UCC Performance & Warranties — Contracts

Franklin Farm Supply loads 200 bags of seed onto a carrier's truck, bound for Olsen in Columbia. The contract says FOB Franklin. Halfway there the truck overturns and every bag is ruined. Nobody was careless. Olsen never touched the seed. Does Olsen still have to pay?

Yes. Every dollar. His only comfort is a claim against the carrier or an insurer. Change one word in that shipping term and the seller eats the loss instead. Article 2 of the UCC decides who pays when goods die in transit, and it never asks who owned them. By the end of this episode you will run that question, and the warranty question behind it, on any set of facts.

Here is the route. First the core bargain, tender, and the shipment or destination split everything hangs on. Then risk of loss, in the order you must run it. Then the buyer's path after the goods arrive, perfect tender, rejection, cure, acceptance and revocation. Then the warranty family. And finally disclaimers, and the seller's defenses.

Strip a sale of goods to its bones and it is a swap. The seller transfers and delivers conforming goods. The buyer accepts and pays. Conforming means the goods match what the contract called for. The seller's pivotal act is tender of delivery. Under § 2-503, put conforming goods at the buyer's disposition and give whatever notice the buyer needs.

Tender is not the buyer getting the goods. It is the seller doing everything needed to make delivery happen, under a duty of good faith nobody can contract away.

Now the split everything hangs on. Most goods travel by carrier, and Article 2 sorts those into two boxes. In a shipment contract the seller must get the goods to a carrier and make a reasonable contract for their transport. In a destination contract the seller must get them to a named place and tender them there.

Here is the trap. If the contract is silent about how far the seller must deliver, it is presumed to be a shipment contract. A tile contract says shipped by motor freight and names no delivery point. Shipment, or destination? Shipment. Sellers deliver to the carrier, not the buyer's door.

Shipping terms abbreviate all this. FOB, free on board, is the workhorse. FOB the seller's city is a shipment contract. FOB the buyer's city is a destination contract. FAS, free alongside a named vessel, is a shipment term. And the sneaky one is CIF, cost, insurance and freight. It looks like destination delivery. It is not.

Risk of loss asks a stark question. The goods are destroyed, nobody is at fault, and someone still has to pay. Who? Two ideas keep this clean. The Code divorces risk from title, so never ask who owned the goods. And check for breach first.

Absent breach, run four steps in order. One. Did the parties agree who bears risk? Honor it. Two. Are the goods moving by carrier? Shipment contract, risk passes when conforming goods are duly delivered to the carrier. Destination contract, only on tender at the destination.

Three. Are the goods sitting with a bailee, not moving? Under § 2-509 risk passes when the buyer takes a negotiable document of title, or the bailee acknowledges the buyer's right. No wheat has to move. The document does the work.

Four. No carrier and no bailee? The residual rule turns on one fact. If the seller is a merchant, risk passes only when the buyer actually receives the goods. If the seller is not a merchant, risk passes on tender.

That one decides cases. A professor sells her personal grand piano to a neighbor for $9,000, tells him it is ready, and leaves it awaiting his movers. A pipe bursts and ruins it. Merchant, or not? Not a merchant in pianos. Risk passed on tender. The neighbor bears the loss.

Breach flips the picture. Ship goods bad enough to give the buyer a right to reject, and § 2-510 keeps risk on the seller until cure or acceptance. Back to Olsen. Make it FOB Columbia and the seller eats the ruined seed. Make those bags moldy and the seller eats it anyway.

Now the buyer's path after the goods arrive, and here Article 2 breaks from the common law. At common law, substantial performance is enough. Not for goods. Under the perfect tender rule in § 2-601, the goods or the tender need only fail to conform in any respect. Then the buyer may reject the whole, accept the whole, or accept some units and reject the rest.

Any respect means any. A late shipment. The wrong color. A short count. The buyer normally inspects first. The exception is cash on delivery, where you pay first and inspect after.

To reject, act within a reasonable time and seasonably notify the seller, then hold the goods with care so the seller can reclaim them. And state the defect, because a buyer who hides a curable defect may be barred from relying on it.

Perfect tender sounds brutal, so two things soften it. First, cure. Under § 2-508, if the performance time has not expired, the seller notifies the buyer of an intent to cure and delivers conforming goods in time. Even after that time has run, the seller gets a further reasonable time if it reasonably believed the tender would be acceptable.

Second, installment contracts. Goods in separate lots, each separately accepted. Perfect tender does not apply lot by lot. Reject one installment only if its nonconformity substantially impairs the value of that installment, and cancel the whole only if it impairs the value of the whole.

Then acceptance, and this is where buyers get caught. Three ways. The buyer inspects and signifies the goods conform, or that it will keep them anyway. Or the buyer fails to make an effective rejection, so silence past a reasonable time is acceptance. Or the buyer acts inconsistently with the seller's ownership.

Accept, and four things follow. You pay the contract price. You lose the right to reject. The burden flips, so you must prove the breach. And a clock starts. Notify the seller of a breach within a reasonable time after discovering it, or be barred from every remedy.

So what is left after acceptance? Revocation under § 2-608, and the bar is far higher. The nonconformity must substantially impair the value of the goods to that buyer. And the buyer must fit one of two boxes. Accepted expecting a cure that never came. Or accepted without discovering a defect that was hard to find.

Delia orders a refrigerator, delivery due Friday. It arrives Wednesday with a dented door. Can she cancel? No. The time has not run, so the dealer may cure by Friday. Now change it. She accepts, and three weeks later the cooling system dies. That substantially impairs the value, no inspection would have caught it, and she tells the dealer at once. She may revoke.

Now the second half, and this is the part to know cold. A warranty is a promise about the goods that the seller is strictly bound to. No proving carelessness, no proving a lie. The goods fell short, that caused harm, the seller pays.

Express warranties, under § 2-313. Three ways to create one. An affirmation of fact or a promise about the goods. A description of the goods. Or a sample or model. Each must become part of the basis of the bargain, and courts presume the buyer relied. No magic words, and no intent to warrant.

But sales talk does not count. A statement of value, or the seller's opinion or commendation, is puffery. This is a terrific little car. Best boots around. Warranty, or puffery? Puffery. This engine was rebuilt last year is a warranty. The line is fact against opinion.

Then the big one, merchantability under § 2-314. In any sale by a merchant who deals in goods of that kind, the law implies the goods are merchantable. Fit for the ordinary purposes such goods are used for, of fair average quality, adequately packaged and labeled.

The trigger is the merchant, in that kind of good. A car dealer selling cars. A grocer selling food. But a plumber selling her used personal truck is no merchant with respect to trucks, so no merchantability attaches. And serving food or drink for value is a sale that carries it.

Fitness for a particular purpose, § 2-315, is narrower, and here is the twist. It needs no merchant seller. Any seller can give it. It arises when the seller has reason to know a particular purpose the buyer wants the goods for. And the buyer must be relying on the seller's skill or judgment to choose them.

Particular is the key word. A specific use beyond the ordinary one. Boots are ordinarily for walking, and that is merchantability. Boots that must keep your feet dry while you wade a cold river are a particular purpose. Name an exact brand, though, and reliance is negated.

Then ownership. In every sale, unless specifically disclaimed, the seller warrants that title is good and its transfer rightful. The goods must come free of any lien the buyer did not know about. Every seller gives it, not just merchants. A merchant regularly dealing in such goods also warrants against infringement.

Sellers try to shed all of this, and § 2-316 sets precise rules, different for each warranty. Express warranties are nearly impossible to disclaim. A court reads the warranty and the disclaimer together, and where they flatly conflict, the disclaimer is inoperative. You cannot guarantee a watertight hull and then erase it in boilerplate.

The implied warranties are more disclaimable, and each has its own formality. To disclaim merchantability the language must actually use the word merchantability, and in a writing it must be conspicuous. It may be oral. To disclaim fitness the exclusion must be written and conspicuous.

Or knock out both at once with as is, or with all faults. Also by the buyer's examination, or refusal to examine, as to defects it should have revealed, and by course of dealing or usage of trade. But does as is reach title? No. Never.

Even with a warranty made and broken, sellers have defenses. The heavy hitter is notice. An accepting buyer who fails to notify the seller within a reasonable time after discovering the breach is barred from every remedy. A seller may also cap the buyer to repair or replacement, unless that limit is unconscionable.

Privity is shrinking, because § 2-318 extends warranties to the buyer's family, household and guests, and the seller cannot contract out of it. And the clock is four years from tender of delivery, whenever the buyer discovered the breach.

One last skill. Where the exam hands you the Code, read the supplied section, not your memory. The Franklin Sales Act might demand written notice within 90 days of discovery. Then a phone call loses, and day 100 loses.

A word on authorities. This episode named no cases, and there were none to name. Article 2 is a statute, and a sales question sends you to a section number, not to a decision. When the Code is in front of you, read the section for what it requires. When it is not, these numbers are your pegs.

If you keep only three, keep these. § 2-509, the risk of loss ladder, agreement, then carrier, then bailee, then merchant status. § 2-601, perfect tender, and the cure and installment rules that soften it. And § 2-316, which sets a different formality for every disclaimer.

Now the traps, straight from the examiners' favorites. One. Never solve risk of loss by asking who held title. Run § 2-509, and check for breach first. Two. CIF looks like a destination contract and is a shipment contract. Three. The residual rule turns on merchant status. A merchant seller keeps the risk until the buyer receives the goods.

Four. Rejection uses perfect tender. Revocation and installment problems use substantial impairment. Do not swap them. Five. A buyer can accept by silence, or by using the goods, without ever saying I accept. Six. An accepting buyer who gives no timely notice is barred from all remedies, and that quietly kills warranty claims.

Seven. Fitness needs no merchant seller. Merchantability does. Eight. As is disclaims the implied warranties, but never an express warranty and never title. Nine. A written fitness disclaimer must be conspicuous, and a merchantability disclaimer must use the word merchantability.

Time for the quick check, and this one comes straight from the BARGO question bank. A buyer buys a used motorcycle from a private seller. The handwritten bill of sale reads, in bold letters, sold as is, with no warranties of any kind. Months later the police seize it. The motorcycle had been stolen before the seller ever acquired it.

The buyer sues for breach of the warranty of title, and the seller points to that bold as is language. Option one. The seller wins, because as is excludes every warranty, including good title. Option two. The seller wins, because a private seller gives no title warranty at all. Option three. The buyer wins, because as is disclaims the implied quality warranties but not title. Pause here if you want a moment.

The answer is option three. The warranty of good title under § 2-312 is given by every seller, merchant or not, and it is not disclaimed by as is or with all faults. Those words knock out the implied warranties of quality. Title goes only by specific language, or by circumstances telling the buyer the seller claims no full title.

Neither is here. Option two fails because private, non-merchant sellers do give the title warranty. It is the separate warranty against infringement that is limited to merchants. There are thirty plus more questions on this topic alone, each with every option explained like that.

Five things to take away. One. Silence means shipment contract, so the seller delivers to the carrier and risk passes there. Two. For risk of loss run agreement, then carrier, then bailee, then merchant status, and check for breach before any of it. Three. Before acceptance the standard is perfect tender. After acceptance, substantial impairment.

Four. Merchantability needs a merchant in that kind of good, and covers ordinary use. Fitness needs no merchant, but needs a known particular purpose and the buyer's reliance. Five. As is kills the implied warranties, not the express one and not title. And a buyer who accepts and stays silent loses everything.

Which is why Olsen pays for a truckload of seed he never touched. FOB Franklin put the risk on him at the carrier's door. Next time, Breach, Repudiation and Excuse.

Practice this topic with more than 2,900 exam-style questions, free to start, at nextgenbargo.com. This episode is for education and exam preparation only, not legal advice, and we are not affiliated with or endorsed by the NCBE or any bar examining authority.