I. BackgroundA. Majority of transactions done without "law."

1. Repeat players2. Desire to do better than law would allow3. Law can't create $$ from nothing – need synergy of both parties succeeding to get rich.

B. American Law 1. Enforces contracts as written (90%) – "We're all adults here"2. "Nemo dat, quod non habet" – A person cannot transfer that which he he doesn't own

a) Derivation principle. C. Law Merchant

1. Ancient transactional law – 14th Century Anglo law.2. Source of commercial law3. "Piepowder Courts" where merchant disputes settled4. "Bills of Exchange" – form of drafts.5. No caveat emptor. 6. Buy stolen goods in market for value (without knowledge?) = good title7. Forbidden

a) Forestalling – buying < market day (avoids unraveling)b) Engrossing – buy up to inflate pricec) Regrading – buy and resell at same fair.

D. UCC – Uniform Commercial Code1. Developed by National Conference of Commissioners on State Laws (NCoCSL)2. Llewelyn – standards kind of guy

a) Reasonableb) Standard of Tradec) Ordinary course of businessd) Bona Fide Purchaser for Value

3. Understood importance of commercial practices. a) Redrafting eliminated wacky law school prof's hypo situationsb) BUT – rules, not standards, needed in end game when things unravel. Clarity for judges, outcomes.

E. Bartlett & Co. v. The Merchants Co. (2)1. Facts

a) M buys #2 corn from B, FOB buyer's barges; when loaded in Nebraska City, official weight's and grades to govern. Merchant's confirmation order "mark bills of lading 'inspection allowed'". If draft is paid at sight, do not waive right to reject shipment below grade.

b) Certified #2 by federal inspector at loading in Nebraska City. Gets to a buyer from Merchants (Walls) and is crap. Walls cures, offsets cost in payment to M. M seeks $ from B.

2. Payment Mechanism –a) "Sight draft with bill of lading attached."b) Sight draft (can be if signed by drawee(?)) and Bill of lading are each a negotiable instrumentc) Mechanism

1) Bartlett delivers corn to carrier, gets a bill of lading (see negotiable instruments) that embodies title to corn.

2) Bartlett draws up a sight draft to Merchant's requesting payment to Bartlett.3) Sight draft and bill of lading presented to bank/banking system (gets $$). Draft goes through

system to Merchant's, who then decides to honor it. If Merchant's honor's it, bank gives Merchants the bill of lading, which entitles it to get the goodds from carrier.

4) Bank protected, because if Merchant's doesn't honor, bank keeps bill and has goods which it can sell to cover, possibly pursue Merchants for any shortfall.

3. Symmetry and Risksa) Seller Risks – gran can deteriorate in storage, shipping expensiveb) Buyer risks – pays before M gets grain (inspection problems)c) Contract – FOB Buyer's barges – 2-319, 2-509:

1) risk of loss passes to buyer once seller puts corn on barge.

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2) THIS is the time when corn must be inspected and graded as #2 corn. d) Merchant is middleman, wants symmetry in transaction – if it cannot inspect before payment, wants

buyer who also cannot inspect. Here, Wall managed to inspect before payment, left M in lurch. e) As threshold matter, because M is one left holding the bag, they initiate the litigation.

4. What was promised. a) Certification as #2 corn – not a guaranteed qualityb) When put on barge.

5. Loose issue – Frauda) Court willing to look beyond contract if there was fraud, bad faith, or gross mistake as amounts to

fraud. b) Only then will court look into facts of inspection. Otherwise, K rules.

II. Chapter One – Transfer of Rights to Personal PropertyA. Derivation – Nemo Dat – basis of American rules

1. Thief cannot pass title to buyer, even Bona Fide Purchaser for Value (BFPV)2. Buyer always derives title rights from seller. Step into shoes, thingie. 3. Thief has no rights, cannot pass them along to buyer.4. Contrast with Negotiation Rule

a) Money, Negotiable Instruments, documents of title have this rule. (Art 3, 5)b) BFPV takes good title when goods are duly negotiated, despite thief in chain of titlec) Value, Negotiated, Duly Negotiated become terms of significance.d) DB – often results in same result regardless. Thief in chain will often lose (especially in common

sense situations).5. Concerns

a) Derivative rule requires vigilant buyers to confirm chain of title. Can be difficult to determine sometimes, leaves buyer open to litigation regardless. May have to defend without safe harbor of BFBV.

b) Lack of repose—must watch calender, wait for SOL, insulate against tolling by (in art cases, Mosaics) making reasonable efforts to determine chain and connect with vigilant owners.

1) Owner – SOL clock ticks from moment you stop being vigilant or know who has it (Goldberg).

2) Buyer – own open and notoriously for X yearas. 6. Church of Cyprus v. Goldberg (17)

a) Highly Abbreviated Facts1) Goldberg and friends buy mosaic ostensibly not known as stolen from Cypriot Church, under

circumstances at best suspicious, without much due diligence on chain of title. 2) Goldberg tries to resell quite boldly. Potential buyer investigates, discovers Church's attempts

to inform, reclaim in world art community. Church brings replevin action.3) Goldberg loses, loses again, and really loses. Even the Swiss think she loses.

b) Legal Stuff1) Derivation Rule – G has bad title under American law. Thief cannot pass title. So why such a

long opinion?2) Statute of Limitations. If Church sits around and diddles itself while G is out there owning

and selling, then it may lose its rights under derivative rule to always prevail against anyone with thief in chain of title.

(A) Court emphasizes O'Keefe style rule – was church vigilant, and when did they actually know who had it.

(B) Only then did clock begin to run. (C) So church okay.

3) Alternative rules.(A) Civil rule – BFPV wins over owner, but with exceptions(B) Often leads to same result, as thief in title is one of the exceptions(C) But different background than Ami – derivation means BFPV loses always, with

exceptions for negotiability.4) Nature of suits, causes of action.

(A) Hypo –

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(1) Thief steals art from owner, sells to gallery, A buys from gallery, then sells it back to gallery.

(2) OTGAG(B) Who can O sue?

(1) Certainly the Thief, for conversion.(2) Certainly G, for replevin(3) A?

(a) Doesn't have painting(b) Is break even – no painting or $. As if A never existed(c) Is that fair? Likely can still sue

(4) And A, or anyone else other than original T, can sue upstream for violation of warranty of title. In theory, only thief loses in the end b/c he can't sue anyone. Warranty of Title is in 2-312.

(5) Reality, T in Rio, and person closes to thief (G) who bought in good faith for value will lose.

B. Voidable Title and Buyer in Ordinary Course –1. Code §§

a) 2-403 – Power to transferb) 2-312 – Warranty of Titlec) 1-201(9) – Buyer in Ordinary Course of Business.d) 1-201(19) – Good Faithe) 1-201(32),(33) – Purchase, Purchaser.

2. Exceptions to the pure derivative rule. Centers around UCC 2-403. Note, the thief himself will still lose to the owner, but the thief has gained the right to transfer good title to a BFPV, who can then win against owner, whereas before, all downstream possessors lost to the owner.

3. The overarching theme is that here, the owner voluntarily parts possession of the item, whether through fraud, deception, or con.

a) O sells to A, who pays with bad check. A sells to B, who buys in good faith for value. B has good title, and O loses to B. But O could still bring conversion against A.

UCC 2-403. Power to Transfer; Good Faith Purchase of Goods; “Entrusting” Voidable title – person w/ voidable title has power to transfer good title to good faith purchaser for value. Purchaser has

voidable title even thougho Transferor was deceived as to the identity of the purchaser, oro Delivery was in exchange for bad check, oro Transaction was to be for a cash sale, oro Delivery was procured through criminal fraud (larceny).

Merchant who deals in goods of that kind has power to transfer all rights of the entruster to a buyer in ordinary course of business.

Void title is different from voidable title. With void title, the person has no rights or power to transfer.

4. good faith here – 1-201(19): honesty in fact.5. Shelter principle in 403 –

a) Bad Check Bob gets X from O, sells it to Honest Abe, a good faith purchaser for value. Abe takes good title. Abe sells it to Dishonest Diana, who knows all about Bob's scam. D takes good title derivatively from A, despite her bad faith. She is purchaser – no good faith requirement

b) OR – if Abe gives the X to Mom. She also gets good title because she is purchaser under 1-201(32),(33).

6. Entrustment – a) Receiving goods on consignment, or receiving goods for repair. No voidable title because not a

purchase? "Factors" b) Commercial Law, and UCC 2-403(2) embrace idea that if you entrust goods to someone in the market,

you give them power to sell to someone in ordinary course of business. 1) Buyer in Ordinary Course – 1-201(9) – good faith without notice that violating someone else's

rights from someone who normally deals in those goods (except cannot buy from a pawnbroker in "ordinary course").

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c) So take your watch to jeweler for repair, he sells it to X. X has good title over you. You can only bring action against jeweler for conversion.

7. Mucha v King a) Artist entrusts painting to gallery for resale. Gallery doesn't sell it for decades (WWII stuff). Gives it

away as part of going out of business sale. Repeatedly sold for value. Owner's descendants want it back.

1) Owner entrusts to Gallery gives to R sells to Gallery2 sells to K. O sues Kb) Doctrinally, O gave painting to G for sale. If G had sold the painting to R in the ordinary course of

business and absconded, then all downstream purchasers would likely be fine. But G didn't. They gave it away as part of a going out of business sale with a fan. Therefore, break in the chain of title, and K loses.

c) If O had entrusted to G2, and all else same, K protected. This seems hinky to DB – entrustement rule designed to protect K. But here, actions further upstream and further beyond K's control make title bad. And no thief in the chain.

III. Chapter II – Documentary Transactions (Article VII)A. Documents of Title

1. Negotiable documents that create title in ordinary goods. Bartlett – bill of lading, Evergreen – warehouse receipts. Documents of title transform ownership of the goods. Possession of the goods is almost irrelevant – all the meaningful action is in the document. Everybody else possessing is just a bailee!!

2. Codea) 7-204(1)b) 7-209 – Warehouseman's liensc) 7-309(1)d) 7-403(2) – must satisfy warehouseman's liens to take possession.e) 1-201(20) - Holderf) 7-501g) 7-502h) 7-503i) 7-504j)

3. f4. f5. Evergreen Marine

a) E carrier for scallops, G convinces E to release scallops without bills of lading. G never had, goes insolvent, Banks foreclose on scallops. Holder of Bills (DB) wants scallops, is coming after carrier, E. E going after Banks.

b) Banks' argument– simple fraudulent sale, 2-403. E is seller's agent, sold to G voluntarily, G "sold" through SI to Banks, who then are good faith purchaser for value. Banks win against owner.

c) E's argument – E is bailee under negotiable document of title. Because of the document, in which ownership resides, E had no rights to transfer ownership. Only the document contained that right. As such, G had no title, voidable or otherwise, to pass.

6. Lineburger a) Carr stole cotton from Lineburger, took it to warehouse and got receipts, sold receipts to buyers. B's

now want to get cotton. b) 1st cut – pure derivation – Carr stole the cotton. Nothing else matters, not title from Thief.c) 2d cut – documents – Title, like we saw above, is now in the documents. Can creation of documents

put you in a negotiation world even when the creator was a thief? Surely not1) 7-503(1) say no way. Document gets no life unless true owner or entrustee makes the

document. 2) Here also, B's cannot win against O.

d) 3d Cut – apparent authority. Can O be estopped from saying C wasn't his agent if, as facts might show, C had been his agent repeatedly in past, and O had held out C as authorized to secure warehouse receipts.

1) Yes.

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2) Only question remains, who can assert this? B's? Warehouse? Who would win if losing B's went after Warehouse? On what grounds?

7. Amoco Oil (Platinum Case)a) Bank owns "lease" of Pt to Amoco (used as a refining catalyst). Bank wants to claim this is a

document of title and entitles it to immediate possession of the item.b) Court agrees. Finds document made out to a bailee, covering fungible parts of identified mass.c) Stands for proposition? Lease as Document of Title?

1) Many similarities, especially if you structure return on demand correctly. Direction of $$ different.

2) Can compare to work of art. 3) Social utitily of keeping goods in hands of highest value use?

8. Bluebonnet a) Julien secured loans from Bank with warehouse receipts for cotton. J convinced warehouse to

ship/release cotton without getting receipts or paying the warehouse liens for storage charges. b) Warehouse now wants bank to pay liens based on "ownership" of receipts. c) Baird says documents of title irrelevant to endgame – we have two creditors duking it out. One

secured, one unsecured. Secured wins. Avoid urge of restitution/unjust enrichment just gives USC a higher priority.

d) Another irrelevant case with some mystifying Bairdian point.B. Letters of Credit

1. A specific legal right to payment from a bank based on presentation of conforming documents. It looks a lot like a contract or a guarantee, but it ISN'T

a) Used to ensure payment when distant buyers and sellers don't fully trust each other. Seller doesn't want to ship without assurance of payment. Buyer doesn't want to pay unless guaranteed shipped.

b) Buyer guarantee of payment = Letter of Creditc) Seller wants some document it can produce that guarantees it shipped/performed bill of ladingd) Bank's obligations triggered by STRICT COMPLIANCE – the letters must be unambiguous in their

requirements, and the obligations are unattached to the underlying transaction2. Practice –Banks honor noncomplying documents quite often. And often they uncurably inadequate. The

problem comes in the endgame, when things unravel and a bank refuses to honor where it had honored before. see cases. And the Groundnuts case.

a) What is the advantage? Might be that unlike a sight draft, the Letter of Credit is like a commitment from the Bank to make buyer play ball – Bank's reputation is on line. DB not sure.

3. Letters of Credit are ministerial in execution, not an interpretation.4. Standy Letter of Credit – an LC not designed for principal payment (with some document of title presented) but

rather for payment if the buyer fails to pay, or doesn't pay promptly. Documents presented involve certification of the buyer's (applicant's) nonperformance and the seller's (beneficiary's) performance.

a) Note – often a SLC is only drawn upon when shit hits fan. Therefore, likelihood of requiring true strict compliance is greater

b) Looks a lot like a guarantee, but isn’t – no subrogation. Cannot assert defenses of applicant on underlying contract.

5. Courtaulds a) Letter of Credit requires commercial invoice that says "100% Acrylic Yarn." Bunches of documents,

some of which said 100% acrylic yarn. But not the one marked "invoice." Bank refuses to honorb) Doesn't matter that goods actually were 100% acrylic yarn. Doesn't matter what is standard in the

trade as "invoice.c) Only matters what "invoice" said, in the bank's lexicon. Strict Compliance of Documents required. If

complies, absolute right to the $$.6. Diamond Plastics

a) DP gets LC to sell stuff. LC requires document (negotiable BL) that DP cannot produce from transaction. Only non-negotiables produced. Shit unravels, Bank won't honor LC with documents presented.

b) Again, strict compliance even when previously honored. c) Problem with decision is remand to see if previous honors = estoppel. DB SAY BADBADBAD.

7. Fraud Issues

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a) When can Bank muck around in underlying transaction and make decisions about honoring Letter of Credit. Generally, "independence principle" says the existence of breach or nonconformity of the underlying goods is irrelevant, and obligation of Bank is independent.

b) The fraud at issue is fraud in the documents themselves.1) Example – Letter of Credit requires document 's with X's signature certifying that no delivery

happened. If you forge X's signature to document and present it, then Bank should not honor it.

2) But that is not looking at underlying transaction.c) Dynamics Corp of America

1) Seller DCA issues standby letter of credit to buyer India to give them extra security of performance. Letter issued with each delivery of goods/training. Requires Indian certification that DCA did not perform as required under K.

(A) Unusual to have LC going this way.2) Things go bad, India seeks to recover payments under LC, presents conforming documents.

No clear fraud.3) Court refuses—but problem is they look behind the documents to the underlying transaction.

Maybe itself not a huge problem, but K says go to India to fight over this. d) 5-109 allows Court not to honor if materially fraudulent. Example, invoice showing 1000 barrels

delivered but only 5 actually delivered is used in UCC.1) Sztejn – Paradigmatic LC dishonor case. Seller put garbage instead of goods in delivery. Bill

of lading said "goods" – underlying txn totally fraudulent. Doc's cannot comply. e) E&H Partners

1) Standby letter of credit. Involves a notification deadline, and messy documentation (DB – LC can't require actual notice, but must require some document of notice).

2) Court reads ambiguities in LC against bank in favor of beneficiary. 3) dumb case – LC's not meant for this kind of transaction?

IV. Chapter III – Agency Relations, Payment Mechanisms, and Risk AllocationA. Apparent Agency

1. Overview of Agencya) Agency has a set of default rules governing Principle/Agent relationship, and can be altered by

Contract1) Agent has fiduciary duty to P2) A must act as reasonable person acting on own account would behave.3) Creation of agency need not be formal. Any act that gives reasonable person reasonable sense

that P has designated you Agent.b) 3d party concerns – who takes fall when A misbehaves and goes to Rio

1) Scope of inherent agency powers – If you authorize Agent to perform a proper act, also authorizing A to act IMPROPERLY.

2) Can also be bound if person does illegally something within general power granted. 2. Apparent Agency – misleading name. More of "agency by estoppel"

a) Principal's behavior is such that he is stopped from denying agency. Principal has acted towards apparent agent such that 3d parties reasonably believe AA is agent. Even if principal and agent both know he isn't agent.

b) Example – P gives painting to X to show, but NOT to sell. Buyer comes to P about painting, P says, "deal with X, he's handling the painting." X sells to B. P loses to B over painting because he held X out as agent to B.

1) NOTE – this is not a 2-403(2) – unless X is a merchant of paintings.3. FDIC v Texas Bank of Garland.

a) Letter of Credit signed by bank's CEO. CEO didn't have actual authority to do this (?) – but court says CEO of bank signing would have apparent authority because the Bank's conduct in making him CEO would give rise to apparent agency in 3d party.

b) Usually CEO's have this authority, is what it really comes down to.c) Could fall under inherent powers, but fact that CEO apparently knew he had no power hurts that.

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B. Negotiable Intruments and the Holder in due course Concept1. Negotiable instrument embodies a promise to pay a fixed amount, on demand or at a specific time, to order or

bearer. 3-104. All of this stuff is in article III.2. Notes (promise to pay) and drafts/bills of exchange/checks (order to pay).3. Words of negotiability required – "pay to order . . . " or "pay to bearer"

a) Without words, not a negotiable instrument? – 4. No conditions on it

a) Cannot say – pay if he washes my car.b) But some things are okay.c) 3-106 – can refer to another writing, just not be governed by it. Can involve references to collaterald) 3-108 – acceleration allowed.

5. Sectionsa) 3-104: defines negotiable instrument requirementsb) 3-103: special definitions for negotiable instruments

1) good faith – not just empty head pure heart – must be honesty in fact & observance of reasonable commercial standards of fair dealing.

2) promise – not an acknowledgement of obligation like IOU.6. Holder in Due Course – holy grail of ND's

a) Miller v Race originates it. Departure from pure derivation in that thief in chain can pass along greater rights than he had. Fits with negotiation of documents of title as well.

b) 3-301 – person entitled to enforc an instrument: holder c) 3-302 – holder in due course

1) Even better than a holder. Takes instrument for2) Value – 3-303 (includes paying antecedent debts)3) in good faith – 3-103(a)(4) – includes in observance of reasonable commercial practices. A

sort of ordinary course of business.4) without notice of certain problems

d) Swift v Tysen – still reasonable on HDC concepts – antecedent debt idea. C. Forged Checks & Forged Indorsments

1. Sections for getting $ backa) 3-420 – conversion cause of actionb) 4-401 – can't deduct account unless properly authorized checkc) 3-417 & 4-208 : Presentment warranties (payor bank) - presentment 3-501d) 3-416 & 4-207 : transfer warranties (all intermediate transferees) – transfer 3-203

2. Forged Indorsements versus forged checksa) FI – ausser forger, first person dealing with forgerb) FC – final payment rule screws payor bank, otherwise first person dealing with forger

3. Comparative Neligence Stuff – Watcha) 3-406 – contributory negligence in forgery of signatures estopping from denying authenticity of

signaturesb) 3-405(b) – negligence in taking a check (payment, collection, for value) can put loss on that person

instead of employer of fraudulent employee.c) 3-404(d) – Payor, collecting, transferring banks/individuals who are negligent can take fall despite

imposter/fictitious payee rule.4. 3-405 – employee entrustment and forgery – employee handling check makes fraudulent endorsement. NOTE –

NOT unauthorized signing of check by person otherwise authority to do the check. That is std 3-402 agency stuff.

5. 3-401 – not liable on instrument unless you or agent signed it6. 3-404 – imposter and fictitious payee rules7. RUn through again

a) Liability 3-401 not liable for an instrument you didn't signb) Holder 1-201(20) possession plus to your orderc) Negotiation 3-201 transfer making new person a holderd) Indorsement 3-205 to make a new person a holder on an order instrument requires an indorsement

in blank or special by the holder

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e) Enforce 3-301 Person entitled to enforce is the holderf) Txfr Warr 3-416 Transferor warrants entitled to enforce and all sig's validg) Prs Warr 3-417 Presentor warrants entitled to enforce (which includes indorsement sig's)

8. Resulta) Forged Check –

1) Indorsements are valid, and people txfr'g are entitled to enforce(A) Either its blank, or to indorser, or 404(b) makes the forged indorsement valid.

Thereafter all purchasers for value in good faith are HDC, can enforce instrument2) BUT only enforce against forger, not the forged person. 401 – liable only on own signature.3) No break in indorsements4) Violate transfer warranty, though, because not ALL signatures are valid5) DO NOT violate presentment warranty because entitled to enforce, only indorsements

warranted6) Conversion actions? Not really. Forged person gets credit. Only warranty actions

b) Forged Indorsement1) Conversions2) No holders – missing indorsement makes Thief, and everyone after him not a holder.3) Violates transfer and presentment warranties

9. Asymmetry in Negligence standardsa) 406 – negligence allowing forged signature estopps from denying the signature (can apply to drawer or

indorsement, I think) – with a balancing comparative negligence issueb) 405 – comparative negligence when paying/collecting bank doesn't exercise ordinary care in the forged

signature by employee contextc) 404(d) – comparative negligence when paying/collecting an instrument under fictitious payee,

imposter casesd) BUT, when a check is forged (or written by authorized bookkeeper for unlawful purposes) to cash/self

in the absence of any negligence then no comparative negligence possible.e) Result

1) A forger/bookkeeper makes check to cash/self, negotiates. HOLDER WINS always2) A forger/bookkeeper makes check to fictitious person, etc. HOLDER wins but comparative

fault!!3) Forger/bookkeeper makes check to anyone based on negligence of drawer, comparative

negligence.D. Electronic Wire Transfers

1. 4A covers this area. Much analogy to check forgerya) 4A-207 – payment order need only refer to an account number, and bank can rely on that account

number notwithstanding a misdescription of name. b) 4A-205: restitution to amount of law of mistake and restitution.c) Necessary with automated system, values finality over precision.

2. Bradford a) F buying gold from C. C's bank is TAb) F "forges" wire transfer authorization for account of B, at bank BT, ordering transfer to account

number of C at TA. Put's R's name with account #, though, to make it look like just rearranging $$.c) F gets gold, gone. C gets $ in account at TA, R is out $. R gets credited $ back (unauthorized txfr).

Can BT get $ back from TAd) Court chooses finality, won't apply and comparative negligence. Reliance on account #'s okay. Loss

allocatede) 4A-207 supports this result.

3. Credit Lyonnais v Kovala) Hometowning a foreign bank. Koval has account at BCCI, swiss bank that goes under. Swiss FDIC

(DPS) sets up insurance payoffs for portions of accounts to holders, including Koval. Insured to amount 14K, arranges to wire $ to his account from its bank, CL. CL does txfr 2x, though.

b) Can CL recover the mistakenly sent money?c) 4A-205: restitution to amount of law of mistake and restitution.d) Two mistake regimes

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1) Mistake of Fact – mistake is mistake; gib mir meinen Geld.2) Discharge of Value – a creditor receiving $ in discharge of debt is under duty to make

restitution even if benefit is mistake, so long as(A) transferee made no misrepresentation(B) Transferee had no notice of mistake

e) Two problem1) Debt was to BCCI, not to DPS. DPS was insurer, and only owed 14K to K. So no discharge

of debt.2) Didn't K have constructive notice. He knew he was supposed to get 14K, not 28K. It's like

getting extra change back at the drive through.f) Court hometowned the bank.

V. Chapter IV – Allocating Risk Between Buyer And SellerA. Duty to Inspect

1. Background Casesa) Stuart v Wilkins ("the case in Douglas")

1) Horse with windgalls sold. 2) Must be express warranty of soundness, or fraud in the seller, to maintain assumpsit.3) No implied warranty of soundness?4) DB – horses different: consumer transaction (finality significant), change condition rapidly

(want inspection time very short – see Miron)b) Parkinson v Lee (note, lower court judge overturns himself!)

1) L sold hops to P. Seller to L had watered them, either L nor P noticed till they rotted later.2) Court seems to be saying that both parties innocent, neither could have discovered problem,

so without an express warranty, buyer loses?3) Can an inspection call off any implied warranties? Maybe

(A) 2-316 allows for inspection to disclaim warranty for defects likely to be revealed.4) Real strangeness is that P cannot go after Clarke – no privity.5) Court respects finality above all – final payor of sorts6) But screws up symmetries by leaving bad guy out.

c) Gardner v Grey 1) Buying silk, gets a sample from seller. Stuff not like sample.2) Judge rejects sample based action—unless K expressly connects goods in sample to actual

goods.3) BUT – actual goods couldn't be inspected because en route. Implied term that goods meet

contract description, and without inspection must be warranted as "saleable in market under denomination mentioned in contract" NOT a particular quality and fitness warranty, though.

4) Might seem to provide an out for distinguishing Parkinson, but an inspection did no good! Latent defect.

5) SO, how is no inspection any different from inspection unlikely to determine the defect? Modern UCC doesn't distinguish.

d) Seixas v Woods 1) Seller/Consignee sells wood to Buyer. Both think its brazilleto, instead is peachum (less

valuable). Neither at fault, both experts, both with opportunity to determine quality. Court sides with seller

2) Again, finality in a transaction2. Note, though – despite cases

a) Manufacturers always provided implied warranty of merchantabilityb) Also a warranty of fitness for particular purpose. Basically, you ask for something to do X, and if sold

item cannot do X, you have actionc) Makes the duty to inspect background one of finality in circumstances where no promises and parties

have opportunities to find flaws.3. Miron v Yonkers

a) Horse auction (Red Carpet). No warranties of soundness or condition unless expressly stated. Auctioneer says "as sound, as gutty as you'll find." F buys. 24 hours later, discovers broken leg.

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1) Not warranting win races, but surely means can race. No broken leg. b) Background – 2-314: implied warranty of merchantability. pass withtout objection in the trade.c) So, obviously was some express warranty that not broken leg. And there was likely a warranty of

merchantability that it could pass as race horse. And determining time is fall of gavel.1) Problem is, no one can know exactly what condition was at time of gavel falling. So question

is who bears burden of proving condition. That person will lose.d) Path of Code (This case gets to 606 – and 24 hours too long, so accepted, game over)

1) 2-607(4) – if you accept, the burden falls on buyer, and (2) acceptance incompatible with rejection

2) 2-606 – acceptance when(A) buyer says he accepts(B) buyer fails to make effective rejection within time of reasonable opportunity to

inspect (HERE'S WHERE ALL THE GOOD STUFF IS)(C) Act's inconsistent with seller's ownership.

3) 2-602(1) – rejection must be within a reasonable time after delivery/tender(A) Note – in both acceptance and rejection, there is a reasonable time within which

rejection can occur, and after which acceptance simply happened.(B) Llewelyn likes this – context sensitive. DB – horse changes quickly, and 24 hours is

too long to be reasonable rejection. 4) 2-608 – Revocation of acceptance when nonconformity substantially impairs value

(A) No longer perfect tender(B) Requires some kind of reliance or difficulty of discovery – neither present in Miron.

4. General Foodsa) Contaminated dried milk. 9 lots sent by VL, one contaminated, rejected. GF tests remaining lots to

what it thought was 95% accuracy. (Given background contamination rate of 1%, test would give actual contamination possibility of 5% of 1% roughly.) GF didn't know that lots were not independent, because of lies from VL about cleaning machines between uses.

b) Milk remaining was contaminated, got into downstream chocolate, huge liability. Sues VL on warranty, loses under "incurred risk" doctrine –IN tort law applied to K here. (DB – badbadbad)

c) Similar to Parkinson v Lee – latent defectd) sd

1) Incurred risk implies GF knew that there was a higher than normal risk. But clearly not, additional testing reduced risk. Only result is that any time dealing with person who fucked up before makes risk higher, regardless of precautions.

2) This is a patent defect doctrine – you see a risk and go on. GF actually tried to see risk, found none under good tests, went on.

(A) The heightened risk came from VL's deliberate lies! Why is GF responsible for that?e) How to analyze originally

1) UCC not tort. Accepted milk2) Revoke acceptance under 608 – may not be necessary3) 2-316 – no exclusion of warranty for latent defects4) violates 2-314 implied warranty.5) Clear breach – puts us in 714,715 damages, reasonable actions by GF, Δs flowing from

breach6) GF should get $ for milk, and Δs suffered by downstream chocolate sellers

(A) Might wonder about last test when results not waited for. Goes to reasonableness of GF's actions.

B. Warranties Express and Implied1. Statutory Sections

a) 2-312: Warranty of Titleb) 2-313: Express warranty – representations part of basis of bargainc) 2-314: Merchantability- Goods pass without objection in trade (exclusions in 316), fit for ordinary used) 2-315: Fitness for Particular Purpose – Seller knows buyer's purpose, and Buyer relies on Seller's

superior skill or expertise to get right stuff.e) 2-316: Exclusion of warranty – only implied, not applicable to latent stuff.

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2. Two Visionsa) Llewelyn: Norms. Create background rule from trade norms, ordinary course of trade stuff

1) Merchantability is a Llewelyn rule.b) Story: Rules. Clear rules, simple procedures, no inquiry into "ordinary course." Parties can K around

that.c) Don't confuse fraud with warranty – if Seller knows shit is bad, he loses. d) Basis of bargain = let jury decide.

3. Casesa) Interco – catalog description = express warranty

1) Floor Covering Case2) Catalog saying "will absorb considerable flex without cracking" is part of basis of bargain =

express warranty under 2-313(1)(b)(A) Vague terms, fact laden, jury said not breached, won't overturn.

3) Does P have to read catalog to get warranty?(A) Court seems to say yes, (B) DB say stupid. Not about reliance, about binding D to its representations.

4) Damages?(A) Expectation, but duty to mitigate perhaps.

b) Ingram River – 314, 314, and screwy court logic.1) Specialty Barges designed by D, they suck. Wwarranty problems?2) Express warranties of D's specifications displaced warranties of merchantability. Left fitness

warranty.3) Counter to court – fitness is a higher warranty than merchantability, which comes as matter of

course with sale. It is based on the relationship between merchant and buyer – where relying on higher skills for known particular purpose. Not about WHERE you buy stuff.

4) Additional note – Express warranties should be cumulative, and only exclude 314 where incompatible and intent of parties shows express should trump

(A) Howard Hughes'ian request for something that does the opposite of its ordinary purpose in trade.

c) CPC Int'l v Techni-Chem1) Warranty and Remedy Case2) CPC bought specialized machines from TC, never worked right, both parties worked hard to

make them work right. 15 mos. Then CPC gave up – letter revoking acceptance and asking for full purchase price. CPC keeps using machines in meantime.

3) Breach of Warranty Claim(A) Warranty guaranteed certain production levels with certain feed parameters.

Everyone knew it wouldn't meet levels, but CPC never actually tried it. Whose responsibility was it to ensure compliance? Must CPC actually try and fail, or must TC provide a system capable of meeting warranty?

(B) Court looks at parol evidence – TC spent lots of time trying to fix machine, CPC didn't pay for that time. And CPC withheld a 10% retainer until startup done.

(C) Court finds that evidence that TC had to provide working machine(D) Problem – incentive for TC to drop machine and run. Warranty claim stronger if

they don't give a shit about helping the customer get things going. Likely conduct same under either theory of the warranty.

4) Revocation(A) 2-608 allows revocation. Must occur within a reasonable time.(B) Again, compare with Miron – 24 hours for a horse, 15 mos for a fructose

fractionater. And cannot get to revocation in Miron because of failure to inspect and find nonconformity.

(C) Court finds reasonable given efforts to remediate.5) Damages

(A) Revocation, like rejection, means B can send goods back and recover any purchase price paid along with incidental and reasonably foreseeable consequential damages (2-602, 2-711, 2-714,715, and more?)

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(B) If CPC cannot revoke, then it has accepted, and even if it can prove breach announced within reasonable time (2-607(3)(A)) it will be unhappy because the expectation damages on such a specialized machine will undercompensate it. In a 714 world instead of 711 world.

(C) Systematically under explained case. Bad Baird.d) LS Heath v AT&T

1) More remedy stuff.2) blah

C. Risk of Loss1. 2-509 covers risk of loss. 2-510 covers risk of loss when there is breach. It's really all about who has to pay for

the dead horse. These are case where parties have not already agreed to allocate risk, like with FOB and so on. Because seller always has risk before K, the question is, when does the risk pass to the buyer

a) § 2-5091) First, all this is default and can be overridden by agreement to the contrary. Part (4) says this.2) Generic rule is in part (3). Risk passes to buyer when

(A) Receipt of goods, if Seller = merchant(B) Tender of Delivery, if Seller is NOT a merchant.

(1) Merchant. 2-104(1) – Person who (a) deals in goods of the kind; or(b) by occupation holds self out as having knowledge or skill

peculiar to goods at issue in transaction; or(c) to whom such knowledge/skill may be attributed by employment

of agent having such skill.(2) Tender of Delivery. 2-503 – putting and holding goods at buyer's

disposition, and notifying buyer to enable him to take delivery.(3) Receipt of Goods. 2-103 – receipt is taking physical possession.

3) Part (2) If goods are held by bailee for delivery without being moved, risk passes to buyer(A) on his receipt of document of title to goods; or(B) on acknowledgement by bailee of buyer's right to possession of goods; or(C) blah blah extra one.

4) Part (1) if goods are delivered by a carrier, (A) if not required to deliver at particular location, risk passes when goods delivered to

Carrier(B) if required to deliver at particular destination, risk passes when goods duly tendered

there to buyer by carrier, enabling delivery.(C) 2-319: FOB term overrides this

(1) Sync's with this stuff, though. (2) FOB Seller's plant = seller bears risk till put in hands of carrier(3) FOB "destination" = seller bears risk till carrier tender's delivery to buyer at

destination.b) Pissing and moaning over the dead horse is what is a merchant.

1) "dealing in goods of kind" is fuzzy Llewelynian stuff. c) Pissing and moaning over seller storing stuff is what makes him a bailee.

1) Seller's often hold stuff for buyer. Shouldn't get them out of (3)2) But when separate contract for storage, more like bailee3) Or, as in Commonwealth, when storage is ostensibly part of a bargain (storing at own cost),

then also more bailee like. d) § 2-510 Effect of Breach on Risk of Loss

Breach can include breach of contract or breach of warranty. Whatever gets you non-conformity. 1) If nonconformity gives rise to right of rejection, risk remains on seller until cure or acceptance2) When rightful revocation takes place – buyer shifts risk of loss to seller (to extent of

deficiency in buyer's insurance coverage for loss)3) Where buyer repudiates or is in breach before risk passes to him, seller shifts risk of loss to

buyer for commercially reasonable time (to extent of seller's insurance deficiency).(A)

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2. 509 triggered by possession, 510 by "acceptance"a) Helps in carrier situations. Risk passes to buyer generally, and goods destroyed in transit.

1) If goods conforming, in 509, B takes fall2) If goods nonconforming, in 510, and need B acceptance. Which we don't have because B

hasn't had any time to inspect goods and accept or fail to reject. Which means loss for the nonconforming goods still on S, like we would want.

3. Installment Contracts and the Great Remedy Asymmetry that Bothers Bairda) 2-612(b) – buyer may reject any nonconforming installment if the nonconformity substantially

impairs value of installment AND cannot be cured (or is defect in documents). If value of whole K not substantially impaired, and seller gives adequate assurances of cure, buyer must accept installment.

1) Substantially limits buyer's rights, sort of.2) Departure from perfect tender rule.

b) Note – sync with 5101) Hypo – 3d of 10 barges carrying #2 corn from K has #3 corn. Seller notifies, apologizes, says

dry it at my expense and I'll send #1 corn in next barge. In transit, barge sinks in a hurricane.2) 612 – must accept corn, cannot reject.3) 510 – even though goods nonconforming, risk transferred to buyer because nonconformity

doesn't give rise to right of rejection. Key language.4) So if Buyer has prepaid, no right to recover loss on this beyond expectation damages.

c) BUT – what if buyer had not pre-paid. Seller's action is action on the price 2-709. 1) For symmetry, shouldn't matter. Seller should recover2) But, 709 notes recovery for "conforming goods lost" no recovery.

d) Solution – interpret "conforming" to harmonize with "right of rejection." Solves problem.4. Remedy note

a) 2-711: Buyer remedies when goods rejected, revokedb) 2-714 – Buyer Δs for breach when goods accepted.c) 2-709 – Seller action on price.

5. Commonwealth a) Cal Gas Petrosol Commonwealthb) Bailee case, passed all the way to Commonwealth

D. Breach and Its Consequences1. Alaska Pacific

a) ALPAC selling logs to Eagon – K for delivery to Asia. Price drops precipitously, makes K bad for E. A thinks E will breach, seeks assurances. E hems and haws. A, believing E won't perform, doesn't deliver. E claims breach, suspends its performance. Ugh

b) Moral – we live in a contingent performance world. Once other party breaches, you are excused from performance. Bad for A in this K

c) Solution1) 609 assurances before performance. Not so greata.2) Letters of Credit. A could require one so it is guaranteed payment.

2. Lumley v Wagner and Lumley v Gyea) Seminal negative covenant case and Tortious Interference with K case.b) Tortious Interference with Prospective K – requires action underlying be a tort independently.c) Opera Singer Wagner K'd to work with Lumley exclusively, then enticed to work for Gye as well.d) Gye found liable for tortious interference with Ke) Wagner negative covenant enforced not to work anywhere else other than for Lumley.

3. Texaco v Pennzoil a) P buying Getty for its oil, T makes higher offer. TIK suitb) Parties line up with Lumley Cases

1) Getty Trust is Wagner2) Pennzoil is Lumley3) Texaco is Gye4) And Texaco lost, big ass judgment

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c) Point? By not appearing in the Del suit, T made it procedurally possible for P to dismiss Del suit and bring suit to Texas, where Texaco got screwed.

d) Damages1) Pennzoil got a theory where awarded cost of acquiring new wells equal to Getty's Oil.

Basically a replacement cost.2) T would like a difference in K price and the market price (T's offer, likely, as floor)3) P's position is ignoring that it would have cost P to buy it anyway – asking T to buy Getty for

it. 4. Oxxford

a) Facts1) Oxxford uses Expeditors to import fabrics. E takes possessory lien in fabrics to insure

payment. O owes E lots of cash. O restructures in foreclosure with creditor Heller, putting O's assets in new corp, XX, shafts E

2) XX renews relationship with E, E starts importing, holds fabric claiming lien for O's debts. 3) XX in trouble with timing, needed fabrics. Court refused TRO (not sure why). Made deal

with E, paying $$ to release liens.4) Now, XX suing E for the $$ back – claiming fraud, duress, recission.

b) Paradigms1) 1 – XX is totally different company. Bought assets. Debts still in O, no connection.2) 2 – XX is successor company, and identity of interest with O. XX owes on O's debts. Can

get with fraudulent conveyance and de facto merger doctrine.c) Watch – Article VI Bulk Sales liability. May take debts with assets.d) Court

1) Fraud – requires knowledge gap. Must be fooling someone. Not here2) Duress – legal remedy. Appeal lack of TRO interlocutory.

(A) Implies duress equals no legal remedy.(B) Harsh doctrine. Isn't there always a legal remedy. But it takes a while, insensitive to

needs.

VI. Chapter V – Interpreting the ContractA. Bloor v Falstaff

1. Best efforts clause, beer brand. 2. Best Efforts. 2-306 output section analogous. Essence, market the beer like it were your own and you didn't

have to pay royalties. 3. Falstaff says it did. What's difference?

a) Specific clause says "best efforts to achieve high volume."b) Best efforts relates to volume. This may hurt F.

B. Eastern Airlines v Gulf Oil .1. G tried to get out of K claiming 2-615 frustration. Court not buying it.2. Contract clear, everyone knew of price regulation, role of Platts3. Gulf made bad deal, economics went sour4. Real frustration or impracticability would be Platt's going insane and no longer posting any relevant price, but

its own fantasy price. Or if Gulf could show Platts was an afterthought to peg the real indicator, market price. C. Goodman v Raytheon

1. Noncompete clause in sale of division.2. ?

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