v. Serodino, Inc., 52 Tenn. App. 196, 372 S.W.2d 433, 1963 Tenn. App. LEXIS 96 (Tenn. Ct. App. 1963).

4. —Transfer of Title as Effected by Agreement as to Payment.

Where buyer of cotton gave worthless check therefor, transfer of title was not effected, payment in cash or equivalent being contemplated. Dillard & Coffin Co. v. Beley Cotton Co., 150 Tenn. 195, 263 S.W. 87, 1923 Tenn. LEXIS 74 (1924); Young v. Harris-Cortner Co., 152 Tenn. 15, 268 S.W. 125, 1924 Tenn. LEXIS 97, 54 A.L.R. 516 (1924), rehearing denied, 152 Tenn. 34, 268 S.W. 1120, 1924 Tenn. LEXIS 98, 54 A.L.R. 524 (1925).

Where vendee gave check for automobile under agreement that he would receive certificate of title when check was cashed, he was not thereby clothed with any indicia of title and fact that vendor parted with possession of automobile did not estop him from asserting title as against purchaser from vendee. Ohio Motors, Inc. v. Russell Willis, Inc., 193 Tenn. 524, 246 S.W.2d 962, 1952 Tenn. LEXIS 320 (1952).

Where sale of motor vehicle is made for cash, the payment of a check for the purchase price is a condition precedent in the intention of the parties to the passing of title to the purchaser. Edwards v. Central Motor Co., 38 Tenn. App. 577, 277 S.W.2d 413, 1954 Tenn. App. LEXIS 143 (Tenn. Ct. App. 1954), aff'd, 198 Tenn. 50, 277 S.W.2d 417, 1955 Tenn. LEXIS 343 (1955); Edwards v. Central Motor Co., 198 Tenn. 50, 277 S.W.2d 417, 1955 Tenn. LEXIS 343 (1955).

Title to cattle feeders, sold for cash on delivery, did not pass to bankrupt which received delivery but did not make payment; therefore, the feeders were subject to reclamation by the seller. In re Smithdale Industries, Inc., 219 F. Supp. 862, 1963 U.S. Dist. LEXIS 10512 (D. Tenn. 1963).

5. Intention not Involved.

Sales act not involved where seller clothed another with the indicia of apparent title making it possible to entrap an innocent person since the intention of the seller was not involved. Jackson v. Waller, 190 Tenn. 588, 230 S.W.2d 1013, 1950 Tenn. LEXIS 526 (1950); Gill v. Paschal, 35 Tenn. App. 458, 248 S.W.2d 325, 1951 Tenn. App. LEXIS 85 (1951).

6. Passing of Title.

Title to machine, though manufactured to fill state's order, did not pass to the state before cancellation of order, in absence of showing that machine was marked or set aside as the state's property. 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).

State official's assent to appropriation of machines to executory contract of purchase, by invoices sent to department of agriculture, not to be implied from delay of commissioner in writing letter impliedly canceling order. 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).

Rule 4 of § 19 of Uniform Sales Act (former § 47-1219) without application where seller was required under the contract to ship machines F.O.B. the point of manufacture, since in such a case “a different intention appears.” 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).

7. —Provision for Demonstration.

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 approval after reasonable demonstration; the title passes when the buyer signifies 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).

8. —Unascertained Property to Be Installed.

Under Rules 2, 4, and 5 of § 19 of Uniform Sales Act (former § 47-1219), where contract for sale of unascertained furnace required seller to install it in buyer's building, such furnace was not in deliverable state until installed, and title did not pass merely by delivery on the premises. The seller may recover in replevin against one who purchased the premises under foreclosure of trust deed thereon. Knoxville Tinware & Mfg. Co. v. Rogers, 158 Tenn. 126, 11 S.W.2d 874, 1928 Tenn. LEXIS 132 (1928).

9. —Delivery to Buyer.

The performance of the designated act of delivery does not necessarily effect a transfer of title or property. Knoxville Tinware & Mfg. Co. v. Rogers, 158 Tenn. 126, 11 S.W.2d 874, 1928 Tenn. LEXIS 132 (1928).

The fact that the seller left the assembled feeders on the buyer's premises without payment did not convert the cash sale into a credit transaction, where the buyer reassured the seller that payment of the purchase price would be forthcoming momentarily and, for its own convenience, delayed remittance for a few days. In re Smithdale Industries, Inc., 219 F. Supp. 862, 1963 U.S. Dist. LEXIS 10512 (D. Tenn. 1963).

Provision in contract that “title to the goods and risk of loss or damage shall remain in contractor until delivery in acceptable condition by the carrier at destination” meant that duty of carrier did not end until the goods were safely and properly delivered and accepted by someone authorized to do so. Parish & Parish Mining Co. v. Serodino, Inc., 52 Tenn. App. 196, 372 S.W.2d 433, 1963 Tenn. App. LEXIS 96 (Tenn. Ct. App. 1963).

10. —Delivery to Common Carrier.

A contract, for the sale of a cotton gin, passing title in delivery to the common carrier, warranting the gin if erected according to plan furnished, and binding the purchaser to make the erection, became a completed sale on delivery of the gin to the common carrier, and the erection thereof was the work of the purchaser. Sanford v. Keef, 140 Tenn. 368, 204 S.W. 1154, 1918 Tenn. LEXIS 50 (1918).

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).

11. —Future Goods or Crops.

A sale of future goods or crops is a sale of future goods, Rule 2 of § 19 of Uniform Sales Act (former § 42-1219) applied, and title did not pass until the goods were in a deliverable state. Dysart v. Hamilton, 11 Tenn. App. 43, — S.W.2d —, 1929 Tenn. App. LEXIS 73 (Tenn. Ct. App. 1929).

12. —Transfer of Motor Vehicles.

Buyer of truck became owner as of day of transfer despite the fact that certificate of title was not assigned until some two months later, the statutes dealing with issuance and transfer of motor vehicle certificates of title being directory and not mandatory. Hayes v. Hartford Acci. & Indem. Co., 57 Tenn. App. 254, 417 S.W.2d 804, 1967 Tenn. App. LEXIS 231 (Tenn. Ct. App. 1967).

Tennessee's certificate of title laws do not require the transfer of an ownership interest in an automobile be accompanied by a transfer of the certificate of title. In re Omni Mechanical Contractors, Inc., 114 B.R. 518, 1990 Bankr. LEXIS 1023 (Bankr. E.D. Tenn. 1990).

13. Retention of Title.

A contract for the sale of machinery to be manufactured and delivered to the purchaser is valid, although it contains a condition that title shall not pass to the purchaser until the purchase price has been fully paid. McLean v. McLean Stone Co., 19 Tenn. App. 249, 84 S.W.2d 1046, 1935 Tenn. App. LEXIS 35 (Tenn. Ct. App. 1935).

14. —Security to Be Given.

Order of sale of goods providing that if extended payments were to be made security should be given and approved by the seller at or before shipment, and goods shipped to the order of the seller, the title did not pass until security was accepted. Klimes v. Jones, 7 Tenn. App. 583, — S.W.2d —, 1928 Tenn. App. LEXIS 82 (Tenn. Ct. App. 1928).

15. —Purchases from Vendee.

Where vendee gave check for automobile under agreement that he would receive certificate of title when check was cashed, he was not thereby clothed with any indicia of title and fact that vendor parted with possession of automobile did not estop him asserting title as against purchaser from vendee. Ohio Motors, Inc. v. Russell Willis, Inc., 193 Tenn. 524, 246 S.W.2d 962, 1952 Tenn. LEXIS 320 (1952).

16. —Certainty of Identification.

Description of the property is sufficient where character and capacity of machinery involved is set forth, and where property was installed at place designated and had not been removed. McLean v. McLean Stone Co., 19 Tenn. App. 249, 84 S.W.2d 1046, 1935 Tenn. App. LEXIS 35 (Tenn. Ct. App. 1935).

The insertion of serial numbers in only the buyer's copy of a contract, if made before the contract became effective, does not invalidate the same. McLean v. McLean Stone Co., 19 Tenn. App. 249, 84 S.W.2d 1046, 1935 Tenn. App. LEXIS 35 (Tenn. Ct. App. 1935).

17. —Removal of Fixtures.

Where there is in existence a vendor's lien upon fixtures and lienor seeks to hold such property that has been conditionally sold, facts as to whether the security would be impaired, and the time when lien became fixed should be considered in deciding question as to removability. McLean v. McLean Stone Co., 19 Tenn. App. 249, 84 S.W.2d 1046, 1935 Tenn. App. LEXIS 35 (Tenn. Ct. App. 1935).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  See generally, Sections 17, 18, 19 and 20, Uniform Sales Act.

Purposes:

To make it clear that:

1.  This Article [Chapter] deals with the issues between seller and buyer in terms of step by step performance or non-performance under the contract for sale and not in terms of whether or not “title” to the goods has passed. That the rules of this section in no way alter the rights of either the buyer, seller or third parties declared elsewhere in the Article [Chapter] is made clear by the preamble of this section. This section, however, in no way intends to indicate which line of interpretation should be followed in cases where the applicability of “public” regulation depends upon a “sale” or upon location of “title” without further definition. The basic policy of this Article [Chapter] that known purpose and reason should govern interpretation cannot extend beyond the scope of its own provisions. It is therefore necessary to state what a “sale” is and when title passes under this Article [Chapter] in case the courts deem any public regulation to incorporate the defined term of the “private” law.

2.  “Future” goods cannot be the subject of a present sale. Before title can pass the goods must be identified in the manner set forth in Section 2-501. The parties, however, have full liberty to arrange by specific terms for the passing of title to goods which are existing.

3.  The “special property” of the buyer in goods identified to the contract is excluded from the definition of “security interest”; its incidents are defined in provisions of this Article [Chapter] such as those on the rights of the seller's creditors, on good faith purchase, on the buyer's right to goods on the seller's insolvency, and on the buyer's right to specific performance or replevin.

4.  The factual situations in subsections (2) and (3) upon which passage of title turn actually base the test upon the time when the seller has finally committed himself in regard to specific goods. Thus in a “shipment” contract he commits himself by the act of making the shipment. If shipment is not contemplated subsection (3) turns on the seller's final commitment, i.e., the delivery of documents or the making of the contract.

Cross-References:

Point 2: Sections 2-102, 2-501 and 2-502.

Point 3: Sections 1-201, 2-402, 2-403, 2-502 and 2-716.

Definitional Cross-References:

“Agreement”. Section 1-201.

“Bill of lading”. Section 1-201.

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Delivery”. Section 1-201.

“Document of title”. Section 1-201.

“Good faith”. Section 2-103.

“Goods”. Section 2-105.

“Party”. Section 1-201.

“Purchaser”. Section 1-201.

“Receipt” of goods. Section 2-103.

“Remedy”. Section 1-201.

“Rights”. Section 1-201.

“Sale”. Section 2-106.

“Security interest”. Section 1-201.

“Seller”. Section 2-103.

“Send”. Section 1-201.

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).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Presumptions on Seller's Retention of Possession.

In the sale and purchase of property for a fair and adequate consideration, if the object of the purchaser is to let the property remain in the hands of the bargainor, this would not constitute the sale fraudulent. The rule is, that, if the possession remains with the seller, after an absolute sale, it is prima facie, fraudulent, and the onus of proof is upon the purchaser to show that the transaction was fair and bona fide. Grubbs v. Greer, 45 Tenn. 160, 1867 Tenn. LEXIS 111 (1867).

Retention of personalty sold after agreement for sale is complete merely raises presumption of fraud which may be rebutted and which is for determination of the jury. S.B. Spurlock & Co. v. Gill, 3 Tenn. Cas. (Shannon) 43 (1878).

2. Burden of Proof.

A seller's retention of personal property after a sale is prima facie evidence of fraud and puts the burden on the buyer of proving the transaction was fair and bona fide. Hewgley v. General Motors Acceptance Corp., 39 Tenn. App. 553, 286 S.W.2d 355, 1955 Tenn. App. LEXIS 88 (Tenn. Ct. App. 1955).

3. Title in Third Person.

A conveyance, which places the legal title in a third person, yet leaves the property in the possession and control of the debtor with power to dispose and sell, is lacking in essential elements and void; it shall be bona fide and contain no reservation or benefit to the debtor, as against the rights of his creditors. Tennessee Nat'l Bank v. Ebbert & Co., 56 Tenn. 153, 1872 Tenn. LEXIS 119 (1872).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Subsection (2) — Section 26, Uniform Sales Act; Subsections (1) and (3) — none.

Changes:  Rephrased.

Purposes of Changes and New Matter:

To avoid confusion on ordinary issues between current sellers and buyers and issues in the field of preference and hindrance by making it clear that:

1.  Local law or questions of hindrance of creditors by the seller's retention of possession of the goods are outside the scope of this Article [Chapter], but retention of possession in the current course of trade is legitimate. Transactions which fall within the law's policy against improper preferences are reserved from the protection of this Article [Chapter].

2.  The retention of possession of the goods by a merchant seller for a commercially reasonable time after a sale or identification in current course is exempted from attack as fraudulent. Similarly, the provisions of subsection (3) have no application to identification or delivery made in the current course of trade, as measured against general commercial understanding of what a “current” transaction is.

Definitional Cross-References:

“Contract for sale”. Section 2-106.

“Creditor”. Section 1-201.

“Good faith”. Section 2-103.

“Goods”. Section 2-105.

“Merchant”. Section 2-104.

“Money”. Section 1-201.

“Reasonable time”. Section 1-204.

“Rights”. Section 1-201.

“Sale”. Section 2-106.

“Seller”. Section 2-103.

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).

NOTES TO DECISIONS

1. Construction with Other Statutes.

Section 47-9-307 limits the effect of this section to entrusters who have article 9 security interests in the entrusted goods. In re Tom Woods Used Cars, Inc., 21 B.R. 560, 1982 Bankr. LEXIS 3811 (Bankr. E.D. Tenn. 1982).

Whatever understandings or agreements car dealers had as to when title to “entrusted” cars passed to debtor, failure to have written agreements deprived them of security interests under article 9 of the Uniform Commercial Code, thereby making this section control to exclusion of § 47-9-307; and under this section, debtor had ability to transfer all of dealers' rights in cars to buyers in ordinary course of business. In re Tom Woods Used Cars, Inc., 21 B.R. 560, 1982 Bankr. LEXIS 3811 (Bankr. E.D. Tenn. 1982).

Subsection (2) is not limited by § 47-9-307. In re Woods, 25 B.R. 924, 1982 Bankr. LEXIS 5219 (Bankr. E.D. Tenn. 1982).

2. Application.

This section has no relevance to the claim of a supplier of materials to a highway contractor for payment under the contractor's bond. Inryco, Inc. v. Eatherly Constr. Co., 793 F.2d 767, 1986 U.S. App. LEXIS 26340 (6th Cir. Tenn. 1986).

Circuit court properly awarded a trailer to the original owner because he held the certificate of title, the record contained no evidence to demonstrate that the person who sold the trailer to the buyer was a merchant who dealt in trailers of the kind at issue, the record suggested that the seller's sale of the scrap trailer to the buyer was an isolated casual sale, and the buyer was not entitled to the protection of the entrustment statute, regardless of whether he purchased the trailer in good faith or otherwise qualified as a bona fide purchaser. Duffy v. Elam, — S.W.3d —, 2016 Tenn. App. LEXIS 609 (Tenn. Ct. App. Aug. 24, 2016).

3. Voidable Title.

A buyer of a truck, having been given a bill of sale and possession, had title, albeit one that was voidable because the check with which he tendered payment was dishonored, and as such, he could therefore transfer good title to a good faith purchaser for value. Graves Motors, Inc. v. Docar Sales, Inc., 414 F. Supp. 717, 1976 U.S. Dist. LEXIS 16238 (E.D. La. 1976).

A person who buys goods in exchange for a check which is later dishonored only obtains voidable title, but has power to pass good title to a good faith purchaser for value. Liles Bros. & Son v. Wright, 638 S.W.2d 383, 1982 Tenn. LEXIS 343 (Tenn. 1982).

This section repudiates the technical cash sale doctrine, and makes it clear that the delivery to a purchaser gives him voidable title to the goods, even though there was an express or implied agreement that the title should not pass until the transferor received the price in cash. Jernigan v. Ham, 691 S.W.2d 553, 1984 Tenn. App. LEXIS 3348 (Tenn. Ct. App. 1984).

4. Good Faith Purchaser for Value.

A subsequent purchaser of a truck, given in settlement of a debt, who knew that the seller was sophisticated with regards to the value of automotive equipment, that the seller was in financial difficulty since the purchaser had previously received three nonsufficient funds checks from the seller, that the value of the truck far exceeded the amount of the outstanding debt and who allowed the seller to retain possession of the truck did not make a “good faith” purchase and thus did not have good title as against the party from whom the seller had purchased the truck and to whom the seller had given a bad check. Graves Motors, Inc. v. Docar Sales, Inc., 414 F. Supp. 717, 1976 U.S. Dist. LEXIS 16238 (E.D. La. 1976).

Storage facility had power to dispose of storage unit contents, but that power did not endow it with even voidable title under the circumstances presented; therefore, the facility could not have transferred any kind of ownership interest to the finder. Urquhart v. State, — S.W.3d —, 65 U.C.C. Rep. Serv. 2d (Callaghan) 747, 2008 Tenn. App. LEXIS 280 (Tenn. Ct. App. May 9, 2008).

5. —Consignee.

Where plaintiff characterized the transfer of possession to consignee as a consignment, i.e., a voluntary relinquishment of possession to her, consignee was a “purchaser” as defined in § 47-1-201. As such, she was empowered by that transaction to pass title to seller who in turn passed title to defendant, a good faith purchaser for value who had no actual knowledge or reason to believe that seller was not the true owner of the rugs, and who therefore obtained good title to the property. Alsafi Oriental Rugs v. American Loan Co., 864 S.W.2d 41, 1993 Tenn. App. LEXIS 348 (Tenn. Ct. App. 1993).

Failure of an attorney to file a financing statement for consignor did not cause the consignor's damages because, even if the filing was made, the consignee did not have a cause of action against third parties who bought consigned items from the consignee in the ordinary course of business. Fournier v. Tichenor, 944 S.W.2d 398, 1996 Tenn. App. LEXIS 764 (Tenn. Ct. App. 1996).

6. Entrusting.

All elements of the “entrusting statutes” were met where defendant did not have knowledge of plaintiff's source of the Cadillac which plaintiff, in the ordinary course of business, sold to defendant. Couch v. Cockroft, 490 S.W.2d 713, 1972 Tenn. App. LEXIS 317 (Tenn. Ct. App. 1972).

Subsection (3) includes the situation in which the buyer does not take delivery of the goods but suffers the seller to retain possession after a sale. International Harvester Credit Corp. v. Hill, 496 F. Supp. 329, 1979 U.S. Dist. LEXIS 9181 (M.D. Tenn. 1979).

Although entrusting is defined to include any delivery, the variable meaning of delivery must be taken into account in determining who has possession of goods. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

Seller did not entrust goods to buyer where the goods were sent to the carrier's local agent with the purchase price due C.O.D. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

Truck buyer acquired title because buyer was a bona fide purchaser in the ordinary course of business, and under T.C.A. § 47-2-403 claimant's entrustment of the truck to merchant provided merchant the authority to transfer title to buyer, as buyer purchased the truck from merchant without knowledge that the transaction violated claimant's rights; although actions of merchant appeared to rise to the level of larceny under criminal law, this fact did not negate the power that was conferred on him by claimant's act of voluntarily entrusting merchant with the truck. Best Signs, Inc. v. King, 358 S.W.3d 226, 2009 Tenn. App. LEXIS 6 (Tenn. Ct. App. Jan. 12, 2009).

7. Notice of Delivery.

Acquiescence must require that the secured party have notice or knowledge of the debtor's delivery of the collateral to the dealer. In re Woods, 25 B.R. 924, 1982 Bankr. LEXIS 5219 (Bankr. E.D. Tenn. 1982).

8. Fraud or Criminal Activity.

A purchaser with a voidable title may confer good title upon a good faith purchaser for value where the goods were procured through fraud punishable as larcenous under the criminal law. Jernigan v. Ham, 691 S.W.2d 553, 1984 Tenn. App. LEXIS 3348 (Tenn. Ct. App. 1984).

A thief who wrongfully takes goods is not a purchaser, but a swindler who fraudulently induces the victim to voluntarily deliver them is a purchaser. Jernigan v. Ham, 691 S.W.2d 553, 1984 Tenn. App. LEXIS 3348 (Tenn. Ct. App. 1984).

Larceny by trick does not fall into the category of ordinary theft. Jernigan v. Ham, 691 S.W.2d 553, 1984 Tenn. App. LEXIS 3348 (Tenn. Ct. App. 1984).

Decisions Under Prior Law

1. Seller's Rights to Stoppage in Transitu.

Delivery of goods to a common carrier, to be transported to the buyer, leaves them subject to seller's rights of stoppage in transitu; but this right is gone if other bona fide rights intervene, as if the buyer sells the goods, or they are attached by a creditor. Boyd v. Mosely, 32 Tenn. 661, 1853 Tenn. LEXIS 104 (1853).

Where at the buyer's request, goods were shipped in buyer's name as consignor to A and the buyer failed, the seller, in taking the bill of lading in the name of the buyer, had lost dominion over them, and consequently the right of stoppage in transit. Treadwell v. Aydlett, Robinson & Co., 56 Tenn. 388, 1872 Tenn. LEXIS 151 (1872).

2. Seller's Rights Against Transferee's of Vendee.

A bona fide purchaser of personal property from a fraudulent vendee takes a good title, which is superior to the right of a judgment creditor of the vendor whose execution although tested before, is not levied until after the purchase. Williams v. Lowe, 23 Tenn. 62, 1843 Tenn. LEXIS 16 (1843).

One claiming to be but not entitled to goods as buyer but who wrongfully warehouses the goods, endorsing nonnegotiable warehouse clearance receipt to a bank, confers no title to transferee. Dillard & Coffin Co. v. Beley Cotton Co., 150 Tenn. 195, 263 S.W. 87, 1923 Tenn. LEXIS 74 (1924).

Where vendee gave check for automobile under agreement that he would receive certificate of title when check was cashed, he was not thereby clothed with any indicia of title and fact that vendor parted with possession of automobile did not estop him from asserting title as against purchaser from vendee. Ohio Motors, Inc. v. Russell Willis, Inc., 193 Tenn. 524, 246 S.W.2d 962, 1952 Tenn. LEXIS 320 (1952).

Where sale of motor vehicle is made for cash, the payment of a check for the purchase price is a condition precedent in the intention of the parties to the passing of title to the purchaser and when check was not paid original seller could recover vehicle from buyer's vendee where buyer's vendee did not rely on bill of sale given by original seller. Edwards v. Central Motor Co., 38 Tenn. App. 577, 277 S.W.2d 413, 1954 Tenn. App. LEXIS 143 (Tenn. Ct. App. 1954), aff'd, 198 Tenn. 50, 277 S.W.2d 417, 1955 Tenn. LEXIS 343 (1955); Edwards v. Central Motor Co., 198 Tenn. 50, 277 S.W.2d 417, 1955 Tenn. LEXIS 343 (1955).

Purchaser of motor vehicle at auction was good faith purchaser for value without notice and not negligent where he got a bill of sale from his vendor who also gave him a bill of sale from vendor's vendor obtained by dishonored check where original vendor obtained car from resident of nontitle certificate state, although final purchaser received no title certificate until later, directly from the state on showing the bills of sale and therefore original seller could not obtain repossession of vehicle. Hunter v. Moore, 38 Tenn. App. 533, 276 S.W.2d 754, 1954 Tenn. App. LEXIS 139 (Tenn. Ct. App. 1954).

3. Burden of Proof.

Where goods were fraudulently purchased by company in failing condition, and seller of goods brought replevin for recovery of goods against bank to which warehouse receipt had been transferred, burden of proof was on bank to show that it was a bona fide purchaser, whether the receipt for the goods held by it was a bill of lading or a warehouse receipt. National Bank of Commerce v. Chatfield, Woods & Co., 118 Tenn. 481, 101 S.W. 765, 1907 Tenn. LEXIS 58, 10 L.R.A. (n.s.) 801 (1907).

4. Market Overt.

Market overt does not obtain in this state. Parham v. Riley, 44 Tenn. 5, 1867 Tenn. LEXIS 5 (1867).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Sections 20(4), 23, 24, 25, Uniform Sales Act; Section 9, especially 9(2), Uniform Trust Receipts Act; Section 9, Uniform Conditional Sales Act.

Changes:  Consolidated and rewritten.

Purposes of Changes:

To gather together a series of prior uniform statutory provisions and the case-law thereunder and to state a unified and simplified policy on good faith purchase of goods.

1.  The basic policy of our law allowing transfer of such title as the transferor has is generally continued and expanded under subsection (1). In this respect the provisions of the section are applicable to a person taking by any form of “purchase” as defined by this Act. Moreover the policy of this Act expressly providing for the application of supplementary general principles of law to sales transactions wherever appropriate joins with the present section to continue unimpaired all rights acquired under the law of agency or of apparent agency or ownership or other estoppel, whether based on statutory provisions or on case law principles. The section also leaves unimpaired the powers given to selling factors under the earlier Factors Acts. In addition subsection (1) provides specifically for the protection of the good faith purchaser for value in a number of specific situations which have been troublesome under prior law.

On the other hand, the contract of purchase is of course limited by its own terms as in a case of pledge for a limited amount or of sale of a fractional interest in goods.

2.  The many particular situations in which a buyer in ordinary course of business from a dealer has been protected against reservation of property or other hidden interest are gathered by subsections (2) — (4) into a single principle protecting persons who buy in ordinary course out of inventory. Consignors have no reason to complain, nor have lenders who hold a security interest in the inventory, since the very purpose of goods in inventory is to be turned into cash by sale.

The principle is extended in subsection (3) to fit with the abolition of the old law of “cash sale” by subsection (1)(c). It is also freed from any technicalities depending on the extended law of larceny; such extension of the concept of theft to include trick, particular types of fraud, and the like is for the purpose of helping conviction of the offender; it has no proper application to the longstanding policy of civil protection of buyers from persons guilty of such trick or fraud. Finally, the policy is extended, in the interest of simplicity and sense, to any entrusting by a bailor; this is in consonance with the explicit provisions of Section 7-205 on the powers of a warehouseman who is also in the business of buying and selling fungible goods of the kind he warehouses. As to entrusting by a secured party, subsection (2) is limited by the more specific provisions of Section 9-307(1), which deny protection to a person buying farm products from a person engaged in farming operations.

3.  The definition of “buyer in ordinary course of business” (Section 1-201) is effective here and preserves the essence of the healthy limitations engrafted by the case-law on the older statutes. The older loose concept of good faith and wide definition of value combined to create apparent good faith purchasers in many situations in which the result outraged common sense; the court's solution was to protect the original title especially by use of “cash sale” or of over-technical construction of the enabling clauses of the statutes. But such rulings then turned into limitations on the proper protection of buyers in the ordinary market. Section 1-201(9) cuts down the category of buyer in ordinary course in such fashion as to take care of the results of the cases, but with no price either in confusion or in injustice to proper dealings in the normal market.

4.  Except as provided in subsection (1), the rights of purchasers other than buyers in ordinary course are left to the Articles [Chapters] on Secured Transactions, Documents of Title, and Bulk Sales.

Cross-References:

Point 1: Sections 1-103 and 1-201.

Point 2: Sections 1-201, 2-402, 7-205 and 9-307(1).

Points 3 and 4: Sections 1-102, 1-201, 2-104, 2-707 and Articles [Chapters] 6, 7 and 9.

Definitional Cross-References:

“Buyer in ordinary course of business”. Section 1-201.

“Good faith”. Sections 1-201 and 2-103.

“Goods”. Section 2-105.

“Person”. Section 1-201.

“Purchaser”. Section 1-201.

“Signed”. Section 1-201.

“Term”. Section 1-201.

“Value”. Section 1-201.

Part 5
Performance

47-2-501. Insurable interest in goods — Manner of identification of goods.

  1. The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are nonconforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs:
  1. when the contract is made if it is for the sale of goods already existing and identified;
  2. if the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers;
  3. when the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve (12) months after contracting or for the sale of crops to be harvested within twelve (12) months or the next normal harvest season after contracting whichever is longer.

The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified.

Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.

Acts 1963, ch. 81, § 1 (2-501).

Prior Tennessee Law: § 47-1217.

Textbooks. Tennessee Jurisprudence, 4 Tenn. Juris., Bankruptcy, § 6; 6 Tenn. Juris., Commercial Law, §§ 17, 18, 33.

Law Reviews.

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

Cited: In re Amex Trading Co., 37 B.R. 793, 1984 Bankr. LEXIS 6230 (Bankr. W.D. Tenn. 1984); In re Production Steel, Inc., 54 B.R. 417, 1985 Bankr. LEXIS 5094 (Bankr. M.D. Tenn. 1985); In re McFarland, 112 B.R. 906, 1990 Bankr. LEXIS 635 (Bankr. E.D. Tenn. 1990).

NOTES TO DECISIONS

1. Delivery to Buyer.

Where a debtor agreed to buy and took possession of a car on February 7 under a contract, and the secured creditor purchased the contract from the dealer on March 12, the transfer of the security interest to the creditor was on account of an antecedent debt and was avoided in bankruptcy by the debtor's trustee under 11 U.S.C. § 547(b); under T.C.A. § 47-2-401(1), T.C.A. § 47-2-501(1)(a), and T.C.A. § 47-9-203(a), the debtor had rights in the collateral when she received possession of the car under the contract and delivery of the car to the debtor under the contract conferred upon the debtor a special property right. In re Jeans, 326 B.R. 722, 2005 Bankr. LEXIS 1254 (Bankr. W.D. Tenn. 2005).

Decisions Under Prior Law

1. Transfer of Title to Goods.

There had been no passage to the state of title to machines, manufactured for purpose of filling state's order, on date of cancellation of the order, where the manufacturer had done no act to mark them or set them aside as the state's property or as intended to fill its orders. 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).

Where a buyer places a container on the premises of the seller for the purpose of receiving fungible goods, when the seller places such fungible goods in the container of the buyer, such goods have been “identified to the contract” and the buyer thereby receives title, or at least a “special interest” in the goods. Sadek v. Nashville Recycling Co., 751 S.W.2d 428, 1988 Tenn. App. LEXIS 185 (Tenn. Ct. App. 1988).

2. —Importance of Intent to Transfer.

In a sale and delivery of ten bales of cotton on the receipt of checks for the price, the question whether the title passed is one of intention. Young v. Harris-Cortner Co., 152 Tenn. 15, 268 S.W. 125, 1924 Tenn. LEXIS 97, 54 A.L.R. 516 (1924), rehearing denied, 152 Tenn. 34, 268 S.W. 1120, 1924 Tenn. LEXIS 98, 54 A.L.R. 524 (1925).

3. —Examples of Transfer of Title.

A wholesaler at various times shipped goods to a retailer, the bills therefor being marked “consigned, our property until paid for.” The wholesaler knew that the retailer mingled the goods with the regular stock and sold them to customers, placed no restriction on such sales, and required no report of sales. No account of sales was kept and part of goods was paid for out of general proceeds. There was no title retained valid as against a later assignee for creditors. Mayer v. Catron, 48 S.W. 255, 1898 Tenn. Ch. App. LEXIS 55 (1898).

Where A sells to B 40 barrels of corn still in field, agreeing to gather and measure it and store until B wants it, B to pay for the gathering, title is not passed as against levying creditor of A when no part of the field was measured off or designated. Ford v. Measle, 56 S.W. 1036, 1900 Tenn. Ch. App. LEXIS 8 (1900).

Where judgment debtor entered into a written contract to exchange old tractor for new tractor but exchange was not final until approved by manufacturer by means of a “delivery authorization,” title did not pass to old tractor until execution of “delivery authorization,” hence sheriff who levied on old tractor prior to execution of “delivery authorization” was entitled to tractor. Ford Implement Co. v. Spence, 181 Tenn. 242, 181 S.W.2d 3, 1944 Tenn. LEXIS 366 (1944).

4. —Effect of Agreement to Pay.

Where vendee gave check for automobile under agreement that he would receive certificate of title when check was cashed, he was not thereby clothed with any indicia of title and fact that vendor parted with possession of automobile did not estop him from asserting title as against purchaser from vendee. Ohio Motors, Inc. v. Russell Willis, Inc., 193 Tenn. 524, 246 S.W.2d 962, 1952 Tenn. LEXIS 320 (1952).

5. —Intention Not Involved.

Sales act not involved where seller clothed another with the indicia of apparent title making it possible to entrap an innocent person since the intention of the seller was not involved. Jackson v. Waller, 190 Tenn. 588, 230 S.W.2d 1013, 1950 Tenn. LEXIS 526 (1950); Gill v. Paschal, 35 Tenn. App. 458, 248 S.W.2d 325, 1951 Tenn. App. LEXIS 85 (1951).

6. Passing of Title — Application of Rules.

Title to machine, though manufactured to fill state's order, did not pass to the state before cancellation of order, in absence of showing that machine was marked or set aside as the state's property. 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).

State official's assent to appropriation of machines to executory contract of purchase, by invoices sent to department of agriculture, not to be implied from delay of commissioner in writing letter impliedly canceling order. 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).

Rule 4 of § 19 of Uniform Sales Act (former § 47-1219) was without application where seller was required under the contract to ship machines F.O.B. the point of manufacture, since in such a case “a different intention appears.” 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).

7. —Provision for Demonstration.

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 approval after reasonable demonstration; the title passed when the buyer signified approval to the seller or failed in the time fixed, or if no time had 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).

8. —Unascertained Property to Be Installed.

Under Rules 2, 4, and 5 of § 19 of the Uniform Sales Act (former § 47-1219), where contract for sale of unascertained furnace required seller to install it in buyer's building, such furnace was not in deliverable state until installed, and title did not pass merely by delivery on the premises. The seller may recover in replevin against one who purchased the premises under foreclosure of trust deed thereon. Knoxville Tinware & Mfg. Co. v. Rogers, 158 Tenn. 126, 11 S.W.2d 874, 1928 Tenn. LEXIS 132 (1928).

9. —Delivery to Buyer.

The performance of the designated act of delivery does not necessarily effect a transfer of title or property. Knoxville Tinware & Mfg. Co. v. Rogers, 158 Tenn. 126, 11 S.W.2d 874, 1928 Tenn. LEXIS 132 (1928).

10. —Delivery to Common Carrier.

A contract, for the sale of a cotton gin, passing title in delivery to the common carrier, warranting the gin if erected according to plan furnished, and binding the purchaser to make the erection, became a completed sale on delivery of the gin to the common carrier, and the erection thereof was the work of the purchaser. Sanford v. Keef, 140 Tenn. 368, 204 S.W. 1154, 1918 Tenn. LEXIS 50 (1918).

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).

11. —Future Goods or Crops.

A sale of future goods or crops is a sale of future goods and title does not pass until the goods are in a deliverable state. Dysart v. Hamilton, 11 Tenn. App. 43, — S.W.2d —, 1929 Tenn. App. LEXIS 73 (Tenn. Ct. App. 1929).

12. Rights Under Purchase Order.

Where debtor held possession of car pursuant to a purchase order requiring debtor to obtain financing, and debtor filed Chapter 13 before obtaining financing, debtor's rights under the purchase order were subject to the automatic stay. Skinner v. Cumberland Auto Ctr. (In re Skinner), 238 B.R. 120, 1999 Bankr. LEXIS 1149 (Bankr. M.D. Tenn. 1999).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  See Sections 17 and 19, Uniform Sales Act.

Purposes:

1.  The present section deals with the manner of identifying goods to the contract so that an insurable interest in the buyer and the rights set forth in the next section will accrue. Generally speaking, identification may be made in any manner “explicitly agreed to” by the parties. The rules of paragraphs (a), (b) and (c) apply only in the absence of such “explicit agreement”.

2.  In the ordinary case identification of particular existing goods as goods to which the contract refers is unambiguous and may occur in one of many ways. It is possible, however, for the identification to be tentative or contingent. In view of the limited effect given to identification by this Article [Chapter], the general policy is to resolve all doubts in favor of identification.

3.  The provision of this section as to “explicit agreement” clarifies the present confusion in the law of sales which has arisen from the fact that under prior uniform legislation all rules of presumption with reference to the passing of title or to appropriation (which in turn depended upon identification) were regarded as subject to the contrary intention of the parties or of the party appropriating. Such uncertainty is reduced to a minimum under this section by requiring “explicit agreement” of the parties before the rules of paragraphs (a), (b) and (c) are displaced — as they would be by a term giving the buyer power to select the goods. An “explicit” agreement, however, need not necessarily be found in the terms used in the particular transaction. Thus, where a usage of the trade has previously been made explicit by reduction to a standard set of “rules and regulations” currently incorporated by reference into the contracts of the parties, a relevant provision of those “rules and regulations” is “explicit” within the meaning of this section.

4.  In view of the limited function of identification there is no requirement in this section that the goods be in deliverable state or that all of the seller's duties with respect to the processing of the goods be completed in order that identification occur. For example, despite identification the risk of loss remains on the seller under the risk of loss provisions until completion of his duties as to the goods and all of his remedies remain dependent upon his not defaulting under the contract.

5.  Undivided shares in an identified fungible bulk, such as grain in an elevator or oil in a storage tank, can be sold. The mere making of the contract with reference to an undivided share in an identified fungible bulk is enough under subsection (a) to effect an identification if there is no explicit agreement otherwise. The seller's duty, however, to segregate and deliver according to the contract is not affected by such an identification but is controlled by other provisions of this Article [Chapter].

6.  Identification of crops under paragraph (c) is made upon planting only if they are to be harvested within the year or within the next normal harvest season. The phrase “next normal harvest season” fairly includes nursery stock raised for normally quick “harvest,” but plainly excludes a “timber” crop to which the concept of a harvest “season” is inapplicable.

Paragraph (c) is also applicable to a crop of wool or the young of animals to be born within twelve months after contracting. The produce of a lumbering, mining or fishing operation, though seasonal, is not within the concept of “growing”. Identification under a contract for all or part of the output of such an operation can be effected early in the operation.

Cross-References:

Point 1: Section 2-502.

Point 4: Sections 2-509, 2-510 and 2-703.

Point 5: Sections 2-105, 2-308, 2-503 and 2-509.

Point 6: Sections 2-105(1), 2-107(1) and 2-402.

Definitional Cross-References:

“Agreement”. Section 1-201.

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Future goods”. Section 2-105.

“Goods”. Section 2-105.

“Notification”. Section 1-201.

“Party”. Section 1-201.

“Sale”. Section 2-106.

“Security interest”. Section 1-201.

“Seller”. Section 2-103.

47-2-502. Buyer's right to goods on seller's insolvency.

  1. Subject to subsections (2) and (3) and even though the goods have not been shipped, a buyer who has paid a part or all of the price of goods in which the buyer has a special property under the provisions of the immediately preceding section may on making and keeping good a tender of any unpaid portion of their price recover them from the seller if:
  1. in the case of goods bought for personal, family, or household purposes, the seller repudiates or fails to deliver as required by the contract; or
  2. in all cases, the seller becomes insolvent within ten (10) days after receipt of the first installment on their price.

The buyer's right to recover the goods under subsection (1)(a) vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver.

If the identification creating the buyer's special property has been made by the buyer, the buyer acquires the right to recover the goods only if they conform to the contract for sale.

Acts 1963, ch. 81, § 1 (2-502); Acts 2000, ch. 846, § 7.

Textbooks. Tennessee Jurisprudence, 4 Tenn. Juris., Bankruptcy, § 6.

Law Reviews.

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

Cited: In re Production Steel, Inc., 54 B.R. 417, 1985 Bankr. LEXIS 5094 (Bankr. M.D. Tenn. 1985); In re McFarland, 112 B.R. 906, 1990 Bankr. LEXIS 635 (Bankr. E.D. Tenn. 1990).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Seller's Creditor Versus Buyer.

Where A sells to B 40 barrels of corn still in field, agreeing to gather and measure it and store until B wants it, B to pay for the gathering, title is not passed as against levying creditor of A when no part of the field was measured off or designated. Ford v. Measle, 56 S.W. 1036, 1900 Tenn. Ch. App. LEXIS 8 (1900).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Compare Sections 17, 18 and 19, Uniform Sales Act.

Purposes:

1.  This section gives an additional right to the buyer as a result of identification of the goods to the contract in the manner provided in Section 2-501. The buyer is given a right to recover conditioned upon making and keeping good a tender of any unpaid portion of the price, in two limited circumstances. First, the buyer may recover goods bought for personal, family, or household purposes if the seller repudiates the contract or fails to deliver the goods. Second, in any case, the buyer may recover the goods if the seller becomes insolvent within 10 days after the seller receives the first installment on their price. The buyer's right to recover the goods under this section is an exception to the usual rule, under which the disappointed buyer must resort to an action to recover damages.

2.  The question of whether the buyer also acquires a security interest in identified goods and has rights to the goods when insolvency takes place after the ten-day period provided in this section depends upon compliance with the provisions of the Article [Chapter] on Secured Transactions (Article [Chapter] 9).

3.  Under subsection (2), the buyer's right to recover consumer goods under subsection (1)(a) vests upon acquisition of a special property, which occurs upon identification of the goods to the contract. See Section 2-501. Inasmuch as a secured party normally acquires no greater rights in its collateral that its debtor had or had power to convey, see Section 2-403(1) (first sentence), a buyer who acquires a right to recover under this section will take free of a security interest created by the seller if it attaches to the goods after the goods have been identified to the contract. The buyer will take free, even if the buyer does not buy in ordinary course and even if the security interest is perfected. Of course, to the extent that the buyer pays the price after the security interest attaches, the payment will constitute proceeds of the security interest.

4.  Subsection (3) is included to preclude the possibility of unjust enrichment which would exist if the buyer were permitted to recover goods even though they were greatly superior in quality or quantity to that called for by the contract for sale.

Cross-References:

Point 1: Sections 1-201 and 2-702.

Point 2: Article [Chapter] 9.

Definitional Cross-References:

“Buyer”. Section 2-103.

“Conform”. Section 2-106.

“Contract for sale”. Section 2-106.

“Goods”. Section 2-105.

“Insolvent”. Section 1-201.

“Right”. Section 1-201.

“Seller”. Section 2-103.

47-2-503. Manner of seller's tender of delivery.

  1. Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this chapter, and in particular:
    1. Tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but
    2. Unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods.
  2. Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions.
  3. Where the seller is required to deliver at a particular destination tender requires that he comply with subsection (1) and also in any appropriate case tender documents as described in subsections (4) and (5) of this section.
  4. Where goods are in the possession of a bailee and are to be delivered without being moved:
    1. Tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer's right to possession of the goods; but
    2. Tender to the buyer of a non-negotiable document of title or of a record directing the bailee to deliver is sufficient tender unless the buyer reasonably objects, and except as otherwise provided in chapter 9 of this title receipt by the bailee of notification of the buyer's rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the non-negotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender.
  5. Where the contract requires the seller to deliver documents:
    1. The seller must tender all such documents in correct form, except as provided in this chapter with respect to bills of lading in a set, pursuant to § 47-2-323(2); and
    2. Tender through customary banking channels is sufficient and dishonor of a draft accompanying or associated with the documents constitutes non-acceptance or rejection.

Acts 1963, ch. 81, § 1 (2-503); Acts 2008, ch. 814, § 8.

Amendments. The 2008 amendment substituted “a record directing the bailee” for “a written direction to the bailee”, and inserted “except as otherwise provided in chapter 9 of this title” in (4)(B); and inserted “or associated with” in (5)(B).

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

Prior Tennessee Law: §§ 47-1243, 47-1704.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

Law Reviews.

Foreign Exchange Sales and the Law of Contracts: A Case for Analogy to the Uniform Commercial Code, 35 Vand. L. Rev. 1173 (1982).

Cited: In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980); In re Production Steel, Inc., 54 B.R. 417, 1985 Bankr. LEXIS 5094 (Bankr. M.D. Tenn. 1985); John P. Saad & Sons, Inc. v. Nashville Thermal Transfer Corp., 715 S.W.2d 41, 1986 Tenn. LEXIS 783 (Tenn. 1986); Illinois C. G. Railroad v. State, 805 S.W.2d 746, 1991 Tenn. LEXIS 80 (Tenn. 1991).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Delivery by Seller.

In a contract for the sale of goods, to be delivered at a particular town or city, the law is satisfied if the vendor adopt the most usual and convenient mode in the kind of trade in question, for delivery. Thus, in a contract by which a vendor sells a number of hogsheads of tobacco, at a specified price per cwt., to be delivered in a designated town, it is not necessary that the delivery shall be made to the vendee personally; but it is sufficient if delivery be made, in the absence of the vendee, at a warehouse, where the vendee was in the habit of receiving tobacco purchased by him. If the contract be in other respects complied with, the risk becomes that of the vendee from the moment the tobacco is so delivered; and the mere fact that the net weight is unascertained does not vitiate such delivery. Williams v. Adams, 35 Tenn. 359, 1855 Tenn. LEXIS 71 (1855).

A contract for the sale of two bales of cotton at a stated price per pound is performed on the part of the seller when he sets apart the two bales at the place of delivery without marking or weighing. Barker v. Reagan, 51 Tenn. 590, 1871 Tenn. LEXIS 208 (1871).

Where the plaintiff contracted to sell and defendant to purchase 800 barrels of corn at $2.50 per barrel, plaintiff to deliver the corn at defendant's mill where it was to be weighed and paid for, and the plaintiff shelled and sacked the corn in defendant's sacks and stored it for defendant, and offered advance time to deliver, on the last tender of which the defendant repudiated the contract, the contract was enforceable against the defendant though the corn had not been weighed, delivered or paid for. Mayberry v. Lilly Mill Co., 112 Tenn. 564, 85 S.W. 401, 1903 Tenn. LEXIS 124 (1903).

The performance of the designated act of delivery does not necessarily effect a transfer of title or property. Knoxville Tinware & Mfg. Co. v. Rogers, 158 Tenn. 126, 11 S.W.2d 874, 1928 Tenn. LEXIS 132 (1928).

2. 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 title. Sindle v. American R. E. Co., 8 Tenn. App. 594, — S.W.2d —, 1928 Tenn. App. LEXIS 183 (Tenn. Ct. App. 1928).

3. Delivery in Installments.

Where plaintiff contracted to deliver to defendant, for a price named, from 100 to 150 head of beef cattle, from the first day of February to the last of July, in lots of 20 or more monthly and plaintiff tendered to defendant the first lot of cattle, according to contract, which defendant refused to receive; the value of each lot according to the contract price was in law due and payable upon delivery, and hence plaintiff could recover for defendant's breach, though he made no other tender of cattle thereafter under the contract. Coleman v. Hudson, 34 Tenn. 463, 1854 Tenn. LEXIS 70 (1854).

Although contract for delivery of concrete blocks contained statement on back “All shipments must be made within two days after receipt of notice by you” but circumstances showed clearly that this was not intended and contract contained no provision for delivery dates it was held that deliveries were made within a reasonable time. B. Mifflin Hood Co. v. Lichter, 106 F. Supp. 220, 1950 U.S. Dist. LEXIS 4281 (D. Tenn. 1950), aff'd, 198 F.2d 472, 1952 U.S. App. LEXIS 3194 (6th Cir. Tenn. 1952)

4. Payment of Purchase Price.

A contract for the sale of machinery to be manufactured and delivered to the purchaser is valid, although it contains a condition that title shall not pass to purchaser until the purchase price has been fully paid. McLean v. McLean Stone Co., 19 Tenn. App. 249, 84 S.W.2d 1046, 1935 Tenn. App. LEXIS 35 (Tenn. Ct. App. 1935).

5. Delivery of Document of Title.

A sale of cotton may be made in evidence by the assignment or delivery of the ginner's receipts. Waller v. Parker, 45 Tenn. 476, 1868 Tenn. LEXIS 34 (1868).

A transfer and delivery of a bill of lading is regarded in law as a delivery of the property, and vests title in the transferee. Ochs v. Price, 53 Tenn. 483, 1871 Tenn. LEXIS 386 (1871).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  See Sections 11, 19, 20, 43(3) and (4), 46 and 51, Uniform Sales Act.

Changes:  The general policy of the above sections is continued and supplemented but subsection (3) changes the rule of prior section 19(5) as to what constitutes a “destination” contract and subsection (4) incorporates a minor correction as to tender of delivery of goods in the possession of a bailee.

Purposes of Changes:

1.   The major general rules governing the manner of proper or due tender of delivery are gathered in this section. The term “tender” is used in this Article [Chapter] in two different senses. In one sense it refers to “due tender” which contemplates an offer coupled with a present ability to fulfill all the conditions resting on the tendering party and must be followed by actual performance if the other party shows himself ready to proceed. Unless the context unmistakably indicates otherwise this is the meaning of “tender” in this Article [Chapter] and the occasional addition of the word “due” is only for clarity and emphasis. At other times it is used to refer to an offer of goods or documents under a contract as if in fulfillment of its conditions even though there is a defect when measured against the contract obligation. Used in either sense, however, “tender” connotes such performance by the tendering party as puts the other party in default if he fails to proceed in some manner.

2.   The seller's general duty to tender and deliver is laid down in Section 2-301 and more particularly in Section 2-507. The seller's right to a receipt if he demands one and receipts are customary is governed by Section 1-205. Subsection (1) of the present section proceeds to set forth two primary requirements of tender: first, that the seller “put and hold conforming goods at the buyer's disposition” and, second, that he “give the buyer any notice reasonably necessary to enable him to take delivery.”

In cases in which payment is due and demanded upon delivery the “buyer's disposition” is qualified by the seller's right to retain control of the goods until payment by the provision of this Article [Chapter] on delivery on condition. However, where the seller is demanding payment on delivery he must first allow the buyer to inspect the goods in order to avoid impairing his tender unless the contract for sale is on C.I.F., C.O.D., cash against documents or similar terms negating the privilege of inspection before payment.

In the case of contracts involving documents the seller can “put and hold conforming goods at the buyer's disposition” under subsection (1) by tendering documents which give the buyer complete control of the goods under the provisions of Article [Chapter] 7 on due negotiation.

3.  Under paragraph (a) of subsection (1) usage of the trade and the circumstances of the particular case determine what is a reasonable hour for tender and what constitutes a reasonable period of holding the goods available.

4.  The buyer must furnish reasonable facilities for the receipt of the goods tendered by the seller under subsection (1), paragraph (b). This obligation of the buyer is no part of the seller's tender.

5.  For the purposes of subsections (2) and (3) there is omitted from this Article [Chapter] the rule under prior uniform legislation that a term requiring the seller to pay the freight or cost of transportation to the buyer is equivalent to an agreement by the seller to deliver to the buyer or at an agreed destination. This omission is with the specific intention of negating the rule, for under this Article [Chapter] the “shipment” contract is regarded as the normal one and the “destination” contract as the variant type. The seller is not obligated to deliver at a named destination and bear the concurrent risk of loss until arrival, unless he has specifically agreed so to deliver or the commercial understanding of the terms used by the parties contemplates such delivery.

6.  Paragraph (a) of subsection (4) continues the rule of the prior uniform legislation as to acknowledgment by the bailee. Paragraph (b) of subsection (4) adopts the rule that between the buyer and the seller the risk of loss remains on the seller during a period reasonable for securing acknowledgment of the transfer from the bailee, while as against all other parties the buyer's rights are fixed as of the time the bailee receives notice of the transfer.

7.  Under subsection (5) documents are never “required” except where there is an express contract term or it is plainly implicit in the peculiar circumstances of the case or in a usage of trade. Documents may, of course, be “authorized” although not required, but such cases are not within the scope of this subsection. When documents are required, there are three main requirements of this subsection: (1) “All”: each required document is essential to a proper tender; (2) “Such”: the documents must be the ones actually required by the contract in terms of source and substance; (3) “Correct form”: All documents must be in correct form.

When a prescribed document cannot be procured, a question of fact arises under the provision of this Article [Chapter] on substituted performance as to whether the agreed manner of delivery is actually commercially impracticable and whether the substitute is commercially reasonable.

Cross-References:

Point 2: Sections 1-205, 2-301, 2-310, 2-507 and 2-513 and Article [Chapter] 7.

Point 5: Sections 2-308, 2-310 and 2-509.

Point 7: Section 2-614(1).

Specific matters involving tender are covered in many additional sections of this Article [Chapter]. See Sections 1-205, 2-301, 2-306 to 2-319, 2-321(3), 2-504, 2-507(2), 2-511(1), 2-513, 2-612 and 2-614.

Definitional Cross-References:

“Agreement”. Section 1-201.

“Bill of lading”. Section 1-201.

“Buyer”. Section 2-103.

“Conforming”. Section 2-106.

“Contract”. Section 1-201.

“Delivery”. Section 1-201.

“Dishonor”. Section 3-508.

“Document of title”. Section 1-201.

“Draft”. Section 3-104.

“Goods”. Section 2-105.

“Notification”. Section 1-201.

“Reasonable time”. Section 1-204.

“Receipt” of goods. Section 2-103.

“Rights”. Section 1-201.

“Seasonably”. Section 1-204.

“Seller”. Section 2-103.

“Written”. Section 1-201.

47-2-504. Shipment by seller.

Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must:

  1. put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and
  2. obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and
  3. promptly notify the buyer of the shipment.

    Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material delay or loss ensues.

Acts 1963, ch. 81, § 1 (2-504).

Prior Tennessee Law: § 47-1246.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Delivery by Seller.

Where the obligation is to pay a specified sum of money, which may be discharged in property at a fixed price, to be delivered within a definite time at one of several places, a plea by the obligor that the property was ready at one of these places, without averring that the plaintiff was notified thereof, is bad. Grimes v. Bartee, 9 Tenn. 204, 1829 Tenn. LEXIS 42 (1829).

In a contract for the sale of goods, to be delivered in a particular town or city, the law is satisfied if the vendor adopt the most usual and convenient mode in the kind of trade in question, for delivery. Williams v. Adams, 35 Tenn. 359, 1855 Tenn. LEXIS 71 (1855).

2. Right of Buyer to Designate Point of Delivery.

At common law, the payee of the contract for the delivery of specific articles, who has paid the consideration, has the right to designate the time and place of delivery. Irwin v. Bell, 1 Tenn. 485, 1809 Tenn. LEXIS 40 (1809).

3. Delivery to Carrier.

When goods have been delivered by the seller to a common carrier, to be by him transported to the buyer, the property becomes vested in the buyer, subject to the seller's rights of stoppage in transitu; but this right of the seller is gone if, before it is exercised, and after the delivery, other bona fide rights intervene; as if the buyer sells the goods or they be legally attached for debt. Boyd v. Mosely, 32 Tenn. 661, 1853 Tenn. LEXIS 104 (1853).

4. Delivery by Documents of Title.

A sale of cotton may be made in evidence by the assignment or delivery of the ginner's receipt. Waller v. Parker, 45 Tenn. 476, 1868 Tenn. LEXIS 34 (1868).

A transfer and delivery of a bill of lading is regarded in law as a delivery of the property, and vests title of the transferee. Ochs v. Price, 53 Tenn. 483, 1871 Tenn. LEXIS 386 (1871).

Where purchaser of groceries instructed the seller to send the groceries to a third person in the name of the purchaser and in accordance with such instructions the seller shipped the goods to such third person with bill of lading showing purchaser as consignor, seller expressly recognized the rights of purchaser as owner and the title to the goods vested in such purchaser and therefore seller had no power to stop the goods in transit upon learning that purchaser was insolvent. Treadwell v. Aydlett, Robinson & Co., 56 Tenn. 388, 1872 Tenn. LEXIS 151 (1872).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Section 46, Uniform Sales Act.

Changes:  Rewritten.

Purposes of Changes:

To continue the general policy of the prior uniform statutory provision while incorporating certain modifications with respect to the requirement that the contract with the carrier be made expressly on behalf of the buyer and as to the necessity of giving notice of the shipment to the buyer, so that:

1.  The section is limited to “shipment” contracts as contrasted with “destination” contracts or contracts for delivery at the place where the goods are located. The general principles embodied in this section cover the special cases of F.O.B. point of shipment contracts and C.I.F. and C. & F. contracts. Under the preceding section on manner of tender of delivery, due tender by the seller requires that he comply with the requirements of this section in appropriate cases.

2.  The contract to be made with the carrier under paragraph (a) must conform to all express terms of the agreement, subject to any substitution necessary because of failure of agreed facilities as provided in the later provision on substituted performance. However, under the policies of this Article [Chapter] on good faith and commercial standards and on buyer's rights on improper delivery, the requirements of explicit provisions must be read in terms of their commercial and not their literal meaning. This policy is made express with respect to bills of lading in a set in the provision of this Article [Chapter] on form of bills of lading required in overseas shipment.

3.  In the absence of agreement, the provision of this Article [Chapter] on options and cooperation respecting performance gives the seller the choice of any reasonable carrier, routing and other arrangements. Whether or not the shipment is at the buyer's expense the seller must see to any arrangements, reasonable in the circumstances, such as refrigeration, watering of livestock, protection against cold, the sending along of any necessary help, selection of specialized cars and the like for paragraph (a) is intended to cover all necessary arrangements whether made by contract with the carrier or otherwise. There is, however, a proper relaxation of such requirements if the buyer is himself in a position to make the appropriate arrangements and the seller gives him reasonable notice of the need to do so. It is an improper contract under paragraph (a) for the seller to agree with the carrier to a limited valuation below the true value and thus cut off the buyer's opportunity to recover from the carrier in the event of loss, when the risk of shipment is placed on the buyer by his contract with the seller.

4.  Both the language of paragraph (b) and the nature of the situation it concerns indicate that the requirement that the seller must obtain and deliver promptly to the buyer in due form any document necessary to enable him to obtain possession of the goods is intended to cumulate with the other duties of the seller such as those covered in paragraph (a).

In this connection, in the case of pool car shipments a delivery order furnished by the seller on the pool car consignee, or on the carrier for delivery out of a larger quantity, satisfies the requirements of paragraph (b) unless the contract requires some other form of document.

5.  This Article [Chapter], unlike the prior uniform statutory provision, makes it the seller's duty to notify the buyer of shipment in all cases. The consequences of his failure to do so, however, are limited in that the buyer may reject on this ground only where material delay or loss ensues.

A standard and acceptable manner of notification in open credit shipments is the sending of an invoice and in the case of documentary contracts is the prompt forwarding of the documents as under paragraph (b) of this section. It is also usual to send on a straight bill of lading but this is not necessary to the required notification. However, should such a document prove necessary or convenient to the buyer, as in the case of loss and claim against the carrier, good faith would require the seller to send it on request.

Frequently the agreement expressly requires prompt notification as by wire or cable. Such a term may be of the essence and the final clause of paragraph (c) does not prevent the parties from making this a particular ground for rejection. To have this vital and irreparable effect upon the seller's duties, such a term should be part of the “dickered” terms written in any “form,” or should otherwise be called seasonably and sharply to the seller's attention.

6.  Generally, under the final sentence of the section, rejection by the buyer is justified only when the seller's dereliction as to any of the requirements of this section in fact is followed by material delay or damage. It rests on the seller, so far as concerns matters not within the peculiar knowledge of the buyer, to establish that his error has not been followed by events which justify rejection.

Cross-References:

Point 1: Sections 2-319, 2-320 and 2-503(2).

Point 2: Sections 1-203, 2-323(2), 2-601 and 2-614(1).

Point 3: Section 2-311(2).

Point 5: Section 1-203.

Definitional Cross-References:

“Agreement”. Section 1-201.

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Delivery”. Section 1-201.

“Goods”. Section 2-105.

“Notifies”. Section 1-201.

“Seller”. Section 2-103.

“Send”. Section 1-201.

“Usage of trade”. Section 1-205.

47-2-505. Seller's shipment under reservation.

  1. Where the seller has identified goods to the contract by or before shipment:
  1. his procurement of a negotiable bill of lading to his own order or otherwise reserves in him a security interest in the goods. His procurement of the bill to the order of a financing agency or of the buyer indicates in addition only the seller's expectation of transferring that interest to the person named.
  2. a non-negotiable bill of lading to himself or his nominee reserves possession of the goods as security but except in a case of conditional delivery (§ 47-2-507(2)) a non-negotiable bill of lading naming the buyer as consignee reserves no security interest even though the seller retains possession or control of the bill of lading.

When shipment by the seller with reservation of a security interest is in violation of the contract for sale it constitutes an improper contract for transportation within the preceding section but impairs neither the rights given to the buyer by shipment and identification of the goods to the contract nor the seller's powers as a holder of a negotiable document of title.

Acts 1963, ch. 81, § 1 (2-505); Acts 2008, ch. 814, §§ 9, 10.

Amendments. The 2008 amendment inserted “or control” near the end of (1)(b); and substituted “negotiable document of title” for “negotiable document” at the end of (2).

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

Prior Tennessee Law: § 47-1220.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

Cited: In re Tom Woods Used Cars, Inc., 21 B.R. 560, 1982 Bankr. LEXIS 3811 (Bankr. E.D. Tenn. 1982).

NOTES TO DECISIONS

1. Construction with § 47-2-403.

Although entrusting under § 47-2-403 is defined to include any delivery, the variable meaning of delivery must be taken into account in determining who has possession of goods. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

2. Construction with § 47-2-507.

See notes under § 47-2-507, Notes to Decisions, “1. Right to Reclaim.” In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

3. Possession.

Security interests under this chapter depend on “possession” of the goods for their existence and perfection. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

Possession does not require physical possession of the goods; it generally includes the right to control goods in the physical possession of another. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

A C.O.D. requirement protects the seller by denying the buyer physical possession or control of the goods until tender of the price. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

When a seller ships goods under a straight bill of lading to self or nominee, seller reserves possession of the goods as security for the buyer's performance. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

When a seller ships goods under a straight bill of lading to the buyer, the seller has a security interest in the goods only if they are conditionally delivered. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

Decisions Under Prior Law

1. Stoppage in Transitu.

When goods have been delivered by the seller to a common carrier, to be by him transported to the buyer, the property becomes vested in the buyer, subject to the seller's right of stoppage in transitu; but this right of the seller is gone if, before it is exercised, and after the delivery, other bona fide rights intervene; as if the buyer sell the goods or they be legally attached for debt. Boyd v. Mosely, 32 Tenn. 661, 1853 Tenn. LEXIS 104 (1853).

The transit of goods continues from the time the vendor parts with the possession until the purchaser acquires it — i.e., from the time the vendor's right to retain the goods and his right of lien are gone, to the time the vendee acquires the actual exercise of dominion and ownership over them. Treadwell v. Aydlett, Robinson & Co., 56 Tenn. 388, 1872 Tenn. LEXIS 151 (1872).

In the absence of evidence of a contrary intent, the general rule is that, upon the delivery of goods by the seller to a common carrier for transportation to the buyer, the title passes to the buyer, subject only to the seller's right of stoppage in transitu or avoidance for fraud. Sindle v. American R. E. Co., 8 Tenn. App. 594, — S.W.2d —, 1928 Tenn. App. LEXIS 183 (Tenn. Ct. App. 1928).

2. Terms of Bill of Lading.

Where buyer purchased goods of seller and directed goods to be shipped in buyer's name, as consignor, to another and buyer failed and seller replevied the goods from the carrier by whom they were shipped, such seller in taking the bill of lading in the name of the buyer and shipping them according to buyer's directions to such other person recognized the buyer's right to control the goods as owner, and to consign them to and vest in such other person the title as consignee. Treadwell v. Aydlett, Robinson & Co., 56 Tenn. 388, 1872 Tenn. LEXIS 151 (1872).

Order of sale of goods providing that if extended payments were to be made security should be given and approved by the seller at or before shipment, and goods were shipped to the order of the seller, the title did not pass until security was accepted. Klimes v. Jones, 7 Tenn. App. 583, — S.W.2d —, 1928 Tenn. App. LEXIS 82 (Tenn. Ct. App. 1928).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Section 20(2), (3), (4), Uniform Sales Act.

Changes:  Completely rephrased, the “powers” of the parties in cases of reservation being emphasized primarily rather than the “rightfulness” of reservation.

Purposes of Changes:

To continue in general the policy of the prior uniform statutory provision with certain modifications of emphasis and language, so that:

1.  The security interest reserved to the seller under subsection (1) is restricted to securing payment or performance by the buyer and the seller is strictly limited in his disposition and control of the goods as against the buyer and third parties. Under this Article [Chapter], the provision as to the passing of interest expressly applies “despite any reservation of security title” and also provides that the “rights, obligations and remedies” of the parties are not altered by the incidence of title generally. The security interest, therefore, must be regarded as a means given to the seller to enforce his rights against the buyer which is unaffected by and in turn does not affect the location of title generally. The rules set forth in subsection (1) are not to be altered by any apparent “contrary intent” of the parties as to passing of title, since the rights and remedies of the parties to the contract of sale, as defined in this Article [Chapter], rest on the contract and its performance or breach and not on stereotyped presumptions as to the location of title.

This Article [Chapter] does not attempt to regulate local procedure in regard to the effective maintenance of the seller's security interest when the action is in replevin by the buyer against the carrier.

2.  Every shipment of identified goods under a negotiable bill of lading reserves a security interest in the seller under subsection (1) paragraph (a).

It is frequently convenient for the seller to make the bill of lading to the order of a nominee such as his agent at destination, the financing agency to which he expects to negotiate the document or the bank issuing a credit to him. In many instances, also, the buyer is made the order party. This Article [Chapter] does not deal directly with the question as to whether a bill of lading made out by the seller to the order of a nominee gives the carrier notice of any rights which the nominee may have so as to limit its freedom or obligation to honor the bill of lading in the hands of the seller as the original shipper if the expected negotiation fails. This is dealt with in the Article [Chapter] on Documents of Title (Article [Chapter] 7).

3.  A non-negotiable bill of lading taken to a party other than the buyer under subsection (1) paragraph (b) reserves possession of the goods as security in the seller but if he seeks to withhold the goods improperly the buyer can tender payment and recover them.

4.  In the case of a shipment by non-negotiable bill of lading taken to a buyer, the seller, under subsection (1) retains no security interest or possession as against the buyer and by the shipment he de facto  loses control as against the carrier except where he rightfully and effectively stops delivery in transit. In cases in which the contract gives the seller the right to payment against delivery, the seller, by making an immediate demand for payment, can show that his delivery is conditional, but this does not prevent the buyer's power to transfer full title to a sub-buyer in ordinary course or other purchaser under Section 2-403.

5.  Under subsection (2) an improper reservation by the seller which would constitute a breach in no way impairs such of the buyer's rights as result from identification of the goods. The security title reserved by the seller under subsection (1) does not protect his holding of the document or the goods for the purpose of exacting more than is due him under the contract.

Cross-References:

Point 1: Section 1-201.

Point 2: Article [Chapter] 7.

Point 3: Sections 2-501(2) and 2-504.

Point 4: Sections 2-403, 2-507(2) and 2-705.

Point 5: Sections 2-310, 2-319(4), 2-320(4), 2-501 and 2-502 and Article [Chapter] 7.

Definitional Cross-References:

“Bill of lading”. Section 1-201.

“Buyer”. Section 2-103.

“Consignee”. Section 7-102.

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Delivery”. Section 1-201.

“Financing agency”. Section 2-104.

“Goods”. Section 2-105.

“Holder”. Section 1-201.

“Person”. Section 1-201.

“Security interest”. Section 1-201.

“Seller”. Section 2-103.

47-2-506. Rights of financing agency.

  1. A financing agency by paying or purchasing for value a draft which relates to a shipment of goods acquires to the extent of the payment or purchase and in addition to its own rights under the draft and any document of title securing it any rights of the shipper in the goods including the right to stop delivery and the shipper's right to have the draft honored by the buyer.
  2. The right to reimbursement of a financing agency which has in good faith honored or purchased the draft under commitment to or authority from the buyer is not impaired by subsequent discovery of defects with reference to any relevant document which was apparently regular.

Acts 1963, ch. 81, § 1 (2-506); Acts 2008, ch. 814, § 11.

Amendments. The 2008 amendment deleted “on its face” from the end of (2).

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

NOTES TO DECISIONS

Decisions Under Prior Law

1. Effect of Possession of Bill of Lading.

A delivery of a bill of lading is a symbolic delivery of the property which it represents, and a holder of a bill of lading has constructive possession of the property, and may hold it against all persons acquiring liens subsequent to the transfer thereof. Third Nat'l Bank v. Hays, 119 Tenn. 729, 108 S.W. 1060, 1907 Tenn. LEXIS 33 (1907).

Where bills of lading and attached drafts were endorsed to a bank, a special property in hay covered by such bills of lading passed to the bank, subject to be divested out of the bank by acceptance and payment of drafts by the drawee, and on such drawee's refusal to accept and pay such drafts bank's title became absolute and it had title to maintain replevin action to recover hay. Imperial Cotton Milling Co. v. Citizens Bank of Olin, 4 Tenn. Civ. App. (4 Higgins) 332 (1914).

2. Bills of Lading as Security for Payment of Price.

Where the sellers of hay drew sight drafts on the buyers, payable to themselves, and attached each of the drafts to a bill of lading, and transferred them to a bank, this did not constitute a sale of the hay to the bank, so as to render it liable for breach of the original contract of sale in that the hay was of an inferior quality. Lewis Leonhardt & Co. v. Wild Small & Co., 117 Tenn. 153, 96 S.W. 1051, 1906 Tenn. LEXIS 38, 119 Am. St. Rep. 994, 6 L.R.A. (n.s.) 887 (1906).

Where a consignor draws on consignee for the price, and the draft, with the bill of lading attached, is endorsed to a buyer of the draft, a special property in the goods included in the bill of lading passes to the buyer, subject to be divested by the acceptance and payment of the draft, and on the refusal of the consignee to accept the title of the buyer becomes absolute. Third Nat'l Bank v. Hays, 119 Tenn. 729, 108 S.W. 1060, 1907 Tenn. LEXIS 33 (1907).

Where draft made upon the purchase of goods was deposited in a bank by the seller with bill of lading attached and credit was entered on books of bank subject to check with agreement to charge back such items that were not collected, the bill of lading was merely security for the collection of the draft, whether made out to the consignee directly or to the shipper's order. W. J. Barton Seed, Feed & Implement Co. v. Mercantile Nat'l Bank, 128 Tenn. 320, 160 S.W. 848, 1913 Tenn. LEXIS 51 (1913).

A bank or person who discounts a sight draft with a bill of lading attached does not become the purchaser or owner of the property covered by the bill of lading, but in such a situation takes the bill of lading as collateral security to the draft. Falls Mfg. Co. v. Barbour, 11 Tenn. App. 509, — S.W.2d —, 1930 Tenn. App. LEXIS 31 (Tenn. Ct. App. 1930).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  None.

Purposes:

1.  “Financing agency” is broadly defined in this Article [Chapter] to cover every normal instance in which a party aids or intervenes in the financing of a sales transaction. The term as used in subsection (1) is not in any sense intended as a limitation and covers any other appropriate situation which may arise outside the scope of the definition.

2.  “Paying” as used in subsection (1) is typified by the letter of credit, or “authority to pay” situation in which a banker, by arrangement with the buyer or other consignee, pays on his behalf a draft for the price of the goods. It is immaterial whether the draft is formally drawn on the party paying or his principal, whether it is a sight draft paid in cash or a time draft “paid” in the first instances by acceptance, or whether the payment is viewed as absolute or conditional. All of these cases constitute “payment” under this subsection. Similarly, “purchasing for value” is used to indicate the whole area of financing by the seller's banker, and the principle of subsection (1) is applicable without any niceties of distinction between “purchase,” “discount,” “advance against collection” or the like. But it is important to notice that the only right to have the draft honored that is acquired is that against the buyer;  if any right against anyone else is claimed it will have to be under some separate obligation of that other person. A letter of credit does not necessarily protect purchasers  of drafts. See Article [Chapter] 5. And for the relations of the parties to documentary drafts see Part 5 of Article [Chapter] 4.

3.  Subsection (1) is made applicable to payments or advances against a draft which “relates to” a shipment of goods and this has been chosen as a term of maximum breadth. In particular the term is intended to cover the case of a draft against an invoice or against a delivery order. Further, it is unnecessary that there be an explicit assignment of the invoice attached to the draft to bring the transaction within the reason of this subsection.

4.  After shipment, “the rights of the shipper in the goods” are merely security rights and are subject to the buyer's right to force delivery upon tender of the price. The rights acquired by the financing agency are similarly limited and, moreover, if the agency fails to procure any outstanding negotiable document of title, it may find its exercise of these rights hampered or even defeated by the seller's disposition of the document to a third party. This section does not attempt to create any new rights in the financing agency against the carrier which would force the latter to honor a stop order from the agency, a stranger to the shipment, or any new rights against a holder to whom a document of title has been duly negotiated under Article [Chapter] 7.

Cross-References:

Point 1: Section 2-104(2) and Article [Chapter] 4.

Point 2: Part 5 of Article [Chapter] 4, and Article [Chapter] 5.

Point 4: Sections 2-501 and 2-502(1) and Article [Chapter] 7.

Definitional Cross-References:

“Buyer”. Section 2-103.

“Document of title”. Section 1-201.

“Draft”. Section 3-104.

“Financing agency”. Section 2-104.

“Good faith”. Section 2-103.

“Goods”. Section 2-105.

“Honor”. Section 1-201.

“Purchase”. Section 1-201.

“Rights”. Section 1-201.

“Value”. Section 1-201.

47-2-507. Effect of seller's tender — Delivery on condition.

  1. Tender of delivery is a condition to the buyer's duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract.
  2. Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.

Acts 1963, ch. 81, § 1 (2-507).

Prior Tennessee Law: §§ 47-1241 and 47-1242.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

Law Reviews.

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

Cited: In re Tom Woods Used Cars, Inc., 21 B.R. 560, 1982 Bankr. LEXIS 3811 (Bankr. E.D. Tenn. 1982); In re Production Steel, Inc., 54 B.R. 417, 1985 Bankr. LEXIS 5094 (Bankr. M.D. Tenn. 1985); In re Edge, 60 B.R. 690, 1986 Bankr. LEXIS 6085 (Bankr. M.D. Tenn. 1986); John P. Saad & Sons, Inc. v. Nashville Thermal Transfer Corp., 715 S.W.2d 41, 1986 Tenn. LEXIS 783 (Tenn. 1986).

NOTES TO DECISIONS

1. Right to Reclaim.

The right to reclaim under subsection (2) of this section and a seller's claimed security interest under § 47-2-505(1)(b) are not the same thing: subsection (2) provides a definition for determining whether the security interest exists, but the right to reclaim under subsection (2) exists without regard to whether there is a security interest since it is a right meant to exist even after the buyer has absolute possession of the goods. On the other hand, the security interest is dependent on possession and the making of a conditional delivery. So long as the conditions exist on which a security interest depends, the seller has whatever rights flow from the security interest, not merely the right to reclaim under subsection (2). In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

Although subsection (2) appears to give the seller a right to the return of the property when the buyer fails to make payments on delivery of the goods or documents of title, such rights are subject to the limitations on reclamation under § 47-2-702(2) and 11 U.S.C. § 546(c). In re Microwave Products of America, Inc., 94 B.R. 967, 1989 Bankr. LEXIS 208 (Bankr. W.D. Tenn. 1989).

2. Payment on Delivery.

Payment on delivery under subsection (2) means that payment is due on delivery under a shipment contract if it is due when the goods arrive. In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

Where time of delivery term in contract did not provide when delivery was to be made but merely defined the time of delivery for the purpose of determining who bore the risk of loss, when title passed, and when payment was due, it did not necessarily define the meaning of delivery in subsection (2). In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

Where a C.O.D. requirement made payment due when the goods arrived, the contract provided for payment on delivery within the meaning of subsection (2). In re Ault, 6 B.R. 58, 1980 Bankr. LEXIS 4630 (Bankr. E.D. Tenn. 1980).

3. — Sale not conditional.

Although seller and buyer may have intended the sale of cotton to be conditional at the time of contracting, where seller loaded and shipped the cotton, while retaining the bill of loading, and submitted the drafts to the buyer days later, the sale was not conditional; therefore, seller did not retain a security interest in the unpaid cotton superior to trustee in bankruptcy. 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).

4. Interest of Third Party.

Both credit and cash sellers are required to demand return of the goods within ten days after delivery to the buyer or lose the right to reclaim against a third party, such as a trustee in bankruptcy, who has acquired an interest in the goods without knowledge of the seller's rights. In re Tom Woods Used Cars, Inc., 24 B.R. 529, 1982 Bankr. LEXIS 2925 (Bankr. E.D. Tenn. 1982).

5. Cash Sale.

The essence of a cash sale is that delivery will not be made except on tender of payment. In re Tom Woods Used Cars, Inc., 24 B.R. 529, 1982 Bankr. LEXIS 2925 (Bankr. E.D. Tenn. 1982).

Decisions Under Prior Law

1. Provisions for 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).

Where agreements by defendants to pay plaintiff for cement were contracts for present payment in cash with no terms proposed or considered, the fact that defendant assumed for its convenience to take a few days to forward remittance did not change its legal effect. Cumberland Portland Cement Co. v. Reconstruction Finance Corp., 140 F. Supp. 739, 1953 U.S. Dist. LEXIS 1967 (D. Tenn. 1953), aff'd, Ralph Rogers & Co. v. Reconstruction Finance Corp., 232 F.2d 930, 1956 U.S. App. LEXIS 4344 (6th Cir. Tenn. Apr. 12, 1956).

2. Approval by Third Party.

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).

3. Effect of Refusal to Perform.

Where deliveries of lumber were to be made upon orders and specifications of the purchaser, at different periods throughout the year, and the purchaser, by accepting installments delivered, waived any defects with reference thereto, and the failure of purchaser to give further orders or specifications amounted to a breach, it was not necessary for the seller to tender the lumber. John Deere Plow Co. v. Shellabarger, 140 Tenn. 123, 203 S.W. 756, 1918 Tenn. LEXIS 28 (1918).

Where one of the parties unequivocally refuses to go on with a contract, it is not necessary for the other to make a demand upon the defaulting party for performance. Lamborn & Co. v. Green & Green, 150 Tenn. 38, 262 S.W. 467, 1923 Tenn. LEXIS 61 (1924).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  See Sections 11, 41, 42 and 69, Uniform Sales Act.

Purposes:

1.  Subsection (1) continues the policies of the prior uniform statutory provisions with respect to tender and delivery by the seller. Under this Article [Chapter] the same rules in these matters are applied to present sales and to contracts for sale. But the provisions of this subsection must be read within the framework of the other sections of this Article [Chapter] which bear upon the question of delivery and payment.

2.  The “unless otherwise agreed” provision of subsection (1) is directed primarily to cases in which payment in advance has been promised or a letter of credit term has been included. Payment “according to the contract” contemplates immediate payment, payment at the end of an agreed credit term, payment by a time acceptance or the like. Under this Act, “contract” means the total obligation in law which results from the parties' agreement including the effect of this Article [Chapter]. In this context, therefore, there must be considered the effect in law of such provisions as those on means and manner of payment and on failure of agreed means and manner of payment.

3.  Subsection (2) deals with the effect of a conditional delivery by the seller and in such a situation makes the buyer's “right as against the seller” conditional upon payment. These words are used as words of limitation to conform with the policy set forth in the bona fide purchase sections of this Article [Chapter]. Should the seller after making such a conditional delivery fail to follow up his rights, the condition is waived. The provision of this Article [Chapter] for a ten day limit within which the seller may reclaim goods delivered on credit to an insolvent buyer is also applicable here.

Cross-References:

Point 1: Sections 2-310, 2-503, 2-511, 2-601 and 2-711 to 2-713.

Point 2: Sections 1-201, 2-511 and 2-614.

Point 3: Sections 2-401, 2-403, and 2-702(1)(b) [2-702(2)].

Definitional Cross-References:

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Delivery”. Section 1-201.

“Document of title”. Section 1-201.

“Goods”. Section 2-105.

“Rights”. Section 1-201.

“Seller”. Section 2-103.

47-2-508. Cure by seller of improper tender or delivery — Replacement.

  1. Where any tender or delivery by the seller is rejected because nonconforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.
  2. Where the buyer rejects a nonconforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

Acts 1963, ch. 81, § 1 (2-508).

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 23.

NOTES TO DECISIONS

1. Cure of Defects.

Cure of defects in second shipment of record albums was ineffective, where the damage had already occurred and the time set for performance had expired. 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).

Material disputes of fact precluded summary judgment in favor of a seller on plaintiffs’ breach of contract claim where the issue of whether the seller had a reasonable opportunity to cure defects in a manufactured home pursuant to T.C.A. § 47-2-508 and the question of whether the seller breached the implied covenant of good faith and fair dealing remained for the trier of fact. Bennett v. CMH Homes, Inc., — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 33314 (M.D. Tenn. Mar. 13, 2012).

Decisions Under Prior Law

1. Substantial Performance.

Where plaintiffs agreed to sell and deliver to defendants 50 bales of cotton at a specified price but never at any time tendered a delivery of more than 49 bales, they were not entitled to recover for the defendant's refusal to accept. Inman, Akers & Inman v. Elk Cotton Mills, 116 Tenn. 141, 92 S.W. 760, 1905 Tenn. LEXIS 13 (1905).

If the vendor delivers the amount agreed upon for each installment as it comes due, the fact that the goods delivered in certain installments were not up to the standard fixed by the contract is not such a breach of the entire contract as excuses the vendee from taking and paying for the remaining installments. John Deere Plow Co. v. Shellabarger, 140 Tenn. 123, 203 S.W. 756, 1918 Tenn. LEXIS 28 (1918).

2. Notice of Abandonment.

Although purchaser of personal property under executory contract has right to give notice of an abandonment and to stop further deliveries, the purchaser must avail himself of this right before delivery according to terms of the contract. Watts v. Mandell-Williams Lumber Co., 2 Tenn. Civ. App. (2 Higgins) 604 (1911).

3. Anticipatory Breach.

The rules applicable to an anticipatory breach of a contract apply as well to one party as to the other. The general rule applicable to a contract for sale and future delivery of articles not specifically designated is that a buyer cannot reject a delivery conformable to the contract, when made in time, merely because there had been a prior tender of goods not conformable and rejected on that ground. McBath v. Jones Cotton Co., 149 F. 383, 1906 U.S. App. LEXIS 4479 (6th Cir. Tenn. 1906).

Where contract for the sale of yarn called for delivery during the months of April, May and June, and defendant had right to call for deliveries when desired during such months, refusal of defendant to accept delivery before end of such period could not be considered a breach until the last day of June, that being the last day for delivery under the contract. Standard Processing Co. v. Loudon Hosiery Mills, 7 Tenn. App. 114, — S.W. —, 1927 Tenn. App. LEXIS 12 (Tenn. Ct. App. 1927).

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  None.

Purposes:

1.  Subsection (1) permits a seller who has made a non-conforming tender in any case to make a conforming delivery within the contract time upon seasonable notification to the buyer. It applies even where the seller has taken back the non-conforming goods and refunded the purchase price. He may still make a good tender within the contract period. The closer, however, it is to the contract date, the greater is the necessity for extreme promptness on the seller's part in notifying of his intention to cure, if such notification is to be “seasonable” under this subsection.

The rule of this subsection, moreover, is qualified by its underlying reasons. Thus if, after contracting for June delivery, a buyer later makes known to the seller his need for shipment early in the month and the seller ships accordingly, the “contract time” has been cut down by the supervening modification and the time for cure of tender must be referred to this modified time term.

2.  Subsection (2) seeks to avoid injustice to the seller by reason of a surprise rejection by the buyer. However, the seller is not protected unless he had “reasonable grounds to believe” that the tender would be acceptable. Such reasonable grounds can lie in prior course of dealing, course of performance or usage of trade as well as in the particular circumstances surrounding the making of the contract. The seller is charged with commercial knowledge of any factors in a particular sales situation which require him to comply strictly with his obligations under the contract as, for example, strict conformity of documents in an overseas shipment or the sale of precision parts or chemicals for use in manufacture. Further, if the buyer gives notice either implicitly, as by a prior course of dealing involving rigorous inspections, or expressly, as by the deliberate inclusion of a “no replacement” clause in the contract, the seller is to be held to rigid compliance. If the clause appears in a “form” contract evidence that it is out of line with trade usage or the prior course of dealing and was not called to the seller's attention may be sufficient to show that the seller had reasonable grounds to believe that the tender would be acceptable.

3.  The words “a further reasonable time to substitute a conforming tender” are intended as words of limitation to protect the buyer. What is a “reasonable time” depends upon the attending circumstances. Compare Section 2-511 on the comparable case of a seller's surprise demand for legal tender.

4.  Existing trade usages permitting variations without rejection but with price allowance enter into the agreement itself as contractual limitations of remedy and are not covered by this section.

Cross-References:

Point 2: Section 2-302.

Point 3: Section 2-511.

Point 4: Sections 1-205 and 2-721.

Definitional Cross-References:

“Buyer”. Section 2-103.

“Conforming”. Section 2-106.

“Contract”. Section 1-201.

“Money”. Section 1-201.

“Notifies”. Section 1-201.

“Reasonable time”. Section 1-204.

“Seasonably”. Section 1-204.

“Seller”. Section 2-103.

47-2-509. Risk of loss in the absence of breach.

  1. Where the contract requires or authorizes the seller to ship the goods by carrier:
    1. If it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation (§ 47-2-505); but
    2. If it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery.
  2. Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer:
    1. On his receipt of possession or control of a negotiable document of title covering the goods; or
    2. On acknowledgment by the bailee of the buyer's right to possession of the goods; or
    3. After his receipt of possession or control of a non-negotiable document of title or other direction to deliver in a record, as provided in § 47-2-503(4)(B).
  3. In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery.
  4. The provisions of this section are subject to contrary agreement of the parties and to the provisions of this chapter on sale on approval (§ 47-2-327) and on effect of breach on risk of loss (§ 47-2-510).

Acts 1963, ch. 81, § 1 (2-509); Acts 2008, ch. 814, § 12.

Amendments. The 2008 amendment inserted “possession or control of” in (2)(A) and (C); and inserted “in a record” in (2)(C).

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

Prior Tennessee Law: § 47-1222.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, § 3; 9 Tenn. Juris., Damages, § 19.

Law Reviews.

Sales — Risk of Loss in F.O.B. Transaction, 32 Tenn. L. Rev. 348.

NOTES TO DECISIONS

1. Delivery by Carrier.

In absence of some material breach of the contract for delivery, subsection (1)(b) only requires the seller to place the goods at the buyer's disposal so that he has access to them and is able to remove them without obstruction, provided that due notice is given to the buyer, and where this is done seller is not obligated to continue to protect the goods. Lumber Sales, Inc. v. Brown, 63 Tenn. App. 189, 469 S.W.2d 888, 1971 Tenn. App. LEXIS 216 (Tenn. Ct. App. 1971).

2. —Tender.

Carload of lumber was tendered to buyer so as to enable him to take delivery and so that risk of loss passed to buyer where buyer was notified that car had been placed on railroad siding at 11:07 of regular working day even though it was not convenient for buyer to unload that day. Lumber Sales, Inc. v. Brown, 63 Tenn. App. 189, 469 S.W.2d 888, 1971 Tenn. App. LEXIS 216 (Tenn. Ct. App. 1971).

3. —Burden of Proof.

Where sales contract required seller to deliver carloads of lumber to buyer at railroad siding in Nashville and carload of lumber was apparently stolen, seller had burden of proving delivery to buyer at railroad siding prior to theft. Lumber Sales, Inc. v. Brown, 63 Tenn. App. 189, 469 S.W.2d 888, 1971 Tenn. App. LEXIS 216 (Tenn. Ct. App. 1971).

4. —Nonconforming Goods.

Where plaintiff contracted for habitable mobile home plus installation and loss occurred before installation was complete, risk of loss did not shift to plaintiff under subsection (3) because defendant had not delivered conforming goods under § 47-2-106(2). Moses v. Newman, 658 S.W.2d 119, 1983 Tenn. App. LEXIS 609 (Tenn. Ct. App. 1983).

Decisions Under Prior Law

1. Effect of Delivery to Carrier.

When goods have been delivered by the seller to a common carrier, to be by him transported to the buyer, the property becomes vested in the buyer, subject to the seller's right of stoppage in transitu; but this right of the seller is gone if, before it is exercised, and after the delivery, other bona fide rights intervene; as if the buyer sell the goods or they be legally attached for debt. Boyd v. Mosely, 32 Tenn. 661, 1853 Tenn. LEXIS 104 (1853).

A delivery of goods to a common carrier, to be by him transported to the buyer, is a delivery to the buyer, as the carrier is the agent of the buyer, and receives the goods for him. Charles v. Carter, 96 Tenn. 607, 36 S.W. 396, 1896 Tenn. LEXIS 15 (1896).

Where contract for the sale of cotton gin explicitly provided for the erection of the machinery by the purchaser, although a man furnished by the seller was to erect the gin, the transaction of sale was completed when the engine was loaded on cars of the common carrier at the gin company's factory. Sanford v. Keef, 140 Tenn. 368, 204 S.W. 1154, 1918 Tenn. LEXIS 50 (1918).

In the absence of evidence of a contrary intent, the general rule is that, upon the delivery of goods by the seller to a common carrier for transportation to the buyer, the title passes to the buyer. Sindle v. American R. E. Co., 8 Tenn. App. 594, — S.W.2d —, 1928 Tenn. App. LEXIS 183 (Tenn. Ct. App. 1928).

2. Form of Bill of Lading.

In general, delivery of goods to a common carrier is delivery to the consignee. But such is not the case when the bill of lading, although naming the consignee, is sent by the consignor to another with directions to withhold delivery until consignee meets certain conditions described by the consignor. Standard Candy Co. v. Corn Prods. Ref. Co., 2 Tenn. Civ. App. (2 Higgins) 608 (1911).

3. Possession of Bill of Lading by Buyer.

A transfer and delivery of a bill of lading is regarded in law as the delivery of the property, and vests title in the transferee. Ochs v. Price, 53 Tenn. 483, 1871 Tenn. LEXIS 386 (1871).

Collateral References.

Who bears risk of loss of goods. 66 A.L.R.3d 145.

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  Section 22, Uniform Sales Act.

Changes:  Rewritten, subsection (3) of this section modifying prior law.

Purposes of Changes:

To make it clear that:

1.  The underlying theory of these sections on risk of loss is the adoption of the contractual approach rather than an arbitrary shifting of the risk with the “property” in the goods. The scope of the present section, therefore, is limited strictly to those cases where there has been no breach by the seller. Where for any reason his delivery or tender fails to conform to the contract, the present section does not apply and the situation is governed by the provisions on effect of breach on risk of loss.

2.  The provisions of subsection (1) apply where the contract “requires or authorizes” shipment of the goods. This language is intended to be construed parallel to comparable language in the section on shipment by seller. In order that the goods be “duly delivered to the carrier” under paragraph (a) a contract must be entered into with the carrier which will satisfy the requirements of the section on shipment by the seller and the delivery must be made under circumstances which will enable the seller to take any further steps necessary to a due tender. The underlying reason of this subsection does not require that the shipment be made after contracting, but where, for example, the seller buys the goods afloat and later diverts the shipment to the buyer, he must identify the goods to the contract before the risk of loss can pass. To transfer the risk it is enough that a proper shipment and a proper identification come to apply to the same goods although, aside from special agreement, the risk will not pass retroactively to the time of shipment in such a case.

3.  Whether the contract involves delivery at the seller's place of business or at the situs of the goods, a merchant seller cannot transfer risk of loss and it remains upon him until actual receipt by the buyer, even though full payment has been made and the buyer has been notified that the goods are at his disposal. Protection is afforded him, in the event of breach by the buyer, under the next section.

The underlying theory of this rule is that a merchant who is to make physical delivery at his own place continues meanwhile to control the goods and can be expected to insure his interest in them. The buyer, on the other hand, has no control of the goods and it is extremely unlikely that he will carry insurance on goods not yet in his possession.

4.  Where the agreement provides for delivery of the goods as between the buyer and seller without removal from the physical possession of a bailee, the provisions on manner of tender of delivery apply on the point of transfer of risk. Due delivery of a negotiable document of title covering the goods or acknowledgment by the bailee that he holds for the buyer completes the “delivery” and passes the risk.

5.  The provisions of this section are made subject by subsection (4) to the “contrary agreement” of the parties. This language is intended as the equivalent of the phrase “unless otherwise agreed” used more frequently throughout this Act. “Contrary” is in no way used as a word of limitation and the buyer and seller are left free to readjust their rights and risks as declared by this section in any manner agreeable to them. Contrary agreement can also be found in the circumstances of the case, a trade usage or practice, or a course of dealing or performance.

Cross-References:

Point 1: Section 2-510(1).

Point 2: Sections 2-503 and 2-504.

Point 3: Sections 2-104, 2-503 and 2-510.

Point 4: Section 2-503(4).

Point 5: Section 1-201.

Definitional Cross-References:

“Agreement”. Section 1-201.

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Delivery”. Section 1-201.

“Document of title”. Section 1-201.

“Goods”. Section 2-105.

“Merchant”. Section 2-104.

“Party”. Section 1-201.

“Receipt of goods”. Section 2-103.

“Sale on approval”. Section 2-326.

“Seller”. Section 2-103.

47-2-510. Effect of breach on risk of loss.

  1. Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance.
  2. Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning.
  3. Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time.

Acts 1963, ch. 81, § 1 (2-510).

Law Reviews.

Remedies Under the Tennessee Commercial Code (John A. Walker, Jr.), 30 Vand. L. Rev. 1197.

NOTES TO DECISIONS

1. Right of Rejection Existed.

Where plaintiff contracted for habitable mobile home plus installation and loss occurred before installation was complete, plaintiff had right of rejection under § 47-2-601 and risk of loss remained with the seller. Moses v. Newman, 658 S.W.2d 119, 1983 Tenn. App. LEXIS 609 (Tenn. Ct. App. 1983).

3. Risk of Loss for Nonconforming Goods.

Fact that there was no insurance on nonconforming goods returned by a buyer to a seller did not relieve the seller of the risk of loss as the risk of loss remained with her due to the fact that the goods she sold to the buyer did not conform with her statement that the boards were in good condition. 3L Communs., LLC v. Merola, — S.W.3d —, 2013 Tenn. App. LEXIS 589 (Tenn. Ct. App. Sept. 6, 2013).

Trial court properly determined that the risk of loss remained with the seller after the buyer rejected the boards at issue as nonconforming as the evidence showed that the boards at issue did not conform to the seller's representation that the boards had been tested and were in good condition, in that the boards had been repaired with “jumper repairs” and one of the boards did not have a serial number. 3L Communs., LLC v. Merola, — S.W.3d —, 2013 Tenn. App. LEXIS 589 (Tenn. Ct. App. Sept. 6, 2013).

Decisions Under Prior Law

1. Buyer's Right to Inspect on Delivery.

A purchaser of potatoes delivered by railway under an order for choice, large, fresh, dry stock, may refuse to take them where they are consigned to the order of the seller, and the latter's agents refused to permit the former to inspect them within a reasonable time after their arrival, in consequence of which no inspection was made. Charles v. Carter, 96 Tenn. 607, 36 S.W. 396, 1896 Tenn. LEXIS 15 (1896).

2. Effect of Buyer's Return.

Action by seller to recover the value of certain goods sold, where the buyer returned the goods to the drayman to be returned to the seller, but they never reached the seller, is not a suit for damages for breach of contract but a suit upon an open account duly proved, which was controlled by Acts 1919, ch. 118, § 3, subsection (3), and the buyer was liable for the sale price of the goods. Charles H. Levitt & Co. v. Kriger, 6 Tenn. App. 323, — S.W. —, 1927 Tenn. App. LEXIS 148 (Tenn. Ct. App. 1927).

Collateral References.

Who bears risk of loss of goods. 66 A.L.R.3d 145.

COMMENTS TO OFFICIAL TEXT

Prior Uniform Statutory Provision:  None.

Purposes:

To make clear that:

1.  Under subsection (1) the seller by his individual action cannot shift the risk of loss to the buyer unless his action conforms with all the conditions resting on him under the contract.

2.  The “cure” of defective tenders contemplated by subsection (1) applies only to those situations in which the seller makes changes in goods already tendered, such as repair, partial substitution, sorting out from an improper mixture and the like since “cure” by repossession and new tender has no effect on the risk of loss of the goods originally tendered. The seller's privilege of cure does not shift the risk, however, until the cure is completed.

Where defective documents are involved a cure of the defect by the seller or a waiver of the defects by the buyer will operate to shift the risk under this section. However, if the goods have been destroyed prior to the cure or the buyer is unaware of their destruction at the time he waives the defect in the documents, the risk of the loss must still be borne by the seller, for the risk shifts only at the time of cure, waiver of documentary defects or acceptance of the goods.

3.  In cases where there has been a breach of the contract, if the one in control of the goods is the aggrieved party, whatever loss or damage may prove to be uncovered by his insurance falls upon the contract breaker under subsections (2) and (3) rather than upon him. The word “effective” as applied to insurance coverage in those subsections is used to meet the case of supervening insolvency of the insurer. The “deficiency” referred to in the text means such deficiency in the insurance coverage as exists without subrogation. This section merely distributes the risk of loss as stated and is not intended to be disturbed by any subrogation of an insurer.

Cross-Reference:

Section 2-509.

Definitional Cross-References:

“Buyer”. Section 2-103.

“Conform”. Section 2-106.

“Contract for sale”. Section 2-106.

“Goods”. Section 2-105.

“Seller”. Section 2-103.

47-2-511. Tender of payment by buyer — Payment by check.

  1. Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery.
  2. Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.
  3. Subject to the provisions of chapters 1-9 of this title on the effect of an instrument on an obligation (§ 47-3-310), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.

Acts 1963, ch. 81, § 1 (2-511); 1997, ch. 66, § 3.

Prior Tennessee Law: § 47-1242.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Commercial Law, §§ 23, 25.

Law Reviews.

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

NOTES TO DECISIONS

1. Sale not conditional.

Although seller and buyer may have intended the sale of cotton to be conditional at the time of contracting, where seller loaded and shipped the cotton, while retaining the bill of loading, and submitted the drafts to the buyer days later, the sale was not conditional; therefore, seller did not retain a security interest in the unpaid cotton superior to trustee in bankruptcy. 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).

Decisions Under Prior Law

1. Intention of Parties.

In a sale and delivery of 10 bales of cotton on the receipt of checks for the price, the question whether the title passed is one of intention. Young v. Harris-Cortner Co., 152 Tenn. 15, 268 S.W. 125, 1924 Tenn. LEXIS 97, 54 A.L.R. 516 (1924), rehearing denied, 152 Tenn. 34, 268 S.W. 1120, 1924 Tenn. LEXIS 98, 54 A.L.R. 524 (1925).

2. Simultaneous Delivery and Payment.

If the vendor has the possession, he is not bound to part with it, where the price is due instantly, as it is where no time is given; but this right does not affect the question of the title either in the vendee or a purchaser under him. Broyles v. Lowrey, 34 Tenn. 22, 1854 Tenn. LEXIS 5 (1854).

A refusal by the seller to allow the buyer on payment for one bale to take it away, unless he pay for the other, is no breach of the contract, and a subsequent resale of both bales, at a loss, made by the seller, to pay his purchase money, shall be at the buyer's loss. Barker v. Reagan, 51 Tenn. 590, 1871 Tenn. LEXIS 208 (1871).

Where purchaser of cows was well known to seller and seller had not advised purchaser that he would be required to pay for cows in money, and seller had taken a check for cows purchased on the previous day, the purchaser was entitled to time to obtain cash when seller refused to accept his check for the purchase. Farris v. Ferguson, 146 Tenn. 498, 242 S.W. 873, 1922 Tenn. LEXIS 7, 23 A.L.R. 624 (1922).

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).

3. Effect of Breach of Warranty on Payment.

Provision in contract warranting that machine would produce commercially acceptable packages and further provision that seller would not be liable for damages upon failure of machine to perform properly were not inconsistent since all rights, except the right to claim damages, were still left to the buyer, including the right to refuse payment until the machine was producing commercially acceptable packages. Hayssen Co. Southern v. Donelson & Poston, Inc., 51 Tenn. App. 57, 364 S.W.2d 489, 1962 Tenn. App. LEXIS 94 (Tenn. Ct. App. 1962).

Collateral References.

Acceptance of draft for purchase price with warehouse receipt attached or by transfer of draft with receipt as passing title to goods. 55 A.L.R. 116, 76 A.L.R. 885, 109 A.L.R. 1381.

Authority of agent to receive payment for commodities which he is authorized to sell, or for which he is to find market. 8 A.L.R. 203, 105 A.L.R. 718.

Conclusiveness of determination of third party whose approval is provided for by contract for sale of goods. 7 A.L.R.3d 555.

Dishonor of draft or check for purchase price on a cash sale as affecting sellers' rights in respect of property or its proceeds. 31 A.L.R. 578, 54 A.L.R. 526.