2-719 (finish) and Seller's Remedies
Prof. Bill Long 4/5/05
Chatlos Systems; Seller's Price Remedy (2-709)
The purpose of this essay is to review the flow of Chatlos and then turn to the two cases illustrating the seller's remedy for the price of the goods.
Even though Chatlos (p.498) is only briefly discussed, it presents an important issue that was only on the periphery of Beal. That issue is whether a limitation of consequential damages clause which is also in the contract for sale (with a limitation of warranty clause) will be honored if the exclusive remedy provision fails of its essential purpose. In "numbers" terminology, the issue may be thus stated: If a 2-719(1) remedy fails, under the language of 2-719(2), and if there is a 2-719(3) limitation in the contract, will it be honored, or will the last clause of 2-719(2) trump the attempted 2-719(3) limitation? With me so far?
The contract with Chatlos had a warranty and a limitation of consequential damages clause. The warranty was limited to "correcting errors in any program or routine within sixty days" while the computer was warranted against defects for 12 months after delivery. After 18 months the computer still wasn't working properly. The trial judge held that the remedy had failed of its essential purpose and awarded more than $63,000 in consequential damages, holding that the failure of essential purpose also knocked out the consequential damages limitation.
On Appeal. The Third Circuit reversed. Though recognizing the split in authority on the issue (p.499), the court held that "the consequential damage disclaimer [is] an independent provision, valid unless unconscionable." Therefore, the limitation of repair and a consequential damages exclusion were two independent ways of attempting to limit recovery for breach of warranty. The legal question that was important is whether the preclusion of consequential damages should be honored in this case. That is, would such a limitation be unconscionable in this case? The court then reviewed the kind of damage presented in this case and the willingness of defendant (NCR) to try to correct the problems in an appropriate time. It concluded that since the seller didn't act unreasonably or in bad faith, it had not acted unconscionably toward Chatlos. Though the case was remanded for a damages calculation (because 2-714(2) damages would be available), the court held that no consequentials would be avaialbe to Chatlos.
Seller's remedies when a buyer has breached by repudiating or not accepting delivery or accepting and not paying in a timely fashion are listed in 2-701 to 2-710. The "index" provision is 2-703, which then tells us how the other damage provisions are to be understood. The four important sections, beyond 2-703, for us to be aware of at this point are 2-706, 2-708, 2-709, and 2-710. The tension between 706 and 708 will be explored in Tesoro, which I will discuss in the next essay. The remainder of this essay will explore 2-709, an action for the price. You should realize, too, that 2-710, which is the seller's remedy corresponding to the buyer's remedy in 2-715, only permits a seller to recover incidental (and not consequential) damages. If the seller can get his/her price or what s/he is owed under other sections, this seems to suffice.
Action for the Price
The Industrial Molded Plastics (p.503) and Bloom (p.506) cases focus on 2-709. 2-709 provides that when a buyer fails to pay the price as it becomes due, the seller may recover the price of goods accepted (2-709(1)(a)) or goods identified to the contract if the seller is unable to sell them at a reasonable price after expending reasonable efforts to resell them (2-709(1)(b)). Cmts 2,3 and 4 are helpful in explaining the scope of this provision.
Industrial is an interesting case in which the appellate court reversed the lower court and awarded an action for the price when the lower court had only awarded the plaintiff lost profits damages. The difference here was $29,000. Industrial manufactured plastic clothing clips, among other things, and entered into a contract with Gross for the production of 5,000,000 such clips. The personal and familial dynamics among the Gross's is fascinating, but the legal point is whether the goods were ever properly rejected by Gross. The case says, "by the end of 1971, production was completed and Industrial was warehousing 4,228,000 clips." The court's statement of law (p.505) shows its thinking. The crucial question was whether the goods were merely identified or whether they were also accepted by the buyer. The seller tendered the goods in accordance with 2-507(1); thus the onus was on Gross either to accept or reject. The court held that Gross accepted under 2-606(1)(b) by not making a timely rejection of them. When this has happened, the provision in 2-709(1) is triggered allowing recovery of the price. Hence, instead of a 2-708(2) analysis, which was probably behind the lower court's holding, the court awarded Industrial its price.
Bloom is a very brief case, but it also shows how various sections of the Code interrelate in leading the court to find that acceptance, under 2-606(1)(b), had taken place. Goods were presented at a purchaser's house. He was never there to accept them. So, Judge Cedarbaum went through the tender provisions (2-507(1), as well as 2-503, 2-513) and the acceptance/rejection provisions of the 600 series before holding that seller's action in offering a reasonable place and time for inspection meant that the goods had been accepted, because not timely rejected. Thus, the action for the price, and not simply for damages (2-708), was triggered.
The next essay explores the damages provisions of 2-708 and 2-706.
Copyright © 2004-2007 William R. Long