History

Editor’s note

—2008. The official comments in this chapter are copyrighted by the National Conference of Commissioners of Uniform State Laws and the American Law Institute, and are reproduced by permission.

OFFICIAL COMMENT

Source. Former Section 1—101.

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

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

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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.

CROSS REFERENCES

Rules of construction, see §§ 171-176 of Title 1.

ANNOTATIONS

Applicability to federal transaction.

Court found persuasive the defendant’s suggestion of looking to the Uniform Commercial Code as a source for the “federal” law of sales. United States v. Wegematic Corporation, 360 F.2d 674, 1966 U.S. App. LEXIS 6268 (2d Cir. 1966).

When the states have gone so far in achieving the desirable goal of a uniform law governing commercial transaction, it would be a distinct disservice to insist on a different one for the segment of commerce, important but still small in relation to the total, consisting of transactions with the United States. United States v. Wegematic Corporation, 360 F.2d 674, 1966 U.S. App. LEXIS 6268 (2d Cir. 1966).

Historical.

The Code has been adopted by Congress for the District of Columbia, has been enacted in over forty states, and is thus well on its way to becoming a truly national law of commerce, which, as Judge L. Hand said of the Negotiable Instruments Law, is “more complete and more certain, than any other which can conceivably be drawn from those sources of ’general law’ to which we were accustomed to resort in the days of Swift v. Tyson”. United States v. Wegematic Corporation, 360 F.2d 674, 1966 U.S. App. LEXIS 6268 (2d Cir. 1966).

Cited.

Cited in GMAC v. Lefevre, 38 B.R. 980, 1983 U.S. Dist. LEXIS 12901 (D. Vt. 1983); In re Thayer, 38 B.R. 412, 1984 Bankr. LEXIS 6159 (Bankr. D. Vt. 1984); Frangiosa v. Kapoukranidis, 160 Vt. 237, 627 A.2d 351, 1993 Vt. LEXIS 46 (1993).

Law Reviews —

The Waiver of Defenses by Guarantors in Guaranty Contracts and the Nonwaiver Provision of the U.C.C., see 5 Vt. L. Rev. 73 (1980).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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.

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.

CROSS REFERENCES

Appeals in probate proceedings, see § 2357 of Title 12.

Civil remedies for bad checks, see § 2311 of Title 9.

Common law; general rights, see § 271 of Title 1.

Corporations, see § 3.02 of Title 11A.

Criminal liability for bad checks, see § 2022 of Title 13.

Equity jurisdiction of superior court, see § 219 of Title 4.

Fraudulent conveyances and false checks, see § 2281 et seq. of Title 9.

New trials; amendment of judgments, see Rule 59, Vermont Rules of Civil Procedure.

Persons under guardianship, see §§ 2658, 2690, 3069 of Title 14.

Relief from judgment, see Rule 60(b), Vermont Rules of Civil Procedure.

Rights of married women, see § 61 et seq. of Title 15.

ANNOTATIONS

Fraud or deceit.

To support action for fraud or deceit, representations must be of existing facts relating to subject matter of contract, affecting its essence and substance, not matters of judgment or opinion, nor facts that will exist, nor promises. Anderson v. Knapp, 126 Vt. 129, 225 A.2d 72, 1966 Vt. LEXIS 177 (1966). (Decided under prior law.)

To support action for fraud or deceit representations must be made by seller to induce buyer to enter into contract, they must be false at the time known by the seller to be false, or made by seller as of his own knowledge without his in fact knowing them to be true and they must not be open to knowledge of or known by the buyer and must be relied upon by him when entering the contract to his damage. Anderson v. Knapp, 126 Vt. 129, 225 A.2d 72, 1966 Vt. LEXIS 177 (1966). (Decided under prior law.)

Cited.

Cited in In re Chase, 37 B.R. 345, 1983 Bankr. LEXIS 4752 (Bankr. D. Vt. 1983); Lemnah v. American Breeders Service, Inc., 144 Vt. 568, 482 A.2d 700, 1984 Vt. LEXIS 537 (1984); Chittenden Trust Co. v. Andre Noel Sports, 159 Vt. 387, 621 A.2d 215, 1992 Vt. LEXIS 206 (1992).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Source. Former Section 1-104.

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

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

CROSS REFERENCES

Construction of repealing acts, see § 214 of Title 1.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1997 (Adj. Sess.). Subdivision (2): Added “Letters of Credit. Section 5-116”.

—1995 (Adj. Sess.) Subdivision (2): Substituted “8-110” for “8-106.”

—1993 (Adj. Sess.). Subdivision (2): Added “Applicability of the Article on Leases. Sections 2A-105 and 2A-106.” following “Section 2-402”, substituted “Governing law in the Article on Fund Transfers. Section 4A-507” for “Bulk transfers subject to the Article on Bulk Transfers. Section 6-102” following “Section 4-102” and “Perfection provisions of the Article on Secured Transactions, Section 9-103” for “Policy and scope of the Article on Secured Transactions. Sections 9-102 and 9-103” following “Section 8-106”.

OFFICIAL COMMENT

Source. Former Section 1-108.

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

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

CROSS REFERENCES

Evidence of foreign laws, see § 1699 of Title 12.

ANNOTATIONS

Conflict of laws.

Provided the state chosen has a reasonable relation to the transaction, the parties may agree that the law of that state shall govern their agreement. Kimco Leasing Co. v. Lake Hortonia Properties, 161 Vt. 425, 640 A.2d 18, 1993 Vt. LEXIS 154 (1993).

Cited.

Cited in Alpert v. Thomas, 643 F. Supp. 1406, 1986 U.S. Dist. LEXIS 20734 (D. Vt. 1986); In re Mayo, 112 B.R. 607, 1990 Bankr. LEXIS 574 (Bankr. D. Vt. 1990).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

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

CROSS REFERENCES

Buyer’s right to specific performance or replevin, see § 2—716 of this title.

Buyer’s remedies, generally, see § 2—711 et seq. of this title.

Distinguishing lease from security interest, see § 1—203 of this title.

Indefiniteness of contract, see § 2—204 of this title.

Obligation of good faith, see § 1—304 of this title.

Preservation of remedies for breach of obligation ancillary to a contract for sale, see § 2—701 of this title.

Right to trial by jury, see Vermont Const. ch. 1, Art. 10.

Seller’s remedies, generally, see § 2—703 et seq. of this title.

Supplementation of Code by principles of law and equity, see § 1—103 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Source. Former Section 1-109.

Changes from former law. None.

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

CROSS REFERENCES

Modification of remedies for breach of sales contract, see § 2—719 of this title.

Modification, rescission and waiver, see § 2—209 of this title.

Obligation of good faith, see § 1—304 of this title.

Statute of frauds, see § 2—201 of this title.

Waiver or renunciation of claim or right after default, see § 2A—107 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Source. None.

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

History

Former § 1-109, relating to section captions, was derived from 1966, No. 29 , § 1. For present provisions, see § 1-107 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subdivision (b)(5): Inserted “a person in control of a negotiable electronic document of title or” following “means” and “negotiable tangible” preceding “document”.

Subdivision (b)(6): Inserted “of title” following “document”, “directly or indirectly” preceding “transporting” and added the second sentence.

Subdivision (b)(15): Inserted “to an electronic document of title means voluntary transfer of control and with respect” following “respect” and “a tangible” preceding “document”.

Subdivision (b)(16): Rewrote the subdivision.

Subdivision (b)(21)(B): Inserted “negotiable tangible” preceding “document”.

Subdivision (b)(21)(C): Added.

Subdivision (b)(42): Substituted “document of title” for “receipt” preceding “issued”.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

Source. Former Section 1-201.

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

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

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

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

1. “Action.”  Unchanged from former Section 1-201, which was derived from similar definitions in Section 191, Uniform Negotiable Instruments Law;  Section 76, Uniform Sales Act; Section 58, Uniform Warehouse Receipts Act;  Section 53, Uniform Bills of Lading Act.
2. “Aggrieved party.” Unchanged from former Section 1-201.
3. “Agreement.”  Derived from former Section 1-201.  As used in the Uniform Commercial Code the word is intended to include full recognition of usage of trade, course of dealing, course of performance and the surrounding circumstances as effective parts thereof, and of any agreement permitted under the provisions of the Uniform Commercial Code to displace a stated rule of law.  Whether an agreement has legal consequences is determined by applicable provisions of the Uniform Commercial Code and, to the extent provided in Section 1-103, by the law of contracts.
4. “Bank.”  Derived from Section 4A-104.
5. “Bearer.”  Unchanged, except in one respect, from former Section 1-201, which was derived from Section 191, Uniform Negotiable Instruments Law. The term “bearer” applies to negotiable documents of title and has been broadened to include a person in control of an electronic negotiable document of title. Control of an electronic document of title is defined in Article 7 (Section 7-106).
6. “Bill of Lading.”  Derived from former Section 1-201. The reference to, and definition of, an “airbill” has been deleted as no longer necessary. A bill of lading is one type of document of title as defined in subsection (16). This definition should be read in conjunction with the definition of carrier in Article 7 (Section 7-102).
7. “Branch.”  Unchanged from former Section 1-201.
8. “Burden of establishing a fact.”  Unchanged from former Section 1-201.
9. “Buyer in ordinary course of business.” Except for minor stylistic changes, identical to former Section 1-201 (as amended in conjunction with the 1999 revisions to Article 9). The major significance of the phrase lies in Section 2-403 and in the Article on Secured Transactions (Article 9).
10. “Conspicuous.”  Derived from former Section 1-201(10). This definition states the general standard that to be conspicuous a term ought to be noticed by a reasonable person.  Whether a term is conspicuous is an issue for the court. Subparagraphs (A) and (B) set out several methods for making a term conspicuous.  Requiring that a term be conspicuous blends a notice function (the term ought to be noticed) and a planning function (giving guidance to the party relying on the term regarding how that result can be achieved).  Although these paragraphs indicate some of the methods for making a term attention-calling, the test is whether attention can reasonably be expected to be called to it.  The statutory language should not be construed to permit a result that is inconsistent with that test.
11. “Consumer.”  Derived from Section 9-102(a)(25).
12. “Contract.”  Except for minor stylistic changes, identical to former Section 1-201.
13. “Creditor.”  Unchanged from former Section 1-201.
14. “Defendant.”  Except for minor stylistic changes, identical to former Section 1-201, which was derived from Section 76, Uniform Sales Act.
15. “Delivery.”  Derived from former Section 1-201.  The reference to certificated securities has been deleted in light of the more specific treatment of the matter in Section 8-301. The definition has been revised to accommodate electronic documents of title. Control of an electronic document of title is defined in Article 7 (Section 7-106).
16. “Document of title.”  Derived from former Section 1-201, which was derived from Section 76, Uniform Sales Act. This definition makes explicit that the obligation or designation of a third party as “bailee” is essential to a document of title, 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, including documents which gain commercial recognition in the international arena. See UNCITRAL Draft Instrument on the Carriage of Goods By Sea.  It is unforeseeable what documents may one day serve the essential purpose now filled by warehouse receipts and bills of lading.  The definition is stated in terms of the function of the documents with the intention that any document which gains commercial recognition as accomplishing the desired result shall be included within its scope.  Fungible goods are adequately identified within the language of the definition by identification of the mass of which they are a part.
17. “Fault.”  Derived from former Section 1-201. “Default” has been added to the list of events constituting fault.
18. “Fungible goods.”  Derived from former Section 1-201. References to securities have been deleted because Article 8 no longer uses the term “fungible” to describe securities. Accordingly, this provision now defines the concept only in the context of goods.
19. “Genuine.”  Unchanged from former Section 1-201.
20. “Good faith.”  Former Section 1-201(19) defined “good faith” simply as honesty in fact; the definition contained no element of commercial reasonableness.  Initially, that definition applied throughout the Code with only one exception.  Former Section 2-103(1)(b) provided that “in this Article . . . good faith  in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.”  This alternative definition was limited in applicability in three ways.  First, it applied only to transactions within the scope of Article 2.  Second, it applied only to merchants.  Third, strictly construed it applied only to uses of the phrase “good faith” in Article 2; thus, so construed it would not define “good faith” for its most important use — the obligation of good faith imposed by former Section 1-203.
21. “Holder.” Derived from former Section 1-201.  The definition has been reorganized for clarity and amended to provide for electronic negotiable documents of title.
22. “Insolvency proceedings.”  Unchanged from former Section 1-201.
23. “Insolvent.”  Derived from former Section 1-201.  The three tests of insolvency — “generally ceased to pay debts in the ordinary course of business other than as a result of a bona fide dispute as to them,” “unable to pay debts as they become due,” and “insolvent within the meaning of the federal bankruptcy law” — are expressly set up as alternative tests and must be approached from a commercial standpoint.
24. “Money.”  Substantively identical to former Section 1-201.  The test is that of sanction of government, whether by authorization before issue or adoption afterward, which recognizes the circulating medium as a part of the official currency of that government.  The narrow view that money is limited to legal tender is rejected.
25. “Organization.”  The former definition of this word has been replaced with the standard definition used in acts prepared by the National Conference of Commissioners on Uniform State Laws.
26. “Party.”  Substantively identical to former Section 1-201.  Mention of a party includes, of course, a person acting through an agent.  However, where an agent comes into opposition or contrast to the principal, particular account is taken of that situation.
27. “Person.” The former definition of this word has been replaced with the standard definition used in acts prepared by the National Conference of Commissioners on Uniform State Laws.
28. “Present value.”  This definition was formerly contained within the definition of “security interest” in former Section 1-201(37).
29. “Purchase.”  Derived from former Section 1-201.  The form of definition has been changed from “includes” to “means.”
30. “Purchaser.”  Unchanged from former Section 1-201.
31. “Record.”  Derived from Section 9-102(a)(69).
32. “Remedy.”  Unchanged from former Section 1-201.  The purpose is to make it clear that both remedy and right (as defined) include those remedial rights of “self help” which are among the most important bodies of rights under the Uniform Commercial Code, remedial rights being those to which an aggrieved party may resort on its own.
33. “Representative.”  Derived from former Section 1-201. Reorganized, and form changed from “includes” to “means.”
34. “Right.”  Except for minor stylistic changes, identical to former Section 1-201.
35. “Security Interest.”  The definition is the first paragraph of the definition of “security interest” in former Section 1-201, with minor stylistic changes.  The remaining portion of that definition has been moved to Section 1-203. Note that, because of the scope of Article 9, the term includes the interest of certain outright buyers of certain kinds of property.
36. “Send.”  Derived from former Section 1-201.  Compare “notifies”.
37. “Signed.” Derived from former Section 1-201.  Former Section 1-201 referred to “intention to authenticate”; because other articles now use the term “authenticate,” the language has been changed to “intention to adopt or accept.”  The latter formulation is derived from the definition of “authenticate” in Section 9-102(a)(7).  This provision refers only to writings, because the term “signed,” as used in some articles, refers only to writings.  This provision also makes it clear that, as the term “signed” is used in the Uniform Commercial Code, a complete signature is not necessary.  The symbol may be printed, stamped or written;  it may be by initials or by thumbprint.  It may be on any part of the document and in appropriate cases may be found in a billhead or letterhead.  No catalog of possible situations can be complete and the court must use common sense and commercial experience in passing upon these matters.  The question always is whether the symbol was executed or adopted by the party with present intention to adopt or accept the writing.
38. “State.”  This is the standard definition of the term used in acts prepared by the National Conference of Commissioners on Uniform State Laws.
39. “Surety.”  This definition makes it clear that “surety” includes all secondary obligors, not just those whose obligation refers to the person obligated as a surety. As to the nature of secondary obligations generally, see Restatement (Third), Suretyship and Guaranty Section 1 (1996).
40. “Term.”  Unchanged from former Section 1-201.
41. “Unauthorized signature.”  Unchanged from former Section 1-201.
42. “Warehouse receipt.”  Derived from former Section 1-201, which was derived from Section 76(1), Uniform Sales Act;  Section 1, Uniform Warehouse Receipts Act.  Receipts issued by a field warehouse are included, provided the warehouseman and the depositor of the goods are different persons. The definition makes clear that the receipt must qualify as a document of title under subsection (16).

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

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

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

A document of title may be either tangible or electronic. Tangible documents of title should be construed to mean traditional paper documents. Electronic documents of title are documents that are stored in an electronic medium instead of in tangible form. The concept of an electronic medium should be construed liberally to include electronic, digital, magnetic, optical, electromagnetic, or any other current or similar emerging technologies. As to reissuing a document of title in an alternative medium, see Article 7, Section 7-105. Control for electronic documents of title is defined in Article 7 (Section 7-106).

The definition is broad enough to include an airway bill.

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

su

CROSS REFERENCES

Definitions applicable to all statutes, see § 101 et seq. of Title 1.

ANNOTATIONS

• Holder.
• Notice.
• Option to buy within lease.
• Security interest.
• Signed.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

1. Under subsection (a), a person has notice of a fact when, inter alia, the person has received a notification of the fact in question.
2. As provided in subsection (d), the word “notifies” is used when the essential fact is the proper dispatch of the notice, not its receipt.  Compare “Send.”  When the essential fact is the other party’s receipt of the notice, that is stated.  Subsection (e) states when a notification is received.
3. Subsection (f) makes clear that notice, knowledge, or a notification, although “received,” for instance, by a clerk in Department A of an organization, is effective for a transaction conducted in Department B only from the time when it was or should have been communicated to the individual conducting that transaction.

CROSS REFERENCES

Records and documents as evidence, see § 1691 et seq. of Title 12.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Source. Former Section 1-201(37).

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

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

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.

CROSS REFERENCES

Acceleration of payment or performance, see § 1—309 of this title.

Buyer’s rightful rejection, see § 2—601 et seq. of this title.

Definitions, see §§ 1—201, 2—103 of this title.

Excuse for nondelivery by seller or delay in delivery, see § 2—615 of this title.

Merchant buyer’s duty of good faith after rejection of goods, see § 2—603 of this title.

Substituted performance of sales contract, see § 2—614 of this title.

ANNOTATIONS

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Source. Former Section 1-201(44).

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

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

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

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

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

CROSS REFERENCES

Construction of sales contracts, see § 2—301 et seq. of this title.

Formation of sales contract, see § 2—204 of this title.

Merchant as one with specialized knowledge or skill, see § 2—104 of this title.

Obligation of good faith, see § 1—304 of this title.

Parol or extrinsic evidence of sales contract, see § 2A—202 of this title.

Statute of frauds for contracts for sale of goods, see § 2—201 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Source. Former Section 1-201(31).

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

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

ANNOTATIONS

Cited.

Cited in Vermont Plastics, Inc. v. Brine, Inc., 824 F. Supp. 444, 1993 U.S. Dist. LEXIS 8631 (D. Vt. 1993).

History

Former § 1-207 relating to performance or acceptance under reservation of rights, was derived from 1966, No. 29 , § 1 and amended by 1993, No. 158 (Adj. Sess.), § 4. For present provisions, see § 1-308 of this title.

Former § 1-208, relating to option to accelerate at will, was derived from 1966, No. 29 , § 1 and amended by 1993, No. 158 (Adj. Sess.), § 4. For present provisions, see § 1-309 of this title.

Former § 1-209, relating to subordinated obligations, was derived from 1966, No. 29 , § 1. For present provisions, see § 1-310 of this title.

CROSS REFERENCES

Effect of acceptance of goods, see § 2-607 of this title.

ANNOTATIONS

Generally.

The Uniform Commercial Code applies to all checks, regardless of the purpose for which they are issued. Frangiosa v. Kapoukranidis, 160 Vt. 237, 627 A.2d 351, 1993 Vt. LEXIS 46 (1993).

Method of reserving rights.

Where a debtor tenders a check to a creditor as payment in full for less than the amount alleged to be owing on the debt, the creditor may accept the check as partial payment, so long as the creditor makes a reservation of rights in a manner that clearly and explicitly notifies the debtor that the check is not accepted as full payment on the debt and that no accord and satisfaction has been effected. Frangiosa v. Kapoukranidis, 160 Vt. 237, 627 A.2d 351, 1993 Vt. LEXIS 46 (1993).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

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

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

Changes: Section 75 has been rephrased.

Purposes of Changes and New Matter: To make it clear that:

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

Official Comment References

Cross Reference:

Article 9.

Definitional Cross References:

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Present sale”. Section 2-106.

“Sale”. Section 2-106.

CROSS REFERENCES

Disclosure of finance charges for retail installment sales, see § 2405 of Title 9.

Secured transactions, see § 9-101 et seq. of this title.

ANNOTATIONS

Cited.

Cited in Lemnah v. American Breeders Service, Inc., 144 Vt. 568, 482 A.2d 700, 1984 Vt. LEXIS 537 (1984).

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subdivision (3): Substituted “ ‘Control’ ” as provided in section 7-106 of this title and “the” for “The”.

—2007 (Adj. Sess.). Subdivision (1)(b): Reserved.

—1999 (Adj. Sess.). Subsection (3): Substituted “Section 9-102” for “Section 9-109” following “consumer goods” and “Section 3-502” for “Section 3-507” following “dishonor”.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

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

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

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

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

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

Official Comment References

Cross References:

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

Point 2: Section 1-201.

Definitional Cross References:

“Person”. Section 1-201.

CROSS REFERENCES

Definitions generally applicable, see § 111 et seq. of Title 1.

Delegation of performance and assignment of rights, see § 2-210 of this title.

General definitions, see § 1-201 of this title.

ANNOTATIONS

• Consumer goods.
• Good faith.
• Purchaser.
• Reasonable commercial standards.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subdivision (2): Inserted “or are associated with” following “accompany”.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

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

Purposes: 1. This Article assumes that 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 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.

Official Comment References

Cross References:

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

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

Definitional Cross References:

“Bank”. Section 1-201.

“Buyer”. Section 2-103.

“Contract for sale”. Section 2-106.

“Document of title”. Section 1-201.

“Draft”. Section 3-104.

“Goods”. Section 2-105.

“Person”. Section 1-201.

“Purchase”. Section 1-201.

“Seller”. Section 2-103.

CROSS REFERENCES

Definitions of delivery and shipment terms, see § 2—319 to 2—325 of this title.

Implied warranties of merchantability, see § 2—314, of this title.

Implied warranty of fitness for a particular purpose, see § 2—315 of this title.

Obligation of good faith, see § 1—304 of this title.

Purposes and construction of Code, see § 1—101 et seq. of this title.

Secured transactions, see § 9—101 et seq. of this title.

ANNOTATIONS

Merchants.

Creditor who filed a claim against a debtor’s Chapter 12 bankruptcy estate was entitled to recover interest on debts the debtor owed on products he ordered for use on his dairy farm. The Vermont Supreme Court had found that dairy farmers were “merchants” under § 2-104 of the Vermont Uniform Commercial Code, 9A V.S.A. § 2-104, and a provision the creditor included in invoices it sent the debtor before he declared bankruptcy, which stated that interest would be charged at the rate of 18% per annum on unpaid debts, became part of the parties’ contract pursuant to 9A V.S.A. § 2-207(2). Bourdeau Bros. v. Montagne, 431 B.R. 94, 2010 Bankr. LEXIS 1665 (Bankr. D. Vt. 2010).

Where sellers of an Arabian stallion for breeding purposes operated a partnership which dealt in Arabian purebred horses, one of the owners of the partnership held himself out as having knowledge and skills peculiar to the practices and goods involved in the Arabian horse business, the partnership employed agents who held themselves out as having such skills and knowledge, and the partnership had sold mares for breeding purposes and had sold shares in a breeding stallion, the sellers were “merchants” within the meaning of this section. Alpert v. Thomas, 643 F. Supp. 1406, 1986 U.S. Dist. LEXIS 20734 (D. Vt. 1986).

Cited.

Cited in Aube v. O'Brien, 140 Vt. 1, 433 A.2d 298, 1981 Vt. LEXIS 542 (1981); Mitral Corp. v. Vermont Knives, Inc., 152 Vt. 242, 566 A.2d 406, 1989 Vt. LEXIS 162 (1989).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

Changes: Rewritten.

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

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

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

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

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

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

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

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

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

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

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

Official Comment References

Cross References:

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

Point 5: Section 2-501.

See also Section 1-201.

Definitional Cross References:

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Fungible”. Section 1-201.

“Money”. Section 1-201.

“Present sale”. Section 2-106.

“Sale”. Section 2-106.

“Seller”. Section 2-103.

CROSS REFERENCES

Classification of goods, see § 9-109 of this title.

General definitions, see § 1-201 of this title.

Insurable interest, future goods, see § 2-501 of this title.

Investment securities, see § 8-101 et seq. of this title.

Sale of timber and minerals as sale of goods, see § 2-107 of this title.

Statute of frauds, see § 2-201 of this title.

ANNOTATIONS

Goods.

Vermont provisions of the Uniform Commercial Code applied because the contract was a contract for sale of goods, as both propane gas and the system were moveable at the time of identification to the contract for sale. Nanak Resorts, Inc. v. Haskins Gas Serv., 407 B.R. 65, 2009 Bankr. LEXIS 1787 (Bankr. D. Vt. 2009).

Cited.

Cited in Alpert v. Thomas, 643 F. Supp. 1406, 1986 U.S. Dist. LEXIS 20734 (D. Vt. 1986); Colgan v. Agway, Inc., 150 Vt. 373, 553 A.2d 143, 1988 Vt. LEXIS 187 (1988).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

Changes: Completely rewritten.

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

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

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

Official Comment References

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.

CROSS REFERENCES

Classification of goods, see § 9—109 of this title.

Course of dealing and usage of trade, see § 1—303 of this title.

Obligation of good faith, see § 1—304 of this title.

Rejection of nonconforming tender or delivery, see § 2—508 of this title.

ANNOTATIONS

• Intent of parties.
• Nonconformity.
• Questions for court.
• Questions for jury.
• Sale of goods.
• Sale of services.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1993 (Adj. Sess.) Subsection (1): Deleted “timber” preceding “minerals” and inserted “(including oil and gas)” following “like”.

Subsection (2): Inserted “or of timber to be cut” following “subsection (1)”.

OFFICIAL COMMENT

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

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

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

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

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

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

Official Comment References

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.

CROSS REFERENCES

Conveyances of realty, see § 301 et seq. of Title 27.

Definitions pertaining to secured transactions, see § 9—101 et seq. of this title.

“Goods” as including growing crops and other identified things attached to realty, see § 2-105 of this title.

Recording of deeds, see § 401 et seq. of Title 27.

Secured transactions, see § 9-101 et seq. of this title.

Statute of frauds, see § 2-201 of this title.

CROSS REFERENCES

Sale or purchase of body parts removed after death, see § 5250p of Title 18.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

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

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

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

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

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

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

Official Comment References

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.

CROSS REFERENCES

Confirmation of oral stop payment order, see § 4—403 of this title.

Conveyances of interests in land must be in writing, see § 302 of Title 27.

Definition of “writing”, see § 142 of Title 1.

Formal requisites of security interests, see § 9—203 of this title.

Formation and construction of lease contracts, see § 2A—201 et seq. of this title.

General definitions, see § 1—201 of this title.

Modification, rescission and waiver, see § 2—209 of this title.

Parol or extrinsic evidence, see § 2—202 of this title.

Price payable in an interest in realty, see § 2—304 of this title.

Sale or return contracts, see § 2—326 of this title.

Statute of frauds for kinds of personal property not otherwise covered, see § 1—206 of this title.

Terms in acceptance additional to or different from those agreed upon, see § 2—207 of this title.

ANNOTATIONS

• Burden of proof.
• Consideration and price.
• Delivery of goods.
• Delivery to agent or bailee.
• Delivery to carrier.
• Evidence.
• Executed contracts.
• Form and execution.
  • —Generally.
• Independent contract.
• Manufacture specially.
• Payment.
  • —Generally.
• Personal property.
• Proof of oral contract.
• Right to examine and reject.
• Waiver.
• What Constitutes.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2007 (Adj. Sess.) Subsection (a): Inserted “performance, course of” preceding “dealing”, substituted “§ 1—303 of this title” for “§ 1—205” and deleted “or by course of performance (Section 2—208)” thereafter.

OFFICIAL COMMENT

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.

Official Comment References

Cross References:

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

Definitional Cross References:

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

“Course of dealing”. Section 1-303.

“Course of performance”. Section 1-303.

“Party”. Section 1-201.

“Term”. Section 1-201.

“Usage of trade”. Section 1-303.

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

CROSS REFERENCES

Acceptance stating additional or different terms, see § 2-207 of this title.

Sale or return contracts, see § 2-326 of this title.

Unconscionable contract or clause, see § 2-302 of this title.

Words or conduct tending to negate or limit warranties, see § 2-316 of this title.

“Writing” defined, see § 142 of Title 1.

ANNOTATIONS

Merger clauses.

Where a purchase and sale agreement contained no merger clause, the agreement could not be viewed as a writing which was intended by the parties as a final expression of their agreement; consequently, oral statements by the seller creating an express warranty were not barred by the “doctrine of contract merger,” which was inapplicable. Alpert v. Thomas, 643 F. Supp. 1406, 1986 U.S. Dist. LEXIS 20734 (D. Vt. 1986).

Parol evidence.

It is not necessary that consideration of contract in writing should appear upon the face of writing; it may be proved by parol evidence, or may be inferred from the terms and obvious import of contract. Patchin v. Swift, 21 Vt. 292, 1849 Vt. LEXIS 29 (1849). (Decided under prior law.)

Cited.

Cited in Big G Corp. v. Henry, 148 Vt. 589, 536 A.2d 559, 1987 Vt. LEXIS 558 (1987); Isbrandtsen v. North Branch Corp., 150 Vt. 575, 556 A.2d 81, 1988 Vt. LEXIS 225 (1988); Weale v. Lund, 162 Vt. 622, 649 A.2d 247, 1994 Vt. LEXIS 94 (1994); Vogel v. W.A. Sandri, Inc., 898 F. Supp. 254, 1995 U.S. Dist. LEXIS 17913 (D. Vt. 1995); Herbert v. Pico Ski Area Management Co., 2006 VT 74, 180 Vt. 141, 908 A.2d 1011, 2006 Vt. LEXIS 161 (2006) (mem.).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

Changes: Portion pertaining to “seals” rewritten.

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

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

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.

Official Comment References

Cross References:

Point 1: Section 2-205.

Definitional Cross Reference:

“Contract for sale”. Section 2-106.

“Goods”. Section 2-105.

“Writing”. Section 1-201.

CROSS REFERENCES

Firm offers, see § 2-205 of this title.

Inoperative seals affixed to leases, see § 2A-203 of this title.

Private seals and scrolls, see § 134 of Title 1.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

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

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

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

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

Official Comment References

Cross References:

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

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

Subsection (3): See Part 3.

Definitional Cross References:

“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.

CROSS REFERENCES

Formation of commercial leases generally, see § 2A-204 of this title.

Statute of frauds, see § 2-201 of this title.

Supplementation of Code by principles of law and equity, see § 1-103 of this title.

Unconscionable contract or clause, see § 2-302 of this title.

ANNOTATIONS

• Acceptance.
• Application.
• Time for performance.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

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

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

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

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

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

Official Comment References

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.

CROSS REFERENCES

Firm offers to lease goods, see § 2A—205 of this title.

Formal requisites of contract, see § 2—201 of this title.

Obligation of reasonableness, see § 1—102 of this title.

Reasonable time, see § 1—205 of this title.

Unconscionable contract or clause, enforcement alternatives, see § 2—302 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

Purposes of Changes: To make it clear that:

1. Any reasonable manner of acceptance is intended to be regarded as available unless the offeror has made quite clear that it will not be acceptable.  Former technical rules as to acceptance, such as requiring that telegraphic offers be accepted by telegraphed acceptance, etc., are rejected and a criterion that the acceptance be “in any manner and by any medium reasonable under the circumstances,” is substituted. This section is intended to remain flexible and its applicability to be enlarged as new media of communication develop or as the more time-saving present day media come into general use.
2. Either shipment or a prompt promise to ship is made a proper means of acceptance of an offer looking to current shipment.  In accordance with ordinary commercial understanding the section interprets an order looking to current shipment as allowing acceptance either by actual shipment or by a prompt promise to ship and rejects the artificial theory that only a single mode of acceptance is normally envisaged by an offer.  This is true even though the language of the offer happens to be “ship at once” or the like.  “Shipment” is here used in the same sense as in Section 2-504; it does not include the beginning of delivery by the seller’s own truck or by messenger.  But loading on the seller’s own truck might be a beginning of performance under subsection (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.

Official Comment References

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.

CROSS REFERENCES

Offer and acceptance in formation of lease contract, see § 2A-206 of this title.

ANNOTATIONS

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

Purposes of Changes: 1. This section is intended to deal with two typical situations. The one is where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal acknowledgments or memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is one in which a wire or letter expressed and intended as the closing or confirmation of an agreement adds further minor suggestions or proposals such as “ship by Tuesday,” “rush,” “ship draft against bill of lading inspection allowed,” or the like.

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

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

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

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

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

Official Comment References

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.

CROSS REFERENCES

Acceptance of goods by buyer, see §§ 2-606, 2-607 of this title.

Acceptance of goods under installment contract, see § 2-612 of this title.

Assurance of performance, § 2-609 of this title.

Buyer’s remedies generally, see § 2-711 et seq. of this title.

Delay in delivery or nondelivery, see §§ 2-615, 2-616 of this title.

Inspection of goods by buyer before payment or acceptance, see § 2-513 of this title.

Rejection of goods, see § 2-602 of this title.

Substituted performance, see § 2-614 of this title.

Unconscionable contract or clause, see § 2-302 of this title.

Variation of code by agreement, see § 1-102 of this Title.

ANNOTATIONS

Illustrative cases.

Creditor who filed a claim against a debtor’s Chapter 12 bankruptcy estate was entitled to recover interest on debts the debtor owed on products he ordered for use on his dairy farm. The Vermont Supreme Court had found that dairy farmers were “merchants” under § 2-104 of the Vermont Uniform Commercial Code, 9A V.S.A. § 2-104, and a provision the creditor included in invoices it sent the debtor before he declared bankruptcy, which stated that interest would be charged at the rate of 18% per annum on unpaid debts, became part of the parties’ contract pursuant to 9A V.S.A. § 2-207(2). Bourdeau Bros. v. Montagne, 431 B.R. 94, 2010 Bankr. LEXIS 1665 (Bankr. D. Vt. 2010).

History

Former § 208, relating to course of performance or practical construction, was derived from 1966, No. 29 , § 1.

Annotations From Former § 208

Language of agreement.

Handwritten statement in credit agreement stating that principals were looking for line of $2,000 did not impose limitation on their liability because debtor consistently purchased property well in excess of this amount and course of parties’ conduct indicated that $2,000 was not to be considered by either of them as a limitation. Weale v. Lund, 162 Vt. 622, 649 A.2d 247, 1994 Vt. LEXIS 94 (1994) (mem.).

Cited.

Cited in Lemnah v. American Breeders Service, Inc., 144 Vt. 568, 482 A.2d 700, 1984 Vt. LEXIS 537 (1984); Vogel v. W.A. Sandri, Inc., 898 F. Supp. 254, 1995 U.S. Dist. LEXIS 17913 (D. Vt. 1995).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

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

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

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

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

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

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

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

Official Comment References

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.

CROSS REFERENCES

Definitions generally, see § 1—201 of this title.

Delay in delivery or nondelivery occasioned by failure of presupposed conditions, see § 2—615 of this title.

Effect of consistent additional terms on final written expression of contract, see § 2—202 of this title.

Formal requisites of contract, see § 2-201 of this title.

Modification, rescission and waiver of lease contracts, see § 2A—208 of this title.

Obligations of good faith, see § 1—304 of this title.

“Termination” and “cancellation”, see § 2—106 of this title.

Termination or modification by buyer after notification of delay, see § 2—616 of this title.

ANNOTATIONS

Rescission.

The right to rescind a sale shall not be regarded as bargained away unless the contract clearly says so, especially where the warranty is written by the seller. Newton v. Smith Motors, Inc., 122 Vt. 409, 175 A.2d 514, 1961 Vt. LEXIS 92 (1961). (Decided under prior law.)

The fact that a seller expressly undertakes to repair defects in merchandise sold does not abrogate the buyer’s right to elect to rescind for a breach of warranty. Newton v. Smith Motors, Inc., 122 Vt. 409, 175 A.2d 514, 1961 Vt. LEXIS 92 (1961). (Decided under prior law.)

Cited.

Cited in Lemnah v. American Breeders Service, Inc., 144 Vt. 568, 482 A.2d 700, 1984 Vt. LEXIS 537 (1984).

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1999 (Adj. Sess.). Added new subsec. (3); redesignated former subsecs. (3)-(5) as present subsecs. (4)-(6); inserted “or her” following “his” in subsecs. (1), (2), and (6) and “or her” following “him” in the first sentence of present subsec. (5).

OFFICIAL COMMENT

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 or a right to payment of an “account” as defined in the Article on Secured Transactions (Article 9) may be assigned although the agreement prohibits assignment. In such cases no question of delegation of any performance is involved. The assignment of a “contract right” as defined in the Article on Secured Transactions (Article 9) is not covered by this subsection.

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

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

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

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

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

Official Comment References

Cross References:

Point 3: Articles 5 and 9.

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

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

Point 7: Article 9.

Definitional Cross References:

“Agreement”. Section 1-201.

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Party”. Section 1-201.

“Rights”. Section 1-201.

“Seller”. Section 2-103.

“Term”. Section 1-201.

CROSS REFERENCES

Agreement not to assert defenses against assignee, secured transactions, see § 9—206 of this title.

Alienability of party’s interest under lease contract or of lessor’s residual interest in goods, see § 2A—303 of this title.

Assurance of due performance, see § 2—609 of this title.

Exclusive dealings, see § 2—306 of this title.

Identification and proof of assignment of contract, secured transactions, see § 9—406 of this title.

Letters of credit, see § 5—101 et seq. of this title.

Secured transactions, see § 9—101 et seq. of this title.

Security interest or authority giving debtor authority to use or dispose of collateral, see § 9—317 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

Changes: Rewritten.

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

Official Comment References

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.

CROSS REFERENCES

Assignment of “account” or “contract right”, secured transactions, see § 9—406 of this title.

Course of dealing and usage of trade, see § 1—303 of this title.

Installment contracts; breach, see § 2—612 of this title.

Liberal administration of remedies provided by Code, see § 1—305 of this title.

Modification, rescission and waiver, see § 2—209 of this title.

Rejection of nonconforming tender or delivery, see § 2—508 of this title.

ANNOTATIONS

Cited.

Cited in Mitral Corp. v. Vermont Knives, Inc., 152 Vt. 242, 566 A.2d 406, 1989 Vt. LEXIS 162 (1989).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

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

Official Comment References

Definitional Cross Reference:

“Contract”. Section 1-201.

CROSS REFERENCES

Obligation of good faith, see § 1—304 of this title.

Variation of code provisions by agreement, see § 1—102.

ANNOTATIONS

Oppression.

There was no oppression in contracting where party, rather than being forced to accept the terms of the contract, succeeded in altering the one aspect it attempted to alter and then signed without even reading the contract, in effect agreeing to whatever terms were presented. Lamoille Grain Co. v. St. Johnsbury & Lamoille County R.R., 135 Vt. 5, 369 A.2d 1389, 1976 Vt. LEXIS 594 (1976).

Unfair Surprise.

In determining the issue of unfair surprise one must consider whether each party to the contract, considering his obvious education or lack of it, had reasonable opportunity to understand the terms of the contract, or whether the terms were hidden in a maze of fine print and minimized by deceptive sales practices. Lamoille Grain Co. v. St. Johnsbury & Lamoille County R.R., 135 Vt. 5, 369 A.2d 1389, 1976 Vt. LEXIS 594 (1976).

Cited.

Cited in Colgan v. Agway, Inc., 150 Vt. 373, 553 A.2d 143, 1988 Vt. LEXIS 187 (1988); KPC Corp. v. Book Press, Inc., 161 Vt. 145, 636 A.2d 325, 1993 Vt. LEXIS 113 (1993).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

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

Compare Section 1-102(4).

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

Official Comment References

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.

CROSS REFERENCES

Definitions, see § 1-201 of this title.

Limitation of consequential damages as unconscionable, see § 2-719 of this title.

Unconscionable contract or clause, see § 2-302 of this title.

Variation of code provisions by agreement, see § 1-102 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

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

Official Comment References

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.

CROSS REFERENCES

Conveying interest in realty, see § 301 et seq. of Title 27.

Seller’s action for the price, see § 2—709 of this title.

Waiver or renunciation of claim arising out of alleged breach, see § 1—306 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Sections 9 and 10, Uniform Sales Act.

Changes: Completely rewritten.

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

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

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

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

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

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

Official Comment References

Cross References:

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

Point 3: Section 2-103.

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

Point 6: Section 1-203.

Definitional Cross References:

“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.

CROSS REFERENCES

Agreement of sale which leaves particulars of performance to be specified by one of the parties, see § 2—311 of this title.

Buyer’s procurement of substitute goods, see § 2—712 of this title.

Buyer’s right to specific performance or replevin, see § 2—716 of this title.

Contract in which one or more terms is left open, see § 2—204 of this title.

Good faith defined, see § 1—201(b) of this title.

Obligation of good faith, see § 1—304 of this title.

Repudiation of contract with respect to performance not yet due, see § 2—610 of this title.

Seller’s right of resale, see § 2—706 of this title.

ANNOTATIONS

Reasonable price.

Where no price is agreed upon between buyer and seller, buyer is obligated to pay a reasonable price. Myers & Son, Inc. v. Felopulos, 116 Vt. 364, 76 A.2d 552, 1950 Vt. LEXIS 165 (1950); Wortheim v. Brace, 116 Vt. 9, 68 A.2d 719, 1949 Vt. LEXIS 95 (1949). (Decided under prior law.)

Cited.

Cited in Suburban Propane v. Proctor Gas, Inc., 953 F.2d 780, 1992 U.S. App. LEXIS 366 (2d Cir. 1992).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

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

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

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

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

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

Official Comment References

Cross References:

Point 4: Section 2-210.

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

Definitional Cross References:

“Agreement”. Section 1-201.

“Buyer”. Section 2-103.

“Contract for sale”. Section 2-106.

“Good faith”. Section 1-201.

“Goods”. Section 2-105.

“Party”. Section 1-201.

“Term”. Section 1-201.

“Seller”. Section 2-103.

CROSS REFERENCES

Adequate assurance of due performance, see § 2—609 of this title.

Assignment of rights, see § 2—210 of this title.

Obligations of good faith, see § 1—304 of this title.

ANNOTATIONS

Requirements contract.

Where the motor fuel assignment contract between a gasoline station owner and a motor fuel supplier contemplated the establishment and continuation of an exclusive buyer-seller relationship for gasoline products at the owner’s gas station and where the parties’ actions demonstrated that they both had understood their agreement to be a requirements contract, the owner could not reasonably argue that the absence of a term such as “all” fuel nullified the existence of a requirements contract. Vogel v. W.A. Sandri, Inc., 898 F. Supp. 254, 1995 U.S. Dist. LEXIS 17913 (D. Vt. 1995).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 45(1), Uniform Sales Act.

Changes: Rewritten and expanded.

Purposes of Changes: 1. This section applies where the parties have not specifically agreed whether delivery and payment are to be by lots and generally continues the essential intent of original Act, Section 45(1) by assuming that the parties intended delivery to be in a single lot.

2. Where the actual agreement or the circumstances do not indicate otherwise, delivery in lots is not permitted under this section and the buyer is properly entitled to reject for a deficiency in the tender, subject to any privilege in the seller to cure the tender.

3. The “but” clause of this section goes to the case in which it is not commercially feasible to deliver or to receive the goods in a single lot as for example, where a contract calls for the shipment of ten carloads of coal and only three cars are available at a given time. Similarly, in a contract involving brick necessary to build a building the buyer’s storage space may be limited so that it would be impossible to receive the entire amount of brick at once, or it may be necessary to assemble the goods as in the case of cattle on the range, or to mine them.

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

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

Official Comment References

Cross References:

Point 1: Section 1-201.

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

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

Definitional Cross References:

“Contract for sale”. Section 2-106.

“Goods”. Section 2-105.

“Lot”. Section 2-105.

“Party”. Section 1-201.

“Rights”. Section 1-201.

CROSS REFERENCES

Assurance of due performance, see § 2-609 of this title.

Buyer’s options in case of nonconforming goods or tender of delivery, see § 2-601 of this title.

Definitions, see §§ 1-201, 2-103 of this title.

Manner, time and place for tender of delivery by seller, see § 2-503 of this title.

Rejection by buyer of nonconforming tender or delivery, see § 2-508 of this title.

Revocation by buyer of acceptance of lot or commercial unit, see § 2-608 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

Changes: Slight modification in language.

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

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

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

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

Official Comment References

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.

Point 1: Sections 2-504 and 2-505.

Point 2: Section 2-503.

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

CROSS REFERENCES

Collection of documentary drafts, see § 4—501 et seq. of this title.

Documents of title generally, see § 7—101 et seq. of this title.

Letters of credit, see § 5—101 et seq. of this title.

Manner, time and place of tender of delivery by seller, see § 2—503 of this title.

Shipment of goods by seller, see §§ 2—504, 2—505 of this title.

Tender of required documents, see § 2—512 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

Changes: Completely different in scope.

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

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

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

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

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

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

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

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

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

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

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

Official Comment References

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.

CROSS REFERENCES

Anticipatory repudiation, see § 2—610 of this title.

Assurance of due performance, see § 2—609 of this title.

Computation of time, see § 138 of Title 1.

Cost and freight terms, see §§ 2—320, 2—321 of this title.

Definitions, see §§ 2—103, 2—106 of this title.

Delivery of documents, see § 2—514 of this title.

Formation of contract, see § 2—204 of this title.

Inspection of goods by buyer before payment or acceptance, see § 2—513 of this title.

Obligation of good faith, see § 1—304 of this title.

Payment by buyer before inspection, see § 2—512 of this title.

Reasonable time, see § 1—205 of this title.

Seller’s remedies in case of breach by buyer, see § 2—703 of this title.

Shipment of goods by seller, see § 2—504 of this title.

Tender of payment by buyer, see § 2—511 of this title.

Unconscionable clause or contract, see § 2—302 of this title.

ANNOTATIONS

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subsection (b): Inserted “or she” following “he”.

Subsection (c): Inserted “of this section” following “subsection (b)”, “regardless of where the goods are to be received (i)” following “due”, “delivery of” following “receive” and “tangible” preceding “documents”; substituted “(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” for “regardless of where the goods are to be received” following “or”.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

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

Changes: Completely rewritten in this and other sections.

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

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

Official Comment References

Cross References:

Generally: Part 5.

Point 1: Section 2-509.

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

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

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

Definitional Cross References:

“Buyer”. Section 2-103.

“Delivery”. Section 1-201.

“Document of title”. Section 1-201.

“Goods”. Section 2-105.

“Receipt of goods”. Section 2-103.

“Seller”. Section 2-103.

“Send”. Section 1-201.

“Term”. Section 1-201.

CROSS REFERENCES

Bank deposits and collections, see § 4—101 et seq. of this title.

Buyer’s right to inspect goods before payment or acceptance, see § 2—513 of this title.

Computation of time, see § 138 of Title 1.

Cost and freight terms, see §§ 2—320, 2-/321 of this title.

Documents of title generally, see § 7—101 of this title.

Manner, time and place of tender of delivery by seller, see § 2—503 of this title.

Payment by buyer before inspection, see § 2—512 of this title.

Place for delivery in absence of agreements, see § 2—308 of this title.

Reasonable time, see § 1—205 of this title.

Risk of loss, see § 2—509 of this title.

Seller’s insurable interest in goods, see § 2—501 of this title.

Shipment by seller with reservation of a security interest, see § 2—505 of this title.

Shipment of goods by seller, see § 2—504 of this title.

Tender of payment, see § 2—511 of this title.

ANNOTATIONS

Time of payment.

When contract of sale is silent as to time for payment, buyer’s obligation to pay accrues when he receives possession of his purchase. William Feinstein Brothers v. L.Z. Hotte Granite Co., 123 Vt. 167, 184 A.2d 540, 1962 Vt. LEXIS 216 (1962) (Decided under prior law.).

When terms of contract do not state whether any payment shall be made before full performance, governing principle is manifested intention of parties in view of nature of their agreement, their conduct in reference to undertaking and usages of business. William Feinstein Brothers v. L.Z. Hotte Granite Co., 123 Vt. 167, 184 A.2d 540, 1962 Vt. LEXIS 216 (1962) (Decided under prior law.).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

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

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

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

4. The remedy provided in subsection (3) is one which does not operate in the situation which falls within the scope of Section 2-614 of 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.

Official Comment References

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.

CROSS REFERENCES

Acceptance of goods, see § 2—607 of this title.

Assurance of due performance, see § 2—609 of this title.

F.O.B. and F.A.S. terms, see § 2—319 of this title.

Manner of making contract, see § 2—204 of this title.

Measure of damages for non-acceptance of goods, see § 2—708 of this title.

Measure of damages for non-delivery of goods, see § 2—713 of this title.

Obligation of good faith, see § 1—304 of this title.

“Seasonably” defined, see § 1—205 of this title.

Substituted performance, see § 2—614 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 13, Uniform Sales Act.

Changes: Completely rewritten, the provisions concerning infringement being new.

Purpose of Changes: 1. Subsection (1) makes provision for a buyer’s basic needs in respect to a title which he in good faith expects to acquire by his purchase, namely, that he receive a good, clean title transferred to him also in a rightful manner so that he will not be exposed to a lawsuit in order to protect it.

The warranty extends to a buyer whether or not the seller was in possession of the goods at the time the sale or contract to sell was made.

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

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

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

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

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

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

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

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

Official Comment References

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.

CROSS REFERENCES

Assurance of due performance, see § 2—609 of this title.

Entrusting of possession of goods, see § 2—403 of this title.

Exclusion or modification of warranties, see § 2—316 of this title.

Limitation of action for breach of warranty, see § 2—725 of this title.

Notice of claim or litigation to person answerable over, see § 2—607 of this title.

Obligation of good faith, see § 1—304 of this title.

Warranties against interference and against infringement of lease contracts, see § 2A-211 of this title.

Warranties on negotiation or transfer of documents of title, see § 7-507 of this title.

Warranties on presentment and transfer of certificated securities, see § 8-306 of this title.

ANNOTATIONS

• Cure of defect.
• Disclaimer.
• Warranty of title violated.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Sections 12, 14 and 16, Uniform Sales Act.

Changes: Rewritten.

Purposes of changes: To consolidate and systematize basic principles with the result that:

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

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

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

A description need not be by words. Technical specifications, blueprints and the like can afford more exact description than mere language and if made part of the basis of the bargain goods must conform with them. Past deliveries may set the description of quality, either expressly or impliedly by course of dealing. Of course, all descriptions by merchants must be read against the applicable trade usages with the general rules as to merchantability resolving any doubts.

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.

Official Comment References

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.

CROSS REFERENCES

Course of dealing and usage of trade, see § 1—303 of this title.

Exclusion or modification of warranties, see § 2—316 of this title.

Express warranties by lessor, see § 2A—210 of this title.

Express warranties displacing implied warranties, see § 2—317 of this title.

Fulfillment of terms of manufacturers’ warranties concerning sale of new motor vehicles, see § 4086 of Title 9.

Implied warranty; merchantability and usage of trade, see § 2—314 of this title.

ANNOTATIONS

• Generally.
• Explicit warranties.
• Jury instructions.
• Labels.
• Limitation of actions.
• Presumptions and inferences.
• Seller’s representations.

Notes to Opinions

Service contracts.

Contract whereby company by express warranty agrees to protect purchasers of used cars from cost of repairs is actually an insurance contract subject to the insurance laws of the state because no sale from warrantor to purchaser of car is involved. 1959-60 Vt. Op. Att'y Gen. 46 (Decided under prior law.).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

Changes: Completely rewritten.

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

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

Official Comment References

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.

CROSS REFERENCES

Course of dealing and usage of trade, see § 1—205 of this title.

Damages for breach of warranty, see §§ 2—714, 2—715 of this title.

Definitions, see §§ 1—201, 2—103, 2—104 of this title.

Exclusion or modification of warranties, see § 2—316 of this title.

Express warranties displacing implied warranties, see § 2—317 of this title.

Fulfillment of terms of manufacturers’ warranties concerning sale of new motor vehicles, see § 4086 of Title 9.

Implied warranty of merchantability in lease contracts, see § 2A—212 of this title.

Obligation of good faith, see § 1—304 of this title.

Warranties on negotiation or transfer of documents of title, see § 7—507 of this title.

ANNOTATIONS

• Breach found.
• Custom and usage.
• Damages.
• Evidence.
• Implied warranty of fitness.
• Merchants.
• Review.
• Statutory standard.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

Changes: Rewritten.

Purposes of Changes: 1. Whether or not this warranty arises in any individual case is basically a question of fact to be determined by the circumstances of the contracting. Under this section the buyer need not bring home to the seller actual knowledge of the particular purpose for which the goods are intended or of his reliance on the seller’s skill and judgment, if the circumstances are such that the seller has reason to realize the purpose intended or that the reliance exists. The buyer, of course, must actually be relying on the seller.

2. A “particular purpose” differs from the ordinary purpose for which the goods are used in that it envisages a specific use by the buyer which is peculiar to the nature of his business whereas the ordinary purposes for which goods are used are those envisaged in the concept of merchantability and go to uses which are customarily made of the goods in question. For example, shoes are generally used for the purpose of walking upon ordinary ground, but a seller may know that a particular pair was selected to be used for climbing mountains.

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

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

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

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

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

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

Official Comment References

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.

CROSS REFERENCES

Allocation of risk or burden, see § 2—303 of this title.

Course of dealing and usage of trade, see § 1—303 of this title.

Cumulation and conflict of warranties, see § 2—317 of this title.

Damages for breach of warranty, see §§ 2—714, 2—715 of this title.

Fulfillment of terms of manufacturers’ warranties concerning sale of new motor vehicles, see § 4086 of Title 9.

Implied warranty of fitness for particular purchase in lease contracts, see § 2A—213 of this title.

Language sufficient to exclude warranties of merchantability and fitness, see § 2—316 of this title.

ANNOTATIONS

• Breach found.
• Contribution and indemnity.
• Evidence.
• Implied warranty of fitness.
• Limitation of actions.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1971 (Adj. Sess.). Subsection (5): Added.

Editor’s note—

In paragraph (a) of subsection (3) the words in the official text “all implied warranties are excluded” were changed to “implied warranties of fitness may be excluded”.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

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

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

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

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

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

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

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

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

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

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

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

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

Official Comment References

Cross References:

Point 2: Sections 2-202, 2-718 and 2-719.

Point 7: Section 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.

CROSS REFERENCES

Course of performance, dealing and usage of trade, see § 1—303 of this title.

Cumulation and conflict of express or implied warranties in lease contracts, see § 2A—215 of this title.

Damages for breach of warranty, see §§ 2—714, 2—715 of this title.

Exclusion or modification of warranties in lease contracts, see § 2A—214 of this title.

Explanation or supplementation of written agreement, see § 2—202 of this title.

Fulfillment of terms of manufacturers’ warranties concerning sale of new motor vehicles, see § 4086 of Title 9.

Implied warranty, merchantability and usage of trade, see § 2—314 of this title.

Liquidation of damages, restitution, see § 2—718 of this title.

Modification of remedies by agreement, see § 2—719 of this title.

Variation by agreement, see § 1—302 of this title.

ANNOTATIONS

• Generally.
• Consumer.
• Disclaimer.
• Duration of warranty..
• Goods covered.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: On cumulation of warranties see Sections 14, 15, and 16, Uniform Sales Act.

Changes: Completely rewritten into one section.

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

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

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

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

Official Comment References

Cross Reference:

Point 1: Section 2-315.

Definitional Cross Reference:

“Party”. Section 1-201.

CROSS REFERENCES

Course of performance, dealing and usage of trade, see § 1—303 of this title.

Cumulation and conflict of express or implied warranties in lease contracts, see § 2A-215 of this title.

Fulfillment of terms of manufacturers’ warranties concerning sale of new motor vehicles, see § 4086 of Title 9.

Implied warranty of fitness for particular purpose, see § 2—315 of this title.

Implied warranty of merchantability and usage of trade, see § 2—314 of this title.

Sample or model creating express warranty, see § 2—313 of this title.

ANNOTATIONS

Dual warranties.

An express warranty or condition did not negate a warranty or condition implied under former provisions of Uniform Sales Act unless inconsistent therewith. Newton v. Smith Motors, Inc., 122 Vt. 409, 175 A.2d 514, 1961 Vt. LEXIS 92 (1961) (Decided under prior law.).

Cited.

Cited in Weiner v. Sherburne Corp., 57 F.R.D. 636, 1972 U.S. Dist. LEXIS 10807 (D. Vt. 1972).

History

Source.

Act No. 29, § 1, March 12, 1966.

Editor’s note—

In the first sentence the words in the official text “who is in the family or household of his buyer or who is a guest in his home” were omitted following the words “any natural person”. The purpose of the omitted language is explained in the Official Comment, points 2 and 3.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. The last sentence of this section does not mean that a seller is precluded from excluding or disclaiming a warranty which might otherwise arise in connection with the sale provided such exclusion or modification is permitted by Section 2-316. Nor does that sentence preclude the seller from limiting the remedies of his own buyer and of any beneficiaries, in any manner provided in Sections 2-718 or 2-719. To the extent that the contract of sale contains provisions under which warranties are excluded or modified, or remedies for breach are limited, such provisions are equally operative against beneficiaries of warranties under this section. What this last sentence forbids is exclusion of liability by the seller to the persons to whom the warranties which he has made to his buyer would extend under this section.

2. The purpose of this section is to give the buyer’s family, household and guests the benefit of the same warranty which the buyer received in the contract of sale, thereby freeing any such beneficiaries from any technical rules as to “privity.” It seeks to accomplish this purpose without any derogation of any right or remedy resting on negligence. It rests primarily upon the merchant-seller’s warranty under this Article that the goods sold are merchantable and fit for the ordinary purposes for which such goods are used rather than the warranty of fitness for a particular purpose. Implicit in the section is that any beneficiary of a warranty may bring a direct action for breach of warranty against the seller whose warranty extends to him.

3. This section expressly includes as beneficiaries within its provisions the family, household, and guests of the purchaser. Beyond this, the section 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.

Official Comment References

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.

CROSS REFERENCES

Contractual modification or limitation of remedy, see § 2—719 of this title.

Exclusion or modification of warranties, see § 2—316 of this title.

Fulfillment of terms of manufacturers’ warranties concerning sale of new motor vehicles, see § 4086 of Title 9.

Implied warranty of merchantability and usage of trade, see § 2—314 of this title.

Limitation of remedy, see § 2—719 of this title.

Liquidation or limitation of damages, see § 2—718 of this title.

Third-party beneficiaries of express and implied warranties in lease contracts, see § 2A-216 of this title.

ANNOTATIONS

• Applicability.
• Causation.
• Extent of warranty.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

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

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

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

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

Official Comment References

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.

CROSS REFERENCES

Non-delivery or delay in delivery due to failure of presupposed conditions, see § 2—615 of this title.

Overseas shipment, see § 2—323 of this title.

Shipment by seller, see § 2—504 of this title.

Specification by party of particulars of performance, see § 2—311 of this title.

Substituted performance when agreed manner of delivery impracticable, see § 2—614 of this title.

Tender of delivery by seller, see § 2—503 of this title.

Warehouse receipts and bills of lading generally, see § 7—101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: To make it clear that:

1. The C.I.F. contract is not a destination but a shipment contract with risk of subsequent loss or damage to the goods passing to the buyer upon shipment if the seller has properly performed all his obligations with respect to the goods. Delivery to the carrier is delivery to the buyer for purposes of risk and “title”.  Delivery of possession of the goods is accomplished by delivery of the bill of lading, and upon tender of the required documents the buyer must pay the agreed price without awaiting the arrival of the goods and if they have been lost or damaged after proper shipment he must seek his remedy against the carrier or insurer.  The buyer has no right of inspection prior to payment or acceptance of the documents.
2. The seller’s obligations remain the same even though the C.I.F. term is “used only in connection with the stated price and destination”.
3. The insurance stipulated by the C.I.F. term is for the buyer’s benefit, to protect him against the risk of loss or damage to the goods in transit.  A clause in a C.I.F. contract “insurance — for the account of sellers” should be viewed in its ordinary mercantile meaning that the sellers must pay for the insurance and not that it is intended to run to the seller’s benefit.
4. A bill of lading covering the entire transportation from the port of shipment is explicitly required but the provision on this point must be read in the light of its reason to assure the buyer of as full protection as the conditions of shipment reasonably permit, remembering always that this type of contract is designed to move the goods in the channels commercially available.  To enable the buyer to deal with the goods while they are afloat the bill of lading must be one that covers only the quantity of goods called for by the contract.  The buyer is not required to accept his part of the goods without a bill of lading because the latter covers a larger quantity, nor is he required to accept a bill of lading for the whole quantity under a stipulation to hold the excess for the owner.  Although the buyer is not compelled to accept either goods or documents under such circumstances he may of course claim his rights in any goods which have been identified to his contract.
5. The seller is given the option of paying or providing for the payment of freight.  He has no option to ship “freight collect” unless the agreement so provides.  The rule of the common law that the buyer need not pay the freight if the goods do not arrive is preserved.
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.
7. An additional obligation is imposed upon the seller in requiring him to procure customary war risk insurance at the buyer’s expense.  This changes the common law on the point. The seller is not required to assume the risk of including in the C.I.F. price the cost of such insurance, since it often fluctuates rapidly, but is required to treat it simply as a necessary for the buyer’s account.  What war risk insurance is “current” or usual turns on the standard forms of policy or rider in common use.
8. The C.I.F. contract calls for insurance covering the value of the goods at the time and place of shipment and does not include any increase in market value during transit or any anticipated profit to the buyer on a sale by him.
9. Insurance “for the account of whom it may concern” is usual and sufficient.  However, for a valid tender the policy of insurance must be one which can be disposed of together with the bill of lading and so must be “sufficiently shown to cover the same goods covered by the bill of lading.” It must cover separately the quantity of goods called for by the buyer’s contract and not merely insure his goods as part of a larger quantity in which others are interested, a case provided for in American mercantile practice by the use of negotiable certificates of insurance which are expressly authorized by this section.  By usage these certificates are treated as the equivalent of separate policies and are good tender under C.I.F. contracts.  The term “certificate of insurance”, however, does not of itself include certificates or “cover notes” issued by the insurance broker and stating that the goods are covered by a policy.  Their sufficiency as substitutes for policies will depend upon proof of an established usage or course of dealing.  The present section rejects the English rule that not only brokers’ certificates and “cover notes” but also certain forms of American insurance certificates are not the equivalent of policies and are not good tender under a C.I.F. contract.
10. The seller’s invoice of the goods shipped under a C.I.F. contract is regarded as a usual and necessary document upon which reliance may properly be placed. It is the document which evidences points of description, quality and the like which do not readily appear in other documents. This Article rejects those statements to the effect that the invoice is a usual but not a necessary document under a C.I.F. term.
11. The buyer needs all of the documents required under a C.I.F. contract, in due form and, if a tangible document of title, with necessary endorsements, so that before the goods arrive he may deal with them by negotiating the documents or may obtain prompt possession of the goods after their arrival. If the goods are lost or damaged in transit the documents are necessary to enable him promptly to assert his remedy against the carrier or insurer. The seller is therefore obligated to do what is mercantilely reasonable in the circumstances and should make every reasonable exertion to send forward the documents as soon as possible after the shipment.  The requirement that the documents be forwarded with “commercial promptness” expresses a more urgent need for action than that suggested by the phrase “reasonable time”.
12. Under a C.I.F. contract the buyer, as under the common law, must pay the price upon tender of the required documents without first inspecting the goods, but his payment in these circumstances does not constitute an acceptance of the goods nor does it impair his right of subsequent inspection or his options and remedies in the case of improper delivery. All remedies and rights for the seller’s breach are reserved to him. The buyer must pay before inspection and assert his remedy against the seller afterward unless the non-conformity 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 with 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.

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

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

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.

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

Official Comment References

Cross References:

Point 4: Section 2-323.

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

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

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

Definitional Cross References:

“Bill of lading”. Section 1-201.

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Goods”. Section 2-105.

“Rights”. Section 1-201.

“Seller”. Section 2-103.

“Term”. Section 1-201.

CROSS REFERENCES

Failure to particularize defect, see § 2-605 of this title.

Inspection of goods before payment of price, see § 2-513 of this title.

Inspection under contract calling for payment on or after arrival of goods, see § 2-321 of this title.

Letters of credit, see § 5-101 et seq. of this title.

Nonconforming tender or delivery, see § 2-508 of this title.

Overseas shipment, see § 2-323 of this title.

Payment by buyer before inspection, see § 2-512 of this title.

Risk of loss in absence of breach, see § 2-509 of this title.

Warehouse receipts and bills of lading generally, see § 7-101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: This section deals with two variations of the C.I.F. contract which have evolved in mercantile practice but are entirely consistent with the basic C.I.F. pattern. 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.

Official Comment References

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.

CROSS REFERENCES

C.I.F. and C. & F. defined, see § 2—321 of this title.

“No arrival, no sale” terms, see § 2-324 of this title.

Warehouse receipts and bills of lading generally, see § 7-101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. The delivery term, “ex ship”, as between seller and buyer, is the reverse of the f.a.s. term covered.

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

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

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

Official Comment References

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.

CROSS REFERENCES

F.O.B. and F.A.S. delivery terms, see § 2—319 of this title.

Warehouse receipts and bills of lading generally, see § 7—101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subdivision (2): Inserted “tangible” preceding “bill of lading” at the beginning.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

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

2. Subsection (2) deals with the problem of bills of lading covering deep water shipments, issued not as a single bill of lading but in a set of parts, each part referring to the other parts and the entire set constituting in commercial practice and at law a single bill of lading. Commercial practice in international commerce is to accept and pay against presentation of the first part of a set if the part is sent from overseas even though the contract of the buyer requires presentation of a full set of bills of lading provided adequate indemnity for the missing parts is forthcoming. In accord with the amendment to Section 7-304, bills of lading in a set are limited to tangible bills.

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

Official Comment References

Cross Reference:

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.

CROSS REFERENCES

Bill of lading in set of parts, see § 7—304 of this title.

C.I.F. and C. & F. terms, see § 2—320 of this title.

F.O.B. and F.A.S. terms, see § 2-319 of this title.

Indemnity agreements for letters of credit, see § 5-113 of this title.

Warehouse receipts and bills of lading generally, see § 7-101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. The “no arrival, no sale” term in a “destination” overseas contract leaves risk of loss on the seller but gives him an exemption from liability for non-delivery. Both the nature of the case and the duty of good faith require that the seller must not interfere with the arrival of the goods in any way. If the circumstances impose upon him the responsibility for making or arranging the shipment, he must have a shipment made despite the exemption clause. Further, the shipment made must be a conforming one, for the exemption under a “no arrival, no sale” term applies only to the hazards of transportation and the goods must be proper in all other respects.

The reason of this section is that where the seller is reselling goods bought by him as shipped by another and this fact is known to the buyer, so that the seller is not under any obligation to make the shipment himself, the seller is entitled under the “no arrival, no sale” clause to exemption from payment of damages for non-delivery if the goods do not arrive or if the goods which actually arrive are non-conforming. This does not extend to sellers who arrange shipment by their own agents, in which case the clause is limited to casualty due to marine hazards. But sellers who make known that they are contracting only with respect to what will be delivered to them by parties over whom they assume no control are entitled to the full quantum of the exemption.

2. The provisions of this Article on identification must be read together with the present section in order to bring the exemption into application. Until there is some designation of the goods in a particular shipment or on a particular ship as being those to which the contract refers there can be no application of an exemption for their non-arrival.

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

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

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

Official Comment References

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.

CROSS REFERENCES

Casualty to identified goods, see § 2—613 of this title.

Insurable interest, see § 2—501 of this title.

Obligation of good faith, see § 1—304 of this title.

Obligations imposed relative to warehouse receipts and bills of lading, see § 7—401 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: To express the established commercial and banking understanding as to the meaning and effects of terms calling for “letters of credit” or “confirmed credit”:

1. Subsection (2) follows the general policy of this Article and Article 3 (Section 3-802) on conditional payment, under which payment by check or other short-term instrument is not ordinarily final as between the parties if the recipient duly presents the instrument and honor is refused.  Thus the furnishing of a letter of credit does not substitute the financing agency’s obligation for the buyer’s, but the seller must first give the buyer reasonable notice of his intention to demand direct payment from him.
2. Subsection (3) requires that the credit be irrevocable and be a prime credit as determined by the standing of the issuer.  It is not necessary, unless otherwise agreed, that the credit be a negotiation credit; the seller can finance himself by an assignment of the proceeds under Section 5-116(2).
3. The definition of “confirmed credit” is drawn on the supposition that the credit is issued by a bank which is not doing direct business in the seller’s financial market; there is no intention to require the obligation of two banks both local to the seller.

Official Comment References

Cross References:

Sections 2-403, 2-511(3) and 3-802 and Article 5.

Definitional Cross References:

“Buyer”. Section 2-103.

“Contract for sale”. Section 2-106.

“Draft”. Section 3-104.

“Financing agency”. Section 2-104.

“Notifies”. Section 1-201.

“Overseas”. Section 2-323.

“Purchaser”. Section 1-201.

“Seasonably”. Section 1-204.

“Seller”. Section 2-103.

“Term”. Section 1-201.

CROSS REFERENCES

“Financing agency” defined, see § 2—104 of this title.

Letters of credit, see § 5—101 et seq. of this title.

Payment by check, see §§ 2—511, 3—310 of this title.

“Seasonably” defined, see § 1—205 of this title.

Title acquired by purchaser, see § 2—403 of this title.

Warehouse receipts and bills of lading generally, see § 7—101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1999 (Adj. Sess.). Deleted “consignment sales and” following “or return” in the section catchline; deleted “except as provided in Subsection (3)” preceding “goods” in subsec. (2), deleted former subsec. (3); and redesignated former subsec. (4) as present subsec. (3).

OFFICIAL COMMENT

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

Changes: Completely rewritten in this and the succeeding section.

Purposes of Changes: To make it clear that:

1. A “sale on approval” or “sale or return” is distinct from other types of transactions with which they have frequently been confused.  The type of “sale on approval,” “on trial” or “on satisfaction” dealt with involves a contract under which the seller undertakes a particular business risk to satisfy his prospective buyer with the appearance or performance of the goods in question.  The goods are delivered to the proposed purchaser but they remain the property of the seller until the buyer accepts them.  The price has already been agreed.  The buyer’s willingness to receive and test the goods is the consideration for the seller’s engagement to deliver and sell.  The type of “sale or return” involved herein is a sale to a merchant whose unwillingness to buy is overcome only by the seller’s engagement to take back the goods (or any commercial unit of goods) in lieu of payment if they fail to be resold.  These two transactions are so strongly delineated in practice and in general understanding that every presumption runs against a delivery to a consumer being a “sale or return” and against a delivery to a merchant for resale being a “sale on approval.”
2. Pursuant to the general policies of this Act which require good faith not only between the parties to the sales contract, but as against interested third parties, subsection (3) resolves all reasonable doubts as to the nature of the transaction in favor of the general creditors of the buyer. As against such creditors words such as “on consignment” or “on memorandum”, with or without words of reservation of title in the seller, are disregarded when the buyer has a place of business at which he deals in goods of the kind involved.  A necessary exception is made where the buyer is known to be engaged primarily in selling the goods of others or is selling under a relevant sign law, or the seller complies with the filing provisions of Article 9 as if his interest were a security interest.  However, there is no intent in this Section to narrow the protection afforded to third parties in any jurisdiction which has a selling Factors Act.  The purpose of the exception is merely to limit the effect of the present subsection itself, in the absence of any such Factors Act, to cases in which creditors of the buyer may reasonably be deemed to have been misled by the secret reservation.
3. Subsection (4) resolves a conflict in the pre-existing case law by recognition that an “or return” provision is so definitely at odds with any ordinary contract for sale of goods that where written agreements are involved it must be contained in a written memorandum.  The “or return” aspect of a sales contract must be treated as a separate contract under the Statute of Frauds section and as contradicting the sale insofar as questions of parole or extrinsic evidence are concerned.
4. Certain true consignment transactions were dealt with in former Section 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.

The right to return the goods for failure to conform to the contract does not make the transaction a “sale on approval” or “sale or return” and has nothing to do with this and the following section. The present section is not concerned with remedies for breach of contract. It deals instead with a power given by the contract to turn back the goods even though they are wholly as warranted.

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

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

Official Comment References

Cross References:

Point 2: Article 9.

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

Definitional Cross References:

“Between merchants”. Section 2-104.

“Buyer”. Section 2-103.

“Conform”. Section 2-106.

“Contract for sale”. Section 2-106.

“Creditor”. Section 1-201.

“Goods”. Section 2-105.

“Sale”. Section 2-106.

“Seller”. Section 2-103.

CROSS REFERENCES

Parol or extrinsic evidence,, see § 2—202 of this title.

Secured transactions, see § 9—101 et seq. of this title.

Security interest defined, see § 1—201(b)(35) of this title.

Statute of frauds, see § 2—201 of this title.

Warehouse receipts and bills of lading generally, see § 7—101 et seq. of this title.

ANNOTATIONS

Goods subject to claims of creditors.

The provisions of § 2—326(3) are applicable even though an agreement purports to reserve title to the person making delivery until payment or resale or uses such words as “on consignment” or “on memorandum,” unless the person making delivery establishes that his ownership of the goods was evidenced by a sign that the debtor was conducting his business in a manner generally known to his creditors to be substantially engaged in selling goods of others, or that he complied with the filing requirements relating to financing statements. In re STN Enters., Inc., 45 B.R. 941, 1984 Bankr. LEXIS 4459 (Bankr. D. Vt. 1984).

Sale or return.

In action for purchase price of goods delivered to buyer under “sale or return” contract, whereby title passed to him on delivery, buyer, who claimed to have elected to return goods, had burden of showing legally sufficient return. David W. Biow Co. v. Cohen, 99 Vt. 78, 130 A. 589, 1923 Vt. LEXIS 204 (1923) (Decided under prior law.).

When buyer, who has purchased goods under “sale or return” contract, attempts to return such goods, title does not revest in seller until they are delivered back to him or at the place agreed upon. David W. Biow Co. v. Cohen, 99 Vt. 78, 130 A. 589, 1923 Vt. LEXIS 204 (1923) (Decided under prior law.).

Contract of “sale or return” was such as to require buyer, electing to return goods, to return them to seller’s place of business, hence delivery of goods to express company in city of buyer’s place of business made such company his agent, and being mismarked, as a result of which seller to never receive them, buyer did not make a sufficient return was liable on the purchase price. David W. Biow Co. v. Cohen, 99 Vt. 78, 130 A. 589, 1923 Vt. LEXIS 204 (1923).

Cited.

Cited in In re STN Enters., Inc., 44 B.R. 512, 1984 Bankr. LEXIS 4569 (Bankr. D. Vt. 1984); In re STN Enters., Inc., 45 B.R. 946, 1984 Bankr. LEXIS 4437 (Bankr. D. Vt. 1984); In re STN Enters., Inc., 51 B.R. 132, 1985 Bankr. LEXIS 5732 (Bankr. D. Vt. 1985); Muzzy v. Chevrolet Division, General Motors Corp., 153 Vt. 179, 571 A.2d 609, 1989 Vt. LEXIS 263 (1989).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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

Changes: Completely rewritten in preceding and this section.

Purposes of Changes. To make it clear that:

1. In the case of a sale on approval:
2. In the case of a sale or return, the return of any unsold unit merely because it is unsold is the normal intent of the “sale or return” provision, and therefore the right to return for this reason alone is independent of any other action under the contract which would turn on wholly different considerations.  On the other hand, where the return of goods is for breach, including return of items resold by the buyer and returned by the ultimate purchasers because of defects, the return procedure is governed not by the present section but by the provisions on the effects and revocation of acceptance.
3. In the case of a sale on approval the risk rests on the seller until acceptance of the goods by the buyer, while in a sale or return the risk remains throughout on the buyer.
4. Notice of election to return given by the buyer in a sale on approval is sufficient to relieve him of any further liability.  Actual return by the buyer to the seller is required in the case of a sale or return contract.  What constitutes due “giving” of notice, as required in “on approval” sales, is governed by the provisions on good faith and notice.  “Seasonable” is used here as defined in Section 1-204.  Nevertheless, the provisions of both this Article and of the contract on this point must be read with commercial reason and with full attention to good faith.

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

Official Comment References

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.

CROSS REFERENCES

Acceptance of goods, see § 2—607 of this title.

Buyer’s rights in case of nonconforming goods or improper delivery, see § 2—601 of this title.

Course of performance, dealing and usage of trade, see § 1—303 of this title.

Definitions, see §§ 1—201, 2—103, 2—104 of this title.

Insurable interest, see § 2—501 of this title.

Obligation of good faith, see § 1—304 of this title.

Rejection of goods by merchant buyer, duties, see § 2—603 of this title.

Revocation of acceptance, see § 2—608 of this title.

Risk of loss in absence of breach, see § 2—509 of this title.

“Seasonably” defined, see § 1—205 of this title.

Warehouse receipts and bills of lading generally, see § 7—101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 21, Uniform Sales Act.

Changes: Completely rewritten.

Purposes of Changes: To make it clear that:

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

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.

CROSS REFERENCES

Firm offers, see § 2—205 of this title.

Licensing of auctioneers, see § 4601 et seq. of Title 26.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subdivision (3)(a): Inserted “tangible” preceding “document”, “or she” following “he” and “and if the seller is to deliver an electronic document of title, title passes when the seller delivers the document” following “documents”.

Subdivision (3)(b): Inserted “of title” following “such documents”.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

Prior Uniform Statutory Provision: See generally, Sections 17, 18, 19 and 20, Uniform Sales Act.

Purposes: To make it clear that:

1. This Article deals with the issues between seller and buyer in terms of step by step performance or non-performance under the contract for sale and not in terms of whether or not “title” to the goods has passed.  That the rules of this section in no way alter the rights of either the buyer, seller or third parties declared elsewhere in the Article is made clear by the preamble of this section.  This section, however, in no way intends to indicate which line of interpretation should be followed in cases where the applicability of “public” regulation depends upon a “sale” or upon location of “title” without further definition.  The basic policy of this Article that known purpose and reason should govern interpretation cannot extend beyond the scope of its own provisions.  It is therefore necessary to state what a “sale” is and when title passes under this Article in case the courts deem any public regulation to incorporate the defined term of the “private” law.
2. “Future” goods cannot be the subject of a present sale. Before title can pass the goods must be identified in the manner set forth in Section 2-501.  The parties, however, have full liberty to arrange by specific terms for the passing of title to goods which are existing.
3. The “special property” of the buyer in goods identified to the contract is excluded from the definition of “security interest”; its incidents are defined in provisions of this Article such as those on the rights of the seller’s creditors, on good faith purchase, on the buyer’s right to goods on the seller’s insolvency, and on the buyer’s right to specific performance or replevin.
4. The factual situations in subsections (2) and (3) upon which passage of title turn actually base the test upon the time when the seller has finally committed himself in regard to specific goods.  Thus in a “shipment” contract he commits himself by the act of making the shipment.  If shipment is not contemplated subsection (3) turns on the seller’s final commitment, i.e., the delivery of documents or the making of the contract. As to delivery of an electronic document of title, see definition of delivery in Article 1, Section 1-201. This Article does not state a rule as to the place of title passage as to goods covered by an electronic document of title.

Official Comment References

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.

CROSS REFERENCES

Buyer’s right to goods on seller’s insolvency, see § 2—502 of this title.

Buyer’s right to specific performance or replevin, see § 2—716 of this title.

Definitions, see §§ 1—201, 2—103, 2—104 of this title.

Document of title to goods defeated in certain cases, see § 7—503 of this title.

Good faith purchase of goods, see § 2—403 of this title.

Manner of identification of goods, see § 2—501 of this title.

Option to accelerate at will, see § 1—309 of this title.

Rights of seller’s creditors against goods sold, see § 2—402 of this title.

Sale defined, see § 2-/106 of this title.

Security interest defined, see § 1—201(b)(35) of this title.

Security interests under this article as subject to article relating to secured transactions, see § 9—110 of this title.

Title acquired by bona fide purchaser, see § 8—302 of this title.

Title to and possession of goods under lease contract, see § 2A—302 of this title.

Title under warehouse receipt defeated in certain cases, see § 7—205 of this title.

Transactions excluded from this article, see § 2—102 of this title.

ANNOTATIONS

• Evidence.
• Intention of seller.
• Seller’s rights.
• Title to goods generally.
• When contract made.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Subsection (2) — Section 26, Uniform Sales Act; Subsections (1) and (3) — none.

Changes: Rephrased.

Purposes of Changes and New Matter: To avoid confusion on ordinary issues between current sellers and buyers and issues in the field of preference and hindrance by making it clear that:

1. Local law on questions of hindrance of creditors by the seller’s retention of possession of the goods are outside the scope of this Article, but retention of possession in the current course of trade is legitimate.  Transactions which fall within the law’s policy against improper preferences are reserved from the protection of this Article.
2. The retention of possession of the goods by a merchant seller for a commercially reasonable time after a sale or identification in current course is exempted from attack as fraudulent.  Similarly, the provisions of subsection (3) have no application to identification or delivery made in the current course of trade, as measured against general commercial understanding of what a “current” transaction is.

Definitional Cross References:

“Contract for sale”. Section 2-106.

“Creditor”. Section 1-201.

“Good faith”. Section 2-103.

“Goods”. Section 2-105.

“Merchant”. Section 2-104.

“Money”. Section 1-201.

“Reasonable time”. Section 1-204.

“Rights”. Section 1-201.

“Sale”. Section 2-106.

“Seller”. Section 2-103.

CROSS REFERENCES

Attachment of goods covered by a negotiable document, see § 7—602 of this title.

Holder in due course, see § 3—302 of this title.

Manner of identification of goods, see § 2—501 of this title.

Priority of certain liens arising by operation of law, relative to lease contracts, see § 2A—306 of this title.

Priority of liens arising by attachment on or security interest in goods relative to lease contracts, see § 2A—307 of this title.

Rights acquired in absence of due negotiation, see § 7—504 of this title.

Rights of a secured creditor on disposition of collateral or proceeds, see § 9—306 of this title.

Security interests under this article as subject to article relating to secured transactions, see § 9—110 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1993 (Adj. Sess.) Subsection (1): Inserted “or her” preceding “transferor” in the first sentence.

Subsection (4) Deleted “Bulk Transfers (article 6)” following “(article 9)”.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Sections 20(4), 23, 24, 25, Uniform Sales Act; Section 9, especially 9(2), Uniform Trust Receipts Act; Section 9, Uniform Conditional Sales Act.

Changes: Consolidated and rewritten.

Purposes of Changes: To gather together a series of prior uniform statutory provisions and the case-law thereunder and to state a unified and simplified policy on good faith purchase of goods.

1. The basic policy of our law allowing transfer of such title as the transferor has is generally continued and expanded under subsection (1).  In this respect the provisions of the section are applicable to a person taking by any form of “purchase” as defined by this Act.  Moreover the policy of this Act expressly providing for the application of supplementary general principles of law to sales transactions wherever appropriate joins with the present section to continue unimpaired all rights acquired under the law of agency or of apparent agency or ownership or other estoppel, whether based on statutory provisions or on case law principles.  The section also leaves unimpaired the powers given to selling factors under the earlier Factors Acts.  In addition subsection (1) provides specifically for the protection of the good faith purchaser for value in a number of specific situations which have been troublesome under prior law.
2. The many particular situations in which a buyer in ordinary course of business from a dealer has been protected against reservation of property or other hidden interest are gathered by subsections (2)-(4) into a single principle protecting persons who buy in ordinary course out of inventory.  Consignors have no reason to complain, nor have lenders who hold a security interest in the inventory, since the very purpose of goods in inventory is to be turned into cash by sale.
3. The definition of “buyer in ordinary course of business” (Section 1-201) is effective here and preserves the essence of the healthy limitations engrafted by the case-law on the older statutes.  The older loose concept of good faith and wide definition of value combined to create apparent good faith purchasers in many situations in which the result outraged common sense; the court’s solution was to protect the original title especially by use of “cash sale” or of over-technical construction of the enabling clauses of the statutes.  But such rulings then turned into limitations on the proper protection of buyers in the ordinary market.  Section 1-201(9) cuts down the category of buyer in ordinary course in such fashion as to take care of the results of the cases, but with no price either in confusion or in injustice to proper dealings in the normal market.
4. Except as provided in subsection (1), the rights of purchasers other than buyers in ordinary course are left to the Articles on Secured Transactions, Documents of Title, and Bulk Sales.

On the other hand, the contract of purchase is of course limited by its own terms as in a case of pledge for a limited amount or of sale of a fractional interest in goods.

The principle is extended in subsection (3) to fit with the abolition of the old law of “cash sale” by subdivision (1)(c). It is also freed from any technicalities depending on the extended law of larceny; such extension of the concept of theft to include trick, particular types of fraud, and the like is for the purpose of helping conviction of the offender; it has no proper application to the long-standing policy of civil protection of buyers from persons guilty of such trick or fraud. Finally, the policy is extended, in the interest of simplicity and sense, to any entrusting by a bailor; this is in consonance with the explicit provisions of Section 7-205 on the powers of a warehouse who is also in the business of buying and selling fungible goods of the kind he stores. 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.

Official Comment References

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 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.

CROSS REFERENCES

Buyer in ordinary course of business defined, see § 1—201(b)(9) of this title.

Documents of title, see § 7—101 et seq. of this title

Document of title to goods defeated in certain cases, see § 7—503 of this title.

Holder in due course, see § 3—302 of this title.

Person in position of a seller, see § 2—707 of this title.

Protection of buyers under secured transactions, see § 9—307 of this title.

Rights of seller’s creditors against sold goods, see § 2—402 of this title.

Sale or sublease of goods by lessee, see § 2A—305 of this title.

Secured transactions, see § 9—101 et seq. of this title.

Seller’s right to reclaim goods subject to rights of buyer in ordinary course, see § 2—702 of this title.

Supplementation of Code by principles of law and equity, see § 1—103 of this title.

Title under warehouse receipt defeated in certain cases, see § 7—205 of this title.

ANNOTATIONS

Bona fide purchaser.

In order to make a person a bona fide purchaser entitled to the protection afforded by former section 1525 of Title 9, such purchaser must both receive possession of and pay value for the goods before notice of the prior sale. Coburn v. Drown, 114 Vt. 158, 40 A.2d 528, 1945 Vt. LEXIS 62 (1945) (Decided under prior law.).

Innocent purchaser for value.

Liability for payment of an order bill of lading will not be enforced at the suit of the carrier-subrogee against an innocent purchaser for value who has received the shipment at the instance and with the consent of the carrier. St. Johnsbury & Lamoille C.R. v. Skeels & Weidman, Inc., 124 Vt. 25, 196 A.2d 485, 1963 Vt. LEXIS 25 (1963) (Decided under prior law.).

History

Source.

Act No. 29, § 1, March 12, 1966.

Prior Uniform Statutory Provision: See Sections 17 and 19, Uniform Sales Act.

OFFICIAL COMMENT

Purposes: 1. The present section deals with the manner of identifying goods to the contract so that an insurable interest in the buyer and the rights set forth in the next section will accrue. Generally speaking, identification may be made in any manner “explicitly agreed to” by the parties. The rules of paragraphs (a), (b) and (c) apply only in the absence of such “explicit agreement”.

2. In the ordinary case identification of particular existing goods as goods to which the contract refers is unambiguous and may occur in one of many ways. It is possible, however, for the identification to be tentative or contingent. In view of the limited effect given to identification by this Article, the general policy is to resolve all doubts in favor of identification.

3. The provision of this section as to “explicit agreement” clarifies the present confusion in the law of sales which has arisen from the fact that under prior uniform legislation all rules of presumption with reference to the passing of title or to appropriation (which in turn depended upon identification) were regarded as subject to the contrary intention of the parties or of the party appropriating. Such uncertainty is reduced to a minimum under this section by requiring “explicit agreement” of the parties before the rules of paragraphs (a), (b) and (c) are displaced — as they would be by a term giving the buyer power to select the goods. An “explicit” agreement, however, need not necessarily be found in the terms used in the particular transaction. Thus, where a usage of the trade has previously been made explicit by reduction to a standard set of “rules and regulations” currently incorporated by reference into the contracts of the parties, a relevant provision of those “rules and regulations” is “explicit” within the meaning of this section.

4. In view of the limited function of identification there is no requirement in this section that the goods be in deliverable state or that all of the seller’s duties with respect to the processing of the goods be completed in order that identification occur. For example, despite identification the risk of loss remains on the seller under the risk of loss provisions until completion of his duties as to the goods and all of his remedies remain dependent upon his not defaulting under the contract.

5. Undivided shares in an identified fungible bulk, such as grain in an elevator or oil in a storage tank, can be sold. The mere making of the contract with reference to an undivided share in an identified fungible bulk is enough under subsection (a) to effect an identification if there is no explicit agreement otherwise. The seller’s duty, however, to segregate and deliver according to the contract is not affected by such an identification but is controlled by other provisions of this Article.

6. Identification of crops under paragraph (c) is made upon planting only if they are to be harvested within the year or within the next normal harvest season. The phrase “next normal harvest season” fairly includes nursery stock raised for normally quick “harvest”, but plainly excludes a “timber” crop to which the concept of a harvest “season” is inapplicable.

Paragraph (c) is also applicable to a crop of wool or the young of animals to be born within twelve months after contracting. The product of a lumbering, mining or fishing operation, though seasonal, is not within the concept of “growing”. Identification under a contract for all or part of the output of such an operation can be effected early in the operation.

Official Comment References

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.

CROSS REFERENCES

Definitions, see §§ 1—201, 2—103, 2—104 of this title.

Identification creating special title in buyer, see § 2—502 of this title.

Identification of goods under lease contract, see § 2A—217 of this title.

Lessee’s insurable interest in goods identified to lease contract, see § 2A—218 of this title.

Lessor’s right to identify goods to lease contract, see § 2A—524 of this title.

Passing of title, see § 2—401 of this title.

Place for delivery of identified goods, see § 2—308 of this title.

Remedies of seller for breach by buyer, see § 2—703 of this title.

Rights and duties when collateral in secured party’s possession, see § 9-207 of this title.

Risk of loss—

In absence of breach, see § 2—509 of this title.

In case of breach, see § 2—510 of this title.

Seller’s right to identify conforming goods notwithstanding breach, see § 2—704 of this title.

Tender of delivery, see § 2—503 of this title.

ANNOTATIONS

Cited.

Cited in In re Vermont Knitting Co., 111 B.R. 464, 1990 Bankr. LEXIS 492 (Bankr. D. Vt. 1990).

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1999 (Adj. Sess.). Amended section generally.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Compare Sections 17, 18 and 19, Uniform Sales Act.

Purposes: 1. This section gives an additional right to the buyer as a result of identification of the goods to the contract in the manner provided in Section 2-501. The buyer is given a right to the goods on the seller’s insolvency occurring within 10 days after he receives the first installment on their price.

2. The question of whether the buyer also acquires a security interest in identified goods and has rights to the goods when insolvency takes place after the ten-day period provided in this section depends upon compliance with the provisions of the Article on Secured Transactions (Article 9).

3. Subsection (2) is included to preclude the possibility of unjust enrichment which exists if the buyer were permitted to recover goods even though they were greatly superior in quality or quantity to that called for by the contract for sale.

Official Comment References

Cross References:

Point 1: Sections 1-201 and 2-702.

Point 2: Article 9.

Definitional Cross References:

“Buyer”. Section 2-103.

“Conform”. Section 2-106.

“Contract for sale”. Section 2-106.

“Goods”. Section 2-105.

“Insolvent”. Section 1-201.

“Right”. Section 1-201.

“Seller”. Section 2-103.

CROSS REFERENCES

Definitions, see §§ 1-201, 2-103, 2-104 of this title.

Discharge in bankruptcy as an affirmative defense, see Rule 8(c), Vermont Rules of Civil Procedure.

Procedure in replevin, see § 5371 et seq. of Title 12.

Remedies of buyer where seller repudiates or fails to deliver, see § 2-711 of this title.

Rights of seller’s creditors against sold goods, see § 2-402 of this title.

Seller’s remedies on discovery of buyer’s insolvency, see § 2-702 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subdivision (4)(b): Substituted “nonnegotiable” for “non-negotiable” preceding ”document” twice, “record directing” for “written direction to” preceding “the bailee”, and inserted “except as otherwise provided in Article 9 of this title” preceding “receipt”.

Subdivision (5)(a): Inserted “or she” following “he”.

Subdivision (5)(b): Inserted “or associated with” following “accompanying” and substituted “nonacceptance” for “non-acceptance” following “constitutes”.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

Prior Uniform Statutory Provision: See Sections 11, 19, 20, 43(3) and (4), 46 and 51, Uniform Sales Act.

Changes: The general policy of the above sections is continued and supplemented but subsection (3) changes the rule of prior section 19(5) as to what constitutes a “destination” contract and subsection (4) incorporates a minor correction as to tender of delivery of goods in the possession of a bailee.

Purposes of changes 1. The major general rules governing the manner of proper or due tender of delivery are gathered in this section. The term “tender” is used in this article in two different senses. In one sense it refers to “due tender” which contemplates an offer coupled with a present ability to fulfill all the conditions resting on the tendering party and must be followed by actual performance if the other party shows himself ready to proceed. Unless the context unmistakably indicates otherwise this is the meaning of “tender” in this article and the occasional addition of the word “due” is only for clarity and emphasis. At other times it is used to refer to an offer of goods or documents under a contract as if in fulfillment of its conditions even though there is a defect when measured against the contract obligation. Used in either sense, however, “tender” connotes such performance by the tendering party as puts the other party in default if he fails to proceed in some manner. These concepts of tender would apply to tender of either tangible or electronic documents of title.

2. The seller’s general duty to tender and deliver is laid down in Section 2-301 and more particularly in Section 2-507. The seller’s right to a receipt if he demands one and receipts are customary is governed by Section 1-205. Subsection (1) of the present section proceeds to set forth two primary requirements of tender: first, that the seller “put and hold conforming goods at the buyer’s disposition” and, second, that he “give the buyer any notice reasonably necessary to enable him to take delivery.”

In cases in which payment is due and demanded upon delivery the “buyer’s disposition” is qualified by the seller’s right to retain control of the goods until payment by the provision of this Article on delivery on condition. However, where the seller is demanding payment on delivery he must first allow the buyer to inspect the goods in order to avoid impairing his tender unless the contract for sale is on C.I.F., C.O.D., cash against documents or similar terms negating the privilege of inspection before payment.

In the case of contracts involving documents the seller can “put and hold conforming goods at the buyer’s disposition” under subsection (1) by tendering documents which give the buyer complete control of the goods under the provisions of Article 7 on due negotiation.

3. Under paragraph (a) of subsection (1) usage of the trade and the circumstances of the particular case determine what is a reasonable hour for tender and what constitutes a reasonable period of holding the goods available.

4. The buyer must furnish reasonable facilities for the receipt of the goods tendered by the seller under subsection (1), paragraph (b). This obligation of the buyer is no part of the seller’s tender.

5. For the purposes of subsections (2) and (3) there is omitted from this Article the rule under prior uniform legislation that a term requiring the seller to pay the freight or cost of transportation to the buyer is equivalent to an agreement by the seller to deliver to the buyer or at an agreed destination. This omission is with the specific intention of negating the rule, for under this Article the “shipment” contract is regarded as the normal one and the “destination” contract as the variant type. The seller is not obligated to deliver at a named destination and bear the concurrent risk of loss until arrival, unless he has specifically agreed so to deliver or the commercial understanding of the terms used by the parties contemplates such delivery.

6. Paragraph (a) of subsection (4) continues the rule of the prior uniform legislation as to acknowledgment by the bailee. Paragraph (b) of subsection (4) adopts the rule that between the buyer and the seller the risk of loss remains on the seller during a period reasonable for securing acknowledgment of the transfer from the bailee, while as against all other parties the buyer’s rights are fixed as of the time the bailee receives notice of the transfer.

7. Under subsection (5) documents are never “required” except where there is an express contract term or it is plainly implicit in the peculiar circumstances of the case or in a usage of trade. Documents may, of course, be “authorized” although not required, but such cases are not within the scope of this subsection. When documents are required, there are three main requirements of this subsection: (1) “All”: each required document is essential to a proper tender; (2) “Such”: the documents must be the ones actually required by the contract in terms of source and substance; (3) “Correct form”: All documents must be in correct form. These requirements apply to both tangible and electronic documents of title. When tender is made through customary banking channels, a draft may accompany or be associated with a document of title. The language has been broadened to allow for drafts to be associated with an electronic document of title. Compare Section 2-104(2) definition of financing agency.

When a prescribed document cannot be procured, a question of fact arises under the provision of this Article on substituted performance as to whether the agreed manner of delivery is actually commercially impracticable and whether the substitute is commercially reasonable.

Official Comment References

Cross References:

Point 2: Sections 1-205, 2-301, 2-310, 2-507 and 2-513 and Article 7.

Point 5: Sections 2-308, 2-310 and 2-509.

Point 7: Section 2-614(1).

Specific matters involving tender are covered in many additional sections of this Article. See Sections 1-205, 2-301, 2-306 to 2-319, 2-321(3), 2-504, 2-507(2), 2-511(1), 2-513, 2-612 and 2-614.

Definitional Cross References:

“Agreement”. Section 1-201.

“Bill of lading”. Section 1-201.

“Buyer”. Section 2-103.

“Conforming”. Section 2-106.

“Contract”. Section 1-201.

“Delivery”. Section 1-201.

“Dishonor”. Section 3-508.

“Document of title”. Section 1-201

“Draft”. Section 3-104.

“Goods”. Section 2-105.

“Notification”. Section 1-201.

“Reasonable time”. Section 1-204.

“Receipt” of goods. Section 2-103.

“Rights”. Section 1-201.

“Seasonably”. Section 1-204.

“Seller”. Section 2-103.

“Written”. Section 1-201.

CROSS REFERENCES

Absence of specified place for delivery, see § 2—308 of this title.

Course of performance, dealing and usage of trade, see § 1—303 of this title.

Documents of title generally, see § 7—101 et seq. of this title.

Effect of tender by seller, see § 2—507 of this title.

F.O.B. and F.A.S. terms, see § 2—319 of this title.

Inspection of goods by buyer, see § 2—513 of this title.

Obligations of parties in general, see § 2—301 of this title.

Risk of loss, see §§ 2—509, 2—510 of this title.

Substitute performance, tender, see § 2—614 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 46, Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes: To continue the general policy of the prior uniform statutory provision while incorporating certain modifications with respect to the requirement that the contract with the carrier be made expressly on behalf of the buyer and as to the necessity of giving notice of the shipment to the buyer, so that:

1. The section is limited to “shipment” contracts as contrasted with “destination” contracts or contracts for delivery at the place where the goods are located.  The general principles embodied in this section cover the special 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 on good faith and commercial standards and on buyer’s rights on improper delivery, the requirements of explicit provisions must be read in terms of their commercial and not their literal meaning.  This policy is made express with respect to bills of lading in a set in the provision of this Article on form of bills of lading required in overseas shipment.
3. In the absence of agreement, the provision of this Article on options and 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).
5. This Article, unlike the prior uniform statutory provision, makes it the seller’s duty to notify the buyer of shipment in all cases.  The consequences of his failure to do so, however, are limited in that the buyer may reject on this ground only where material delay or loss ensues.
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.

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.

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.

Official Comment References

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 1-103.

“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.

CROSS REFERENCES

Bill of lading for overseas shipment, see § 2—323 of this title.

C.I.F. and C. & F. terms, see § 2—320 of this title.

F.O.B. and F.A.S. terms, see § 2—319 of this title.

Manner of rightful rejection, see § 2—602 of this title.

Manner of tender of delivery in general, see § 2—503 of this title.

Obligation of good faith, see § 1—304 of this title.

Options and cooperation respecting performance, see § 2—311 of this title.

Remedies of buyer in case of nonconforming tender of delivery, see § 2—601 of this title.

Stoppage of delivery in transit, see § 2—705 of this title.

Substituted performance, see § 2—614 of this title.

Warehouse receipts and bills of lading generally, see § 7—101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subdivision (1)(a): Inserted “or her” following “his” in two places, “or her” following “him”, and “His” at the beginning of the second sentence.

Subdivision (1)(b): Substituted “nonnegotiable” for “non-negotiable” preceding “bill”.

Subdivision (2): Inserted “of title” following “document” at the end of the subdivision.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 20(2), (3), (4), Uniform Sales Act.

Changes: Completely rephrased, the “powers” of the parties in cases of reservation being emphasized primarily rather than the “rightfulness” of reservation.

Purposes of Changes: To continue in general the policy of the prior uniform statutory provision with certain modifications of emphasis and language, so that:

1. The security interest reserved to the seller under subsection (1) is restricted to securing payment or performance by the buyer and the seller is strictly limited in his disposition and control of the good as against the buyer and third parties.  Under this Article, the provision as to the passing of interest expressly applies “despite any reservation of security title” and also provides that the “rights, obligations and remedies” of the parties are not altered by the incidence of title generally.  The security interest, therefore, must be regarded as a means given to the seller to enforce his rights against the buyer which is unaffected by and in turn does not affect the location of title generally.  The rules set forth in subsection (1) are not to be altered by any apparent “contrary intent” of the parties as to passing of title, since the rights and remedies of the parties to the contract of sale, as defined in this Article, rest on the contract and its performance or breach and not on stereotyped presumptions as to the location of title.
2. Every shipment of identified goods under a negotiable bill of lading reserves a security interest in the seller under subsection (1) paragraph (a).
3. A non-negotiable bill of lading taken to a party other than the buyer under subsection (1) paragraph (b) reserves possession of the goods as security in the seller but if he seeks to withhold the goods improperly the buyer can tender payment and recover them.
4. In the case of a shipment by non-negotiable bill of lading taken to a buyer, the seller, under subsection (1) retains no security interest or possession as against the buyer and by the shipment he de facto loses control as against the carrier except where he rightfully and effectively stops delivery in transit.  In cases in which the contract gives the seller the right to payment against delivery, the seller, by making an immediate demand for payment, can show that his delivery is conditional, but this does not prevent the buyer’s power to transfer full title to a sub-buyer in ordinary course or other purchaser under Section 2-403.
5. Under subsection (2) an improper reservation by the seller which would constitute a breach in no way impairs such of the buyer’s rights as result from identification of the goods. The security title reserved by the seller under subsection (1) does not protect his retaining possession or control of the document or the goods for the purpose of exacting more than is due him under the contract.

This Article does not attempt to regulate local procedure in regard to the effective maintenance of the seller’s security interest when the action is in replevin by the buyer against the carrier.

It is frequently convenient for the seller to make the bill of lading to the order of a nominee such as his agent at destination, the financing agency to which he expects to negotiate the document or the bank issuing a credit to him. In many instances, also, the buyer is made the order party. This Article does not deal directly with the question as to whether a bill of lading made out by the seller to the order of a nominee gives the carrier notice of any rights which the nominee may have so as to limit its freedom or obligation to honor the bill of lading in the hands of the seller as the original shipper if the expected negotiation fails. This is dealt with in the Article on Documents of Title (Article 7).

Official Comment References

Cross References:

Point 1: Section 1-201.

Point 2: Article 7.

Point 3: Sections 2-501(2) and 2-504.

Point 4: Sections 2-403, 2-507(2) and 2-705.

Point 5: Sections 2-310, 2-319(4), 2-320(4), 2-501 and 2-502 and Article 7.

Definitional Cross References:

“Bill of lading”. Section 1-201.

“Buyer”. Section 2-103.

“Consignee”. Section 7-102.

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Delivery”. Section 1-201.

“Financing agency”. Section 2-104.

“Goods”. Section 2-105.

“Holder”. Section 1-201.

“Person”. Section 1-201.

“Security interest”. Section 1-201.

“Seller”. Section 2-103.

CROSS REFERENCES

Authority to ship under reservation, see § 2—310 of this title.

C.I.F. and C. & F. terms, see § 2—320 of this title.

Definitions, see §§ 1—201, 2—103, 2—104 of this title.

Documents of title generally, see § 7—101 et seq. of this title.

Entrusting, see § 2—403 of this title.

F.O.B. and F.A.S. terms, see § 2—319 of this title.

Insurable interest in goods, see § 2—501 of this title.

Payment by buyer as condition to retention or disposition of goods, see § 2—507 of this title.

Retention of goods by buyer upon insolvency of seller, see § 2—502 of this title.

Risk of loss in absence of breach, see § 2—509 of this title.

Secured transactions generally, see 9—101 et seq. of this title.

Shipment by seller in general, see § 2—504 of this title.

Stoppage of delivery in transit or otherwise, see § 2—705 of this title.

Warehouse receipts and bills of lading generally, see § 7—101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subsection (2): Deleted “on its face” following “regular” at the end of the subsection.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. “Financing agency” is broadly defined in this Article to cover every normal instance in which a party aids or intervenes in the financing of a sales transaction. The term as used in subsection (1) is not in any sense intended as a limitation and covers any other appropriate situation which may arise outside the scope of the definition.

2. “Paying” as used in subsection (1) is typified by the letter of credit, or “authority to pay” situation in which a banker, by arrangement with the buyer or other consignee, pays on his behalf a draft for the price of the goods. It is immaterial whether the draft is formally drawn on the party paying or his principal, whether it is a sight draft paid in cash or a time draft “paid” in the first instance by acceptance, or whether the payment is viewed as absolute or conditional. All of these cases constitute “payment” under this subsection. Similarly, “purchasing for value” is used to indicate the whole area of financing by the seller’s banker, and the principle of subsection (1) is applicable without any niceties of distinction between “purchase,” “discount,” “advance against collection” or the like. But it is important to notice that the only right to have the draft honored that is acquired is that against the buyer; if any right against any one else is claimed it will have to be under some separate obligation of that other person. A letter of credit does not necessarily protect purchasers of drafts. See Article 5. And for the relations of the parties to documentary drafts see Part 5 of Article 4.

3. Subsection (1) is made applicable to payments or advances against a draft which “relates to” a shipment of goods and this has been chosen as a term of maximum breadth. In particular the term is intended to cover the case of a draft against an invoice or against a delivery order. Further, it is unnecessary that there be an explicit assignment of the invoice attached to the draft to bring the transaction within the reason of this subsection.

4. After shipment, “the rights of the shipper in the goods” are merely security rights and are subject to the buyer’s right to force delivery upon tender of the price. The rights acquired by the financing agency are similarly limited and, moreover, if the agency fails to procure any outstanding negotiable document of title, it may find its exercise of these rights hampered or even defeated by the seller’s disposition of the document to a third party. This section does not attempt to create any new rights in the financing agency against the carrier which would force the latter to honor a stop order from the agency, a stranger to the shipment, or any new rights against a holder to whom a document of title has been duly negotiated under Article 7.

5. The deletion of the language “on its face” from subsection (2) is designed to accommodate electronic documents of title without changing the requirement of regularity of the document.

Official Comment References

Cross References:

Point 1: Section 2-104(2) and Article 4.

Point 2: Part 5 of Article 4, and Article 5.

Point 4: Sections 2-501 and 2-502(1) and Article 7.

Definitional Cross References:

“Buyer”. Section 2-103.

“Document of title”. Section 1-201.

“Draft”. Section 3-104.

“Financing agency”. Section 2-104.

“Good faith”. Section 2-103.

“Goods”. Section 2-105.

“Honor”. Section 1-201.

“Purchase”. Section 1-201.

“Rights”. Section 1-201.

“Value”. Section 1-201.

CROSS REFERENCES

Bank deposits and collections, see § 4-101 et seq. of this title.

Buyer’s right to goods on insolvency of seller, see § 2—502 of this title.

Collection of documentary drafts, see § 4-501 et seq. of this title.

Definition of “financing agency”, see § 2-104 of this title.

Documents of title, see § 7-101 et seq. of this title.

Insurable interest in goods, see § 2-501 of this title.

Letters of credit, see § 5-101 et seq. of this title.

Licensing of lenders, see § 2201 et seq. of Title 8.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

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 the same rules in these matters are applied to present sales and to contracts for sale. But the provisions of this subsection must be read within the framework of the other sections of this Article which bear upon the question of delivery and payment.

2. The “unless otherwise agreed” provision of subsection (1) is directed primarily to cases in which payment in advance has been promised or a letter of credit term has been included. Payment “according to the contract” contemplates immediate payment, payment at the end of an agreed credit term, payment by a time acceptance or the like. Under this Act, “contract” means the total obligation in law which results from the parties’ agreement including the effect of this Article. In this context, therefore, there must be considered the effect in law of such provisions as those on means and manner of payment and on failure of agreed means and manner of payment.

3. Subsection (2) deals with the effect of a conditional delivery by the seller and in such a situation makes the buyer’s “right as against the seller” conditional upon payment. These words are used as words of limitation to conform with the policy set forth in the bona fide purchase sections of this Article. Should the seller after making such a conditional delivery fail to follow up his rights, the condition is waived. The provision of this Article for a ten day limit within which the seller may reclaim goods delivered on credit to an insolvent buyer is also applicable here.

Official Comment References

Cross References:

Point 1: Sections 2-310, 2-503, 2-511, 2-601 and 2-711 to 2-713.

Point 2: Sections 1-201, 2-511 and 2-614.

Point 3: Sections 2-401, 2-403, and 2-702(1)(b).

Definitional Cross References:

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Delivery”. Section 1-201.

“Document of title”. Section 1-201.

“Goods”. Section 2-105.

“Rights”. Section 1-201.

“Seller”. Section 2-103.

CROSS REFERENCES

Definitions, see §§ 1—201, 2—103, 2—104 of this title.

Nonconforming goods or tender of delivery, see § 2—601 of this title.

Remedies of buyer for breach by seller, see §§ 2—711, 2—712 of this title.

Remedies of seller on insolvency of buyer, see § 2—702 of this title.

Seller’s shipment under reservation, see § 2—505 of this title.

Substituted performance, see § 2—614 of this title.

Tender of delivery by seller, see § 2—503 of this title.

Tender of payment by buyer, see § 2—511 of this title.

Time for payment, see § 2—310 of this title.

Title to goods, see §§ 2—401, 2—403 of this title.

Variation by agreement, see § 1—302 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. Subsection (1) permits a seller who has made a non-conforming tender in any case to make a conforming delivery within the contract time upon seasonable notification to the buyer. It applies even where the seller has taken back the non-conforming goods and refunded the purchase price. He may still make a good tender within the contract period. The closer, however, it is to the contract date, the greater is the necessity for extreme promptness on the seller’s part in notifying of his intention to cure, if such notification is to be “seasonable” under this subsection.

The rule of this subsection, moreover, is qualified by its underlying reasons. Thus if, after contracting for June delivery, a buyer later makes known to the seller his need for shipment early in the month and the seller ships accordingly, the “contract time” has been cut down by the supervening modification and the time for cure of tender must be referred to this modified time term.

(2) Subsection (2) seeks to avoid injustice to the seller by reason of a surprise rejection by the buyer. However, the seller is not protected unless he had “reasonable grounds to believe” that the tender would be acceptable. Such reasonable grounds can lie in prior course of dealing, course of performance or usage of trade as well as in the particular circumstances surrounding the making of the contact. 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.

Official Comment References

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.

CROSS REFERENCES

Course of performance, dealing and usage of trade, see § 1—303 of this title.

Notice defined, see § 1—202 of this title.

Remedies for material misrepresentation or fraud, see § 2—721 of this title.

Rightful rejection of nonconforming goods or delivery, see §§ 2—601, 2—602 of this title.

Substituted performance, see § 2—614 of this title.

Substituted performance under lease contracts, see § 2A—404 of this title.

Tender of payment, see § 2—511 of this title.

Unconscionable contract or clause, see § 2—302 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subdivision (2)(a): Inserted “or her” following “his” and “possession or control of” preceding “a negotiable”.

Subdivision (2)(c): Inserted “or her” following “his” and “possession or control of” preceding “a nonnegotiable”; substituted “nonnegotiable” for “non-negotiable” preceding “document”; deleted “written” preceding “direction”; inserted “in a record” following “deliver”; substituted “subdivision” for “§” preceding “2-503(4)(b)” and inserted “of this title” following “2-503(4)(b)”.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 22, Uniform Sales Act.

Changes: Rewritten, subsection (3) of this section modifying prior law.

Purposes of Changes: To make it clear that:

1. The underlying theory of these sections on risk of loss is the adoption of the contractual approach rather than an arbitrary shifting of the risk with the “property” in the goods.  The scope of the present section, therefore, is limited strictly to those cases where there has been no breach by the seller.  Where for any reason his delivery or tender fails to conform to the contract, the present section does not apply and the situation is governed by the provisions on effect of breach on risk of loss.
2. The provisions of subsection (1) apply where the contract “requires or authorizes” shipment of the goods.  This language is intended to be construed parallel to comparable language in the section on shipment by seller. In order that the goods be “duly delivered to the carrier” under paragraph (a) a contract must be entered into with the carrier which will satisfy the requirements of the section on shipment by the seller and the delivery must be made under circumstances which will enable the seller to take any further steps necessary to a due tender.  The underlying reason of this subsection does not require that the shipment be made after contracting, but where, for example, the seller buys the goods afloat and later diverts the shipment to the buyer, he must identify the goods to the contract before the risk of loss can pass.  To transfer the risk it is enough that a proper shipment and a proper identification come to apply to the same goods although, aside from special agreement, the risk will not pass retroactively to the time of shipment in such a case.
3. Whether the contract involves delivery at the seller’s place of business or at the situs of the goods, a merchant seller cannot transfer risk of loss and it remains upon him until actual receipt by the buyer, even though full payment has been made and the buyer has been notified that the goods are at his disposal.  Protection is afforded him, in the event of breach by the buyer, under the next section.
4. Where the agreement provides for delivery of the goods as between the buyer and seller without removal from the physical possession of a bailee, the provisions on manner of tender of delivery apply on the point of transfer of risk.  Due delivery of a negotiable document of title covering the goods or acknowledgment by the bailee that he holds for the buyer completes the “delivery” and passes the risk. See definition of delivery in Article 1, Section 1-201 and the definition of control in Article 7, Section 7-106.
5. The provisions of this section are made subject by subsection (4) to the “contrary agreement” of the parties. This language is intended as the equivalent of the phrase “unless otherwise agreed” used more frequently throughout this Act.  “Contrary” is in no way used as a word of limitation and the buyer and seller are left free to readjust their rights and risks as declared by this section in any manner agreeable to them.  Contrary agreement can also be found in the circumstances of the case, a trade usage or practice, or a course of dealing or performance.

The underlying theory of this rule is that a merchant who is to make physical delivery at his own place continues meanwhile to control the goods and can be expected to insure his interest in them. The buyer, on the other hand, has no control of the goods and it is extremely unlikely that he will carry insurance on goods not yet in his possession.

Official Comment References

Cross References:

Point 1: Section 2-510(1).

Point 2: Sections 2-503 and 2-504.

Point 3: Sections 2-104, 2-503 and 2-510.

Point 4: Section 2-503(4).

Point 5: Section 1-201.

Definitional Cross References:

“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.

CROSS REFERENCES

Definitions, see §§ 1—201, 2—103, 2—104 of this title.

Insurable interest in goods, see § 2—501 of this title.

Merchant defined, see § 2—104 of this title.

Risk of loss in case of breach, see § 2-510 of this title.

Risk of loss under lease contracts, see § 2A—219 of this title.

Shipment by seller, see § 2—504 of this title.

Tender of delivery by seller, see § 2—503 of this title.

Variation by agreement, see § 1—302 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: To make clear that:

1. Under subsection (1) the seller by his individual action cannot shift the risk of loss to the buyer unless his action conforms with all the conditions resting on him under the contract.
2. The “cure” of defective tenders contemplated by subsection (1) applies only to those situations in which the seller makes changes in goods already tendered, such as repair, partial substitution, sorting out from an improper mixture and the like since “cure” by repossession and new tender has no effect on the risk of loss of the goods originally tendered.  The seller’s privilege of cure does not shift the risk, however, until the cure is completed.
3. In cases where there has been a breach of the contract, if the one in control of the goods is the aggrieved party, whatever loss or damage may prove to be uncovered by his insurance falls upon the contract breaker under subsections (2) and (3) rather than upon him.  The word “effective” as applied to insurance coverage in those subsections is used to meet the case of supervening insolvency of the insurer.  The “deficiency” referred to in the text means such deficiency in the insurance coverage as exists without subrogation.  This section merely distributes the risk of loss as stated and is not intended to be disturbed by any subrogation of an insurer.

Where defective documents are involved a cure of the defect by the seller or a waiver of the defects by the buyer will operate to shift the risk under this section. However, if the goods have been destroyed prior to the cure or the buyer is unaware of their destruction at the time he waives the defect in the documents, the risk of the loss must still be borne by the seller, for the risk shifts only at the time of cure, waiver of documentary defects or acceptance of the goods.

Official Comment References

Cross References:

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.

CROSS REFERENCES

Anticipatory repudiation, see § 2—610 of this title.

Effect of default on risk of loss under lease contracts, see § 2A—220 of this title.

Insurable interest in identified goods, see § 2—501 of this title.

Revocation of acceptance in whole or in part, see § 2—608 of this title.

Risk of loss in absence of breach, see § 2-509 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1993 (Adj. Sess.) Subsection (3): substituted “(§ 3-310)” for “(§ 3-802)”.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 42, Uniform Sales Act.

Changes: Rewritten by this section and Section 2-507.

Purposes of Changes: 1. The requirement of payment against delivery in subsection (1) is applicable to non-commercial sales generally and to ordinary sales at retail although it has no application to the great body of commercial contracts which carry credit terms. Subsection (1) applies also to documentary contracts in general and to contracts which look to shipment by the seller but contain no term on time and manner of payment, in which situations the payment may, in proper case, be demanded against delivery of appropriate documents.

In the case of specific transactions such as C.O.D. sales or agreements providing for payment against documents, the provisions of this subsection must be considered in conjunction with the special sections of the Article dealing with such terms. The provision that tender of payment is a condition to the seller’s duty to tender and complete “any delivery” integrates this section with the language and policy of the section on delivery in several lots which call for separate payment. Finally, attention should be directed to the provision on right to adequate assurance of performance which recognizes, even before the time for tender, an obligation on the buyer not to impair the seller’s expectation of receiving payment in due course.

2. Unless there is agreement otherwise the concurrence of the conditions as to tender of payment and tender of delivery requires their performance at a single place or time. This Article determines that place and time by determining in various other sections the place and time for tender of delivery under various circumstances and in particular types of transactions. The sections dealing with time and place of delivery together with the section on right to inspection of goods answer the subsidiary question as to when payment may be demanded before inspection by the buyer.

3. The essence of the principle involved in subsection (2) is avoidance of commercial surprise at the time of performance. The section on substituted performance covers the peculiar case in which legal tender is not available to the commercial community.

4. Subsection (3) is concerned with the rights and obligations as between the parties to a sales transaction when payment is made by check. This Article recognizes that the taking of a seemingly solvent party’s check is commercially normal and proper and, if due diligence is exercised in collection, is not to be penalized in any way. The conditional character of the payment under this section refers only to the effect of the transaction “as between the parties” thereto, and does not purport to cut into the law of “absolute” and “conditional” payment as applied to such other problems as the discharge of sureties or the responsibilities of a drawee bank which is at the same time an agent for collection.

The phrase “by check” includes not only the buyer’s own but any check which does not effect a discharge under Article 3 (Section 3-802). Similarly the reason of this subsection should apply and the same result should be reached where the buyer “pays” by sight draft on a commercial firm which is financing him.

5. Under subsection (3) payment by check is defeated if it is not honored upon due presentment. This corresponds to the provisions of Article on Commercial Paper (Section 3-802). But if the seller procures certification of the check instead of cashing it, the buyer is discharged (Section 3-411).

6. Where the instrument offered by the buyer is not a payment but a credit instrument such as a note or a check postdated by even one day, the seller’s acceptance of the instrument insofar as third parties are concerned, amounts to a delivery on credit and his remedies are set forth in the section on buyer’s insolvency. As between the buyer and the seller, however, the matter turns on the present subsection and the section on conditional delivery and subsequent dishonor of the instrument gives the seller rights on it as well as for breach of the contract for sale.

Official Comment References

Cross References:

Point 1: Sections 2-307, 2-310, 2-320, 2-325, 2-503, 2-513 and 2-609.

Point 2: Sections 2-307, 2-310, 2-319, 2-322, 2-503, 2-504 and 2-513.

Point 3: Section 2-614.

Point 5: Article 3, esp. Sections 3-802 and 3-411.

Point 6: Sections 2-507, 2-702, and Article 3.

Definitional Cross References:

“Buyer”. Section 2-103.

“Check”. Section 3-104.

“Dishonor”. Section 3-508.

“Party”. Section 1-201.

“Reasonable time”. Section 1-204.

“Seller”. Section 2-103.

CROSS REFERENCES

Assurance of due performance, see § 2—609 of this title.

Certification of check, see § 3—409 of this title.

C.I.F. and C. & F. terms, see § 2—320 of this title.

Delivery of goods, “ex-ship”, see § 2—322 of this title.

Delivery of letter of credit, see § 2—325 of this title.

Effect of instrument taken for underlying obligation, see § 3-310 of this title.

Effect of seller’s tender; delivery on condition, see § 2—507 of this title.

F.O.B. and F.A.S. terms, see § 2—319 of this title.

Inspection of goods, see § 2—513 of this title.

Letters of credit, see §§ 2—325, 5—101 et seq. of this title.

Manner of seller’s tender of delivery, see § 2—503 of this title.

Negotiable instruments, see § 3—101 et seq. of this title.

Remedies of seller on insolvency of buyer, see § 2—702 of this title.

Shipment of goods by seller, see § 2—504 of this title.

Single delivery of goods or delivery in lots, see § 2—307 of this title.

Substituted performance, see § 2—614 of this title.

Time for payment or running of credit, see § 2—310 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1997 (Adj. Sess.). Subdivision (1)(b): Substituted “under this title (§ 5-109(b))” for “under the provisions of this title (§ 5-114))”.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None, but see Sections 47 and 49, Uniform Sales Act.

Purposes: 1. Subsection (1) of the present section recognizes that the essence of a contract providing for payment before inspection is the intention of the parties to shift to the buyer the risks which would usually rest upon the seller. The basic nature of the transaction is thus preserved and the buyer is in most cases required to pay first and litigate as to any defects later.

2. “Inspection” under this section is an inspection in a manner reasonable for detecting defects in goods whose surface appearance is satisfactory.

3. Clause (a) of this subsection states an exception to the general rule based on common sense and normal commercial practice. The apparent non-conformity referred to is one which is evident in the mere process of taking delivery.

4. Clause (b) is concerned with contracts for payment against documents and incorporates the general clarification and modification of the case law contained in the section on excuse of a financing agency. Section 5-114.

5. Subsection (2) makes explicit the general policy of the Uniform Sales Act that the payment required before inspection in no way impairs the buyer’s remedies or rights in the event of a default by the seller. The remedies preserved to the buyer are all of his remedies, which include as a matter of reason the remedy for total non-delivery after payment in advance.

The provision on performance or acceptance under reservation of rights does not apply to the situations contemplated here in which payment is made in due course under the contract and the buyer need not pay “under protest” or the like in order to preserve his rights as to defects discovered upon inspection.

6. This section applies to cases in which the contract requires payment before inspection either by the express agreement of the parties or by reason of the effect in law of that contract. The present section must therefore be considered in conjunction with the provision on right to inspection of goods which sets forth the instances in which the buyer is not entitled to inspection before payment.

Official Comment References

Cross References:

Point 4: Article 5.

Point 5: Section 1-207.

Point 6: Section 2-513(3).

Definitional Cross References:

“Buyer”. Section 2-103.

“Conform”. Section 2-106.

“Contract”. Section 1-201.

“Financing agency”. Section 2-104.

“Goods”. Section 2-105.

“Remedy”. Section 1-201.

“Rights”. Section 1-201.

CROSS REFERENCES

Buyer’s right to inspection of goods, see § 2—513 of this title.

Definitions, see §§ 1—201, 2—103, 2—104 of this title.

Reservation of rights, see § 1—308 of this title.

Tender of payment for negotiable instruments, see § 3—603 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Prior Uniform Statutory Provision: Section 47(2), (3), Uniform Sales Act.

OFFICIAL COMMENT

Changes: Rewritten, Subsections (2) and (3) being new.

Purposes of Changes and New Matter: To correspond in substance with the prior uniform statutory provision and to incorporate in addition some of the results of the better case law so that:

1. The buyer is entitled to inspect goods as provided in subsection (1) unless it has been otherwise agreed by the parties.  The phrase “unless otherwise agreed” is intended principally to cover such situations as those outlined in subsections (3) and (4) and those in which the agreement of the parties negates inspection before tender of delivery. However, no agreement by the parties can displace the entire right of inspection except where the contract is simply for the sale of “this thing.” Even in a sale of boxed goods “as is” inspection is a right of the buyer, since if the boxes prove to contain some other merchandise altogether the price can be recovered back; nor do the limitations of the provision on effect of acceptance apply in such a case.
2. The buyer’s right of inspection is available to him upon tender, delivery or appropriation of the goods with notice to him.  Since inspection is available to him on tender, where payment is due against delivery he may, unless otherwise agreed, make his inspection before payment of the price.  It is also available to him after receipt of the goods and so may be postponed after receipt for a reasonable time.  Failure to inspect before payment does not impair the right to inspect after receipt of the goods unless the case falls within subsection (4) on agreed and exclusive inspection provisions. The right to inspect goods which have been appropriated with notice to the buyer holds whether or not the sale was by sample.
3. The buyer may exercise his right of inspection at any reasonable time or place and in any reasonable manner.  It is not necessary that he select the most appropriate time, place or manner to inspect or that his selection be the customary one in the trade or locality.  Any reasonable time, place or manner is available to him and the reasonableness will be determined by trade usages, past practices between the parties and the other circumstances of the case.
4. Expenses of an inspection made to satisfy the buyer of the seller’s performance must be assumed by the buyer in the first instance.  Since the rule provides merely for an allocation of expense there is no policy to prevent the parties from providing otherwise in the agreement.  Where the buyer would normally bear the expenses of the inspection but the goods are rightly rejected because of what the inspection reveals, demonstrable and reasonable costs of the inspection are part of his incidental damage caused by the seller’s breach.
5. In the case of payment against documents, subsection (3) requires payment before inspection, since shipping documents against which payment is to be made will commonly be tendered while the goods are still in transit.  This article recognizes no exception in any peculiar case in which the goods happen to arrive before the documents are tendered.  However, where by the agreement payment is to await the arrival of the goods, inspection before payment becomes proper since the goods are then “available for inspection.”
6. Under subsection (4) an agreed place or method of inspection is generally held to be intended as exclusive. However, where compliance with such an agreed inspection term becomes impossible, the question is basically one of intention.  If the parties clearly intend that the method of inspection named is to be a necessary condition without which the entire deal is to fail, the contract is at an end if that method becomes impossible.  On the other hand, if the parties merely seek to indicate a convenient and reliable method but do not intend to give up the deal in the event of its failure, any reasonable method of inspection may be substituted under this Article.
7. Clauses on time of inspection are commonly clauses which limit the time in which the buyer must inspect and give notice of defects.  Such clauses are therefore governed by the section of this Article which requires that such a time limitation must be reasonable.
8. Inspection under this Article is not to be regarded as a “condition precedent to the passing of title” so that risk until inspection remains on the seller.  Under subsection (4) such an approach cannot be sustained.  Issues between the buyer and seller are settled in this Article almost wholly by special provisions and not by the technical determination of the locus of the title.  Thus “inspection as a condition to the passing of title” becomes a concept almost without meaning.  However, in peculiar circumstances inspection may still have some of the consequences hitherto sought and obtained under that concept.
9. “Inspection” under this section has to do with the buyer’s check-up on whether the seller’s performance is in accordance with a contract previously made and is not to be confused with the “examination” of the goods or of a sample or model of them at the time of contracting which may affect the warranties involved in the contract.

The last sentence of subsection (1) makes it clear that the place of arrival of shipped goods is a reasonable place for their inspection.

Where by the agreement the documents are to be tendered after arrival of the goods, the buyer is entitled to inspect before payment since the goods are then “available for inspection”. Proof of usage is not necessary to establish this right, but if inspection before payment is disputed the contrary must be established by usage or by an explicit contract term to that effect.

For the same reason, that the goods are available for inspection, a term calling for payment against storage documents or a delivery order does not normally bar the buyer’s right to inspection before payment under subsection (3)(b). This result is reinforced by the buyer’s right under subsection (1) to inspect goods which have been appropriated with notice to him.

Since the purpose of an agreed place of inspection is only to make sure at that point whether or not the goods will be thrown back, the “exclusive” feature of the named place is satisfied under this Article if the buyer’s failure to inspect there is held to be an acceptance with the knowledge of such defects as inspection would have revealed within the section on waiver of buyer’s objections by failure to particularize. Revocation of the acceptance is limited to the situations stated in the section pertaining to that subject. The reasonable time within which to give notice of defects within the section on notice of breach begins to run from the point of the “acceptance.”

Official Comment References

Cross References:

Generally: Section 2-310(b), 2-321(3) and 2-606(1)(b).

Point 1: Section 2-607.

Point 2: Sections 2-501 and 2-502.

Point 4: Section 2-715.

Point 5: Section 2-321(3).

Point 6: Sections 2-606 to 2-608.

Point 7: Section 1-204.

Point 8: Comment to Section 2-401.

Point 9: Section 8-316(2)(b).

Definitional Cross References:

“Buyer”. Section 2-103.

“Conform”. Section 2-106.

“Contract”. Section 1-201.

“Contract for sale”. Section 2-106.

“Document of title”. Section 1-201.

“Goods”. Section 2-105.

“Party”. Section 1-201.

“Presumed”. Section 1-201.

“Reasonable time”. Section 1-204.

“Rights”. Section 1-201.

“Seller”. Section 2-103.

“Send”. Section 1-201.

“Term”. Section 1-201.

CROSS REFERENCES

Acceptance of goods, see § 2—606 of this title.

Effect of acceptance; notice of breach; burden of establishing breach after acceptance and notice of claim or litigation, see § 2—607 of this title.

Exclusion of implied warranty after examination of goods, see § 2—316 of this title.

Expenses of inspection as incidental damages, see § 2-715 of this title.

Inspection, see § 2—606 of this title.

Identification of goods, see § 2—501 of this title.

Preliminary inspection when payment due on or after arrival of goods, see § 2—321 of this title.

Revocation of acceptance in whole or in part, see § 2—608 of this title.

Right to inspect goods shipped under reservation before payment, see § 2—310 of this title.

Substituted performance, see § 2—614 of this title.

Time, see § 1—205 of this title.

Title of goods, see § 2—401 of this title.

ANNOTATIONS

Opportunity to examine.

When goods are delivered to a buyer without previous examination, even though there be no warranty, either express or implied, as to quality or fitness for any particular purpose, under former section 1547 of Title 9, the buyer is entitled to a reasonable opportunity of examining them to ascertain whether they are in conformity with the contract. Aetna Chemical Co. v. Spaulding & Kimball Co., 98 Vt. 51, 126 A. 582, 1924 Vt. LEXIS 134 (1924) (Decided under prior law.).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 41, Uniform Bills of Lading Act.

Changes: Rewritten.

Purposes of Changes: To make the provision one of general application so that:

1. It covers any document against which a draft may be drawn, whatever may be the form of the document, and applies to interpret the action of a seller or consignor insofar as it may affect the rights and duties of any buyer, consignee or financing agency concerned with the paper.  Supplementary or corresponding provisions are found in Sections 4—503 and 5—112.
2. An “arrival” draft is a sight draft within the purpose of this section.

Official Comment References

Cross References:

Point 1: See Sections 2—502, 2—505(2), 2—507(2), 2—512, 2—513, 2—607 concerning protection of rights of buyer and seller, and 4—503 and 5—112 on delivery of documents.

Definitional Cross References:

“Delivery”. Section 1—201.

“Draft”. Section 3—104.

CROSS REFERENCES

Buyer’s rights to goods on insolvency of seller, see § 2—502 of this title.

Collection of documentary drafts, see § 4—501 et seq. of this title.

Delivery of goods or documents of title on condition of payment, see § 2—507 of this title.

Form of negotiation of documents of title and requirements of due negotiation, see § 7—501 of this title.

Obligations of issuer of letter of credit to customer, see § 5—109 of this title.

Reservation of security interest by seller, see § 2—505 of this title.

Responsibility of presenting bank for documents and goods, see § 4—503 of this title.

Rights of buyer and seller on acceptance, see § 2—607 of this title.

Rights of buyer and seller on inspection of goods, see §§ 2—512, 2—513 of this title.

Transfer of letter of credit, see § 5—112 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. To meet certain serious problems which arise when there is a dispute as to the quality of the goods and thereby perhaps to aid the parties in reaching a settlement, and to further the use of devices which will promote certainty as to the condition of the goods, or at least aid in preserving evidence of their condition.

2. Under paragraph (a), to afford either party an opportunity for preserving evidence, whether or not agreement has been reached, and thereby to reduce uncertainty in any litigation and, in turn perhaps, to promote agreement.

Paragraph (a) does not conflict with the provisions on the seller’s right to resell rejected goods or the buyer’s similar right. Apparent conflict between these provisions which will be suggested in certain circumstances is to be resolved by requiring prompt action by the parties. Nor does paragraph (a) impair the effect of a term for payment before inspection. Short of such defects as amount to fraud or substantial failure of consideration, non-conformity is neither an excuse nor a defense to an action for non-acceptance of documents. Normally, therefore, until the buyer has made payment, inspected and rejected the goods, there is no occasion or use for the rights under paragraph (a).

3. Under paragraph (b), to provide for third party inspection upon the agreement of the parties, thereby opening the door to amicable adjustments based upon the findings of such third parties.

The use of the phrase “conformity or condition” makes it clear that the parties’ agreement may range from a complete settlement of all aspects of the dispute by a third party to the use of a third party merely to determine and record the condition of the goods so that they can be resold or used to reduce the stake in controversy. “Conformity”, at one end of the scale of possible issues, includes the whole question of interpretation of the agreement and its legal effect, the state of the goods in regard to quality and condition, whether any defects are due to factors which operate at the risk of the buyer, and the degree of non-conformity where that may be material. “Condition”, at the other end of the scale, includes nothing but the degree of damage or deterioration which the goods show. Paragraph (b) is intended to reach any point in the gamut which the parties may agree upon.

The principle of the section on reservation of rights reinforces this paragraph in simplifying such adjustments as the parties wish to make in partial settlement while reserving their rights as to any further points. Paragraph (b) also suggests the use of arbitration, where desired, of any points left open, but nothing in this section is intended to repeal or amend any statute governing arbitration. Where any question arises as to the extent of the parties’ agreement under the paragraph, the presumption should be that it was meant to extend only to the relation between the contract description and the goods as delivered, since that is what a craftsman in the trade would normally be expected to report upon. Finally, a written and authenticated report of inspection or tests by a third party, whether or not sampling has been practicable, is entitled to be admitted as evidence under this Act, for it is a third party document.

Official Comment References

Cross References:

Point 2: Sections 2—513(3), 2—706 and 2—711(2) and Article 5.

Point 3: Sections 1—202 and 1—207.

Definitional Cross References:

“Conform”. Section 2—106.

“Goods”. Section 2—105.

“Notification”. Section 1—201.

“Party”. Section 1—201.

CROSS REFERENCES

Buyer’s right to inspection prior to payment, see § 2—513 of this title.

Letters of credit, see § 5—101 et seq. of this title.

Notification to buyer of public resale by seller, see § 2—706 of this title.

Performance or acceptance under reservation of rights, see § 1—308 of this title.

Prima facie evidence by third party documents, see § 1—307 of this title.

Reference of disputes to court appointed master, see Rule 53, Vermont Rules of Civil Procedure.

Remedies of buyer, see § 2—711 of this title.

Remedies of seller, see § 2—703 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision. No one general equivalent provision but numerous provisions, dealing with situations of non-conformity where buyer may accept or reject, including Sections 11, 44 and 69(1), Uniform Sales Act.

Changes: Partial acceptance in good faith is recognized and the buyer’s remedies on the contract for breach of warranty and the like, where the buyer has returned the goods after transfer of title, are no longer barred.

Purposes of Changes: To make it clear that:

1. A buyer accepting a non-conforming tender is not penalized by the loss of any remedy otherwise open to him.  This policy extends to cover and regulate the acceptance of a part of any lot improperly tendered in any case where the price can reasonable be apportioned.  Partial acceptance is permitted whether the part of the goods accepted conforms or not.  The only limitation on partial acceptance is that good faith and commercial reasonableness must be used to avoid undue impairment of the value of the remaining portion of the goods.  This is the reason for the insistence on the “commercial unit” in paragraph (c).  In this respect, the test is not only what unit has been the basis of contract, but whether the partial acceptance produces so materially adverse an effect on the remainder as to constitute bad faith.
2. Acceptance made with the knowledge of the other party is final.  An original refusal to accept may be withdrawn by a later acceptance if the seller has indicated that he is holding the tender open.  However, if the buyer attempts to accept, either in whole or in part, after his original rejection has caused the seller to arrange for other disposition of the goods, the buyer must answer for any ensuing damage since the next section provides that any exercise of ownership after rejection is wrongful as against the seller.  Further, he is liable even though the seller may choose to treat his action as acceptance rather than conversion, since the damage flows from the misleading notice.  Such arrangements for resale or other disposition of the goods by the seller must be viewed as within the normal contemplation of a buyer who has given notice of rejection. However, the buyer’s attempts in good faith to dispose of defective goods where the seller has failed to give instructions within a reasonable time are not to be regarded as an acceptance.

Official Comment References

Cross References:

Sections 2-602(2)(a), 2-612, 2-718 and 2-719.

Definitional Cross References:

“Buyer”. Section 2-103.

“Commercial unit”. Section 2-105.

“Conform”. Section 2-106.

“Contract”. Section 1-201.

“Goods”. Section 2-105.

“Installment contract”. Section 2-612.

“Rights”. Section 1-201.

CROSS REFERENCES

Acceptance of conforming and nonconforming goods, see § 2—606 of this title.

Commercial unit defined, see § 2—105 of this title.

Contractual limitation of remedies, see §§ 2—718, 2—719 of this title.

Course of performance, dealing and usage of trade, see § 1—303 of this title.

Installment contracts, see § 2—612 of this title.

Lessee’s rights on improper delivery under lease contract, see § 2A—509 of this title.

Performance or acceptance under reservation of rights, see § 1—308 of this title.

Rightful rejection, see §§ 2—602, 2—603, 2—604 of this title.

ANNOTATIONS

• Instructions to jury.
• Right of rejection.
• Waiver of right to reject.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 50, Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes: To make it clear that:

1. A tender or delivery of goods made pursuant to a contract of sale, even though wholly non-conforming, requires affirmative action by the buyer to avoid acceptance.  Under subsection (1), therefore, the buyer is given a reasonable time to notify the seller of his rejection, but without such seasonable notification his rejection is ineffective.  The sections of this Article dealing with inspection of goods must be read in connection with the buyer’s reasonable time for action under this subsection.  Contract provisions limiting the time for rejection fall within the rule of the section on “Time” and are effective if the time set gives the buyer a reasonable time for discovery of defects.  What constitutes a due “notifying” of rejection by the buyer to the seller is defined in Section 1-201.
2. Subsection (2) lays down the normal duties of the buyer upon rejection, which flow from the relationship of the parties.  Beyond his duty to hold the goods with reasonable care for the buyer’s disposition, this section continues the policy of prior uniform legislation in generally relieving the buyer from any duties with respect to them, except when the circumstances impose the limited obligation of salvage upon him under the next section.
3. The present section applies only to rightful rejection by the buyer.  If the seller has made a tender which in all respects conforms to the contract, the buyer has a positive duty to accept and his failure to do so constitutes a “wrongful rejection” which gives the seller immediate remedies for breach.  Subsection (3) is included here to emphasize the sharp distinction between the rejection of an improper tender and the non-acceptance which is a breach by the buyer.
4. The provisions of this section are to be appropriately limited or modified when a negotiation is in process.

Official Comment References

Cross References:

Point 1: Sections 1-201, 1-204(1) and (3), 2-512(2), 2-513(1) and 2-606(1)(b).

Point 2: Section 2-603(1).

Point 3: Section 2-703.

Definitional Cross References:

“Buyer”. Section 2-103.

“Commercial unit”. Section 2-105.

“Goods”. Section 2-105.

“Merchant”. Section 2-104.

“Notifies”. Section 1-201.

“Reasonable time”. Section 1-204.

“Remedy”. Section 1-201.

“Rights”. Section 1-201.

“Seasonably”. Section 1-204.

“Security interest”. Section 1-201.

“Seller”. Section 2-103.

CROSS REFERENCES

Accord and satisfaction by use of negotiable instrument, see § 3—311 of this title.

Definitions, see §§ 1—201, 2—103 to 2—106 of this title.

Failure to reject, see § 2—605 of this title.

Inspection of goods, see § 2—513 of this title.

Merchant buyer’s duties regarding rejected goods, see § 2—603 of this title.

Negotiation subject to rescission, see § 3—202 of this title.

Nonconformity where buyer required to pay before inspection, see § 2—512 of this title.

Reasonable time defined, see § 1—205 of this title.

Rightful rejection under lease contracts, see § 2A—509 of this title.

Seller’s remedies on wrongful rejection, see § 2—703 of this title.

ANNOTATIONS

• Failure to reject.
• Reasonable time.
• Rejection.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. This section recognizes the duty imposed upon the merchant buyer by good faith and commercial practice to follow any reasonable instructions of the seller as to reshipping, storing, delivery to a third party, reselling or the like. Subsection (1) goes further and extends the duty to include the making of reasonable efforts to effect a salvage sale where the value of the goods is threatened and the seller’s instructions do not arrive in time to prevent serious loss.

2. The limitations on the buyer’s duty to resell under subsection (1) are to be liberally construed. The buyer’s duty to resell under this section arises from commercial necessity and thus is present only when the seller has “no agent or place of business at the market of rejection”. A financing agency which is acting in behalf of the seller in handling the documents rejected by the buyer is sufficiently the seller’s agent to lift the burden of salvage resale from the buyer. (See provisions of Sections 4—503 and 5—112 on bank’s duties with respect to rejected documents.) The buyer’s duty to resell is extended only to goods in his “possession or control”, but these are intended as words of wide, rather than narrow, import. In effect, the measure of the buyer’s “control” is whether he can practicably effect control without undue commercial burden.

3. The explicit provisions for reimbursement and compensation to the buyer in subsection (2) are applicable and necessary only where he is not acting under instructions from the seller. As provided in subsection (1) the seller’s instructions to be “reasonable” must on demand of the buyer include indemnity for expenses.

4. Since this section makes the resale of perishable goods an affirmative duty in contrast to a mere right to sell as under the case law, subsection (3) makes it clear that the buyer is liable only for the exercise of good faith in determining whether the value of the goods is sufficiently threatened to justify a quick resale or whether he has waited a sufficient length of time for instructions, or what a reasonable means and place of resale is.

5. A buyer who fails to make a salvage sale when his duty to do so under this section has arisen is subject to damages pursuant to the section on liberal administration of remedies.

Official Comment References

Cross References:

Point 2: Sections 4—503 and 5—112.

Point 5: Section 1—106. Compare generally section 2—706.

Definitional Cross References:

“Buyer”. Section 2—103.

“Good faith”. Section 1—201.

“Goods”. Section 2—105.

“Merchant”. Section 2—104.

“Security interest”. Section 1—201.

“Seller”. Section 2—103.

CROSS REFERENCES

Attachment of goods covered by negotiable document, see § 7—602 of this title.

Diversion, reconsignment and change of instructions of bills of lading, see § 7—303 of this title.

Reimbursement of expenses of bank presenting documentary draft, see § 4—503(2) of this title.

Method of rejection of goods, see § 2—602 of this title.

Privilege of presenting bank to deal with goods, see § 4—504 of this title.

Seller’s resale, see § 2—706 of this title.

Termination of storage at warehouseman’s option, see § 7—206 of this title.

Transfer of letter of credit, see § 5—112 of this title.

ANNOTATIONS

Retention of rejected goods.

A merchant buyer’s retention and storage of rightfully rejected goods (goods in excess of those contracted for), at the instructions of the seller, does not violate the buyer’s duty to follow reasonable instructions of the seller. Mitral Corp. v. Vermont Knives, Inc., 152 Vt. 242, 566 A.2d 406, 1989 Vt. LEXIS 162 (1989).

Trial court erred in concluding that buyer accepted knife blade-blanks in excess of number ordered, where buyer retained such blade-blanks pursuant to seller’s request after an effective and timely rejection. Mitral Corp. v. Vermont Knives, Inc., 152 Vt. 242, 566 A.2d 406, 1989 Vt. LEXIS 162 (1989).

Use of rejected goods.

Buyer’s post-revocation use of asphalt roller did not waive revocation of acceptance where revocation was good faith attempt to mitigate damages, seller continued to assure buyer that repairs would be successful, seller did not instruct buyer regarding permanent return of roller, and there was no evidence of prejudice from continued use. Wilk Paving, Inc. v. Southworth-Milton, Inc., 162 Vt. 552, 649 A.2d 778, 1994 Vt. LEXIS 102 (1994).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: The basic purpose of this section is twofold: on the one hand it aims at reducing the stake in dispute and on the other at avoiding the pinning of a technical “acceptance” on a buyer who has taken steps towards realization on or preservation of the goods in good faith. This section is essentially a salvage section and the buyer’s right to act under it is conditioned upon (1) non-conformity of the goods, (2) due notification of rejection to the seller under the section on manner of rejection, and (3) the absence of any instructions from the seller which the merchant-buyer has a duty to follow under the preceding section.

This section is designed to accord all reasonable leeway to a rightfully rejecting buyer acting in good faith. The listing of what the buyer may do in the absence of instructions from the seller is intended to be not exhaustive but merely illustrative. This is not a “merchant‘s” section and the options are pure options given to merchant and non-merchant buyers alike. The merchant-buyer, however, may in some instances be under a duty rather than an option to resell under the provisions of the preceding section.

This section is designed to accord all reasonable leeway to a rightfully rejecting buyer acting in good faith. The listing of what the buyer may do in the absence of instructions from the seller is intended to be not exhaustive but merely illustrative. This is not a “merchant‘s” section and the options are pure options given to merchant and non-merchant buyers alike. The merchant-buyer, however, may in some instances be under a duty rather than an option to resell under the provisions of the preceding section.

Official Comment References

Cross References:

Sections 2—602 (1), and 2—603 (1) and 2—706.

Definitional Cross References:

“Buyer”. Section 2—103.

“Notification”. Section 1—201.

“Reasonable time”. Section 1—204.

“Seller”. Section 2—103.

Merchant buyer’s duties, see § 2—603 of this title.

CROSS REFERENCES

Method of rejection of goods, see § 2—602 of this title.

Privilege of presenting bank to deal with goods, see § 4—504 of this title.

Seller’s resale, see § 2—706 of this title.

Termination of storage at warehouseman’s option, see § 7-206 of this title.

ANNOTATIONS

Cited.

Cited in Wilk Paving, Inc. v. Southworth-Milton, Inc., 162 Vt. 552, 649 A.2d 778, 1994 Vt. LEXIS 102 (1994).

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subdivision (2): Substituted “in” for “on the face of” following “apparent”.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. The present section rests upon a policy of permitting the buyer to give a quick and informal notice of defects in a tender without penalizing him for omissions in his statement, while at the same time protecting a seller who is reasonably misled by the buyer’s failure to state curable defects.

2. Where the defect in a tender is one which could have been cured by the seller, a buyer who merely rejects the delivery without stating his objections to it is probably acting in commercial bad faith and seeking to get out of a deal which has become unprofitable. Subsection (1)(a), following the general policy of this Article which looks to preserving the deal wherever possible, therefore insists that the seller’s right to correct his tender in such circumstances be protected.

3. When the time for cure is past, subsection (1)(b) makes it plain that a seller is entitled upon request to a final statement of objections upon which he can rely. What is needed is that he make clear to the buyer exactly what is being sought. A formal demand under paragraph (b) will be sufficient in the case of a merchant-buyer.

4. Subsection (2) applies to the particular case of documents the same principle which the section on effects of acceptance applies to the case of goods. The matter is dealt with in this section in terms of “waiver” of objections rather than of right to revoke acceptance, partly to avoid any confusion with the problems of acceptance of goods and partly because defects in documents which are not taken as grounds for rejection are generally minor ones. The only defects concerned in the present subsection are defects in the documents which are apparent. This rule applies to both tangible and electronic documents of title. Where payment is required against the documents they must be inspected before payment, and the payment then constitutes acceptance of the documents. Under the section dealing with this problem, such acceptance of the documents does not constitute an acceptance of the goods or impair any options or remedies of the buyer for their improper delivery. Where the documents are delivered without requiring such contemporary action as payment from the buyer, the reason of the next section on what constitutes acceptance of goods, applies. Their acceptance by non-objection is therefore postponed until after a reasonable time for their inspection. In either situation, however, the buyer “waives” only the defects apparent in the documents.

Official Comment References

Cross References:

Point 2: Section 2-508.

Point 4: Sections 2-512(2), 2-606(1)(b), 2-607(2).

Definitional Cross References:

“Between merchants”. Section 2-104.

“Buyer”. Section 2-103.

“Seasonably”. Section 1-204.

“Seller”. Section 2-103.

“Writing” and “written”. Section 1-201.

CROSS REFERENCES

Acceptance of goods, see § 2—206 of this title.

“Between merchants” defined, see § 2—104 of this title.

Buyer’s right to inspect under contract requiring payment before inspection, see § 2—512 of this title.

Burden of establishing breach after acceptance, see § 2—607 of this title.

Course of performance, dealing and usage of trade, see § 1—303 of this title.

Cure by seller of improper tender or delivery, see § 2—508 of this title.

Performance or acceptance under reservation of rights, see § 1—308 of this title.

Seasonably, see § 1—205 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 48, Uniform Sales Act.

Changes: Rewritten, the qualification in paragraph (c) and subsection (2) being new; otherwise the general policy of the prior legislation is continued.

Purposes of Changes and New Matter: To make it clear that:

1. Under this Article “acceptance” as applied to goods means that the buyer, pursuant to the contract, takes particular goods which have been appropriated to the contract as his own, whether or not he is obligated to do do, and whether he does so by words, action, or silence when it is time to speak.  If the goods conform to the contract, acceptance amounts only to the performance by the buyer of one part of his legal obligation.
2. Under this Article acceptance of goods is always acceptance of identified goods which have been appropriated to the contract or are appropriated by the contract.  There is no provision for “acceptance of title” apart from acceptance in general, since acceptance of title is not material under this Article to the detailed rights and duties of the parties. (See Section 2-401.) The refinements of the older law between acceptance of goods and of title become unnecessary in view of the provisions of the sections on effect on revocation of acceptance, on effects of identification and on risk of loss, and those sections which free the seller’s and buyer’s remedies from the complications and confusions caused by the question of whether title has or has not passed to the buyer before breach.
3. Under paragraph (a), payment made after tender is always one circumstance tending to signify acceptance of the goods but in itself it can never be more than one circumstance and is not conclusive.  Also, a conditional communication of acceptance always remains subject to its expressed conditions.
4. Under paragraph (c), any action taken by the buyer, which is inconsistent with his claim that he has rejected the goods, constitutes an acceptance.  However, the provisions of paragraph (c) are subject to the sections dealing with rejection by the buyer which permit the buyer to take certain actions with respect to the goods pursuant to his options and duties imposed by those sections, without effecting an acceptance of the goods.  The second clause of paragraph (c) modifies some of the prior case law and makes it clear that “acceptance” in law based on the wrongful act of the acceptor is acceptance only as against the wrongdoer and then only at the option of the party wronged.
5. Subsection (2) supplements the policy of the section on buyer’s rights on improper delivery, recognizing the validity of a partial acceptance but insisting that the buyer exercise this right only as to whole commercial units.

In the same manner in which a buyer can bind himself, despite his insistence that he is rejecting or has rejected the goods, by an act inconsistent with the seller’s ownership under paragraph (c), he can obligate himself by a communication of acceptance despite a prior rejection under paragraph (a). However, the sections on buyer’s rights on improper delivery and on the effect of rightful rejection, make it clear that after he once rejects a tender, paragraph (a) does not operate in favor of the buyer unless the seller has re-tendered the goods or has taken affirmative action indicating that he is holding the tender open. See also Comment 2 to Section 2-601.

Official Comment References

Cross References:

Point 2: Section 2-401, 2-509, 2-510, 2-607, 2-608 and Part 7.

Point 4: Sections 2-601 through 2-604.

Point 5: Section 2-601.

Definitional Cross References:

“Buyer”. Section 2-103.

“Commercial unit”. Section 2-105.

“Goods”. Section 2-105.

“Seller”. Section 2-103.

CROSS REFERENCES

Acceptance of whole or commercial units, see § 2—601 of this title.

Buyer’s options as to salvage of rightfully rejected goods, see § 2—604 of this title.

Effect of acceptance, see § 2—607 of this title.

Manner and effect of rightful rejection, see § 2—602 of this title.

Merchant buyer’s duties, see § 2—603 of this title.

Performance or acceptance under reservation of rights, see § 1—308 of this title.

Remedies for breach of collateral contracts, see § 2—701 et seq. of this title.

Revocation of acceptance in whole or in part, see § 2—608 of this title.

Risk of loss, see §§ 2—509, 2—510 of this title.

Title to goods, see § 2—401 of this title.

Warranties on transfer and presentment of letters of credit, see § 5—110 of this title.

ANNOTATIONS

• Acts of ownership.
• Construction.
• Defective goods.
• Failure to make effective rejection.
• Reasonable time.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Subsection (1)—Section 41, Uniform Sales Act; Subsections (2) and (3)—Sections 49 and 69, Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes: To continue the prior basic policies with respect to acceptance of goods while making a number of minor though material changes in the interest of simplicity and commercial convenience so that:

1. Under subsection (1), once the buyer accepts a tender the seller acquires a right to its price on the contract terms. In cases of partial acceptance, the price of any part accepted is, if possible, to be reasonably apportioned, using the type of apportionment familiar to the courts in quantum valebat cases, to be determined in terms of “the contract rate,” which is the rate determined from the bargain in fact (the agreement) after the rules and policies of this Article have been brought to bear.
2. Under subsection (2) acceptance of goods precludes their subsequent rejection.  Any return of the goods thereafter must be by way of revocation of acceptance under the next section. Revocation is unavailable for a non-conformity known to the buyer at the time of acceptance, except where the buyer has accepted on the reasonable assumption that the non-conformity would be seasonably cured.
3. All other remedies of the buyer remain unimpaired under subsection (2).  This is intended to include the buyer’s full rights with respect to future installments despite his acceptance of any earlier non-conforming installment.
4. The time of notification is to be determined by applying commercial standards to a merchant buyer.  “A reasonable time” for notification from a retail consumer is to be judged by different standards so that in his case it will be extended, for the rule of requiring notification is designed to defeat commercial bad faith, not to deprive a good faith consumer of his remedy.
5. Under this Article various beneficiaries are given rights for injuries sustained by them because of the seller’s breach of warranty.  Such a beneficiary does not fall within the reason of the present section in regard to discovery of defects and the giving of notice within a reasonable time after acceptance, since he has nothing to do with acceptance. However, the reason of this section does extend to requiring the beneficiary to notify the seller that an injury has occurred.  What is said above, with regard to the extended time for reasonable notification from the lay consumer after the injury is also applicable here; but even a beneficiary can be properly held to the use of good faith in notifying, once he has had time to become aware of the legal situation.
6. Subsection (4) unambiguously places the burden of proof to establish breach on the buyer after acceptance.  However, this rule becomes one purely of procedure when the tender accepted was non-conforming and the buyer has given the seller notice of breach under subsection (3).  For subsection (2) makes it clear that acceptance leaves unimpaired the buyer’s right to be made whole, and that right can be exercised by the buyer not only by way of cross-claim for damages, but also by way of recoupment in diminution or extinction of the price.
7. Subsections (3)(b) and (5)(b) give a warrantor against infringement an opportunity to defend or compromise third-party claims or be relieved of his liability. Subsection (5)(a) codifies for all warranties the practice of voucher to defend.  Compare Section 3-803.  Subsection (6) makes these provisions applicable to the buyer’s liability for infringement under Section 2-312.
8. All of the provisions of the present section are subject to any explicit reservation of rights.

The content of the notification need merely be sufficient to let the seller know that the transaction is still troublesome and must be watched. There is no reason to require that the notification which saves the buyer’s rights under this section must include a clear statement of all the objections that will be relied on by the buyer, as under the section covering statements of defects upon rejection (Section 2-605). Nor is there reason for requiring the notification to be a claim for damages or of any threatened litigation or other resort to a remedy. The notification which saves the buyer’s rights under this Article need only be such as informs the seller that the transaction is claimed to involve a breach, and thus opens the way for normal settlement through negotiation.

Official Comment References

Cross References:

Point 1: Section 1-201.

Point 2: Section 2-608.

Point 4: Sections 1-204 and 2-605.

Point 5: Section 2-318.

Point 6: Section 2-717.

Point 7: Sections 2-312 and 3-803.

Point 8: Section 1-207.

Definitional Cross References:

“Burden of establishing”. Section 1-201.

“Buyer”. Section 2-103.

“Conform”. Section 2-106.

“Contract”. Section 1-201.

“Goods”. Section 2-105.

“Notifies”. Section 1-201.

“Reasonable time”. Section 1-204.

“Remedy”. Section 1-201.

“Seasonably”. Section 1-204.

CROSS REFERENCES

Buyer’s remedies generally, see § 2—711 et seq. of this title.

Definitions, see §§ 1—201, 2—103 to 2—106 of this title.

Infringement and like claims of third person, buyer’s obligation, see § 2—312 of this title.

Measure of buyer’s damages for nonconformity after acceptance and notification of breach, see § 2—714 of this title.

Prima facie evidence by third party documents, see § 1—307 of this title.

Performance or acceptance under reservation of rights, see § 1—308 of this title.

Revocation of acceptance, see § 2—608 of this title.

Statement of objections, see § 2—605 of this title.

Third party beneficiaries of warranties, see § 2—318 of this title.

Waiver or renunciation of claim or right after breach, see § 1—306.

ANNOTATIONS

• Acceptance.
• Burden of proof.
• Method of notice.
• Notice of claim.
• Timeliness.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 69(1)(d), (3), (4) and (5), Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes: To make it clear that:

1. Although the prior basic policy is continued, the buyer is no longer required to elect between revocation of acceptance and recovery of damages for breach.  Both are now available to him.  The non-alternative character of the two remedies is stressed by the terms used in the present section.  The section no longer speaks of “rescission,” a term capable of ambiguous application either to transfer of title to the goods or to the contract of sale and susceptible also of confusion with cancellation for cause of an executed or executory portion of the contract.  The remedy under this section is instead referred to simply as “revocation of acceptance” of goods tendered under a contract for sale and involves no suggestion of “election” of any sort.
2. Revocation of acceptance is possible only where the non-conformity substantially impairs the value of the goods to the buyer.  For this purpose the test is not what the seller had reason to know at the time of contracting; the question is whether the non-conformity is such as will in fact cause a substantial impairment of value to the buyer though the seller had no advance knowledge as to the buyer’s particular circumstances.
3. “Assurances” by the seller under paragraph (b) of subsection (1) can rest as well in the circumstances or in the contract as in explicit language used at the time of delivery.  The reason for recognizing such assurances is that they induce the buyer to delay discovery.  These are the only assurances involved in paragraph (b).  Explicit assurances may be made either in good faith or bad faith.  In either case any remedy accorded by this Article is available to the buyer under the section on remedies for fraud.
4. Subsection (2) requires notification of revocation of acceptance within a reasonable time after discovery of the grounds for such revocation.  Since this remedy will be generally resorted to only after attempts at adjustment have failed, the reasonable time period should extend in most cases beyond the time in which notification of breach must be given, beyond the time for discovery of non-conformity after acceptance and beyond the time for rejection after tender. The parties may by their agreement limit the time for notification under this section, but the same sanctions and considerations apply to such agreements as are discussed in the comment on manner and effect of rightful rejection.
5. The content of the notice under subsection (2) is to be determined in this case as in others by considerations of good faith, prevention of surprise, and reasonable adjustment. More will generally be necessary than the mere notification of breach required under the preceding section.  On the other hand the requirements of the section on waiver of buyer’s objections do not apply here.  The fact that quick notification of trouble is desirable affords good ground for being slow to bind a buyer by his first statement.  Following the general policy of this Article, the requirements of the contents of notification are less stringent in the case of a non-merchant buyer.
6. Under subsection (2) the prior policy is continued of seeking substantial justice in regard to the condition of goods restored to the seller.  Thus the buyer may not revoke his acceptance if the goods have materially deteriorated except by reason of their own defects.  Worthless goods, however, need not be offered back and minor defects in the articles reoffered are to be disregarded.
7. The policy of the section allowing partial acceptance is carried over into the present section and the buyer may revoke his acceptance, in appropriate cases, as to the entire lot or any commercial unit thereof.

Official Comment References

Cross References:

Point 3: Section 2-721.

Point 4: Sections 1-204, 2-602 and 2-607.

Point 5: Sections 2-605 and 2-607.

Point 7: Section 2-601.

Definitional Cross References:

“Buyer”. Section 2-103.

“Commercial unit”. Section 2-105.

“Conform”. Section 2-106.

“Goods”. Section 2-105.

“Lot”. Section 2-105.

“Notifies”. Section 1-201.

“Reasonable time”. Section 1-204.

“Rights”. Section 1-201.

“Seasonably”. Section 1-204.

“Seller”. Section 2-103.

CROSS REFERENCES

Accord and satisfaction by use of negotiable instrument, see § 3—311 of this title.

Buyer’s right to reject the whole or commercial units, see § 2—601 of this title.

Effect of negotiable instrument on obligation for which taken, see § 3—310 of this title.

Notifying seller of breach, see § 2—607 of this title.

Obligation of good faith, see § 1—304 of this title.

Option to accelerate at will, see § 1—309 of this title.

Performance or acceptance under reservation of rights, see § 1—308 of this title.

Reasonable time generally, see § 1—205 of this title.

Rejection of goods, see § 2—602 of this title.

Remedies for fraud, see § 2—721 of this title.

Remedies of buyer for rightful revocation of acceptance, see § 2—711 of this title.

Waiver of objections of buyer by failure to particularize, see § 2—605 of this title.

ANNOTATIONS

• Burden of proof.
• Cure of defects.
• Damages.
• Elements.
• Magnuson-Moss Warranty Act.
• Notice.
• Return of goods.
• Revocation allowed.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision. See Sections 53, 54(1)(b), 55 and 63(2), Uniform Sales Act.

Purposes: 1. The section rests on the recognition of the fact that the essential purpose of a contract between commercial men is actual performance and they do not bargain merely for a promise, or for a promise plus the right to win a lawsuit and that a continuing sense of reliance and security that the promised performance will be forthcoming when due, is an important feature of the bargain. If either the willingness or the ability of a party to perform declines materially between the time of contracting and the time for performance, the other party is threatened with the loss of a substantial part of what he has bargained for. A seller needs protection not merely against having to deliver on credit to a shaky buyer, but also against having to procure and manufacture the goods, perhaps turning down other customers. Once he has been given reason to believe that the buyer’s performance has become uncertain, it is an undue hardship to force him to continue his own performance. Similarly a buyer who believes that the seller’s deliveries have become uncertain cannot safely wait for the due date of performance when he has been buying to assure himself of materials for his current manufacturing or to replenish his stock of merchandise.

2. Three measures have been adopted to meet the needs of commercial men in such situations. First, the aggrieved party is permitted to suspend his own performance and any preparation therefor, with excuse for any resulting necessary delay, until the situation has been clarified. “Suspend performance” under this section means to hold up performance pending the outcome of the demand, and includes also the holding up of any preparatory action. This is the same principle which governs the ancient law of stoppage and seller’s lien, and also of excuse of a buyer from prepayment if the seller’s actions manifest that he cannot or will not perform. (Original Act, Section 63(2).)

Secondly, the aggrieved party is given the right to require adequate assurance that the other party’s performance will be duly forthcoming. This principle is reflected in the familiar clauses permitting the seller to curtail deliveries if the buyer’s credit becomes impaired, which when held within the limits of reasonableness and good faith actually express no more than the fair business meaning of any commercial contract.

Third, and finally, this section provides the means by which the aggrieved party may treat the contract as broken if his reasonable grounds for insecurity are not cleared up within a reasonable time. This is the principle underlying the law of anticipatory breach, whether by way of defective part performance or by repudiation. The present section merges these three principles of law and commercial practice into a single theory of general application to all sales agreements looking to future performance.

3. Subsection (2) of the present section requires that “reasonable” grounds and “adequate” assurance as used in subsection (1) be defined by commercial rather than legal standards. The express reference to commercial standards carries no connotation that the obligation of good faith is not equally applicable here.

Under commercial standards and in accord with commercial practice, a ground for insecurity need not arise from or be directly related to the contract in question. The law as to “dependence” or “independence” of promises within a single contract does not control the application of the present section.

Thus a buyer who falls behind in “his account” with the seller, even though the items involved have to do with separate and legally distinct contracts, impairs the seller’s expectation of due performance. Again, under the same test, a buyer who requires precision parts which he intends to use immediately upon delivery, may have reasonable grounds for insecurity if he discovers that his seller is making defective deliveries of such parts to other buyers with similar needs. Thus, too, in a situation such as arose in Jay Dreher Corporation v. Delco Appliance Corporation, 93 F.2d 275 (C.C.A.2, 1937), where a manufacturer gave a dealer an exclusive franchise for the sale of his product but on two or three occasions breached the exclusive dealing clause, although there was no default in orders, deliveries or payments under the separate sales contract between the parties, the aggrieved dealer would be entitled to suspend his performance of the contract for sale under the present section and to demand assurance that the exclusive dealing contract would be lived up to. There is no need for an explicit clause tying the exclusive franchise into the contract for the sale of goods since the situation itself ties the agreements together.

The nature of the sales contract enters also into the question of reasonableness. For example, a report from an apparently trustworthy source that the seller had shipped defective goods or was planning to ship them would normally give the buyer reasonable grounds for insecurity. But when the buyer has assumed the risk of payment before inspection of the goods, as in a sales contract on C.I.F. or similar cash against documents terms, that risk is not to be evaded by a demand for assurance. Therefore no ground for insecurity would exist under this section unless the report went to a ground which would excuse payment by the buyer.

4. What constitutes “adequate” assurance of due performance is subject to the same test of factual conditions. For example, where the buyer can make use of a defective delivery, a mere promise by a seller of good repute that he is giving the matter his attention and that the defect will not be repeated, is normally sufficient. Under the same circumstances, however, a similar statement by a known corner-cutter might well be considered insufficient without the posting of a guaranty or, if so demanded by the buyer, a speedy replacement of the delivery involved. By the same token where a delivery has defects, even though easily curable, which interfere with easy use by the buyer, no verbal assurance can be deemed adequate which is not accompanied by replacement, repair, money-allowance, or other commercially reasonable cure.

A fact situation such as arose in Corn Products Refining Co. v. Fasola, 94 N.J.L. 181, 109 A. 505 (1920) offers illustration both of reasonable grounds for insecurity and “adequate” assurance. In that case a contract for the sale of oils on 30 days’ credit, 2% off for payment within 10 days, provided that credit was to be extended to the buyer only if his financial responsibility was satisfactory to the seller. The buyer had been in the habit of taking advantage of the discount but at the same time that he failed to make his customary 10 day payment, the seller heard rumors, in fact false, that the buyer’s financial condition was shaky. Thereupon, the seller demanded cash before shipment or security satisfactory to him. The buyer sent a good credit report from his banker, expressed willingness to make payments when due on the 30 day terms and insisted on further deliveries under the contract. Under this Article the rumors, although false, were enough to make the buyer’s financial condition “unsatisfactory” to the seller under the contract clause. Moreover, the buyer’s practice of taking the cash discounts is enough, apart from the contract clause, to lay a commercial foundation for suspicion when the practice is suddenly stopped. These matters, however, go only to the justification of the seller’s demand for security, or his “reasonable grounds for insecurity”.

The adequacy of the assurance given is not measured as in the type of “satisfaction” situation affected with intangibles, such as in personal service cases, cases involving a third party’s judgment as final, or cases in which the whole contract is dependent on one party’s satisfaction, as in a sale on approval. Here, the seller must exercise good faith and observe commercial standards. This Article thus approves the statement of the court in James B. Berry’s Sons Co. of Illinois v. Monark Gasoline & Oil Co., Inc., 32 F.2d 74, (C.C.A.8, 1929), that the seller’s satisfaction under such a clause must be based upon reason and must not be arbitrary or capricious; and rejects the purely personal ‘good faith‘ test of the Corn Products Refining Co. case, which held that in the seller’s sole judgement, if for any reason he was dissatisfied, he was entitled to revoke the credit. In the absence of the buyer’s failure to take 2% discount as was his custom, the banker’s report given in that case would have been “adequate” assurance under this Act, regardless of the language of the “satisfaction” clause. However, the seller is reasonably entitled to feel insecure at a sudden expansion of the buyer’s use of a credit term, and should be entitled either to security or to a satisfactory explanation.

The entire foregoing discussion as to adequacy of assurance by way of explanation is subject to qualification when repeated occasions for the application of this section arise. This Act recognizes that repeated delinquencies must be viewed as cumulative. On the other hand, commercial sense also requires that if repeated claims for assurance are made under this section, the basis for these claims must be increasingly obvious.

5. A failure to provide adequate assurance of performance and thereby to reestablish the security of expectation, results in a breach only “by repudiation” under subsection (4). Therefore, the possibility is continued of retraction of the repudiation under the section dealing with that problem, unless the aggrieved party has acted on the breach in some manner.

The thirty day limit on time to provide assurance is laid down to free the question of reasonable time from uncertainty in later litigation.

6. Clauses seeking to give the protected party exceedingly wide powers to cancel or readjust the contract when ground for insecurity arises must be read against the fact that good faith is a part of the obligation of the contract and not subject to modification by agreement and includes, in the case of a merchant, the reasonable observance of commercial standards of fair dealing in the trade. Such clauses can thus be effective to enlarge the protection given by the present section to a certain extent, to fix the reasonable time within which requested assurance must be given, or to define adequacy of the assurance in any commercially reasonable fashion. But any clause seeking to set up arbitrary standards for action is ineffective under this Article. Acceleration clauses are treated similarly in the Articles on Commercial Paper and Secured Transactions.

Official Comment References

Cross References:

Point 3: Section 1—203.

Point 5: Section 2—611.

Point 6: Sections 1—203 and 1—208 and Articles 3 and 9.

Definitional Cross References:

“Aggrieved party”. Section 1—201.

“Between merchants”. Section 2—104.

“Contract”. Section 1—201.

“Contract for sale”. Section 2—106.

“Party”. Section 1—201.

“Reasonable time”. Section 1—204.

“Rights”. Section 1—201.

“Writing”. Section 1—201.

CROSS REFERENCES

Acceleration clauses, see § 1—309 of this title.

Delegation of performance and assignment of rights, see § 2—210 of this title.

Good faith obligation, see § 1—304 of this title.

Negotiable instruments, see § 3—101 et seq. of this title.

Retraction of repudiation including assurance of due performance, see § 2—611 of this title.

Secured transactions, see § 9—101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: See Sections 63(2) and 65, Uniform Sales Act.

Purposes: To make it clear that:

1. With the problem of insecurity taken care of by the preceding section and with provision being made in this Article as to the effect of a defective delivery under an installment contract, anticipatory repudiation centers upon an overt communication of intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance.
2. It is not necessary for repudiation that performance be made literally and utterly impossible.  Repudiation can result from action which reasonably indicates a rejection of the continuing obligation.  And, a repudiation automatically results under the preceding section on insecurity when a party fails to provide adequate assurance of due future performance within thirty days after a justifiable demand therefor has been made.  Under the language of this section, a demand by one or both parties for more than the contract calls for in the way of counter-performance is not in itself a repudiation nor does it invalidate a plain expression of desire for future performance.  However, when under a fair reading it amounts to a statement of intention not to perform except on conditions which go beyond the contract, it becomes a repudiation.
3. The test chosen to justify an aggrieved party’s action under this section is the same as that in the section on breach in installment contracts —— namely the substantial value of the contract.  The most useful test of substantial value is to determine whether material inconvenience or injustice will result if the aggrieved party is forced to wait and receive an ultimate tender minus the part or aspect repudiated.
4. After repudiation, the aggrieved party may immediately resort to any remedy he chooses provided he moves in good faith (see Section 1—203).  Inaction and silence by the aggrieved party may leave the matter open but it cannot be regarded as misleading the repudiating party.  Therefore the aggrieved party is left free to proceed at any time with his options under this section, unless he has taken some positive action which in good faith requires notification to the other party before the remedy is pursued.

Under the present section when such a repudiation substantially impairs the value of the contract, the aggrieved party may at any time resort to his remedies for breach, or he may suspend his own performance while he negotiates with, or awaits performance by, the other party. But if he awaits performance beyond a commercially reasonable time he cannot recover resulting damages which he should have avoided.

Official Comment References

Cross References:

Point 1: Sections 2—609 and 2—612.

Point 2: Section 2—609.

Point 3: Section 2—612.

Point 4: Section 1—203.

Definitional Cross References:

“Aggrieved party”. Section 1—201.

“Contract”. Section 1—201.

“Party”. Section 1—201.

“Remedy”. Section 1—201.

CROSS REFERENCES

Anticipatory repudiation of letter of credit, see § 5—111 of this title.

Assurance of performance, see § 2—609 of this title.

Defective delivery under installment contract, see § 2—612 of this title.

Obligation of good faith, see § 1—304 of this title.

Recovery of damages by seller for wrongful repudiation, see § 2—708 of this title.

Retraction of repudiation, see § 2—611 of this title.

ANNOTATIONS

Notice of intention.

Unconditional notice by one party of his intention not to perform contract authorizes the other to rescind. Rowell v. Canaan School District, 123 Vt. 350, 189 A.2d 785, 1963 Vt. LEXIS 134 (1963) (Decided under prior law.).

Recovery of earnest money.

Purchaser could recover back earnest money paid by him, if the seller before the time of performance had repudiated the contract and contracted to dispose of the property to another person, even though this fact was not known to the purchaser. Packer v. Button, 35 Vt. 188, 1862 Vt. LEXIS 19 (1862).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: To make it clear that:

1. The repudiating party’s right to reinstate the contract is entirely dependent upon the action taken by the aggrieved party. If the latter has cancelled the contract or materially changed his position at any time after the repudiation, there can be no retraction under this section.
2. Under subsection (2) an effective retraction must be accompanied by any assurances demanded under the section dealing with right to adequate assurance.  A repudiation is of course sufficient to give reasonable ground for insecurity and to warrant a request for assurance as an essential condition of the retraction.  However, after a timely and unambiguous expression of retraction, a reasonable time for the assurance to be worked out should be allowed by the aggrieved party before cancellation.

Official Comment References

Cross Reference:

Point 2: Section 2—609.

Definitional Cross References:

“Aggrieved party”. Section 1—201.

“Cancellation”. Section 2—106.

“Contract”. Section 1—201.

“Party”. Section 1—201.

“Rights”. Section 1—201.

CROSS REFERENCES

Assurance of performance, see § 2—609 of this title.

Effect of cancellation on claim for antecedent breach, see § 2—720 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 45(2), Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes: To continue prior law but to make explicit the more mercantile interpretation of many of the rules involved, so that:

1. The definition of an installment contract is phrased more broadly in this Article so as to cover installment deliveries tacitly authorized by the circumstances or by the option of either party.
2. In regard to the apportionment of the price for separate payment this Article applies the more liberal test of what can be apportioned rather than the test of what is clearly apportioned by the agreement.  This Article also recognizes approximate calculation or apportionment of price subject to subsequent adjustment.  A provision for separate payment for each lot delivered ordinarily means that the price is at least roughly calculable by units of quantity, but such a provision is not essential to an “installment contract.” If separate acceptance of separate deliveries is contemplated, no generalized contrast between wholly “entire” and wholly “divisible” contracts has any standing under this Article.
3. This Article rejects any approach which gives clauses such as “each delivery is a separate contract” their legalistically literal effect.  Such contracts nonetheless call for installment deliveries.  Even where a clause speaks of “a separate contract for all purposes”, a commercial reading of the language under the section on good faith and commercial standards requires that the singleness of the document and the negotiation, together with the sense of the situation, prevail over any uncommercial and legalistic interpretation.
4. One of the requirements for rejection under subsection (2) is non-conformity substantially impairing the value of the installment in question.  However, an installment agreement may require accurate conformity in quality as a condition to the right to acceptance if the need for such conformity is made clear either by express provision or by the circumstances.  In such a case the effect of the agreement is to define explicitly what amounts to substantial impairment of value impossible to cure.  A clause requiring accurate compliance as a condition to the right to acceptance must, however, have some basis in reason, must avoid imposing hardship by surprise and is subject to waiver or to displacement by practical construction.
5. Under subsection (2) an installment delivery must be accepted if the non-conformity is curable and the seller gives adequate assurance of cure.  Cure of non-conformity of an installment in the first instance can usually be afforded by an allowance against the price, or in the case of reasonable discrepancies in quantity either by a further delivery or a partial rejection.  This Article requires reasonable action by a buyer in regard to discrepant delivery and good faith requires that the buyer make any reasonable minor outlay of time or money necessary to cure an over shipment by severing out an acceptable percentage thereof.  The seller must take over a cure which involves any material burden; the buyer’s obligation reaches only to cooperation.  Adequate assurance for purposes of subsection (2) is measured by the same standards as under the section on right to adequate assurance of performance.
6. Subsection (3) is designed to further the continuance of the contract in the absence of an overt cancellation.  The question arising when an action is brought as to a single installment only is resolved by making such action waive the right of cancellation.  This involves merely a defect in one or more installments, as contrasted with the situation where there is a true repudiation within the section on anticipatory repudiation.  Whether the non-conformity in any given installment justifies cancellation as to the future depends, not on whether such non-conformity indicates an intent or likelihood that the future deliveries will also be defective, but whether the non-conformity substantially impairs the value of the whole contract.  If only the seller’s security in regard to future installments is impaired, he has the right to demand adequate assurances of proper future performance but has not an immediate right to cancel the entire contract.  It is clear under this Article, however, that defects in prior installments are cumulative in effect, so that acceptance does not wash out the defect “waived.” Prior policy is continued, putting the rule as to buyer’s default on the same footing as that in regard to seller’s default.
7. Under the requirement of seasonable notification of cancellation under subsection (3), a buyer who accepts a non-conforming installment which substantially impairs the value of the entire contract should properly be permitted to withhold his decision as to whether or not to cancel pending a response from the seller as to his claim for cure or adjustment.  Similarly, a seller may withhold a delivery pending payment for prior ones, at the same time delaying his decision as to cancellation.  A reasonable time for notifying of cancellation, judged by commercial standards under the section on good faith, extends of course to include the time covered by any reasonable negotiation in good faith.  However, during this period the defaulting party is entitled, on request, to know whether the contract is still in effect, before he can be required to perform further.

Substantial impairment of the value of an installment can turn not only on the quality of the goods but also on such factors as time, quantity, assortment, and the like. It must be judged in terms of the normal or specifically known purposes of the contract. The defect in required documents refers to such matters as the absence of insurance documents under a C.I.F. contract, falsity of a bill of lading, or one failing to show shipment within the contract period or to the contract destination. Even in such cases, however, the provisions on cure of tender apply if appropriate documents are readily procurable.

Official Comment References

Cross References:

Point 2: Sections 2—307 and 2—607.

Point 3: Section 1—203.

Point 5: Sections 2—208 and 2—609.

Point 6: Section 2—610.

Definitional Cross References:

“Action”. Section 1—201.

“Aggrieved party”. Section 1—201.

“Buyer”. Section 2—103.

“Cancellation”. Section 2—106.

“Conform”. Section 2—106.

“Contract”. Section 1—201.

“Lot”. Section 2—105.

“Notifies”. Section 1—201.

“Seasonably”. Section 1—204.

“Seller”. Section 2—103.

CROSS REFERENCES

Assurance of performance, see § 2—609 of this title.

Buyer’s remedies, generally, see § 2—711 of this title.

Buyer’s rights of rejection on improper delivery, see § 2—601 of this title.

Contract rate for goods accepted, see § 2—607 of this title.

Course of performance, and usage of trade, see § 2—208 of this title.

Obligation of good faith in performance, see § 1—304 of this title.

Payment upon delivery in lots, see § 2—307 of this title.

Remedies for anticipatory repudiation, see § 2—610 of this title.

Seller’s remedies for breach, see § 2—703 of this title.

Waiver or modification, see § 2—209 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Sections 7 and 8, Uniform Sales Act.

Changes: Rewritten, the basic policy being continued but the test of a “divisible” or “indivisible” sale or contract being abandoned in favor of adjustment in business terms.

Purposes of Changes: 1. Where goods whose continued existence is presupposed by the agreement are destroyed without fault of either party, the buyer is relieved from his obligation but may at his option take the surviving goods at a fair adjustment. “Fault” is intended to include negligence and not merely wilful wrong. The buyer is expressly given the right to inspect the goods in order to determine whether he wishes to avoid the contract entirely or to take the goods with a price adjustment.

2. The section applies whether the goods were already destroyed at the time of contracting without the knowledge of either party or whether they are destroyed subsequently but before the risk of loss passes to the buyer. Where under the agreement, including of course usage of trade, the risk has passed to the buyer before the casualty, the section has no application. Beyond this, the essential question in determining whether the rules of this section are to be applied is whether the seller has or has not undertaken the responsibility for the continued existence of the goods in proper condition through the time of agreed or expected delivery.

3. The section on the term “no arrival, no sale” makes clear that delay in arrival, quite as much as physical changes in the goods, gives the buyer the options set forth in this section.

Official Comment References

Cross Reference:

Point 3: Section 2—324.

Definitional Cross References:

“Buyer”. Section 2—103.

“Conform”. Section 2—106.

“Contract”. Section 1—201.

“Fault”. Section 1—201.

“Goods”. Section 2—105.

“Party”. Section 1—201.

“Rights”. Section 1—201.

“Seller”. Section 2—103.

CROSS REFERENCES

Casualty to identified goods under lease contract, see § 2A—221 of this title.

Duty of care and contractual limitation of warehouseman’s liability, see § 7—204 of this title.

Duty to keep separate goods subject to warehouse receipts, see § 7—207 of this title.

Identification of goods to the contract, see § 2—501 of this title.

“No arrival, no sale”, see § 2—324 of this title.

Obligation of warehouseman or carrier to deliver, see § 7—403 of this title.

Risk of loss in the absence of breach, see § 2—509 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. Subsection (1) requires the tender of a commercially reasonable substituted performance where agreed to facilities have failed or become commercially impracticable. Under this Article, in the absence of specific agreement, the normal or usual facilities enter into the agreement either through the circumstances, usage of trade or prior course of dealing.

This section appears between Section 2-613 on casualty to identified goods and the next section on excuse by failure of presupposed conditions, both of which deal with excuse and complete avoidance of the contract where the occurrence or non-occurrence of a contingency which was a basic assumption of the contract makes the expected performance impossible. The distinction between the present section and those sections lies in whether the failure or impossibility of performance arises in connection with an incidental matter or goes to the very heart of the agreement. The differing lines of solution are contrasted in a comparison of International Paper Co. v. Rockefeller, 161 App. Div. 180, 146 N.Y.S. 371 (1914) and Meyer v. Sullivan, 40 Cal. App. 723, 181 P. 847 (1919). In the former case a contract for the sale of spruce to be cut from a particular tract of land was involved. When a fire destroyed the trees growing on that tract the seller was held excused since performance was impossible. In the latter case the contract called for delivery of wheat “f.o.b. Kosmos Steamer at Seattle.” The war led to cancellation of that line’s sailing schedule after space had been duly engaged and the buyer was held entitled to demand substituted delivery at the warehouse of the line’s loading dock. Under this Article, of course, the seller would also be entitled, had the market gone the other way, to make a substituted tender in that manner.

There must, however, be a true commercial impracticability to excuse the agreed to performance and justify a substituted performance. When this is the case a reasonable substituted performance tendered by either party should excuse him from strict compliance with contract terms which do not go to the essence of the agreement.

2. The substitution provided in this section as between buyer and seller does not carry over into the obligation of a financing agency under a letter of credit, since such an agency is entitled to performance which is plainly adequate on its face and without need to look into commercial evidence outside of the documents. See Article 5, especially Sections 5-102, 5-103, 5-109, 5-110, 5-114.

3. Under subsection (2) where the contract is still executory on both sides, the seller is permitted to withdraw unless the buyer can provide him with a commercially equivalent return despite the governmental regulation. Where, however, only the debt for the price remains, a larger leeway is permitted. The buyer may pay in the manner provided by the regulation even though this may not be commercially equivalent provided that the regulation is not “discriminatory, oppressive or predatory.”

Official Comment References

Cross Reference:

Point 2: Article 5.

Definitional Cross References:

“Buyer”. Section 2—103.

“Fault”. Section 1—201.

“Party”. Section 1—201.

“Seller”. Section 2—103.

CROSS REFERENCES

Definitions, see § 5—102 of this title.

Issuer’s obligations, see § 5—108 of this title.

Obligation of good faith, see § 1—304 of this title.

Performance or acceptance under reservation of rights, see § 1—308 of this title.

Substituted performance under lease contract, see § 2A—404 of this title.

Tender of delivery, see § 2—503 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. This section excuses a seller from timely delivery of goods contracted for, where his performance has become commercially impracticable because of unforeseen supervening circumstances not within the contemplation of the parties at the time of contracting. The destruction of specific goods and the problem of the use of substituted performance on points other than delay or quantity, treated elsewhere in this Article, must be distinguished from the matter covered by this section.

2. The present section deliberately refrains from any effort at an exhaustive expression of contingencies and is to be interpreted in all cases sought to be brought within its scope in terms of its underlying reason and purpose.

3. The first test for excuse under this Article in terms of basic assumption is a familiar one. The additional test of commercial impracticability (as contrasted with “impossibility,” “frustration of performance” or “frustration of the venture”) has been adopted in order to call attention to the commercial character of the criterion chosen by this Article.

4. Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section. (See Ford & Sons, Ltd., v. Henry Leetham & Sons, Ltd., 21 Com. Cas. 55 (1915, K.B.D.).)

5. Where a particular source of supply is exclusive under the agreement and fails through casualty, the present section applies rather than the provision on destruction or deterioration of specific goods. The same holds true where a particular source of supply is shown by the circumstances to have been contemplated or assumed by the parties at the time of contracting. (See Davis Co. v. Hoffmann-LaRoche Chemical Works, 178 App. Div. 855, 166 N.Y.S. 179 (1917) and International Paper Co. v. Rockefeller, 161 App. Div. 180, 146 N.Y.S. 371 (1914).) There is no excuse under this section, however, unless the seller has employed all due measures to assure himself that his source will not fail. (See Canadian Industrial Alcohol Co., Ltd., v. Dunbar Molasses Co., 258 N.Y. 194, 179 N.E. 383, 80 A.L.R. 1173 (1932) and Washington Mfg. Co. v. Midland Lumber Co., 113 Wash. 593, 194 P. 777 (1921).)

In the case of failure of production by an agreed source for causes beyond the seller’s control, the seller should, if possible, be excused since production by an agreed source is without more a basic assumption of the contract. Such excuse should not result in relieving the defaulting supplier from liability nor in dropping into the seller’s lap an unearned bonus of damages over. The flexible adjustment machinery of this Article provides the solution under the provision on the obligation of good faith. A condition to his making good the claim of excuse is the turning over to the buyer of his rights against the defaulting source of supply to the extent of the buyer’s contract in relation to which excuse is being claimed.

6. In situations in which neither sense nor justice is served by either answer when the issue is posed in flat terms of “excuse” or “no excuse,” adjustment under the various provisions of this Article is necessary, especially the sections on good faith, on insecurity and assurance and on the reading of all provisions in the light of their purposes, and the general policy of this Act to use equitable principles in furtherance of commercial standards and good faith.

7. The failure of conditions which go to convenience or collateral values rather than to the commercial practicability of the main performance does not amount to a complete excuse. However, good faith and the reason of the present section and of the preceding one may properly be held to justify and even to require any needed delay involved in a good faith inquiry seeking a readjustment of the contract terms to meet the new conditions.

8. The provisions of this section are made subject to assumption of greater liability by agreement and such agreement is to be found not only in the expressed terms of the contract but in the circumstances surrounding the contracting, in trade usage and the like. Thus the exemptions of this section do not apply when the contingency in question is sufficiently foreshadowed at the time of contracting to be included among the business risks which are fairly to be regarded as part of the dickered terms, either consciously or as a matter of reasonable, commercial interpretation from the circumstances. (See Madeirense Do Brasil, S. A. v. Stulman-Emrick Lumber Co., 147 F.2d 399 (C.C.A., 2 Cir., 1945).) The exemption otherwise present through usage of trade under the present section may also be expressly negated by the language of the agreement. Generally, express agreements as to exemptions designed to enlarge upon or supplant the provisions of this section are to be read in the light of mercantile sense and reason, for this section itself sets up the commercial standard for normal and reasonable interpretation and provides a minimum beyond which agreement may not go.

Agreement can also be made in regard to the consequences of exemption as laid down in paragraphs (b) and (c) and the next section on procedure on notice claiming excuse.

9. The case of a farmer who has contracted to sell crops to be grown on designated land may be regarded as falling either within the section on casualty to identified goods or this section, and he may be excused, when there is a failure of the specific crop, either on the basis of the destruction of identified goods or because of the failure of a basic assumption of the contract.

Exemption of the buyer in the case of a “requirements” contract is covered by the “Output and Requirements” section both as to assumption and allocation of the relevant risks. But when a contract by a manufacturer to buy fuel or raw material makes no specific reference to a particular venture and no such reference may be drawn from the circumstances, commercial understanding views it as a general deal in the general market and not conditioned on any assumption of the continuing operation of the buyer’s plant. Even when notice is given by the buyer that the supplies are needed to fill a specific contract of a normal commercial kind, commercial understanding does not see such a supply contract as conditioned on the continuance of the buyer’s further contract for outlet. On the other hand, where the buyer’s contract is in reasonable commercial understanding conditioned on a definite and specific venture or assumption as, for instance, a war procurement subcontract known to be based on a prime contract which is subject to termination, or a supply contract for a particular construction venture, the reason of the present section may well apply and entitle the buyer to the exemption.

10. Following its basic policy of using commercial practicability as a test for excuse, this section recognizes as of equal significance either a foreign or domestic regulation and disregards any technical distinctions between “law,” “regulation,” “order” and the like. Nor does it make the present action of the seller depend upon the eventual judicial determination of the legality of the particular governmental action. The seller’s good faith belief in the validity of the regulation is the test under this Article and the best evidence of his good faith is the general commercial acceptance of the regulation. However, governmental interference cannot excuse unless it truly ‘supervenes’ in such a matter as to be beyond the seller’s assumption of risk. And any action by the party claiming excuse which causes or colludes in inducing the governmental action preventing his performance would be in breach of good faith and would destroy his exemption.

11. An excused seller must fulfill his contract to the extent which the supervening contingency permits, and if the situation is such that his customers are generally affected he must take account of all in supplying one. Subsections (a) and (b), therefore, explicitly permit in any proration a fair and reasonable attention to the needs of regular customers who are probably relying on spot orders for supplies. Customers at different stages of the manufacturing process may be fairly treated by including the manufacturing requirements. A fortiori, the seller may also take account of contracts later in date than the one in question. The fact that such spot orders may be closed at an advanced price causes no difficulty, since any allocation which exceeds normal past requirements will not be reasonable. However, good faith requires, when prices have advanced, that the seller exercise real care in making his allocations, and in case of doubt his contract customers should be favored and supplies prorated evenly among them regardless of price. Save for the extra care thus required by changes in the market, this section seeks to leave every reasonable business leeway to the seller.

Official Comment References

Cross References:

Point 1: Sections 2—613 and 2—614.

Point 2: Section 1—102.

Point 5: Sections 1—203 and 2—613.

Point 6: Sections 1—102, 1—203 and 2—609.

Point 7: Section 2—614.

Point 8: Sections 1—201, 2—302 and 2—616.

Point 9: Sections 1—102, 2—306 and 2—613.

Definitional Cross References:

“Between merchants”. Section 2—104.

“Buyer”. Section 2—103.

“Contract”. Section 1—201.

“Contract for sale”. Section 2—106.

“Good faith”. Section 1—201.

“Merchant”. Section 2—104.

“Notifies”. Section 1—201.

“Seasonably”. Section 1—204.

“Seller”. Section 2—103.

CROSS REFERENCES

Assurance of performance, see § 2—609 of this title.

Casualty to identified goods, see § 2—613 of this title.

Construction of Code, see § 1—103 of this title.

Definitions, see §§ 1—201, 2—103 to 2—106 of this title.

Excused performance under lease contracts, see § 2A—405 of this title.

Good faith in performance of contract, see § 1—304 of this title.

Procedure on notice claiming excuse, see § 2—616 of this title.

Provision measuring quantity by output of seller or requirements of buyer, see § 2—306 of this title.

Substituted performance, see § 2—614 of this title.

Unconscionable contract or clause, see § 2—302 of this title.

ANNOTATIONS

Contingency.

The fact that engineering difficulties were encountered, delaying and ultimately preventing delivery of a computer under a contract of sale, does not constitute the occurrence of a contingency of the type which, under this section, would relieve the seller from liability for non-delivery. United States v. Wegematic Corporation, 360 F.2d 674, 1966 U.S. App. LEXIS 6268 (2d Cir. 1966).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: This section seeks to establish simple and workable machinery for providing certainty as to when a supervening and excusing contingency “excuses” the delay, “discharges” the contract, or may result in a waiver of the delay by the buyer. When the seller notifies, in accordance with the preceding section, claiming excuse, the buyer may acquiesce, in which case the contract is so modified. No consideration is necessary in a case of this kind to support such a modification. If the buyer does not elect so to modify the contract, he may terminate it and under subsection (2) his silence after receiving the seller’s claim of excuse operates as such a termination. Subsection (3) denies effect to any contract clause made in advance of trouble which would require the buyer to stand ready to take delivery whenever the seller is excused from delivery by unforeseen circumstances.

This section seeks to establish simple and workable machinery for providing certainty as to when a supervening and excusing contingency “excuses” the delay, “discharges” the contract, or may result in a waiver of the delay by the buyer. When the seller notifies, in accordance with the preceding section, claiming excuse, the buyer may acquiesce, in which case the contract is so modified. No consideration is necessary in a case of this kind to support such a modification. If the buyer does not elect so to modify the contract, he may terminate it and under subsection (2) his silence after receiving the seller’s claim of excuse operates as such a termination. Subsection (3) denies effect to any contract clause made in advance of trouble which would require the buyer to stand ready to take delivery whenever the seller is excused from delivery by unforeseen circumstances.

Official Comment References

Cross References:

Point 1: Sections 2—209 and 2—615.

Definitional Cross References:

“Buyer”. Section 2—103.

“Contract”. Section 1—201.

“Installment contract”. Section 2—612

“Notification”. Section 1—201.

“Reasonable time”. Section 1—204.

“Seller”. Section 2—103.

“Termination”. Section 2—106.

“Written”. Section 1—201.

CROSS REFERENCES

Performance excused by failure of presupposed conditions, see § 2—615 of this title.

Modification of contract, see § 2—209 of this title.

Reasonable time, see § 1—205 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: Whether a claim for breach of an obligation collateral to the contract for sale requires separate trial to avoid confusion of issues is beyond the scope of this Article; but contractual arrangements which as a business matter enter vitally into the contract should be considered a part thereof in so far as cross-claims or defenses are concerned.

Whether a claim for breach of an obligation collateral to the contract for sale requires separate trial to avoid confusion of issues is beyond the scope of this Article; but contractual arrangements which as a business matter enter vitally into the contract should be considered a part thereof in so far as cross-claims or defenses are concerned.

Official Comment References

Definitional Cross References:

“Contract for sale”. Section 2—106.

“Remedy”. Section 1—201.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1993 (Adj. Sess.). Subdivision (3): Deleted “or lien creditor” following “purchaser” in the first sentence.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Subsection (1)—Sections 53(1)(b), 54(1)(c) and 57, Uniform Sales Act; Subsection (2)—none; Subsection (3)—Section 76(3), Uniform Sales Act.

Changes: Rewritten, the protection given to a seller who has sold on credit and has delivered goods to the buyer immediately preceding his insolvency being extended.

Purposes of Changes and New Matter: To make it clear that:

1. The seller’s right to withhold the goods or to stop delivery except for cash when he discovers the buyer’s insolvency is made explicit in subsection (1) regardless of the passage of title, and the concept of stoppage has been extended to include goods in the possession of any bailee who has not yet attorned to the buyer.
2. Subsection (2) takes as its base line the proposition that any receipt of goods on credit by an insolvent buyer amounts to a tacit business misrepresentation of solvency and therefore is fraudulent as against the particular seller. This Article makes discovery of the buyer’s insolvency and demand within a ten day period a condition of the right to reclaim goods on this ground. The ten day limitation period operates from the time of receipt of the goods.
3. Because the right of the seller to reclaim goods under this section constitutes preferential treatment as against the buyer’s other creditors, subsection (3) provides that such reclamation bars all his other remedies as to the goods involved.

An exception to this time limitation is made when a written misrepresentation of solvency has been made to the particular seller within three months prior to the delivery. To fall within the exception the statement of solvency must be in writing, addressed to the particular seller and dated within three months of the delivery.

Official Comment References

Cross References:

Point 1: Sections 2-401 and 2-705.

Compare Section 2-502.

Definitional Cross References:

“Buyer”. Section 2-103.

“Buyer in ordinary course of business”. Section 1-201.

“Contract”. Section 1-201.

“Good faith”. Section 1-201.

“Goods”. Section 2-105.

“Insolvent”. Section 1-201.

“Person”. Section 1-201.

“Purchaser”. Section 1-201.

“Receipt of goods”. Section 2-103.

“Remedy”. Section 1-201.

“Rights”. Section 1-201.

“Seller”. Section 2-103.

“Writing”. Section 1-201.

CROSS REFERENCES

Buyer’s right to goods on seller’s insolvency, see § 2—502 of this title.

Lessor’s right to goods on lessee’s insolvency, see § 2A—525 of this title.

Passage of title, see § 2—401 of this title.

Stoppage in transit, see § 2—705 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: No comparable index section.

Purposes: 1. This section is an index section which gathers together in one convenient place all of the various remedies open to a seller for any breach by the buyer. This Article rejects any doctrine of election of remedy as a fundamental policy and thus the remedies are essentially cumulative in nature and include all of the available remedies for breach. Whether the pursuit of one remedy bars another depends entirely on the facts of the individual case.

2. The buyer’s breach which occasions the use of the remedies under this section may involve only one lot or delivery of goods, or may involve all of the goods which are the subject matter of the particular contract. The right of the seller to pursue a remedy as to all the goods when the breach is as to only one or more lots is covered by the section on breach in installment contracts. The present section deals only with the remedies available after the goods involved in the breach have been determined by that section.

3. In addition to the typical case of refusal to pay or default in payment, the language in the preamble, “fails to make a payment due,” is intended to cover the dishonor of a check on due presentment, or the non-acceptance of a draft, and the failure to furnish an agreed letter of credit.

4. It should also be noted that this Act requires its remedies to be liberally administered and provides that any right or obligation which it declares is enforceable by action unless a different effect is specifically prescribed (Section 1-106).

Official Comment References

Cross References:

Point 2: Section 2-612.

Point 3: Section 2-325.

Point 4: Section 1-106.

Definitional Cross References:

“Aggrieved party”. Section 1-201.

“Buyer”. Section 2-103.

“Cancellation”. Section 2-106.

“Contract”. Section 1-201.

“Goods”. Section 2-105.

“Remedy”. Section 1-201.

“Seller”. Section 2-103.

CROSS REFERENCES

Anticipatory breach, see § 2—610 of this title.

Breach of installment contract as a whole, see § 2—612 of this title.

Lessor’s remedies generally, see § 2A—523 of this title.

Failure to furnish letter of credit, see § 2—325 of this title.

Liberal administration of remedies, see § 1—305 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Sections 63(3) and 64(4), Uniform Sales Act.

Changes: Rewritten, the seller’s rights being broadened.

Purposes of Changes: 1. This section gives an aggrieved seller the right at the time of breach to identify to the contract any conforming finished goods, regardless of their resalability, and to use reasonable judgment as to completing unfinished goods. It thus makes the goods available for resale under the resale section, the seller’s primary remedy, and in the special case in which resale is not practicable, allows the action for the price which would then be necessary to give the seller the value of his contract.

2. Under this Article the seller is given express power to complete manufacture or procurement of goods for the contract unless the exercise of reasonable commercial judgment as to the facts as they appear at the time he learns of the breach makes it clear that such action will result in a material increase in damages. The burden is on the buyer to show the commercially unreasonable nature of the seller’s action in completing manufacture.

2. Under this Article the seller is given express power to complete manufacture or procurement of goods for the contract unless the exercise of reasonable commercial judgment as to the facts as they appear at the time he learns of the breach makes it clear that such action will result in a material increase in damages. The burden is on the buyer to show the commercially unreasonable nature of the seller’s action in completing manufacture.

Official Comment References

Cross References:

Sections 2—703 and 2—706.

Definitional Cross References:

“Aggrieved party”. Section 1—201.

“Conforming”. Section 2—106.

“Contract”. Section 1—201.

“Goods”. Section 2—105.

“Rights”. Section 1—201.

“Seller”. Section 2—103.

CROSS REFERENCES

Identification of goods to the contract, see § 2—501 of this title.

Lessor’s right to identify goods to lease contract, see § 2A—524 of this title.

Seller’s remedies in general, see § 2—703 of this title.

Seller’s resale, see § 2—706 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—2015. Subdivision (2)(c): Substituted “a warehouse” for “warehouseman”.

Subdivision (3)(c): Inserted “of possession or control” following “surrender”.

Effective date and applicability of amendment. 2015, No. 51 , § H.1(e) provides: “(1) This act shall apply to a document of title that is issued or a bailment that arises on or after the effective date of this act.

“(2) This act does not apply to a document of title that is issued or a bailment that arises before the effective date of this act even if the document of title or bailment would be subject to this act if the document of title had been issued or bailment had arisen on or after the effective date of this act.

“(3) This act does not apply to a right of action that has accrued before the effective date of this act.

“(4) A document of title issued or a bailment that arises before the effective date of this act and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this act as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.”

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Sections 57-59, Uniform Sales Act; see also Sections 12, 14 and 42, Uniform Bills of Lading Act and Sections 9, 11 and 49, Uniform Warehouse Receipts Act.

Changes: This section continues and develops the above sections of the Uniform Sales Act in the light of the other uniform statutory provisions noted.

Purposes: To make it clear that:

1. Subsection (1) applies the stoppage principle to other bailees as well as carriers.
2. “Receipt by the buyer” includes receipt by the buyer’s designated representative, the sub-purchaser, when shipment is made direct to him and the buyer himself never receives the goods.  It is entirely proper under this Article that the seller, by making such direct shipment to the sub-purchaser, be regarded as acquiescing in the latter’s purchase and as thus barred from stoppage of the goods as against him.
3. A diversion of a shipment is not a “reshipment” under subsection (2)(c) when it is merely an incident to the original contract of transportation.  Nor is the bill of procurement of “exchange bills” of lading which change only the name of the consignee to that of the buyer’s local agent but do not alter the destination of a reshipment.
4. Subdivision (3)(c) makes the bailee’s obedience of a notification to stop conditional upon the surrender of possession or control of any outstanding negotiable document.
5. Any charges or losses incurred by the carrier in following the seller’s orders, whether or not he was obligated to do so, fall to the seller’s charge.
6. After an effective stoppage under this section the seller’s rights in the goods are the same as if he had never made a delivery.

It also expands the remedy to cover the situations, in addition to buyer’s insolvency, specified in the subsection. But since stoppage is a burden in any case to carriers, and might be a very heavy burden to them if it covered all small shipments in all these situations, the right to stop for reasons other than insolvency is limited to carload, truckload, planeload or larger shipments. The seller shipping to a buyer of doubtful credit can protect himself by shipping C.O.D.

Where stoppage occurs for insecurity it is merely a suspension of performance, and if assurances are duly forthcoming from the buyer the seller is not entitled to resell or divert.

Improper stoppage is a breach by the seller if it effectively interferes with the buyer’s right to due tender under the section on manner of tender of delivery. However, if the bailee obeys an unjustified order to stop he may also be liable to the buyer. The measure of his obligation is dependent on the provisions of the Documents of Title Article (Section 7-303). Subsection 3(b) therefore gives him a right of indemnity as against the seller in such a case.

As between the buyer and the seller, the latter’s right to stop the goods at any time until they reach the place of final delivery is recognized by this section.

Under subsection (3)(c) and (d), the carrier is under no duty to recognize the stop order of a person who is a stranger to the carrier’s contract. But the seller’s right as against the buyer to stop delivery remains, whether or not the carrier is obligated to recognize the stop order. If the carrier does obey it, the buyer cannot complain merely because of that circumstance; and the seller becomes obligated under subsection (3)(b) to pay the carrier any ensuing damages or charges.

Acknowledgment by the carrier as a “warehouse” within the meaning of this article requires a contract of a truly different character from the original shipment, a contract not in extension of transit but as a warehouse.

Official Comment References

Cross References:

Sections 2—702 and 2—703.

Point 1: Sections 2—503 and 2—609, and Article 7.

Point 2: Section 2—103 and Article 7.

Definitional Cross References:

“Buyer”. Section 2—103.

“Contract for sale”. Section 2—106.

“Document of title”. Section 1—201.

“Goods”. Section 2—105.

“Insolvent”. Section 1—201.

“Notification”. Section 1—201.

“Receipt” of goods. Section 2—103.

“Rights”. Section 1—201.

“Seller”. Section 2—103.

CROSS REFERENCES

Anticipatory repudiation, see § 2—610 of this title.

Assurance of performance, see § 2—609 of this title.

Bills of lading generally, see § 7—301 et seq. of this title.

Definitions, see §§ 1—201, 2—103 to 2—106 of this title.

Diversion, reconsignment and change of instructions of bills of lading, see § 7—303 of this title.

Excused obligation of warehouseman or carrier to deliver, see § 7—403 of this title.

Insolvency of buyer, see § 2—702 of this title.

Lessor’s stoppage of delivery in transit, see § 2A—526 of this title.

Right of “person in position of seller” to stop delivery, see § 2—707 of this title.

Seller’s remedies generally, § 2—703 of this title.

Tender of delivery, see § 2—503 of this title.

Tender of payment, see § 2—511 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 60, Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes: To simplify the prior statutory provision and to make it clear that:

1. The only condition precedent to the seller’s right of resale under subsection (1) is a breach by the buyer within the section on the seller’s remedies in general or insolvency.  Other meticulous conditions and restrictions of the prior uniform statutory provision are disapproved by this Article and are replaced by standards of commercial reasonableness. Under this section the seller may resell the goods after any breach by the buyer.  Thus, an anticipatory repudiation by the buyer gives rise to any of the seller’s remedies for breach, and to the right of resale.  This principle is supplemented by subsection (2) which authorizes a resale of goods which are not in existence or were not identified to the contract before the breach.
2. In order to recover the damages prescribed in subsection (1) the seller must act “in good faith and in a commercially reasonable manner” in making the resale.  This standard is intended to be more comprehensive than that of “reasonable care and judgment” established by the prior uniform statutory provision.  Failure to act properly under this section deprives the seller of the measure of damages here provided and relegates him to that provided in Section 2-708.
3. If the seller complies with the prescribed standard of duty in making the resale, he may recover from the buyer the damages provided for in subsection (1).  Evidence of market or current prices at any particular time or place is relevant only on the question of whether the seller acted in a commercially reasonable manner in making the resale.
4. Subsection (2) frees the remedy of resale from legalistic restrictions and enables the seller to resell in accordance with reasonable commercial practices so as to realize as high a price as possible in the circumstances.  By “public” sale is meant a sale by auction.  A “private” sale may be effected by solicitation and negotiation conducted either directly or through a broker.  In choosing between a public and private sale the character of the goods must be considered and relevant trade practices and usages must be observed.
5. Subsection (2) merely clarifies the common law rule that the time for resale is a reasonable time after the buyer’s breach, by using the language “commercially reasonable.” What is such a reasonable time depends upon the nature of the goods, the condition of the market and the other circumstances of the case; its length cannot be measured by any legal yardstick or divided into degrees.  Where a seller contemplating resale receives a demand from the buyer for inspection under the section of preserving evidence of goods in dispute, the time for resale may be appropriately lengthened.
6. The purpose of subsection (2) being to enable the seller to dispose of the goods to the best advantage, he is permitted in making the resale to depart from the terms and conditions of the original contract for sale to any extent “commercially reasonable” in the circumstances.
7. The provision of subsection (2) that the goods need not be in existence to be resold applies when the buyer is guilty of anticipatory repudiation of a contract for future goods, before the goods or some of them have come into existence.  In such a case the seller may exercise the right of resale and fix his damages by “one or more contracts to sell” the quantity of conforming future goods affected by the repudiation.  The companion provision of subsection (2) that resale may be made although the goods were not identified to the contract prior to the buyer’s breach, likewise contemplates an anticipatory repudiation by the buyer but occurring after the goods are in existence.  If the goods so identified conform to the contract, their resale will fix the seller’s damages quit as satisfactorily as if they had been identified before the breach.
8. Where the resale is to be by private sale, subsection (3) requires that reasonable notification of the seller’s intention to resell must be given to the buyer.  The length of notification of a private sale depends upon the urgency of the matter.  Notification of the time and place of this type of sale is not required.
9. Since there would be no reasonable prospect of competitive bidding elsewhere, subsection (4) requires that a public resale “must be made at a usual place or market for public sale if one is reasonably available;” i.e., a place or market which prospective bidders may reasonably be expected to attend.  Such a market may still be “reasonably available” under this subsection, though at a considerable distance from the place where the goods are located.  In such a case the expense of transporting the goods for resale is recoverable from the buyer as part of the seller’s incidental damages under subsection (1).  However, the question of availability is one of commercial reasonableness in the circumstances and if such “usual” place or market is not reasonably available, a duly advertised public resale may be held at another place if it is one which prospective bidders may reasonably be expected to attend, as distinguished from a place where there is no demand whatsoever for goods of the kind.
10. This Article departs in subsection (5) from the prior uniform statutory provision in permitting a good faith purchaser at resale to take a good title as against the buyer even though the seller fails to comply with the requirements of this section.
11. Under subsection (6), the seller retains profit, if any, without distinction based on whether or not he had a lien since this Article divorces the question of passage of title to the buyer from the seller’s right of resale or the consequences of its exercise. On the other hand, where “a person in the position of a seller” or a buyer acting under the section on buyer’s remedies, exercises his right of resale under the present section he does so only for the limited purpose of obtaining cash for his “security interest” in the goods. Once that purpose has been accomplished any excess in the resale price belongs to the seller to whom an accounting must be made as provided in the last sentence of subsection (6).

Under this Article the seller resells by authority of law, in his own behalf, for his own benefit and for the purpose of fixing his damages. The theory of a seller’s agency is thus rejected.

The distinction drawn by some courts between cases where the title had not passed to the buyer and the seller had resold as owner, and cases where the title had passed and the seller had resold by virtue of his lien on the goods, is rejected.

On the question of the place for resale, subsection (2) goes to the ultimate test, the commercial reasonableness of the seller’s choice as to the place for an advantageous resale. This Article rejects the theory that the seller is required to resell at the agreed place for delivery and that a resale elsewhere can be permitted only in exceptional cases.

Subsection (4)(b) requires that the seller give the buyer reasonable notice of the time and place of a public resale so that he may have an opportunity to bid or to secure the attendance of other bidders. An exception is made in the case of goods “which are perishable or threaten to decline speedily in value.”

Paragraph (a) of subsection (4) qualifies the last sentence of subsection (2) with respect to resales of unidentified and future goods at public sale. If conforming goods are in existence the seller may identify them to the contract after the buyer’s breach and then resell them at public sale. If the goods have not been identified, however, he may resell them at public sale only as “future” goods and only where there is a recognized market for public sale of futures in goods of the kind.

The provisions of paragraph (c) of subsection 4 are intended to permit intelligent bidding.

The provision of paragraph (d) of subsection (4) permitting the seller to bid and, of course, to become the purchaser, benefits the original buyer by tending to increase the resale price and thus decreasing the damage he will have to pay.

Official Comment References

Cross References:

Point 1: Sections 2—610, 2—702 and 2—703.

Point 2: Section 1—201.

Point 3: Sections 2—708 and 2—710.

Point 4: Section 2—328.

Point 8: Section 2—104.

Point 9: Section 2—710.

Point 11: Sections 2—401, 2—707 and 2—711(3).

Definitional Cross References:

“Buyer”. Section 2—103.

“Contract”. Section 1—201.

“Contract for sale”. Section 2—106.

“Good faith”. Section 2—103.

“Goods”. Section 2—105.

“Merchant”. Section 2—104.

“Notification”. Section 1—201.

“Person in position of seller”. Section 2—707.

“Purchase”. Section 1—201.

“Rights”. Section 1—201.

“Sale”. Section 2—106.

“Security interest”. Section 1—201.

“Seller”. Section 2—103.

CROSS REFERENCES

Anticipatory repudiation, see § 2—610 of this title.

Buyer’s right of resale, see § 2—711 of this title.

Change in instructions of bills of lading, see § 7—303 of this title.

Definitions, see §§ 1—201, 2—103 to 2—106 of this title.

Identification of goods to the contract, see § 2—501 of this title.

Lessor’s rights to dispose of goods, see § 2A—527 of this title.

Liquidation or limitation of damages, see § 2—718 of this title.

Negotiation subject to rescission, see § 3—202 of this title.

Nonacceptance or repudiation by buyer, see § 2—708 of this title.

Passage of title, see § 2—401 of this title.

Remedies of buyer, see § 2—711 of this title.

Resale by “person in position of seller”, see § 2—707 of this title.

Sale by auction, see § 2—328 of this title.

Seller’s incidental damages, see § 2—710 of this title.

Seller’s remedies in general, see § 2—703 of this title.

Seller’s remedies on discovery of insolvency of buyer, see § 2—702 of this title.

Variation by agreement, see § 1—302 of this title.

ANNOTATIONS

Cited.

Cited in A.M. Varityper, Division of A.M. International, Inc. v. Rabbo, 146 Vt. 471, 505 A.2d 671, 1986 Vt. LEXIS 316 (1986).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 52(2), Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes: To make it clear that:

In addition to following in general the prior uniform statutory provision, the case of a financing agency which has acquired documents by honoring a letter of credit for the buyer or by discounting a draft for the seller has been included in the term “a person in the position of a seller.”

Official Comment References

Cross Reference:

Article 5, Section 2-506.

Definitional Cross References:

“Consignee”. Section 7-102.

“Consignor”. Section 7-102.

“Goods”. Section 2-105.

“Security interest”. Section 1-201.

“Seller”. Section 2-103.

CROSS REFERENCES

Change of instructions of bills of lading, see § 7—303 of this title.

Excused obligation of warehouseman or carrier to deliver, see § 7—403 of this title.

Financing agencies, see § 2—506 of this title.

“Financing agency” defined, see § 2—104 of this title.

Letters of credit generally, see § 5—101 et seq. of this title.

Remedy for dishonor or repudiation, see § 5—111 of this title.

Secured transactions, see § 9—101 et seq. of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 64, Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes: To make it clear that:

1. The prior uniform statutory provision is followed generally in setting the current market price at the time and place for tender as the standard by which damages for non-acceptance are to be determined.  The time and place of tender is determined by reference to the section on manner of tender of delivery, and to the sections on the effect of such terms as F.O.B., F.A.S., C.I.F., C. & F., Ex Ship and No Arrival, No Sale.
2. The provision of this section permitting recovery of expected profit including reasonable overhead where the standard measure of damages is inadequate, together with the new requirement that price actions may be sustained only where resale is impractical, are designed to eliminate the unfair and economically wasteful results arising under the older law when fixed price articles were involved.  This section permits the recovery of lost profits in all appropriate cases, which would include all standard priced goods.  The normal measure there would be list price less cost to the dealer or list price less manufacturing cost to the manufacturer.  It is not necessary to a recovery of “profit” to show a history of earnings, especially if a new venture is involved.
3. In all cases the seller may recover incidental damages.

In the event that there is no evidence available of the current market price at the time and place of tender, proof of a substitute market may be made under the section on determination and proof of market price. Furthermore, the section on the admissibility of market quotations is intended to ease materially the problem of providing competent evidence.

Official Comment References

Cross References:

Point 1: Sections 2—319 through 2—234, 2—503, 2—723 and 2—724.

Point 2: Section 2—709.

Point 3: Section 2—710.

Definitional Cross References:

“Buyer”. Section 2—103.

“Contract”. Section 1—201.

“Seller”. Section 2—103.

CROSS REFERENCES

Acceptance of goods by buyer, see § 2—606 of this title.

C.I.F. and C. & F., see § 2—320 of this title.

Damages recoverable in seller’s action for price, see §§ 2—709, 2—710 of this title.

Determination of damages based on market price, see § 2—723 of this title.

Ex-ship, see § 2—322 of this title.

F.O.B. and F.A.S, see § 2—319 of this title.

Lessor’s damages for non-acceptance, failure to pay, repudiation, or other default, see § 2A—528 of this title.

“No arrival, no sale”, see § 2—324 of this title.

“Overseas”, see § 2—323 of this title.

Proof of price for goods in established commodity market, see § 2—724 of this title.

Repudiation of the contract by the buyer, see § 2—610 of this title.

Seller’s tender of delivery generally, see § 2—503 of this title.

ANNOTATIONS

Available market.

In a breach of contract action, the trial court properly relied on the provision allowing the seller to recover damages for the profit which it would have made from full performance by the buyer, as there was evidence that there was no standard resale market for the repudiated units. SEC America, LLC v. Marine Electric Systems, Inc., 2011 VT 125, 191 Vt. 541, 39 A.3d 1054, 2011 Vt. LEXIS 125 (2011) (mem.).

“Available market” means existing market available to defendant in territory where he had right to sell product. Breding v. Champlain Marine & Realty Co., 106 Vt. 288, 172 A. 625, 1934 Vt. LEXIS 171 (1934) (Decided under prior law.).

In determining damages to dealers in boats from buyer’s cancellation of order to purchase boat, where evidence was undisputed that there was no available market for resale, court applied proper rule in taking as basis for computation of damages profit to dealer represented by difference between cost price to dealer and sale price to buyer. Breding v. Champlain Marine & Realty Co., 106 Vt. 288, 172 A. 625, 1934 Vt. LEXIS 171 (1934) (Decided under prior law.).

Cost of sale.

Expense of advertising and canvassing for prospects by dealer in boats, held to be “overhead expenses” incident to business rather than to particular sale, and not to be deductible from dealer’s profits when determining damages occasioned by buyer’s cancellation of order for boat. Breding v. Champlain Marine & Realty Co., 106 Vt. 288, 172 A. 625, 1934 Vt. LEXIS 171 (1934) (Decided under prior law.).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 63, Uniform Sales Act.

Changes: Rewritten, important commercially needed changes being incorporated.

Purposes of Changes: To make it clear that:

1. Neither the passing of title to the goods nor the appointment of a day certain for payment is now material to a price action.
2. The action for the price is now generally limited to those cases where resale of the goods is impracticable except where the buyer has accepted the goods or where they have been destroyed after risk of loss has passed to the buyer.
3. This section substitutes an objective test by action for the former “not readily resalable” standard.  An action for the price under subsection (1)(b) can be sustained only after a “reasonable effort to resell” the goods “at reasonable price” has actually been made or where the circumstances “reasonably indicate” that such an effort will be unavailing.
4. If a buyer is in default not with respect to the price, but on an obligation to make an advance, the seller should recover not under this section for the price as such, but for the default in the collateral (though coincident) obligation to finance the seller.  If the agreement between the parties contemplates that the buyer will acquire, on making the advance, a security interest in the goods, the buyer on making the advance has such an interest as soon as the seller has rights in the agreed collateral.  See Section 9-204.
5. “Goods accepted” by the buyer under subsection (1)(a) include only goods as to which there has been no justified revocation of acceptance, for such a revocation means that there has been a default by the seller which bars his rights under this section.  “Goods lost or damaged” are covered by the section on risk of loss.  “Goods identified to the contract” under subsection (1)(b) are covered by the section on identification and the section on identification notwithstanding breach.
6. This section is intended to be exhaustive in its enumeration of cases where an action for the price lies.
7. If the action for the price fails, the seller may nonetheless have proved a case entitling him to damages for non-acceptance.  In such a situation, subsection (3) permits recovery of those damages in the same action.

Official Comment References

Cross References:

Point 4: Section 1—106.

Point 5: Sections 2—501, 2—509, 2—510 and 2—704.

Point 7: Section 2—708.

Definitional Cross References:

“Action”. Section 1—201.

“Buyer”. Section 2—103.

“Conforming”. Section 2—106.

“Contract”. Section 1—201.

“Goods”. Section 2—105.

“Seller”. Section 2—103.

CROSS REFERENCES

Effect of breach on risk of loss, see §§ 2—510 of this title.

Identification of goods, see §§ 2—501, 2—704 of this title.

Incidental damages to aggrieved sellers, see § 2—710 of this title.

Lessor’s action for rent, see § 2A—529 of this title.

Liberal administration of remedies, see § 1—305 of this title.

Price payable in money or otherwise, see § 2—304 of this title.

Risk of loss in the absence of breach, see § 2—509 of this title.

Security interest, arising from agreement, see § 9—204 of this title.

Seller’s damages for nonacceptance, see § 2—708 of this title.

Seller’s remedies in general, see § 2—703 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: See Sections 64 and 70, Uniform Sales Act.

Purposes: To authorize reimbursement of the seller for expenses reasonably incurred by him as a result of the buyer’s breach. The section sets forth the principal normal and necessary additional elements of damage flowing from the breach but intends to allow all commercially reasonable expenditures made by the seller.

Official Comment References

Definitional Cross References:

“Aggrieved party”. Section 1—201.

“Buyer”. Section 2—103.

“Goods”. Section 2—105.

“Seller”. Section 2—103.

CROSS REFERENCES

Damages for nonacceptance or repudiation, see § 2—708 of this title.

Incidental damages on wrongful dishonor of draft, see § 3—502 of this title.

Lessor’s incidental damages, see § 2A—530 of this title.

Recovery of damages by “person in position of seller”, see § 2—707 of this title.

Incidental damages on resale by seller, see § 2—706 of this title.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: No comparable index section; Subsection (3)—Section 69(5), Uniform Sales Act.

Changes: The prior uniform statutory provision is generally continued and expanded in Subsection (3).

Purposes of Changes and New Matter: 1. To index in this section the buyer’s remedies, subsection (1) covering those remedies permitting the recovery of money damages, and subsection (2) covering those which permit reaching the goods themselves. The remedies listed here are those available to a buyer who has not accepted the goods or who has justifiably revoked his acceptance. The remedies available to a buyer with regard to goods finally accepted appear in the section dealing with breach in regard to accepted goods. The buyer’s right to proceed as to all goods when the breach is as to only some of the goods is determined by the section on breach in installment contracts and by the section on partial acceptance.

Despite the seller’s breach, proper retender of delivery under the section on cure of improper tender or replacement can effectively preclude the buyer’s remedies under this section, except for any delay involved.

2. To make it clear in subsection (3) that the buyer may hold and resell rejected goods if he has paid a part of the price or incurred expenses of the type specified. “Paid” as used here includes acceptance of a draft or other time negotiable instrument or the signing of a negotiable note. His freedom of resale is coextensive with that of a seller under this Article except that the buyer may not keep any profit resulting from the resale and is limited to retaining only the amount of the price paid and the costs involved in the inspection and handling of the goods. The buyer’s security interest in the goods is intended to be limited to the items listed in subsection (3), and the buyer is not permitted to retain such funds as he might believe adequate for his damages. The buyer’s right to cover, or to have damages for non-delivery, is not impaired by his exercise of his right of resale.

3. It should also be noted that this Act requires its remedies to be liberally administered and provides that any right or obligation which it declares is enforceable by action unless a different effect is specifically prescribed (Section 1—106).

Official Comment References

Cross References:

Point 1: Sections 2—508, 2—601(c), 2—608, 2—612 and 2—714.

Point 2: Section 2—706.

Point 3: Section 1—106.

Definitional Cross References:

Aggrieved party“. Section 1—201.

“Buyer”. Section 2—103.

“Cancellation”. Section 2—106.

“Contract”. Section 1—201.

“Cover”. Section 2—712.

“Goods”. Section 2—105.

“Notifies”. Section 1—201.

“Receipt” of goods. Section 2—103.

“Remedy”. Section 1—201.

“Security interest”. Section 1—201.

“Seller”. Section 2—103.

CROSS REFERENCES

Accountability for excess over amount of security interest, see § 2—706 of this title.

Anticipatory repudiation, see § 2—610 of this title.

Buyer’s rights upon improper delivery, see § 2—601 of this title.

Cure or replacement by seller of improper tender or deliver, see § 2—508 of this title.

Damages for breach as to accepted goods, see § 2—714 of this title.

Remedies for breach of installment contracts, see § 2—612 of this title.

Lessee’s remedies generally, see § 2A—508 et seq. of this title.

Liberal administration of remedies, see § 1—305 of this title.

Revocation of acceptance in whole or in part, see § 2—608 of this title.

ANNOTATIONS

Recovery of purchase price.

Upon breach of warranty by seller that merchandise was in good condition at time of sale, buyer has the right to elect to rescind the contract upon the return, or offer to return, of the goods sold, and is entitled to recover that part of the purchase price previously paid. Newton v. Smith Motors, Inc., 122 Vt. 409, 175 A.2d 514, 1961 Vt. LEXIS 92 (1961) (Decided under prior law.).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: None.

Purposes: 1. This section provides the buyer with a remedy aimed at enabling him to obtain the goods he needs thus meeting his essential need. This remedy is the buyer’s equivalent of the seller’s right to resell.

2. The definition of “cover” under subsection (1) envisages a series of contracts or sales, as well as a single contract or sale; goods not identical with those involved but commercially usable as reasonable substitutes under the circumstances of the particular case; and contracts on credit or delivery terms differing from the contract in breach, but again reasonable under the circumstances. The test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner, and it is immaterial that hind-sight may later prove that the method of cover used was not the cheapest or most effective.

The requirement that the buyer must cover “without unreasonable delay” is not intended to limit the time necessary for him to look around and decide as to how he may best effect cover. The test here is similar to that generally used in this Article as to reasonable time and seasonable action.

3. Subsection (3) expresses the policy that cover is not a mandatory remedy for the buyer. The buyer is always free to choose between cover and damages for non-delivery under the next section.

However, this subsection must be read in conjunction with the section which limits the recovery of consequential damages to such as could not have been obviated by cover. Moreover, the operation of the section on specific performance of contracts for “unique” goods must be considered in this connection for availability of the goods to the particular buyer for his particular needs is the test for that remedy and inability to cover is made an express condition to the right of the buyer to replevy the goods.

4. This section does not limit cover to merchants, in the first instance. It is the vital and important remedy for the consumer buyer as well. Both are free to use cover: the domestic or non-merchant consumer is required only to act in normal good faith while the merchant buyer must also observe all reasonable commercial standards of fair dealing in the trade, since this falls within the definition of good faith on his part.

Official Comment References

Cross References:

Point 1: Section 2—706.

Point 2: Section 1—204.

Point 3: Sections 2—713, 2—715 and 2—716.

Point 4: Section 1—203.

Definitional Cross References:

“Buyer”. Section 2—103.

“Contract”. Section 1—201.

“Good faith”. Section 2—103.

“Goods”. Section 2—105.

“Purchase”. Section 1—201.

“Remedy”. Section 1—201.

“Seller”. Section 2—103.

CROSS REFERENCES

Buyer’s incidental and consequential damages, see § 2—715 of this title.

Buyer’s damages for nondelivery or repudiation, see § 2—713 of this title.

Cover and substitute goods under lease contracts, see § 2A—518 of this title.

Obligation of good faith in enforcement of contract, see § 1—304 of this title.

Reasonable time, see § 1—205 of this title.

Resale by seller as equivalent remedy, see § 2—706 of this title.

Specific performance or replevin, see § 2—716 of this title.

ANNOTATIONS

Cited.

Cited in Lemnah v. American Breeders Service, Inc., 144 Vt. 568, 482 A.2d 700, 1984 Vt. LEXIS 537 (1984).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 67(3), Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes: To clarify the former rule so that:

1. The general baseline adopted in this section uses as a yardstick the market in which the buyer would have obtained cover had he sought that relief.  So the place for measuring damages is the place of tender (or the place of arrival if the goods are rejected or their acceptance is revoked after reaching their destination) and the crucial time is the time at which the buyer learns of the breach.
2. The market or current price to be used in comparison with the contract price under this section is the price for the goods of the same kind and in the same branch of trade.
3. When the current market price under this section is difficult to prove the section on determination and proof of market price is available to permit a showing of a comparable market price or, where no price is available, evidence of spot sale prices is proper.  Where the unavailability of a market price is caused by a scarcity of goods of the type involved, a good case is normally made for specific performance under this Article.  Such scarcity conditions, moreover, indicate that the price has risen and under the section providing for liberal administration of remedies, opinion evidence as to the value of the goods would be admissible in the absence of a market price and a liberal construction of allowable consequential damages should also result.
4. This section carries forward the standard rule that the buyer must deduct from his damages any expenses saved as a result of the breach.
5. The present section provides a remedy which is completely alternative to cover under the preceding section and applies only when and to the extent that the buyer has not covered.

Official Comment References

Cross References:

Point 3: Sections 1-106, 2-716 and 2-723.

Point 5: Section 2-712.

Definitional Cross References:

“Buyer”. Section 2-103.

“Contract”. Section 1-201.

“Seller”. Section 2-103.

CROSS REFERENCES

Buyer’s remedies generally, see § 2—711 of this title.

Cover as alternative remedy, see § /2-712 of this title.

Lessee’s damages for non-delivery and repudiation, see § 2A—519 of this title.

Liberal administration of remedies, see § 1—305 of this title.

Measure and proof of market price, see § 2—723 of this title.

Specific performance, see § 2—716 of this title.

ANNOTATIONS

Measure of damages.

In action for auto dealer’s breach of contract to deliver a new car, plaintiff to “pay” his two year old auto plus $ 3,100, lower court’s award of difference between trade-in allowance dealer was going to allow on the used auto and what the court found to be the actual trade-in value was reversible error requiring remand for new trial on issue of damages, for proper damages were the difference between what plaintiff was going to pay dealer for the new auto and what he would have to pay for the same auto on the open market, with the trade-in value of the used auto being the same in each instance. Greenberg v. Beckwith Motors, Inc., 136 Vt. 285, 388 A.2d 426, 1978 Vt. LEXIS 736 (1978).

Cited.

Cited in Lemnah v. American Breeders Service, Inc., 144 Vt. 568, 482 A.2d 700, 1984 Vt. LEXIS 537 (1984).

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 69(6) and (7), Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes: 1. This section deals with the remedies available to the buyer after the goods have been accepted and the time for revocation of acceptance has gone by. In general this section adopts the rule of the prior uniform statutory provision for measuring damages where there has been a breach of warranty as to goods accepted, but goes further to lay down an explicit provision as to the time and place for determining the loss.

The section on deduction of damages from price provides an additional remedy for a buyer who still owes part of the purchase price, and frequently the two remedies will be available concurrently. The buyer’s failure to notify of his claim under the section on effects of acceptance, however, operates to bar his remedies under either that section or the present section.

2. The “non-conformity” referred to in subsection (1) includes not only breaches of warranties but also any failure of the seller to perform according to his obligation under the contract. In the case of such non-conformity, the buyer is permitted to recover for his loss “in any manner which is reasonable.”

3. Subsection (2) describes the usual, standard and reasonable method of ascertaining damages in the case of breach of warranty but it is not intended as an exclusive measure. It departs from the measure of damages for non-delivery in utilizing the place of acceptance rather than the place of tender. In some cases the two may coincide, as where the buyer signifies his acceptance upon the tender. If, however, the non-conformity is such as would justify revocation of acceptance, the time and place of acceptance under this section is determined as of the buyer’s decision not to revoke.

4. The incidental and consequential damages referred to in subsection (3), which will usually accompany an action brought under this section, are discussed in detail in the comment on the next section.

Official Comment References

Cross References:

Point 1: Compare Section 2-711; Sections 2-607 and 2-717.

Point 2: Section 2-106.

Point 3: Sections 2-608 and 2-713.

Point 4: Section 2-715.

Definitional Cross References:

“Buyer”. Section 2-103.

“Conform”. Section 2-106.

“Goods”. Section 1-201.

“Notification”. Section 1-201.

“Seller”. Section 2-103.

CROSS REFERENCES

Acceptance of goods; effect, see § 2-607 of this title.

Buyer’s incidental and consequential damages, see § 2—715 of this title.

Deduction from price, see § 2—717 of this title.

Definitions, see §§ 1—201, 2—103 to 2—106 of this title.

Lessee’s damages for breach of warranty in regard to accepted goods, see § 2A—519 of this title.

Liberal administration of remedies, see § 1—305 of this title.

Place for determining market price, see § 2—713 of this title.

Remedies of buyer in general, see § 2—711 of this title.

Revocation of acceptance in whole or in part, see § 2—608 of this title.

ANNOTATIONS

• Damages naturally resulting.
• Difference in value.
• Remedies.
• Right to damages.
• Special circumstances.

History

Source.

Act No. 29, § 1, March 12, 1966.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Subsection (2)(b)—Sections 69(7) and 70, Uniform Sales Act.

Changes: Rewritten.

Purposes of Changes and New Matter: 1. Subsection (1) is intended to provide reimbursement for the buyer who incurs reasonable expenses in connection with the handling of rightfully rejected goods or goods whose acceptance may be justifiably revoked, or in connection with effecting cover where the breach of the contract lies in non-conformity or non-delivery of the goods. The incidental damages listed are not intended to be exhaustive but are merely illustrative of the typical kinds of incidental damage.

2. Subsection (2) operates to allow the buyer, in an appropriate case, any consequential damages which are the result of the seller’s breach. The “tacit agreement” test for the recovery of consequential damages is rejected. Although the older rule at common law which made the seller liable for all consequential damages of which he had “reason to know” in advance is followed, the liberality of that rule is modified by refusing to permit recovery unless the buyer could not reasonably have prevented the loss by cover or otherwise. Subparagraph (2) carries forward the provisions of the prior uniform statutory provision as to consequential damages resulting from breach of warranty, but modifies the rule by requiring first that the buyer attempt to minimize his damages in good faith, either by cover or otherwise.

3. In the absence of excuse under the section on merchant’s excuse by failure of presupposed conditions, the seller is liable for consequential damages in all cases where he had reason to know of the buyer’s general or particular requirements at the time of contracting. It is not necessary that there be a conscious acceptance of an insurer’s liability on the seller’s part, nor is his obligation for consequential damages limited to cases in which he fails to use due effort in good faith.

Particular needs of the buyer must generally be made known to the seller while general needs must rarely be made known to charge the seller with knowledge.

Any seller who does not wish to take the risk of consequential damages has available the section on contractual limitation of remedy.

4. The burden of proving the extent of loss incurred by way of consequential damage is on the buyer, but the section of liberal administration of remedies rejects any doctrine of certainty which requires almost mathematical precision in the proof of loss. Loss may be determined in any manner which is reasonable under the circumstances.

5. Subsection (2)(b) states the usual rule as to breach of warranty, allowing recovery for injuries “proximately” resulting from the breach. Where the injury involved follows the use of goods without discovery of the defect causing the damage, the question of “proximate” cause turns on whether it was reasonable for the buyer to use the goods without such inspection as would have revealed the defects. If it was not reasonable for him to do so, or if he did in fact discover the defect prior to his use, the injury would not proximately result from the breach of warranty.

6. In the case of sale of wares to one in the business of reselling them, resale is one of the requirements of which the seller has reason to know within the meaning of subsection (2)(a).

Official Comment References

Cross References:

Point 1: Section 2—608.

Point 3: Sections 1—203, 2—615 and 2—719.

Point 4: Section 1—106.

Definitional Cross References:

“Cover”. Section 2—712.

“Goods”. Section 1—201.

“Person”. Section 1—201.

“Receipt” of goods. Section 2—103.

“Seller”. Section 2—103.

CROSS REFERENCES

Buyer’s damages for nondelivery or repudiation, see § 2—713 of this title.

Consequential damages, limit by contract, see § 2—719 of this title.

“Cover”, damages for, see § 2—712 of this title.

Excuse by failure of presupposed conditions, see § 2—615 of this title.

Good faith obligation in enforcement of contract, see § 1—304 of this title.

Lessee’s incidental and consequential damages, see § 2A—520 of this title.

Liberal administration of remedies, see § 1—305 of this title.

Measure of buyer’s damages for breach of warranty, see § 2—714 of this title.

Remedies for failure to cooperate with specifications respecting performance, see § 2—311 of this title.

ANNOTATIONS

• Contribution and indemnity.
• Lost profits.
• Prospective damages.
• Right to damages.

History

Source.

Act No. 29, § 1, March 12, 1966.

Amendments

—1999 (Adj. Sess.). Subsection (3): Added the second sentence.

OFFICIAL COMMENT

Prior Uniform Statutory Provision: Section 68, Uniform Sales Act.

Changes: Rephrased.

Purposes of Changes: To make it clear that:

1. The present section continues in general prior policy as to specific performance and injunction against breach. However, without intending to impair in any way the exercise of the court’s sound discretion in the matter, this Article seeks to further a more liberal attitude than some courts have shown in connection with the specific performance of contracts of sale.
2. In view of this Article’s emphasis on the commercial feasibility of replacement, a new concept of what are “unique” goods is introduced under this section.  Specific performance is no longer limited to goods which are already specific or ascertained at the time of contracting.  The test of uniqueness under this section must be made in terms of the total situation which characterizes the contract.  Output and requirements contracts involving a particular or peculiarly available source or market present today the typical commercial specific performance situation, as contrasted with contracts for the sale of heirlooms or priceless works of art which were usually involved in the older cases.  However, uniqueness is not the sole basis of the remedy under this section for the relief may also be granted “in other proper circumstances” and inability to cover is strong evidence of “other proper circumstances”.
3. The legal remedy of replevin is given the buyer in cases in which cover is reasonably unavailable and goods have been identified to the contract.  This is in addition to the buyer’s right to recover identified goods on the seller’s insolvency (Section 2—502).
4. This section is intended to give the buyer rights to the goods comparable to the seller’s rights to the price.
5. If a negotiable document of title is outstanding, the buyer’s right of replevin relates of course to the document not directly to the goods.  See Article 7, especially Section 7—602.

Official Comment References

Cross References:

Point 3: Section 2—502.

Point 4: Section 2—709.

Point 5: Article 7.

Definitional Cross References:

“Buyer”. Section 2—103.

“Goods”. Section 1—201.

“Rights”. Section 1—201.

CROSS REFERENCES

Attachment of covered goods by a negotiable document, see § 7—602 of this title.

Buyer’s remedies generally, see § 2—711 of this title.

Buyer’s right to goods on insolvency of seller, see § 2—502 of this title.

Documents of title generally, see § 7—101 et seq. of this title.

Identification of goods to the contract, see § 2—501 of this title.

Lessee’s right to specific performance or replevin, see § 2A—521 of this title.

Provision measuring quantity by requirements of buyer, see § 2—306 of this title.

Replevin, see § 5331 et seq. of Title 12.

Rights of seller’s creditor against sold goods, see § 2—402 of this title.

Seller’s action for price, see § 2—709 of this title.